Quarterly Report (10-q)

Date : 10/31/2018 @ 6:06PM
Source : Edgar (US Regulatory)
Stock : Cleco Corp. (CNL)
Quote : 55.36  0.0 (0.00%) @ 12:00AM
Cleco share price Chart

Quarterly Report (10-q)

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
Or
¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
Commission file number 1-15759
CLECO CORPORATE HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-1445282
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 
 
 
Commission file number 1-05663
CLECO POWER LLC
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-0244480
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 
Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x  No ¨
 
Indicate by check mark whether the Registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files). Yes x  No ¨
 
Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filer ¨      Accelerated filer ¨      Non-accelerated filer x      Smaller reporting company ¨      Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filer ¨      Accelerated filer ¨      Non-accelerated filer x      Smaller reporting company ¨      Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act)  Yes ¨     No x

Cleco Corporate Holdings LLC has no common stock outstanding. All of the outstanding equity of Cleco Corporate Holdings LLC is held by Cleco Group LLC, a wholly owned subsidiary of Cleco Partners L.P.

Cleco Power LLC, a wholly owned subsidiary of Cleco Corporate Holdings LLC, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 



CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

This Combined Quarterly Report on Form 10-Q is separately filed by Cleco Corporate Holdings LLC and Cleco Power LLC. Information in this filing relating to Cleco Power LLC is filed by Cleco Corporate Holdings LLC and separately by Cleco Power LLC on its own behalf. Cleco Power LLC makes no representation as to information relating to Cleco Corporate Holdings LLC (except as it may relate to Cleco Power LLC) or any other affiliate or subsidiary of Cleco Corporate Holdings LLC.
This report should be read in its entirety as it pertains to each respective Registrant. The Notes to the Unaudited Condensed Consolidated Financial Statements are combined.


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CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

GLOSSARY OF TERMS
Abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below.
ABBREVIATION OR ACRONYM
DEFINITION
401(k) Plan
Cleco Power 401(k) Savings and Investment Plan
ABR
Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or LIBOR plus 1.0%
ADIT
Accumulated Deferred Income Tax
Acadia
Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1
Cleco Power’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2
Entergy Louisiana’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power 
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
Amended Lignite Mining Agreement
Amended and restated lignite mining agreement effective December 29, 2009
AMI
Advanced Metering Infrastructure
AOCI
Accumulated Other Comprehensive Income (Loss)
ARO
Asset Retirement Obligation
ARRA
American Recovery and Reinvestment Act of 2009
Attala
Attala Transmission LLC, a wholly owned subsidiary of Cleco Holdings
BCI
British Columbia Investment Management Corporation, formerly bcIMC
CCR
Coal combustion by-products or residual
CEO
Chief Executive Officer
CFO
Chief Financial Officer
Cleco
Cleco Holdings and its subsidiaries
Cleco Cajun
Cleco Cajun LLC, formerly Cleco Energy LLC, a wholly owned subsidiary of Cleco Holdings
Cleco Corporation
Pre-merger entity that was converted to a limited liability company and changed its name to Cleco Corporate Holdings LLC on April 13, 2016
Cleco Group
Cleco Group LLC, a wholly owned subsidiary of Cleco Partners
Cleco Holdings
Cleco Corporate Holdings LLC, a wholly owned subsidiary of Cleco Group
Cleco Katrina/Rita
Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Cleco Partners
Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by MIRA, BCI, John Hancock Financial, and other infrastructure investors
Cleco Power
Cleco Power LLC and its subsidiaries, a wholly owned subsidiary of Cleco Holdings
Cottonwood Energy
Cottonwood Energy Company LP, an indirect subsidiary of NRG South Central. Upon closing of the Purchase and Sale Agreement, Cottonwood Energy will become an indirect subsidiary of Cleco Holdings.
Coughlin
Cleco Power’s 775-MW, combined-cycle power plant located in St. Landry, Louisiana
DHLC
Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands
Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings
Dolet Hills
A facility consisting of Dolet Hills Power Station, the Dolet Hills mine, and the Oxbow mine
Dolet Hills Power Station
A 650-MW generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of Dolet Hills.
EAC
Environmental Adjustment Clause
EBITDA
Earnings before interest, taxes, depreciation, and amortization
Entergy Gulf States
Entergy Gulf States Louisiana, LLC
Entergy Louisiana
Entergy Louisiana, LLC
EPA
U.S. Environmental Protection Agency
ERO
Electric Reliability Organization
Evangeline
Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC
Fuel Adjustment Clause
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fitch
Fitch Ratings, a credit rating agency
FTR
Financial Transmission Right
FRP
Formula Rate Plan
GAAP
Generally Accepted Accounting Principles in the U.S.
IRS
Internal Revenue Service
kWh
Kilowatt-hour(s)
LIBOR
London Interbank Offered Rate
LMP
Locational Marginal Price
LPSC
Louisiana Public Service Commission
Madison Unit 3
A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana
MATS
Mercury and Air Toxics Standards

3


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

ABBREVIATION OR ACRONYM
DEFINITION
Merger
Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016
Merger Agreement
Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation
Merger Commitments
Cleco Partners’, Cleco Group’s, Cleco Holdings’, and Cleco Power’s 77 commitments to the LPSC as defined in Docket No. U-33434 of which a performance report must be filed annually by October 31 for the 12 months ending June 30
Merger Sub
Cleco MergerSub Inc., previously an indirect wholly owned subsidiary of Cleco Partners that was merged with and into Cleco Corporation, with Cleco Corporation surviving the Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings
Midstream
Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Holdings
MIRA
Macquarie Infrastructure and Real Assets Inc.
MISO
Midcontinent Independent System Operator, Inc.
Moody’s
Moody’s Investors Service, a credit rating agency
MW
Megawatt(s)
MWh
Megawatt-hour(s)
NERC
North American Electric Reliability Corporation
NMTC
New Markets Tax Credit
NMTC Fund
USB NMTC Fund 2008-1 LLC was formed to invest in projects qualifying for New Markets Tax Credits and Solar Projects
Not Meaningful
A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000%
NRG Energy
NRG Energy, Inc.
NRG South Central
NRG South Central Generating LLC
Other Benefits
Includes medical, dental, vision, and life insurance for Cleco’s retirees
Oxbow
Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO
PCB
Polychlorinated biphenyl
Perryville
Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings
Purchase and Sale Agreement
Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, NRG South Central, and Cleco Energy LLC (now Cleco Cajun)
RE
Regional Entity
Registrant(s)
Cleco Holdings and/or Cleco Power
ROE
Return on Equity
RTO
Regional Transmission Organization
S&P
Standard & Poor’s Ratings Services, a credit rating agency
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
SPP
Southwest Power Pool
SPP RE
Southwest Power Pool Regional Entity
SSR
System Support Resource
START
Strategic Alignment and Real-Time Transformation
Support Group
Cleco Support Group LLC, a wholly owned subsidiary of Cleco Holdings
SWEPCO
Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc.
TCJA
Tax Cuts and Jobs Act of 2017
Teche Unit 3
A 359-MW generating unit at Cleco Power’s plant site in Baldwin, Louisiana
VaR
Value-at-Risk


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CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Combined Quarterly Report on Form 10-Q includes “forward-looking statements” about future events, circumstances, and results. All statements other than statements of historical fact included in this Combined Quarterly Report are forward-looking statements, including, without limitation, future capital expenditures; business strategies; goals, beliefs, plans, and objectives; competitive strengths; market developments; development and operation of facilities; growth in sales volume; meeting capacity requirements; expansion of service to existing customers and service to new customers; future environmental regulations and remediation liabilities; electric customer credits; and the anticipated outcome of various regulatory and legal proceedings. Although the Registrants believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from the Registrants’ expectations. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements, the following list identifies some of the factors that could cause the Registrants’ actual results to differ materially from those contemplated in any of the Registrants’ forward-looking statements:

the effects of the Merger on Cleco Holdings’ and Cleco Power’s business relationships, operating results, and business generally,
regulatory factors, such as changes in rate-setting practices or policies; the unpredictability in political actions of governmental regulatory bodies; adverse regulatory ratemaking actions; recovery of investments made under traditional regulation; recovery of storm restoration costs; the frequency, timing, and amount of rate increases or decreases; the impact that rate cases or requests for FRP extensions may have on operating decisions of Cleco Power; the results of periodic NERC, LPSC, and FERC audits; participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to additional suppliers; and compliance with the ERO reliability standards for bulk power systems by Cleco Power,
the ability to recover fuel costs through the FAC,
the ability to close the proposed transaction with NRG Energy and NRG South Central, including the related financings,
the ability to successfully integrate the assets to be acquired in the proposed transaction with NRG Energy and NRG South Central, if completed, into Cleco’s operations,
factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other storms or severe drought conditions; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs or fuel supply costs, shortages, transportation problems, or other developments; fuel mix of Cleco’s generating facilities; decreased customer
 
load; environmental incidents and compliance costs; and power transmission system constraints,
reliance on third parties for determination of Cleco Power’s commitments and obligations to markets for generation resources and reliance on third-party transmission services,
global and domestic economic conditions, including the ability of customers to continue paying their utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates, 
political uncertainty in the U.S., including the ongoing debates related to the U.S. federal government budget and debt ceiling, and volatility and disruption in global capital and credit markets,
the ability of the lignite reserves at Dolet Hills to provide sufficient fuel to the Dolet Hills Power Station until at least 2036,
Cleco Power’s ability to maintain its right to sell wholesale power at market-based rates within its control area, 
Cleco Power’s dependence on energy from sources other than its facilities and future sources of such additional energy,
reliability of Cleco Power’s generating facilities,
the imposition of energy efficiency requirements or increased conservation efforts of customers,
the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of certain generating units, increase costs, or reduce customer demand for electricity,
the ability to recover costs of compliance with environmental laws and regulations, including those through the EAC,
financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight, 
changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,
legal, environmental, and regulatory delays and other obstacles associated with acquisitions (including the NRG South Central acquisition), reorganizations, investments in joint ventures, or other capital projects,
costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,
the availability and use of alternative sources of energy and technologies, such as wind, solar, battery storage, and distributed generation,
changes in federal, state, or local laws (including the TCJA and other tax laws), changes in tax rates, disallowances of

5


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

tax positions, or changes in other regulating policies that may result in a change to tax benefits or expenses,
the restriction on the ability of Cleco Power to make distributions to Cleco Holdings in certain instances, as a result of the Merger Commitments,
Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations,
acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters,
credit ratings of Cleco Holdings and Cleco Power,
the ability to remain in compliance with debt covenants,
the availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and
employee workforce factors, including aging workforce, changes in management, and inadequate resources.

 
For more discussion of these factors and other factors that could cause actual results to differ materially from those contemplated in the Registrants’ forward-looking statements, see Part II, Item 1A, “Risk Factors” in the Registrant’s Combined Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and in Part I, Item 1A, “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2017 .
All subsequent written and oral forward-looking statements attributable to the Registrants, or persons acting on their behalf, are expressly qualified in their entirety by the factors identified above.
Any forward-looking statement is considered only as of the date of this Combined Quarterly Report on Form 10-Q and, except as required by law, the Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.


6


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

PART I — FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2017 . For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”

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CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
341,062

 
$
317,589

Other operations
20,186

 
21,282

Gross operating revenue
361,248


338,871

Electric customer credits
(2,992
)
 
(372
)
Operating revenue, net
358,256

 
338,499

Operating expenses
 
 
 
Fuel used for electric generation
130,987

 
103,217

Power purchased for utility customers
29,608

 
39,355

Other operations
37,395

 
25,464

Maintenance
18,302

 
18,031

Depreciation and amortization
43,763

 
42,228

Taxes other than income taxes
12,091

 
12,414

Total operating expenses
272,146

 
240,709

Operating income
86,110

 
97,790

Interest income
1,832

 
354

Allowance for equity funds used during construction
3,829

 
2,096

Other income
2,214

 
2,557

Other expense
(3,378
)
 
(3,977
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
33,072

 
31,110

Allowance for borrowed funds used during construction
(1,244
)
 
(648
)
Total interest charges
31,828

 
30,462

Income before income taxes
58,779

 
68,358

Federal and state income tax expense
11,419

 
23,054

Net income
$
47,360

 
$
45,304

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

8


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
47,360

 
$
45,304

Other comprehensive income (loss), net of tax
 

 
 
Postretirement benefits gain (loss) (net of tax expense of $26 in 2018 and tax benefit of $26 in 2017)
261

 
(44
)
Total other comprehensive income (loss), net of tax
261

 
(44
)
Comprehensive income, net of tax
$
47,621

 
$
45,260

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

9


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
FOR THE NINE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
897,486

 
$
839,080

Other operations
61,067

 
59,627

Gross operating revenue
958,553

 
898,707

Electric customer credits
(24,276
)
 
(1,045
)
Operating revenue, net
934,277

 
897,662

Operating expenses
 
 
 
Fuel used for electric generation
275,565

 
261,063

Power purchased for utility customers
132,921

 
114,675

Other operations
95,875

 
81,025

Maintenance
71,613

 
66,955

Depreciation and amortization
128,076

 
124,630

Taxes other than income taxes
35,674

 
36,790

Total operating expenses
739,724

 
685,138

Operating income
194,553

 
212,524

Interest income
4,043

 
1,046

Allowance for equity funds used during construction
9,416

 
4,446

Other income
3,195

 
4,402

Other expense
(10,306
)
 
(10,196
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
98,059

 
94,077

Allowance for borrowed funds used during construction
(3,165
)
 
(1,277
)
Total interest charges
94,894

 
92,800

Income before income taxes
106,007

 
119,422

Federal and state income tax expense
21,947

 
42,381

Net income
$
84,060

 
$
77,041

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

10


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE NINE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
84,060

 
$
77,041

Other comprehensive income (loss), net of tax
 
 
 
Postretirement benefits gain (loss) (net of tax expense of $128 in 2018 and tax benefit of $1,359 in 2017)
551

 
(2,175
)
Total other comprehensive income (loss), net of tax
551

 
(2,175
)
Comprehensive income, net of tax
$
84,611

 
$
74,866

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

11


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT SEPT. 30, 2018

 
AT DEC. 31, 2017

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
185,557

 
$
119,040

Restricted cash and cash equivalents
5,247

 
13,081

Customer accounts receivable (less allowance for doubtful accounts of $990 in 2018 and $1,457 in 2017)
80,531

 
60,117

Other accounts receivable
24,252

 
30,806

Unbilled revenue
42,366

 
36,398

Fuel inventory, at average cost
57,388

 
87,520

Materials and supplies, at average cost
87,471

 
85,404

Energy risk management assets
23,163

 
7,396

Accumulated deferred fuel
39,898

 
13,980

Cash surrender value of company-/trust-owned life insurance policies
85,751

 
83,117

Prepayments
5,907

 
9,050

Regulatory assets
20,327

 
24,670

Other current assets
561

 
1,146

Total current assets
658,419

 
571,725

Property, plant, and equipment
 
 
 
Property, plant, and equipment
3,711,105

 
3,594,525

Accumulated depreciation
(278,575
)
 
(192,348
)
Net property, plant, and equipment
3,432,530

 
3,402,177

Construction work in progress
284,417

 
186,629

Total property, plant, and equipment, net
3,716,947

 
3,588,806

Equity investment in investee
18,172

 
18,172

Goodwill
1,490,797

 
1,490,797

Restricted cash and cash equivalents
18,850

 
20,081

Regulatory assets
412,561

 
432,358

Intangible assets
91,782

 
114,850

Other deferred charges
54,307

 
41,593

Total assets
$
6,461,835

 
$
6,278,382

 
 
 
 
Liabilities and member’s equity
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Long-term debt due within one year
$
21,114

 
$
19,193

Accounts payable
150,941

 
147,562

Customer deposits
60,969

 
58,582

Provision for rate refund
26,923

 
4,206

Taxes payable, net
67,362

 
22,698

Interest accrued
40,927

 
14,703

Deferred compensation
11,987

 
12,132

Other current liabilities
32,240

 
21,278

Total current liabilities
412,463

 
300,354

Long-term liabilities and deferred credits
 

 
 

Accumulated deferred federal and state income taxes, net
625,331

 
614,812

Postretirement benefit obligations
244,811

 
242,135

Regulatory liabilities - deferred taxes, net
135,911

 
140,426

Restricted storm reserve
15,215

 
14,469

Other deferred credits
31,248

 
33,724

Total long-term liabilities and deferred credits
1,052,516

 
1,045,566

Long-term debt, net
2,876,388

 
2,836,105

Total liabilities
4,341,367

 
4,182,025

Commitments and contingencies (Note 12)


 


Member’s equity
 

 
 

Membership interest
2,069,376

 
2,069,376

Retained earnings
53,462

 
29,902

Accumulated other comprehensive loss
(2,370
)
 
(2,921
)
Total member’s equity
2,120,468

 
2,096,357

Total liabilities and member’s equity
$
6,461,835

 
$
6,278,382

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 

 
 


12


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
FOR THE NINE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating activities
 
 
 
Net income
$
84,060

 
$
77,041

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
140,887

 
140,433

Provision for doubtful accounts
323

 
2,694

Unearned compensation expense
4,112

 
2,809

Allowance for equity funds used during construction
(9,416
)
 
(4,446
)
Deferred income taxes
5,876

 
41,192

Deferred fuel costs
(32,903
)
 
4,231

Cash surrender value of company-/trust-owned life insurance
(2,635
)
 
(3,940
)
Changes in assets and liabilities
 
 
 
Accounts receivable
(25,487
)
 
(44,139
)
Unbilled revenue
(5,968
)
 
(4,643
)
Fuel inventory and materials and supplies
27,951

 
(6,885
)
Prepayments
2,446

 
5,509

Accounts payable
(139
)
 
(22,325
)
Customer deposits
10,272

 
9,317

Provision for merger commitments
(2,684
)
 
(9,244
)
Postretirement benefit obligations
3,355

 
3,789

Regulatory assets and liabilities, net
11,439

 
9,430

Other deferred accounts
(582
)
 
(6,546
)
Taxes accrued
43,308

 
22,233

Interest accrued
26,223

 
23,772

Other operating
4,728

 
6,607

Net cash provided by operating activities
285,166

 
246,889

Investing activities
 
 
 
Additions to property, plant, and equipment
(194,619
)
 
(185,609
)
Allowance for equity funds used during construction
9,416

 
4,446

Reimbursement for property loss
1,258

 
137

Issuance of note receivable
(16,800
)
 

Return of equity investment in tax credit fund
2,775

 
1,223

Other investing
934

 
460

Net cash used in investing activities
(197,036
)
 
(179,343
)
Financing activities
 
 
 
Proceeds from short-term debt, net

 
6,470

Draws on credit facilities

 
134,000

Payments on credit facilities

 
(134,000
)
Issuances of long-term debt
50,000

 

Repayment of long-term debt
(19,193
)
 
(17,896
)
Distributions to member
(60,500
)
 
(83,955
)
Other financing
(985
)
 
(2,188
)
Net cash used in financing activities
(30,678
)

(97,569
)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents
57,452


(30,023
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
152,202

(1)  
69,571

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
209,654

(2)  
$
39,548

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
67,158

 
$
64,555

Income taxes paid (refunded), net
$
272

 
$
(6
)
Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
54,294

 
$
13,083

Non-cash additions to property, plant, and equipment
$
643

 
$
3,015

Incurrence of capital lease obligation - barges
$
16,800

 
$

(1)  Includes cash and cash equivalents of $119,040, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,081.
(2)  Includes cash and cash equivalents of $185,557, current restricted cash and cash equivalents of $5,247, and non-current restricted cash and cash equivalents of $18,850.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

13


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)
MEMBERSHIP INTEREST

 
RETAINED EARNINGS

 
AOCI

 
TOTAL
MEMBER’S
EQUITY

Balances, Dec. 31, 2017
$
2,069,376

 
$
29,902

 
$
(2,921
)
 
$
2,096,357

Distributions to member

 
(60,500
)
 

 
(60,500
)
Net income

 
84,060

 

 
84,060

Other comprehensive income, net of tax

 

 
551

 
551

Balances, Sept. 30, 2018
$
2,069,376

 
$
53,462


$
(2,370
)

$
2,120,468

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

 
 

 
 


14


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Power
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco Power’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2017 . For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”


15


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
343,482

 
$
320,009

Other operations
20,186

 
20,768

Affiliate revenue
223

 
209

Gross operating revenue
363,891

 
340,986

Electric customer credits
(2,992
)
 
(372
)
Operating revenue, net
360,899

 
340,614

Operating expenses
 
 
 
Fuel used for electric generation
130,987

 
103,217

Power purchased for utility customers
29,608

 
39,355

Other operations
32,619

 
26,816

Maintenance
18,218

 
17,812

Depreciation and amortization
41,687

 
40,049

Taxes other than income taxes
11,717

 
12,008

Total operating expenses
264,836

 
239,257

Operating income
96,063

 
101,357

Interest income
1,606

 
332

Allowance for equity funds used during construction
3,829

 
2,096

Other income
678

 
1,463

Other expense
(2,929
)
 
(3,163
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
19,139

 
17,789

Allowance for borrowed funds used during construction
(1,244
)
 
(648
)
Total interest charges
17,895

 
17,141

Income before income taxes
81,352

 
84,944

Federal and state income tax expense
18,016

 
30,092

Net income
$
63,336

 
$
54,852

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 


16


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE THREE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
63,336

 
$
54,852

Other comprehensive income, net of tax
 

 
 

Postretirement benefits gain (net of tax expense of $110 in 2018 and $104 in 2017)
312

 
167

Amortization of interest rate derivatives to earnings (net of tax benefit of $26 in 2018 and tax expense of $33 in 2017)
112

 
53

Total other comprehensive income, net of tax
424

 
220

Comprehensive income, net of tax
$
63,760

 
$
55,072

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 


17


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE NINE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
904,746

 
$
847,417

Other operations
61,066

 
58,083

Affiliate revenue
651

 
649

Gross operating revenue
966,463

 
906,149

Electric customer credits
(24,276
)
 
(1,045
)
Operating revenue, net
942,187

 
905,104

Operating expenses
 
 


Fuel used for electric generation
275,565

 
261,063

Power purchased for utility customers
132,921

 
114,675

Other operations
86,736

 
84,732

Maintenance
71,434

 
66,496

Depreciation and amortization
121,796

 
118,280

Taxes other than income taxes
34,548

 
35,412

Total operating expenses
723,000

 
680,658

Operating income
219,187

 
224,446

Interest income
3,560

 
926

Allowance for equity funds used during construction
9,416

 
4,446

Other income
2,215

 
1,839

Other expense
(8,637
)
 
(7,554
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
56,823

 
53,931

Allowance for borrowed funds used during construction
(3,165
)
 
(1,277
)
Total interest charges
53,658

 
52,654

Income before income taxes
172,083

 
171,449

Federal and state income tax expense
39,724

 
63,010

Net income
$
132,359

 
$
108,439

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

18


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE NINE MONTHS ENDED SEPT 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
132,359

 
$
108,439

Other comprehensive income, net of tax
 
 
 
Postretirement benefits gain (loss) (net of tax expense of $287 in 2018 and tax benefit of $38 in 2017)
812

 
(60
)
Amortization of interest rate derivatives to earnings (net of tax expense of $19 in 2018 and $99 in 2017)
240

 
159

Total other comprehensive income, net of tax
1,052

 
99

Comprehensive income, net of tax
$
133,411

 
$
108,538

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

19


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT SEPT. 30, 2018

 
AT DEC. 31, 2017

Assets
 
 
 
Utility plant and equipment
 
 
 
Property, plant, and equipment
$
5,002,367

 
$
4,893,484

Accumulated depreciation
(1,786,148
)
 
(1,712,590
)
Net property, plant, and equipment
3,216,219

 
3,180,894

Construction work in progress
283,840

 
185,507

Total utility plant and equipment, net
3,500,059

 
3,366,401

Current assets
 
 
 
Cash and cash equivalents
59,376

 
69,816

Restricted cash and cash equivalents
5,247

 
13,081

Customer accounts receivable (less allowance for doubtful accounts of $990 in 2018 and $1,457 in 2017)
80,531

 
60,117

Other accounts receivable
23,712

 
30,680

Unbilled revenue
42,366

 
36,398

Fuel inventory, at average cost
57,388

 
87,520

Materials and supplies, at average cost
87,471

 
85,404

Energy risk management assets
23,163

 
7,396

Accumulated deferred fuel
39,898

 
13,980

Cash surrender value of company-owned life insurance policies
20,445

 
20,278

Prepayments
4,610

 
7,236

Regulatory assets
11,470

 
15,812

Other current assets
1,933

 
1,830

Total current assets
457,610

 
449,548

Equity investment in investee
18,172

 
18,172

Restricted cash and cash equivalents
18,828

 
20,060

Regulatory assets
246,003

 
257,408

Intangible asset
26,084

 
41,701

Other deferred charges
51,051

 
35,451

Total assets
$
4,317,807

 
$
4,188,741

 
 
 
 
Liabilities and member’s equity
 
 
 
Member’s equity
$
1,562,690

 
$
1,550,679

Long-term debt, net
1,387,707

 
1,341,475

Total capitalization
2,950,397

 
2,892,154

Current liabilities
 
 
 
Long-term debt due within one year
21,114

 
19,193

Accounts payable
139,879

 
134,374

Accounts payable - affiliate
10,574

 
8,697

Customer deposits
60,969

 
58,582

Provision for rate refund
26,923

 
4,206

Taxes payable, net
39,511

 
31,611

Interest accrued
22,655

 
7,083

Other current liabilities
24,870

 
16,172

Total current liabilities
346,495

 
279,918

Commitments and contingencies (Note 12)


 


Long-term liabilities and deferred credits
 
 
 
Accumulated deferred federal and state income taxes, net
667,133

 
656,362

Postretirement benefit obligations
173,559

 
173,747

Regulatory liabilities - deferred taxes, net
135,911

 
140,426

Restricted storm reserve
15,215

 
14,469

Other deferred credits
29,097

 
31,665

Total long-term liabilities and deferred credits
1,020,915

 
1,016,669

Total liabilities and member’s equity
$
4,317,807

 
$
4,188,741

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

20


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
FOR THE NINE MONTHS ENDED SEPT. 30,
 
(THOUSANDS)
2018

 
2017

Operating activities
 
 
 
Net income
$
132,359

 
$
108,439

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
126,515

 
123,911

Provision for doubtful accounts
323

 
2,592

Unearned compensation expense
1,172

 
1,479

Allowance for equity funds used during construction
(9,416
)
 
(4,446
)
Deferred income taxes
5,950

 
12,847

Deferred fuel costs
(32,903
)
 
4,231

Changes in assets and liabilities
 
 
 
Accounts receivable
(25,141
)
 
(44,115
)
Accounts receivable, affiliate
1,456

 
1,221

Unbilled revenue
(5,968
)
 
(4,643
)
Fuel inventory and materials and supplies
27,951

 
(6,885
)
Prepayments
1,929

 
4,774

Accounts payable
1,982

 
(19,648
)
Accounts payable, affiliate
(2,005
)
 
611

Customer deposits
10,272

 
9,317

Provision for merger commitments
(2,684
)
 
(9,244
)
Postretirement benefit obligations
3,054

 
3,673

Regulatory assets and liabilities, net
9,948

 
7,939

Other deferred accounts
(155
)
 
(6,093
)
Taxes accrued
6,544

 
31,258

Interest accrued
15,572

 
13,207

Other operating
4,192

 
5,537

Net cash provided by operating activities
270,947

 
235,962

Investing activities
 
 
 
Additions to property, plant, and equipment
(193,708
)
 
(183,604
)
Allowance for equity funds used during construction
9,416

 
4,446

Reimbursement of property loss
1,258

 
137

Issuance of note receivable
(16,800
)
 

Other investing
934

 
1,090

Net cash used in investing activities
(198,900
)
 
(177,931
)
Financing activities
 
 
 
Proceeds from short-term debt, net

 
6,470

Draws on credit facility

 
106,000

Payments on credit facility

 
(106,000
)
Issuances of long-term debt
50,000

 

Repayment of long-term debt
(19,193
)
 
(17,896
)
Distributions to parent
(121,400
)
 
(75,000
)
Other financing
(960
)
 
(1,933
)
Net cash used in financing activities
(91,553
)
 
(88,359
)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
(19,506
)
 
(30,328
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
102,957

(1)  
67,955

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
83,451

(2)  
$
37,627

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
37,764

 
$
36,241

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
54,166

 
$
13,072

Non-cash additions to property, plant, and equipment
$
643

 
$
3,015

Incurrence of capital lease obligation - barges
$
16,800

 
$

(1)  Includes cash and cash equivalents of $69,816, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,060.
(2)  Includes cash and cash equivalents of $59,376, current restricted cash and cash equivalents of $5,247, and non-current restricted cash and cash equivalents of $18,828.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

21


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

CLECO POWER
 
 
 
Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)
MEMBER’S EQUITY

 
AOCI

 
TOTAL
 MEMBER’S
EQUITY

Balances, Dec. 31, 2017
$
1,564,362

 
$
(13,683
)
 
$
1,550,679

Distributions to parent
(121,400
)
 

 
(121,400
)
Net income
132,359

 

 
132,359

Other comprehensive income, net of tax

 
1,052

 
1,052

Balances, Sept. 30, 2018
$
1,575,321

 
$
(12,631
)
 
$
1,562,690

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 

 
 

 
 


22


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

Index to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements of Registrants
 
 
 
Note 1
Summary of Significant Accounting Policies
Cleco and Cleco Power
Note 2
Revenue Recognition
Cleco and Cleco Power
Note 3
Recent Authoritative Guidance
Cleco and Cleco Power
Note 4
Regulatory Assets and Liabilities
Cleco and Cleco Power
Note 5
Fair Value Accounting
Cleco and Cleco Power
Note 6
Debt
Cleco and Cleco Power
Note 7
Pension Plan and Employee Benefits
Cleco and Cleco Power
Note 8
Income Taxes
Cleco and Cleco Power
Note 9
Disclosures about Segments
Cleco
Note 10
Regulation and Rates
Cleco and Cleco Power
Note 11
Variable Interest Entities
Cleco and Cleco Power
Note 12
Litigation, Other Commitments and Contingencies, and   Disclosures about Guarantees
Cleco and Cleco Power
Note 13
Affiliate Transactions
Cleco and Cleco Power
Note 14
Intangible Assets and Goodwill
Cleco and Cleco Power
Note 15
Accumulated Other Comprehensive Loss
Cleco and Cleco Power
Note 16
Plan of Acquisition
Cleco and Cleco Power

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements of Cleco include the accounts of Cleco Holdings and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

Basis of Presentation
The Condensed Consolidated Financial Statements of Cleco and Cleco Power have been prepared in accordance with GAAP for interim financial information and with the instructions to the Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP for annual financial statements. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements. Because the interim Condensed Consolidated Financial Statements and the accompanying notes do not include all of the information and notes required by GAAP for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and accompanying notes in the Registrants’ Combined Annual Report on Form 10-K for the year ended December 31, 2017.
These Condensed Consolidated Financial Statements, in the opinion of management, reflect all normal recurring adjustments that are necessary to fairly state the financial position and results of operations of Cleco and Cleco Power. Amounts reported in Cleco and Cleco Power’s interim financial statements are not necessarily indicative of amounts expected for the annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, discrete income tax items, and other factors.
 
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. For information on recent authoritative guidance and its effect on financial results, see Note 3 — “Recent Authoritative Guidance.”

Restricted Cash and Cash Equivalents
Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes.
Cleco and Cleco Power’s restricted cash and cash equivalents consisted of:
Cleco
 
 
 
(THOUSANDS)
AT SEPT. 30, 2018

 
AT DEC. 31, 2017

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
3,504


$
8,597

Cleco Power’s charitable contributions
1,200

 
1,200

Cleco Power’s rate credit escrow
543

 
3,284

Total current
5,247

 
13,081

Non-current
 
 
 
Diversified Lands’ mitigation escrow
22

 
21

Cleco Power’s future storm restoration costs
15,165

 
14,456

Cleco Power’s charitable contributions
2,841

 
3,575

Cleco Power’s rate credit escrow
822

 
2,029

Total non-current
18,850

 
20,081

Total restricted cash and cash equivalents
$
24,097

 
$
33,162


23


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

Cleco Power
 
 
 
(THOUSANDS)
AT SEPT. 30, 2018

 
AT DEC. 31, 2017

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
3,504

 
$
8,597

Charitable contributions
1,200

 
1,200

Rate credit escrow
543

 
3,284

Total current
5,247

 
13,081

Non-current
 
 
 
Future storm restoration costs
15,165

 
14,456

Charitable contributions
2,841

 
3,575

Rate credit escrow
822

 
2,029

Total non-current
18,828

 
20,060

Total restricted cash and cash equivalents
$
24,075

 
$
33,141


Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of administration fees, interest, and principal on storm recovery bonds. The change from December 31, 2017 , to September 30, 2018 , was due to Cleco Katrina/Rita using $19.2 million for scheduled storm recovery bond principal payments and $2.6 million for related interest payments, partially offset by collections of $16.7 million net of administration fees.

Fair Value Measurements and Disclosures
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes. For more information about fair value levels, see Note 5 — “Fair Value Accounting.”

Risk Management
Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes in value arising from changes in interest rates and the commodity market prices of power, FTRs, and natural gas in the industry on different energy exchanges. Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power, FTRs, and natural gas. Cleco evaluates derivatives and hedging activities to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market.
Cleco Power may also enter into risk mitigating positions that would not meet the requirements of a normal-purchase, normal-sale transaction in order to attempt to mitigate the volatility in customer fuel costs. These positions would be marked-to-market with the resulting gain or loss recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets as a component of energy risk management assets or liabilities. Such gain or loss would be deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. When these positions close, actual gains or losses would be included in the FAC and reflected on customers’ bills as a component of the fuel charge. There were no open natural gas positions at September 30, 2018 , or December 31, 2017 . In 2015, the LPSC approved a long-term
 
natural gas hedging pilot program that requires Cleco Power to establish a proposal for a program that will be designed to provide gas price stability for a minimum of five years. Cleco Power’s proposal was submitted to the LPSC in July 2017. An ALJ has been assigned to the docket, and a status conference was held in October 2017. On February 28, 2018, Cleco Power responded to LPSC data requests for the gas hedging docket. Cleco Power is currently awaiting a new procedural schedule to be established.
Cleco Power purchases FTRs in auctions facilitated by MISO. The majority of its FTRs are purchased in annual auctions during the second quarter, but Cleco Power may purchase additional FTRs in monthly auctions. FTRs are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Cleco Power’s customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power records FTRs at their estimated fair value when purchased. Each accounting period, Cleco Power adjusts the carrying value of FTRs to their estimated fair value based on the most recent MISO FTR auction prices. Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheets. Realized gains or losses on settled FTRs are recorded in Fuel used for electric generation on Cleco Power’s Condensed Consolidated Statements of Income. For more information on FTRs, see Note 5 — “Fair Value Accounting — Commodity Contracts.”
Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, aggregate counterparty credit exposure, and aggregate counterparty concentration levels. Cleco manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits, or letters of credit from counterparties or their affiliates, as deemed necessary. Cleco Power has agreements in place with various counterparties that authorize the netting of financial buys and sells and contract payments to mitigate credit risk for transactions entered into for risk management purposes.
Cleco and Cleco Power may enter into contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks. For each reporting period presented, the Registrants did not enter into any contracts to mitigate the volatility in interest rate risk.
Note 2 — Revenue Recognition
Cleco adopted the accounting guidance for revenue recognition and all related amendments on January 1, 2018, using the modified retrospective method. The guidance affects entities that enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new standard

24


CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

is not material to the results of operations, financial condition, or cash flows of the Registrants.

Revenue from Contracts with Customers

Retail Utility Revenue
Cleco’s revenue from contracts with customers is generated primarily from Cleco Power’s regulated revenue to retail residential, commercial, and industrial customers. Cleco recognizes retail revenue from these contracts as a series, and progress towards satisfaction of the performance obligation is measured using an output method based on kWh delivered. Accordingly, revenue from electricity sales is recognized as energy is delivered to the customer. Cleco bills retail customers, based on rates regulated by the LPSC, on a monthly basis with payments generally due within 20 days of the invoice date. Cleco records retail revenue under the invoice practical expedient, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount that the entity has a right to invoice.
Included in Cleco’s retail revenue is unbilled electric revenue, which represents the amount customers will be billed for services rendered from the last meter reading to the end of the respective accounting period. Cleco uses actual customer energy consumption data available from AMI to calculate unbilled revenue.

Wholesale Revenue
Wholesale revenue is generated primarily through the sale of energy and capacity to cooperatives, municipalities, and the MISO transmission provider. Cleco also enters into transactions through MISO for spot energy sales which are transacted in the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. The electricity revenue performance obligations, representing both energy and capacity, are satisfied as a series of performance obligations, and progress towards
 
satisfaction of the performance obligations are measured using an output method. The energy performance obligation measure of progress is based on kWh delivered. The capacity performance obligation measure of progress is based on time elapsed and will be recognized each month as Cleco’s generating units stand ready to deliver electricity to the customer. Cleco charges its wholesale customers market based rates that are subject to FERC’s triennial market power analysis. Cleco recognizes wholesale revenue, inclusive of both performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice.

Transmission Revenue
Transmission revenue is earned under a tariff with MISO. The performance obligation of transmission service is satisfied as service is provided. Revenue is recognized upon delivery of the transmission service. Cleco’s revenue from the transmission of electricity is recorded based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of revenue requirements with rates effective June 1 of each year.

Other Revenue
Other revenue from contracts with customers, which is not a significant source of Cleco’s revenue, includes Teche Unit 3 SSR revenue, connection or other fees, and electric customer credits. The performance obligation under these contracts is satisfied and revenue is recognized as control of the products is delivered or services are rendered.

Revenue Unrelated to Contracts with Customers
Certain energy-related transactions, where Cleco records the change in value of those contracts, qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance.

Disaggregated Revenue
Operating revenue, net for the three and nine months ended September 30, 2018 , was as follows:
 
FOR THE THREE MONTHS ENDED SEPT. 30, 2018
 
(THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
Residential (1)
$
139,162

 
$

 
$

 
$
139,162

Commercial (1)
79,829

 

 

 
79,829

Industrial (1)
43,380

 

 

 
43,380

Other retail (1)
4,039

 

 

 
4,039

Surcharge
6,206

 

 

 
6,206

Total retail revenue
$
272,616

 
$

 
$

 
$
272,616

Wholesale, net (1)
63,624

 
(2,420
)
(2)  

 
61,204

Transmission
14,718

 

 

 
14,718

Other (3)
2,477

 

 

 
2,477

Total revenue from contracts with customers
$
353,435

 
$
(2,420
)
 
$

 
$
351,015

Revenue unrelated to contracts with customers
 
 
 
 
 
 
 
Affiliate
$
223

 
$
22,765

 
$
(22,988
)
 
$

Other (4)
7,241

 

 

 
7,241

Total revenue unrelated to contracts with customers
7,464

 
22,765

 
(22,988
)
 
7,241

Operating revenue, net
$
360,899

 
$
20,345

 
$
(22,988
)
 
$
358,256

(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to wholesale power supply agreements.
(3) Other revenue from contracts with customers includes $4.9 million of other miscellaneous fee revenue, $0.6 million of Teche Unit 3 SSR revenue, net of $0.2 million of reserves for capital expenditures, partially offset by $3.0 million of electric customer credits.
(4) Includes unrealized gains associated with FTRs.


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CLECO
 
 
CLECO POWER
 
2018 3RD QUARTER FORM 10-Q

 
FOR THE NINE MONTHS ENDED SEPT. 30, 2018
 
(THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
Residential (1)
$
338,357

 
$

 
$

 
$
338,357

Commercial (1)
218,389

 

 

 
218,389

Industrial (1)
121,445

 

 

 
121,445

Other retail (1)
11,633

 

 

 
11,633

Surcharge
17,637

 

 

 
17,637

Total retail revenue
$
707,461

 
$

 
$

 
$
707,461

Wholesale, net (1)
165,255

 
(7,260
)
(2)  

 
157,995

Transmission
41,166

 

 

 
41,166

Other (3)
(4,375
)
 
1