Cleco Corporation and Cleco Power LLC 2006 Form 10-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For
the fiscal year ended December 31, 2006
Or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
__________________
Commission
file number 1-15759
CLECO
CORPORATION
(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
|
|
Securities
registered pursuant to Section 12(b) of the
Act:
|
|
Title
of each class
|
|
Name
of each exchange on which registered
|
Common
Stock, $1.00 par value, and associated rights to purchase Preferred
Stock
|
|
New
York Stock Exchange
|
|
|
|
Securities
registered pursuant to Section 12(g) of the
Act:
|
|
|
Title
of each class
|
4.50%
Cumulative Preferred Stock, $100 Par Value Convertible Cumulative
Preferred Stock, $100 Par Value, Series of
1991
|
__________________
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
|
|
Securities
registered pursuant to Section 12(b) of the
Act:
|
|
Title
of each class
|
|
Name
of each exchange on which registered
|
6.52%
Medium-Term Notes due 2009
|
|
New
York Stock Exchange
|
|
|
|
Securities
registered pursuant to Section 12(g) of the
Act:
|
|
|
Title
of each class
|
Membership
Interests
|
|
Cleco
Power LLC, a wholly owned subsidiary of Cleco Corporation, meets
the
conditions set forth in General Instruction (I)(1)(a) and (b) of
Form 10-K
and is therefore filing this Form 10-K with the reduced disclosure
format.
|
|
Indicate
by check mark if Cleco Corporation is a well-known seasoned issuer,
as
defined in Rule 405 of the Securities Act.
Yes x No ___
|
|
Indicate
by check mark if Cleco Power LLC is a well-known seasoned issuer,
as
defined in Rule 405 of the Securities Act. Yes
No x
|
|
Indicate
by check mark if the Registrants are not required to file reports
pursuant
to Section 13 or Section 15(d) of the Act. Yes
No x
|
|
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 if disclosure of delinquent filers pursuant to Item
405 of
Regulation S-K is not contained herein, and will not be contained,
to the
best of each of the Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form
10-K or any amendment to this Form 10-K.
|
|
Indicate
by check mark whether Cleco Corporation is a large accelerated
filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
x Accelerated
filer Non-accelerated
filer
|
|
Indicate
by check mark whether Cleco Power LLC is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
Accelerated
filer Non-accelerated
filer
x
|
|
Indicate
by check mark whether the Registrants are shell companies (as defined
in
Rule 12b-2 of the Exchange Act) Yes
No
x
|
|
The
aggregate market value of the Cleco Corporation voting stock held by
non-affiliates was $1,109,278,425 as of the last business day of Cleco
Corporation’s most recently completed second fiscal quarter, based on a price of
$23.25 per common share, the closing price of Cleco Corporation’s common stock
as reported on the New York Stock Exchange on such date. Cleco Corporation’s
Cumulative Preferred Stock is not listed on any national securities exchange,
nor are prices for the Cumulative Preferred Stock quoted on any national
automated quotation system; therefore, its market value is not readily
determinable and is not included in the foregoing amount.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
(Continuation
of cover page)
As
of
February 1, 2007, there were 57,666,100 outstanding shares of Cleco
Corporation’s Common Stock, par value $1.00 per share. As of February 1, 2007,
all of Cleco Power’s Membership Interests were owned by Cleco
Corporation.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of Cleco Corporation’s definitive Proxy Statement relating to its Annual Meeting
of Shareholders to be held on April 20, 2007, are incorporated by reference
into
Part III herein.
This
combined Form 10-K is separately filed by Cleco Corporation and Cleco Power.
Information in this filing relating to Cleco Power is filed by Cleco Corporation
and separately by Cleco Power on its own behalf. Cleco Power makes no
representation
as
to information relating to Cleco Corporation (except as it may relate to
Cleco
Power) or any other affiliate or subsidiary of Cleco Corporation.
This
report should be read in its entirety as it pertains to each respective
Registrant. The Notes to the Financial Statements for the Registrants and
certain other sections of this report are combined.
TABLE
OF CONTENTS
|
|
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PAGE
|
GLOSSARY OF
TERMS
|
3
|
DISCLOSURE
REGARDING
FORWARD-LOOKING
STATEMENTS
|
6
|
|
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|
PART
I
|
|
|
ITEM
1.
|
Business
|
|
|
General
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8
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|
Operations
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8
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|
Regulatory
Matters, Industry Developments, and Franchises
|
13
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|
Environmental
Matters
|
15
|
ITEM
1A.
|
Risk
Factors
|
18
|
ITEM
1B.
|
Unresolved
Staff Comments
|
24
|
ITEM
2.
|
Properties
|
24
|
ITEM
3.
|
Legal
Proceedings
|
24
|
ITEM
4.
|
Submission
of Matters to a Vote of Security Holders
|
25
|
|
Board
of Directors of Cleco
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25
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|
Executive
Officers of Cleco
|
26
|
|
|
|
PART
II
|
|
|
ITEM
5.
|
Market
for Registrants’
Common Equity, Related Stockholder Matters and Cleco Corporation’s
Purchases of Equity Securities
|
28
|
ITEM
6.
|
Selected
Financial Data
|
29
|
ITEM
7.
|
Management’s
Discussion and Analysis of Financial
Condition and Results of Operations
|
30
|
ITEM
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
58
|
ITEM
8.
|
Financial
Statements and Supplementary Data
|
60
|
ITEM
9.
|
Changes
in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
116
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ITEM
9A.
|
Controls
and Procedures
|
116
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ITEM
9B.
|
Other
Information
|
116
|
|
|
|
PART
III
|
|
|
ITEM
10.
|
Directors,
Executive Officers and Corporate Governance of the
Registrants
|
117
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ITEM
11.
|
Executive
Compensation
|
117
|
ITEM
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
118
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ITEM
13.
|
Certain
Relationships and Related Transactions,
and Director Independence
|
118
|
ITEM
14.
|
Principal
Accountant Fees and Services
|
118
|
|
|
|
PART
IV
|
|
|
ITEM
15.
|
Exhibits
and Financial Statement Schedules
|
119
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|
Signatures
|
131
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
GLOSSARY
OF TERMS
References
in this filing, including all items in Parts I, II, III, and IV, to “Cleco” mean
Cleco Corporation and its subsidiaries, including Cleco Power, and references
to
“Cleco Power” mean Cleco Power LLC, unless the context clearly indicates
otherwise. Additional abbreviations or acronyms used in this filing, including
all items in Parts I, II, III, and IV are defined below:
ABBREVIATION
OR ACRONYM
|
DEFINITION
|
401(k)
Plan
|
Cleco
Power 401(k) Savings and Investment Plan
|
Acadia
|
Acadia
Power Partners, LLC and its 1,160-MW combined-cycle, natural gas-fired
power plant near Eunice, Louisiana, 50% owned by APH and 50% owned
by a
subsidiary of Calpine
|
AFUDC
|
Allowance
for Funds Used During Construction
|
Amended
EPC Contract
|
Amended
and Restated EPC Contract between Cleco Power and Shaw Constructors,
Inc.,
executed on May 12, 2006, to engineer, design, and construct Rodemacher
Unit 3.
|
APB
|
Accounting
Principles Board
|
APB
Opinion No. 12
|
Omnibus
Opinion-1967
|
APB
Opinion No. 18
|
The
Equity Method of Accounting for Investments in Common
Stock
|
APB
Opinion No. 25
|
Accounting
for Stock Issued to Employees
|
APB
Opinion No. 29
|
Accounting
for Nonmonetary Transactions
|
APH
|
Acadia
Power Holdings LLC, a wholly owned subsidiary of
Midstream
|
ARB
|
Accounting
Research Bulletin
|
ARB
No. 51
|
Consolidated
Financial Statements
|
ARO
|
Asset
Retirement Obligation
|
Attala
|
Attala
Transmission LLC, a wholly owned subsidiary of Midstream. Effective
February 1, 2007, Midstream transferred all of its membership interest
in
Attala to Cleco Corporation.
|
Calpine
|
Calpine
Corporation
|
Calpine
Debtors
|
Calpine,
CES, and certain other Calpine subsidiaries
|
Calpine
Debtors Bankruptcy Court
|
U.S.
Bankruptcy Court for the Southern District of New York
|
Calpine
Tolling Agreements
|
Capacity
Sale and Tolling Agreements between Acadia and CES which was suspended
in
March 2006
|
CCN
|
Certificate
of Public Convenience and Necessity
|
CES
|
Calpine
Energy Services, L.P.
|
CLE
Intrastate
|
CLE
Intrastate Pipeline Company LLC, a wholly owned subsidiary of
Midstream
|
Cleco
Energy
|
Cleco
Energy LLC, a wholly owned subsidiary of Midstream
|
Compliance
Plan
|
The
three-year plan included in the Consent Agreement in FERC Docket
IN03-1-000
|
Consent
Agreement
|
Stipulation
and Consent Agreement, dated as of July 25, 2003, between Cleco
and the
FERC Staff
|
DHLC
|
Dolet
Hills Lignite Company, LLC, a wholly owned subsidiary of
SWEPCO
|
Diversified
Lands
|
Diversified
Lands LLC, a wholly owned subsidiary of Cleco Innovations LLC,
a wholly
owned subsidiary of Cleco Corporation
|
EITF
|
Emerging
Issues Task Force of the FASB
|
EITF
No. 04-13
|
Accounting
for Purchases and Sales of Inventory with the Same
Counterparty
|
EITF
No. 06-3
|
How
Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross Versus
Net
Presentation)
|
EITF
No. 06-4
|
Accounting
for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements
|
EITF
No. 06-5
|
Accounting
for Purchases of Life Insurance-Determining the Amount That Could
Be
Realized in Accordance with FASB Technical Bulletin
No.
85-4
|
Entergy
|
Entergy
Corporation
|
Entergy
Gulf States
|
Entergy
Gulf States, Inc.
|
Entergy
Louisiana
|
Entergy
Louisiana, Inc.
|
Entergy
Mississippi
|
Entergy
Mississippi, Inc.
|
Entergy
Services
|
Entergy
Services, Inc., as agent for Entergy Louisiana and Entergy Gulf
States
|
EPA
|
United
States Environmental Protection Agency
|
EPC
|
Engineering,
Procurement, and Construction
|
ERO
|
Electric
Reliability Organization
|
ESOP
|
Cleco
Corporation Employee Stock Ownership Plan
|
ESPP
|
Cleco
Corporation Employee Stock Purchase Plan
|
Evangeline
|
Cleco
Evangeline LLC, a wholly owned subsidiary of Midstream, and its
775-MW
combined-cycle, natural gas-fired power plant located in Evangeline
Parish, Louisiana
|
Evangeline
Tolling Agreement
|
Capacity
Sale and Tolling Agreement between Evangeline and Williams which
expires
in 2020
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
FIN
|
FASB
Interpretation No.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ABBREVIATION
OR ACRONYM
|
DEFINITION
|
FIN
45
|
Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including
Indirect
Guarantees of Indebtedness to Others
|
FIN
46R
|
Consolidation
of Variable Interest Entities -
an Interpretation of Accounting Research Bulletin No. 51 (revised
December
2003)
|
FIN
47
|
Accounting
for Conditional Asset Retirement Obligations - an interpretation
of FASB
Statement No. 143
|
FIN
48
|
Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement
No.
109
|
FSP
|
FASB
Staff Position
|
FSP
No. FIN 46R-6
|
Determining
the Variability to Be Considered in Applying FASB Interpretation
No.
46R
|
FSP
SFAS No. 106-2
|
Accounting
and Disclosure Requirements Related to the Medicare Prescription
Drug,
Improvement and Modernization Act of 2003
|
FSP
SFAS 123(R)-1
|
Classification
and Measurement of Freestanding Financial Instruments Originally
Issued in
Exchange for Employee Services under FASB Statement No.
123(R)
|
FSP
SFAS 123(R)-5
|
Amendment
of FASB Staff Position FAS 123(R)-1
|
FSP
SFAS 123(R)-6
|
Technical
Corrections of FASB Statement No. 123(R)
|
GDP-IPD
|
Gross
Domestic Product - Implicit Price Deflator
|
Generation
Services
|
Cleco
Generation Services LLC, a wholly owned subsidiary of
Midstream
|
ICT
|
Independent
Coordinator of Transmission
|
Interconnection
Agreement
|
Interconnection
Agreement and Real Estate Agreement between Attala and Entergy
Mississippi
|
IRP
|
Integrated
Resource Planning
|
kWh
|
Kilowatt-hour(s)
as applicable
|
LDEQ
|
Louisiana
Department of Environmental Quality
|
LIBOR
|
London
Inter-Bank Offer Rate
|
Lignite
Mining Agreement
|
Dolet
Hills Mine Lignite Mining Agreement, dated as of May 31,
2001
|
LPSC
|
Louisiana
Public Service Commission
|
LTICP
|
Cleco
Corporation Long-Term Incentive Compensation Plan
|
MAEM
|
Mirant
Americas Energy Marketing, LP
|
MAI
|
Mirant
Americas, Inc., a wholly owned subsidiary of Mirant
|
Marketing
& Trading
|
Cleco
Marketing & Trading LLC, a wholly owned subsidiary of
Midstream
|
Midstream
|
Cleco
Midstream Resources LLC, a wholly owned subsidiary of Cleco
Corporation
|
Mirant
|
Mirant
Corporation
|
Mirant
Debtors
|
Mirant,
MAEM, MAI, and certain other Mirant subsidiaries
|
Mirant
Debtors Bankruptcy Court
|
U.S.
Bankruptcy Court for the Northern District of Texas, Ft. Worth
Division
|
MMBtu
|
Million
British thermal units
|
Moody’s
|
Moody’s
Investors Service
|
MW
|
Megawatt(s)
as applicable
|
MWh
|
Megawatt-hour(s)
as applicable
|
NOPR
|
Notice
of Proposed Rulemaking
|
Not
meaningful
|
A
percentage comparison of these items is not statistically meaningful
because the percentage difference is greater than
1,000%.
|
NOx
|
Nitrogen
oxides
|
PEH
|
Perryville
Energy Holdings LLC, a wholly owned subsidiary of Midstream.
|
Perryville
|
Perryville
Energy Partners, L.L.C., a wholly owned subsidiary of PEH, which
retained
ownership of the plant-related transmission assets following the
sale of
its 718-MW, natural gas-fired power plant (sold to Entergy Louisiana
on
June 30, 2005) near Perryville, Louisiana. Effective February 1,
2007, PEH
transferred all of its membership interest in Perryville to Cleco
Corporation.
|
Perryville
and PEH Bankruptcy Court
|
U.S.
Bankruptcy Court for the Western District of Louisiana, Alexandria
Division
|
Perryville
Tolling Agreement
|
Capacity
Sale and Tolling Agreement between Perryville and MAEM
|
Power
Purchase Agreement
|
Power
Purchase Agreement, dated as of January 28, 2004, between Perryville
and
Entergy Services
|
Registrant(s)
|
Cleco
Corporation and Cleco Power
|
RFP
|
Request
for Proposal
|
Rodemacher
Unit 3
|
A
600-MW solid fuel generating unit under construction by Cleco Power
at its
existing Rodemacher plant site in Boyce, Louisiana.
|
RSP
|
Rate
Stabilization Plan
|
RTO
|
Regional
Transmission Organization
|
SAB
No. 108
|
Staff
Accounting Bulletin No. 108
|
Sale
Agreement
|
Purchase
and Sale Agreement, dated as of January 28, 2004, between Perryville
and
Entergy Louisiana
|
SEC
|
Securities
and Exchange Commission
|
Senior
Loan Agreement
|
Construction
and Term Loan Agreement, dated as of June 7, 2001, between Perryville
and
KBC Bank N.V., as Agent Bank
|
SERP
|
Cleco
Corporation Supplemental Executive Retirement Plan
|
SFAS
|
Statement
of Financial Accounting Standards
|
SFAS
No. 13
|
Accounting
for Leases
|
SFAS
No. 29
|
Determining
Contingent Rentals
|
SFAS
No. 71
|
Accounting
for the Effects of Certain Types of Regulation
|
SFAS
No. 87
|
Employers’
Accounting for Pensions
|
SFAS
No. 94
|
Consolidation
of All Majority Owned Subsidiaries
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ABBREVIATION
OR ACRONYM
|
DEFINITION
|
SFAS
No. 95
|
Statement
of Cash Flows
|
SFAS
No. 106
|
Employers’
Accounting for Postretirement Benefits Other Than
Pensions
|
SFAS
No. 109
|
Accounting
for Income Taxes
|
SFAS
No. 123
|
Accounting
for Stock-Based Compensation
|
SFAS
No. 123(R)
|
Share-Based
Payment (revised 2004)
|
SFAS
No. 131
|
Disclosures
about Segments of an Enterprise and Related Information
|
SFAS
No. 133
|
Accounting
for Derivative Instruments and Hedging Activities
|
SFAS
No. 140
|
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of
Liabilities
|
SFAS
No. 143
|
Accounting
for Asset Retirement Obligations
|
SFAS
No. 144
|
Accounting
for the Impairment or Disposal of Long-Lived Assets
|
SFAS
No. 149
|
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
|
SFAS
No. 155
|
Accounting
for Certain Hybrid Financial Instructions - an amendment of FASB
Statements No. 133 and 140
|
SFAS
No. 156
|
Accounting
for Servicing of Financial Assets - an amendment of FASB Statement
No.
140
|
SFAS
No. 157
|
Fair
Value Measurements
|
SFAS
No. 158
|
Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans - an
amendment of FASB Statements No. 87, 88, 106, and
132(R)
|
Shaw
|
Shaw
Contractors, Inc., a subsidiary of The Shaw Group Inc.
|
SO2
|
Sulfur
dioxide
|
SPP
|
Southwest
Power Pool
|
Subordinated
Loan Agreement
|
Subordinated
Loan Agreement, dated as of August 23, 2002, between Perryville
and
MAI
|
Support
Group
|
Cleco
Support Group LLC, a wholly owned subsidiary of Cleco
Corporation
|
SWEPCO
|
Southwestern
Electric Power Company
|
Teche
|
Teche
Electric Cooperative, Inc.
|
VaR
|
Value-at-risk
|
Williams
|
Williams
Power Company, Inc.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K includes “forward-looking statements” about future
events, circumstances, and results. All statements other than statements
of
historical fact included in this Annual Report are forward-looking statements,
including, without limitation, statements regarding the construction, timing
and
cost of Rodemacher Unit 3, future capital expenditures, and future environmental
regulations. 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:
§ |
Factors
affecting utility operations, such as unusual weather conditions
or other
natural phenomena; catastrophic weather-related damage (such as hurricanes
and other storms); unscheduled generation outages; unanticipated
maintenance or repairs; unanticipated changes to fuel costs, cost
of and
reliance on natural gas as a component of Cleco’s generation fuel mix and
their impact on competition and franchises, fuel supply costs or
availability constraints due to higher demand, shortages, transportation
problems or other developments; environmental incidents; or power
transmission system constraints;
|
§ |
Cleco
Corporation’s holding company structure and its dependence on the
earnings, dividends, or distributions from its subsidiaries to meet
its
debt obligations and pay dividends on its common
stock;
|
§ |
Cleco
Power’s ability to construct, operate, and maintain, within its projected
costs (including financing) and timeframe, Rodemacher Unit 3, in
addition
to any other self-build projects identified in future IRP and RFP
processes;
|
§ |
Dependence
of Cleco Power for energy from sources other than its facilities
and the
uncertainty of future long-term sources of such additional
energy;
|
§ |
Nonperformance
by and creditworthiness of counterparties under tolling, power purchase,
and energy service agreements, or the restructuring of those agreements,
including possible termination;
|
§ |
Outcome
of the Calpine Debtors bankruptcy filing and its effect on agreements
with
Acadia;
|
§ |
The
final amount of storm restoration costs and storm reserve, if any,
approved by the LPSC and the method through which such amounts can
be
recovered from Cleco Power’s customers;
|
§ |
The
final amount of recoverable lignite costs, as approved by the LPSC,
that
are currently deferred by Cleco Power;
|
§ |
Regulatory
factors such as changes in rate-setting policies, recovery of investments
made under traditional regulation, the frequency and timing of rate
increases or decreases, the results of periodic fuel audits, the
results
of IRP and RFP processes, the formation of RTOs and ICTs, and the
establishment by an ERO of reliability standards for bulk power systems
and compliance with these standards by Cleco Power, Acadia, Attala,
Evangeline, and Perryville;
|
§ |
Financial
or regulatory accounting principles or policies imposed by the FASB,
the
SEC, the Public Company Accounting Oversight Board, the FERC, the
LPSC or
similar entities with regulatory or accounting
oversight;
|
§ |
Economic
conditions, including the ability of customers to continue paying
for high
energy costs, related growth and/or down-sizing of businesses in
Cleco’s
service area, monetary fluctuations, changes in commodity prices,
and
inflation rates;
|
§ |
Credit
ratings of Cleco Corporation, Cleco Power, and
Evangeline;
|
§ |
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;
|
§ |
Availability
or cost of capital resulting from changes in Cleco’s business or financial
condition, interest rates, or market perceptions of the electric
utility
industry and energy-related industries;
|
§ |
Employee
work force factors, including work stoppages and changes in key
executives;
|
§ |
Legal,
environmental, and regulatory delays and other obstacles associated
with
mergers, acquisitions, capital projects, reorganizations, or investments
in joint ventures;
|
§ |
Costs
and other effects of legal and administrative proceedings, settlements,
investigations, claims and other matters;
|
§ |
Changes
in federal, state, or local legislative requirements, such as the
adoption
of the Energy Policy Act of 2005, and changes in tax laws or rates,
regulating policies or environmental laws and regulations;
and
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
§ |
Ability
of Cleco Power to recover, from its retail customers, the costs of
compliance with environmental laws and
regulations.
|
For
additional discussion of these factors and other factors that could
cause
actual results to differ materially from those contemplated in the Registrants’
forward-looking statements, please read Item 1A, “Risk Factors” and Part II,
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Cleco Power — Significant Factors Affecting Cleco Power” and “—
Midstream — Significant Factors Affecting Midstream,” located within this Annual
Report.
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.
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.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
PART
I
ITEM
1. BUSINESS
GENERAL
Cleco
Corporation was incorporated on October 30, 1998, under the laws of the State
of
Louisiana. Cleco Corporation is a public utility holding company which holds
investments in several subsidiaries, including Cleco Power and Midstream,
which
are its operating business segments. Cleco Corporation, subject to certain
limited
exceptions, is exempt from regulation as a public utility holding company
pursuant to provisions of the Public Utility Holding Company Act of 2005,
which
became effective in early 2006.
Cleco
Power’s predecessor was incorporated on
January 2, 1935, under the laws of the State of Louisiana. Cleco Power was
organized on December 12, 2000. Cleco Power is an electric utility engaged
principally in the generation, transmission, distribution and sale of
electricity within Louisiana. Cleco Power is regulated by the LPSC and the
FERC,
among other regulators, which determine the rates Cleco Power can charge
its
customers. Cleco Power serves approximately 268,000 customers in 104 communities
in central and southeastern Louisiana. Cleco Power’s operations are described
below in the consolidated description of Cleco’s business segments.
Midstream,
organized effective September 1, 1998, under the laws of the State of Louisiana,
is a merchant energy subsidiary that owns and operates a merchant generation
station, invests in a joint venture that owns and operates a merchant generation
station, and owns and operates transmission interconnection facilities. On
January 22, 2007, the FERC approved the transfer of the ownership interests
of
Midstream’s transmission interconnection facilities to Cleco Corporation. The
transfer was effective February 1, 2007. For additional information, see
Part
II, Item 8, “Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 24 — Subsequent Events — Organizational
Change.”
At
December 31, 2006, Cleco employed 1,167 people. Cleco’s mailing address is P.O.
Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is
(318) 484-7400. Cleco’s homepage on the Internet is located at
http://www.cleco.com. Cleco Corporation’s and Cleco Power’s Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other
filings with the SEC are available, free of charge, through Cleco’s website
after those reports or filings are filed electronically with or furnished
to the
SEC. Cleco’s corporate governance guidelines, code of business conduct, ethics
and business standards, and the charters of its board of directors’ audit,
compensation, executive, finance, nominating/governance and qualified legal
compliance committees are available on its website and available in print
to any
shareholder upon request. Cleco’s filings also can be obtained at the SEC’s
Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained
by
calling the SEC at 1-800-SEC-0330. Cleco’s electronically filed reports also can
be obtained on the SEC’s Internet site located at http://www.sec.gov.
Information on Cleco’s website or any other website is not incorporated by
reference into this Report and does not constitute a part of this
Report.
At
December 31, 2006, Cleco Power employed 909 people. Cleco Power’s mailing
address is P.O. Box 5000, Pineville, Louisiana, 71361-5000, and its telephone
number is (318) 484-7400.
Cleco
Power meets the conditions specified in General Instructions I(1)(a) and
(b) to
Form 10-K and therefore is permitted to use the reduced disclosure format
for
wholly owned subsidiaries of reporting companies. Accordingly, Cleco Power
has
omitted from this Report the information called for by Item 4 (Submission
of
Matters to a Vote of Security Holders) of Part I of Form 10-K; the following
Part II items of Form 10-K: Item 6 (Selected Financial Data) and Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of
Operations); and the following Part III items of Form 10-K: Item 10 (Directors,
Executive Officers, and Corporate Governance of the Registrants), Item 11
(Executive Compensation), Item 12 (Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters), and Item 13 (Certain
Relationships and Related Transactions, and Director Independence).
OPERATIONS
Segment
Financial Information
Financial
results of the Cleco Power segment for years 2006, 2005, and 2004 are presented
below.
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Revenue
|
|
|
|
|
|
|
|
Electric
operations
|
|
$
|
959,393
|
|
$
|
874,557
|
|
$
|
718,151
|
|
Other
operations
|
|
|
30,056
|
|
|
38,357
|
|
|
30,165
|
|
Electric
customer credits
|
|
|
4,693
|
|
|
(992
|
)
|
|
(20,889
|
)
|
Affiliate
revenue
|
|
|
49
|
|
|
49
|
|
|
22
|
|
Intercompany
revenue
|
|
|
2,000
|
|
|
2,002
|
|
|
1,860
|
|
Operating
revenue, net
|
|
$
|
996,191
|
|
$
|
913,973
|
|
$
|
729,309
|
|
Depreciation
expense
|
|
$
|
73,360
|
|
$
|
58,696
|
|
$
|
56,731
|
|
Interest
charges
|
|
$
|
36,250
|
|
$
|
27,593
|
|
$
|
28,445
|
|
Interest
income
|
|
$
|
7,425
|
|
$
|
4,355
|
|
$
|
3,561
|
|
Federal
and state income taxes
|
|
$
|
33,059
|
|
$
|
37,495
|
|
$
|
27,691
|
|
Segment
profit
|
|
$
|
64,828
|
|
$
|
59,081
|
|
$
|
52,202
|
|
Additions
to long-lived assets
|
|
$
|
293,050
|
|
$
|
186,441
|
|
$
|
78,700
|
|
Segment
assets
|
|
$
|
2,023,852
|
|
$
|
1,765,934
|
|
$
|
1,425,388
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
For
additional information on Cleco Power’s results of operations,
see Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Results of Operations — Cleco Power’s
Results of Operations — Year ended December 31, 2006, Compared to Year ended
December 31, 2005.”
Certain
Factors Affecting Cleco Power
As
an
electric utility, Cleco Power is affected, to varying degrees, by a number
of
factors influencing the electric utility industry in general. These factors
include, among others, fluctuations in the price of natural gas, an increasingly
competitive business environment, the cost of compliance with environmental
and
reliability regulations, and changes in the federal and state regulation
of
generation, transmission, and the sale of electricity. For a discussion of
various regulatory changes and competitive forces affecting Cleco Power and
other electric utilities, see “— Regulatory Matters, Industry Developments, and
Franchises — Franchises” and Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Financial Condition
— Market Restructuring.” For a discussion of risk factors affecting Cleco
Power’s business, see Item 1A, “Risk Factors — Rodemacher Unit 3 Technical
Specifications,” “— Rodemacher Unit 3 Construction Costs,” “— Termination of the
Rodemacher Unit 3 project or the Amended EPC Contract,” “— Storm Damage Costs,”
“— Retail Electric Service,” “— Deferred Lignite Mining Costs,” “— Fuel Cost
Audits,” “— Purchased Power,” “— Commodity Prices,” “ — Hedging and Risk
Management Activities,” “— Cleco Credit Ratings,” “— Environmental Compliance,”
“— Weather Sensitivity,” “— Future Electricity Sales,” “— Cleco Power Generation
Facilities,” and “— ERO.”
Power
Generation
Cleco
Power operates and either owns or has an ownership interest in three steam
electric generating stations and one gas turbine. As of December 31, 2006,
Cleco
Power’s aggregate net electric generating capacity was 1,359 MW. The following
table sets forth certain information with respect to Cleco Power’s generating
facilities:
|
|
|
|
|
|
|
|
GENERATING
STATION
|
GENERATING
UNIT
#
|
|
YEAR
OF
INITIAL
OPERATION
|
|
NET
CAPACITY
(MW)
|
|
TYPE
OF FUEL
USED
FOR GENERATION(1)
|
Franklin
Gas Turbine
|
|
|
1973
|
|
7
|
|
natural
gas
|
Teche
Power Station
|
1
|
|
1953
|
|
23
|
|
natural
gas
|
|
2
|
|
1956
|
|
48
|
|
natural
gas
|
|
3
|
|
1971
|
|
359
|
|
natural
gas/oil
|
Rodemacher
Power Station
|
1
|
|
1975
|
|
440
|
|
natural
gas/oil
|
|
2
|
|
1982
|
|
157(2)
|
|
coal/natural
gas
|
Dolet
Hills Power Station
|
|
|
1986
|
|
325(3)
|
|
lignite/natural
gas
|
Total
generating capability
|
|
|
|
|
1,359
|
|
|
(1) When
oil is used on a standby basis, capacity may be reduced.
(2) Represents
Cleco Power’s 30% ownership interest in the capacity of Rodemacher Unit 2, a
523-MW generating unit.
(3) Represents
Cleco Power’s 50% ownership interest in the capacity of Dolet Hills, a 650-MW
generating unit.
The
following table sets forth the amounts of power generated by Cleco Power
for the
years indicated.
|
|
|
PERIOD
|
THOUSAND
MWh
|
PERCENT
OF TOTAL
ENERGY
REQUIREMENTS
|
2006
|
4,691
|
44.0
|
2005
|
5,284
|
51.2
|
2004
|
4,820
|
46.3
|
2003
|
5,044
|
49.6
|
2002
|
5,405
|
54.6
|
In
the
second quarter of 2006, Cleco Power began constructing
an additional 600-MW solid-fuel power plant at its Rodemacher facility. This
plant, Rodemacher Unit 3, will be capable of burning various solid fuels
but
primarily is expected to burn petroleum coke produced by several refineries
throughout the Gulf Coast region. All environmental permits for this new
plant
have been received. Cleco Power entered into an EPC contract with Shaw to
construct Rodemacher Unit 3. The capital cost of the project, including carrying
costs during construction, is estimated at $1.0 billion. The plant is expected
to be on-line no later than the fourth quarter of 2009. For additional
information on this solid-fuel unit, see Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations
—
Financial Condition — Liquidity and Capital Resources — Regulatory Matters —
Rodemacher Unit 3.”
Fuel
and Purchased
Power
Changes
in fuel and purchased power expenses reflect fluctuations in types and pricing
of fuel used for electric generation, fuel handling costs, availability of
economical power for purchase, and deferral of expenses for recovery from
customers through the fuel adjustment clause in subsequent months. For a
discussion on the changes in fuel costs and its impact on utility customers,
see
Item 1A, “Risk Factors — Fuel Cost Audits” and “— Purchased Power.”
The
following table sets forth the percentages of power generated from various
fuels
at Cleco Power’s electric generating
plants, the cost of fuel used per MWh attributable to each such fuel, and
the
weighted average fuel cost per MWh.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIGNITE
|
|
|
COAL
|
|
|
NATURAL
GAS
|
|
|
FUEL
OIL
|
WEIGHTED
|
YEAR
|
COST
PER MWh
|
PERCENT OF
GENERATION
|
|
COST
PER MWh
|
PERCENT OF
GENERATION
|
|
COST
PER MWh
|
PERCENT OF
GENERATION
|
|
COST
PER MWh
|
PERCENT
OF GENERATION
|
AVERAGE
COST PER MWh
|
2006
|
$
18.20
|
50.0
|
|
$ 22.81
|
20.8
|
|
$125.07
|
29.1
|
|
$107.65
|
0.1
|
$50.32
|
2005
|
$ 17.44
|
45.7
|
|
$ 19.44
|
20.6
|
|
$ 85.72
|
27.3
|
|
$ 83.08
|
6.4
|
$ 40.79
|
2004
|
$ 17.19
|
48.5
|
|
$ 17.45
|
19.8
|
|
$ 72.33
|
30.3
|
|
$ 72.13
|
1.4
|
$ 34.76
|
2003
|
$ 16.72
|
47.1
|
|
$ 16.25
|
17.3
|
|
$ 60.79
|
34.8
|
|
$ 71.78
|
0.8
|
$ 32.42
|
2002
|
$ 16.25
|
43.1
|
|
$ 14.82
|
16.6
|
|
$ 38.94
|
40.3
|
|
$ 58.99
|
*
|
$ 25.17
|
* Less
than 1/10 of one percent
|
|
|
|
|
|
|
|
|
|
|
|
Power
Purchases
When
the
market price of power is more economical than self-generation of power or
when
Cleco Power needs power to supplement its own electric generation, and when
transmission capacity is available, Cleco Power purchases power from energy
marketing companies or neighboring utilities. These purchases are made from
the
wholesale power market in the form of generation capacity and/or energy.
Portions of Cleco Power’s capacity and power purchases were made at contract
prices, and the remainder were made at prevailing market prices.
The
following table sets forth the average
cost and amounts of power purchased by Cleco Power on the wholesale
market.
|
|
|
|
|
|
|
|
PERIOD
|
|
COST
PER MWh
|
|
THOUSAND
MWh
|
|
PERCENT
OF TOTAL
ENERGY
REQUIREMENTS
|
|
2006
|
|
$
|
59.50
|
|
|
5,968
|
|
|
56.0
|
|
2005
|
|
$
|
69.84
|
|
|
5,028
|
|
|
48.8
|
|
2004
|
|
$
|
42.36
|
|
|
5,592
|
|
|
53.7
|
|
2003
|
|
$
|
37.81
|
|
|
5,134
|
|
|
50.4
|
|
2002
|
|
$
|
27.52
|
|
|
4,482
|
|
|
45.4
|
|
During
2006, 56.0% of Cleco Power’s energy requirements were met with purchased power,
up from 48.8% in 2005. The primary factor causing the increase was the decreased
generation of power from Cleco Power’s own facilities due to higher incremental
generation cost compared to purchased power cost. For information on Cleco
Power’s ability to pass on to its customers substantially all of its fuel and
purchased power expenses, see “— Regulatory Matters, Industry Developments, and
Franchises — Rates.”
During
2006, Cleco Power obtained approximately 36.0% of its annual capacity from
short- and long-term power purchase agreements. One agreement with CES for
200
MW of capacity in 2006, terminated in March 2006 and was replaced with
short-term economy energy contracts from other suppliers. A second agreement
was
with Williams for 500 MW of annual capacity from 2006 through 2009. As discussed
above, on March 22, 2006, the Calpine Debtors Bankruptcy Court approved the
mutual termination of the contract between Cleco Power and CES to supply
200 MW
of capacity in 2006. The court’s actions stemmed from CES's request to reject
the Calpine Tolling Agreements for the Acadia plant. For additional information
on the mutual termination of the CES contract, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 21
— Calpine Bankruptcy.” Cleco Power has a long-term contract allowing for the
purchase of 20 MW of power from the Sabine River Authority, which operates
a
hydroelectric generating plant. In addition, Cleco Power has a wholesale
power
contract with the city of Natchitoches for 45 MW of capacity that expires
in
December 2009.
As
a
result of its 2006 short-term RFP for 2007 resources, Cleco Power successfully
negotiated two separate power purchase agreements that total 250 MW of capacity
and energy for 2007 with two selected bidders, ConocoPhillips Company (Conoco)
and NRG Power Marketing, Inc. (NRG). The LPSC approved these power purchase
agreements in November 2006.
Management
expects to meet its native load demand in 2007 with Cleco Power’s own generation
capacity and power contracts with Williams, Conoco, and NRG. Cleco Power
has
issued a RFP for up to 350 MW to meet its 2008 capacity and energy requirements.
The options selected in this RFP are expected to begin January 1, 2008. For
additional information on Cleco Power’s risks associated with purchased power
contracts, see Item 1A, “Risk Factors — Purchased Power.”
Cleco
Power has an IRP team to evaluate its long-term capacity requirements. IRP
is a
process to evaluate resources in order to provide reliable and flexible power
supplies to electric customers at the lowest reasonable cost. A full range
of
options are being analyzed, including:
§ |
new
plant construction;
|
§ |
fuel
conversion projects;
|
§ |
renewable
resource projects; and
|
§ |
demand-side
management.
|
The
process considers
both operational and economic features, such as construction, operating and
fuel
costs, fuel diversity, reliability, ease of dispatch, environmental impact,
and
other risk factors. The IRP team has developed a framework for evaluating
proposed options to optimize service for Cleco Power’s customers’ needs and to
reduce and stabilize their fuel cost without sacrificing reliability. Any
viable
generation alternative must then be validated through an LPSC-sanctioned
RFP
process. The resource planning effort employs sophisticated software to model
complex factors including the need for energy, market conditions, commodity
pricing, new legislation and requirements, plant output, weather and other
factors expected to impact the electric industry in future years. Currently,
Cleco Power plans to release an additional RFP in 2007 to look for long-term
resources to fill the needs identified by the latest IRP. For additional
information on Cleco Power’s power supply, see Item 1A, “Risk Factors —
Rodemacher Unit 3 Construction Costs” and “— Purchased Power.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Because
of its location on the transmission grid, Cleco Power relies on two main
suppliers of electric transmission when accessing external power markets.
At
times,
constraints limit the amount of purchased power these transmission providers
can
deliver into Cleco Power’s service territory. Cleco Power’s power contracts, as
well as spot market power purchases, may be affected by these transmission
constraints.
Coal
and Lignite Supply
Cleco
Power uses coal for generation at Rodemacher Unit 2. The majority of this
coal
is purchased from mines in Wyoming’s Powder River Basin from Rio Tinto Energy
America, (Rio Tinto) formerly known as Kennecott Energy Company (Kennecott).
In
May 2006, Cleco Power entered into a new two-year agreement with Rio Tinto
that
established fixed pricing through December 31, 2008, for the majority of
Cleco
Power’s coal needs. For 2007, Cleco Power has contracted for additional coal at
spot market prices. With respect to transportation of coal, Cleco Power has
a
three-year agreement with Union Pacific Railroad Company for transportation
of
coal from the Powder River Basin to Rodemacher Unit 2 through 2008. Cleco
Power
leases approximately 225 railcars to transport its coal under two long-term
leases. One of the railcar leases expires in March 2017, and the other expires
in March 2021.
Cleco
Power uses lignite for generation at the
Dolet
Hills power station. Substantially all of the lignite used to fuel Dolet
Hills
is obtained under two long-term agreements. Cleco Power and SWEPCO, each
a 50%
owner of Dolet Hills, have acquired an undivided 50% interest in the other’s
leased and owned lignite reserves in northwestern Louisiana. In May 2001,
Cleco
Power and SWEPCO entered into a long-term agreement with annual renewals
through
2011 with DHLC for the mining and delivery of such lignite reserves. These
reserves are expected to provide a substantial portion of the Dolet Hills’
unit’s fuel requirements throughout the life of the contract with
DHLC.
Additionally,
Cleco Power and SWEPCO have entered into an agreement which expires in 2010
with
Red River Mining Company to purchase lignite. Cleco Power’s minimum annual
purchase requirement of lignite under this agreement is 550,000 tons.
The
lignite
price under the contract is a base price per MMBtu, subject to escalation,
plus
certain “pass-through” costs. DHLC provides all of the lignite in excess of the
550,000 tons base commitment. For information regarding deferred mining costs
and obligations associated with the DHLC mining agreement see, Part II, Item
8,
“Financial Statements and Supplementary Data — Notes to the Financial Statements
— Note 3 — Regulatory Assets and Liabilities — Deferred Mining Costs” and Note
15 — “Litigation and Other Commitments and Contingencies — Off-Balance Sheet
Commitments.”
The
continuous supply of coal and lignite may be subject to interruption due
to
adverse weather conditions or other factors that may disrupt mining operations
or transportation to the plant site. At December 31, 2006, Cleco Power’s coal
inventory at Rodemacher Unit 2 was approximately 116,000 tons (about a 53-day
supply), and Cleco Power’s lignite inventory at Dolet Hills was approximately
275,000 tons (about a 45-day supply).
Natural
Gas Supply
During
2006, Cleco Power purchased a total of 16,271,000 MMBtu of natural gas for
the
generation of electricity. The annual and average per-day quantities of gas
purchased by Cleco Power from each supplier are shown in the table
below.
|
|
|
|
|
|
|
|
NATURAL
GAS SUPPLIER
|
|
2006
PURCHASES
(MMBtu)
|
|
AVERAGE
AMOUNT PURCHASED PER
DAY (MMBtu)
|
|
PERCENT
OF
TOTAL
NATURAL
GAS
USED
|
|
Crosstex
Gulf Coast Marketing
|
|
|
6,411,000
|
|
|
17,600
|
|
|
39.4
|
%
|
Chevron
Texaco
|
|
|
1,967,000
|
|
|
5,400
|
|
|
12.1
|
%
|
Cinergy
Marketing & Trading
|
|
|
1,902,000
|
|
|
5,200
|
|
|
11.7
|
%
|
Occidental
Energy Marketing
|
|
|
1,603,000
|
|
|
4,400
|
|
|
9.8
|
%
|
Enjet,
Inc.
|
|
|
1,327,000
|
|
|
3,600
|
|
|
8.2
|
%
|
Others
|
|
|
3,061,000
|
|
|
8,400
|
|
|
18.8
|
%
|
Total
|
|
|
16,271,000
|
|
|
44,600
|
|
|
100.0
|
%
|
Cleco
Power owns the natural gas pipelines and interconnections
at its Rodemacher and Teche power stations. This allows it to access various
natural gas supply markets, which helps to maintain a more economical fuel
supply for Cleco Power’s customers.
Natural
gas was available without interruption throughout 2006.
Cleco
Power expects to continue to meet its natural gas requirements with purchases
on
the spot market through daily, monthly, and seasonal contracts with various
natural gas suppliers. However, future supplies to Cleco Power remain vulnerable
to disruptions due to weather events and transportation delays. Large industrial
users of natural gas, including electric utilities, generally have low priority
among gas users in the event pipeline suppliers are forced to curtail deliveries
due to inadequate supplies. As a result, prices may increase rapidly in response
to temporary supply interruptions. Although prices may increase rapidly,
Cleco
Power enters into economic hedge positions to mitigate the volatility in
fuel
costs as encouraged by an LPSC order. For additional information on these
economic hedge positions, see Item 1A, “Risk Factors — Hedging and Risk
Management Activities” and Part II, Item 7A, “Quantitative and Qualitative
Disclosures About Market Risk — Commodity Price Risks.” Currently, Cleco Power
anticipates that its diverse supply options and alternative fuel capability,
combined with its solid-fuel generation resources, are adequate to meet its
fuel
needs during any temporary interruption of natural gas supplies.
Fuel
Oil
Supply
Cleco
Power stores fuel oil as an alternative fuel source at its Rodemacher and
Teche
power stations. The Rodemacher power station has storage capacity for an
approximate 95-day supply,
and the Teche power station has storage capacity for an approximate 28-day
supply. However, in accordance with Cleco Power’s current fuel oil inventory
practices, Cleco Power had approximately a 90-day supply of fuel oil stored
at
its Rodemacher facility and a 16-day supply at its Teche facility at December
31, 2006. During 2006, approximately 0.5
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
million
gallons of fuel oil were burned, producing 5,600 MWh of energy.
Sales
Cleco
Power’s 2006 and 2005 system peak demands, which occurred in August 2006 and
July 2005, were 2,137 MW and 2,014 MW, respectively. Sales and system peak
demand are affected by weather and are highest during the summer
air-conditioning and winter heating seasons. In 2006, Cleco Power experienced
above-normal summer weather and a mild winter. For information on the effects
of
future energy sales on Cleco Power’s financial condition, results of operations,
and cash flows, see Item 1A, “Risk Factors — Weather Sensitivity” and “— Future
Electricity Sales.” For information on the financial effects of seasonal demand
on Cleco Power’s quarterly operating results, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 23
— Miscellaneous Financial Information (Unaudited).”
Capacity
margin is the net capacity resources
(either owned or purchased) less native load demand divided by net capacity
resources. Each year, members of the SPP submit forecasted native load demand
and the forecasted mix of net capacity resources to meet this demand. Cleco
Power’s actual capacity margin of 7.8% in 2006 was below the SPP’s capacity
requirement of 12%, primarily due to higher than expected native load demand.
During 2005, Cleco Power’s capacity margin was 9.6%. Cleco Power anticipates an
11.6% capacity margin for 2007 which includes power purchase contracts with
Williams, NRG and Conoco. For additional information on Cleco Power’s power
contracts and its evaluation of other supply options, see Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Financial Condition — Regulatory Matters — Generation
RFP.”
Midstream
Financial
results of the Midstream segment for 2006, 2005, and 2004 are presented
below.
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Revenue
|
|
|
|
|
|
|
|
Tolling
operations
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,255
|
|
Other
operations
|
|
|
42
|
|
|
113
|
|
|
115
|
|
Affiliate
revenue
|
|
|
4,358
|
|
|
4,871
|
|
|
4,474
|
|
Intercompany
revenue
|
|
|
-
|
|
|
42
|
|
|
285
|
|
Operating
revenue, net
|
|
$
|
4,400
|
|
$
|
5,026
|
|
$
|
15,129
|
|
Depreciation
expense
|
|
$
|
307
|
|
$
|
316
|
|
$
|
2,197
|
|
Interest
charges
|
|
$
|
18,918
|
|
$
|
15,302
|
|
$
|
17,764
|
|
Interest
income
|
|
$
|
-
|
|
$
|
-
|
|
$
|
49
|
|
Equity
income from investees
|
|
$
|
24,574
|
|
$
|
218,505
|
|
$
|
47,538
|
|
Federal
and state income tax
expense
|
|
$
|
4,716
|
|
$
|
77,992
|
|
$
|
12,022
|
|
Segment
(loss)
profit from continuing operations, net
|
|
$
|
(2,015
|
)
|
$
|
122,355
|
|
$
|
17,829
|
|
(Loss)
income from
discontinued operations, including
gain on disposal, net of tax
|
|
$
|
(79
|
)
|
$
|
(334
|
)
|
$
|
70
|
|
Segment
(loss) profit
|
|
$
|
(2,094
|
)
|
$
|
122,021
|
|
$
|
17,899
|
|
Additions
to (adjustments of) long-lived assets
|
|
$
|
13
|
|
$
|
13
|
|
$
|
(142
|
)
|
Equity
investment in investees
|
|
$
|
307,031
|
|
$
|
317,554
|
|
$
|
314,247
|
|
Total
segment
assets
|
|
$
|
330,019
|
|
$
|
338,645
|
|
$
|
328,512
|
|
As
of
December 31, 2006, Midstream
wholly and directly owned six active limited liability companies that operated
mainly in Louisiana, Texas, and Mississippi:
§ |
Evangeline,
which owns and operates a 775-MW combined-cycle natural gas-fired
power
plant.
|
§ |
APH,
which owns 50% of Acadia,
a 1,160-MW combined-cycle natural gas-fired power
plant.
|
§ |
PEH,
which owns 100% of Perryville, which owns transmission interconnection
facilities that allow Entergy Louisiana to deliver the output of
its
Perryville Power Station to the transmission grid.
|
§ |
Generation
Services, which offers power station operations and maintenance services.
Its sole customer is Evangeline.
|
§ |
CLE
Intrastate, which owns a natural gas interconnection that allows
Evangeline to access the natural gas supply
market.
|
§ |
Attala,
which owns transmission interconnection facilities that allow Entergy
Mississippi to deliver the output of its Attala Generating Station
to the
transmission grid.
|
On
January 22, 2007, the FERC approved the transfer of the ownership interests
of
Perryville and Attala from
Midstream to Cleco Corporation. The transfer was effective February 1, 2007.
Perryville and Attala will no longer be included in the financial results
of the
Midstream segment effective February 1, 2007. For additional information,
see
Part II, Item 8, "Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 24 — Subsequent Events — Organizational
Change."
The
following table
sets
forth certain information with respect to Midstream’s operating generating
facilities.
|
|
|
|
|
|
|
|
|
|
GENERATING
STATION
|
|
GENERATING
UNIT
#
|
|
COMMENCEMENT
OF
COMMERCIAL
OPERATION
|
|
NET
CAPACITY
(MW)
|
|
TYPE
OF FUEL
USED FOR
GENERATION
|
|
Evangeline
|
|
|
6
|
|
|
2000
|
|
|
264
|
|
|
natural
gas
|
|
|
|
|
7
|
|
|
2000
|
|
|
511
|
|
|
natural
gas
|
|
Acadia
|
|
|
1
|
|
|
2002
|
|
|
290
|
(1)
|
|
natural
gas
|
|
|
|
|
2
|
|
|
2002
|
|
|
290
|
(1)
|
|
natural
gas
|
|
Total
generating capability
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
(1) Represents
APH’s 50% ownership interest in the capacity of
Acadia.
|
Midstream
competes against regional and national companies
that own and operate merchant power stations.
Evangeline’s
capacity is dedicated to one customer, Williams, which is the counterparty
to
the Evangeline Tolling Agreement which expires by its own terms in 2020.
Prior
to
March 2006, Acadia’s capacity was also dedicated to one customer, CES, which was
the counterparty to the Calpine Tolling Agreements. Tolling agreements give
the
tolling counterparty the right to own, dispatch, and market all of the electric
generation capacity of the respective facility. Under each tolling agreement,
the tolling counterparty is responsible for providing its own natural gas
to the
facility and pays a fixed fee and a variable fee for operating and maintaining
the respective facility. In December 2005, the Calpine Debtors filed for
protection under Chapter 11 of the Bankruptcy Code and
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
subsequently
filed a motion with the Calpine Debtors Bankruptcy Court to reject the Calpine
Tolling Agreements. On March 15, 2006, Acadia and CES executed an amendment
to
each of the Calpine Tolling Agreements, which permitted Acadia to suspend
its
obligations under the Calpine Tolling Agreements. The amendments were approved
by the Calpine Debtors Bankruptcy Court on March 22, 2006. Currently, Acadia’s
output is sold through an energy management services agreement with a third
party marketer. For additional information on the above tolling agreements
and
related transactions, risks and uncertainties, see Item 1A, “Risk Factors —
Calpine Bankruptcy,” “— Evangeline Plant Performance,” and “— Williams,” and
Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Results of Operations — Midstream — Significant
Factors Affecting Midstream — Earnings are primarily affected by the following
factors.” For additional information on the Calpine bankruptcy and the
suspension of the Calpine Tolling Agreements, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 21
— Calpine Bankruptcy.”
On
June
30, 2005, Perryville sold its 718-MW power plant to Entergy Louisiana, while
retaining ownership of the plant’s transmission assets. Perryville began
providing transmission services to Entergy Louisiana’s Perryville Power Station
under a FERC-approved cost-of-service tariff on July 1, 2005. For additional
information on the sale of Perryville, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 20
— Perryville.”
CLE
Intrastate’s revenue is generated primarily from a monthly reservation fee paid
by Evangeline for access to the Columbia Gulf interconnect and from a
transportation fee that varies depending on the amount of gas transported
through the interconnect for use by Evangeline.
Attala
provides transmission services under a FERC-approved cost-of-service tariff
to
Entergy Mississippi’s Attala Generating Station. Attala began providing
transmission service on January 20, 2006.
At
December 31, 2006, Midstream and its subsidiaries employed 30 people: 28
within
Generation Services and 2 at Midstream.
For
additional information on Midstream’s operations, see Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Results of Operations — Midstream,” and “— Financial Condition —
Cash Generation and Cash Requirements — Midstream Construction.”
Customers
No
single
customer accounted for 10% or more of Cleco’s consolidated revenue or Cleco
Power’s revenue in 2006, 2005, or 2004. For additional information regarding
Cleco’s sales and revenue, see Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Results of
Operations.”
Construction
and Financing
For
information on Cleco’s construction program, financing and related matters,
see
Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Financial Condition — Cash Generation and Cash
Requirements.”
REGULATORY
MATTERS, INDUSTRY DEVELOPMENTS, AND FRANCHISES
Rates
Cleco
Power’s electric operations are subject to the jurisdiction
of
the LPSC with respect to retail rates, standards of service, accounting and
other matters. Cleco Power also is subject to the jurisdiction of the FERC
with
respect to rates for wholesale service, interconnections with other utilities,
the transmission of power and reliability. Periodically, Cleco Power has
sought
and received from both the LPSC and the FERC increases in base rates to cover
increases in operating costs and costs associated with additions to generation,
transmission, and distribution facilities.
Cleco
Power’s electric rates include a fuel and purchased power cost adjustment clause
that enables it to adjust rates for monthly fluctuations in the cost of fuel
and
purchased power. Revenue from certain off-system sales to other utilities
and
energy marketing companies is passed on to customers through a reduction
in fuel
cost adjustment billing factors. Fuel costs and fuel adjustment billing factors
are approved by the LPSC and the FERC. In July 2004, Cleco Power reached
a
settlement with the LPSC on a periodic fuel audit covering 2001 and 2002.
In
July 2006, the LPSC began a fuel audit covering the years 2003 and 2004.
Cleco
Power cannot predict the date of the completion of the fuel audit. For
additional information on the fuel audits and the related settlement of the
years 2001 and 2002, see Part II, Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 18 — FERC and Fuel
Audit Settlements.”
In
July
2006, Cleco Power’s current RSP with the LPSC, which governs its regulatory
return on equity, was extended with modifications to certain terms until
the
in-service date of Rodemacher Unit 3, which is expected to be operational
no
later than the fourth quarter of 2009. During 2006, the LPSC approved the
recovery of a portion of the carrying costs of capital associated with the
construction of Rodemacher Unit 3. Also during 2006, the LPSC approved an
interim rate increase to recover storm restoration costs incurred by Cleco
Power
relating to Hurricanes Katrina and Rita. In February 2007, as a result of
the
completion of the LPSC Staff’s review of storm restoration costs, Cleco Power
and the LPSC Staff signed a settlement term sheet allowing the recovery of
essentially all of Cleco Power’s Hurricane Katrina and Rita storm costs and the
funding of a $50.0 million reserve for future, extraordinary storm costs.
For additional information about the recovery of storm restoration costs,
see
Item 1A, "Risk Factors — Storm Damage Costs."
For
additional information on Cleco Power’s retail and wholesale rates, including
Cleco Power’s RSP, see Item 1A,
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
“Risk
Factors — Retail Electric Service” and — “Fuel Cost Audits” and Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Financial Condition — Regulatory Matters — Retail Rates of Cleco
Power,” and — “Wholesale Rates of Cleco.”
Franchises
Cleco
Power operates under nonexclusive franchise rights granted by governmental
units, such as municipalities and parishes (counties),
and enforced by state regulation. These franchises are for fixed terms, which
may vary from 10 years to 50 years or more. In the past, Cleco Power has
been
substantially successful in the timely renewal of franchises as each reached
the
end of its term.
In
March
2006, the City Council of Covington voted unanimously
to extend Cleco Power a 22-year franchise agreement covering approximately
5,200
customers. This new agreement replaced Cleco Power’s existing agreement which
would have expired in 2008. Cleco Power’s next municipal franchise expires in
2010.
In
August
2005, a competing electric utility entered into an agreement with the City
of
New Iberia so that the utility could continue to serve its existing customers
in
the newly annexed area. However, Cleco Power has the right under state law
to
serve any new customers inside the city limits and newly annexed
customers.
Also
in
2005, cooperatives entered into agreements with the cities of Opelousas and
Eunice. The agreements provide the cooperatives the opportunity to compete
with
Cleco in newly annexed areas only. The granting of a dual municipal franchise
to
a competing power cooperative does not reduce current Cleco Power revenue,
since
existing customers do not have an option to change electric service providers
under existing LPSC regulations. However, it could reduce future customer
and
load growth as both utilities compete for new customers.
On
February 13, 2007, the City Council of Eunice voted to accept a city-wide
franchise proposal with a local electric cooperative. The cooperative will
now
have the opportunity to serve customers city-wide. However, both utilities
are
required to follow the LPSC 300-foot rule regulation to determine which utility
can provide electricity to the customer. In general, if a utility's distribution
system is within 300 feet of the new customer's meter point that utility
automatically serves the customer. Otherwise, the customer may choose the
electricity provider. This decision does not have a material impact on Cleco
Power's results of operations or financial condition, but could reduce future
customer and load growth as both utilities compete for new
customers.
Currently,
Cleco Power recovers all municipal franchise fees through the base rates
it
charges retail customers. Consequently, franchise fees are recovered from
customers both inside and outside a franchised area. In October 2006, the
LPSC
approved the practice of billing franchise fees as a separate line item only
to
the municipal customers affected, rather than included in base rates to all
retail customers. In November 2006, the LPSC placed the order on hold requesting
comments from the Louisiana Municipal Association and Louisiana mayors. The
LPSC
is expected to vote on the
implementation
of the order by the second quarter of 2007. Cleco Power anticipates no material
impact to its results of operations or financial condition if the order is
approved.
A
number
of parishes have attempted in recent years to impose franchise fees on retail
revenue earned within the unincorporated areas Cleco Power serves. If the
parishes are ultimately successful, Cleco Power believes the new franchise
tax
paid to the parishes will be passed on to the affected customers and will
not
reduce Cleco Power’s earnings.
Industry
Developments
For
information on industry developments, see
Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Financial Condition — Market
Restructuring.”
Wholesale
Electric Competition
For
a
discussion of wholesale electric competition, see
Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Financial Condition — Market Restructuring — Wholesale
Electric Markets.”
Retail
Electric Competition
For
a
discussion of retail electric competition, see
Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Financial Condition — Market Restructuring — Retail
Electric Markets.”
Legislative
and Regulatory Changes and Matters
Various
federal
and state legislative and regulatory bodies are considering a number of issues
that could shape the future of the electric utility industry. Such issues
include, among others:
§ |
implementation
of the Energy Policy Act of 2005;
|
§ |
regulation
of previously deregulated retail electric markets;
|
§ |
the
ability of electric utilities to recover stranded
costs;
|
§ |
the
role of electric utilities, independent power producers and competitive
bidding in the purchase, construction and operation of new generating
capacity;
|
§ |
the
pricing of transmission service on an electric utility’s transmission
system;
|
§ |
FERC’s
assessment of market power and utilities’ ability to buy generation
assets;
|
§ |
mandatory
transmission reliability standards;
|
§ |
the
authority of the FERC to grant utilities the power of eminent domain;
|
§ |
increasing
requirements for renewable energy
sources;
|
§ |
comprehensive
multi-emissions environmental legislation;
and
|
§ |
FERC’s
increased ability to impose financial
penalties.
|
The
Registrants are unable, at this time, to predict the outcome
of
such issues or effects on their financial position, results of operations,
or
cash flows.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
For
information on certain regulatory matters and regulatory
accounting affecting Cleco, see Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations —
Financial Condition — Regulatory Matters.”
ENVIRONMENTAL
MATTERS
Environmental
Quality
Cleco
is
subject to federal, state, and local laws and regulations
governing the protection of the environment. Violations of these laws and
regulations may result in substantial fines and penalties. Cleco has obtained
all environmental permits necessary for its operations, and management believes
Cleco is in compliance in all material respects with these permits, as well
as
all applicable environmental laws and regulations. Environmental requirements
continue to increase as a result of new legislation, administrative actions,
and
judicial interpretations. Therefore, the future effects of existing and
potential requirements are difficult to determine. Cleco’s capital expenditures
related to environmental compliance were $3.6 million during 2006 and are
estimated to total $5.1 million in 2007. The following table lists capital
expenditures for environmental matters by subsidiary.
|
|
|
|
|
|
SUBSIDIARY
(THOUSANDS)
|
|
ENVIRONMENTAL
CAPITAL
EXPENDITURES
FOR
2006
|
|
PROJECTED
ENVIRONMENTAL
CAPITAL
EXPENDITURES
FOR
2007
|
|
Cleco
Power
|
|
$
|
3,263
|
|
$
|
4,948
|
|
Evangeline
|
|
|
363
|
|
|
25
|
|
Acadia
|
|
|
-
|
|
|
136(1
|
)
|
Total
|
|
$
|
3,626
|
|
$
|
5,109
|
|
(1) Represents
APH’s 50% portion of Acadia
|
|
|
|
|
|
|
|
The
increase
in projected environmental capital expenditures at Cleco Power from 2006
to 2007
primarily relates to the installation of new low NOx
burners
at the Dolet Hills and Rodemacher Unit 2 Power Stations. The installation
of the
low NOx
burners
at Dolet Hills is expected to be completed during 2007, while the installation
of the low NOx
burners
at Rodemacher Unit 2 is expected to begin in early 2008.
Air
Quality
The
state
of Louisiana regulates air emissions from each of Cleco’s generating units
through the Air Quality regulations of the LDEQ.
In
addition, the LDEQ has been delegated authority over and implements certain
programs established by the EPA. The LDEQ establishes standards of
performance and requires permits for certain generating units in Louisiana.
All of Cleco’s generating units are subject to these requirements.
The
federal Clean Air Act established a regulatory program to address
the effects of acid rain and imposed restrictions on SO2
emissions
from certain generating units. The federal Clean Air Act requires these
generating stations to possess a regulatory “allowance” for each ton of
SO2
emitted
beginning in the year 2000. The EPA allocates a set number of allowances
to each
affected unit based on its historic emissions. As of December 31, 2006, Cleco
Power and Midstream had sufficient allowances for 2006 operations and expect
to
have sufficient allowances for 2007 operations.
The
federal Clean Air Act required the EPA to revise NOx
emission
limits for existing coal-fired boilers. In November 1996, the EPA finalized
rules lowering the NOx
emission
rate for certain boilers, which apply to Rodemacher Unit 2 and Dolet Hills.
The
rules also allowed an “early elect” option to achieve compliance with a less
restrictive NOx
limit
beginning no later than January 1, 1997. Cleco Power exercised this option
in
December 1996. Early election protects Cleco Power from any further reductions
in the NOx
permitted emission rate until 2008. Rodemacher Unit 2 and Dolet Hills have
been
in compliance with the NOx
early
election limits since their inception and are expected to continue to be
in
compliance in 2007. Cleco Power’s Phase I low NOx
burner
project was permitted by the LDEQ and installed in 2006 to achieve compliance
with the reduced 2008 acid rain permit limits for NOx
at Dolet
Hills. Rodemacher Unit 2 is anticipated to achieve compliance with these
reduced
acid rain NOx
limits
in its current configuration. Cleco Power expects to implement its Phase
II low
NOx
burner
and overfire air project at Dolet Hills by early 2007 at a projected cost
of
$5.9 million. Cleco Power expects to implement a similar project by early
2008
at Rodemacher Unit 2. The additional NOx
reductions achieved by these projects may qualify for early reduction credits
under the federal Clean Air Interstate Rule (CAIR), and position Cleco Power’s
fleet for least cost compliance with CAIR’s requirements for NOx
reductions. Significant future reductions in NOx
emissions limits may require other capital improvements at one or both of
the
units.
NOx
emissions from the Evangeline and Acadia generating units are within the
units’
respective permitted limits, as these units use a modern turbine technology
and
selective catalytic reduction technology that reduces NOx
emissions to minimal levels.
On
March
10, 2005, CAIR was finalized by the EPA. CAIR covers the District of Columbia
and 28 eastern states, including Louisiana, and provides a federal framework
requiring states to reduce emissions of SO2
and
NOx.
CAIR
calls for NOx
reductions to begin in the year 2009 and SO2
reductions in 2010. The EPA anticipates that the states will achieve this
primarily by reducing emissions from the power generation sector. Louisiana
must
evaluate the provisions of CAIR and make changes to the State Implementation
Plan (SIP) to incorporate these requirements by March 2007. The LDEQ has
proposed to remain under the Federal Implementation Plan (FIP) for compliance
with CAIR SO2
provisions. It has also proposed to follow the FIP for the Annual NOx
and
Ozone Season NOx
trading
programs with the exception of the NOx
allowance allocation methodology. Cleco is evaluating potential compliance
strategies to meet the emission reductions contemplated by these regulations.
The installation of new low NOx
burners
and enhancements to the SO2
scrubber
at Dolet Hills is expected to be an integral part of meeting the CAIR
NOx
and
SO2
reduction provisions. Likewise, the installation of new low NOx
burners
planned for Rodemacher Unit 2 in early 2008 at a projected cost of $4.0 million
should also help meet
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CAIR
requirements. Cleco’s compliance strategy to meet the CAIR requirements may also
include additional emission controls, purchase of allowances, or fuel
changes.
On
March
15, 2005, the EPA issued final rules regarding mercury emissions from electric
utility boilers. The federal Clean Air Mercury Rule (CAMR) established
“standards of performance” limiting mercury emissions from new and existing
coal-fired power plants and created a market-based cap-and-trade program.
CAMR
emissions reductions take effect in January 2010. Louisiana adopted EPA’s
federal CAMR regulations by reference and incorporated these requirements
in
Louisiana’s state regulations. Cleco owns units that will be subject to CAMR.
Cleco is participating with other stakeholders on LDEQ’s implementation of the
federal requirements and is evaluating potential compliance strategies to
meet
the emission reductions contemplated by these regulations. These strategies
may
include additional emission controls, purchase of allowances, or fuel
changes.
Multi-pollutant
legislation is expected to be considered by Congress. This
legislation could include requirements to reduce carbon dioxide and other
greenhouse gas emissions. Cleco supports the concept of a comprehensive
national
and international strategy to reduce emissions of multiple pollutants from
electric utilities, as well as other industries. In addition, Congress
is
considering several bills related to climate change, which include mandatory
cuts in carbon dioxide and other greenhouse gas omissions. The majority
of the
bills would require reductions in carbon dioxide from electric generating
units.
On November 29, 2006, the U.S. Supreme Court heard arguments in a case,
Massachusetts vs. E.P.A, in which the U.S. Circuit Court of Appeals for
the
District of Columbia held that the EPA had discretion to refuse to regulate
greenhouse gases from mobile sources. Enactment of Federal Climate Change
legislation or a Supreme Court decision reversing the appellate decision
could
result in federal regulation of carbon dioxide and other greenhouse gas
omissions. States may also independently decide to regulate greenhouse
gases.
Cleco will continue to monitor the development of new legislative and regulatory
requirements and their potential impacts. While it is unknown at this time
what
the final outcome of these regulations will entail or whether federal or
state
carbon dioxide laws or regulations will be enacted, any capital and operating
costs of additional pollution control equipment or carbon dioxide emission
reduction measures, such as the cost of sequestration or purchasing allowances,
or offset credits, that may be required could materially adversely affect
future
results of operations, cash flows, and possibly financial condition, unless
such
costs could be recovered through regulated rates and/or future market prices
for
energy.
As
mandated by the law, the LDEQ developed and promulgated the Comprehensive
Toxic
Air Pollutant Emission Control regulation under Title 33, Chapter 51 of the
Louisiana Administrative Code. This rule requires that any major source of
toxic
air emissions, as defined by the LDEQ, shall control emissions of toxic air
pollutants to a degree that constitutes Maximum Achievable Control Technology
(MACT). MACT is determined by the permitting authority, in this case the
LDEQ.
In addition to incorporating the control technology standards, the state
rule
establishes emission reporting requirements for all major sources of toxic
air
pollutants and sets an ambient air standard for each pollutant. Steam electric
generating units traditionally have been exempt from this rule. However,
on
December 20, 2006, the LDEQ proposed rules removing the exemption from such
units. While it is unknown at this time what the final rule will entail,
any
capital and operating costs of additional pollution control equipment could
have
a material adverse effect on the Registrants' results of operations,
financial condition, and cash flows.
In
February 2005, Cleco Power received notices from the EPA requesting information
relating to the Rodemacher and Dolet Hills Power Stations. The apparent purpose
of the investigation is to determine whether Cleco Power has complied with
New
Source Review and New Source Performance
Standards
requirements under the Clean Air Act in connection with capital expenditures,
modifications, or operational changes made at these facilities. Cleco Power
has
completed its response to the initial data request. It is unknown at this
time
whether the EPA will take further action as a result of the information provided
by Cleco Power and if any such action would have a material adverse impact
on
the Registrants’ financial condition, results of operations, or cash
flows.
Water
Quality
Cleco
has
received from the EPA and LDEQ permits required
under the federal Clean Water Act for waste water discharges from its five
generating stations. Waste water discharge permits have fixed dates of
expiration, and Cleco applies for renewal of these permits within the applicable
time periods.
The
LDEQ
issued a Louisiana Pollutant Discharge Elimination
System waste water permit renewal for Evangeline Power Station on June 22,
2006.
This waste water permit contains certain additional Copper and Total Dissolved
Solids (TDS) permit limitations that Cleco contends are beyond the legal
authority of LDEQ to include in the waste water permit. Cleco challenged
these
permit provisions by filing a de novo review judicial appeal on September
26,
2006, in district court in East Baton Rouge Parish, Louisiana. While litigation
has been filed, Cleco actively is engaged with LDEQ in settlement discussions
regarding the appealed provisions of the waste water permit, and Cleco believes
that an amicable resolution will be reached with the agency. While the filed
litigation is pending, the appealed Copper and TDS permit limitations are
stayed
and do not take effect. The uncontested portions of the Evangeline waste
water
permit were effective January 1, 2007.
Another
new regulatory program, Section 316(b) of the Clean Water Act, intends to
minimize adverse environmental impacts to all aquatic species due to water
intake structures. These regulations establish requirements applicable to
the
location, design, construction, and capacity of cooling water intake structures
and only apply to existing facilities. Cleco anticipates that any new
requirements will be established as the facilities go through the water
discharge permit renewal process. The required initial studies began in 2006
and
will continue into 2007, and required capital improvements will
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occur
after those studies are completed. Capital improvement costs are anticipated
to
be between $3.0 million and $5.0 million.
Solid
Waste Disposal
The
Solid
Waste Division of the LDEQ has adopted a permitting
system for the management and disposal of solid waste generated by power
stations. Cleco has received all required permits from the LDEQ for the
on-site
disposal of solid waste from its generating stations. Cleco is in the process
of
renewing the solid waste permits for the Rodemacher and Dolet Hills solid
waste
units and upgrading them according to the Solid Waste Regulations. These
upgrades are not expected to result in substantial costs.
Hazardous
Waste Generation
Cleco
produces certain wastes that are classified as hazardous
at
its five generating stations and at other locations. Cleco does not treat,
store
long-term, or dispose of these wastes on-site; therefore, no permits are
required. All hazardous wastes produced by Cleco are disposed of at federally
permitted hazardous waste disposal sites.
Toxic
Substances
Control Act (TSCA)
The
TSCA
directs the EPA to regulate the marketing, disposal, manufacturing, processing,
distribution in commerce, and use
of
polychlorinated biphenyls (PCBs). Cleco may continue to operate equipment
containing PCBs under the TSCA. Once the equipment reaches the end of its
usefulness, the EPA regulates handling and disposal of the equipment and
fluids
containing PCBs. Within these regulations, the handling and disposal is allowed
only through EPA approved and permitted facilities.
The
EPA
revised TSCA regulations to require utilities to report
data on the manufacture or import of organic compounds every five years.
Cleco
submitted this information in December 2006 for its applicable facilities.
Toxics
Release Inventory
(TRI)
The
TRI
requires an annual report from industrial facilities on about 650 substances
that they release into air, water, and land.
The TRI
ranks companies based on how much of a
particular
substance they release on a state and parish (county) level. Annual reports
are
due to the EPA on July 1 following the reporting year-end. Cleco has submitted
required TRI reports on its activities, and the TRI rankings are available
to
the public. The rankings do not result in any federal or state penalties.
Management is aware of the potential adverse public perceptions and monitors
the
TRI process.
Electric
and Magnetic Fields
(EMFs)
The
possibility that exposure to EMFs emanating from electric power lines, household
appliances,
and
other electric devices may result in adverse health effects or damage to
the
environment has been a subject of some public attention. Cleco Power funds
scientific research on EMFs through various organizations. To date, there
are no
definitive results, but research is continuing. Lawsuits alleging that the
presence of electric power transmission and distribution lines has an adverse
effect on health and/or property values have arisen in several states. Cleco
Power is not a party in any lawsuits related to EMFs.
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ITEM
1A. RISK
FACTORS
The
following risk factors could affect actual results and cause results to differ
materially from those expressed in any forward-looking
statements made by, or on behalf of, the Registrants.
Rodemacher
Unit 3 Construction Costs
The
recovery of costs incurred to construct Rodemacher Unit 3 is subject to LPSC
review and approval,
and some of the costs could be disallowed.
Costs
incurred in the construction of Rodemacher Unit 3 are subject to a prudency
review by the LPSC. One year prior to the in-service date of Rodemacher Unit
3,
Cleco Power will file a rate case with the LPSC seeking to recover the
construction costs in its base rates. Cleco
Power will be required to demonstrate that the costs incurred to construct
Rodemacher Unit 3 were prudently incurred and demonstrate the impact of the
operation of the facility on its customers. Accordingly, Cleco Power may
not be
able to recover some of the costs incurred to construct the facility, which
could be substantial.
Furthermore,
although the Amended EPC Contract is generally
a
fixed-price agreement, unforeseen events could result in changes in the scope
of
the project that may result in additional costs. It may be more difficult
to
obtain LPSC approval to recover such additional costs. If the LPSC were to
deny
Cleco Power’s request to recover substantial costs incurred in the construction
of the facility, such a decision could have a material adverse effect on
the
Registrants’ results of operations, financial condition, and cash
flows.
Rodemacher
Unit 3 Technical Specifications
Cleco
Power is exposed to certain risks related to the design, construction
and operation of Rodemacher Unit 3. This project has technology risk, fuel
supply risk and general contractor and certain material subcontractor
performance risk, each of which could have a material adverse effect on the
Registrants’ results of operations, financial condition, and cash
flows.
Rodemacher
Unit 3 is designed to utilize circulating fluidized bed (CFB) generating
technology.
Under
the Amended EPC Contract, Shaw is liable for liquidated damages for
non-performance. However, Cleco Power’s ability to collect any damages for
breach is contingent on the demonstration of such damages and on Shaw’s
financial abilities. Failure by Shaw to perform its obligations under the
Amended EPC Contract could have a material adverse impact on the plant’s
efficiency, in-service date, and final cost. The Amended EPC Contract does
not
protect Cleco Power against force majeure events or design/specification
oversight which may result in increased and potentially unrecoverable costs
to
Cleco Power. Although Cleco Power currently delivers coal via rail to the
Rodemacher facility, plans are for Rodemacher Unit 3 to primarily use petroleum
coke, which can be delivered most economically via barges on the Mississippi
and
Red Rivers, requiring a conveyor system which has to cross an interstate
highway. While Cleco Power is currently negotiating contracts with barge
owners
and operators, Cleco Power does not have experience coordinating the
transportation of fuel by barge.
Calpine
Bankruptcy
CES’s
bankruptcy and failure to perform its obligations under the Calpine Tolling
Agreements could
have a material adverse effect on Cleco Corporation’s results of operations,
financial condition, and cash flows.
A
substantial portion of Midstream’s earnings and cash flows
was
derived from the Calpine Tolling Agreements with CES. In December 2005, the
Calpine Debtors filed for protection under Chapter 11 of the U.S. Bankruptcy
Code in the Calpine Debtors Bankruptcy Court and subsequently filed a motion
with the court seeking to reject the Calpine Tolling Agreements. The issue
was
referred to the U.S. District Court for the Southern District of New York,
where
in January 2006, a federal judge dismissed the Calpine Debtors’ motion to reject
eight power supply contracts, including the Calpine Tolling Agreements. The
judge ruled that the FERC, not the bankruptcy court, has exclusive jurisdiction
over the disposition of the energy contracts. Calpine has appealed this ruling
to the U.S. Court of Appeals for the Second Circuit. As of the date of this
filing, no decision has been rendered by the court.
CES
has
failed to pay December 2005 pre-petition amounts totaling $3.5 million and
all
post-petition amounts due under the Calpine Tolling Agreements. The
tolling agreements provide for APH to receive, in the event of a CES default,
guaranteed priority cash payments totaling $19.0 million through 2011 and
$21.0
million thereafter through 2022. Acadia will make these annual cash payments
to
APH only when cash is available, and any unpaid amounts will accumulate to
APH.
The guaranteed and priority annual cash payments are still in effect; however,
no cash was declared available by Acadia during 2006.
In
March
2006, the Calpine Debtors Bankruptcy Court approved an amendment to each
of the
Calpine Tolling Agreements permitting Acadia to suspend its obligations under
those tolling agreements. Cleco continues to pursue opportunities in both
the
short- and long-term markets. Acadia is now operating as a merchant generating
company and energy management services are being provided by a third party
marketer.
Although
Cleco has not been required to record an impairment with respect to Acadia
as a
result of the Calpine bankruptcy proceedings, future events such as a decline
in
the anticipated market value of energy in relation to natural gas values
could
cause Acadia’s carrying value to exceed its market value, requiring an
impairment charge. Such a charge could adversely affect Cleco Corporation’s
financial condition by reducing consolidated common shareholders’ equity,
causing Cleco Corporation to incur increased interest costs on future debt
issuances, or causing an adverse change in Cleco Corporation’s credit
ratings.
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Deferred
Lignite Mining Costs
The
recovery of deferred lignite costs related to the Lignite Mining Agreement
is
subject to LPSC review and approval.
In
May
2001, Cleco Power (along with SWEPCO) entered into the Lignite Mining Agreement
with DHLC, the operator
of
the Dolet Hills mine. As ordered then by the LPSC, Cleco Power’s retail
customers began receiving fuel cost savings equal to 2% of the projected
costs
under the previous mining contract (the benchmark price) through the year
2011.
Actual mining costs incurred above 98% of the benchmark price are deferred,
and
will be recovered from retail customers through the fuel adjustment clause
when
the actual mining costs are below 98% of the benchmark price. At December
31,
2006, Cleco Power had deferred $20.1 million in lignite mining
costs.
In
November 2006, Cleco Power and SWEPCO submitted a joint application to the
LPSC
requesting full recovery, through the fuel adjustment clause, of their
respective deferred lignite costs as well as the elimination of any future
benchmarking of lignite mining costs. If the LPSC were to deny Cleco Power’s
request, then Cleco Power would be required to recognize any unrecoverable
costs
as an expense, and such an expense could likely have a material adverse effect
on the Registrants’ results of operations and financial condition.
In
addition, the LPSC’s implementing order, once issued, granting recovery of Cleco
Power’s deferred lignite costs may be appealed within 45 days after the
implementing order is issued. Any request for rehearing or appeal of any
recovery amount could have a material adverse impact on the Registrants’ results
of operations, financial condition, and cash flows.
Fuel
Cost Audits
The
LPSC conducts fuel audits that could result in Cleco Power
making
substantial refunds of previously recorded revenue.
Generally,
fuel and purchased power expenses are recovered through the LPSC-established
fuel adjustment clause, which enables Cleco Power to pass on to its customers
substantially all such charges. Recovery
of fuel adjustment clause costs is subject to refund until monthly approval
is
received from the LPSC; however, all amounts are subject to a periodic fuel
audit by the LPSC.
In
July
2006, the LPSC commenced a periodic fuel audit including Cleco Power’s fuel
adjustment clause filings for January 2003 through December 2004. Cleco Power
could be required to make a substantial refund of previously recorded revenue
as
a result of this audit, and such refund could result in a material adverse
effect on the Registrants’
results
of operations, financial condition, and cash flows. The most recent audit
completed by the LPSC covered 2001 and 2002 and resulted in a refund of $16.0
million to Cleco Power’s retail customers in the first quarter of
2005.
Hedging
and Risk Management Activities
Cleco
Power is subject to market risk associated with economic hedges relating
to open
natural gas contracts. Cleco
has risk management policies which cannot eliminate all risk involved in
its
energy commodity activities.
Cleco
Power utilizes economic hedges to mitigate the risks associated with a
fixed-price wholesale power contract that is not included in the fuel adjustment
clause. Any realized gain or loss attributable to these hedges is recorded
on
the income
statement as a component of operating revenue, net. Accordingly, changes
in the
market value of these hedging arrangements caused by natural gas price
volatility will impact the Registrants’ results of operations, financial
condition, and cash flows.
Cleco
Power also has entered into economic hedge positions
to
mitigate the volatility in fuel costs passed through to its retail customers.
When these positions close, actual gains or losses are deferred and included
in
the fuel adjustment clause in the month the physical contract settles. However,
recovery of any of these fuel adjustment clause costs is subject to, and
may be
disallowed as part of, a prudency review or a periodic fuel audit conducted
by
the LPSC.
Cleco
Power manages its exposure to energy commodity activities by establishing
and
enforcing risk limits and risk management procedures. These risk limits and
risk
management procedures may not work as planned and cannot eliminate the risk
associated with these activities.
Future
Electricity Sales
Cleco
Power’s future electricity sales and corresponding base revenue
and cash flows could be adversely affected by general economic
conditions.
General
market conditions can negatively impact the businesses of Cleco Power’s
industrial customers, resulting in decreased power purchases by them and
decreased base revenue. Cleco Power’s largest industrial customers, specifically
those who manufacture wood and paper products (who generated base revenue
of
approximately $21.3 million in 2006), have experienced a downturn in their
respective markets. The downturn in residential home construction has caused
a
significant reduction in the demand and prices for lumber and other wood
products. The paper industry has been vulnerable in recent years as a result
of
a mature market with pressures from overseas manufacturers. The rice and
sugar
cane industries, although recovered from the damage caused by the 2005 hurricane
season, remain vulnerable to competition from overseas processors. Reduced
production or the shut down of any of these customers’ facilities could
substantially reduce Cleco Power’s base revenue.
The
high
cost of energy, in general, has become problematic
in
many industries and has increased interest by industrial customers in switching
to alternative sources of energy,
including
on-site power generation. Also, retail customers may consume less electricity
due to increased conservation efforts or increased electric usage
efficiency.
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Purchased Power
Nonperformance
of Cleco Power’s power purchase agreements and transmission constraints could
have a material adverse effect
on the Registrants’ results of operations, financial condition, and cash
flows.
Cleco
Power does not supply all of its customers’ power from the generation facilities
it owns and must purchase additional energy and capacity from the wholesale
power market
in order
to meet their demands. During 2006, Cleco Power met approximately 56%
of its
energy needs with purchased power. A
500-MW
power purchase agreement with Williams, which expires in 2009, and other
short-
and long-term power purchase agreements provided approximately 36% of Cleco
Power’s capacity needs in 2006.
Cleco
Power plans to meet its 2007 energy and capacity needs with the Williams
500-MW
contract; a one-year, 200-MW contract with NRG Power Marketing, Inc.; and
a
one-year, 50-MW contract with the ConocoPhillips Company. If these providers
of
additional energy or capacity do not perform under their respective contracts,
Cleco Power would have to replace these supply sources with alternative market
sources, the terms of which may not be as favorable and could increase the
ultimate cost of power to Cleco Power’s customers.
Because
of Cleco Power’s location on the transmission
grid, Cleco Power relies on two main suppliers of electric transmission when
accessing external power markets. At times, physical constraints limit the
amount of purchased power these transmission providers can deliver into Cleco
Power’s service territory, which in turn can affect capacity or power purchases
under long-term contracts, as well as spot market power purchases. If the
amount
of purchased power actually delivered into Cleco’s transmission system were less
than the amount of power contracted for delivery, Cleco Power may rely on
its
own generation facilities to meet customer demand. Cleco Power’s incremental
generation cost, at that time, could be higher than the cost to purchase
power
from the wholesale power market, thereby increasing its customers’ ultimate
cost. In addition, the LPSC may not allow Cleco Power to recover part or
all of
its incremental generation cost, which could be substantial.
Weather
Sensitivity
The
operating results of Cleco Power are affected by weather
conditions
and may fluctuate on a seasonal and quarterly basis.
Weather
conditions directly influence the demand for electricity,
particularly kWh sales to residential customers. In Cleco Power’s service
territory, like in many parts of the country, demand for power peaks during
the
hot summer months, with market power prices also peaking at that time. As
a
result, Cleco Power’s financial results may fluctuate on a seasonal basis. In
addition, Cleco Power has sold less power, and consequently earned less income,
when weather conditions are milder. Unusually mild weather in the future
could
adversely impact the Registrants’ results of operations, financial condition,
and cash flows.
Severe
weather, including hurricanes and winter storms, can be destructive, causing
outages and property damage that can potentially result in additional
expenses
and lower revenue.
Commodity
Prices
Cleco
Power is subject to the fluctuation in the market prices of various commodities
which may increase the cost of producing power.
Cleco
Power purchases coal, lignite, natural gas and fuel oil under long-term
contracts and on the spot market. Historically,
the markets for oil, natural gas and coal have been volatile and are likely
to
remain volatile in the future. Cleco Power’s retail rates include a fuel
adjustment clause that enables it to adjust rates for monthly fluctuations
in
the cost of fuel and purchased power. However, recovery of any of these fuel
adjustment clause costs is subject to, and may be disallowed as part of,
a
prudency review or a periodic fuel audit conducted by the LPSC.
Evangeline
Plant
Performance
Evangeline
has certain plant performance obligations defined in its tolling agreement.
Failure to perform these obligations could expose Evangeline to adverse
financial penalties.
Performance
requirements in
the
Evangeline tolling agreement include, but are not limited to, maintaining
plant
performance characteristics such as heat rate and demonstrated generation
capacity and maintaining specified availability levels with a combination
of
plant availability and replacement power. Obligations under the tolling
agreement include, but are not limited to, maintaining various types of
insurance, maintaining power and natural gas metering equipment, and paying
scheduled interest and principal payments on debt. In addition to the
performance obligations by Evangeline, there are various guarantees and
commitments required by Cleco Corporation. If Evangeline fails to operate
within
specified requirements, the facility may purchase replacement power on the
open
market and provide it to the tolling counterparty in order to meet contractual
performance specifications. Providing replacement power maintains availability
levels, but exposes Evangeline to power commodity price volatility and
transmission constraints. If availability targets under the tolling agreement
are not met and economical purchased power and transmission are not available,
Evangeline’s results of operations, financial condition, and cash flows could be
materially adversely affected.
FERC
Staff Investigation
The
remedial actions that the
FERC ultimately may take with respect to the results of the current FERC
Staff
investigation could have a material adverse effect on the Registrants’ results
of operations, financial condition, and cash flows.
In
July
2003, the FERC issued an order approving the Consent Agreement that settled
the
FERC Investigation following
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Cleco’s
disclosure in November 2002 of certain energy marketing
and trading practices. There were numerous elements to the Consent Agreement,
including but not limited to: (i) a filing by Cleco’s public utility
subsidiaries with the FERC of revised codes of conduct that impose more
stringent restrictions on affiliate relations; and (ii) implementation of
a
Compliance Plan for FERC regulatory compliance for Cleco’s public utility
subsidiaries. The Compliance Plan had a three-year term, which ended in August
2006 and required periodic reporting to the FERC regarding the implementation
of, and continued compliance with, the Compliance Plan.
In
November 2005, after a review of Cleco’s October 2005 quarterly compliance
report, the
FERC
Staff initiated a preliminary, non-public investigation into certain
representations made by Cleco in the course of the FERC Staff’s investigation
underlying the Consent Agreement. In response to data requests from the FERC
Staff, Cleco has provided information regarding those representations as
well as
compliance with the Code of Conduct and Compliance Plan contained in the
Consent
Agreement. The information primarily concerns the possible sharing of employees
and information among Cleco’s subsidiaries, as well as the accuracy of
information furnished to the FERC Staff in connection with reporting on
compliance with the Consent Agreement. Until the issues raised in the current
informal investigation are resolved, Cleco will voluntarily operate pursuant
to
the Compliance Plan that expired in August 2006.
It
is
possible that one of the results the investigation may yield is a violation
of
FERC rules and regulations. Cleco management is unable to predict the results
of
the outcome of the investigation or the remedial actions that the FERC may
take.
The remedial actions that the FERC ultimately may take if they so choose
with
respect to the results of the investigation could have a material adverse
impact
on the Registrants’ results of operations and cash flows.
Cleco
Power Generation Facilities
Cleco
Power’s generation facilities are susceptible to unplanned outages, significant
maintenance requirements and interruption of fuel deliveries.
The
operation of power generation facilities involves many risks, including
breakdown or failure of equipment, fuel interruption
and performance below expected levels of output or efficiency. Some of Cleco
Power’s facilities were originally constructed many years ago. Older equipment,
even if maintained in accordance with good engineering practices, may require
significant expenditures to operate at peak efficiency or availability. If
Cleco
Power fails to make adequate
expenditures
for equipment maintenance, Cleco Power risks incurring more frequent unplanned
outages, higher than anticipated operating and maintenance expenditures,
increased fuel or power purchase costs and potentially the loss of revenue
related to competitive opportunities.
Cleco
Power’s generating facilities are fueled primarily by coal,
natural gas and lignite. The deliverability of these fuel sources may be
constrained due to such factors as higher demand, production shortages, lack
of
transportation capacity or weather-related disturbances. If the suppliers
are
unable to deliver the contracted volume of fuel, Cleco Power would have to
replace any deficiency with alternative sources, which may not be as favorable
and could increase the ultimate cost of fuel to customers. Fuel and purchased
power expenses are recovered from customers through the fuel adjustment clause,
which is subject to refund until either a prudency review or a periodic fuel
audit is conducted by the LPSC.
ERO
In
2005, the
FERC’s authority was expanded to include the establishment and enforcement of
mandatory reliability standards on the transmission system as well as the
capacity to impose fines and civil penalties on those who fail to comply
with
those standards.
The
Energy Policy Act of 2005 authorizes the creation of an ERO with authority
to
establish and enforce mandatory reliability
standards, subject to FERC approval, for users of the nation’s transmission
system. In July 2006, the FERC named the North American Electric Reliability
Council (NERC) as the ERO. The NERC’s former system of reliability standards was
based upon voluntary compliance. The FERC has adopted some of the NERC’s
standards while modifying others. The FERC has stated its intent to begin
enforcing compliance with these standards on June 1, 2007. A final order
is
expected to be issued by the FERC in March 2007.
These
standards may impose additional operating requirements on Cleco Power, Acadia,
Attala, Evangeline, and Perryville which may result in an increase in capital
expenditures and operating expenses.
Failure
to comply with the reliability standards approved by the FERC can result
in the
imposition of fines and civil penalties. At this time, the Registrants are
unable to determine the impact the ERO standards will have on their results
of
operations, financial condition, or cash flows.
Environmental
Compliance
Cleco’s
costs of compliance with environmental laws and regulations
are significant. The costs of compliance with new environmental laws and
regulations, as well as the incurrence of incremental environmental liabilities,
could also be significant to the Registrants.
Cleco
is
subject to extensive environmental oversight
by federal, state and local authorities and is required to comply with numerous
environmental laws and regulations. Cleco is also required to obtain and
comply
with numerous governmental permits in operating its facilities. Existing
environmental laws, regulations and permits could be revised or reinterpreted,
new laws and regulations could be adopted or become applicable to Cleco,
and
future changes in environmental laws and regulations could occur. Cleco may
incur significant capital expenditures or additional operating costs to comply
with these revisions, reinterpretations and requirements. If Cleco fails
to
comply with these revisions, reinterpretations and
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
requirements,
it could be subject to civil or criminal liabilities and fines.
Cleco
Power may request recovery from its retail customers
of
its costs to comply with environmental laws and regulations. If revenue relief
were to be approved by the LPSC, then Cleco Power’s retail rates could increase.
If the LPSC were to deny Cleco Power’s request to recover all or part of its
environmental compliance costs, such an adverse decision could have a material
effect on the Registrants’ results of operations, financial condition, and cash
flows.
Storm
Damage Costs
The
amount of storm restoration costs recoverable from Cleco Power’s retail
customers is not final and may be reduced.
In
February 2006, the LPSC approved interim revenue relief associated
with the recovery of storm restoration costs from Hurricanes Katrina and
Rita.
The interim rate increase became effective during the May 2006 billing cycle
(Phase I) and remains in effect until the LPSC completes a review to verify
and
approve the total amount of storm restoration costs to be recovered (Phase
II).
In
February 2007, after completion of the LPSC Staff’s Phase II review, the LPSC
Staff and Cleco Power signed a settlement
term sheet providing for the recovery of essentially all of Cleco Power’s storm
restoration costs. In addition to allowing the recovery of $158.7 million
of
storm restoration costs, the settlement term sheet provides for the funding
of a
$50.0 million reserve for future storm damage costs. Cleco Power would recover
both the actual storm restoration costs and the additional reserve through
a
customer billing surcharge. The LPSC Staff and Cleco Power are developing
definitive settlement agreements to implement the settlement term sheet and
to
authorize Cleco Power’s potential securitization financing of the Phase II
billing surcharge. For the settlement to become effective, it must be reviewed
before an Administrative Law Judge of the LPSC and then approved by the LPSC,
itself. Management expects this process to be completed in the second quarter
of
2007 and the settlement to be approved.
The
LPSC’s implementing order that finalizes the amount of recoverable storm
restoration costs may be appealed within 45 days after the LPSC order is
issued
or after the LPSC acts on a timely application for rehearing of the order.
There
is no assurance that an appeal will not be filed or that a lower amount of
recoverable storm restoration costs would be authorized as a result of an
appeal. A lower recoverable amount, compared to the recoverable amount agreed
to
in the settlement term sheet, could have a material adverse effect on the
Registrants’ results of operations, financial condition, and cash
flows.
Termination
of the Rodemacher Unit 3 Project
or the Amended EPC Contract
The
abandonment of the Rodemacher Unit 3 project
or termination of the Amended EPC Contract could result in unrecoverable
costs.
Cleco
Power may determine that its decision to construct, own and operate Rodemacher
Unit 3 is no longer justified due to changes in circumstances or for other
reasons. If
Cleco
Power decided to abandon the project, the LPSC may not allow Cleco Power
to
recover some or all of its incurred costs. The Amended EPC Contract allows
Cleco
Power to terminate the agreement at its sole discretion, but exercise of
this
termination right would require Cleco Power to pay termination costs to Shaw.
Termination costs under the Amended EPC Contract are substantial and increase
significantly as the project progresses.
Retail
Electric Service
Cleco
Power’s retail electric rates and business practices are
regulated
by the LPSC.
Cleco
Power’s retail rates for residential, commercial, and industrial
customers and other retail sales are regulated by the LPSC, which conducts
an
annual review of Cleco Power’s earnings and regulatory return on equity. Cleco
Power files monitoring reports with the LPSC for the 12-month period ended
September 30. Cleco Power could be required to make a substantial refund
of
previously recorded revenue as a result of the LPSC review, and such refund
could result in a material adverse effect on the Registrants’
results
of operations, financial condition, and cash flows.
Cleco
Credit Ratings
A
downgrade in Cleco Corporation’s or Cleco Power’s credit rating could result in
an increase in their respective borrowing costs and a reduced pool of potential
investors and funding sources.
While
the
senior unsecured debt ratings of Cleco Corporation and Cleco Power are
currently
investment grade, in recent years such ratings have been downgraded or put
on
negative watch by Moody’s and Standard & Poor’s. Cleco Corporation or Cleco
Power cannot assure that its debt ratings will remain in effect for any given
period of time or that one or more of its debt ratings will not be lowered
or
withdrawn entirely by a rating agency. Credit ratings are not recommendations
to
buy, sell or hold securities and each rating should be evaluated independently
of any other rating. If Moody’s or Standard & Poor’s were to downgrade Cleco
Corporation or Cleco Power’s long-term ratings, particularly below investment
grade, the value of their debt securities would likely be adversely affected,
and the borrowing cost of Cleco Corporation or Cleco Power would likely
increase. In addition, Cleco Corporation or Cleco Power would likely be required
to pay higher interest rates in future debt financings and be subject to
more
onerous debt covenants, and its pool of potential investors and funding sources
could decrease.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Holding
Company
Cleco
Corporation is a holding company, and its ability to meet its debt obligations
and pay dividends on its common stock is dependent
on the cash generated by its subsidiaries.
Cleco
Corporation is a holding company and conducts its operations
primarily through its subsidiaries. Substantially all of Cleco’s consolidated
assets are held by its subsidiaries. Accordingly, Cleco’s ability to meet its
debt obligations, which at December 31, 2006, consisted of $100.0 million
of
7.00% senior notes due in 2008, and to pay dividends on its common stock
is
largely dependent upon the cash generated by these subsidiaries. Cleco’s
subsidiaries are separate and distinct entities and have no obligation to
pay
any amounts due on Cleco’s debt or to make any funds available for such payment.
In addition, Cleco’s subsidiaries’ ability to make dividend payments or other
distributions to Cleco may be restricted by their obligations to holders
of
their outstanding securities and to other general business creditors. Moreover,
Cleco Power, Cleco’s principal subsidiary, is subject to regulation by the LPSC,
which may impose limits on the amount of dividends that Cleco Power may pay
Cleco Corporation.
Williams
Failure
by Williams to perform its obligations under the Evangeline Tolling Agreement
could
likely have a material adverse effect on Cleco’s results of operations,
financial condition, and cash flows.
The
credit ratings of the senior unsecured debt of The Williams
Companies, Inc. (Moody’s
- Ba2; Standard & Poor’s - BB-),
the
parent company of Williams under the Evangeline Tolling Agreement, remain
below
investment grade. If Williams were to fail to perform its obligations under
the
Evangeline Tolling Agreement, such failure would have a material adverse
effect
on Cleco Corporation’s results of operations, financial condition, and cash
flows for the following reasons, among others:
§ |
If
Williams’ failure to perform constituted a default under the tolling
agreement, the holders of the Evangeline bonds would have the right
to
declare the outstanding principal amount ($184.7 million at
December 31, 2006) and
interest to
be immediately due and payable, which could result
in:
|
§ |
Cleco’s
seeking to refinance the bonds, the terms of which may be less favorable
than existing terms;
|
§ |
Cleco’s
causing Evangeline to seek protection under federal bankruptcy laws;
or
|
§ |
the
trustee of the bonds foreclosing on the mortgage and assuming ownership
of
the Evangeline plant;
|
§ |
Cleco
may not be able to enter into agreements in replacement
of the Evangeline Tolling Agreement on terms as favorable as that
agreement or at all;
|
§ |
Cleco’s
equity investment in Evangeline may be impaired, requiring a write-down
to
its fair market value, which could be substantial; and
|
§ |
Cleco’s
credit ratings could be downgraded, which would increase borrowing
costs
and limit sources of financing.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM
2. PROPERTIES
CLECO
POWER
All
of
Cleco Power’s electric generating stations and all other electric operating
properties are located in the state of Louisiana.
Cleco Power considers all of its properties to be well maintained, in good
operating condition, and suitable for their intended purposes. For information
on Cleco Power’s generating facilities, see Item 1, “Business — Operations —
Cleco Power — Power Generation.”
Electric
Generating Stations
As
of
December 31, 2006,
Cleco
Power either owned or had an ownership interest in three steam electric
generating stations and one gas turbine with a combined electric net generating
capacity of 1,359 MW. For additional information on Cleco Power’s generating
facilities, see Item 1, “Business — Operations — Cleco Power — Power
Generation.”
Electric
Substations
As
of
December 31, 2006,
Cleco
Power owned 71 active transmission substations and 222 active distribution
substations.
Electric
Lines
As
of
December 31, 2006,
Cleco
Power’s transmission system consisted of approximately 67 circuit miles of
500-kiloVolt (kV) lines; 461 circuit miles of 230-kV lines; 661 circuit miles
of
138 kV lines; and 21 circuit miles of 69-kV lines. Cleco Power’s distribution
system consisted of approximately 3,382 circuit miles of 34.5-kV lines and
7,914
circuit miles of other lines.
General
Properties
Cleco
Power owns various properties
throughout Louisiana, which include a headquarters office building, regional
offices, service centers, telecommunications equipment, and other
general-purpose facilities.
Title
Cleco
Power’s electric generating plants and certain other principal properties are
owned in fee.
Electric
transmission and distribution lines are located either on private rights-of-way
or along streets or highways by public consent.
Substantially
all of Cleco Power’s property, plant and equipment is
subject to a lien of Cleco Power’s Indenture of Mortgage, which does not impair
the use of such properties in the operation of its business. As of December
31,
2006, no obligations were outstanding under the Indenture of
Mortgage.
MIDSTREAM
Midstream
considers all of its properties to be well maintained, in good operating
condition, and suitable for their intended purposes. For information on
Midstream’s generating facilities, see Item 1, “Business — Operations —
Midstream.”
Electric
Generation
As
of
December 31, 2006,
Midstream owned one steam electric generating station, Evangeline, and had
a 50%
ownership interest in an additional station, Acadia, both located in Louisiana.
For additional information on Midstream’s generating facilities, see Item 1,
“Business — Operations — Midstream.”
Electric
Substations
As
of
December 31, 2006, Midstream owned one active transmission substation
in Louisiana and one active transmission substation in Mississippi. On January
22, 2007, the FERC approved the transfer of the ownership interests of
Midstream’s transmission substations to Cleco Corporation. The transfer was
effective February 1, 2007. For additional information, see Part II, Item
8,
“Financial Statements and Supplementary Data — Notes to the Financial Statements
— Note 24 — Subsequent Events — Organizational Change.”
Title
Midstream’s
assets are owned in fee, including Midstream’s portion of Acadia.
Evangeline is subject to a lien securing obligations under an Indenture of
Mortgage, which does not impair the use of such properties in the operation
of
its business.
ITEM
3. LEGAL
PROCEEDINGS
CLECO
For
information on legal proceedings affecting Cleco, see
Part
II, Item 8, “Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 15 — Litigation and Other Commitments and
Contingencies — Other Litigation,” Note 20 — “Perryville — Mirant Bankruptcy and
MAEM’s Rejection of the Perryville Tolling Agreement,” “— Perryville
Bankruptcy,” Note 21 — “Calpine Bankruptcy,” and Item I, “Business —
Environmental Matters — Environmental Quality — Water Quality.”
CLECO
POWER
For
information
on legal proceedings affecting Cleco Power, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 15
— Litigation and Other Commitments and Contingencies — Other
Litigation.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
CLECO
There
were no matters submitted
to a vote of security holders of Cleco Corporation during the fourth quarter
of
2006.
CLECO
POWER
The
information called for by Item 4 with respect to Cleco Power is omitted
pursuant
to General Instruction I(2)(c) to Form 10-K (Omission of Information by Certain
Wholly Owned Subsidiaries).
Board
of Directors of Cleco
The
names
of the members of the Board of Directors of Cleco, their ages, dates of
election, employment history and committee assignments as of December 31,
2006,
are included below. The term of each directorship is three years, and directors
are divided
among three classes. The terms of the three classes are staggered in a manner
so
that only one class is elected by the shareholders annually.
NAME
OF DIRECTOR
|
AGES
AS OF DECEMBER 31, 2006
|
Sherian
G. Cadoria
|
Age
66;
Elected 1993
Brigadier
General, U.S. Army (retired)
Retired
President, Cadoria Speaker and Consultancy Service, Mansura,
LA
Member
of the Audit, Nominating/Governance and Qualified Legal Compliance
committees
|
Richard
B. Crowell
|
Age
68;
Elected 1997
Partner,
law firm of Crowell & Owens, Alexandria, LA
Member
of the Audit, Nominating/Governance and Qualified Legal Compliance
committees
|
J.
Patrick Garrett
|
Age
63;
Elected 1981
Retired
President and Chief Executive Officer, Windsor Food Company, Ltd.,
Houston, TX
Chairman
of the Board and chairman of the Executive, Nominating/Governance
and
Qualified Legal Compliance committees
|
F.
Ben James Jr.
|
Age
70;
Elected 1986
President,
James Investments, Inc. (real estate development and international
marketing), Ruston, LA
Member
of the Audit, Compensation, Nominating/Governance and Qualified
Legal
Compliance committees
|
Elton
R. King
|
Age
60;
Elected 1999
Retired
President of network and carrier services group, BellSouth
Telecommunications, Inc., Atlanta, GA. Also retired president and
CEO of
Visual Networks, Inc.
Member
of the Compensation and Finance committees
|
Michael
H. Madison
|
Age
58; Elected 2005
President
and Chief Executive Officer, Cleco Corporation, Pineville, LA
Member
of the Executive Committee
|
William
L. Marks
|
Age
63;
Elected 2001
Chairman
and Chief Executive Officer, Whitney Holding Corporation and Whitney
National Bank, New Orleans, LA
Chairman
of the Finance Committee and member of the Compensation and Executive
committees
|
Robert
T. Ratcliff Sr.
|
Age
64;
Elected 1993
Chairman,
President and Chief Executive Officer, Ratcliff Construction Company,
LLC,
Alexandria, LA
Member
of the Audit and Finance committees
|
William
H. Walker Jr.
|
Age
61;
Elected 1996
Retired
Chairman, Howard Weil, Inc., New Orleans, LA
Chairman
of the Compensation Committee and member of the Executive and Finance
committees
|
W.
Larry Westbrook
|
Age
67;
Elected 2003
Retired
Chief Financial Officer and Senior Risk Officer of Southern Company,
Atlanta, GA
Chairman
of the Audit Committee and member of the Executive and Finance
committees
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Executive
Officers of Cleco
The
names
of the executive officers of Cleco and certain subsidiaries, their positions
held, five-year employment history, ages, and years of service as of December
31, 2006,
are
presented below. Executive officers are appointed annually to serve for the
ensuing year or until their successors have been appointed.
NAME
OF EXECUTIVE
|
POSITION
AND FIVE-YEAR EMPLOYMENT HISTORY
|
Michael
H. Madison
Cleco
Corporation
Cleco
Power
|
President
and Chief Executive Officer since May 2005.
Chief
Executive Officer since May 2005. President
and Chief Operating Officer from October 2003 to May 2005; State
President, Louisiana-Arkansas with American Electric Power from
June 2000
to September 2003.
(Age
58; 3 years of service)
|
Dilek
Samil
Cleco
Corporation
Cleco
Power
|
Executive
Vice President and Chief Financial Officer from April 2004 to May
2005;
Senior Vice President Finance and Chief Financial Officer from
October
2001 to April 2004.
President
and Chief Operating Officer since May 2005; Executive Vice President
and
Chief Financial Officer from April 2004 to May 2005; Senior Vice
President
Finance and Chief Financial Officer from October 2001 to April
2004.
(Age
51; 5 years of service)
|
Kathleen
F. Nolen
Cleco
Corporation
Cleco
Power
|
Senior
Vice President and Chief Financial Officer since May 2005; Treasurer
from December 2000 to May 2005; Assistant Corporate Secretary from
July
2003 to May 2005.
(Age
46; 23 years of service)
|
George
W. Bausewine
Cleco
Corporation
Cleco
Power
|
Senior
Vice President Corporate Services since May 2005; Vice
President Regulatory and Rates from October 2002 to May 2005; Vice
President Strategic and Regulatory Affairs from August 2000 to
October
2002.
(Age
51; 21 years of service)
|
Samuel
H. Charlton III
Midstream
|
Senior
Vice President and Chief Operating Officer since March 2003; Vice
President from October 2002 to March 2003; Senior Vice President
Asset
Management from December
2000 to October 2002.
(Age
61; 9 years of service)
|
Jeffrey
W. Hall
Cleco
Corporation
Cleco
Power
|
Senior
Vice President Governmental Affairs and Chief Diversity Officer
since July
2006; Vice President Governmental and Community Affairs from July
2005 to
July 2006.
Senior
Vice President Governmental Affairs and Chief Diversity Officer
since July
2006; Vice
President Governmental and Community Affairs from October 2004
to July
2006; Vice President Customer Services from August 2000 to October
2004.
(Age
55; 26 years of service)
|
Anthony
L. Bunting
Cleco
Power
|
Vice
President Customer Services and Energy Delivery since October 2004;
acting
General Manager Human Resources from August 2003 to October 2004;
General
Manager Customer Care from December 2001 to August 2003.
(Age
47; 15 years of service)
|
Stephen
M. Carter
Cleco
Power
|
Vice
President Regulated Generation since April 2003; General Manager
Regulated
Generation from October
2002 to April 2003; Plant Superintendent - Dolet Hills Power Station
from
September 2000 to October 2002.
(Age
47; 18 years of service)
|
R.
Russell Davis
Cleco
Corporation
Cleco
Power
|
Vice
President and Chief Accounting Officer since May 2005; Vice
President and Controller from July 2000 to May 2005.
(Age
50; 7 years of service)
|
William
G. Fontenot
Cleco
Power
Midstream
Cleco
Corporation
|
Vice
President Regulated Generation Development since July 2005.
Chief
Restructuring Officer of Perryville from April 2004 to July 2005;
Senior
Vice President Commercial Operations from March 2002 to October
2002; Vice
President Marketing and Trading and Chief Operating Officer from
December
1999 to March 2002.
General
Manager Contracts and Analysis from December 2002 to April
2004.
Vice
President Strategy and Corporate Development from October 2002
to December
2002.
(Age
43; 21 years of service)
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
NAME
OF EXECUTIVE
|
POSITION
AND FIVE-YEAR EMPLOYMENT HISTORY
|
Judy
P. Miller
Cleco
Corporation
Cleco
Power
|
Corporate
Secretary since January 2004; Assistant Controller from June
2000 to January 2004.
(Age
49; 22 years of service)
|
Keith
D. Crump
Cleco
Corporation
Cleco
Power
Midstream
|
Treasurer
since May 2005; Manager Forecasting and Analytics, Budgeting from
December
2004 to May 2005; Manager Forecasting and Analytics from October
2002 to
December 2004.
Manager
Technical Support from July 1998 to October 2002.
(Age
45; 17 years of service)
|
Terry
L. Taylor
Cleco
Corporation
Cleco
Power
|
Assistant
Controller
effective August 31, 2006; Director of Accounting Services and
Affiliate
Compliance from January 2004 to August 2006; Manager Systems Support
and
Affiliate Compliance from October 2002 to January 2004; Director
of
Affiliate Compliance from March 2002 to October 2002; Accounting
Consultant from October 2000 to March 2002.
(Age
51; 6 years of service)
|
On
January 28, 2004, Perryville entered into an agreement to sell its 718-MW
power
plant to Entergy Louisiana. As part of the sales process, Perryville and
PEH
filed voluntary petitions
in
the Perryville and PEH Bankruptcy Court for protection under Chapter 11 of
the
U.S. Bankruptcy Code. Ms. Samil, Mr. Charlton, and Mr. Fontenot are or have
been
managers of Perryville and/or PEH within the two years preceding the voluntary
bankruptcy filing. For more information regarding the sale of the Perryville
facility and the related bankruptcy filing, see Part II, Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 20
— Perryville.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
PART
II
ITEM
5. MARKET
FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND CLECO
CORPORATION’S PURCHASES
OF EQUITY SECURITIES
CLECO
CORPORATION
Cleco
Corporation’s common stock is listed for trading on the New York Stock Exchange
(NYSE).
For
information on the high and low sales prices for Cleco Corporation’s common
stock as reported on the NYSE Composite Tape and dividends paid per share
during
each calendar quarter of 2006 and 2005, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 23 — Miscellaneous
Financial Information (Unaudited).” During the quarter ended December 31, 2006,
none of Cleco Corporation’s equity securities registered pursuant to Section 12
of the Securities Exchange Act of 1934 was purchased by or on behalf of Cleco
Corporation or any of its “affiliated purchasers,” as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934. For information on
Cleco
Corporation’s common stock repurchase program, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 7 — Common
Stock — Common Stock Repurchase Program.”
Subject
to the
prior
rights of the holders of the respective series of Cleco Corporation’s preferred
stock, such dividends as determined by the Board of Directors of Cleco
Corporation may be declared and paid on the common stock from time to time
out
of funds legally available. The provisions of Cleco Corporation’s charter
applicable to preferred stock and certain provisions contained in the debt
instruments of Cleco under certain circumstances restrict the amount of retained
earnings available for the payment of dividends by Cleco Corporation. The
most
restrictive covenant, which is in Cleco Corporation’s credit facility, requires
Cleco Corporation’s total indebtedness to be less than or equal to 65% of total
capitalization. At December 31, 2006, approximately $436.2 million of retained
earnings were unrestricted. In the fourth quarter of 2006, Cleco Corporation
made an equity contribution to Cleco Power of $50.0 million. On January 26,
2007, Cleco Corporation’s Board of Directors declared a quarterly dividend of
$0.225 per share payable on February 15, 2007, to common shareholders of
record
on February 5, 2007.
As
of
January 31, 2007, there were 7,860 holders of record of Cleco Corporation’s
common stock, and the closing price of Cleco Corporation’s common stock as
reported on the NYSE Composite Tape was $25.54 per share.
CLECO
POWER
There
is
no market for Cleco Power’s membership interests.
All of
Cleco Power’s outstanding membership interests are owned by Cleco Corporation.
Distributions on Cleco Power’s membership interests are paid when and if
declared by Cleco Power’s Board of Managers. Any future distributions also may
be restricted by any credit or loan agreements that Cleco Power may enter
into
from time to time.
Some
provisions in Cleco Power’s debt instruments restrict the amount of equity
available for distribution to Cleco Corporation
by Cleco Power under specified circumstances. The most restrictive covenant
requires Cleco Power’s total indebtedness to be less than or equal to 65% of
total capitalization. At December 31, 2006, approximately $344.3 million
of
member’s equity were unrestricted.
The
following table shows the distributions paid by Cleco Power to Cleco Corporation
during 2005 and 2004. There were no distributions from Cleco Power to Cleco
Corporation during 2006.
|
|
DISTRIBUTION/DIVIDEND
AMOUNT
|
DATE
PAID
|
$11.1
million
|
February
15, 2004
|
$11.8
million
|
May
15, 2004
|
$
5.0 million
|
August
15, 2004
|
$16.8
million
|
November
15, 2004
|
$12.3
million
|
February
15, 2005
|
$
7.6 million
|
May
15, 2005
|
$33.0
million
|
August
15, 2005
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
6. SELECTED
FINANCIAL DATA
CLECO
The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and the related Notes in Item 8, “Financial Statements and
Supplementary Data.”
In
accordance with FIN 46R, Cleco deconsolidated Evangeline from its consolidated
financial statements and began
reporting its investment in Evangeline on the equity method of accounting.
As a
result, effective March 31, 2004, the assets and liabilities of Evangeline
no
longer are reported on Cleco Corporation’s Consolidated Balance Sheets but
instead are represented by one line item corresponding to Cleco’s equity
investment in Evangeline. Effective April 1, 2004, Evangeline’s revenue and
expenses are netted and reported as equity income from investees on Cleco
Corporation’s Consolidated Statements of Income. For additional information on
the financial results of Evangeline, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 13 — Equity
Investment in Investees.”
Perryville
and PEH were deconsolidated from Cleco in connection with their bankruptcy
filings, and no income or loss associated with those subsidiaries was recognized
in Midstream’s consolidated financial statements subsequent to the bankruptcy
filing on January 28, 2004. On October 11, 2005, an order confirming PEH
and
Perryville’s plan of reorganization became final. In accordance with FIN 46R,
Cleco recorded its investment in Perryville on the equity method of accounting.
Effective October 11, 2005, Perryville’s revenue and expenses during the
reorganization period were netted and reported as equity income from investees
on Cleco Corporation’s Consolidated Statements of Income. Perryville’s assets
and liabilities are represented by one line item corresponding to Cleco’s equity
investment in Perryville on Cleco Corporation’s Consolidated Balance Sheets. The
financial results for Perryville and PEH were reintegrated with Cleco’s
consolidated financial results in 2005. For additional information on PEH’s and
Perryville’s reintegration, see Item 8, “Financial Statements and Supplementary
Data — Notes to the Financial Statements — Note 20 — Perryville.”
Cleco’s
adoption of SFAS No. 123(R) on January 1, 2006, and SFAS No. 158 on December
31,
2006, impacted Cleco’s consolidated financial results for 2006 as compared to
prior years. For additional information regarding the adoption of SFAS No.
123(R) and SFAS No. 158, see Item 8, “Financial Statements and Supplementary
Data — Notes to the Financial Statements — Note 2 — Summary of Significant
Accounting Policies — Recent Accounting Standards.”
Five-Year
Selected Financial Data (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS,
EXCEPT PER SHARE AND PERCENTAGES)
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
Operating
revenue,
net (excluding intercompany revenue)
|
|
|
|
|
|
|
|
|
|
|
|
Cleco
Power
|
|
$
|
994,191
|
|
$
|
911,971
|
|
$
|
727,449
|
|
$
|
705,079
|
|
$
|
593,781
|
|
Midstream
|
|
|
4,400
|
|
|
4,984
|
|
|
14,844
|
|
|
97,129
|
|
|
98,693
|
|
Other
|
|
|
2,084
|
|
|
3,199
|
|
|
3,524
|
|
|
1,244
|
|
|
57
|
|
Total
|
|
$
|
1,000,675
|
|
$
|
920,154
|
|
$
|
745,817
|
|
$
|
803,452
|
|
$
|
692,531
|
|
Income
(loss)
from continuing operations before income taxes
|
|
$
|
116,719
|
|
$
|
298,929
|
|
$
|
101,983
|
|
$
|
(51,185
|
)
|
$
|
120,038
|
|
Net
income (loss) applicable to common stock
|
|
$
|
72,856
|
|
$
|
180,779
|
|
$
|
63,973
|
|
$
|
(36,790
|
)
|
$
|
70,003
|
|
Basic
earnings (loss) per share from continuing operations
|
|
$
|
1.36
|
|
$
|
3.54
|
|
$
|
1.33
|
|
$
|
(0.68
|
)
|
$
|
1.65
|
|
Basic
earnings (loss) per share applicable to common stock
|
|
$
|
1.36
|
|
$
|
3.54
|
|
$
|
1.33
|
|
$
|
(0.79
|
)
|
$
|
1.47
|
|
Diluted
earnings (loss) per share from continuing operations
|
|
$
|
1.36
|
|
$
|
3.53
|
|
$
|
1.32
|
|
$
|
(0.68
|
)
|
$
|
1.65
|
|
Diluted
earnings (loss) per share applicable to common stock
|
|
$
|
1.36
|
|
$
|
3.53
|
|
$
|
1.32
|
|
$
|
(0.79
|
)
|
$
|
1.47
|
|
Capitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shareholders’ equity
|
|
|
57.81
|
%
|
|
52.15
|
%
|
|
53.56
|
%
|
|
34.27
|
%
|
|
38.83
|
%
|
Preferred
stock
|
|
|
1.32
|
%
|
|
1.52
|
%
|
|
1.90
|
%
|
|
1.33
|
%
|
|
1.21
|
%
|
Long-term
debt
|
|
|
40.87
|
%
|
|
46.33
|
%
|
|
44.54
|
%
|
|
64.40
|
%
|
|
59.96
|
%
|
Common
shareholders’ equity
|
|
$
|
876,129
|
|
$
|
686,229
|
|
$
|
541,838
|
|
$
|
482,750
|
|
$
|
562,470
|
|
Preferred
stock
|
|
$
|
20,092
|
|
$
|
20,034
|
|
$
|
19,226
|
|
$
|
18,717
|
|
$
|
17,508
|
|
Long-term
debt
|
|
$
|
619,341
|
|
$
|
609,643
|
|
$
|
450,552
|
|
$
|
907,058
|
|
$
|
868,684
|
|
Total
assets
|
|
$
|
2,461,104
|
|
$
|
2,149,488
|
|
$
|
1,837,063
|
|
$
|
2,159,426
|
|
$
|
2,344,556
|
|
Cash
dividends paid per common share
|
|
$
|
0.900
|
|
$
|
0.900
|
|
$
|
0.900
|
|
$
|
0.900
|
|
$
|
0.895
|
|
CLECO
POWER
The
information called for
by
Item 6 with respect to Cleco Power is omitted pursuant to General Instruction
I(2)(a) to Form 10-K (Omission of Information by Certain Wholly Owned
Subsidiaries).
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Cleco
is
a regional energy services holding company that conducts substantially all
of
its business
operations through its two principal operating business segments:
§ |
Cleco
Power, an integrated electric utility services subsidiary regulated
by the
LPSC and the FERC, among other regulators, which also engages in
energy
management activities; and
|
§ |
Midstream,
a merchant energy subsidiary regulated by the FERC, that owns and
operates
a merchant generation
station, invests in a joint venture that owns and operates a merchant
generation station, and owns and operates transmission interconnection
facilities. On January 22, 2007, the FERC approved the transfer of
the
ownership interests of Midstream’s transmission interconnection facilities
to Cleco Corporation. The transfer was effective February 1, 2007.
For
additional information, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 24 —
Subsequent Events — Organizational
Change.”
|
For
information
on
Cleco’s affiliated companies and the services each company provides to other
affiliates, see Item 8, “Financial Statements and Supplementary Data — Notes to
the Financial Statements — Note 19 — Affiliate Transactions.”
While
management believes that Cleco remains a strong company, Cleco continues to
focus on several near-term challenges. An overview of significant factors
affecting Cleco Power and Midstream are described below.
Cleco
Power
Many
factors affect the opportunities, challenges, and risks of Cleco Power's primary
business of selling electricity. These factors include the presence
of a stable regulatory environment, which includes recovery of costs and
maintenance of a competitive return on equity; the ability to achieve energy
sales growth while containing costs; and the ability to recover costs related
to
growing demand and rising fuel prices and increasingly stringent regulatory
and
environmental standards.
As
part
of its plan to resolve long-term capacity needs, Cleco Power began construction
of Rodemacher Unit 3 in May 2006, which upon completion, will provide a portion
of the utility’s
future power supply needs and help stabilize customer fuel costs. The project’s
capital cost, including carrying costs during construction, is estimated at
$1.0
billion. Cleco Power anticipates the plant will be operational no later than
the
fourth quarter of 2009. For additional information, see “— Financial Condition —
Liquidity and Capital Resources — Regulatory Matters — Rodemacher Unit
3.”
Cleco
Power continues to evaluate a range of other power supply options for 2008
and
beyond. As such, Cleco Power is continuing to update its IRP to look at future
sources of supply. Cleco Power has issued a RFP to meet its 2008 capacity and
energy requirements. Cleco Power also plans to release an additional RFP in
2007
to look for long-term resources to fill the needs identified by the latest
IRP.
In
2005,
Hurricanes Katrina and Rita caused catastrophic damage to the Gulf Coast region,
including Cleco Power's service territory. Storm restoration costs from
Hurricanes Katrina and Rita are currently estimated to total $158.7 million,
a
decrease from the original estimate of $161.8 million filed with the LPSC.
In
February 2006, the LPSC approved an interim rate increase of $23.4 million
annually for a ten-year period to recover from customers approximately $161.8
million of storm restoration costs. In February 2007, the LPSC Staff and Cleco
Power signed a settlement term sheet allowing for recovery of $158.7 million
of
storm restoration costs. For additional information, see Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 3 —
Regulatory Assets and Liabilities” and “Note 24 — Subsequent Events — Storm Cost
Recovery.”
Cleco
Power is exploring the potential reimbursement of storm restoration costs from
the U.S. Government, as well as securitization of costs, to reduce the amount
to
be recovered from customers. In addition, Cleco Power is exploring the
possibility of financing the storm restoration costs with tax-exempt bonds
through the Gulf Opportunities Zone Act of 2005 (the Act). The Louisiana State
Bond Commission has granted preliminary approval to Cleco Power for the issuance
of up to $160.0 million of tax-exempt bonds under the Act. Cleco Power cannot
predict with certainty that any reimbursement from the U.S. Government,
securitization of costs, or any other financing will be given final approval,
and if approved, the certainty that any such financing can be
consummated.
On
July
28, 2006, the LPSC issued an order extending the current RSP through the
in-service date of Rodemacher Unit 3 with several modifications to the terms
of
the current RSP. For additional information on the LPSC’s approval of Cleco
Power’s RSP extension, effective October 1, 2006, see Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 12
— Electric Customer Credits.”
Midstream
In
June
2005, Cleco completed the sale of the Perryville 718-MW power plant to Entergy
Louisiana for $162.0 million, while retaining ownership of the plant’s
transmission assets. In August 2005, Cleco completed the sale of the related
Mirant bankruptcy claims. On October 11, 2005, Perryville and PEH received
approval to emerge from bankruptcy. The financial results for Perryville and
PEH
were reintegrated with Cleco’s consolidated financial results during the third
quarter of 2005. For additional information on Perryville, see Item 8,
“Financial Statements and Supplementary Data — Notes to the Financial Statements
— Note 20 — Perryville.”
In
December 2005, the Calpine Debtors filed for protection under Chapter 11 of
the
Bankruptcy Code and subsequently filed a motion with the Calpine Debtors
Bankruptcy Court to
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
reject
the Calpine Tolling Agreements. In March 2006, Acadia and CES executed
amendments to the Calpine Tolling Agreements, which were approved by the Calpine
Debtors Bankruptcy Court, permitting Acadia to suspend its obligations under
the
agreements. Although there are many uncertainties surrounding the Calpine
bankruptcy and its effect on agreements with Acadia, Midstream is prepared
to
protect its interests in Calpine’s bankruptcy proceedings and will continue to
actively work to realize the value of the Acadia plant by restructuring the
partnership and by pursuing its claim in Calpine’s bankruptcy. While awaiting
resolution of the bankruptcy issues, Acadia’s output is being marketed by a
third party marketer. For additional information on Acadia and the Calpine
bankruptcy, see Part I, Item 1A, “Risk Factors — Calpine Bankruptcy,” Part II,
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Midstream — Midstream’s Results of Operations,” and Item 8,
“Financial Statements and Supplementary Data — Notes to the Financial Statements
— Note 21 — Calpine Bankruptcy.”
In
accordance with FIN 46R, Cleco deconsolidated Evangeline from its consolidated
financial statements and began reporting its investment in Evangeline on the
equity method of accounting, effective March 31, 2004. For additional
information on FIN 46R and the deconsolidation of Evangeline, see Item 8,
“Financial Statements and Supplementary Data — Notes to the Financial Statements
— Note 13 — Equity Investment in Investees.” Cleco continues to assess the
ongoing credit condition of the Evangeline Tolling Agreement counterparty,
as
Midstream’s merchant energy business is heavily dependent on the performance of
this tolling agreement. For additional information on the risks associated
with
Cleco’s tolling agreement counterparties, see Part I, Item 1A, “Risk Factors —
Calpine Bankruptcy” and — “Williams.”
RESULTS
OF OPERATIONS
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ materially
from those estimates.
Cleco
Consolidated Results of Operations —
Year
ended December 31, 2006,
Compared
to Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue,
net
|
|
$
|
1,000,675
|
|
$
|
920,154
|
|
$
|
80,521
|
|
|
8.75
|
%
|
Operating
expenses
|
|
|
885,697
|
|
|
808,420
|
|
|
(77,277
|
)
|
|
(9.56
|
)%
|
Operating
income
|
|
$
|
114,978
|
|
$
|
111,734
|
|
$
|
3,244
|
|
|
2.90
|
%
|
Interest
income
|
|
$
|
10,452
|
|
$
|
5,310
|
|
$
|
5,142
|
|
|
96.84
|
%
|
Allowance
for other funds used
during construction
|
|
$
|
7,779
|
|
$
|
2,349
|
|
$
|
5,430
|
|
|
231.16
|
%
|
Equity
income from investees
|
|
$
|
24,452
|
|
$
|
218,441
|
|
$
|
(193,989
|
)
|
|
(88.81
|
)%
|
Other
income
|
|
$
|
7,412
|
|
$
|
4,567
|
|
$
|
2,845
|
|
|
62.29
|
%
|
Interest
charges
|
|
$
|
44,271
|
|
$
|
40,535
|
|
$
|
(3,736
|
)
|
|
(9.22
|
)%
|
Income
from continuing operations
|
|
$
|
74,670
|
|
$
|
182,978
|
|
$
|
(108,308
|
)
|
|
(59.19
|
)%
|
Loss
from discontinued operations, net
|
|
$
|
(79
|
)
|
$
|
(334
|
)
|
$
|
255
|
|
|
76.35
|
%
|
Net
income applicable to common stock
|
|
$
|
72,856
|
|
$
|
180,779
|
|
$
|
(107,923
|
)
|
|
(59.70
|
)%
|
Consolidated
net income applicable to common stock decreased
$107.9 million, or 59.7%, in 2006 compared to 2005 primarily due to the absence
in 2006 of the sale of Midstream’s Perryville Power Station and the sale of the
Mirant bankruptcy damage claims. Increased Cleco Power earnings and lower
interest charges and the receipt of life insurance proceeds at Cleco Corporation
partially offset this decrease.
Operating
revenue, net increased $80.5 million, or 8.8%, in 2006 compared to 2005 largely
as a result of higher fuel cost recovery revenue at Cleco Power.
Operating
expenses increased $77.3 million, or 9.6%, in 2006 compared to 2005 primarily
due to increased fuel costs and higher depreciation expense at Cleco
Power.
Interest
income increased $5.1 million, or 96.8%, in 2006 compared to 2005 largely as
a
result of higher rates and a higher average investment balance.
Allowance
for other funds used during construction increased $5.4 million, or 231.2%,
primarily due to increased construction activity at Rodemacher Unit
3.
Equity
income from investees decreased $194.0 million, or 88.8%, in 2006 compared
to
2005 primarily due to the absence in 2006 of the sale of Midstream’s Perryville
Power Station and the sale of the Mirant bankruptcy damage claims, in addition
to decreases in equity earnings at APH and Evangeline.
Other
income increased $2.8 million, or 62.3%, in 2006 compared to 2005 primarily
due
to $5.6 million of proceeds received from life insurance policies on certain
officers and/or key managers, partially offset by the absence in 2006 of
payments received by APH in 2005 as a result of the settlement agreement between
Acadia and CES.
Interest
charges increased $3.7 million, or 9.2%, in 2006 compared to 2005 primarily
due
to new issuances of senior notes at Cleco Power, partially offset by the
repayment of Cleco Corporation senior notes in June 2005.
Results
of operations for Cleco Power and Midstream are more fully described
below.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
POWER
Significant
Factors Affecting Cleco Power
Revenue
is primarily affected by the following factors:
As
an
electric utility, Cleco Power is affected, to varying degrees,
by a number of factors influencing the electric utility industry in general.
These factors include, among others, an increasingly competitive business
environment, the cost of compliance with environmental regulations, and changes
in the federal and state regulation of generation, transmission, and the sale
of
electricity. For a discussion of various regulatory changes and competitive
forces affecting Cleco Power and other electric utilities, see Part I, Item
1
“Business Regulatory Matters, Industry Developments, and Franchises —
Franchises” and “— Financial Condition — Market Restructuring.” For a discussion
of risk factors affecting Cleco Power’s business, see
Item
1A, “Risk Factors — Rodemacher Unit 3 Technical Specifications,” “— Rodemacher
Unit 3 Construction Costs,” “— Termination of the Rodemacher Unit 3 Project or
the Amended EPC Contract,” “— Storm Damage Costs,” “— Retail Electric Service,”
“— Deferred Lignite Mining Costs,” “— Fuel Cost Audits,” “— Purchased Power,” “—
Commodity Prices,” “ — Hedging and Risk Management Activities,” “— Cleco Credit
Ratings,” “— Environmental Compliance,” “— Weather Sensitivity,” “— Future
Electricity Sales,” “— Cleco Power Generation Facilities,” and “—
ERO.”
Cleco
Power’s residential customers’ demand for electricity largely is affected by
weather, which for these purposes is generally measured in cooling degree-days
and heating degree-days. A cooling degree-day is an indication of the likelihood
that a consumer will use air conditioning, while a heating degree-day is an
indication of the likelihood that a consumer will use heating. An increase
in
heating
degree-days does not produce the same increase in revenue as an increase in
cooling degree-days, because alternative heating sources are more available.
Normal heating degree-days and cooling degree-days are calculated for a month
by
separately calculating the average actual heating and cooling degree-days for
that month over a period of 30 years.
Kilowatt-hour
sales to Cleco Power’s retail electric customers have grown an average of 1.6%
annually over the last five years and are expected to grow at an average annual
rate of 0.5% from 2007 to 2011. During the next two years, two customers are
expected to begin cogeneration operations which will impact retail sales. Cleco
Power’s retail growth rate excluding these customers is expected to average 1.4%
per year, depending upon factors such as weather conditions, natural gas prices,
customer conservation efforts, retail marketing and business development
programs, and the economy of Cleco Power’s service area. Some of the issues
facing the electric utility industry that could affect sales include:
§ |
provisions
of the Energy Policy Act of 2005;
|
§ |
retail
wheeling (the transmission of power directly to a retail customer,
as
opposed to transmission via the interconnected
transmission facilities of one or more intermediate
facilities);
|
§ |
possible
membership in a RTO or implementation of an ICT
model;
|
§ |
other
legislative and regulatory changes;
|
§ |
cost
of power impacted by the price of natural
gas;
|
§ |
retention
of large industrial customers and municipal
franchises;
|
§ |
awarding
of dual franchises by municipalities;
|
§ |
changes
in electric rates compared to customers’ ability to pay;
and
|
§ |
access
to transmission systems.
|
For
more
information on energy legislation in regulatory matters that could affect Cleco,
see “— Financial Condition — Market Restructuring — Wholesale Electric
Markets.”
Other
expenses
are primarily affected by the following factors:
The
majority of Cleco
Power’s non-recoverable expenses consists of other operations, maintenance,
depreciation, and taxes other than income taxes. Other operations expenses
are
affected by, among other things, the cost of employee benefits, insurance
expenses, and the costs associated with energy delivery and customer service.
Maintenance expenses associated with Cleco Power’s plants generally depend upon
their physical characteristics, as well as the effectiveness of their preventive
maintenance programs. Depreciation expense primarily is affected by the cost
of
the facility in service, the time the facility was placed in service, and the
estimated useful life of the facility. Taxes other than income taxes generally
include payroll taxes and ad valorem taxes.
Cleco
Power’s Results of Operations —
Year
ended December 31, 2006,
Compared
to Year ended December 31, 2005
Cleco
Power’s net income for
2006
increased $5.7 million, or 9.7%, compared to 2005. Contributing factors
include:
§ |
reversal
of previously accrued customer
credits;
|
§ |
lower
maintenance expense;
|
§ |
higher
interest income; and
|
§ |
higher
allowance for other funds used during construction.
|
These
were
partially offset by:
§ |
lower
other operations revenue;
|
§ |
higher
non-recoverable fuel and power
purchased;
|
§ |
higher
depreciation expense;
|
§ |
absence
of the gain on the sale of certain distribution assets;
and
|
§ |
higher
interest charges.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
$
|
342,076
|
|
$
|
322,423
|
|
|
|
|
$
|
19,653
|
|
|
6.10
|
%
|
Fuel
cost recovery
|
|
|
617,317
|
|
|
552,134
|
|
|
|
|
|
65,183
|
|
|
11.81
|
%
|
Electric
customer credits
|
|
|
4,693
|
|
|
(992
|
)
|
|
|
|
|
5,685
|
|
|
573.08
|
%
|
Other
operations
|
|
|
30,056
|
|
|
38,357
|
|
|
|
|
|
(8,301
|
)
|
|
(21.64
|
)%
|
Affiliate
revenue
|
|
|
49
|
|
|
49
|
|
|
|
|
|
-
|
|
|
-
|
|
Intercompany
revenue
|
|
|
2,000
|
|
|
2,002
|
|
|
|
|
|
(2
|
)
|
|
(0.10
|
)%
|
Operating
revenue, net
|
|
|
996,191
|
|
|
913,973
|
|
|
|
|
|
82,218
|
|
|
9.00
|
%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
used for electric generation
- recoverable
|
|
|
255,880
|
|
|
195,427
|
|
|
|
|
|
(60,453
|
)
|
|
(30.93
|
)%
|
Power
purchased for utility customers
- recoverable
|
|
|
361,741
|
|
|
356,468
|
|
|
|
|
|
(5,273
|
)
|
|
(1.48
|
)%
|
Non-recoverable
fuel and power
purchased
|
|
|
22,541
|
|
|
18,864
|
|
|
|
|
|
(3,677
|
)
|
|
(19.49
|
)%
|
Other
operations
|
|
|
87,560
|
|
|
86,926
|
|
|
|
|
|
(634
|
)
|
|
(0.73
|
)%
|
Maintenance
|
|
|
37,596
|
|
|
43,238
|
|
|
|
|
|
5,642
|
|
|
13.05
|
%
|
Depreciation
|
|
|
73,360
|
|
|
58,696
|
|
|
|
|
|
(14,664
|
)
|
|
(24.98
|
)%
|
Taxes
other than income taxes
|
|
|
37,869
|
|
|
38,508
|
|
|
|
|
|
639
|
|
|
1.66
|
%
|
Gain
on sales of assets
|
|
|
(71
|
)
|
|
(2,206
|
)
|
|
|
|
|
(2,135
|
)
|
|
96.78
|
%
|
Total
operating expenses
|
|
|
876,476
|
|
|
795,921
|
|
|
|
|
|
(80,555
|
)
|
|
(10.12
|
)%
|
Operating
income
|
|
$
|
119,715
|
|
$
|
118,052
|
|
|
|
|
$
|
1,663
|
|
|
1.41
|
%
|
Interest
income
|
|
$
|
7,425
|
|
$
|
4,355
|
|
|
|
|
$
|
3,070
|
|
|
70.49
|
%
|
Allowance
for other funds used during construction
|
|
$
|
7,779
|
|
$
|
2,349
|
|
|
|
|
$
|
5,430
|
|
|
231.16
|
%
|
Interest
charges
|
|
$
|
36,250
|
|
$
|
27,593
|
|
|
|
|
$
|
(8,657
|
)
|
|
(31.37
|
)%
|
Federal
and state income taxes
|
|
$
|
33,059
|
|
$
|
37,495
|
|
|
|
|
$
|
4,436
|
|
|
11.83
|
%
|
Net
income
|
|
$
|
64,828
|
|
$
|
59,081
|
|
|
|
|
$
|
5,747
|
|
|
9.73
|
%
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/
|
|
(MILLION
kWh)
|
|
2006
|
|
2005
|
|
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
Residential
|
|
|
3,552
|
|
|
3,516
|
|
|
1.02
|
%
|
Commercial
|
|
|
2,109
|
|
|
1,838
|
|
|
14.74
|
%
|
Industrial
|
|
|
2,963
|
|
|
2,861
|
|
|
3.57
|
%
|
Other
retail
|
|
|
412
|
|
|
610
|
|
|
(32.46
|
)%
|
Total
retail
|
|
|
9,036
|
|
|
8,825
|
|
|
2.39
|
%
|
Sales
for resale
|
|
|
480
|
|
|
552
|
|
|
(13.04
|
)%
|
Unbilled
|
|
|
7
|
|
|
18
|
|
|
(61.11
|
)%
|
Total
retail and wholesale customer sales
|
|
|
9,523
|
|
|
9,395
|
|
|
1.36
|
%
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
Residential
|
|
$
|
156,059
|
|
$
|
154,928
|
|
|
0.73
|
%
|
Commercial
|
|
|
79,657
|
|
|
70,547
|
|
|
12.91
|
%
|
Industrial
|
|
|
55,947
|
|
|
54,966
|
|
|
1.78
|
%
|
Other
retail
|
|
|
16,283
|
|
|
23,549
|
|
|
(30.85
|
)%
|
Storm
surcharge
|
|
|
16,304
|
|
|
-
|
|
|
*
|
|
Total
retail
|
|
|
324,250
|
|
|
303,990
|
|
|
6.66
|
%
|
Sales
for resale
|
|
|
17,322
|
|
|
17,811
|
|
|
(2.75
|
)%
|
Unbilled
|
|
|
504
|
|
|
622
|
|
|
(18.97
|
)%
|
Total
retail and wholesale customer sales
|
|
$
|
342,076
|
|
$
|
322,423
|
|
|
6.10
|
%
|
* Not
meaningful
|
|
|
|
|
|
|
|
|
|
|
The
following chart shows how cooling and heating degree-days varied from normal
conditions and from the prior period. Cleco Power uses temperature data
collected by the National Oceanic and Atmospheric Administration to determine
cooling and heating degree-days.
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
2006
CHANGE
|
|
2006
|
|
2005
|
|
NORMAL
|
|
PRIOR
YEAR
|
|
NORMAL
|
Cooling-degree
days
|
2,942
|
|
3,084
|
|
2,663
|
|
(4.60)%
|
|
10.48
%
|
Heating-degree
days
|
1,282
|
|
1,362
|
|
1,645
|
|
(5.87)%
|
|
(22.07)%
|
Base
Base
revenue during 2006 increased $19.7 million, or 6.1%, compared to 2005. The
increase primarily was due to the recovery
of storm restoration costs through a monthly customer surcharge that began
in
May 2006. These storm-related costs are being amortized to expense based on
the
amounts collected monthly from customers through this surcharge. Also
contributing to the increase in base revenue were slightly higher retail and
wholesale kWh sales, primarily from sales related to fixed-price power being
provided to a wholesale customer beginning in January 2006 and the absence
in
2006 of extended hurricane-related outages. The absence in 2006 of a favorable
fuel surcharge adjustment from 2005 rate orders related to fuel transportation
charges and lower sales to two municipal customers partially offset these
increases.
During
2007, Cleco Power is expected to begin providing
service to expansions of current customers’ operations, as well as services to
new commercial and new industrial customers. As a result, the addition of 12
MWs
is expected to increase base revenue during 2007.
In
late
January 2007, one of Cleco Power’s largest industrial customers closed one of
its three wood product plants. The closure of the plant was a result of a
downturn in its product market, largely due to decreased home construction
in
various regions of the country. The load for this customer was 8 MW, generating
base revenue of approximately $1.0 million annually.
In
the
third quarter of 2007, a large industrial customer is expected to begin
operations of a cogeneration project. The project is a 15-MW unit on site fueled
by waste heat. The project will displace the customer’s load of 12 MW, and the
remaining 3 MW will be purchased by Cleco Power under a power purchase
agreement. The annual base revenue loss from this customer is expected to be
approximately $1.3 million.
Another
industrial customer is also expected to begin construction of a cogeneration
project in 2007. This project is designed to displace all of the customer’s
38-MW load. Potential annual base revenue loss from this customer is expected
to
be approximately $5.0 million. The project is expected to be operational
eighteen months after construction begins.
As
mentioned above, Cleco Power began selling fixed-priced power to a 30-MW
wholesale customer on January 1, 2006. As a result of the fixed-price contract,
the new customer is expected to increase base revenue while potentially diluting
earnings in years 2006, 2007, and 2008. In years
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
2009
through 2012, Cleco Power anticipates earnings accretion related to this
contract. For additional information on Cleco’s energy commodity activities, see
Item 7A, “Quantitative and Qualitative Disclosures About Market Risk — Risk
Overview — Commodity Price Risks.”
For
information on the effects of future energy sales on Cleco Power’s financial
condition, results of operations, and cash flows, see Part I, Item 1A, “Risk
Factors — Future Electricity Sales.”
Fuel
Cost Recovery
Fuel
cost
recovery revenue billed to customers during 2006 compared to 2005 increased
$65.2 million, or 11.8%, primarily due to higher fuel costs and the absence
in
2006 of extended hurricane-related outages in 2005. Partially offsetting this
increase
was the absence in 2006 of favorable fuel surcharge adjustments from 2005 rate
orders related to fuel transportation charges.
Electric
Customer Credits
Electric
customer credits during 2006 decreased $5.7 million, or 573.1%, compared to
2005. This decrease in electric customer
credits largely is the result of favorable adjustments made during 2006 related
to prior RSP filing periods. The potential refunds associated with the RSP
are
based on results for each 12-month period ended September 30. For additional
information on the accrual of electric customer credits, see Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 12
— Electric Customer Credits.”
Other
Operations
Other
operations revenue decreased $8.3 million, or 21.6%, in 2006 compared to 2005
primarily due to a $4.4
million
mark-to-market loss in 2006 as compared to a $5.3 million mark-to-market gain
in
2005 relating to economic hedge transactions related to fixed-price power being
provided to a wholesale customer. In addition, a $0.6 million realized loss
on
these positions related to this fixed-price power contract in 2006 as compared
to a $0.1 million gain in 2005 contributed to the decrease in other operations
revenue. These decreases were partially offset by a $2.1 million net increase
from higher transmission revenue, customer fees, and pole attachment revenue.
For information on Cleco’s energy commodity activities, see Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk — Risk Overview —
Commodity Price Risks.”
Operating
Expenses
Operating
expenses increased $80.6
million, or 10.1%, in 2006 compared to 2005. Fuel used for electric generation
(recoverable) increased $60.5 million, or 30.9%, primarily due to recovery
of
higher fuel costs deferred in prior periods and higher costs of fuel used as
compared to 2005. Power purchased for utility customers (recoverable) increased
$5.3 million, or 1.5%, largely due to higher volumes of purchased power. The
primary factor causing the increase in volumes of purchased power was a higher
incremental generation cost compared to purchased power costs. Fuel used for
electric generation and power purchased for utility customers generally are
influenced by natural gas prices. However, other factors such as unscheduled
outages, unanticipated maintenance or repairs, or other developments may affect
fuel used for electric generation and power purchased for utility customers.
Non-recoverable fuel and power purchased increased $3.7 million, or 19.5%,
primarily due to a $7.0 million increase in power and fuel purchases associated
with fixed-price power that is being provided to a wholesale customer. This
increase was partially offset by lower capacity payments made during 2006 as
a
result of the expiration of certain 2005 power purchase agreements and the
mutually agreed upon termination of the 2006 CES contract. Factors contributing
to the $0.6 million, or 0.7%, increase in other operations expense include
higher employee benefit costs and payroll and administrative expenses, higher
professional fees and higher distribution operation expenses. Partially
offsetting these increases is the $3.5 million recognition of previously
recorded storm restoration expenses as a regulatory asset as a result of the
LPSC’s February 22, 2006, approval of Cleco Power’s request to recover the storm
restoration costs. Maintenance expenses during 2006 decreased $5.6 million,
or
13.1%, compared to 2005 primarily due to the $3.0 million recognition of
previously recorded storm restoration expenses as a regulatory asset as a result
of the LPSC’s February 22, 2006, approval of Cleco Power’s request to recover
the storm restoration costs. Also contributing to the decrease was the absence
in 2006 of the 2005 expensing of previously deferred IRP-related costs, the
absence of a 2005 scheduled major outage on one of Cleco Power’s natural gas
generating units, as well as lower payroll and administrative expenses.
Partially offsetting this decrease was increased routine generating station
maintenance work performed during 2006. Depreciation expense increased $14.7
million, or 25.0%, primarily as a result of $11.9 million of storm amortization
costs and $2.8 million of normal recurring additions to fixed assets. Gain
on
sales of assets decreased $2.1 million, or 96.8%, largely as a result of the
absence in 2006 of the sale of distribution assets.
Interest
Income
Interest
income increased $3.1
million, or 70.5%, during 2006 compared to 2005, primarily due to higher rates
and a higher average investment balance.
Allowance
for Other Funds Used During Construction
Allowance
for other funds used during construction increased $5.4 million, or 231.2%,
during 2006 compared to 2005 primarily
due to increased construction activity at Rodemacher Unit 3.
Interest
Charges
Interest
charges increased $8.7 million, or 31.4%, during 2006 compared to 2005 primarily
due to higher debt balances as a result of new issuances of senior notes in
the
third and fourth quarters of 2005.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Income
Taxes
Income
tax expense decreased
$4.4 million, or 11.8%, during 2006 compared to 2005. Cleco Power’s effective
income tax rate decreased from 38.8% to 33.8% during 2006 compared to 2005,
mainly due to tax reserve adjustments related to favorable settlements of
federal and state income tax audits and appeals. Also contributing to the rate
decrease is the permanent flow-through of tax benefits associated with AFUDC
equity recorded as a result of the construction of Rodemacher Unit 3. The rate
was further decreased due to an adjustment related to an analysis of income
taxes payable and state income taxes deducted on the 2004 federal return. Tax
rates also were affected by the relative size of pre-tax income related to
these
items. Pre-tax income during 2006 increased $1.3 million compared to 2005.
MIDSTREAM
Significant
Factors Affecting Midstream
Earnings
are primarily
affected by the following factors:
Midstream’s
equity earnings from investees are derived primarily
from a tolling agreement with Williams and from its 50% interest in Acadia,
which prior to March 2006 derived its revenue from two tolling agreements with
CES.
Subsequent to March 2006, Acadia contracted with a third party marketer to
sell
its output. Revenue from tolling contracts generally is affected by the
availability and efficiency of the facility and the level at which it operates.
A facility’s availability can be protected by providing replacement power to the
tolling counterparties. Each tolling agreement gives a tolling counterparty
the
right to own, dispatch, and market all of the electric generation capacity
of
the respective facility. Each tolling counterparty is responsible for providing
its own natural gas to the respective facility.
Under
the
Evangeline Tolling Agreement, Williams pays Evangeline a fixed fee and a
variable fee for operating and maintaining the facility.
The
Evangeline Tolling Agreement is accounted for as an operating lease. For
additional information on Cleco’s operating leases, see “— Critical Accounting
Policies — Midstream” and Item 8, “Financial Statements and Supplementary Data —
Notes to the Financial Statements — Note 14 — Operating Leases.” Evangeline
Tolling Agreement revenue correlates with the seasonal usage of the plant.
Evangeline’s 2006 revenue was recognized in the following manner:
§ |
18%
in the first quarter;
|
§ |
22%
in the second quarter;
|
§ |
42%
in the third quarter; and
|
§ |
18%
in the fourth quarter.
|
Revenue
under the Evangeline Tolling Agreement,
which
is reflected in equity income from investees, is anticipated to be recognized
in
a similar manner for 2007. For additional information on recognition of revenue
from the Evangeline Tolling Agreement, see “— Critical Accounting Policies —
Midstream” and Item 8, “Financial Statements and Supplementary Data — Notes to
the Financial Statements — Note 2 — Summary of Significant Accounting Policies —
Revenue and Fuel Costs — Tolling Revenue.”
Prior
to
the suspension of
the
Calpine Tolling Agreements, CES paid Acadia a fixed fee and a variable fee
for
operating and maintaining the facility. Currently, a third party marketer
provides energy management services for Acadia. For information on Cleco’s
investment in Acadia and the Calpine bankruptcy, see Item 8, “Financial
Statements and Supplementary Data — Notes to the
Financial Statements — Note 13 — Equity Investment in Investees” and Note 21 —
“Calpine Bankruptcy.”
For
additional information on the factors affecting Midstream, see
Part I,
Item 1A, “Risk Factors — Calpine Bankruptcy,” “— Evangeline Plant Performance,”
and “— Williams.”
Expenses
are primarily
affected by the following factors:
Midstream’s
expenses include depreciation, maintenance,
and
other operations expenses. Depreciation expense is affected by the cost of
the
facility in service, the time the facility was placed in service, and the
estimated useful life of the facility. Maintenance expenses generally depend
on
the physical characteristics of the facility, the frequency and duration of
the
facility’s operations, and the effectiveness of preventive maintenance. Other
operating expenses mainly relate to administrative expenses and employee
benefits.
Other
Factors Affecting Midstream
Perryville
The
financial results of Perryville and PEH prior to their filing
for
bankruptcy protection on January 27, 2004 are included in Cleco Corporation’s
consolidated results. During the reorganization period (January 28, 2004 through
October 10, 2005), Cleco Corporation utilized the cost method to account for
its
investment in Perryville and PEH. As of the effective date of the plan of
reorganization, the cost method was no longer the appropriate method to use
to
account for the investment in Perryville and PEH. Through a review of equity
interests and other contractual relationships, as required by FIN 46R, Cleco
Corporation was determined to be the primary beneficiary of PEH; however, Cleco
Corporation was not considered the primary beneficiary of Perryville.
Accordingly, PEH would be reintegrated with Cleco Corporation’s consolidated
financial results and Perryville would be reported on the equity method of
accounting retroactively to January 28, 2004. However, in accordance with APB
Opinion No. 18, Perryville and PEH would not be reflected in Cleco Corporation’s
consolidated results until such time they had sufficient income to exceed their
negative cost basis and cumulative losses, which occurred during the third
quarter of 2005. Therefore, the financial results of Perryville and PEH were
reintegrated with Cleco Corporation’s consolidated results in 2005. For
additional information on Perryville, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 20 —
Perryville.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Acadia
Acadia’s
output currently is sold through an energy management
services agreement with a third party marketer. Prior to March 2006, Acadia’s
output was sold through the Calpine Tolling Agreements. Under the Calpine
Tolling Agreements, APH was entitled to preferential cash distributions and
earnings from Acadia. APH had the ability to draw against a $15.0 million letter
of credit issued by Calpine, upon the occurrence of certain events of default.
Also, Calpine provided guarantees which supported CES’s obligations under the
Calpine Tolling Agreements. On December 20, 2005, the Calpine Debtors filed
for
protection under Chapter 11 of the Bankruptcy Code and subsequently filed a
motion with the Calpine Debtors Bankruptcy Court to reject the Calpine Tolling
Agreements. An event of default under the Calpine Tolling Agreements occurred
when CES failed to make the required December 2005 payment. On February 13,
2006, and August 2, 2006, APH drew $2.8 million and $12.2 million, respectively,
against the $15.0 million letter of credit issued by Calpine. In March 2006,
Acadia and CES executed an amendment to each of the Calpine Tolling Agreements,
which permitted Acadia to suspend its obligations under the Calpine Tolling
Agreements. The amendments were approved by the Calpine Debtors Bankruptcy
Court
on March 22, 2006. For additional information on the bankruptcy filings and
the
suspension of the Calpine Tolling Agreements, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 21 — Calpine
Bankruptcy.”
Evangeline
In
accordance with FIN 46R, Cleco deconsolidated
Evangeline from its consolidated financial statements and began reporting its
investment in Evangeline on the equity method of accounting. As a result,
effective March 31, 2004, the assets and liabilities of Evangeline no longer
are
reported on Cleco Corporation’s Consolidated Balance Sheet, but instead are
represented by one line item corresponding to Cleco’s equity investment in
Evangeline. Effective April 1, 2004, Evangeline revenue and expenses are netted
and reported as equity income from investees on Cleco Corporation’s Consolidated
Statements of Income. Consequently, Evangeline’s 2006 and 2005 net operating
results are reflected in the equity income from investees’ line as compared to
being reported on various line items for the first three months of 2004. For
additional information on FIN 46R and the deconsolidation of Evangeline, see
Item 8, “Financial Statements and Supplementary Data — Notes to the Financial
Statements — Note 13 — Equity Investment in Investees.”
Cleco
Energy
In
June
2004, management decided to sell substantially all of Cleco Energy’s assets and
discontinue Cleco Energy’s natural gas marketing, pipeline, and production
operations after the sale. On September 15, 2004, Cleco Energy completed the
sale of its oil and gas production properties and on November
16, 2004, Cleco Energy completed the sale of its natural gas pipeline and
marketing operations. Prior to the sale of Cleco Energy’s assets and in
accordance with SFAS No. 144, the property, plant and equipment of Cleco Energy
were classified as held for sale on Cleco Corporation’s Consolidated Balance
Sheet, and the related operations were classified as (loss) income from
discontinued operations, including loss on disposal on Cleco Corporation’s
Consolidated Statements of Income. Consequently, the net operating results
for
Cleco Energy for years 2006, 2005, and 2004 are reported as discontinued
operations. For additional information on the discontinued operations and sale
of Cleco Energy’s assets and SFAS No. 144, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 16 — Discontinued
Operations and Dispositions” and Note 2 — “Summary of Significant Accounting
Policies.”
Midstream’s
Results of Operations —
Year
ended December 31, 2006,
Compared
to Year ended December 31, 2005
Midstream’s
net
income for 2006 decreased $124.1 million, or 101.7%, compared to 2005. Factors
affecting Midstream are described below.
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
$
|
42
|
|
$
|
113
|
|
$
|
(71
|
)
|
|
(62.83
|
)%
|
Affiliate
revenue
|
|
|
4,358
|
|
|
4,871
|
|
|
(513
|
)
|
|
(10.53
|
)%
|
Intercompany
revenue
|
|
|
-
|
|
|
42
|
|
|
(42
|
)
|
|
(100.00
|
)%
|
Operating
revenue, net
|
|
|
4,400
|
|
|
5,026
|
|
|
(626
|
)
|
|
(12.46
|
)%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
|
4,704
|
|
|
6,336
|
|
|
1,632
|
|
|
25.76
|
%
|
Maintenance
|
|
|
2,081
|
|
|
2,132
|
|
|
51
|
|
|
2.39
|
%
|
Depreciation
|
|
|
307
|
|
|
316
|
|
|
9
|
|
|
2.85
|
%
|
Taxes
other than income taxes
|
|
|
247
|
|
|
316
|
|
|
69
|
|
|
21.84
|
%
|
Total
operating expenses
|
|
|
7,339
|
|
|
9,100
|
|
|
1,761
|
|
|
19.35
|
%
|
Operating
loss
|
|
|
(2,939
|
)
|
|
(4,074
|
)
|
|
1,135
|
|
|
27.86
|
%
|
Equity
income from investees
|
|
$
|
24,574
|
|
$
|
218,505
|
|
$
|
(193,931
|
)
|
|
(88.75
|
)%
|
Other
income
|
|
$
|
-
|
|
$
|
1,250
|
|
$
|
(1,250
|
)
|
|
(100.00
|
)%
|
Interest
charges
|
|
$
|
18,918
|
|
$
|
15,302
|
|
$
|
(3,616
|
)
|
|
(23.63
|
)%
|
Federal
and state income tax
expense
|
|
$
|
4,716
|
|
$
|
77,992
|
|
$
|
73,276
|
|
|
93.95
|
%
|
Loss
from
discontinued operations, including loss on disposal
|
|
$
|
(79
|
)
|
$
|
(334
|
)
|
$
|
255
|
|
|
76.35
|
%
|
Net
(loss)
income
|
|
$
|
(2,094
|
)
|
$
|
122,021
|
|
$
|
(124,115
|
)
|
|
(101.72
|
)%
|
Affiliate
Revenue
Affiliate
revenue decreased $0.5 million, or 10.5%, in 2006 compared to 2005 primarily
because of decreased power plant operations and maintenance work performed
for
Perryville
as
a result of the sale of the Perryville facility on June 30, 2005.
Operating
Expenses
Operating
expenses decreased $1.8
million, or 19.4%, in 2006 compared to 2005. The decrease largely was due to
differences in expense recognition related to share-based compensation as a
result of the adoption of SFAS No. 123(R) in
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
2006
as
compared to recognition pursuant to APB Opinion No. 25 in 2005. Also
contributing to the decrease were lower insurance costs and the absence of
operating expenses from Perryville as a result of the sale of the Perryville
facility on June 30, 2005.
Equity
Income from Investees
Equity
income from investees
decreased $193.9 million, or 88.8%, in 2006 compared to 2005 primarily due
to
decreases in equity earnings of $173.3 million at Perryville, $13.6 million
at
APH and $7.9 million at Evangeline. These decreases were partially offset by
earnings of $0.9 million at Attala. The decrease in equity earnings at
Perryville primarily was attributable to the absence in 2006 of the sale of
Perryville’s generating assets and the sale of the Mirant bankruptcy claims,
which were reintegrated on Cleco Corporation’s Consolidated Statements of Income
during 2005. The decrease at APH primarily was due to continuing losses related
to Calpine’s failure to perform under the tolling agreements and the expensing
of certain combustion turbine parts during 2006. The losses caused by Calpine
were partially offset by merchant revenue from an energy management contract
with a third party marketer, proceeds from insurance claims, and APH’s drawing
in full the $15.0 million from the letter of credit issued by Calpine in 2006.
The decrease at Evangeline primarily was due to higher turbine maintenance
expenses, higher depreciation expense, and prior year adjustments. Equity income
from Evangeline decreased by $2.7 million due to prior year adjustments related
to fixed asset accounting and depreciation. While these adjustments are not
material to Cleco, they are considered material to Evangeline as a stand-alone
entity and are reflected as a restatement of its 2005 and 2004 stand-alone
financial statements. Total maintenance expenses at Evangeline increased $4.3
million as compared to 2005 primarily as a result of increased plant run time.
Earnings of $0.9 million at Attala were the result of its acquisition of
transmission assets and the subsequent commencement of interconnection services
in January 2006. For additional information on Evangeline and Acadia, see Item
8, “Financial Statements and Supplementary Data — Notes to the Financial
Statements — Note 13 — Equity Investment in Investees,” and for additional
information on Calpine’s bankruptcy, see Note 21 — “Calpine
Bankruptcy.”
Other
Income
Other
income decreased $1.3 million, or 100.0%, during 2006 compared to 2005 due
to
the absence in 2006 of cash payments
received by APH from CES as a result of the settlement of a dispute over the
availability of transmission capacity at Acadia.
Interest
Charges
Interest
charges increased $3.6 million, or 23.6%, during 2006 compared to 2005 primarily
due to higher interest rates on affiliate
debt relating to APH’s investment in Acadia.
Income
Taxes
Income
tax expense decreased $73.3
million, or 94.0%, during 2006 compared to 2005. Midstream’s effective income
tax rate increased from 38.9% to 174.6% during 2006 compared to 2005 primarily
due to an adjustment related to an analysis of income taxes payable following
completion of an audit for tax years 1997 through 2000. Also contributing to
the
increase is an adjustment for 2003 state income taxes for Cleco Corporation
and
all non regulated subsidiaries. Tax rates also were affected by the relative
size of pre-tax income to these items. Pre-tax income during 2006 decreased
$197.6 million compared to the same period of 2005.
Cleco
Consolidated Results of Operations —
Year
ended December 31, 2005,
Compared
to Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2005
|
|
2004
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue,
net
|
|
$
|
920,154
|
|
$
|
745,817
|
|
$
|
174,337
|
|
|
23.38
|
%
|
Operating
expenses
|
|
|
808,420
|
|
|
644,679
|
|
|
(163,741
|
)
|
|
(25.40
|
)%
|
Operating
income
|
|
$
|
111,734
|
|
$
|
101,138
|
|
$
|
10,596
|
|
|
10.48
|
%
|
Equity
income from investees
|
|
$
|
218,441
|
|
$
|
47,250
|
|
$
|
171,191
|
|
|
362.31
|
%
|
Interest
charges
|
|
$
|
40,535
|
|
$
|
52,206
|
|
$
|
11,671
|
|
|
22.36
|
%
|
Income
from continuing operations
|
|
$
|
182,978
|
|
$
|
66,119
|
|
$
|
116,859
|
|
|
176.74
|
%
|
(Loss)
income from discontinued operations, net
|
|
$
|
(334
|
)
|
$
|
70
|
|
$
|
(404
|
)
|
|
(577.14
|
)%
|
Net
income applicable to common stock
|
|
$
|
180,779
|
|
$
|
63,973
|
|
$
|
116,806
|
|
|
182.59
|
%
|
Consolidated
net income applicable to common stock increased
$116.8 million, or 182.6%, in 2005 compared to 2004 primarily due to the sale
of
Midstream’s Perryville Power Station and the sale of the Mirant bankruptcy
damage claims. Also contributing to the increase were higher earnings at Cleco
Power.
Operating
revenue, net increased $174.3 million, or 23.4%, in 2005 compared to 2004
largely as a result of higher fuel cost recovery revenue at Cleco Power and
the
absence in 2005 of the effects of the settlement of Cleco Power’s 2001-2002 fuel
audit. Partially offsetting these increases was the change in the reporting
of
tolling operations revenue at Evangeline beginning in the second quarter of
2004
in accordance with FIN 46R.
Operating
expenses increased $163.7 million, or 25.4%, in 2005 compared to 2004 primarily
due to increased costs of fuel used for electric generation and power purchased
for utility customers, increased volumes of fuel used for electric generation,
and higher other operations and maintenance expenses at Cleco Power. Partially
offsetting these increases were the effects of the deconsolidation of Evangeline
from Cleco and the sale of certain distribution assets at Cleco
Power.
Equity
income from investees increased $171.2 million, or 362.3%, in 2005 compared
to
2004 primarily due to the sale of Midstream’s Perryville Power Station and the
sale of the Mirant bankruptcy damage claims, partially offset by a decrease
in
equity income at APH.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Interest
charges decreased $11.7 million, or 22.4%, compared to 2004 primarily due to
the
effects of the deconsolidation of Evangeline from Cleco’s consolidated results
effective April 1, 2004, and the June 2005 repayment of $100.0 million of Cleco
Corporation’s senior notes.
Results
of operations for Cleco Power and Midstream are more fully described
below.
Cleco
Power’s Results of Operations —
Year
ended December 31, 2005,
Compared
to Year ended December 31, 2004
Cleco
Power’s net income applicable to member’s equity for
2005
increased $6.9 million, or 13.2%, compared to 2004. Contributing factors
include:
§ |
lower
customer refund credits;
|
§ |
higher
other operations revenue;
|
§ |
lower
capacity payments;
|
§ |
higher
revenue from wholesale customers;
|
§ |
lower
other expense; and
|
§ |
gain
on the sale of certain distribution
assets.
|
These
were
partially offset by:
§ |
higher
other operations and maintenance expenses;
|
§ |
higher
federal and state income taxes;
|
§ |
a
decrease in favorable fuel surcharge adjustments;
and
|
§ |
higher
depreciation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31, |
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2005
|
|
2004
|
|
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
$
|
322,423
|
|
$
|
318,033
|
|
|
|
|
$
|
4,390
|
|
|
1.38
|
%
|
Fuel
cost recovery
|
|
|
552,134
|
|
|
400,118
|
|
|
|
|
|
152,016
|
|
|
37.99
|
%
|
Electric
customer credits
|
|
|
(992
|
)
|
|
(20,889
|
)
|
|
|
|
|
19,897
|
|
|
95.25
|
%
|
Other
operations
|
|
|
38,357
|
|
|
30,165
|
|
|
|
|
|
8,192
|
|
|
27.16
|
%
|
Affiliate
revenue
|
|
|
49
|
|
|
22
|
|
|
|
|
|
27
|
|
|
122.73
|
%
|
Intercompany
revenue
|
|
|
2,002
|
|
|
1,860
|
|
|
|
|
|
142
|
|
|
7.63
|
%
|
Operating
revenue, net
|
|
|
913,973
|
|
|
729,309
|
|
|
|
|
|
184,664
|
|
|
25.32
|
%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
used for electric generation
- recoverable
|
|
|
195,427
|
|
|
151,910
|
|
|
|
|
|
(43,517
|
)
|
|
(28.65
|
)%
|
Power
purchased for utility customers
- recoverable
|
|
|
356,468
|
|
|
241,421
|
|
|
|
|
|
(115,047
|
)
|
|
(47.65
|
)%
|
Non-recoverable
fuel and power
purchased
|
|
|
18,864
|
|
|
24,458
|
|
|
|
|
|
5,594
|
|
|
22.87
|
%
|
Other
operations
|
|
|
86,926
|
|
|
77,594
|
|
|
|
|
|
(9,332
|
)
|
|
(12.03
|
)%
|
Maintenance
|
|
|
43,238
|
|
|
36,329
|
|
|
|
|
|
(6,909
|
)
|
|
(19.02
|
)%
|
Depreciation
|
|
|
58,696
|
|
|
56,731
|
|
|
|
|
|
(1,965
|
)
|
|
(3.46
|
)%
|
Taxes
other than income taxes
|
|
|
38,508
|
|
|
36,735
|
|
|
|
|
|
(1,773
|
)
|
|
(4.83
|
)%
|
Gain
on sales of assets
|
|
|
(2,206
|
)
|
|
-
|
|
|
|
|
|
2,206
|
|
|
-
|
|
Total
operating expenses
|
|
|
795,921
|
|
|
625,178
|
|
|
|
|
|
(170,743
|
)
|
|
(27.31
|
)%
|
Operating
income
|
|
$
|
118,052
|
|
$
|
104,131
|
|
|
|
|
$
|
13,921
|
|
|
13.37
|
%
|
Interest
income
|
|
$
|
4,355
|
|
$
|
3,561
|
|
|
|
|
$
|
794
|
|
|
22.30
|
%
|
Other
expense
|
|
$
|
2,668
|
|
$
|
5,342
|
|
|
|
|
$
|
2,674
|
|
|
50.06
|
%
|
Federal
and state income taxes
|
|
$
|
37,495
|
|
$
|
27,691
|
|
|
|
|
$
|
(9,804
|
)
|
|
(35.41
|
)%
|
Net
income
|
|
$
|
59,081
|
|
$
|
52,202
|
|
|
|
|
$
|
6,879
|
|
|
13.18
|
%
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/
|
|
(MILLION
kWh)
|
|
2005
|
|
2004
|
|
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
Residential
|
|
|
3,516
|
|
|
3,507
|
|
|
0.26
|
%
|
Commercial
|
|
|
1,838
|
|
|
1,854
|
|
|
(0.86
|
)%
|
Industrial
|
|
|
2,861
|
|
|
2,902
|
|
|
(1.41
|
)%
|
Other
retail
|
|
|
610
|
|
|
597
|
|
|
2.18
|
%
|
Total
retail
|
|
|
8,825
|
|
|
8,860
|
|
|
(0.40
|
)%
|
Sales
for resale
|
|
|
552
|
|
|
1,057
|
|
|
(47.78
|
)%
|
Unbilled
|
|
|
18
|
|
|
(3
|
)
|
|
700.00
|
%
|
Total
retail and wholesale customer sales
|
|
|
9,395
|
|
|
9,914
|
|
|
(5.24
|
)%
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/
|
|
(THOUSANDS)
|
|
2005
|
|
2004
|
|
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
Residential
|
|
$
|
154,928
|
|
$
|
153,607
|
|
|
0.86
|
%
|
Commercial
|
|
|
70,547
|
|
|
70,116
|
|
|
0.61
|
%
|
Industrial
|
|
|
54,966
|
|
|
54,978
|
|
|
(0.02
|
)%
|
Other
retail
|
|
|
23,549
|
|
|
23,156
|
|
|
1.70
|
%
|
Total
retail
|
|
|
303,990
|
|
|
301,857
|
|
|
0.71
|
%
|
Sales
for resale
|
|
|
17,811
|
|
|
16,128
|
|
|
10.44
|
%
|
Unbilled
|
|
|
622
|
|
|
48
|
|
|
*
|
|
Total
retail and wholesale customer sales
|
|
$
|
322,423
|
|
$
|
318,033
|
|
|
1.38
|
%
|
* Not
meaningful
|
|
|
|
|
|
|
|
|
|
|
The
following chart shows how cooling and
heating degree-days varied from normal conditions and from the prior period.
Cleco Power uses temperature data collected by the National Oceanic and
Atmospheric Administration to determine cooling and heating
degree-days.
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
2005
CHANGE
|
|
2005
|
|
2004
|
|
NORMAL
|
|
PRIOR
YEAR
|
|
NORMAL
|
Cooling-degree
days
|
3,084
|
|
2,946
|
|
2,663
|
|
4.68
%
|
|
15.81
%
|
Heating-degree
days
|
1,362
|
|
1,436
|
|
1,645
|
|
(5.15)%
|
|
(17.20)%
|
Base
Base
revenue during 2005
increased $4.4 million, or 1.4%, compared to 2004. The increase was primarily
due to higher sales to two municipal customers, warmer summer weather, and
a
favorable fuel surcharge adjustment from rate orders received related to fuel
transportation charges in 2005. Partially offsetting these increases were lost
revenue from extended hurricane-related outages, the absence in 2005 of a
favorable fuel surcharge adjustment that was filed by Cleco Power in June 2004,
and the expiration in May 2004 of a wholesale contract with a municipal
customer.
Fuel
Cost Recovery
Fuel
cost
recovery revenue billed to customers during 2005 compared to 2004 increased
$152.0 million, or 38.0%, primarily
due
to higher costs of power purchased and fuel used for electric generation. In
addition, higher volumes of fuel used for electric generation and the absence
in
2005 of a 2004 reversal of estimates recorded in conjunction with Cleco Power’s
2001-2002 fuel audit settlement contributed to the increase.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Electric
Customer Credits
Electric
customer credits during 2005 decreased $19.9 million,
or
95.3%, compared to 2004. This decrease in electric customer credits is primarily
due to a $16.0 million accrual made in June 2004 related to Cleco Power’s
2001-2002 fuel audit, a $1.7 million accrual made in June 2004 related to a
surcharge adjustment that was included in the Fuel Adjustment Clause Report
filed by Cleco Power in June 2004, and $2.2 million of lower accruals for the
RSP filing period ended 2005. Lower accruals were primarily the result of higher
operating expenses and the absence of the fuel audit settlement. The potential
refunds associated with the RSP are based on results for each 12-month period
ended September 30. For additional information on the accrual of electric
customer credits, see Item 8, “Financial Statements and Supplementary Data —
Notes to the Financial Statements — Note 12 — Electric Customer
Credits.”
Other
Operations
Other
operations revenue increased $8.2 million, or 27.2%, in 2005 compared to 2004
primarily due to a $0.1 million realized gain and $5.3 million net
mark-to-market gain from economic hedge transactions related to fixed-price
power that is being provided to a new wholesale customer beginning
in
January 2006. Also contributing to this increase in other operations was a
$2.1
million increase in transmission service revenue, and a $0.7 million net
increase from customer fees, timber sales, SO2
emission
allowance proceeds, and pole attachment revenue. For information on Cleco’s
energy commodity activities, see Item 7A, “Quantitative and Qualitative
Disclosures About Market Risk — Risk Overview — Commodity Price
Risks.”
Operating
Expenses
Operating
expenses increased $170.7
million, or 27.3%, in 2005 compared to 2004. Fuel used for electric generation
increased $43.5 million, or 28.7%, primarily as a result of higher cost and
volumes of fuel used for electric generation. Also contributing to this increase
were the absences in 2005 of a 2004 reversal of fuel expenses related to gas
transportation charges recorded as a result of Cleco Power’s 2001-2002 fuel
audit and higher favorable surcharge adjustments that were included in the
2004
Fuel Adjustment Clause Report. Power purchased for utility customers increased
$115.0 million, or 47.7%, largely due to increased costs of purchased power.
Fuel used for electric generation and power purchased for utility customers
generally are influenced by natural gas prices. However, other factors such
as
unscheduled outages, unexpected maintenance or repairs, or other developments
may affect fuel used for electric generation and power purchased for utility
customers. Non-recoverable fuel and power purchased decreased $5.6 million,
or
22.9%, primarily due to lower capacity payments made during 2005 as a result
of
the expiration of certain power purchase agreements. Other operations expense
increased $9.3 million, or 12.0%, primarily due to higher incentive compensation
and payroll expense. Maintenance expenses during 2005 increased $6.9 million,
or
19.0%, compared to 2004 primarily due to a scheduled major outage on one of
Cleco Power’s natural gas units during the spring of 2005 and additional
maintenance performed on transmission and distribution assets. Depreciation
expense increased $2.0 million, or 3.5%, as a result of normal recurring
additions to fixed assets. Taxes other than income taxes increased $1.8 million,
or 4.8%, as a result of higher franchise taxes. Gain on sales of assets
increased $2.2 million during 2005 largely as a result of the sale of
distribution assets following the town of Franklinton’s election not to renew
its franchise agreement with Cleco Power. For additional information, see “—
Financial Condition — Regulatory Matters — Franchises.”
Interest
Income
Interest
income increased $0.8 million, or 22.3%, during 2005 compared to 2004, primarily
due to higher
rates
and a higher average investment balance.
Other
Expense
Other
expense decreased $2.7 million, or 50.1%, during 2005 compared to 2004 primarily
due to the absence in 2005 of legal
fees
associated with the settlement of Cleco Power’s 2001-2002 fuel audit that were
incurred in 2004.
Income
Taxes
Income
tax expense increased $9.8
million, or 35.4%, during 2005 compared to 2004. Cleco Power’s effective income
tax rate increased from 34.7% to 38.8% during 2005 compared to 2004. Federal
tax
expense increased primarily due to a 2004 true-up of estimated taxes based
on
the 2003 tax return. The increase in state tax expense is largely due to the
LPSC requirement to record deferred tax expense and normalize the state tax
benefit derived from the casualty losses related to Hurricanes Katrina and
Rita.
Generally, the LPSC requires that Cleco Power flow through impacts of state
income taxes to current earnings; however, the LPSC found normalization for
state taxes related to storm deductions to be more appropriate due to the size
of such deductions. The new methodology for recognizing state income tax related
to storms is expected to continue to impact Cleco Power’s tax expense in future
periods. Also contributing to the increase in both federal and state tax expense
was a 2005 increase in the accrual of tax contingency reserves. Tax rates also
were affected by the relative size of pre-tax income related to these items.
Pre-tax income during 2005 increased $16.7 million compared to 2004.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
Midstream’s
Results of Operations —
Year
ended December 31, 2005,
Compared
to Year ended December 31, 2004
Midstream’s
net income applicable to member’s equity for 2005 increased $104.1 million, or
581.7%, compared to 2004.
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2005
|
|
2004
|
|
VARIANCE
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Tolling
operations
|
|
$
|
-
|
|
$
|
10,255
|
|
$
|
(10,255
|
)
|
|
-
|
|
Other
operations
|
|
|
113
|
|
|
115
|
|
|
(2
|
)
|
|
(1.74
|
)%
|
Affiliate
revenue
|
|
|
4,871
|
|
|
4,474
|
|
|
397
|
|
|
8.87
|
%
|
Intercompany
revenue
|
|
|
42
|
|
|
285
|
|
|
(243
|
)
|
|
(85.26
|
)%
|
Operating
revenue, net
|
|
|
5,026
|
|
|
15,129
|
|
|
(10,103
|
)
|
|
(66.78
|
)%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
|
6,336
|
|
|
9,269
|
|
|
2,933
|
|
|
31.64
|
%
|
Maintenance
|
|
|
2,132
|
|
|
3,314
|
|
|
1,182
|
|
|
35.67
|
%
|
Depreciation
|
|
|
316
|
|
|
2,197
|
|
|
1,881
|
|
|
85.62
|
%
|
Taxes
other than income taxes
|
|
|
316
|
|
|
282
|
|
|
(34
|
)
|
|
(12.06
|
)%
|
Total
operating expenses
|
|
|
9,100
|
|
|
15,062
|
|
|
5,962
|
|
|
39.58
|
%
|
Operating
(loss)
income
|
|
$
|
(4,074
|
)
|
$
|
67
|
|
$
|
(4,141
|
)
|
|
*
|
|
Equity
income from investees
|
|
$
|
218,505
|
|
$
|
47,538
|
|
$
|
170,967
|
|
|
359.64
|
%
|
Other
income
|
|
$
|
1,250
|
|
$
|
-
|
|
$
|
1,250
|
|
|
-
|
|
Interest
charges
|
|
$
|
15,302
|
|
$
|
17,764
|
|
$
|
2,462
|
|
|
13.86
|
%
|
Federal
and state income tax
expense
|
|
$
|
77,992
|
|
$
|
12,022
|
|
$
|
(65,970
|
)
|
|
(548.74
|
)%
|
(Loss)
income
from discontinued operations, including loss on disposal
|
|
$
|
(334
|
)
|
$
|
70
|
|
$
|
(404
|
)
|
|
(577.14
|
)%
|
Net
income
|
|
$
|
122,021
|
|
$
|
17,899
|
|
$
|
104,122
|
|
|
581.72
|
%
|
* Not
meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tolling
Operations
Tolling
operations revenue decreased $10.3
million in 2005 compared to 2004. The decrease was due to Cleco’s accounting for
Evangeline on the equity method in accordance with FIN 46R beginning on April
1,
2004.
Affiliate
Revenue
Affiliate
revenue increased $0.4 million, or 8.9%, resulting primarily
from additional power plant maintenance work performed by Generation Services
for Evangeline and higher CLE Intrastate revenue from Evangeline as a result
of
Cleco’s accounting for Evangeline under the equity method in accordance with FIN
46R. These increases were partially offset by less power plant operations and
maintenance work performed for Perryville.
Operating
Expenses
Total
operating expenses for 2005 decreased $6.0 million, or 39.6%, compared to 2004.
Other operations expense decreased
$2.9 million, or 31.6%, primarily due to the deconsolidation in 2004 of
Perryville and PEH from Cleco’s consolidated results as well as Cleco’s
accounting for Evangeline under the equity method in accordance with FIN 46R.
Maintenance expense decreased $1.2 million, or 35.7%, largely due to Cleco’s
accounting for Evangeline under the equity method in accordance with FIN 46R.
Depreciation expense decreased $1.9 million, or 85.6%, primarily due to Cleco’s
accounting for Evangeline under the equity method in accordance with FIN 46R,
the deconsolidation in 2004 of Perryville and PEH from Cleco’s consolidated
results and the sale of the generation assets in June 2005.
Equity
Income from Investees
Equity
income from investees increased $171.0
million, or 359.6%, for 2005 compared to 2004. The increase is primarily
attributable to a $175.6 million increase at Perryville related to the
reintegration of Perryville financial results on Cleco Corporation’s
Consolidated Statements of Income and a $0.4 million increase at Evangeline
as a
result of the change in reporting for Evangeline effective April 1, 2004.
Partially offsetting these increases was a $5.1 million decrease in Acadia’s
equity earnings primarily due to a reserve for uncollectible amounts relating
to
the Calpine Tolling Agreements attributable to the Calpine bankruptcy filing.
For additional information on Evangeline and Acadia, see Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 13
— Equity Investment in Investees” and for additional information on Calpine’s
bankruptcy, see Note 21 — “Calpine Bankruptcy.”
Other
Income
Other
income increased $1.3 million during 2005 compared to 2004 primarily due to
the
first annual guaranteed cash payment
received by APH from CES as part of a settlement entered into in August 2005
regarding a dispute over the availability of transmission capacity at
Acadia.
Interest
Charges
Interest
charges decreased $2.5 million, or 13.9%, during 2005 compared to 2004. The
decrease was primarily due to a $4.4 million decrease at Evangeline as a result
of the change in reporting for Evangeline effective April 1, 2004, and a $0.5
million decrease at Perryville and PEH as a result of their deconsolidation
from Cleco’s consolidated results beginning January 27, 2004. These decreases
were partially offset by a $2.4 million increase at APH as a result of higher
interest rates relating to an intercompany loan from Cleco
Corporation.
Income
Taxes
Income
tax expense increased $66.0
million, or 548.7%, during 2005 compared to 2004. Tax rates were affected by
the
relative size of pre-tax income related to these items. Pre-tax income during
2005 increased $173.3 million compared to 2004, primarily due to the
reintegration of Perryville’s financial results with Cleco’s consolidated
financial results. Midstream’s effective income tax rate decreased from 40.3% to
38.9% during 2005 compared to 2004 due to the recognition of the qualified
production activities tax deduction in 2005 under The American Jobs Creation
Act
of 2004. The decrease was partially offset by a 2005 increase in the accrual
of
tax contingency reserves. For financial results and additional information
on
Perryville, see Item 8, “Financial Statements and
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Supplementary
Data — Notes to the Financial Statements — Note 20 — Perryville.”
CLECO
POWER LLC — NARRATIVE ANALYSIS OF RESULTS
OF OPERATIONS
For
a
narrative analysis of the results of operations explaining the reasons for
material changes in the amount of revenue and expense items of Cleco Power
between the year ended December
31, 2006, and the year ended December 31, 2005, see “Results of Operations —
Cleco Power’s Results of Operations — Year ended December 31, 2006, Compared to
Year ended December 31, 2005.”
For
a
narrative analysis of the results of operations explaining
the
reasons for material changes in the amount of revenue and expense items of
Cleco
Power between the year ended December 31, 2005, and the year ended December
31,
2004, see “Results of Operations — Cleco Power’s Results of Operations — Year
ended December 31, 2005, Compared to Year ended December 31, 2004.”
The
narrative analyses referenced above should be read in combination with Cleco
Power’s Financial Statements and the Notes contained in this Form
10-K.
CRITICAL
ACCOUNTING POLICIES
Cleco’s
critical accounting policies include those accounting policies that are both
important to Cleco’s financial condition and results of operations and those
that require management to make difficult, subjective, or complex judgments
about future
events, which could result in a material impact to the financial statements
of
Cleco Corporation’s segments or to Cleco as a consolidated entity. The financial
statements contained in this report are prepared in accordance with accounting
principles generally accepted in the United States of America, which require
Cleco to make estimates and assumptions. Estimates and assumptions about future
events and their effects cannot be made with certainty. Management bases its
current estimates and assumptions on historical experience and on various other
factors that are believed to be reasonable under the circumstances. On an
ongoing basis, these estimates and assumptions are evaluated and, if necessary,
adjustments are made when warranted by new or updated information or by a change
in circumstances or environment. Actual results may differ significantly from
these estimates under different assumptions or conditions. For additional
information on Cleco’s accounting policies, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of
Significant Accounting Policies.”
Cleco
believes that the following are the most significant critical accounting
policies for the Company:
§ |
Cleco
accounts for pensions and other postretirement benefits under SFAS
No.
87,
SFAS No. 106, and SFAS No. 158. To determine assets, liabilities,
income,
and expense relating to pension and other postretirement benefits,
management must make assumptions about future trends. Assumptions
and
estimates include, but are not limited to, discount rate, expected
return
on plan assets, future rate of compensation increases, and medical
inflation trend rates. These assumptions are reviewed and updated
on an
annual basis. Changes in the rates from year to year and newly enacted
laws could have a material effect on Cleco’s financial condition and
results of operations by changing the recorded assets, liabilities,
income, expense, or required funding of the pension plan obligation.
One
component of pension expense is the expected return on plan assets.
It is
an assumed percentage return on the market-related value of plan
assets.
The market-related value of plan assets differs from the fair value
of
plan assets by the amount of deferred asset gains or losses. Actual
asset
returns that differ from the expected return on plan assets are deferred
and recognized in the market-related value of assets on a straight-line
basis over a five-year period. The 2006 return on pension plan assets
was
15.2% compared to an expected long-term return of 8.4%. For 2005,
the
return on plan assets was 6.4% compared to an expected long-term
return of
8.5%.
|
A
change
in the assumed discount rate creates a deferred actuarial gain or loss.
Generally, when the assumed discount rate decreases compared to the prior
measurement date, a deferred actuarial loss is created. When the assumed
discount rate increases compared to the prior measurement date, a deferred
actuarial gain is created. Actuarial gains and losses also are created when
actual results, such as assumed compensation increases, differ from assumptions.
The net of the deferred gains and losses are amortized to pension expense over
the average service life of the remaining plan participants, 16 years for
Cleco’s plan, when it exceeds certain thresholds defined in SFAS No. 87 and SFAS
No. 106. This approach to amortization of gains and losses has the effect of
reducing the volatility of pension expense attributable to investment returns.
Over time, it is not expected to reduce or increase the pension expense relative
to an approach that immediately recognizes losses and gains.
As
a
result of the annual review of assumptions, Cleco has increased the discount
rate from 5.50% to 5.90%. The increase in the discount rate is estimated to
reduce 2007 pension expense by approximately $1.9 million relative to holding
it
constant at 5.5%. Since the discount rate is evaluated every year, the impact
of
the change may not extend past 2007. Cleco uses the Citigroup Pension Liability
Index as a proxy for determining the discount rate applied to its pension plans.
The use of the Citigroup Pension Liability Index as a proxy is considered to
be
proper because of the comparability of the Cleco pension plan’s expected future
cash flows to the expected future cash flows of the Citigroup Pension Liability
Index.
Periodically,
Cleco reviews and updates various actuarial assumptions relating to the
participants in its postretirement benefit plans. The assumptions include
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
inflation,
increases in the National Average Wage Index, withdrawal rates, retirement
rates, marital status, and retiree medical participation. Cleco completed a
review in November 2006. The changes resulting from such review caused an
overall increase in postretirement liabilities measured at December 31, 2006.
The changes in assumptions will increase the fiscal year 2007 postretirement
benefit expense by an estimated $1.5 million.
Similar
assumptions are used to calculate both required and discretionary contributions.
Cleco Power made no discretionary contributions in 2006 or 2005. Future
discretionary contributions may be made depending on changes in assumptions,
the
ability to utilize the contribution as a tax deduction and requirements
concerning recognizing a minimum pension liability. Currently, Cleco Power
does
not expect to make required contributions for approximately five years. However,
the five-year time period may be shortened by a decrease in discount rates,
changes in laws concerning the calculation, or a significant downturn in the
return on the pension plan investments. For additional information on pensions
and other postretirement benefits, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 9 — Pension Plan
and Employee Benefits.”
§ |
Cleco
accounts for income taxes under SFAS No. 109. Under this method,
income
tax expense and related balance sheet amounts are comprised of a
“current”
portion and a “deferred” portion. The current portion represents Cleco’s
estimate of the income taxes payable or receivable for the current
year.
The deferred portion represents Cleco’s estimate of the future income tax
effects of events that have been recognized in the financial statements
or
income tax returns in the current or prior years. Cleco makes assumptions
and estimates when it records income taxes, such as its ability to
deduct
items on its tax returns, the timing of the deduction, and the effect
of
regulation by the LPSC on income taxes. Cleco’s income tax expense and
related assets and liabilities could be affected by changes in its
assumptions and estimates and by ultimate resolution of assumptions
and
estimates with taxing authorities. The actual results may differ
from the
estimated results based on these assumptions and may have a material
effect on Cleco’s results of operations. For additional information about
Cleco Corporation’s income taxes, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 10 — Income
Taxes.”
|
Effective
January 1, 2007, Cleco adopted the provisions of FIN 48 relating to uncertain
tax positions. FIN 48 requires management to estimate the reliability of
positions taken on tax returns. These estimates could differ significantly
from
the ultimate outcome. For additional information on the adoption of FIN 48,
see
Item 8, “Financial Statements and Supplemental Data — Notes to the Financial
Statements — Note 2 — Summary of Significant Accounting Policies — Recent
Accounting Standards.”
§ |
Cleco
Corporation consolidates entities as required by ARB No. 51, as amended
by
SFAS No. 94, and interpreted by FIN 46R. Generally, a parent consolidates
entities in which it controls, either directly or indirectly, the
majority
of the voting interest. Additionally, a parent could be required
to
consolidate an entity in which it does not control a majority voting
interest if the subsidiary is a variable interest entity and meets
certain
criteria contained in FIN 46R. An entity is a variable interest entity
if
it lacks the ability to finance its activities without support from
other
parties; if its owners lack controlling financial interest in the
entity;
or if the entity either conducts substantially all of its activities
with
or on behalf of an investor or if voting rights are disproportional
to
risks and rewards. While consolidation or deconsolidation will not
affect
net income applicable to common shareholders, it may affect specific
line
items within the income statement, such as revenue, specific expense
line
items, and income from equity investees. Consolidation or deconsolidation
of an entity will affect specific balance sheet items such as property,
plant and equipment and long-term debt, which will cause changes
in total
assets and total liabilities. Shareholders’ equity should not be affected
by consolidation or deconsolidation of
entities.
|
§ |
Part
of the compensation employees and directors receive
is in the form of equity instruments. The instruments may take the
form of
restricted stock, stock options, stock equivalent units, or other
types of
equity instruments as described in the plans. Prior to January 1,
2006,
Cleco recognized expense related to equity instruments granted to
employees and directors using the intrinsic value method as described
in
APB Opinion No. 25, not using the fair value method as described
in SFAS
No. 123. Effective January 1, 2006, Cleco adopted SFAS No. 123(R),
which
requires recognizing equity compensation at fair value. For additional
information on stock-based compensation, see Item 8, “Financial Statements
and Supplemental Data — Notes to the Financial Statements — Note 2 —
Summary of Significant Accounting Policies — Recent Accounting Standards”
and Note 7 — “Common Stock — Stock-Based
Compensation.”
|
Cleco
Power
SFAS
No.
71 determines how to account for actions by regulators
that control the price an entity can charge its customers. Cleco Power’s prices
are regulated by the LPSC and the FERC. By determining what costs can be
recovered by Cleco Power through the price it charges its customers, regulatory
assets and liabilities are recognized. Future changes made by the regulatory
bodies could have a material impact on the operations and financial condition
of
Cleco Power. Below are three areas that could be materially impacted by future
actions of regulators.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
§ |
The
LPSC determines the ability of Cleco Power to recover
prudent costs incurred in developing long-lived assets. If the LPSC
was to
rule that the cost of current or future long-lived assets was imprudent
and not recoverable, Cleco Power could be required to write down
the
imprudent cost and incur a corresponding impairment loss. At December
31,
2006, the carrying value of Cleco Power’s long-lived assets was $1.3
billion and is expected to be $1.8 billion at the end of 2007 primarily
due to the construction of Rodemacher Unit 3. Currently, Cleco Power
has
concluded that none of its long-lived assets are
impaired.
|
§ |
Cleco
Power has concluded it is probable that regulatory
assets can be recovered from ratepayers in future rates. At December
31,
2006, Cleco Power had $375.1 million in regulatory assets, net of
regulatory liabilities. Actions by the LPSC could limit the recovery
of
these regulatory assets, causing Cleco Power to record a loss on
some or
all of the regulatory assets. For additional information on the LPSC
and
regulatory assets, see Item 8, “Financial Statements and Supplementary
Data — Notes to the Financial Statements — Note 2 — Summary of Significant
Accounting Policies — Regulation,” Note 3 — “Regulatory Assets and
Liabilities,” and “— Financial Condition — Other Matters — Lignite
Deferral.”
|
§ |
The
LPSC determines the amount and type of fuel and purchased power costs
that
Cleco Power can charge customers through the fuel adjustment clause.
Changes in the determination of allowable costs already incurred
by Cleco
Power could cause material changes in fuel revenue. In 2004, the
LPSC
accepted a settlement relating to its fuel audit that required Cleco
Power
to refund $16.0 million to customers in 2005. This refund was made
to
customers in February 2005. For more information about the settlement,
see
Item 8, “Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 18 — FERC and Fuel Audit Settlements —
2001-2002 Fuel Audit Settlement.” For the years ended December 31, 2006,
2005, and 2004, Cleco Power reported fuel revenue of $617.3 million,
$552.1 million, and $400.1 million, respectively. In July 2006, the
LPSC
began a periodic fuel audit of Cleco Power’s fuel adjustment clause
filings for January 2003 through December 2004. The review is ongoing
and
Cleco Power has not received any preliminary results from the LPSC
Staff.
For additional information on the LPSC and the fuel adjustment clause,
see
Part I, Item 1A, “Risk Factors — Fuel Cost
Audits.”
|
Midstream
Generally,
Midstream is most affected by market conditions and changes in contract
counterparty credit ratings and financial
condition. The most important are listed below.
§ |
Certain
triggering events could cause Midstream to determine
that its long-lived assets or its equity method investments may be
impaired according to applicable accounting guidance. Triggering
events
which apply to long-lived assets include, but are not limited to,
a
significant decrease in the market value of long-lived assets, significant
changes in a tolling agreement counterparty’s financial condition, a
significant change in legal factors, such as adverse changes in
environmental laws, or a current operating or cash flow loss combined
with
a projection of continued losses in the future. An equity method
investment is required to be tested for impairment if an “other than
temporary” decline in market value occurs. Any impairment calculated is
subject to many assumptions and estimations. Management must make
assumptions about expected future cash flows, long-term interest
rates,
estimates about the probability of the occurrence of future events,
and
estimates of market value of assets without a readily observable
market
price. Differences between the estimate made at a particular balance
sheet
date and actual events could cause material adjustments to an impairment
charge. At December 31, 2006, Midstream had $1.7 million in long-lived
assets and $307.0 million in equity method investments. For additional
information on the impairment charges, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 2 —
Summary of Significant Accounting
Policies.”
|
§ |
Midstream
records income from Evangeline as
income from an equity investment and accounts for the Evangeline
Tolling
Agreement as an operating lease. If the tolling agreement was to
be
modified to the extent that it would make lease accounting no longer
appropriate, future results could materially differ from those currently
reported. Under current lease accounting rules, over the first 10
years of
the tolling agreement, Evangeline will recognize revenue that will
not be
billed and collected until the last 10 years of the tolling agreement.
If
lease accounting was to cease, the revenue would be recognized as
billed,
causing the revenue recognized in the first 10 years to be lower
than it
would have been under lease accounting. As of December 31, 2006,
Evangeline had recorded $23.2 million in revenue that will not be
billed
and collected until the last 10 years of the tolling agreement, beginning
in the year 2010. If the tolling agreement is modified substantially,
the
$23.2 million may not be collectible, and Evangeline may be required
to
incur a loss of some or all of the $23.2 million. For additional
information on the tolling agreement, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 14 —
Operating Leases.”
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
FINANCIAL
CONDITION
Liquidity
and Capital Resources
General
Considerations and Credit-Related Risks
Credit
Ratings and Counterparties
Financing
for operational needs and construction requirements
is
dependent upon the cost and availability of external funds from capital markets
and financial institutions. Access to funds is dependent upon factors such
as
general economic conditions, regulatory authorizations and policies, Cleco
Corporation’s credit rating, the credit rating of Cleco Corporation’s
subsidiaries, the cash flows from routine operations, and the credit ratings
of
project counterparties. The following table presents the credit ratings of
Cleco
Corporation, Cleco Power, Evangeline, and Cleco’s tolling agreement
counterparties at December 31, 2006:
|
|
|
|
|
MOODY’S
|
|
STANDARD
& POOR’S
|
|
SENIOR
UNSECURED
DEBT
|
|
SENIOR
SECURED
DEBT
|
|
SENIOR
UNSECURED
DEBT
|
|
SENIOR
SECURED
DEBT
|
Cleco
Corporation
|
Baa3
|
|
-
|
|
BBB-
|
|
-
|
Cleco
Power
|
Baa1
|
|
A3
|
|
BBB
|
|
BBB+
|
Evangeline
|
-
|
|
Ba2
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
Tolling
Counterparties:
|
|
|
|
|
|
|
|
Williams
|
Ba2
|
|
-
|
|
BB-
|
|
-
|
Calpine
|
-
|
|
-
|
|
D
|
|
-
|
Cleco
notes that credit ratings are not recommendations to buy, sell, or hold
securities
and may
be subject to revision or withdrawal at any time by the assigning rating agency.
Each rating should be evaluated independently of any other rating.
At
December 31, 2006, Moody’s outlook for both Cleco Corporation and Cleco Power
was stable.
Standard
& Poor’s ratings outlook for both companies was negative due to continued
uncertainties surrounding Cleco’s merchant energy activities and risks
associated with the construction of Rodemacher Unit 3. If Cleco Corporation
or
Cleco Power’s credit rating were to be downgraded by Moody’s or Standard &
Poor’s, Cleco Corporation and/or Cleco Power would be required to pay additional
fees and higher interest rates under their bank credit and other debt
agreements.
On
June
12, 2006, Moody’s upgraded the rating of Evangeline’s Senior Secured Bonds to
Ba2 from B1. The credit rating of The Williams Companies, Inc. remains
below investment grade. Fundamental to the rating of Evangeline is the fact
that
The Williams Companies, Inc. guarantees the payments of its subsidiary,
Williams, under a long-term tolling agreement between Williams and Evangeline
that expires in 2020. The tolling agreement is the principal source of cash
flow
for Evangeline. At December 31, 2006, Moody’s outlook for Evangeline and The
Williams Companies, Inc. was stable.
Due
to
the events leading up to, and including the bankruptcy filing by Calpine,
Standard & Poor’s lowered its ratings on Calpine’s senior unsecured debt
from CCC- to D in December 2005. On March 1, 2006, Moody’s withdrew the ratings
of Calpine and several of its wholly owned subsidiaries. Calpine guaranteed
the
payment obligations under the Calpine Tolling Agreements. For information on
possible consequences resulting from failure of Cleco’s counterparties to
perform their obligations under the tolling agreements and recent events
relating to the tolling agreements, see “— Results of Operations — Midstream —
Significant Factors Affecting Midstream — Earnings are primarily affected by the
following factors.”
With
respect to any open power or natural gas trading positions that Cleco may
initiate in the future, Cleco may be required to provide credit support (or
pay
liquidated damages). The amount of credit support that Cleco may be required
to
provide at any point in the future is dependent on the amount of the initial
transaction, changes in the market price of power and natural gas, the changes
in open power and gas positions, and changes in the amount counterparties owe
Cleco. Changes in any of these factors could cause the amount of requested
credit support to increase or decrease.
Debt
As
discussed below, Cleco Corporation and Cleco Power amended their existing credit
facilities in June 2006. If
Cleco
Corporation was to default under covenants in its various credit facilities,
Cleco Corporation would be unable to borrow additional funds under the credit
facilities. If Cleco Corporation’s credit rating were to be downgraded one level
below investment grade, Cleco Corporation would be required to pay fees and
interest at a rate of 0.45% higher than the current level for its $150.0
million credit facility. The same downgrade at Cleco Power would require Cleco
Power to pay fees and interest at a rate of 0.70% higher than the current
level on its $275.0 million credit facility. At December 31, 2006, Cleco
Corporation and Cleco Power were in compliance with the covenants in their
credit facilities.
Cleco
Consolidated
Cleco
had
no short-term debt outstanding at December 31, 2006, or December 31, 2005.
At
December 31, 2006, Cleco’s long-term debt outstanding was $619.3 million,
compared to $609.6 million at December 31, 2005. The $9.7 million increase
was primarily due to the issuance in 2006 by the Rapides Finance Authority
of
$60.0 million of 4.70% solid waste disposal facility bonds due 2036, callable
after November 1, 2016. This was offset partially by the classification of
$50.0
million of medium-term notes as short-term debt (long-term debt due within
one
year) based on their maturity dates. During the year ended December 31, 2006,
Cleco repaid $10.0 million of 6.95% medium-term notes, $15.0 million of 6.20%
medium-term notes, and $15.0 million of 6.32% medium-term notes, all at
maturity. These medium-term notes were classified as long-term debt due within
one year; therefore, the repayment did not affect the total amount of long-term
debt recorded. For additional information, see “— Cleco Corporation (Holding
Company Level)” and “— Cleco Power” below, and also see Item 8, “Financial
Statements and Supplementary
Data — Notes to the Financial Statements — Note 6 — Debt.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
At
December 31, 2006, and December 31, 2005, Cleco had a working capital surplus
of
$148.8 million and $140.4 million, respectively. The $8.4 million increase
in
working capital is primarily due to proceeds from Cleco Corporation’s stock
offering, a decrease in the provision for rate refund, the net proceeds from
the
issuance of the solid waste disposal facility bonds relating to Rodemacher
Unit 3, and the reclassification of a portion of the regulatory assets from
long-term to current. These were partially offset by the payment of dividends,
an increase in retainage due to the Rodemacher Unit 3 project, additions to
property, plant and equipment, and construction costs for Rodemacher Unit
3.
Cash
and
cash equivalents available at December 31, 2006,
were
$192.5 million combined with $407.4 million facility capacity ($132.4 million
from Cleco Corporation and $275.0 million from Cleco Power) for total liquidity
of $599.9 million. Cash and cash equivalents decreased $26.7 million, when
compared to December 31, 2005. This decrease is primarily due to fuel oil
inventory purchases, repayment of debt, higher margin deposit requirements,
payment of dividends, and additions to property, plant and equipment, including
Rodemacher Unit 3. This was partially offset by proceeds from Cleco
Corporation’s stock offering, collection of customer accounts receivables, net
proceeds from the issuance of the solid waste disposal facility bonds by the
Rapides Finance Authority, and cash received from continuing
operations.
Cleco
Corporation (Holding Company Level)
Cleco
Corporation had no short-term debt outstanding at December
31, 2006, or December 31, 2005. At December 31, 2006, and December 31, 2005,
Cleco Corporation had $100.0 million of long-term debt outstanding related
to
its 7.00% Senior Notes due May 1, 2008.
On
June
2, 2006, Cleco Corporation amended its existing $150.0 million five-year credit
facility originally entered into on April 25, 2005. The amendment extends the
maturity date of this facility to June 2, 2011, while the facility amount
remains at $150.0 million.
This
facility provides for working capital and other needs. Cleco Corporation’s
borrowing costs under the facility are equal to LIBOR plus 0.650%. The facility
contains the following material covenants:
§ |
a
prohibition against incurring debt other than under the facility,
subject
to the following permitted exceptions, among others: (i) up to $425.0
million (less borrowings under the facility) of specified types of
other
debt may be incurred; (ii) guarantees of Cleco Power obligations
and (iii)
other specified guarantees,
up to specified amounts;
|
§ |
a
prohibition against creating liens upon any property,
subject to permitted exceptions;
|
§ |
restrictions
on merging, consolidating, or selling assets outside the ordinary
course
of business;
|
§ |
a
prohibition against making loans or investments, subject to permitted
exceptions, including exceptions for investments of up to $10.0 million
per year in subsidiaries other than Cleco Power and loans of up to
$20.0
million in the aggregate to such
subsidiaries;
|
§ |
a
prohibition against amending Cleco’s 401(k) Plan in a manner that would be
materially adverse to the lenders under the facility, subject to
permitted
exceptions;
|
§ |
a
prohibition against transactions with affiliates, subject to permitted
exceptions;
|
§ |
a
prohibition against Cleco and Cleco Power entering into agreements
or
arrangements that prohibit or restrict their ability to incur liens,
or
Cleco Power’s ability to pay dividends or to repay debt or make payments
to Cleco, subject to permitted
exceptions;
|
§ |
a
prohibition against entering into speculative and other hedge agreements
intended to be a borrowing of
funds;
|
§ |
a
requirement that Cleco maintain at all times total indebtedness equal
to
or less than 65% of total capitalization;
and
|
§ |
a
requirement that Cleco maintain a ratio of earnings before interest,
taxes, depreciation, and amortization to interest expense as of the
end of
any fiscal quarter of at least 2.50 to
1.00.
|
Cleco
Corporation’s borrowing costs under the previous
facility were equal to LIBOR plus 0.875%. At December 31, 2006, off-balance
sheet commitments reduced available borrowings by an additional $17.6 million,
leaving available capacity of $132.4 million. For more information about these
commitments, see “— Off-Balance Sheet Commitments.” An uncommitted line of
credit with a bank in an amount up to $10.0 million also is available to support
Cleco’s working capital needs. This line of credit is available to either Cleco
Corporation or Cleco Power.
In
August
2006, Cleco Corporation issued 6.9 million shares of common stock in a public
offering. Cleco Corporation’s net proceeds from the offering totaled
approximately $157.5 million and were used for general corporate purposes,
including funding of ongoing construction of Rodemacher Unit 3.
Cash
and
cash equivalents available at December 31, 2006, were $90.6 million, combined
with $132.4 million facility capacity for total liquidity of $223.0 million.
Cash and cash equivalents increased $54.9 million, when compared to December
31,
2005, primarily due to proceeds from Cleco Corporation’s stock offering. This
was partially offset by the payment of dividends and a $50.0 million equity
contribution to Cleco Power.
If
Cleco
Power were to default under its credit facility, Cleco Corporation would be
considered in default under its current credit facility. The bonds issued by
Evangeline are non-recourse to Cleco Corporation, and a default on these bonds
would not be considered a default under Cleco Corporation’s credit
facility.
Cleco
Power
There
was
no short-term debt outstanding at Cleco Power at December 31, 2006, or December
31, 2005. At
December 31, 2006, Cleco Power’s long-term debt outstanding was $519.3
million,
compared to $509.6 million at December 31,
2005. The $9.7 million increase was primarily due to the issuance
by
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
the
Rapides Finance Authority of $60.0 million of 4.70% solid waste disposal
facility bonds due 2036, callable after November 1, 2016. This was offset
partially by the classification of $50.0 million of medium-term notes as
short-term debt (long-term debt due within one year) based on their maturity
dates. During the year ended December 31, 2006, Cleco Power repaid $10.0 million
of 6.95% medium-term notes, $15.0 million of 6.20% medium-term notes, and $15.0
million of 6.32% medium-term notes, all at maturity. These medium-term notes
were classified as long-term debt due within one year; therefore, these
repayments did not affect the total amount of long-term debt
recorded.
On
June
2, 2006, Cleco Power amended its existing $150.0 million five-year credit
facility originally entered into on April 25, 2005. The amendment extends the
maturity date of this facility to June 2, 2011, and increases the maximum
capacity
under the facility to $275.0 million. This facility provides for working capital
and other needs. Cleco Power’s initial borrowing cost under this facility is
equal to LIBOR plus 0.400%, including facility fees. The facility contains
the
following material covenants:
§ |
a
prohibition against creating liens upon any property,
subject to permitted exceptions;
|
§ |
restrictions
on merging, consolidating, or selling assets
outside the ordinary course of
business;
|
§ |
a
prohibition against making loans, subject to permitted
exceptions;
|
§ |
a
prohibition against amending Cleco Power’s Indenture of Mortgage dated
July 1, 1950 or the 401(k) Plan in a manner that would be materially
adverse to the lenders under the facility, subject to permitted
exceptions;
|
§ |
a
requirement that Cleco Power maintain at all times total indebtedness
equal to or less than 65% of total capitalization;
and
|
§ |
a
requirement that Cleco Power maintain a ratio of earnings before
interest,
taxes, depreciation, and amortization to interest expense as of the
end of
any fiscal quarter of at least 2.50 to
1.00.
|
At
December 31, 2006,
no
amounts were outstanding under Cleco Power’s $275.0 million, five-year facility.
An uncommitted line of credit with a bank in an amount up to $10.0 million
also
is available to support Cleco Power’s working capital needs. This line of credit
is available to either Cleco Power or Cleco Corporation.
Cash
and
cash equivalents available at December 31, 2006, were $101.9 million, combined
with $275.0 million facility capacity for total liquidity of $376.9 million.
Cash and cash equivalents decreased $81.5 million, when compared to December
31,
2005. This decrease is primarily due to fuel oil inventory purchases, repayment
of debt, higher margin deposit requirements, and additions to property, plant
and equipment, including Rodemacher Unit 3. This was partially offset by a
$50.0
million equity contribution from Cleco Corporation, collection of customer
accounts receivable, net proceeds from the issuance of the solid waste disposal
facility bonds, and cash received from continuing operations.
Storm
restoration costs from Hurricanes Katrina and Rita are currently estimated
to
total $158.7 million. During 2006, the LPSC agreed to an interim increase in
rates of $23.4 million annually over a ten-year period to recover approximately
$161.8 million of estimated storm restoration costs, until a review of the
costs
by the LPSC was completed. In February 2007, as a result of the LPSC Staff’s
review of storm restoration costs, Cleco Power and the LPSC Staff signed a
settlement term sheet allowing the recovery and securitization of essentially
all of Cleco Power’s Hurricane Katrina and Rita storm costs and the funding and
securitization of a $50.0 million reserve for future, extraordinary storm costs.
Cleco Power is also exploring the reimbursement of storm restoration costs
from
the U.S. Government.
On
February 22, 2006, the LPSC approved Cleco Power’s plans to build Rodemacher
Unit 3. Terms of the approval included acceptance of an LPSC Staff
recommendation that Cleco Power collect from customers an amount equal to 75%
of
the carrying costs of capital during the construction phase of the unit. In
addition to this recovery, Cleco Power plans to fund the construction costs
related to Rodemacher Unit 3 by utilizing cash on hand, available funds from
its
credit facility, the issuance of long-term debt and equity contributions from
Cleco Corporation.
The
Louisiana State Bond Commission has approved the issuance of up to $200.0
million of tax-exempt bonds to finance the qualifying costs of the solid waste
disposal facilities at Rodemacher Unit 3. A total of $60.0 million was allocated
by the Governor’s office for issuance in 2006. Cleco Power can reapply to the
Governor’s office for additional allocations in 2007 and 2008 up to the $200.0
million approved amount, if needed. Thus far, a total of $152.9 million of
qualifying costs at Rodemacher Unit 3 has been identified. The $60.0 million
of
bonds allocated for 2006 were issued on November 21, 2006, by the Rapides
Finance Authority, and Cleco Power agreed to pay the debt service on the bonds.
The fixed interest rate on the bonds is 4.70% and the maturity date is November
1, 2036. The bonds may be called at the option of the issuer at the direction
of
Cleco Power after November 1, 2016. Cleco Power notified the LPSC of this
planned financing on September 22, 2006, in order to comply with the advanced
review requirements contained in the CCN.
Midstream
Midstream
had no short-term debt outstanding at December
31,
2006, or December 31, 2005.
At
December 31, 2006, Perryville had no short-term or long-term debt outstanding.
Evangeline,
deconsolidated and no longer reported in Cleco Corporation’s consolidated
results, had no short-term debt outstanding at December 31, 2006. Evangeline
did
have $177.1 million and $184.7 million of long-term debt outstanding
at December 31, 2006, and December 31, 2005, respectively, in the form of 8.82%
Senior Secured Bonds due 2019. In addition, Evangeline had $7.6 million and
$7.1
million of long-term debt due within one year at December 31, 2006, and
December 31, 2005, respectively, relating to these bonds.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
bonds
issued by Evangeline are non-recourse to Cleco Corporation. For information
on
the deconsolidation of Evangeline, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 13 — Equity
Investment in Investees.”
Cash
Generation and Cash Requirements
Restricted
Cash
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 general corporate purposes. At December 31, 2006, and 2005, $59.0 million
and $35.7 million, respectively, of cash was restricted.
At
December 31, 2006, the $59.0 million of restricted cash consisted of $0.1
million under the Diversified Lands mitigation
escrow agreement, $34.5 million under the Evangeline senior secured bond
indenture, and $24.4 million under the Cleco Power solid waste disposal bonds
indenture. The restricted cash at Evangeline is not included in Cleco
Corporation’s Consolidated Balance Sheets at December 31, 2006, due to the
deconsolidation of Evangeline in 2004.
Cleco
Cash Flows
Net
Cash Provided by Operating Activities
Net
cash
provided by operating activities was $91.4
million during 2006, $249.7 million in 2005, and $166.6 million in
2004.
Cash
from
operating activities during
2006 decreased $158.3 million from that reported in 2005 primarily due to lower
income from equity investments, higher fuel oil and materials inventory
purchases, lower deferral/accrual of income taxes due to the absence of the
sale
of Perryville’s assets and storm restoration costs incurred in 2005, higher
margin deposit requirements due to a decrease in the value of open natural
gas
contracts, and payment of storm restoration costs. These were partially offset
by higher collections of customer accounts and collections of previously
deferred fuel expenses.
Net
cash
provided by operating activities increased $83.1 million in 2005 compared to
2004, primarily due to the sale of Perryville’s assets and damage claims against
Mirant, higher accounts payable due to increased costs of power and natural
gas
purchases and higher deferred compensation, higher deferred taxes due to storm
restoration costs, and lower margin deposit requirements due to a favorable
increase in market value of open natural gas contracts. These were partially
offset by higher accounts receivable due to higher utility bills and an increase
in regulatory assets due to expenses associated with Hurricanes Katrina and
Rita.
Net
Cash Used in Investing Activities
Net
cash
used in investing activities was $251.0 million during
2006, $147.2 million in 2005, and $60.6 million in 2004. Net cash used in 2006
was higher than 2005 and 2004 primarily due to increased additions to property,
plant and equipment related to the Rodemacher Unit 3 project, the absence of
proceeds from disposal of Cleco Energy assets, and a higher amount of cash
transferred to restricted accounts due to issuance by the Rapides Finance
Authority of the solid waste disposal facility bonds at Cleco
Power.
During
2006,
Cleco
had additions to property, plant and equipment, net of AFUDC, of $228.7 million,
a $3.4 million investment in company- and trust-owned life insurance policies,
a
$24.4 million transfer of cash to restricted accounts, and a $7.0 million
investment in Attala. This was partially offset by $11.2 million of dividends,
primarily from APH and Perryville.
During
2005, Cleco had additions to property, plant and equipment, net of AFUDC, of
$157.0 million, a $3.7 million investment in company- and trust-owned life
insurance policies, and a $1.4 million investment in Perryville. This was
partially offset by $12.1 million of dividends, primarily from APH, and $2.8
million in proceeds, primarily from the sale of the Franklinton distribution
assets.
During
2004, Cleco had additions to property, plant and equipment, net of AFUDC, of
$76.2 million, $6.9 million investment in company- and trust-owned life
insurance policies, and a $5.5 million investment in Perryville. This was
partially offset by cash provided of $10.4 million from the sale of the assets
of Cleco Energy, $10.2 million from the release of cash from restricted
accounts, and $7.1 million of dividends from APH.
Net
Cash Provided
by/Used in Financing Activities
Net
cash
provided
by financing activities was $132.9 million during 2006, compared to net cash
used in financing activities of $7.1 million in 2005 and $77.6 million in 2004.
Net cash provided by financing activities in 2006 was more than 2005 primarily
due to proceeds from the sale of common stock and lower repayments of long-term
debt. This was partially offset by lower proceeds from the issuance of long-term
debt in 2006. Net cash used in financing activities in 2005 was less than 2004
primarily due to less cash used to redeem outstanding debt in 2004, net of
new
debt issued, and additional cash provided in 2004 from the sale of common stock,
as explained below.
During
2006, Cleco received $157.5 million of net proceeds
from the sale of 6.9 million shares of common stock and $60.0 million from
the
issuance of long-term debt. This was partially offset by $40.4 million of cash
used for repayment of long-term debt and $49.1 million for common and preferred
stock dividends.
During
2005, Cleco used $200.1 million of cash for repayment of long-term debt
obligations and $46.8 million for common and preferred stock dividends. This
amount was offset partially by $238.7 million provided by the issuance of
long-term debt.
During
2004, Cleco used $70.3 million of cash for redemption of short- and long-term
debt obligations and $45.1 million for common and preferred stock dividends.
This amount was
partially
offset by $35.7 million from the sale of 2.0 million shares of common
stock.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Cleco
Power Cash Flows
Net
Cash Provided by Operating Activities
Net
cash
provided by operating activities was $102.7
million during 2006, $125.0 million in 2005, and $103.2 million in
2004.
Cash
from
operating activities in 2006 decreased $22.3
million
from that reported in 2005 primarily due to higher fuel oil and materials
inventory purchases, lower deferral/accrual of income taxes due to the absence
of storm restoration costs incurred in 2005, higher margin deposit requirements
due to a decrease in the value of open natural gas contracts, and payment of
storm restoration costs. These were partially offset by higher collections
of
customer accounts and collections of previously deferred fuel
expenses.
Cash
from
operating activities increased $21.8 million in 2005 compared to 2004, primarily
due to higher tax deferrals resulting from a storm casualty loss deduction
partially offset by payments for storm restoration work.
Net
Cash Used in Investing Activities
Net
cash
used in investing activities was $251.8 million during
2006, $153.9 million in 2005, and $75.3 million in 2004. Net cash used in 2006
was higher than 2005 and 2004 primarily due to higher additions to property,
plant and equipment related to the Rodemacher Unit 3 project and a higher amount
of cash transferred to restricted accounts due to the issuance by the Rapides
Finance Authority of the solid waste disposal facility bonds.
During
2006,
Cleco
Power had additions to property, plant and equipment, net of AFUDC, of $228.2
million compared to $156.1 million and $75.0 million in 2005 and 2004,
respectively.
Net
Cash Provided
by/Used in Financing Activities
Net
cash
provided
by financing activities was $67.5 million during 2006, compared to $158.2
million in 2005 and net cash used in financing activities of $44.8 million
in
2004. Net cash provided by financing activities in 2006 was $90.7 million lower
than 2005 primarily due to lower proceeds from the issuance of long-term debt,
net of debt retired of $119.0 million and lower cash contributions of $25.0
million from Cleco Corporation, partially offset by $52.9 million in lower
dividends distributed to Cleco Corporation.
Net
cash
provided by financing activities in 2005 was $203.0 million higher than 2004
primarily due to higher proceeds
from the issuance of long-term debt, net of debt retired, of $138.5 million
and
a cash contribution of $75.0 million from Cleco Corporation, partially offset
by
$8.2 million in higher dividends distributed to Cleco Corporation.
Shelf
Registrations
Cleco
Corporation currently has two shelf registration statements
on
file (Registration No. 333-109506 and Registration No. 333-55656). At December
31, 2006, Registration Statement No. 333-55656 had remaining capacity allowing
for the issuance of up to $67.0 million of common or preferred stock, and
Registration Statement No. 333-109506 had remaining capacity allowing for the
issuance of approximately $36.1 million of stock or debt securities.
On
April
13, 2006, a
registration statement (No. 333-132832) providing for the issuance of up to
$600.0 million of Cleco Power debt securities was declared effective by the
SEC.
At December 31, 2006, all $600.0 million remained available.
Construction
Overview
Cleco
allocates
its construction budget among its major first-tier subsidiaries — Cleco Power
and Midstream. Cleco Power construction costs relate primarily to assets that
may be included in Cleco Power’s rate base and, if considered prudent by the
LPSC, can be recovered from its customers. Those assets also earn a rate of
return authorized by the LPSC and are subject to the rate agreement described
below under “— Retail Rates of Cleco Power.” Such assets consist of improvements
to Cleco Power’s distribution system, transmission system, and generating
stations, such as Rodemacher Unit 3. Midstream’s construction activities pertain
predominately to Evangeline and consist of assets whose rate of return is
determined by the market, not by regulators. Midstream’s construction
expenditures, other than those for Evangeline, are not discussed in detail
due
to the fact that they are primarily for computer upgrades, and are deemed
immaterial.
Cleco’s
2007 expenditures for construction and debt maturity
are estimated to total $545.1 million, which includes $495.0 million of
estimated construction expenditures, excluding AFUDC, and $50.1 million of
estimated debt maturity payments. For the five-year period ending in 2011,
Cleco’s expenditures for construction and debt maturity are expected to total
approximately $1.25 billion, which includes $1.05 billion of estimated
construction expenditures, excluding AFUDC, and $200.5 million of estimated
debt
maturity payments. Approximately 63% of the planned construction expenditures
is
expected to be for Cleco Power’s construction of Rodemacher Unit 3. Total
additional planned Rodemacher project costs are estimated at $778.5 million,
which includes approximately $133.5 million of AFUDC. Approximately 15% of
the
planned construction expenditures will support line extensions and substation
upgrades to accommodate new business and load growth at Cleco Power. The
remaining 22% will be for the rehabilitation of older transmission,
distribution, and generation assets at Cleco Power and the purchase of computer
hardware and software upgrades for Cleco.
Evangeline’s
2007 expenditures for construction and debt maturity are estimated to total
$9.6
million, which includes $1.9 million of estimated construction expenditures
and
$7.7 million of estimated debt maturity payments. For the five-year period
ending in 2011, Evangeline’s expenditures for construction and debt maturity are
expected to total $54.9 million, which includes $14.5 million of estimated
construction expenditures and $40.4 million of estimated debt maturity payments.
The construction and debt maturity payments for Evangeline are not included
in
Cleco’s totals due to the deconsolidation of Evangeline in 2004. For more
information on the
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
deconsolidation
of Evangeline, see Note 13 — “Equity Investment in Investees.” For
information on the maturities of Cleco’s debt, see Item 8, “Financial Statements
and Supplementary Data — Notes to the Financial Statements — Note 6 —
Debt.”
Cleco
believes that its cash and cash equivalents on hand, together with cash
generated from its operations, borrowings from credit facilities, and the net
proceeds of any issuances under Cleco’s shelf registration statements, will be
adequate to fund normal ongoing capital expenditures, working capital, and
debt
service requirements for the foreseeable future.
Cleco
Power Construction
Overview
Cleco
Power’s construction expenditures,
including AFUDC, totaled $282.9 million in 2006, $186.4 million in 2005, and
$78.7 million in 2004. The increase in construction expenditures from 2005
to
2006 is primarily due to costs related to the construction at Rodemacher Unit
3.
The increase in construction expenditures from 2004 to 2005 is primarily due
to
storm restoration costs relating to Hurricanes Katrina and Rita.
Cleco
Power’s construction expenditures
for
2007, excluding AFUDC, are estimated to be $494.0 million. For the five-year
period ending in 2011, they are expected to total $1.0 billion. Approximately
63% of the planned construction is expected to be for Cleco Power’s construction
of Rodemacher Unit 3. Total additional planned Rodemacher project costs are
estimated at $778.5 million, which includes approximately $133.5 million of
AFUDC. Approximately 15% of the planned construction in the five-year period
will support line extensions and substation upgrades to accommodate new business
and load growth. The remaining 22% will be for the rehabilitation of older
transmission, distribution, and generation assets.
After
the
evaluation of potential construction contractors, Cleco Power entered into
an
EPC contract with Shaw, effective August 1, 2005, for the construction of
Rodemacher Unit 3. For more information on the EPC Contract, see “— Regulatory
Matters — Rodemacher Unit 3 — Construction.”
In
2006,
37.3% of Cleco Power’s construction requirements was funded internally. In 2005
and 2004, 67.9% and 100%, respectively, of Cleco Power’s construction
requirements was funded internally. In 2007, 25.3% of construction requirements
is expected to be funded internally. For the five-year period ending 2011,
68.8%
of the construction requirements is expected to be funded internally. All
computations of internally funded construction exclude AFUDC.
Other
Subsidiary Construction
Other
subsidiaries had construction expenditures of $0.5
million during 2006, $0.9 million during 2005, and $2.4 million during 2004.
Expenditures of $1.1 million in 2004 were allocated to Cleco Power and
Midstream, resulting in net construction expenditures of $1.3 million. These
expenditures related to the installation and upgrade of computer hardware and
software implementation for Support Group. Other construction expenditures
for
2007 are estimated to total $0.9 million. For the five-year period ending 2011,
construction expenditures are expected to total $3.1 million. The majority
of
the planned other construction in the five-year period will consist of upgrades
of computer hardware and software for Support Group.
Other
Cash Requirements
Cleco
Power’s
regulated operations and Midstream’s merchant power plants are Cleco’s primary
sources of internally generated funds. These funds, along with the issuance
of
additional debt and equity in future years, will be used for general corporate
purposes, construction, and to repay corporate debt.
Contractual
Obligations and Other Commitments
Cleco,
in
the course of normal business activities, enters into a variety of contractual
obligations. Some of these result in direct
obligations that are reflected in the Consolidated Balance Sheets while others
are commitments, some firm and some based on uncertainties, that are not
reflected in the consolidated financial statements. The obligations listed
in
the following table do not include amounts for ongoing needs for which no
contractual obligation existed as of December 31, 2006, and represent only
the
projected future payments that Cleco was contractually obligated to make as
of
December 31, 2006.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS
DUE BY
PERIOD
|
|
CONTRACTUAL
OBLIGATIONS (THOUSANDS)
|
|
TOTAL
|
|
LESS
THAN
ONE
YEAR
|
|
1-3
YEARS
|
|
3-5
YEARS
|
|
MORE
THAN
5
YEARS
|
|
Cleco
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
(1)
|
|
$
|
110,162
|
|
$
|
7,188
|
|
$
|
102,708
|
|
$
|
266
|
|
$
|
-
|
|
Operating
lease obligations
(3)
|
|
|
81
|
|
|
79
|
|
|
2
|
|
|
-
|
|
|
-
|
|
Purchase
obligations
(4)
|
|
|
11,053
|
|
|
4,515
|
|
|
3,618
|
|
|
1,940
|
|
|
980
|
|
Other
long-term liabilities
(5)
|
|
|
145,728
|
|
|
6,975
|
|
|
12,599
|
|
|
8,672
|
|
|
117,482
|
|
Total
Cleco Corporation
|
|
$
|
267,024
|
|
$
|
18,757
|
|
$
|
118,927
|
|
$
|
10,878
|
|
$
|
118,462
|
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
(1)
|
|
$
|
1,097,859
|
|
$
|
82,790
|
|
$
|
109,318
|
|
$
|
54,716
|
|
$
|
851,035
|
|
Capital
lease obligations
(2)
|
|
|
506
|
|
|
127
|
|
|
253
|
|
|
126
|
|
|
-
|
|
Operating
lease obligations
(3)
|
|
|
30,813
|
|
|
5,332
|
|
|
9,305
|
|
|
6,803
|
|
|
9,373
|
|
Purchase
obligations
(4)
|
|
|
1,763,699
|
|
|
870,731
|
|
|
875,966
|
|
|
13,852
|
|
|
3,150
|
|
Other
long-term liabilities
(5)
|
|
|
116,894
|
|
|
20,173
|
|
|
37,494
|
|
|
23,681
|
|
|
35,546
|
|
Total
Cleco Power
|
|
$
|
3,009,771
|
|
$
|
979,153
|
|
$
|
1,032,336
|
|
$
|
99,178
|
|
$
|
899,104
|
|
Midstream
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations
(4)
|
|
$ |
545
|
|
$ |
218
|
|
$ |
327
|
|
$ |
-
|
|
$ |
-
|
|
Total
Midstream
|
|
$
|
545
|
|
$
|
218
|
|
$
|
327
|
|
$
|
-
|
|
$
|
-
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations
(4)
|
|
$ |
5,422
|
|
$ |
2,765
|
|
$ |
2,657
|
|
$ |
-
|
|
$ |
-
|
|
Total
Other
|
|
$
|
5,422
|
|
$
|
2,765
|
|
$
|
2,657
|
|
$
|
-
|
|
$
|
-
|
|
Total
long-term debt obligations (1)
|
|
$
|
1,208,021
|
|
$
|
89,978
|
|
$
|
212,026
|
|
$
|
54,982
|
|
$
|
851,035
|
|
Total
capital lease obligations (2)
|
|
$
|
506
|
|
$
|
127
|
|
$
|
253
|
|
$
|
126
|
|
$
|
-
|
|
Total
operating lease obligations (3)
|
|
$
|
30,894
|
|
$
|
5,411
|
|
$
|
9,307
|
|
$
|
6,803
|
|
$
|
9,373
|
|
Total
purchase obligations (4)
|
|
$
|
1,780,719
|
|
$
|
878,229
|
|
$
|
882,568
|
|
$
|
15,792
|
|
$
|
4,130
|
|
Total
other long-term liabilities (5)
|
|
$
|
262,622
|
|
$
|
27,148
|
|
$
|
50,093
|
|
$
|
32,353
|
|
$
|
153,028
|
|
Total
|
|
$
|
3,282,762
|
|
$
|
1,000,893
|
|
$
|
1,154,247
|
|
$
|
110,056
|
|
$
|
1,017,566
|
|
(1)Long-term
debt existing as of December 31, 2006, is debt that has a final maturity of
January 1, 2008, or later (current maturities of long-term debt are due within
one-year). Cleco’s anticipated interest payments related to long-term debt also
are included in this category. Scheduled maturities of debt will total $50.1
million for 2007 and $621.1 million for the years thereafter. These amounts
also
include capital lease maturities. For additional information regarding Cleco’s
long-term debt, see Item 8, “Financial Statements and Supplementary Data — Notes
to the Financial Statements — Note 6 — Debt” and “— Debt” above.
(2)Capital
leases are maintained in the ordinary course of Cleco’s business activities.
These leases include mobile data terminal leases.
(3)Operating
leases are maintained in the ordinary course of Cleco’s business activities.
These leases include tolling agreements and vehicle, office space, operating
facilities, office equipment, and operating equipment leases and have various
terms and expiration dates from 1 to 15 years. For additional information
regarding Cleco’s operating leases, see Item 8, “Financial Statements and
Supplementary Data — Notes to the Financial Statements — Note 14 — Operating
Leases.”
(4)Significant
purchase obligations for Cleco are listed below:
§ |
Fuel
Contracts: To supply a portion of the fuel requirements for Cleco
Power’s
generating plants, Cleco has entered into various commitments to
obtain
and deliver coal, lignite, and natural gas. Some of these contracts
contain provisions for price escalation and minimum purchase commitments.
Generally, fuel and purchased power expenses are recovered
through the LPSC-established fuel adjustment clause, which enables
Cleco
Power to pass on to customers substantially all such charges. For
additional information regarding fuel contracts, see Part I, Item
1,
“Business — Operations — Cleco Power — Fuel and Purchased
Power.”
|
§ |
Power
Purchase Agreements: Cleco Power has entered into agreements with
energy
suppliers for purchased power to meet system load and energy requirements,
replace generation from Cleco Power owned units under maintenance
and
during outages, and meet operating reserve obligations. In general,
these
contracts provide for capacity payments, subject to meeting certain
contract obligations, and energy payments based on actual power taken
under the contracts. Cleco Power also has entered into agreements
to
purchase transmission capacity. For additional information regarding
power
purchase agreements, see “— Regulatory Matters — Generation RFP”
below.
|
§ |
EPC
Contract: Cleco Power entered into an engineering, procurement, and
construction contract with Shaw to construct Rodemacher Unit 3. For
more
information, see “— Regulatory Matters — Rodemacher Unit 3 —
Construction.”
|
§ |
Gas
Futures Contracts: Cleco Power entered into natural gas purchase
contracts
in order to hedge the risk associated with the volatility in the
cost of
fuel purchased for utility generation and the risk associated with
the
fixed-price power that is being provided to a wholesale customer
through
December 2010. For more information, see Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk — Risk Overview — Commodity
Price Risk.”
|
§ |
Purchase
orders: Cleco has entered into purchase orders in the course of normal
business activities.
|
§ |
For
purposes of this table, it is assumed that all terms and rates related
to
the above obligations will remain the same, and all franchises will
be
renewed according to the rates used in the
table.
|
(5)Other
long-term liabilities primarily consist of obligations for franchise payments,
deferred compensation, facilities use, SERP and other postretirement
obligations, and various operating and maintenance agreements.
*Long-term
debt, long-term maintenance agreements, and various other operating and
maintenance agreements related to Midstream’s deconsolidated entities,
Perryville and Evangeline, and its equity investments in Acadia and Attala
are
not reflected in the chart above. For additional information on these entities,
see Item 8, “Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 13 — Equity Investment in Investees” and Note 20 —
“Perryville.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
Off-Balance
Sheet Commitments
Cleco
Corporation and Cleco Power have entered into various off-balance sheet
commitments, in the form of guarantees and standby letters
of
credit, in order to facilitate their activities and the activities of Cleco
Corporation’s subsidiaries and equity investees (affiliates). Cleco Corporation
entered into these off-balance sheet commitments in order to entice desired
counterparties to contract with its affiliates by providing some measure of
credit assurance to the counterparty in the event Cleco’s affiliates do not
fulfill certain contractual obligations. If Cleco Corporation had not provided
the off-balance sheet commitments, the desired counterparties may not have
contracted with Cleco’s affiliates, or may have contracted with them at terms
less favorable to its affiliates.
The
off-balance sheet commitments are not recognized on Cleco’s Consolidated Balance
Sheets,
because
it has been determined that Cleco’s affiliates are able to perform these
obligations under their contracts and that it is not probable that payments
by
Cleco will be required. Some of these commitments reduce borrowings available
to
Cleco Corporation under its credit facility pursuant to the terms of the credit
facility. Cleco’s off-balance sheet commitments as of December 31, 2006, are
summarized in the following table, and a discussion of the off-balance sheet
commitments follows the table. The discussion should be read in conjunction
with
the table to understand the impact of the off-balance sheet commitments on
Cleco’s financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31, 2006
|
|
|
|
|
|
|
|
REDUCTIONS
TO THE
|
|
|
|
|
|
|
|
|
AMOUNT
AVAILABLE
|
|
|
|
|
|
|
|
|
TO
BE DRAWN ON
|
|
|
FACE
|
|
|
|
NET
|
CLECO
CORPORATION’S
|
|
(THOUSANDS)
|
AMOUNT
|
|
REDUCTIONS
|
|
AMOUNT
|
|
CREDIT
FACILITY
|
|
Cleco
Corporation
|
|
|
|
|
|
|
|
|
Guarantee
issued to Entergy companies for performance obligations of
Perryville
|
$
|
277,400
|
|
$
|
135,000
|
|
$
|
142,400
|
|
$
|
328
|
|
Guarantees
issued to purchasers of the assets of Cleco Energy
|
|
1,400
|
|
|
-
|
|
|
1,400
|
|
|
1,400
|
|
Obligations
under standby letter of credit issued to the Evangeline Tolling Agreement
counterparty
|
|
15,000
|
|
|
-
|
|
|
15,000
|
|
|
15,000
|
|
Guarantee
issued to Central Mississippi Generating Co. on behalf of Attala
|
|
363
|
|
|
-
|
|
|
363
|
|
|
363
|
|
Guarantee
issued to Entergy Mississippi, Inc. on behalf of Attala
|
|
500
|
|
|
-
|
|
|
500
|
|
|
500
|
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
under standby letter of credit issued to Louisiana Department of
Labor
|
|
525
|
|
|
-
|
|
|
525
|
|
|
-
|
|
Obligations
under the Lignite Mining Agreement
|
|
11,659
|
|
|
-
|
|
|
11,659
|
|
|
-
|
|
Obligations
under standby letter of credit issued to Louisiana Department of
Wildlife
and Fisheries
|
|
85
|
|
|
-
|
|
|
85
|
|
|
-
|
|
Total
|
$
|
306,932
|
|
$
|
135,000
|
|
$
|
171,932
|
|
$
|
17,591
|
|
Cleco
Corporation provided a limited guarantee to Entergy Louisiana and Entergy Gulf
States for Perryville’s performance indemnity,
representation, and warranty obligations under the Sale Agreement, the Power
Purchase Agreement, and other ancillary agreements related to the sale of the
Perryville facility. As of December 31, 2006, the aggregate guarantee of $277.4
million is limited to $142.4 million (other than with respect to the
indemnification of environmental matters, to which there is no limit) due to
the
performance of some of the underlying obligations that were guaranteed. The
discounted probability-weighted liability under the guarantees and
indemnifications as of December 31, 2006, was $0.3 million, resulting in a
corresponding reduction in the available credit under Cleco’s credit facility,
which was determined in accordance with the facility’s definition of a
contingent obligation. The contingent obligation reduces the amount available
under the credit agreements by an amount equal to the reasonably anticipated
liability in respect of the contingent obligation as determined in good faith
if
the total amount of indebtedness outstanding, including such contingent
obligations, exceeds certain thresholds. For additional information on this
guarantee, see Item 8, “Financial Statements and Supplementary Data — Notes to
the Financial Statements — Note 17 — Disclosures about Guarantees.”
In
November 2004, Cleco completed the sale of substantially all of the assets
of
Cleco Energy. Cleco Corporation provided guarantees to the buyers of Cleco
Energy’s assets for the payment and performance of the indemnity obligations of
Cleco Energy. The aggregate amount of the guarantees is $1.4 million, and the
guarantees expire in 2009. The purchaser of Cleco Energy’s assets has invoked
its indemnification provisions pursuant to the purchase and sale agreement
that
Cleco guaranteed, as a result of a lawsuit filed against the purchaser and
Cleco
Energy (related to the price charged for certain natural gas sales by Cleco
Energy). The lawsuit has been settled, and the settlement had no material impact
on Cleco’s financial condition, results of operations, or cash flows. The
settlement of the lawsuit had no effect on the $1.4 million guarantee.
If
Evangeline fails to perform certain obligations under its tolling agreement,
Cleco Corporation will be required to make payments to the Evangeline Tolling
Agreement counterparty. Cleco Corporation’s obligation under the Evangeline
commitment is in the form of a standby letter of credit from investment grade
banks and is limited to $15.0 million. Ratings triggers do not exist in the
Evangeline Tolling Agreement. Cleco expects Evangeline to be able to meet its
obligations under the tolling agreement and does not expect Cleco Corporation
to
be required to make payments to the counterparty. However, under the covenants
associated with Cleco Corporation’s credit facility, the entire net amount of
the Evangeline commitment reduces the amount that can be borrowed under the
credit facility. The letter of credit for Evangeline is expected to be renewed
annually until 2020.
On
March
16, 2005, Cleco Corporation issued a guarantee to Central Mississippi Generating
Company, LLC for Attala’s
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
obligations
and liabilities under the purchase and sale agreement between Central
Mississippi Generating Company, LLC and Attala. This agreement provides for
the
acquisition of transmission assets by Attala, including Attala’s obligations to
pay the purchase price for the assets and to indemnify the seller. The maximum
amount originally payable under the guarantee was $6.9 million. On January
20,
2006, Cleco completed the purchase of the transmission assets, and the guarantee
was reduced to $0.7 million. On July 21, 2006, the guarantee amount was reduced
to $0.4 million, pursuant to the terms of the purchase and sale agreement.
On
January 20, 2007, the guarantee expired. In addition, on January 20, 2006,
Cleco
Corporation provided a $0.5 million guarantee to Entergy Mississippi for
Attala’s obligations under the Interconnection Agreement. This guarantee has no
time limit.
The
State
of Louisiana allows employers of certain financial net worth to self-insure
their workers’ compensation benefits. Cleco Power applied to the Louisiana
Office of Workers’ Compensation for a certificate of self-insurance. The State
of Louisiana required Cleco Power to post a $0.5 million letter of credit,
an
amount equal to 110% of the average losses over the previous three years, as
surety.
As
part
of the Lignite Mining Agreement entered into in 2001, Cleco Power and SWEPCO,
joint owners of Dolet Hills, have agreed to pay the lignite miner’s loan and
lease principal obligations when due, if the lignite miner does not have
sufficient funds or credit to pay. Any amounts paid on behalf of the miner
would
be credited by the lignite miner against the next invoice for lignite delivered.
At December 31, 2006, Cleco Power’s 50% exposure for this obligation was
approximately $11.7 million. The lignite mining contract is in place until
2011
and does not affect the amount Cleco Corporation can borrow under its credit
facility.
On
December 1, 2006, Cleco Power issued a standby letter of credit to the Louisiana
Department of Wildlife and Fisheries in order to obtain a permit to allow for
dredging operations at the Rodemacher Unit 3 site. The letter of credit is
for
approximately $0.1 million and will expire on April 1, 2007.
The
following table summarizes the expected termination date of the guarantees
and
standby letters of credit discussed above:
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
2006
|
|
|
|
|
|
AMOUNT
OF COMMITMENT EXPIRATION
PER PERIOD
|
|
|
|
NET
|
|
|
|
|
|
|
|
MORE
|
|
|
|
AMOUNT
|
|
LESS
THAN
|
|
|
|
|
|
THAN
|
|
(THOUSANDS)
|
|
COMMITTED
|
|
ONE
YEAR
|
|
1-3
YEARS
|
|
3-5
YEARS
|
|
5
YEARS
|
|
Guarantees
|
|
$
|
156,322
|
|
$
|
363
|
|
$
|
1,400
|
|
$
|
111,659
|
|
$
|
42,900
|
|
Standby
letters of credit
|
|
|
15,610
|
|
|
610
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
Total
commercial commitments
|
|
$
|
171,932
|
|
$
|
973
|
|
$
|
1,400
|
|
$
|
111,659
|
|
$
|
57,900
|
|
Inflation
Annual
inflation rates, as measured by the U.S. Consumer Price Index, have averaged
approximately 3.04%
during the three years ended December 31, 2006. Cleco believes inflation, at
this level, does not materially affect its results of operations or financial
condition. However, under existing regulatory practice, only the historical
cost
of a plant is recoverable from customers. As a result, Cleco Power’s cash flows
designed to provide recovery of historical plant costs may not be adequate
to
replace property, plant and equipment in future years.
Regulatory
Matters
Generation
RFP
2004
and
2005 Long- and Short-Term RFPs for 2006 Resources
In
June
2005, Cleco Power made selections from its long-term and short-term RFPs and
announced plans to (i) construct a proposed 600-MW solid-fuel power plant at
its
Rodemacher power station near Boyce, Louisiana; (ii) negotiate a one-year power
purchase agreement with CES providing 200 MW of capacity in 2006; and (iii)
negotiate a four-year power purchase
agreement with Williams providing 500 MW annually of capacity from 2006 through
2009. Cleco Power filed an application seeking approval and certification of
its
plan with the LPSC in July 2005. Both power contracts were signed in August
2005, and certified by the LPSC in November 2005. However, on March 22, 2006,
the Calpine Debtors Bankruptcy Court approved the mutual termination of the
2006
power purchase contract between Cleco Power and CES. The court’s actions stemmed
from CES’s request to reject the Calpine Tolling Agreements associated with the
Acadia plant. Cleco Power replaced the CES contract with economy energy
contracts for 2006. For additional information, see Item 8, “Financial
Statements and Supplementary Data — Notes to the Financial Statements — Note 21
— Calpine Bankruptcy.”
On
February 22, 2006, the LPSC approved Cleco Power’s plans to build Rodemacher
Unit 3. For additional information on Cleco Power’s self-build selection, see
Part I, Item 1A, “Risk Factors — Rodemacher Unit 3 Technical
Specifications,” — “Termination of the Rodemacher Unit 3 Project or the Amended
EPC Contract” and — “Rodemacher Unit 3 Construction Costs.” For a discussion of
Rodemacher Unit 3 construction costs, see “— Cleco Power Cash Flows — Cleco
Power Construction Overview.”
2006
Short-Term RFP for 2007 Resources
In
February 2006, Cleco Power issued a RFP for a minimum of 250 MW up to 450 MW
to
meet its 2007 capacity and energy
requirements. A short-list of bidders was selected on March 24, 2006. Cleco
Power successfully negotiated two separate power purchase agreements totaling
250 MW of capacity and energy with two selected bidders. On August 15, 2006,
Cleco Power filed the two executed power purchase agreements
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with
the
LPSC, which were approved by the LPSC on November 29, 2006.
2007
Short-Term RFP for 2008 Resources
On
January 29, 2007, Cleco Power issued a RFP for a minimum
of
50 MW up to 350 MW to meet its 2008 capacity and energy requirements. Cleco
Power is currently evaluating proposals received as of February 19,
2007.
2007
Long-Term RFP
Cleco
Power also plans to release an additional RFP in 2007 to look for long-term
resources to fill the needs identified by the latest
IRP.
This RFP will include self-build options that will compete with market bids
to
provide the most economic and reliable options for Cleco Power
customers.
Rodemacher
Unit 3
Background
Cleco
Power has begun construction of Rodemacher Unit 3,
which
will provide a portion of the utility’s future power supply needs. Rodemacher
Unit 3 will be capable of burning various solid fuels but primarily is expected
to burn petroleum coke produced by several refineries throughout the Gulf Coast
region. All environmental permits for the unit have been received.
CCN
On
May 12,
2006, the LPSC issued its implementing order granting Cleco Power a CCN to
construct, own, and operate Rodemacher Unit 3. The CCN authorizes Cleco Power
to
issue up to $700.0 million of securities and other financial instruments during
the 2006 through 2010 time frame in order to finance Rodemacher Unit 3 subject
to the requirement that Cleco Power provide the LPSC Staff with an advanced
review of any specific long-term debt issuance to which the Staff has the right
to object.
In
May
2006, an intervenor filed a request for rehearing of the LPSC implementing
order. The LPSC initially denied the intervenor’s request as untimely. The
intervenor filed a petition for review of the LPSC’s denial of the rehearing
request in state court. The LPSC, in November 2006, conducted a hearing
on
the intervenor’s rehearing request and denied the intervenor’s request for
rehearing. In December 2006, the state court dismissed the intervenor’s petition
as moot.
A
condition within the LPSC’s implementing order requires that Cleco Power submit
periodic updates during the construction phase of Rodemacher Unit 3. At its
September 2006 business meeting, the LPSC approved a Rodemacher Unit 3
post-certification monitoring plan that requires, at least quarterly, reports
addressing construction progress, expenditures, project financing, environmental
compliance, and other related matters. The monitoring plan will remain in place
for at least six months after the unit begins commercial operation.
Construction
On
May
12, 2006, Cleco Power and
Shaw
entered into the Amended EPC Contract, which provides for substantial completion
of the construction by the fourth quarter of 2009. The total capital cost of
the
project, including AFUDC, Amended EPC Contract costs, and other development
expenses, is estimated at $1.0 billion. The lump sum price under the scope
of
the Amended EPC Contract is $785.0 million, and Shaw is subject to payment
of
liquidated damages if certain performance criteria are not met. Specified
schedule-related liquidated damages may be reduced in some cases. Cleco Power
also is liable for potential labor costs above certain estimates up to a maximum
of $15.0 million. The Amended EPC Contract allows for termination at Cleco
Power’s sole discretion, which would require payment of escalating termination
fees, or if certain milestones, approvals, or other typical commercial terms
and
conditions are not met. As of December 31, 2006, the maximum termination fee
would have been $76.1 million.
Upon
issuance of the notice to start construction
in May
2006, Shaw provided a $58.9 million letter of credit to Cleco Power. In addition
to the letter of credit, Shaw also posted a $200.0 million payment and
performance bond in favor of Cleco Power in support of its performance
obligations under the Amended EPC Contract.
The
project remains on schedule
for
commercial operation no later than the fourth quarter of 2009. As of December
31, 2006, Cleco Power had incurred approximately $224.2 million in project
costs.
Environmental
Matters
For
information on environmental matters, see
Part
I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises
— Environmental Matters.”
Retail
Rates of Cleco Power
Retail
rates regulated by the LPSC accounted for approximately
96% of Cleco Power’s 2006 revenue.
Fuel
Rates
The
cost
of fuel used for electric generation and the cost of power purchased for utility
customers are recovered through an LPSC-established fuel adjustment clause
that
enables Cleco Power to pass onto its customers substantially all such charges.
These fuel and purchased power costs are subject to audit by the LPSC. An audit
by the LPSC covering the years 2001 and 2002 was settled by Cleco Power, and
credits due to customers relating to the settlement were included on customer
bills in the first quarter of 2005.
In
November 2005, due to the increased price of natural gas and its effect on
the
cost of generating fuel and purchased
power, the LPSC established a proceeding, Docket No. U-29174, to review the
prudency of utility fuel costs incurred during the period January 1, 2005,
through October 31, 2005. This review was completed in April 2006. The LPSC
concluded that Cleco Power’s operations during this time period were
reasonable.
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In
July
2006, the LPSC began an audit of Cleco Power’s fuel adjustment clause filings
for the period January 2003 through December 2004. This review is ongoing and
Cleco Power anticipates that a preliminary consultant’s report will be issued to
the LPSC during 2007.
Base
Rates
In
1996,
the LPSC approved a settlement of Cleco Power’s earnings review which provided
customers with lower electricity rates. The terms of this settlement, referred
to as the RSP, were to be effective for a five-year period. The settlement
period was extended until September 30, 2004, under a February 1999 agreement
with the LPSC. Two additional extensions were granted, on March 18, 2004, and
on
October 4, 2005, extending the RSP for two additional years, without
modification, to September 30, 2006.
The
RSP
allowed Cleco Power to retain all regulated earnings up to a 12.25% return
on
equity and to share equally with customers, as credits on their bills, all
regulated earnings between 12.25% and 13% return on equity. All regulated
earnings above a 13% return on equity were credited to customers. This
effectively allowed Cleco Power the opportunity to realize a regulatory rate
of
return up to 12.625%. The amount of credits due customers, if any, was
determined by Cleco Power and the LPSC annually, based on results for each
12-month period ended September 30.
In
July
2006, the LPSC issued an order approving the application filed by Cleco Power
in
December 2005, requesting an extension of the RSP to the in-service date of
Rodemacher Unit 3, which is expected to be operational no later than the fourth
quarter of 2009, with the following modifications to the terms of the prior
RSP.
Effective October 1, 2006, Cleco Power began operating under the new RSP which
allows Cleco Power to earn a maximum regulated return on equity of 11.65%.
This
maximum return is based on a return on equity of 11.25%, with any regulated
earnings between 11.25% and 12.25% shared between shareholders and customers
in
a 40/60 ratio. All regulated earnings over 12.25% will be returned to customers.
In
April
2006, the LPSC approved the LPSC Staff’s recommendations relating to the Staff’s
review of Cleco Power’s RSP filings for the 12-month periods ended September 30,
2002, 2003, and 2004. The LPSC, however, also reserved the right to further
review Cleco Power’s calculation of working capital included in the filings for
those periods. Cleco Power has reached a settlement of the working capital
calculation with the LPSC consultant and anticipates final LPSC approval of
this
resolution in the first quarter of 2007. Cleco Power anticipates no material
impact to its results of operations or financial condition from this settlement.
For information concerning amounts accrued and refunded by Cleco Power based
on
the Staff’s RSP review, see Item 8, “Financial Statements and Supplementary Data
— Notes to the Financial Statements — Note 12 — Electric Customer Credits.”
In
April
2006, Cleco filed its RSP monitoring report for the 12-month period ended
September 30, 2005. Cleco Power anticipates a completion of the review during
2007. Cleco Power anticipates filing its monitoring report for the 12-month
period ended September 30, 2006, by the end of the first quarter of 2007.
Storm
Cost Recovery
In
February 2006, the LPSC approved an interim rate increase
of $23.4 million annually for a ten-year period to recover storm restoration
costs incurred by Cleco Power resulting from Hurricanes Katrina and Rita. The
interim rate increase became effective in May 2006, and remains in effect until
the LPSC completes a review to verify and approve the total amount of storm
restoration costs to be recovered (Phase II). As part of this approval, the
LPSC
required that effective during the interim recovery period (Phase I), which
began with the May 2006 billing cycle, Cleco Power’s portion of the shared
regulated earnings between the 12.25% and 13.00% allowed return on equity
(between 11.25% and 12.25% effective October 1, 2006) be credited against
outstanding storm restoration costs.
On
February 21, 2007, as a result of Phase II of the LPSC Staff’s review of storm
restoration costs, Cleco Power and the LPSC signed a settlement term sheet
allowing the recovery and securitization of essentially all of Cleco Power’s
Hurricane Katrina and Rita storm costs and the funding and securitization
of
a $50.0 million reserve for future, extraordinary storm costs. For information
concerning this agreement, see Part I, Item 1A, "Risk Factors — Storm
Damage Costs," and Item 8, “Financial Statements and Supplementary Data —
Notes to the Financial Statements — Note 24 — Subsequent Events — Storm Cost
Recovery.”
Cleco
Power is exploring the potential reimbursement of storm restoration costs from
the U.S. Government, as well as securitization of costs, to reduce the amount
to
be recovered from customers. Securitization of Cleco Power’s storm restoration
costs would, however, eliminate the return on equity component that Cleco Power
is currently recovering. In addition, Cleco Power is exploring the possibility
of financing the storm restoration costs with tax-exempt bonds through the
Gulf
Opportunities Zone Act of 2005 (the Act). The Louisiana State Bond Commission
has granted preliminary approval to Cleco Power for the issuance of up to $160.0
million of tax-exempt bonds under the Act. Cleco Power cannot predict the
likelihood that any reimbursement from the U.S. Government, securitization
of
costs, or any other financing will be given final approval, and if approved,
the
likelihood that any such financing can be consummated.
IRP
For
information on Cleco Power’s IRP team and its evaluation of generation supply
options, see
Part
I, Item 1, “Business — Operations — Cleco Power — Fuel and Purchased Power —
Power Purchases.”
Wholesale
Rates of Cleco
Cleco’s
wholesale sales are regulated by the
FERC
via cost-based and market-based tariffs. Both Evangeline and Acadia have
received approval by the FERC to use market-based
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rates
based on Cleco’s initial request to the FERC in 1999 for market-based rates and
Cleco’s demonstration of its lack of market power. Cleco updates its filing
every three years to demonstrate its lack of market power. These tariffs,
including the associated codes of conduct accompanying them, are updated
periodically to comply with FERC directives. Such an update was completed in
December 2003 for each entity to comply with the FERC’s requirement to amend
market-based rates to add “market behavior rules” to the codes of conduct.
Contracts utilizing market-based tariffs do not require prior approval by the
FERC but are reported each quarter pursuant to the FERC’s requirement for
reporting of sales by authorized power marketers.
In
April
2004,
the
FERC issued an order revising the methodology to be used in assessing whether
a
jurisdictional electric utility has generation market power, requiring a utility
to pass a screening test as a condition for securing and/or retaining approval
to sell electricity in wholesale markets at market-based rates. Cleco submitted
its compliance filing on behalf of each of its authorized power marketing
entities, Cleco Power, Evangeline, Marketing & Trading, and Acadia, in
December 2004, indicating it passed all the revised tests except for the Market
Share test in Cleco Power’s control area for three of four seasonal periods.
Based on these results, in May 2005, the FERC issued an order instituting a
proceeding under Section 206 of the Federal Power Act to determine whether
Cleco Power, Evangeline, and Acadia may continue to charge market-based rates
for wholesale power in specified geographic areas. In October 2005, the FERC
terminated the Section 206 investigation, determining that Cleco had
demonstrated a lack of market power in Cleco Power’s control area. However, the
FERC instituted a new proceeding under Section 206 due to an oversight by Cleco
in filing previously requested information supporting Cleco’s lack of market
power in the Lafayette and LEPA control areas. In February 2006, the FERC ruled
that Cleco was in compliance with the FERC’s generation market power standard in
the Lafayette and LEPA control areas and terminated the Section 206
proceeding.
In
May
2006, the FERC issued a NOPR with the intention of amending its regulations
to
ensure the provision of transmission service is reasonable and not unduly
discriminatory or preferential. The existing regulations were adopted in 1996
in
FERC Order Nos. 888 and 889. On February 15, 2007, the FERC issued Order No.
890
in this proceeding and it appears that there will not be any significant impact
to Cleco.
Franchises
For
information on the treatment of franchise fees paid to municipalities
by the state’s utilities, see Part I, Item 1, “Business — Regulatory Matters,
Industry Developments, and Franchises — Franchises.”
Market
Restructuring
Wholesale
Electric Markets
National
In
1999,
the FERC issued Order No. 2000, which established a general framework for
all transmission-owning entities in the nation to voluntarily place their
transmission facilities under the control of an appropriate RTO. Although
participation was
voluntary, the FERC made it clear that any jurisdictional entity not
participating in a RTO likely would be subject to regulatory directives. The
FERC later relaxed its mandate to participate in a RTO, but continued to insist
upon large regional models. Many transmission-owning entities and system
operators have been trying to interpret and implement the FERC’s directives by
attempting to organize and/or join acceptable RTOs. In October 2004, the FERC
granted SPP status as a RTO.
The
Energy Policy Act of 2005 added Section 215 to the Federal Power Act, which
provides for a uniform
system of mandatory, enforceable (including financial penalties) reliability
standards. The FERC issued a final order in February 2006, establishing rules
for certification of an ERO that will develop the mandatory reliability
standards, to be reviewed and approved by the FERC. All public utilities subject
to the FERC’s authority will be required to comply with the incorporated
standards and could be subjected to financial penalties if they violate the
FERC’s reliability or business practice standards. In July 2006, the FERC named
the North American Reliability Council (NERC) as the ERO. The NERC filed 107
reliability standards for approval with the FERC. In October 2006, the FERC
adopted 15 of these standards without comment and requested modifications to
62
others. The FERC has proposed to begin enforcement of these standards on June
1,
2007. The comment period for this NOPR closed in early January 2007, and a
final
order is expected in March 2007. Cleco Power is in the process of incorporating
these new reliability standards into its operations. Cleco will continue to
monitor the development of proposed standards, implementing processes as
necessary to achieve compliance with the standards.
Regional
In
April
2004, Entergy filed at the FERC to make potentially significant modifications
to
its transmission tariff. The modifications would incorporate an independent
third-party entity, the ICT, into its transmission operations, with the ICT
having access to pertinent information regarding the Entergy transmission
system. After receiving approval from the FERC and state commissions (including
the LPSC), the SPP began a four-year trial as Entergy’s acting ICT on November
17, 2006.
As
with
RTO developments at large, other various parties, including several state
commissions, utilities, and other industry
participants, are participants in the RTO and Entergy proceedings described
above. As both the SPP and Entergy proceedings could impact the ability to
transport power into and out of the Cleco control area, Cleco will continue
monitoring developments in these proceedings and plans to be a
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participant
in these and all other proceedings affecting the availability and sale of power
in and around Louisiana.
Cleco
Power
Native
Load
On
December 1, 2006, transmission service for Cleco Power’s native load north of
Lake Pontchartrain (Northlake load) began being delivered under Entergy’s
transmission tariff. Similarly, transmission service for Entergy’s native load
on Cleco Power’s transmission
system began being delivered under Cleco Power’s transmission tariff. As a
result of this change in service, Cleco Power experienced an increase in its
transmission expense, net of transmission revenue. Prior to this date, terms
and
conditions for transmission service to native load customers served by the
other
utility’s transmission system were defined by a 1955 operating agreement.
Entergy previously had notified Cleco Power of its intent to cancel that
agreement.
As
part
of the FERC’s approval of Entergy’s ICT process, and Cleco Power’s placing part
of its native load under Entergy’s
transmission tariff, Cleco Power will have the opportunity to participate with
Entergy in its weekly procurement process for power supply. This opportunity
will permit Cleco Power’s Northlake load to be included with Entergy’s native
load when Entergy solicits bids for low-cost energy from the wholesale market.
This process could reduce Cleco Power’s cost of energy to its native load
customers.
For
a
discussion of risks associated with FERC’s regulation of Cleco Power’s wholesale
electric business, see Part I, Item 1A, “Risk Factors — ERO.”
Retail
Electric Markets
Cleco
Power and a number of parties, including other Louisiana
electric utilities, certain power marketing companies, and various associations
representing industry and consumers, have been participating in electric
industry restructuring activities before the LPSC since 1997. During 2000,
the
LPSC Staff developed a transition to competition plan that was presented to
the
LPSC. In November 2001, the LPSC directed its Staff to monitor neighboring
jurisdictions and to report back the success or failure of those efforts 12
months after any such initiatives begin. In September 2004, the LPSC reviewed
a
large customer retail choice pilot program study compiled by the Louisiana
State
University Center for Energy Studies. The study concluded that retail customers
5 MW or larger could lower their electric costs through direct access to
overbuilt regional electric markets. The study also concluded that there would
be minimal negative impact to remaining customers based on utilities’ ability to
avoid purchase power costs for existing large customers. Cleco Power filed
comments on the study in January 2005 stating the study’s suggested savings were
overstated, and the impact on remaining captive customers was understated.
In
April 2005, the LPSC conducted a technical conference to discuss retail choice
for large customers. At this time, Cleco cannot predict whether any regulation
enacting a large customer pilot program or otherwise affecting Cleco Power
will
be adopted and, if adopted, what form such legislation or regulation may take.
A
potentially competitive environment presents both the opportunity to supply
electricity to new customers and the risk of losing existing customers. Cleco
Power is striving to be able to compete effectively should retail access be
adopted at some future time in Louisiana.
In
April
2002, the LPSC adopted order R-26172 governing the way electric generation
sources are to be solicited and tested versus self-build options of a utility.
Cleco Power conducted
a
RFP pursuant to this order during 2003. In January 2004, the LPSC amended its
prior order to formally add the requirement that the soliciting utility employ
an independent monitor. The independent monitor’s role is to assure the RFP
process is run fairly, that bidder data is treated confidentially, and that
no
preference is afforded bids from affiliate companies of the utility or the
utility’s own self-build proposals. For additional information on Cleco Power’s
2006, 2007 and 2008 RFPs, see “— Regulatory Matters — Generation
RFP.”
Currently,
the LPSC does not provide exclusive service territories for electric utilities
under its jurisdiction. Instead, retail service is obtained through a long-term
nonexclusive franchise. The LPSC uses a “300-foot rule” for determining the
supplier for new customers. The “300-foot rule” requires a customer to take
service from the electric utility that is within 300 feet of the respective
customer. If the customer is beyond 300 feet from any existing utility service,
they may choose their electric supplier. The LPSC is currently reviewing its
“300 foot rule” (Docket No. R-28955), and Cleco anticipates a proposed order in
the second quarter of 2007. The application of the current rule has led to
competition with neighboring utilities for retail customers at the borders
of
Cleco Power’s service areas. Such competition has led to complaints by
competitors that Cleco Power has violated the 300-foot rule. Several complaints
have been made by competitors who operate as rural electric cooperatives and,
if
the LPSC were to rule in favor of such competitors, Cleco Power may be fined.
Management does not believe any such fines would have a material impact on
Cleco
Power’s financial condition. Cleco Power also competes in its service area with
suppliers of alternative forms of energy, some of which may be less costly
than
electricity for certain applications. Cleco Power could experience some
competition for electric sales to industrial customers in the form of
cogeneration or from independent power producers.
For
information on dual franchise attempts, see Part I, Item 1, “Business —
Regulatory Matters, Industry Developments, and Franchises —
Franchises.”
Other
Matters
Lignite
Deferral
Cleco
Power operates a generating unit jointly owned with other utilities, primarily
SWEPCO, that uses lignite as its fuel source.
In
May
2001, Cleco Power (along
with SWEPCO) entered into the Lignite Mining Agreement with DHLC, the operator
of the Dolet Hills mine. As ordered then by the LPSC, Cleco Power’s retail
customers began receiving fuel cost savings equal to 2% of the projected costs
under the previous mining
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contract
(the benchmark price) through the year 2011. Actual mining costs incurred above
98% of the benchmark price are deferred, and will be recovered from retail
customers through the fuel adjustment clause when the actual mining costs are
below 98% of the benchmark price. The benchmark price uses the GDP-IPD index
as
a proxy for the numerous escalators in the previous mining contract. However,
the GDP-IPD index does not appropriately reflect the increase in mining costs
caused by sharp increases in diesel fuel and electricity costs associated with
the mining operation. Because of this disconnect between the GDP-IPD index
and
actual mining costs, Cleco Power recognizes that there is a possibility it
may
not be able to recover all or part of the lignite mining costs currently
deferred.
On
November 15, 2006, Cleco Power and SWEPCO submitted a joint application to
the
LPSC requesting that Cleco Power recover its existing deferral balance, and
eliminate any future benchmarking of lignite mining costs. Cleco Power requested
a decision on this application be made within the first quarter of 2007. The
application was docketed by the LPSC, and Cleco Power and SWEPCO filed testimony
in support of the application on January 29, 2007. Cleco Power expects a
favorable response to its request, and current and future deferrals are expected
to be collected. It is anticipated the LPSC Staff will finalize its review
of
this information and issue a recommendation during the second quarter of
2007.
If
this
request is not granted, Cleco Power may be required to expense a portion of
the
current deferred balance as well as expense future amounts instead of deferring
them.
At
December 31, 2006, and 2005, Cleco Power had $20.1 million and $15.1 million,
respectively, in deferred costs remaining. Included in the deferred cost balance
is interest totaling $3.0 million and $1.8 million as of December 31, 2006,
and
2005, respectively.
For
a
discussion of risks associated with Cleco Power’s application to recover
deferred lignite mining costs, see Part I, Item 1A, “Risk Factors — Deferred
Lignite Mining Costs.”
Pension
Protection Act of 2006
In
August
2006, the President signed the Pension Protection Act of 2006. The
new
law replaces the defined benefit pension plan funding rules with a new funding
system that becomes effective in 2008. Plan contributions will be required
if
assets are less than 100% of liabilities. After 2007, employers generally will
have to make minimum contributions equal to the sum of the plan’s normal cost
(i.e. benefits that accrue during the year) and a shortfall contribution. The
shortfall contribution is the amount necessary to amortize the difference
between 100% of the liabilities and assets over a seven-year period. Funding
transition rules will apply to most pension plans. Pension plans that are not
fully funded at the beginning of 2008 may focus on meeting interim targets
of
92% in 2008, 94% in 2009, and 96% in 2010.
Furthermore,
the calculation for the pension
funding liability will be subject to a new methodology beginning in 2008. The
new methodology features the yield on investment grade corporate bonds (of
the
highest quality rating levels) with maturity dates that match the durations
of
the pension liabilities owed plan participants (broken down into three maturity
segments). A temporary extension of the single corporate bond rate will stay
in
effect for plan years 2006 and 2007.
Cleco
expects the implementation of the Pension Protection Act will not result in
annual pension contributions going-forward that are materially higher than
those
estimates calculated under the prior law.
Miscellaneous
Earlier
this year, one of Cleco’s
employees made allegations that PricewaterhouseCoopers LLP, Cleco’s independent
registered public accounting firm, was not independent. In response to these
allegations, the Audit Committee of Cleco’s Board of Directors and
PricewaterhouseCoopers LLP each conducted an investigation into these
allegations. At the completion of these investigations, both Cleco’s Audit
Committee and PricewaterhouseCoopers LLP concluded that PricewaterhouseCoopers
LLP is an independent accounting firm with respect to Cleco Corporation, within
the meaning of the Securities Act of 1933 and the requirements of Rule 3600T
of
the Public Company Accounting Oversight Board. Cleco’s legal counsel,
PricewaterhouseCoopers LLP and counsel to PricewaterhouseCoopers LLP have
discussed the investigations and other matters with the Staff of the SEC and
Cleco will continue to cooperate with the Staff.
New
Accounting Standards
For
discussion of new accounting
standards, see Item 8, “Financial Statements and Supplementary Data — Notes to
the Financial Statements — Note 2—
Summary
of Significant Accounting Policies —
Recent
Accounting Standards.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk
Overview
Market
risk inherent in Cleco’s market risk-sensitive instruments and positions
includes potential changes arising from changes in interest rates and the
commodity market prices of power and natural gas in the industry on different
energy exchanges. Cleco is subject to market risk associated with economic
hedges relating to open natural gas contracts. Cleco
also is subject to market risk associated with its remaining tolling agreement
counterparties. For additional information concerning Cleco’s market risk
associated with its remaining counterparties, see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Liquidity and Capital Resources — General Considerations
and Credit-Related Risks.”
Cleco
uses
SFAS
No. 133 to determine whether the market risk-sensitive instruments and positions
are required to be marked-to-market. Generally, Cleco Power’s market
risk-sensitive instruments and positions qualify for the normal-purchase,
normal-sale exception to mark-to-market accounting of SFAS No. 133, as modified
by SFAS No. 149, since Cleco Power generally takes physical delivery and the
instruments and positions are used to satisfy customer requirements. From time
to time, Cleco could have positions that are required to be marked-to-market,
because they do not meet the normal-purchase, normal-sale exception of SFAS
No.
133. Any positions for marketing and trading purposes that do not meet the
exemptions of SFAS No. 133 are marked-to-market, and the results are recorded
in
income.
Cleco’s
exposure to market risk, as discussed below, represents an estimate of possible
changes in the fair value or future earnings that would occur, assuming possible
future movements in the interest rates and commodity prices of power and natural
gas. Management’s views on market risk are not necessarily indicative of actual
results, nor do they represent the maximum possible gains or losses. The views
do represent, within the parameters disclosed, what management estimates may
happen.
Cleco
monitors credit risk exposure through reviews of counterparty credit quality,
corporate-wide aggregate counterparty credit exposure and corporate-wide
aggregate counterparty concentration levels. Cleco actively 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 transactions and contract payments to mitigate credit risk for
transactions entered into for risk management purposes.
Interest
Rate Risks
Cleco
monitors
its mix
of
fixed-
and variable-rate debt obligations in light of changing market conditions and
from time to time may alter that mix, for example, refinancing balances
outstanding under its variable-rate credit facility with fixed-rate debt. For
details, see Item 8, “Financial Statements and Supplementary Data — Notes to the
Financial Statements — Note 6 — Debt.” Calculations of the changes in fair
market value and interest expense of the debt securities are made over a
one-year period.
Sensitivity
to changes in interest rates for fixed-rate obligations
is
computed by calculating the current fair market value using a net present value
model based upon a 1% change in the average interest rate applicable to such
debt. Sensitivity to changes in interest rates for variable-rate obligations
is
computed by assuming a 1% change in the current interest rate applicable to
such
debt.
As
of
December 31, 2006, the carrying value of Cleco’s long-term fixed-rate debt was
approximately $670.8 million, with a fair market value of approximately $681.4
million. Fair value was determined using quoted market prices. Each 1% increase
in the average interest rates applicable to such debt would result in a
corresponding decrease of approximately $48.3 million in the fair value of
these
instruments. If these instruments are held to maturity, no change in stated
value will be realized.
As
of
December 31, 2006, Cleco had no long-term or short-term variable-rate debt;
therefore, each 1% change in the average interest rates applicable to such
debt
would result in no change in the pre-tax earnings of Cleco.
Cleco
Corporation entered into two $50.0 million fixed-to-floating interest rate
swaps
in February 2004, and May 2004, respectively, involving its 8.75% Senior Notes.
Under the swaps, the 8.75% fixed-rate on the Senior Notes was swapped for
floating rate exposure based on the six-month LIBOR on the last day of each
calculation period, plus agreed upon spreads of 6.615% and 6.03%, respectively,
on the $50.0 million notional amounts associated with each of the swaps. A
net
settlement amount was paid semi-annually on June 1 and December 1. The
fixed-rate debt matured, and the interest rate swaps terminated on June 1,
2005.
For the year ended December 31, 2005, Cleco Corporation paid the swap
counterparty a net settlement amount of $0.6 million.
During
2006 and 2005, Cleco did not enter into any interest rate swap
transactions.
Commodity
Price Risks
Management
believes Cleco has controls in place to minimize the risks
involved in its financial and energy commodity activities. Independent controls
over energy commodity functions consist of a middle office (risk management),
a
back office (accounting), regulatory compliance staff, as well as oversight
by a
risk management committee comprised of officers and managers, who are appointed
by Cleco’s Board of Directors. VaR limits are established by the Risk Management
Committee and monitored through a daily risk report that identifies the current
VaR and market conditions.
Cleco’s
financial positions that are not used to meet the power demands of customers
are
considered speculative positions and are marked-to-market as required by SFAS
No.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
133,
with
the resulting gain or loss recorded on the income statement as a component
of
operating revenue, net. During 2005, Cleco Power entered into certain financial
hedge transactions it considers economic hedges to mitigate the risk associated
with fixed-price power to be provided to a wholesale customer through December
2010. These transactions are derivatives as defined by SFAS No. 133 but do
not
meet the accounting criteria to be considered hedges. These transactions are
marked-to-market with the resulting gain or loss recorded on the income
statement as a component of operating revenue, net. At
December 31, 2006, the positions had a mark-to-market value of $0.9 million,
which is down $4.4 million from the mark-to-market value of $5.3 million at
December 31, 2005. In addition, these positions resulted in a realized loss
of
$0.6 million in 2006. Cleco Power anticipates additional realized losses in
future periods as natural gas or power is purchased to meet its contractual
obligations. In light of these economic hedge transactions, volatility in
natural gas prices will likely cause fluctuations in the market value of open
natural gas positions and ultimately in Cleco Power’s future
earnings.
Cleco
Power provides fuel for generation and purchases power to meet the power demands
of customers. Cleco Power has entered into positions to mitigate the volatility
in fuel costs passed on to customers as encouraged by an LPSC order. In December
2004, Cleco Power implemented a fuel stabilization policy (which was filed
with
the LPSC and subsequently amended in June 2006) to target higher levels of
minimum hedging percentages and mitigate the volatility in customer fuel costs.
The change in positions could result in increased volatility in the
marked-to-market amounts for the financial positions. These positions are
marked-to-market with the resulting gain or loss recorded on the balance sheet
as a component of the accumulated deferred fuel asset or liability and a
component of the risk management assets or liabilities.
When
these positions close, actual gains or losses are deferred and included in
the
fuel adjustment clause in the month the physical contract settles. Based
on
market prices at December 31, 2006, the net mark-to-market impact related to
open natural gas positions was a loss of $60.3 million. Deferred losses relating
to closed natural gas positions at December 31, 2006, totaled $8.0 million.
Cleco
utilizes a VaR model to assess the market risk of its hedging portfolios,
including derivative financial instruments. VaR represents the potential loss
in
fair value for an instrument from adverse changes in market factors over a
defined period of time with a specified confidence level. VaR is calculated
daily, using the variance/covariance method, assuming a holding period of one
day, with a 95% confidence level for natural gas and power positions. Volatility
is calculated daily from historical forward prices using the exponentially
weighted moving average method.
Based
on
these assumptions, the VaR relating to the economic hedge transactions for
2006,
as well as the VaR at December 31, 2006, and 2005, are summarized
below:
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31, 2006
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
HIGH
|
|
LOW
|
|
AVERAGE
|
|
2006
|
|
2005
|
|
Cleco
Power
|
|
$
|
608.3
|
|
$
|
321.1
|
|
$
|
478.8
|
|
$
|
459.5
|
|
$
|
442.0
|
|
All
open
positions were transacted by Cleco Power. The increase in VaR at December 31,
2006, compared to December 31, 2005, is primarily due to Cleco Power’s economic
hedging activity. Under Cleco’s VaR model, changes in market value of open
positions in excess of $0.2 million over Cleco’s estimated VaR are material.
During 2006, the limit was exceeded one time.
The
following table summarizes the market value maturities of open natural gas
and
power purchase contracts at December 31, 2006. All contracts were transacted
by
Cleco Power.
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
MATURITY
LESS
THAN
ONE
YEAR
|
|
MATURITY
1-3
YEARS
|
|
MATURITY
OVER
THREE
YEARS
|
|
TOTAL
FAIR
VALUE
|
|
Assets
|
|
$
|
123,129
|
|
$
|
56,443
|
|
$
|
-
|
|
$
|
179,571
|
|
Liabilities
|
|
$
|
153,194
|
|
$
|
66,271
|
|
$
|
3,564
|
|
$
|
223,029
|
|
For
additional information on the market value maturities of contracts, see
Item
8, “Financial Statements and Supplementary Data — Notes to the Financial
Statements — Note 5 — Fair Value of Financial Instruments.”
Cleco
Power
Please
refer to “— Risk Overview” above for a discussion of market risk inherent in
Cleco Power’s market risk-sensitive instruments.
Cleco
Power has entered into various fixed- and variable-rate debt obligations. For
details, see
Item
8, “Financial Statements and Supplementary Data — Notes to the Financial
Statements — Note 6 — Debt.” Please refer to “— Interest Rate Risks” above for a
discussion of how Cleco Power monitors its mix of fixed- and variable-rate
debt
obligations and the manner of calculating changes in fair market value and
interest expense of its debt obligations.
As
of
December 31, 2006, the carrying value of Cleco Power’s long-term fixed-rate debt
was approximately $570.8 million, with a fair market value of approximately
$579.8 million. Fair value was determined using quoted market prices. Each
1%
increase in the average interest rates applicable to such debt would result
in a
corresponding decrease of approximately $47.4 million in the fair values of
these instruments. If these instruments are held to maturity, no change in
stated value will be realized.
As
of
December 31, 2006, Cleco Power had no
long-term or short-term variable-rate debt.
Please
refer to “— Commodity Price Risks” above for a discussion of controls,
transactions, VaR, and market value maturities associated with Cleco Power’s
energy commodity activities.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Report
of
Independent Registered
Public Accounting Firm
To
the
Shareholders and Board
of
Directors of Cleco Corporation:
We
have
completed integrated audits of Cleco Corporation’s consolidated
financial statements and of its internal control over financial reporting as
of
December 31, 2006, in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated
financial statements and financial statement schedules
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Cleco Corporation and its subsidiaries
at December 31, 2006 and 2005, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2006
in
conformity with accounting principles generally accepted in the United States
of
America. In addition, in our opinion, the financial statement schedules listed
in the index appearing under Item 15(a)(2) present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As
discussed in Note 2 to the consolidated financial statements,
the Company changed the manner in which it accounts for share-based compensation
in 2006 and the manner in which it accounts for defined benefit pension and
other postretirement plans effective December 31, 2006.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management's
Report on Internal Control Over Financial Reporting appearing under Item 9A,
that the Company maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the
Treadway Commission (COSO), is fairly stated, in all material respects, based
on
those criteria. Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control -
Integrated Framework issued by the COSO. The Company’s management is responsible
for maintaining effective internal control over financial reporting and for
its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management’s assessment and on the
effectiveness of the Company’s internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New
Orleans, Louisiana
February
27, 2007
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION
Consolidated
Statements of Income |
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
|
2006
|
|
2005
|
|
2004
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
$
|
959,393
|
|
$
|
874,557
|
|
$
|
718,151
|
|
Tolling
operations
|
|
-
|
|
|
-
|
|
|
10,255
|
|
Other
operations
|
|
30,233
|
|
|
38,710
|
|
|
30,533
|
|
Affiliate
revenue
|
|
6,356
|
|
|
7,879
|
|
|
7,767
|
|
Gross
operating revenue
|
|
995,982
|
|
|
921,146
|
|
|
766,706
|
|
Electric
customer credits
|
|
4,693
|
|
|
(992
|
)
|
|
(20,889
|
)
|
Operating
revenue, net
|
|
1,000,675
|
|
|
920,154
|
|
|
745,817
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Fuel
used for electric generation
|
|
265,450
|
|
|
197,915
|
|
|
153,750
|
|
Power
purchased for utility customers
|
|
374,712
|
|
|
372,844
|
|
|
263,746
|
|
Other
operations
|
|
90,661
|
|
|
91,951
|
|
|
87,441
|
|
Maintenance
|
|
40,082
|
|
|
46,517
|
|
|
40,917
|
|
Depreciation
|
|
74,975
|
|
|
60,330
|
|
|
59,930
|
|
Taxes
other than income taxes
|
|
39,888
|
|
|
41,069
|
|
|
38,895
|
|
Gain
on sales of assets
|
|
(71
|
)
|
|
(2,206
|
)
|
|
-
|
|
Total
operating expenses
|
|
885,697
|
|
|
808,420
|
|
|
644,679
|
|
Operating
income
|
|
114,978
|
|
|
111,734
|
|
|
101,138
|
|
Interest
income
|
|
10,452
|
|
|
5,310
|
|
|
3,956
|
|
Allowance
for other funds used during construction
|
|
7,779
|
|
|
2,349
|
|
|
3,723
|
|
Equity
income from investees
|
|
24,452
|
|
|
218,441
|
|
|
47,250
|
|
Other
income
|
|
7,412
|
|
|
4,567
|
|
|
2,520
|
|
Other
expense
|
|
(4,083
|
)
|
|
(2,937
|
)
|
|
(4,398
|
)
|
Interest
charges
|
|
|
|
|
|
|
|
|
|
Interest
charges, including amortization of debt expenses, premium and discount,
net of capitalized interest
|
|
47,116
|
|
|
41,438
|
|
|
53,451
|
|
Allowance
for borrowed funds used during construction
|
|
(2,845
|
)
|
|
(903
|
)
|
|
(1,245
|
)
|
Total
interest charges
|
|
44,271
|
|
|
40,535
|
|
|
52,206
|
|
Income
from continuing operations before income taxes
|
|
116,719
|
|
|
298,929
|
|
|
101,983
|
|
Federal
and state income tax
expense
|
|
42,049
|
|
|
115,951
|
|
|
35,864
|
|
Income
from continuing operations
|
|
74,670
|
|
|
182,978
|
|
|
66,119
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax
|
|
(79
|
)
|
|
(334
|
)
|
|
(1,615
|
)
|
Gain
from disposal of segment, net of tax
|
|
-
|
|
|
-
|
|
|
1,685
|
|
Total
(loss)
income from discontinued operations
|
|
(79
|
)
|
|
(334
|
)
|
|
70
|
|
Net
income
|
|
74,591
|
|
|
182,644
|
|
|
66,189
|
|
Preferred
dividends requirements, net
of
tax
|
|
1,735
|
|
|
1,865
|
|
|
2,216
|
|
Net
income applicable to common stock
|
$
|
72,856
|
|
$
|
180,779
|
|
$
|
63,973
|
|
Average
shares of common stock outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
52,751,021
|
|
|
49,486,790
|
|
|
47,371,319
|
|
Diluted
|
|
55,028,211
|
|
|
51,760,220
|
|
|
47,528,886
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
$
|
1.36
|
|
$
|
3.54
|
|
$
|
1.33
|
|
Net
income
applicable to common stock
|
$
|
1.36
|
|
$
|
3.54
|
|
$
|
1.33
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
$
|
1.36
|
|
$
|
3.53
|
|
$
|
1.32
|
|
Net
income
applicable to common stock
|
$
|
1.36
|
|
$
|
3.53
|
|
$
|
1.32
|
|
Cash
dividends paid per share of common stock
|
$
|
0.900
|
|
$
|
0.900
|
|
$
|
0.900
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION
Consolidated
Balance Sheets |
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
192,471
|
|
$
|
219,153
|
|
Restricted
cash
|
|
|
24,361
|
|
|
-
|
|
Customer
accounts receivable (less allowance for doubtful accounts of $789
in 2006 and $1,262 in 2005)
|
|
|
38,889
|
|
|
54,768
|
|
Accounts
receivable - affiliate
|
|
|
11,451
|
|
|
1,071
|
|
Other
accounts receivable
|
|
|
28,708
|
|
|
33,911
|
|
Unbilled
revenue
|
|
|
18,382
|
|
|
17,878
|
|
Fuel
inventory, at average cost
|
|
|
43,236
|
|
|
21,313
|
|
Material
and supplies inventory, at average cost
|
|
|
34,755
|
|
|
24,289
|
|
Risk
management assets
|
|
|
36
|
|
|
10,110
|
|
Accumulated
deferred fuel
|
|
|
77,438
|
|
|
23,165
|
|
Cash
surrender value of company-/trust-owned
life insurance policies
|
|
|
26,275
|
|
|
22,888
|
|
Margin
deposits
|
|
|
18,638
|
|
|
-
|
|
Prepayments
|
|
|
4,570
|
|
|
3,344
|
|
Regulatory
assets - other
|
|
|
17,453
|
|
|
-
|
|
Other
current assets
|
|
|
645
|
|
|
2,578
|
|
Total
current assets
|
|
|
537,308
|
|
|
434,468
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
1,892,533
|
|
|
1,836,973
|
|
Accumulated
depreciation
|
|
|
(876,747
|
)
|
|
(804,323
|
)
|
Net
property, plant and equipment
|
|
|
1,015,786
|
|
|
1,032,650
|
|
Construction
work
in
progress
|
|
|
289,101
|
|
|
156,053
|
|
Total
property, plant and equipment, net
|
|
|
1,304,887
|
|
|
1,188,703
|
|
Equity
investment in investees
|
|
|
307,136
|
|
|
317,762
|
|
Prepayments
|
|
|
6,515
|
|
|
5,961
|
|
Restricted
cash
|
|
|
90
|
|
|
87
|
|
Regulatory
assets and liabilities - deferred taxes, net
|
|
|
94,653
|
|
|
90,960
|
|
Regulatory
assets - other
|
|
|
192,061
|
|
|
53,439
|
|
Other
deferred charges
|
|
|
18,454
|
|
|
58,108
|
|
Total
assets
|
|
$
|
2,461,104
|
|
$
|
2,149,488
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
(Continued
on next page)
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
CLECO
CORPORATION
Consolidated
Balance
Sheets (Continued) |
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Long-term
debt due within one year
|
|
$
|
50,000
|
|
$
|
40,000
|
|
Accounts
payable
|
|
|
134,172
|
|
|
143,692
|
|
Retainage
|
|
|
12,409
|
|
|
768
|
|
Accounts
payable - affiliate
|
|
|
5,072
|
|
|
3,439
|
|
Customer
deposits
|
|
|
25,312
|
|
|
23,436
|
|
Provision
for rate refund
|
|
|
3,174
|
|
|
7,927
|
|
Taxes
accrued
|
|
|
49,002
|
|
|
35,475
|
|
Interest
accrued
|
|
|
8,874
|
|
|
9,167
|
|
Accumulated
current deferred taxes, net
|
|
|
23,233
|
|
|
17,402
|
|
Margin
deposits
|
|
|
-
|
|
|
4,316
|
|
Risk
management liability
|
|
|
60,477
|
|
|
-
|
|
Regulatory
liabilities - other
|
|
|
636
|
|
|
635
|
|
Other
current liabilities
|
|
|
16,150
|
|
|
7,847
|
|
Total
current liabilities
|
|
|
388,511
|
|
|
294,104
|
|
Deferred
credits
|
|
|
|
|
|
|
|
Accumulated
deferred federal and state income taxes, net
|
|
|
436,775
|
|
|
449,129
|
|
Accumulated
deferred investment tax credits
|
|
|
14,100
|
|
|
15,632
|
|
Regulatory
liabilities - other
|
|
|
930
|
|
|
-
|
|
Other
deferred credits
|
|
|
105,226
|
|
|
74,717
|
|
Total
deferred credits
|
|
|
557,031
|
|
|
539,478
|
|
Long-term
debt, net
|
|
|
619,341
|
|
|
609,643
|
|
Total
liabilities
|
|
|
1,564,883
|
|
|
1,443,225
|
|
Commitments
and Contingencies (Note
15)
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
Not
subject to mandatory redemption, $100 par value, authorized 1,491,900
shares, issued 200,922 and 218,170 shares at December 31, 2006
and 2005, respectively
|
|
|
20,092
|
|
|
21,817
|
|
Deferred
compensation related to preferred stock held by ESOP
|
|
|
-
|
|
|
(1,783
|
)
|
Total
preferred stock not subject to mandatory redemption
|
|
|
20,092
|
|
|
20,034
|
|
Common
shareholders’ equity
|
|
|
|
|
|
|
|
Common
stock, $1 par value, authorized 100,000,000 shares, issued 57,605,695
and 50,030,035 shares and outstanding 57,524,498
and
50,030,035 shares at December 31, 2006 and 2005,
respectively
|
|
|
57,524
|
|
|
50,030
|
|
Premium
on common stock
|
|
|
358,707
|
|
|
202,416
|
|
Retained
earnings
|
|
|
469,824
|
|
|
443,912
|
|
Unearned
compensation
|
|
|
-
|
|
|
(5,285
|
)
|
Treasury
stock, at cost 31,957
and 36,644 shares at December 31, 2006 and 2005,
respectively
|
|
|
(616
|
)
|
|
(714
|
)
|
Accumulated
other comprehensive loss
|
|
|
(9,310
|
)
|
|
(4,130
|
)
|
Total
common shareholders’ equity
|
|
|
876,129
|
|
|
686,229
|
|
Total
shareholders’ equity
|
|
|
896,221
|
|
|
706,263
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,461,104
|
|
$
|
2,149,488
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION
Consolidated
Statements
of Cash Flows |
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
74,591
|
|
$
|
182,644
|
|
$
|
66,189
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of segment, net of tax
|
|
|
-
|
|
|
-
|
|
|
(1,685
|
)
|
Depreciation
and amortization
|
|
|
78,482
|
|
|
65,010
|
|
|
64,832
|
|
Gain
on sales of property, plant and equipment
|
|
|
(69
|
)
|
|
(2,206
|
)
|
|
-
|
|
Provision
for doubtful accounts
|
|
|
2,909
|
|
|
3,278
|
|
|
1,610
|
|
Return
on equity investment in investee
|
|
|
19,435
|
|
|
129,267
|
|
|
42,602
|
|
Income
from equity investments
|
|
|
(24,452
|
)
|
|
(218,441
|
)
|
|
(47,538
|
)
|
Unearned
compensation expense
|
|
|
4,283
|
|
|
6,611
|
|
|
2,092
|
|
Employee
stock ownership plan expense
|
|
|
1,813
|
|
|
868
|
|
|
665
|
|
Allowance
for other funds used during construction
|
|
|
(7,779
|
)
|
|
(2,349
|
)
|
|
(3,723
|
)
|
Amortization
of investment tax credits
|
|
|
(1,531
|
)
|
|
(1,671
|
)
|
|
(1,712
|
)
|
Net
deferred income taxes
|
|
|
(3,006
|
)
|
|
105,039
|
|
|
30,248
|
|
Deferred
fuel costs
|
|
|
24,241
|
|
|
(21,544
|
)
|
|
(17,560
|
)
|
Loss
(gain) on economic hedges
|
|
|
4,352
|
|
|
(5,262
|
)
|
|
-
|
|
Impairments
of long-lived assets
|
|
|
-
|
|
|
-
|
|
|
1,100
|
|
Cash
surrender value of company-/trust-owned
life insurance
|
|
|
(707
|
)
|
|
(806
|
)
|
|
(1,540
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
12,156
|
|
|
(53,013
|
)
|
|
(12,121
|
)
|
Accounts
and notes receivable, affiliate
|
|
|
(10,380
|
)
|
|
1,205
|
|
|
(14,954
|
)
|
Unbilled
revenue
|
|
|
(504
|
)
|
|
(622
|
)
|
|
6,402
|
|
Fuel,
materials and supplies inventory
|
|
|
(32,389
|
)
|
|
(7,861
|
)
|
|
(7,786
|
)
|
Prepayments
|
|
|
(1,310
|
)
|
|
1,338
|
|
|
1,556
|
|
Accounts
payable
|
|
|
(31,893
|
)
|
|
33,579
|
|
|
(3,840
|
)
|
Accounts
and notes payable, affiliate
|
|
|
1,633
|
|
|
(15,190
|
)
|
|
16,005
|
|
Customer
deposits
|
|
|
6,611
|
|
|
5,392
|
|
|
5,109
|
|
Long-term
receivable
|
|
|
-
|
|
|
-
|
|
|
(2,206
|
)
|
Regulatory
assets and liabilities, net
|
|
|
(44,796
|
)
|
|
(22,479
|
)
|
|
(1,623
|
)
|
Other
deferred accounts
|
|
|
622
|
|
|
1,618
|
|
|
25,328
|
|
Retainage
payable
|
|
|
11,641
|
|
|
719
|
|
|
(7,575
|
)
|
Taxes
accrued
|
|
|
24,271
|
|
|
56,977
|
|
|
36,700
|
|
Interest
accrued
|
|
|
395
|
|
|
327
|
|
|
(3,567
|
)
|
Margin
deposits
|
|
|
(22,954
|
)
|
|
9,474
|
|
|
(4,682
|
)
|
Other,
net
|
|
|
5,778
|
|
|
(2,171
|
)
|
|
(1,724
|
)
|
Net
cash provided by operating activities
|
|
|
91,443
|
|
|
249,731
|
|
|
166,602
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(236,495
|
)
|
|
(159,393
|
)
|
|
(79,873
|
)
|
Allowance
for other funds used during construction
|
|
|
7,779
|
|
|
2,349
|
|
|
3,723
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
1,234
|
|
|
2,801
|
|
|
271
|
|
Proceeds
from disposal of segment
|
|
|
-
|
|
|
-
|
|
|
10,426
|
|
Return
of equity investment in investee
|
|
|
11,218
|
|
|
12,097
|
|
|
7,054
|
|
Investment
in cost method investments
|
|
|
-
|
|
|
(1,385
|
)
|
|
(5,485
|
)
|
Equity
investment in investee
|
|
|
(7,026
|
)
|
|
(20
|
)
|
|
-
|
|
Premiums
paid on company-/trust-owned life insurance
|
|
|
(3,367
|
)
|
|
(3,696
|
)
|
|
(6,923
|
)
|
Transfer
of cash (to)
from restricted accounts
|
|
|
(24,365
|
)
|
|
7
|
|
|
10,178
|
|
Net
cash used in investing activities
|
|
$
|
(251,022
|
)
|
$
|
(147,240
|
)
|
$
|
(60,629
|
)
|
(Continued
on next page)
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
CLECO
CORPORATION
Consolidated
Statements
of Cash Flows (Continued) |
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Financing
activities
|
|
|
|
|
|
|
|
Sale
of common stock,
net of issuance costs
|
|
$
|
157,474
|
|
$
|
-
|
|
$
|
35,705
|
|
Conversion
of options to common stock
|
|
|
3,526
|
|
|
2,649
|
|
|
383
|
|
Issuance
of common stock under employee stock purchase plan
|
|
|
1,637
|
|
|
-
|
|
|
-
|
|
Stock-based
compensation tax benefit
|
|
|
292
|
|
|
-
|
|
|
-
|
|
Change
in short-term debt, net
|
|
|
-
|
|
|
-
|
|
|
(67,750
|
)
|
Retirement
of long-term obligations
|
|
|
(40,382
|
)
|
|
(200,116
|
)
|
|
(2,541
|
)
|
Issuance
of long-term debt
|
|
|
60,000
|
|
|
238,715
|
|
|
-
|
|
Deferred
financing costs
|
|
|
(2,263
|
)
|
|
(3,223
|
)
|
|
-
|
|
Change
in ESOP trust
|
|
|
1,668
|
|
|
1,635
|
|
|
1,753
|
|
Dividends
paid on preferred stock
|
|
|
(2,184
|
)
|
|
(1,915
|
)
|
|
(2,350
|
)
|
Dividends
paid on common stock
|
|
|
(46,871
|
)
|
|
(44,870
|
)
|
|
(42,767
|
)
|
Net
cash provided
by (used in) financing activities
|
|
|
132,897
|
|
|
(7,125
|
)
|
|
(77,567
|
)
|
Net
(decrease)
increase in cash and cash equivalents
|
|
|
(26,682
|
)
|
|
95,366
|
|
|
28,406
|
|
Cash
and cash equivalents at beginning of period
|
|
|
219,153
|
|
|
123,787
|
|
|
95,381
|
|
Cash
and cash equivalents at end of period
|
|
$
|
192,471
|
|
$
|
219,153
|
|
$
|
123,787
|
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
|
|
Interest
paid (net of amount capitalized)
|
|
$
|
45,533
|
|
$
|
38,517
|
|
$
|
54,619
|
|
Income
taxes paid/(received)
|
|
$
|
34,818
|
|
$
|
530
|
|
$
|
(42,056
|
)
|
Supplementary
noncash financing activities
|
|
|
|
|
|
|
|
|
|
|
Accrued
additions to property, plant and equipment not reported
above
|
|
$
|
46,932
|
|
$
|
28,000
|
|
$
|
-
|
|
Capital
lease not included in additions to property, plant and equipment
above
|
|
$
|
-
|
|
$
|
555
|
|
$
|
-
|
|
Issuance
of treasury stock - LTICP and ESOP plans
|
|
$
|
98
|
|
$
|
173
|
|
$
|
1,492
|
|
Issuance
of common stock - LTICP/ESOP/ESPP
(1)
|
|
$
|
4,400
|
|
$
|
2,820
|
|
$
|
4,784
|
|
(1) Includes
conversion of preferred stock to common stock ($1,725/2006, $1,599/2005,
and $1,908/2004)
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION
Consolidated
Statements
of Comprehensive Income |
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
2006
|
|
2005
|
|
2004
|
|
Net
income
|
$
|
74,591
|
|
$
|
182,644
|
|
$
|
66,189
|
|
Other
comprehensive (loss)
income, net of tax:
|
|
|
|
|
|
|
|
|
|
Net
unrealized (loss)
gain from available-for-sale securities (net of tax (benefit) expense
of
$(32) in 2006, $(180) in 2005 and
$137 in 2004)
|
|
(52
|
)
|
|
126
|
|
|
219
|
|
(Recognition)
reduction of additional minimum pension liability (net of tax (benefit)
expense of $(547) in 2006, $(618) in 2005
and $183 in 2004)
|
|
(873
|
)
|
|
(988
|
)
|
|
293
|
|
Comprehensive
(loss) income
|
|
(925
|
)
|
|
(862
|
)
|
|
512
|
|
Comprehensive
income, net of tax
|
$
|
73,666
|
|
$
|
181,782
|
|
$
|
66,701
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements
of Changes in Common Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
|
|
|
|
PREMIUM
|
|
|
|
|
|
|
|
OTHER
|
|
TOTAL
|
|
|
|
COMMON
STOCK
|
|
UNEARNED
|
|
ON
COMMON
|
|
RETAINED
|
|
TREASURY
STOCK
|
|
COMPREHENSIVE
|
|
COMMON
|
|
(THOUSANDS,
EXCEPT SHARE AMOUNTS)
|
|
SHARES
|
|
AMOUNT
|
|
COMPENSATION
|
|
STOCK
|
|
EARNINGS
|
|
SHARES
|
|
COST
|
|
LOSS
|
|
EQUITY
|
|
BALANCE,
JANUARY
1, 2004
|
|
|
47,299,119
|
|
$
|
47,299
|
|
$
|
-
|
|
$
|
154,928
|
|
$
|
286,797
|
|
|
(115,484
|
)
|
$
|
(2,493
|
)
|
$
|
(3,780
|
)
|
$
|
482,751
|
|
Issuance
of common stock
|
|
|
2,000,000
|
|
|
2,000
|
|
|
|
|
|
33,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,705
|
|
Common
stock issued for compensatory
plans
|
|
|
368,742
|
|
|
369
|
|
|
|
|
|
5,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,917
|
|
Issuance
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
91,640
|
|
|
2,018
|
|
|
|
|
|
2,068
|
|
Unearned
compensation (LTICP)
|
|
|
|
|
|
|
|
|
(5,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,733
|
)
|
Incentive
shares forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,431
|
)
|
|
(412
|
)
|
|
|
|
|
(412
|
)
|
Common
stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
Dividend
requirements, preferred
stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,216
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,216
|
)
|
Cash
dividends, common stock, $0.900
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,767
|
)
|
|
|
|
|
|
|
|
|
|
|
(42,767
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,189
|
|
|
|
|
|
|
|
|
|
|
|
66,189
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
512
|
|
BALANCE,
DECEMBER 31, 2004
|
|
|
49,667,861
|
|
|
49,668
|
|
|
(5,733
|
)
|
|
194,055
|
|
|
308,003
|
|
|
(44,275
|
)
|
|
(887
|
)
|
|
(3,268
|
)
|
|
541,838
|
|
Common
stock issued for compensatory
plans
|
|
|
362,174
|
|
|
362
|
|
|
|
|
|
8,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,724
|
|
Issuance
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
128,612
|
|
|
92
|
|
|
|
|
|
93
|
|
Unearned
compensation (LTICP)
|
|
|
|
|
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448
|
|
Incentive
shares forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120,981
|
)
|
|
81
|
|
|
|
|
|
81
|
|
Common
stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Dividend
requirements, preferred
stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,865
|
)
|
Cash
dividends, common stock, $0.900
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,870
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,870
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,644
|
|
|
|
|
|
|
|
|
|
|
|
182,644
|
|
Other
comprehensive loss,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(862
|
)
|
|
(
862
|
)
|
BALANCE,
DECEMBER
31, 2005
|
|
|
50,030,035
|
|
$
|
50,030
|
|
$
|
(5,285
|
)
|
$
|
202,416
|
|
$
|
443,912
|
|
|
(36,644
|
)
|
$
|
(714
|
)
|
$
|
(4,130
|
)
|
$
|
686,229
|
|
Issuance
of common stock
|
|
|
6,900,000
|
|
|
6,900
|
|
|
|
|
|
150,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,734
|
|
Common
stock issued for compensatory
plans
|
|
|
594,463
|
|
|
594
|
|
|
|
|
|
5,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,404
|
|
Issuance
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
4,687
|
|
|
98
|
|
|
|
|
|
110
|
|
Unearned
compensation (LTICP)
|
|
|
|
|
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,285
|
|
Common
stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365
|
)
|
Dividend
requirements, preferred
stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
Cash
dividends, common stock, $0.900
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,944
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,944
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,591
|
|
|
|
|
|
|
|
|
|
|
|
74,591
|
|
Other
comprehensive loss,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(925
|
)
|
|
(925
|
)
|
Implementation
of SFAS No. 158 (net of tax benefit of $4,142)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,255
|
)
|
|
(4,255
|
)
|
BALANCE,
DECEMBER
31, 2006
|
|
|
57,524,498
|
|
$
|
57,524
|
|
$
|
-
|
|
$
|
358,707
|
|
$
|
469,824
|
|
|
(31,957
|
)
|
$
|
(616
|
)
|
$
|
(9,310
|
)
|
$
|
876,129
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Report
of
Independent Registered Public Accounting Firm
To
the
Member and Board of
Managers
of Cleco Power LLC:
In
our
opinion, the financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Cleco Power LLC at December 31, 2006 and 2005, and the results
of
its operations and its cash flows for each of the three years in the period
ended December 31, 2006 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material aspects, the information set forth therein
when
read in conjunction with the related financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We
conducted our audits of these statements in accordance with the standards of
the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As
discussed in Note 2 to the financial statements, the Company
changed the manner in which it accounts for share-based compensation in 2006
and
the manner in which it accounts for defined benefit pension and other
postretirement plans effective December 31, 2006.
/s/
PricewaterhouseCoopers LLP
New
Orleans, Louisiana
February
27, 2007
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
POWER
Statements
of Income |
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Electric
operations
|
|
$
|
959,393
|
|
$
|
874,557
|
|
$
|
718,151
|
|
Other
operations
|
|
|
30,056
|
|
|
38,357
|
|
|
30,165
|
|
Affiliate
revenue
|
|
|
2,049
|
|
|
2,051
|
|
|
1,882
|
|
Gross
operating revenue
|
|
|
991,498
|
|
|
914,965
|
|
|
750,198
|
|
Electric
customer credits
|
|
|
4,693
|
|
|
(992
|
)
|
|
(20,889
|
)
|
Operating
revenue, net
|
|
|
996,191
|
|
|
913,973
|
|
|
729,309
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Fuel
used for electric generation
|
|
|
265,450
|
|
|
197,915
|
|
|
154,043
|
|
Power
purchased for utility customers
|
|
|
374,712
|
|
|
372,844
|
|
|
263,746
|
|
Other
operations
|
|
|
87,560
|
|
|
86,926
|
|
|
77,594
|
|
Maintenance
|
|
|
37,596
|
|
|
43,238
|
|
|
36,329
|
|
Depreciation
|
|
|
73,360
|
|
|
58,696
|
|
|
56,731
|
|
Taxes
other than income taxes
|
|
|
37,869
|
|
|
38,508
|
|
|
36,735
|
|
Gain
on sales of assets
|
|
|
(71
|
)
|
|
(2,206
|
)
|
|
-
|
|
Total
operating expenses
|
|
|
876,476
|
|
|
795,921
|
|
|
625,178
|
|
Operating
income
|
|
|
119,715
|
|
|
118,052
|
|
|
104,131
|
|
Interest
income
|
|
|
7,425
|
|
|
4,355
|
|
|
3,561
|
|
Allowance
for other funds used during construction
|
|
|
7,779
|
|
|
2,349
|
|
|
3,723
|
|
Other
income
|
|
|
1,813
|
|
|
2,081
|
|
|
2,265
|
|
Other
expense
|
|
|
(2,595
|
)
|
|
(2,668
|
)
|
|
(5,342
|
)
|
Interest
charges
|
|
|
|
|
|
|
|
|
|
|
Interest
charges, including amortization of debt expenses, premium and
discount
|
|
|
39,095
|
|
|
28,496
|
|
|
29,689
|
|
Allowance
for borrowed funds used during construction
|
|
|
(2,845
|
)
|
|
(903
|
)
|
|
(1,244
|
)
|
Total
interest charges
|
|
|
36,250
|
|
|
27,593
|
|
|
28,445
|
|
Income
before income taxes
|
|
|
97,887
|
|
|
96,576
|
|
|
79,893
|
|
Federal
and state income taxes
|
|
|
33,059
|
|
|
37,495
|
|
|
27,691
|
|
Net
income
|
|
$
|
64,828
|
|
$
|
59,081
|
|
$
|
52,202
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
POWER
Balance
Sheets |
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Utility
plant and equipment
|
|
|
|
|
|
Property,
plant and equipment
|
|
$
|
1,877,850
|
|
$
|
1,822,798
|
|
Accumulated
depreciation
|
|
|
(868,516
|
)
|
|
(797,690
|
)
|
Net
property, plant and equipment
|
|
|
1,009,334
|
|
|
1,025,108
|
|
Construction
work
in
progress
|
|
|
288,455
|
|
|
155,427
|
|
Total
utility plant, net
|
|
|
1,297,789
|
|
|
1,180,535
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
101,878
|
|
|
183,381
|
|
Restricted
cash
|
|
|
24,361
|
|
|
-
|
|
Customer
accounts receivable (less allowance for doubtful accounts of $789
in 2006 and $1,262 in 2005)
|
|
|
38,889
|
|
|
54,768
|
|
Other
accounts receivable
|
|
|
28,399
|
|
|
31,690
|
|
Accounts
receivable - affiliate
|
|
|
2,860
|
|
|
4,530
|
|
Unbilled
revenue
|
|
|
18,382
|
|
|
17,878
|
|
Fuel
inventory, at average cost
|
|
|
43,236
|
|
|
21,313
|
|
Material
and supplies inventory, at average cost
|
|
|
34,755
|
|
|
24,289
|
|
Margin
deposits
|
|
|
18,638
|
|
|
-
|
|
Risk
management assets
|
|
|
36
|
|
|
10,110
|
|
Prepayments
|
|
|
3,713
|
|
|
2,460
|
|
Regulatory
assets - other
|
|
|
17,453
|
|
|
-
|
|
Accumulated
deferred fuel
|
|
|
77,438
|
|
|
23,165
|
|
Cash
surrender value of life insurance policies
|
|
|
5,265
|
|
|
5,143
|
|
Other
current assets
|
|
|
439
|
|
|
512
|
|
Total
current assets
|
|
|
415,742
|
|
|
379,239
|
|
Prepayments
|
|
|
6,515
|
|
|
5,961
|
|
Regulatory
assets and liabilities - deferred taxes, net
|
|
|
94,653
|
|
|
90,960
|
|
Regulatory
assets - other
|
|
|
192,061
|
|
|
53,439
|
|
Other
deferred charges
|
|
|
17,092
|
|
|
55,800
|
|
Total
assets
|
|
$ |
2,023,852
|
|
$ |
1,765,934
|
|
Liabilities
and member’s equity
|
|
|
|
|
|
|
|
Member’s
equity
|
|
$
|
646,404
|
|
$
|
534,210
|
|
Long-term
debt
|
|
|
519,341
|
|
|
509,643
|
|
Total
capitalization
|
|
|
1,165,745
|
|
|
1,043,853
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Long-term
debt due within one year
|
|
|
50,000
|
|
|
40,000
|
|
Accounts
payable
|
|
|
128,411
|
|
|
135,342
|
|
Accounts
payable - affiliate
|
|
|
35,469
|
|
|
8,122
|
|
Retainage
|
|
|
12,409
|
|
|
768
|
|
Customer
deposits
|
|
|
25,312
|
|
|
23,436
|
|
Provision
for rate refund
|
|
|
3,174
|
|
|
7,927
|
|
Taxes
accrued
|
|
|
19,889
|
|
|
12,149
|
|
Interest
accrued
|
|
|
7,707
|
|
|
8,001
|
|
Accumulated
deferred taxes, net
|
|
|
22,582
|
|
|
18,033
|
|
Margin
deposits
|
|
|
-
|
|
|
4,316
|
|
Risk
management liability
|
|
|
60,477
|
|
|
-
|
|
Regulatory
liabilities - other
|
|
|
636
|
|
|
635
|
|
Other
current liabilities
|
|
|
7,610
|
|
|
2,412
|
|
Total
current liabilities
|
|
|
373,676
|
|
|
261,141
|
|
Deferred
credits
|
|
|
|
|
|
|
|
Accumulated
deferred federal and state income taxes, net
|
|
|
388,570
|
|
|
390,906
|
|
Accumulated
deferred investment tax credits
|
|
|
14,100
|
|
|
15,632
|
|
Regulatory
liabilities - other
|
|
|
930
|
|
|
-
|
|
Other
deferred credits
|
|
|
80,831
|
|
|
54,402
|
|
Total
deferred credits
|
|
|
484,431
|
|
|
460,940
|
|
Total
liabilities and member’s equity
|
|
$
|
2,023,852
|
|
$
|
1,765,934
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
CLECO
POWER
Statements
of Cash Flows |
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
64,828
|
|
$
|
59,081
|
|
$
|
52,202
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
76,296
|
|
|
62,460
|
|
|
60,168
|
|
Gain
on sales of property, plant and equipment
|
|
|
(71
|
)
|
|
(2,206
|
)
|
|
-
|
|
Provision
for doubtful accounts
|
|
|
2,875
|
|
|
3,202
|
|
|
1,610
|
|
Unearned
compensation expense
|
|
|
1,980
|
|
|
2,407
|
|
|
259
|
|
Allowance
for other funds used during construction
|
|
|
(7,779
|
)
|
|
(2,349
|
)
|
|
(3,723
|
)
|
Amortization
of investment tax credits
|
|
|
(1,531
|
)
|
|
(1,671
|
)
|
|
(1,712
|
)
|
Net
deferred income taxes
|
|
|
3,521
|
|
|
75,939
|
|
|
19,861
|
|
Deferred
fuel costs
|
|
|
24,241
|
|
|
(21,544
|
)
|
|
(17,560
|
)
|
Loss
(gain) on fuel hedges
|
|
|
4,352
|
|
|
(5,262
|
)
|
|
-
|
|
Cash
surrender value of company-owned life insurance
|
|
|
(339
|
)
|
|
(417
|
)
|
|
(564
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
10,276
|
|
|
(52,818
|
)
|
|
(17,128
|
)
|
Accounts
and notes receivable, affiliate
|
|
|
2,003
|
|
|
1,624
|
|
|
11,844
|
|
Unbilled
revenue
|
|
|
(504
|
)
|
|
(622
|
)
|
|
(48
|
)
|
Fuel,
materials and supplies inventory
|
|
|
(32,389
|
)
|
|
(7,861
|
)
|
|
(7,767
|
)
|
Prepayments
|
|
|
(1,338
|
)
|
|
1,096
|
|
|
(588
|
)
|
Accounts
payable
|
|
|
(30,088
|
)
|
|
32,337
|
|
|
(251
|
)
|
Accounts
and notes payable, affiliate
|
|
|
25,497
|
|
|
(2,134
|
)
|
|
(17,007
|
)
|
Retainage
payable
|
|
|
11,641
|
|
|
719
|
|
|
-
|
|
Customer
deposits
|
|
|
6,611
|
|
|
5,410
|
|
|
5,109
|
|
Regulatory
assets and liabilities, net
|
|
|
(44,796
|
)
|
|
(22,479
|
)
|
|
(1,623
|
)
|
Other
deferred accounts
|
|
|
213
|
|
|
(220
|
)
|
|
13,615
|
|
Taxes
accrued
|
|
|
7,740
|
|
|
(8,585
|
)
|
|
9,493
|
|
Interest
accrued
|
|
|
395
|
|
|
1,111
|
|
|
597
|
|
Margin
deposits
|
|
|
(22,954
|
)
|
|
9,474
|
|
|
(4,682
|
)
|
Other,
net
|
|
|
2,037
|
|
|
(1,707
|
)
|
|
1,136
|
|
Net
cash provided by operating activities
|
|
|
102,717
|
|
|
124,985
|
|
|
103,241
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(235,949
|
)
|
|
(158,441
|
)
|
|
(78,700
|
)
|
Allowance
for other funds used during construction
|
|
|
7,779
|
|
|
2,349
|
|
|
3,723
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
1,234
|
|
|
2,801
|
|
|
271
|
|
Premiums
paid on company-owned life insurance
|
|
|
(470
|
)
|
|
(629
|
)
|
|
(629
|
)
|
Transfer
of cash to
restricted accounts
|
|
|
(24,361
|
)
|
|
-
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(251,767
|
)
|
|
(153,920
|
)
|
|
(75,335
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Retirement
of long-term obligations
|
|
|
(40,382
|
)
|
|
(100,116
|
)
|
|
(83
|
)
|
Issuance
of long-term debt
|
|
|
60,000
|
|
|
238,715
|
|
|
-
|
|
Deferred
financing costs
|
|
|
(2,071
|
)
|
|
(2,496
|
)
|
|
-
|
|
Distribution
to parent
|
|
|
-
|
|
|
(52,900
|
)
|
|
(44,700
|
)
|
Contribution
from parent
|
|
|
50,000
|
|
|
75,000
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
67,547
|
|
|
158,203
|
|
|
(44,783
|
)
|
Net
(decrease)
increase in cash and cash equivalents
|
|
|
(81,503
|
)
|
|
129,268
|
|
|
(16,877
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
183,381
|
|
|
54,113
|
|
|
70,990
|
|
Cash
and cash equivalents at end of period
|
|
$
|
101,878
|
|
$
|
183,381
|
|
$
|
54,113
|
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
|
|
Interest
paid (net of amount capitalized)
|
|
$
|
35,821
|
|
$
|
26,066
|
|
$
|
29,009
|
|
Income
taxes (received)
paid
|
|
$
|
(2,311
|
)
|
$
|
(389
|
)
|
$
|
7,790
|
|
Supplementary
non-cash investing and financing information
|
|
|
|
|
|
|
|
|
|
|
Accrued
additions to property, plant and equipment not reported
above
|
|
$
|
46,932
|
|
$
|
28,000
|
|
$
|
-
|
|
Capital
lease not included in additions to property, plant and equipment
above
|
|
$
|
-
|
|
$
|
555
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
CLECO
POWER
Statements
of Comprehensive Income
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
2006
|
|
2005
|
|
2004
|
|
Net
income
|
$
|
64,828
|
|
$
|
59,081
|
|
$
|
52,202
|
|
Other
comprehensive (loss)
income, before tax:
|
|
|
|
|
|
|
|
|
|
(Recognition)
reduction of additional minimum pension liability (net of tax (benefit)
expense of $(231) in 2006, $(268) in 2005 and
$56 in 2004)
|
|
(369
|
)
|
|
(428
|
)
|
|
89
|
|
Comprehensive
(loss) income
|
|
(369
|
)
|
|
(428
|
)
|
|
89
|
|
Comprehensive
income, net of tax
|
$
|
64,459
|
|
$
|
58,653
|
|
$
|
52,291
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
|
|
Statements
of Changes in Member’s Equity
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
MEMBER’S
EQUITY
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
TOTAL
MEMBER’S
EQUITY
|
|
BALANCE,
JANUARY
1, 2004
|
|
$
|
447,338
|
|
$
|
(1,472
|
)
|
$
|
445,866
|
|
Other
comprehensive income, net of tax
|
|
|
-
|
|
|
89
|
|
|
89
|
|
Distribution
to member
|
|
|
(44,700
|
)
|
|
-
|
|
|
(44,700
|
)
|
Net
income
|
|
|
52,202
|
|
|
-
|
|
|
52,202
|
|
BALANCE,
DECEMBER 31, 2004
|
|
|
454,840
|
|
|
(1,383
|
)
|
|
453,457
|
|
Other
comprehensive loss, net of tax
|
|
|
-
|
|
|
(428
|
)
|
|
(428
|
)
|
Contribution
from parent
|
|
|
75,000
|
|
|
-
|
|
|
75,000
|
|
Distribution
to member
|
|
|
(52,900
|
)
|
|
-
|
|
|
(52,900
|
)
|
Net
income
|
|
|
59,081
|
|
|
|
|
|
59,081
|
|
BALANCE,
DECEMBER 31, 2005
|
|
|
536,021
|
|
|
(1,811
|
)
|
|
534,210
|
|
Other
comprehensive loss, net of tax
|
|
|
-
|
|
|
(369
|
)
|
|
(369
|
)
|
Contribution
from parent
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
Net
income
|
|
|
64,828
|
|
|
-
|
|
|
64,828
|
|
Implementation
of SFAS No. 158 (net of tax benefit of $2,577)
|
|
|
-
|
|
|
(2,265
|
)
|
|
(2,265
|
)
|
BALANCE,
DECEMBER 31, 2006
|
|
$
|
650,849
|
|
$
|
(4,445
|
)
|
$
|
646,404
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Index
to
Applicable Notes to the Financial Statements of Registrants
|
|
|
Note
1
|
The
Company
|
Cleco
Corporation and Cleco Power
|
Note
2
|
Summary
of Significant Accounting Policies
|
Cleco
Corporation and Cleco Power
|
Note
3
|
Regulatory
Assets and Liabilities
|
Cleco
Corporation and Cleco Power
|
Note
4
|
Jointly
Owned Generation Units
|
Cleco
Corporation and Cleco Power
|
Note
5
|
Fair
Value of Financial Instruments
|
Cleco
Corporation and Cleco Power
|
Note
6
|
Debt
|
Cleco
Corporation and Cleco Power
|
Note
7
|
Common
Stock
|
Cleco
Corporation
and Cleco Power
|
Note
8
|
Preferred
Stock
|
Cleco
Corporation
|
Note
9
|
Pension
Plan and Employee Benefits
|
Cleco
Corporation and Cleco Power
|
Note
10
|
Income
Taxes
|
Cleco
Corporation and Cleco Power
|
Note
11
|
Disclosures
about
Segments
|
Cleco
Corporation
|
Note
12
|
Electric
Customer Credits
|
Cleco
Corporation and Cleco Power
|
Note
13
|
Equity
Investment in Investees
|
Cleco
Corporation
|
Note
14
|
Operating
Leases
|
Cleco
Corporation and Cleco Power
|
Note
15
|
Litigation
and Other Commitments and Contingencies
|
Cleco
Corporation and Cleco Power
|
Note
16
|
Discontinued
Operations and Dispositions
|
Cleco
Corporation
|
Note
17
|
Disclosures
about Guarantees
|
Cleco
Corporation and Cleco Power
|
Note
18
|
FERC
and Fuel Audit Settlements
|
Cleco
Corporation and Cleco Power
|
Note
19
|
Affiliate
Transactions
|
Cleco
Corporation and Cleco Power
|
Note
20
|
Perryville
|
Cleco
Corporation
|
Note
21
|
Calpine
Bankruptcy
|
Cleco
Corporation
|
Note
22
|
Accumulated
Other Comprehensive Loss
|
Cleco
Corporation and Cleco Power
|
Note
23
|
Miscellaneous
Financial Information (Unaudited)
|
Cleco
Corporation and Cleco Power
|
Note
24
|
Subsequent
Events
|
Cleco
Corporation and Cleco Power
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Notes
to the
Financial Statements
Note
1 — The Company
General
Cleco
Corporation is a holding company composed
of the following:
§ |
Cleco
Power is an integrated
electric utility services subsidiary regulated by the LPSC and the
FERC,
among other regulators, which determine the rates Cleco Power can
charge
its customers. Cleco Power serves approximately 268,000 customers
in 104
communities in central and southeastern Louisiana. Cleco Power also
engages in energy management
activities.
|
§ |
Midstream
is a merchant energy subsidiary regulated
by the FERC that owns and operates a merchant generation station,
invests
in a joint venture that owns and operates a merchant generation station,
and owns and operates transmission interconnection facilities.
|
§ |
Cleco
Corporation’s other operations consist of a holding company, a shared
services subsidiary, and an investment
subsidiary.
|
Note
2 — Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles
of Consolidation
The
accompanying consolidated financial statements of Cleco include the accounts
of
Cleco and its majority-owned subsidiaries
after elimination of intercompany accounts and transactions.
Cleco
has
adopted the provisions of FIN 46R on its scheduled
effective dates. Through a review of equity interests and other contractual
relationships, Cleco has determined that it is not the primary beneficiary
of
three of its indirect, wholly owned subsidiaries. Evangeline, Perryville, and
Attala are considered variable interest entities. In accordance with FIN 46R,
Cleco reports its investment in these entities on the equity method of
accounting. As a result, the assets and liabilities of these entities are
represented by one line item corresponding to Cleco’s equity investment in these
entities. The pre-tax results of operations are reported as equity income from
investees on Cleco Corporation’s Consolidated Statements of Income. For
additional information on the operations of these entities, see Note 13 —
“Equity Investment in Investees.”
Reclassifications
Certain
reclassifications have been made
to
the 2005 and 2004 financial statements to conform them to the presentation
used
in the 2006 financial statements. These reclassifications had no effect on
Cleco
Corporation’s net income applicable to common stock or total common
shareholders’ equity or Cleco Power’s net income or total member’s
equity.
Statements
of Cash Flows
The
Consolidated Statements of Cash Flows of Cleco Corporation
and the Statements of Cash Flows of Cleco Power are prepared using the “indirect
method” described in SFAS No. 95. This method requires that net income be
adjusted to remove the effects of all deferrals and accruals of operating cash
receipts and payments and the effects of all investing and financing cash flow
items.
Regulation
Cleco
Power maintains its accounts in accordance with the Uniform System of Accounts
prescribed for electric utilities by the FERC, as adopted by the
LPSC.
Cleco
Power’s retail rates are regulated by the LPSC, and its rates for transmission
services and wholesale power sales are regulated by the FERC. Cleco Power
follows SFAS No. 71, which allows utilities to capitalize or defer certain
costs based on regulatory approval, and management’s ongoing assessment that it
is probable these items will be recovered through the ratemaking
process.
Pursuant
to SFAS No. 71, Cleco Power has recorded regulatory
assets and liabilities primarily for extraordinary storm restoration costs
and
the effects of income taxes. In addition, Cleco Power has recorded regulatory
assets for deferred mining costs, interest costs, estimated future asset removal
costs, postretirement plan costs, fuel and energy purchases, and related hedging
gains and losses, and has recorded regulatory liabilities for fuel
transportation revenue and recovered construction carrying costs, as a result
of
rate actions of regulators. For information regarding the regulatory assets
and
liabilities recorded by Cleco Power, see Note 3 — “Regulatory Assets and
Liabilities.”
Any
future plan adopted by the LPSC for purposes of transitioning utilities from
LPSC regulation to retail competition may affect the regulatory assets and
liabilities recorded by Cleco Power if the criteria for the application of
SFAS
No. 71 cannot continue to be met. At this time, Cleco cannot predict
whether any legislation or regulation affecting Cleco Power will be enacted
or
adopted and, if enacted, what form such legislation or regulation may
take.
Asset
Retirement Obligation
Cleco
has
recorded asset retirement obligations (liabilities) in accordance with SFAS
No.
143, that became effective on January 1, 2003, and FIN 47, effective for fiscal
years ending after December 15, 2005. SFAS No. 143 requires an entity to record
an ARO when there is a legal obligation under existing or enacted law, statute,
written or oral contract, or by legal
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construction
under the doctrine of promissory estoppel to incur
costs to remove an asset when the asset is retired. FIN 47 requires an ARO
which
is conditional on a future event to be recorded even if the event has not yet
occurred.
At
the
point the liability for asset retirement is incurred, SFAS No. 143 requires
capitalization of the costs to the related
property, plant and equipment asset. For asset retirement obligations existing
at the time of adoption, the statement requires capitalization of costs at
the
level that existed at the point of incurring the liability. These capitalized
costs are depreciated over the same period as the related property asset. Cleco
Power recorded the depreciation expense for past periods at the date of adoption
as a regulatory asset in accordance with SFAS No. 71, because Cleco Power
believes the LPSC will allow it to recover these costs in future rates. Cleco
Power also defers the current depreciation of the asset retirement cost as
a
regulatory asset under SFAS No. 71.
Under
SFAS No. 143, the initial ARO liability recorded is accreted to its present
value each accounting period. Cleco Power defers this accretion as a regulatory
asset based on its determination that these costs can be collected from
customers. For additional information on Cleco’s AROs, see Note 3 — “Regulatory
Assets and Liabilities — Deferred Asset Removal Costs.”
Property,
Plant
and Equipment
Property,
plant and equipment consist primarily of regulated utility generation and energy
transmission assets and,
prior to Perryville and Evangeline’s deconsolidation, merchant generation
stations. Regulated assets, utilized primarily for retail operations and
electric transmission and distribution, are stated at the cost of construction,
which includes certain materials, labor, payroll taxes and benefits,
administrative and general costs, and the estimated cost of funds used during
construction. Jointly owned assets are reflected in property, plant and
equipment at Cleco Power’s share of the cost to construct or purchase the
assets. For information on jointly owned assets, see Note 4 — “Jointly Owned
Generation Units.”
Cleco’s
cost of improvements to property, plant and equipment is
capitalized.
Costs
associated with repairs and major maintenance projects are expensed as incurred.
Cleco capitalizes the cost to purchase or develop software for internal use.
The
amounts of unamortized computer software costs at December 31, 2006, and 2005
were $10.2 million and $13.4 million, respectively. Amortization of capitalized
computer software costs charged to expense for the years ending December 31,
2006, 2005, and 2004 was $4.0 million, $4.1 million, and $4.1 million,
respectively.
Upon
retirement or disposition, the cost of Cleco Power’s depreciable plant and the
cost of removal, net of salvage value, are charged to accumulated depreciation.
For Cleco’s other depreciable assets, upon disposition or retirement, the
difference between the net book value of the property and any proceeds received
for the property is recorded as a gain or loss on asset disposition on Cleco’s
statements of income. Any cost incurred to remove the asset is charged to
expense. Annual depreciation provisions expressed as a percentage of average
depreciable property for Cleco Power were 3.29% for 2006, 3.25% for 2005, and
3.34% for 2004.
Depreciation
on property, plant and equipment is calculated primarily on a straight-line
basis over the useful lives of the assets, as follows:
|
|
|
YEARS
|
Utility
plant
|
5-58
|
Other
|
5-44
|
Property,
plant and equipment consist of:
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Regulated
utility plants
|
|
$
|
1,876,978
|
|
$
|
1,821,817
|
|
Other
|
|
|
15,555
|
|
|
15,156
|
|
Total
property, plant and equipment
|
|
|
1,892,533
|
|
|
1,836,973
|
|
Accumulated
depreciation
|
|
|
(876,747
|
)
|
|
(804,323
|
)
|
Net
property, plant and equipment
|
|
$
|
1,015,786
|
|
$
|
1,032,650
|
|
The
table
below discloses the amounts of plant acquisition adjustments reported in Cleco
Power’s property, plant and equipment and the associated accumulated
amortization reported
in accumulated depreciation. The plant acquisition adjustment primarily relates
to the 1997 acquisition of Teche. The acquisition adjustment represents the
amount paid by Cleco Power for the assets of Teche in excess of their carrying
value.
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Plant
acquisition adjustment
|
|
$
|
5,359
|
|
$
|
5,359
|
|
Less
accumulated amortization
|
|
|
2,451
|
|
|
2,196
|
|
Net
plant acquisition adjustment
|
|
$
|
2,908
|
|
$
|
3,163
|
|
Capitalized
Project Costs
Cleco
Power capitalizes project costs related to its long-term construction projects.
As of December 31, 2005, Cleco Power had spent approximately $11.2 million
related to the preliminary
project development of Rodemacher Unit 3. On February 22, 2006, the LPSC
approved Cleco Power’s plan to construct Rodemacher Unit 3. The $11.2 million in
preliminary project development costs was capitalized when actual construction
began in May 2006.
Inventories
Fuel
inventories consist of coal, lignite, and oil used to generate
electricity.
Materials
and supplies inventory consists
of
transmission and distribution line construction and repair material, and
generating station and transmission and distribution substation repair
materials.
Both
fuel
and materials and supplies inventories are stated at average cost and are issued
from inventory using the average cost of existing inventory. The amount of
storeroom operating expenses allocated to inventory for the years ended December
31, 2006, and 2005 was $3.8 million and $2.5 million, respectively. Deferred
storeroom operating expenses remaining in the amount of materials and supplies
inventory as
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of
December 31, 2006, and 2005 was $2.0 million and $0.6 million,
respectively.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount and do not bear interest. It
is
the policy of management to review the outstanding accounts receivable monthly,
as well as the bad debt write-offs experienced in the past, and establish an
allowance for doubtful accounts. Account balances are charged off against the
allowance when management determines
it
is probable the receivable will not be recovered. As of December 31, 2006,
and
2005, the allowance for doubtful accounts amounted to $0.8 million and $1.3
million, respectively. There is no off-balance sheet credit exposure related
to
Cleco’s customers.
Insurance
Reserves
Cleco
maintains property insurance on generating stations, buildings and contents,
and
substations. Cleco is self-insured for any damage to transmission and
distribution lines. To mitigate the exposure to potential financial loss for
damage to lines, Cleco maintains an LPSC-approved reserve, supported by monthly
charges to operating expense.
Cleco
also maintains liability and workers’ compensation insurance to mitigate
financial losses due to injuries and damages
to
the property of others. Cleco’s insurance covers claims that exceed certain
self-insured limits. For claims that do not meet the limits to be covered by
insurance, Cleco maintains reserves.
Impairments
of Long-Lived
Assets
Cleco
applies the provisions of SFAS No. 144 to account for long-lived
asset impairments. Under this standard, Cleco evaluates at each balance sheet
date whether events and circumstances have occurred that indicate possible
operational impairment. Cleco uses an estimate of the future undiscounted cash
flows of the related asset or asset grouping over the remaining life in
measuring whether operating assets are recoverable. An impairment is recognized
when future undiscounted cash flows of assets are estimated to be insufficient
to recover the related carrying value. Cleco considers continued operating
losses or significant and long-term changes in business conditions to be primary
indicators of potential impairment. In measuring impairment, Cleco looks to
quoted market prices, if available, or the best information available in the
circumstances, including the estimated discounted cash flows associated with
the
related assets. During 2004, Cleco recorded a pre-tax impairment loss of $1.1
million ($0.7 million after tax) on a combination of pipeline assets and proved
oil and gas reserves owned by Cleco Energy. The impairment charges at Cleco
Energy are classified as discontinued operations on Cleco Corporation’s
Consolidated Statements of Income.
Cash
Equivalents
Cleco
considers highly liquid, marketable securities, and other similar instruments
with original maturity dates of three months or less at the time of purchase
to
be cash equivalents.
Restricted
Cash
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 general corporate purposes. At December 31, 2006, and 2005, $24.5 million
and $0.1 million, respectively, of cash were restricted.
At
December 31, 2006, the $24.5 million of restricted cash consisted of $0.1
million under the Diversified Lands mitigation escrow agreement and $24.4
million under the Cleco Power solid waste disposal bonds indenture.
Equity
Investments
Cleco
reports its investment in unconsolidated affiliated companies
on the equity method of accounting, as defined in APB Opinion No. 18. The
amounts reported on Cleco’s balance sheet represent assets contributed by Cleco
plus Cleco’s share of the net income of the affiliate, less any distributions of
earnings (dividends) received from the affiliate.
In
accordance with FIN 46R, Cleco deconsolidated Evangeline from its consolidated
financial statements and began
reporting its investment in Evangeline on the equity method of accounting
effective March 31, 2004. In accordance with FIN 46R, Cleco was required to
report its investment in Perryville on the equity method of accounting when
its
plan for reorganization became effective on October 11, 2005. In accordance
with
FIN 46R, Cleco is required to report its investment in Attala on the equity
method of accounting. For additional information, see Note 13 — “Equity
Investment in Investees.”
Income
Taxes
Cleco
accounts for income taxes under SFAS No. 109.
Income
tax expense and related balance sheet amounts are comprised of a current portion
and a deferred portion. The current portion represents Cleco’s estimate of the
income taxes payable or receivable in the current year. The deferred portion
represents Cleco’s estimate of the future income tax effects of events that have
been recognized in the financial statements or income tax returns in the current
or prior years. Cleco makes assumptions and estimates when it records income
taxes, such as its ability to deduct items on its tax returns, the timing of
the
deduction and the effect of regulation by the LPSC on income taxes. Cleco’s
income tax expense and related assets and liabilities could be affected by
its
assumptions and estimates, changes in such assumptions and estimates, and by
ultimate resolution of assumptions and estimates with taxing
authorities.
Cleco
Corporation and its subsidiaries, other than Cleco Power, record current and
deferred federal and state income taxes at a composite rate of 38.5%. Cleco
Power records current
and
deferred federal income taxes at the statutory rate of
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35.0%
and
records current and deferred state income tax expense at 3.5%. Cleco files
a
federal consolidated income tax return for all wholly owned subsidiaries. Cleco
and its subsidiaries record current and deferred income tax liabilities based
on
amounts that would be recorded had each affiliate prepared separate tax returns.
The federal effective tax rate could be different than the statutory or
composite rate due to differences in recognition between the statements of
income and the income tax return. Cleco Power generally records temporary
differences between book and tax income under the flow-through method of
accounting for state purposes as required by LPSC guidelines. During 2005,
the
LPSC required Cleco Power to record deferred tax expense and normalize the
state
tax benefit derived from the casualty losses relating to Hurricanes Katrina
and
Rita. The LPSC found normalization for state taxes related to storm deductions
to be more appropriate due to the size of such deductions. This change in
treatment resulted in additional deferred state income tax expense in 2005
and
2006. For additional information on income taxes, see Note 10 — “Income
Taxes.”
Investment
Tax Credits
Investment
tax credits, which were deferred for financial statement purposes, are amortized
to income over the estimated
service lives of the properties that gave rise to the credits.
Debt
Expenses, Premiums, and Discounts
Expenses,
premiums, and discounts applicable to debt securities
are amortized to income ratably over the lives of the related issues. Expenses
and call premiums related to refinanced Cleco Power debt are deferred and
amortized over the life of the new issue.
Revenue
and Fuel Costs
Utility
Revenue.
Revenue
from sales of electricity is recognized based upon the amount of energy
delivered. The costs of fuel and purchased power used for retail customers
currently are recovered from customers through the fuel adjustment clause,
based
upon fuel costs and amounts of purchased power incurred in prior months. These
adjustments are subject to audit and final determination by regulators. Excise
taxes and pass-through fees collected on the sale of electricity are not
recorded in utility revenue.
Unbilled
Revenue.
Cleco
Power accrues estimated revenue monthly for energy delivered since the latest
billings. The monthly estimated unbilled revenue amounts are recorded as revenue
and a receivable and are reversed the following month.
Other
Revenue.
Other
revenue is recognized at the time products or services are provided to and
accepted by customers. Economic hedges are derivatives and do not meet the
criteria to be considered accounting hedges. These transactions are
marked-to-market with the resulting gain or loss recorded as a component of
other revenue. For additional
information on mark-to-market accounting, see “— Risk Management”
below.
Tolling
Revenue.
Midstream’s revenue is derived predominantly from its tolling agreement related
to its Evangeline generating facility. Cleco considers the Evangeline Tolling
Agreement to be an operating lease as defined by SFAS No. 13 and SFAS
No. 29 because of the tolling counterparty’s ability to control the use of
the plant, among other criteria, through or beyond the year 2020. The Evangeline
Tolling Agreement contains a monthly shaping factor that provides for a greater
portion of annual revenue to be received by Cleco during the summer months,
which is designed to coincide with the physical usage of the plant. SFAS
No. 13 generally requires lessors to recognize revenue using a
straight-line approach unless another rational allocation of the revenue is
more
representative of the pattern in which the leased property is employed. Cleco
believes the recognition of revenue pursuant to the monthly shaping factor
for
several provisions contained within the Evangeline Tolling Agreement is a
rational allocation method, which better reflects the expected usage of the
plant. Other provisions are recognized as revenue using a straight-line
approach. Certain provisions of the tolling agreement, such as bonuses and
penalties, are considered contingent as defined by SFAS No. 29. Contingent
rents are recorded as revenue or a reduction in revenue in the period in which
the contingency is met. In accordance with FIN 46R, Cleco deconsolidated
Evangeline from its consolidated financial statements and began reporting its
investment in Evangeline on the equity method of accounting effective March
31,
2004. As a result, effective April 1, 2004, Evangeline revenue and expenses
are
netted and reported on one line item as equity income from investees on Cleco
Corporation’s Consolidated Statements of Income. For information on the change
in accounting at Evangeline, see — “Principles of Consolidation”
above.
Taxes/Excise
Taxes.
Cleco
Power collects a sales and use tax on the sale of electricity that subsequently
is remitted to the state in accordance with state law. These amounts are not
recorded as income or expense on the income statement but are reflected at
gross
amounts on Cleco’s balance sheet as a receivable until the tax is collected and
as a payable until the liability is paid due to the pass-through nature of
this
item. Additionally, Cleco Power collects a consumer fee for one of its franchise
agreements. This fee is not recorded on Cleco’s income statement as revenue and
expense, but is reflected at gross amounts on Cleco’s balance sheet as a
receivable until it is collected and as a payable until the liability is paid.
Cleco currently does not have any excise taxes reflected on its income
statement.
AFUDC
The
capitalization of AFUDC by Cleco Power is a utility accounting
practice prescribed by the FERC and the LPSC. AFUDC represents the estimated
cost of financing construction and is not a current source of cash. Under
regulatory
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practices,
a return on and recovery of AFUDC is permitted in setting rates charged for
utility services. The composite AFUDC rate, including borrowed and other funds,
was 12.3% on a pre-tax basis (7.6% net of tax) for 2006, 13.8% on a pretax
basis
(8.5% net of tax) for 2005, and 13.7% on a pre-tax basis (8.5% net of tax)
for
2004.
Capitalized
Interest
Cleco
and
its subsidiaries, except Cleco Power (see AFUDC above), capitalize interest
costs related to longer
term
construction projects. Other than AFUDC at Cleco Power, no interest was
capitalized in 2006, 2005, or 2004.
Risk
Management
Market
risk inherent in Cleco’s market risk-sensitive instruments
and positions includes the potential change arising from changes in interest
rates and the commodity market prices of power and natural gas on different
energy exchanges. Cleco’s Trading 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 and natural gas. Cleco adopted
SFAS No. 133 in the first quarter of 2001 to determine whether market
risk-sensitive instruments and positions were required to be marked-to-market.
Cleco Power’s market risk-sensitive instruments and positions qualify for the
normal-purchase, normal-sale exception to mark-to-market accounting of SFAS
No.
133, as modified by SFAS No. 149, since Cleco Power generally takes physical
delivery and the instruments and positions are used to satisfy customer
requirements. Cleco Power has entered into certain financial transactions it
considers economic hedges to mitigate the risk associated with the fixed-price
power to be provided to a wholesale customer through December 2010. The economic
hedges cover approximately 97% of the estimated daily peak hour power sales
to
the wholesale customer. These transactions are derivatives as defined by SFAS
No. 133 but do not meet the accounting criteria to be considered hedges. These
transactions are marked-to-market with the resulting gain or loss recorded
on
the income statement as a component of operating revenue, net. For the year
ended December 31, 2006, there was a net mark-to-market loss of $4.4 million
and
a realized loss of $0.6 million recorded in other operations revenue related
to
these economic hedge transactions. Cleco Power anticipates additional realized
losses in future periods as natural gas or power is purchased to meet its
contractual obligations.
Cleco
Power has entered into other positions to mitigate some of the
volatility in fuel costs passed on to customers. These positions are
marked-to-market with the resulting gain or loss recorded on the balance sheet
as a component of the accumulated deferred fuel asset or liability and a
component of risk management assets or liabilities. When these positions close,
actual gains or losses will be included in the fuel adjustment clause and
reflected on customers’ bills as a component of the fuel cost adjustment. Based
on market prices at December 31, 2006, the net mark-to-market impact relating
to
these positions was a loss of $60.3 million.
Cleco
Power maintains margin accounts with commodity brokers used to partially fund
the acquisition of natural gas futures, options and swap contracts. These
contracts/positions are used to mitigate the risks associated with the
fixed-price power sales and volatility in customer fuel costs noted above.
At
December 31, 2006, Cleco Power had deposited collateral of $18.6 million to
cover margin requirements relating to open natural gas futures, options and
swap
positions.
Any
speculative positions entered into for marketing and trading purposes that
do
not meet the exemptions of SFAS No. 133 are marked-to-market and recorded in
income. There were no speculative positions at December 31, 2006, or December
31, 2005.
Cleco
and
Cleco Power maintain a master netting agreement policy and monitor credit risk
exposure through review of counterparty credit quality, corporate-wide aggregate
counterparty credit exposure and corporate-wide aggregate counterparty
concentration levels. Cleco actively manages these risks by establishing
appropriate credit and concentration limits on transactions with counterparties
and by 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.
Recent
Accounting Standards
The
Registrants adopted, or will adopt, the recent accounting standards listed
below
on their respective effective dates.
In
December 2004, SFAS No. 123(R)
which
provides expensing and disclosure requirements for stock-based compensation
was
issued. On April 14, 2005, the SEC extended the effective date of this statement
from interim periods beginning after June 15, 2005, to the first fiscal year
beginning after June 15, 2005. Cleco adopted SFAS No. 123(R) effective January
1, 2006. This statement requires all equity instruments, including stock
options, to be expensed at their fair value and supersedes APB Opinion No.
25
and SFAS No. 123, which allowed companies to use the intrinsic value method.
Through December 2005, Cleco utilized the intrinsic value method as described
in
APB Opinion No. 25. SFAS No. 123(R) also prohibits reversing previously
recognized stock-based compensation expense if the forfeiture of the instruments
was due to the failure of a market-based performance measure. Most of Cleco’s
stock-based compensation plans contain market-based performance measures. The
adoption of SFAS No. 123(R) reduced Cleco’s consolidated income from continuing
operations before income taxes and net income for 2006 by $4.1 million ($0.08
and $0.07 per basic and diluted share, respectively) and $2.5 million ($0.05
per
basic and diluted share), respectively. The adoption of SFAS No. 123(R) reduced
Cleco Power’s income before income taxes and net income for 2006 by $2.0 million
and $1.2 million, respectively. Prior to the adoption of SFAS No. 123(R), Cleco
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presented
all tax benefits of deductions resulting from the exercise of stock options
as
operating cash flows on Cleco Corporation’s Consolidated Statements of Cash
Flows. SFAS No. 123(R) requires the cash flow resulting from the tax deductions
in excess of the compensation cost recognized for those options to be classified
as financing cash flows. The actual tax benefits realized for the tax deductions
from options exercised for 2006 was $0.3 million. In connection with
implementation, Cleco made the following accounting policy choices from those
allowed by the statement.
§ |
Cleco
chose the modified prospective method of transition, which requires
a
company to prospectively recognize compensation expense calculated
pursuant to SFAS No. 123(R) for all non-vested stock-based compensation
outstanding on the date of
adoption.
|
§ |
Cleco
chose the straight-line basis over the requisite service period to
recognize expense for instruments with graded
vesting.
|
§ |
Cleco
chose the short-cut method to calculate its pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to
adoption.
|
§ |
Cleco
chose to include the impact of pro forma deferred tax assets (the
“as-if”
method) to determine the potential windfall tax benefits or shortfalls
for
purposes of calculating the assumed proceeds under the treasury stock
method in the calculation of diluted earnings per
share.
|
For
additional information concerning Cleco’s stock-based compensation, see Note 7 —
“Common Stock — Stock-Based Compensation.”
In
September 2005, the FASB ratified EITF No. 04-13, which provides guidance on
accounting for purchases and sales of inventory with the same counterparty.
If
certain criteria
are
met, purchases and sales of inventory with the same counterparty should be
accounted for at fair value as required by APB Opinion No. 29. Entities are
required to apply this EITF to new arrangements entered into during reporting
periods beginning after March 15, 2006. The adoption of this EITF had no impact
on the financial condition or the results of operations of the
Registrants.
In
February 2006, the FASB issued SFAS No. 155 which amends SFAS No. 133 and SFAS
No. 140. The provisions of this statement:
§ |
permit
fair value accounting for hybrid financial instruments that contain
an
embedded derivative that otherwise would require
bifurcation;
|
§ |
clarify
the exemption from SFAS No. 133 for certain interest-only and
principal-only strips;
|
§ |
establish
a requirement to evaluate interests in securitized financial assets
that
contain an embedded derivative requiring
bifurcation;
|
§ |
clarify
that concentrations of credit risk in the form of subordination are
not
embedded derivatives; and
|
§ |
amend
SFAS No. 140 as it relates to qualifying special-purpose entities
and
derivative financial instruments.
|
This
statement is effective for all financial instruments acquired,
issued or subject to a remeasurement event occurring after the beginning of
an
entity’s first fiscal year that begins after September 15, 2006. Upon adoption
on January 1, 2007, SFAS No. 155 did not have an impact on the financial
condition or results of operations of the Registrants.
In
March
2006, the
FASB
issued SFAS No. 156 which amends SFAS No. 140 with respect to the accounting
for
separately recognized servicing assets and liabilities. This statement requires
all separately recognized servicing assets and liabilities to be initially
measured at fair value, requires fair value accounting for derivative
instruments used to mitigate risks of the servicing assets and liabilities,
and
allows for the election to use fair value accounting for the servicing assets
and liabilities in subsequent periods. SFAS No. 156 is effective for the first
fiscal year beginning after September 15, 2006. Upon adoption on January 1,
2007, SFAS No. 156 did not have an impact on the financial condition or results
of operations of the Registrants.
In
April
2006, FASB issued FSP No. FIN 46R-6 which clarifies that preparers should use
a
“by design” approach for determining whether an interest is variable when
applying FIN 46R. This “by design” approach includes evaluating whether an
interest is variable based on a thorough understanding of the design of the
potential variable interest entity, including the nature of the risks that
the
potential variable interest entity was designed to create and pass along to
interest holders in the entity. This FSP also provides guidance in analyzing
the
design of a potential variable interest entity to determine whether variability
exists. This FSP is effective prospectively for all entities previously required
to be analyzed under FIN 46R when a reconsideration event has occurred beginning
the first day of the first reporting period after June 15, 2006, and
prospectively for the initial analysis of all entities. The implementation
of
this FSP had no impact on the financial condition or the results of operations
of the Registrants.
In
June
2006, the FASB ratified EITF No. 06-3, which requires a company to disclose
its
accounting policy regarding the presentation of sales taxes and other similar
taxes which are collected by an entity and remitted to a taxing authority.
A
company using the gross method reports revenue and an offsetting expense,
whereas a company using the net method does not report such taxes as revenue
and
expense but instead reports them directly as a liability. If the gross method
is
used and the taxes included in gross revenue are significant, the company should
disclose the amount of such taxes for each period for which an income statement
is presented. Cleco uses the net presentation for sales and other similar taxes.
This EITF is effective for periods beginning after December 15, 2006. The
adoption of this EITF will have no impact on the financial condition or the
results of operations of the Registrants.
In
July
2006, the FASB issued FIN 48, which provides guidance on accounting for
uncertain tax positions. FIN 48 allows recognition of those tax benefits that
satisfy a greater than 50% probability threshold. This interpretation requires
each tax position to be evaluated using a two-step process.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
first
step is a determination of the likelihood the position will be sustained upon
examination based upon the technical merits of the position. For tax positions
that result from permanent differences between book and tax income, the company
must evaluate the likelihood that the position will be sustained to determine
whether a tax benefit can be recognized. Once it is determined that a tax
benefit can be recognized, the second step is to measure and record the tax
benefit to be realized. For tax positions that do not meet the requirements
of
the first step, no tax benefit should be recognized. This interpretation also
provides for the recognition and measurement of expected penalties and interest,
as well as disclosure requirements about tax positions. This interpretation
is
effective for fiscal years beginning after December 15, 2006. The adoption
of
FIN 48 on January 1, 2007, had no material impact on the financial condition
or
results of operations of the Registrants.
In
September 2006, the FASB ratified the consensus in EITF No. 06-4, which
stipulates that the agreement by an employer to share a portion of the proceeds
of a life insurance policy with an employee during the postretirement period
is
a postretirement benefit arrangement that must be accounted for under SFAS
No.
106 or APB Opinion No. 12. A liability for the postretirement obligation must
be
recorded under SFAS No. 106 if the benefit is offered under an arrangement
that
constitutes a plan or under APB Opinion No. 12 if it is not part of a plan.
This
EITF is effective for fiscal years beginning after December 15, 2007. Management
currently is evaluating the impact this EITF will have on the financial
condition and results of operations of the Registrants.
In
September 2006, the FASB ratified the consensus in EITF No. 06-5, which requires
an entity that holds life insurance policies with cash surrender values to
record the cash surrender values considering all restrictions and reductions.
This EITF is effective for fiscal years beginning after December 15, 2006.
The
implementation of this EITF will have no effect on Cleco since the life
insurance policies held by Cleco do not contain any restrictions or reductions
to the cash surrender value.
In
September 2006, the FASB issued SFAS No. 157, which provides guidance on how
companies should measure fair value when required for recognition or disclosure
purposes under generally accepted accounting principles (GAAP). Specifically,
SFAS No. 157 creates a common definition of fair value throughout GAAP,
establishes a fair value hierarchy, and requires companies to make expanded
disclosures about fair value measurements. This statement is effective for
fiscal years beginning after November 15, 2007. Management currently is
evaluating the impact this statement will have on the financial condition and
results of operations of the Registrants.
In
September 2006, the FASB issued SFAS No. 158, which requires companies to
recognize the funded status of a company’s postretirement benefit plans as a net
liability or asset. The net liability or asset is defined as the difference
between the benefit obligation and the fair market value of plan assets. For
defined benefit pension plans, the benefit obligation is the projected benefit
obligation, whereas for other plans, the benefit obligation is the accumulated
postretirement benefit obligation. Generally, net actuarial gains/losses, prior
period service costs and transition obligations/assets become a component of
accumulated other comprehensive income, net of income tax, in shareholders’
equity. Due to the structure of Cleco’s qualified defined benefit pension plan
and the provisions of SFAS No. 71, the amounts that generally would have been
recognized in accumulated other comprehensive income were instead recognized
as
a regulatory asset. The statement also amends the disclosure requirements for
annual financial statements. For a public company, provisions of the statement
are required to be adopted as of the end of the fiscal year ending after
December 15, 2006, on a prospective basis. For disclosure on the adoption of
SFAS No.158, see Note 9 — “Pension Plan and Employee Benefits.” SFAS No. 158
also requires companies to set their measurement date to correspond with their
fiscal year end, eliminating the option to use an earlier measurement date.
The
measurement date provision is effective for fiscal years ending after December
15, 2008. Cleco’s measurement date currently is the same as its fiscal year end;
therefore, the measurement date provision will have no impact on the
Registrants.
In
September 2006, the SEC released SAB No. 108, which provides interpretive
guidance on how registrants should quantify financial statement misstatements.
Previously, the two methods most commonly used to quantify misstatements are
the
“rollover” method, which primarily focuses on the income statement impact of
misstatements, and the “iron curtain” method, which primarily focuses on the
balance sheet impact of misstatements. Under SAB No.108, registrants are advised
to consider both the rollover and iron curtain methods, which is considered
a
dual approach, when evaluating financial statement errors. SAB No. 108 provides
transition accounting and disclosure guidance for registrants that conclude
that
a material error existed in prior-period financial statements under the dual
approach. Specifically, registrants will be permitted to restate prior period
financial statements or recognize the cumulative effect of initially applying
SAB No. 108 through an adjustment to beginning retained earnings in the year
of
adoption. SAB No. 108 is effective for annual financial statements covering
the
first fiscal year ending after November 15, 2006. The adoption of SAB No. 108
had no impact on the financial condition or results of operations of the
Registrants.
FASB
has
issued FSP SFAS 123(R)-5, which amends FSP SFAS 123(R)-1, to
clarify that when an instrument held by an individual that is no longer an
employee is modified or exchanged in connection with an equity restructuring
or
business combination, the instrument would still be subject to the recognition
and measurement provisions of SFAS No. 123(R), if certain criteria are met.
The
provisions of FSP SFAS 123(R)-5 should be applied in a company’s first reporting
period beginning after October 10, 2006. The adoption of this FSP had no
impact
on the financial condition or results of operations of the
Registrants.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
FASB
has
issued FSP SFAS 123(R)-6 to make technical corrections to SFAS No. 123(R).
The
amendments included in the FSP are:
§ |
To
exempt nonpublic entities from disclosing the aggregate intrinsic
value of
outstanding fully vested share options (or share units) and share
options
expected to vest.
|
§ |
To
amend the guidance in Illustration 4(b) to revise computation
of the minimum compensation cost that must be
recognized.
|
§ |
To
amend Illustration 13(e) to indicate that at the date that the
illustrative awards were no longer probable of vesting, any previously
recognized compensation cost should have been
reversed.
|
§ |
To
revise the definition of short-term inducement to exclude an offer
to
settle an award.
|
The
provisions of FSP SFAS 123(R)-6 should be applied in a company’s
first reporting period beginning after October 20, 2006. The adoption of this
FSP had no impact on the financial condition or results of operations of the
Registrants.
Earnings
per Average Common Share
Earnings
per share
is
calculated utilizing the “two-class” method by dividing earnings allocated to
holders of common stock by the weighted average number of shares of common
stock
outstanding during the period. The following table shows the calculation of
basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDING DECEMBER 31, |
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
2004
|
|
(THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
|
INCOME
|
|
SHARES
|
|
PER
SHARE
AMOUNT
|
|
INCOME
|
|
SHARES
|
|
PER
SHARE
AMOUNT
|
|
INCOME
|
|
SHARES
|
|
PER
SHARE
AMOUNT
|
|
Net
income
from continuing operations
|
$
|
74,670
|
|
|
|
|
|
|
|
$
|
182,978
|
|
|
|
|
|
|
|
$
|
66,119
|
|
|
|
|
|
|
|
Deduct:
non-participating stock dividends
(4.5%
preferred stock)
|
|
46
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
Deduct:
participating preferred stock dividends
|
|
1,689
|
|
|
|
|
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
2,293
|
|
|
|
|
|
|
|
Deduct:
amount allocated to participating preferred
|
|
908
|
|
|
|
|
|
|
|
|
5,410
|
|
|
|
|
|
|
|
|
951
|
|
|
|
|
|
|
|
Basic
earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
from continuing operations
available
to common shareholders
|
$
|
72,027
|
|
|
|
|
$
|
1.36
|
|
$
|
175,687
|
|
|
|
|
$
|
3.54
|
|
$
|
62,829
|
|
|
|
|
$
|
1.33
|
|
Deduct:
amount allocated to participating preferred
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
(Loss)
income from discontinued operations
|
|
(79
|
)
|
|
|
|
|
-
|
|
|
(334
|
)
|
|
|
|
|
-
|
|
|
70
|
|
|
|
|
|
-
|
|
Total
basic net income applicable to common stock
|
$
|
71,948
|
|
|
52,751,021
|
|
$
|
1.36
|
|
$
|
175,353
|
|
|
49,486,790
|
|
$
|
3.54
|
|
$
|
62,896
|
|
|
47,371,319
|
|
$
|
1.33
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
stock
option grants
|
|
-
|
|
|
136,308
|
|
|
|
|
|
-
|
|
|
94,360
|
|
|
|
|
|
-
|
|
|
38,219
|
|
|
|
|
Add:
restricted
stock (LTICP)
|
|
36
|
|
|
255,804
|
|
|
|
|
|
-
|
|
|
137,586
|
|
|
|
|
|
-
|
|
|
119,348
|
|
|
|
|
Add:
convertible ESOP preferred stock
|
|
2,596
|
|
|
1,885,078
|
|
|
|
|
|
7,245
|
|
|
2,041,484
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
from continuing operations available to common shareholders plus
assumed
conversions
|
$
|
74,659
|
|
|
|
|
$
|
1.36
|
|
$
|
182,932
|
|
|
|
|
$
|
3.53
|
|
$
|
62,829
|
|
|
|
|
$
|
1.32
|
|
Deduct:
amount allocated to participating preferred
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
(Loss)
income from discontinued operations
|
|
(79
|
)
|
|
|
|
|
-
|
|
|
(334
|
)
|
|
|
|
|
-
|
|
|
70
|
|
|
|
|
|
-
|
|
Total
diluted net income applicable to common stock
|
$
|
74,580
|
|
|
55,028,211
|
|
$
|
1.36
|
|
$
|
182,598
|
|
|
51,760,220
|
|
$
|
3.53
|
|
$
|
62,896
|
|
|
47,528,886
|
|
$
|
1.32
|
|
Stock
option grants for 2006, 2005, and 2004 excluded from the computation of diluted
earnings per share are presented
in the table below. The stock option grants from the 2006, 2005, and 2004 were
excluded from the computation of diluted earnings per share because they had
exercise prices higher than the average market price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2004
|
|
STRIKE
PRICE
|
AVERAGE
MARKET
PRICE
|
SHARES
|
|
STRIKE
PRICE
|
AVERAGE
MARKET
PRICE
|
SHARES
|
|
STRIKE
PRICE
|
AVERAGE
MARKET
PRICE
|
SHARES
|
Stock
option grants excluded
|
$24.00
- $24.25
|
$23.62
|
66,600
|
|
$21.88
- $24.25
|
$21.36
|
331,968
|
|
$18.44
- $24.25
|
$18.29
|
899,002
|
Stock-Based
Compensation
For
information on Cleco’s stock-based compensation, see Note 7 — “Common Stock —
Stock-Based Compensation.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Note
3 — Regulatory Assets and Liabilities
Cleco
Power follows SFAS No. 71, which allows utilities to capitalize or defer
certain costs based on regulatory approval and management’s ongoing assessment
that it is probable these items will be recovered through the ratemaking
process.
Pursuant
to SFAS No. 71, Cleco Power has recorded regulatory
assets and liabilities primarily for extraordinary storm restoration costs,
the
effects of income taxes, and unrecovered fuel and purchased power costs. In
addition, Cleco Power has recorded regulatory assets for deferred mining costs,
interest costs, estimated future asset removal costs, postretirement plan costs,
fuel and energy purchases, and related hedging gains and losses, and has
recorded regulatory liabilities for fuel transportation revenue and recovered
construction carrying costs, as a result of rate actions of
regulators.
The
deferred storm restoration costs, deferred mining costs, deferred interest
costs, postretirement plan costs, and the deferred asset removal costs are
presented in the line items entitled “Regulatory Assets — Other,” the deferred
fuel and purchased power costs and related hedging gains and losses are
presented on the line item entitled “Accumulated Deferred Fuel,” the deferred
fuel transportation revenue is presented on the line items entitled “Regulatory
Liabilities — Other,” and the deferred construction carrying costs are presented
on the line item entitled “Other Deferred Credits” on the Cleco Corporation
Consolidated and Cleco Power Balance Sheets. Under the current regulatory
environment, Cleco Power believes these regulatory assets will be fully
recoverable; however, if in the future, as a result of regulatory changes or
increased competition, Cleco Power’s ability to recover these regulatory assets
would no longer be probable, then to the extent that such regulatory assets
were
determined not to be recoverable, Cleco Power would be required to write-down
such assets. In addition, potential deregulation of the industry or possible
future changes in the method of rate regulation of Cleco Power could require
discontinuance of the application of SFAS No. 71. Cleco Power does not earn
a
return on these regulatory assets through current rates, but is collecting
carrying costs on the outstanding deferred costs relating to Hurricanes Katrina
and Rita and deferred fuel and purchased power.
The
following chart summarizes Cleco Power’s regulatory assets and liabilities at
December 31, 2006, and 2005:
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
REMAINING
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
RECOVERY
PERIOD
|
|
Depreciation
|
|
$
|
22,446
|
|
$
|
24,339
|
|
|
|
|
Asset
basis differences
|
|
|
448
|
|
|
729
|
|
|
|
|
Prior
years flowthrough
|
|
|
7,956
|
|
|
8,393
|
|
|
|
|
Total
federal regulatory asset — SFAS
No. 109
|
|
|
30,850
|
|
|
33,461
|
|
|
|
|
Depreciation
|
|
|
21,763
|
|
|
22,666
|
|
|
|
|
Asset
basis differences
|
|
|
7,922
|
|
|
5,486
|
|
|
|
|
Prior
years flowthrough
|
|
|
790
|
|
|
834
|
|
|
|
|
Nonplant
|
|
|
3,108
|
|
|
4,935
|
|
|
|
|
Total
state regulatory asset — SFAS
No. 109
|
|
|
33,583
|
|
|
33,921
|
|
|
|
|
Total
AFUDC
|
|
|
38,241
|
|
|
32,471
|
|
|
|
|
Total
investment tax credit
|
|
|
(8,021
|
)
|
|
(8,893
|
)
|
|
|
|
Total
regulatory assets and liabilities
— deferred taxes, net
|
|
|
94,653
|
|
|
90,960
|
|
|
|
|
Deferred
mining costs
|
|
|
20,096
|
|
|
15,123
|
|
|
5
yrs.
|
|
Deferred
storm restoration costs —
Lili/Isidore
|
|
|
2,772
|
|
|
4,158
|
|
|
2
yrs.
|
|
Deferred
storm restoration costs — Katrina/Rita
|
|
|
138,935
|
|
|
25,006
|
|
|
9
yrs.
|
|
Deferred
interest costs
|
|
|
8,430
|
|
|
8,700
|
|
|
32
yrs.
|
|
Deferred
asset removal costs
|
|
|
562
|
|
|
452
|
|
|
43
yrs.
|
|
Deferred
postretirement plan costs
|
|
|
38,719
|
|
|
-
|
|
|
-
|
|
Total
regulatory assets - other
|
|
|
209,514
|
|
|
53,439
|
|
|
|
|
Deferred
fuel transportation
revenue
|
|
|
(1,566
|
)
|
|
(635
|
)
|
|
3
yrs.
|
|
Deferred
construction carrying costs
|
|
|
(4,896
|
)
|
|
-
|
|
|
-
|
|
Deferred
fuel and purchased power
|
|
|
77,438
|
|
|
23,165
|
|
|
-
|
|
Total
regulatory assets and liabilities,
net
|
|
$
|
375,143
|
|
$
|
166,929
|
|
|
|
|
Deferred
Taxes
At
December 31, 2006,
and
2005, Cleco Power had recorded $94.7 million and $91.0 million, respectively,
of
SFAS No. 109 net regulatory assets related to probable future taxes payable
that
will be recovered from customers through future rates. Amounts recorded as
regulatory assets are partially offset by deferred tax liabilities resulting
from the regulatory requirement to flow through the current tax benefits to
customers of certain accelerated deductions that are recovered from customers
as
they are paid. The recovery periods for regulatory assets and liabilities are
based on assets’ lives, which are typically 30 years or greater. The amounts
deferred are attributable to differences between book and tax recovery
periods.
Deferred
Mining Costs
Cleco
Power operates a generating unit, jointly owned with other utilities, primarily
SWEPCO, that uses lignite as its fuel source.
In
May
2001, Cleco Power signed a lignite contract with the miner at the Dolet Hills
mine.
As
ordered by the LPSC in dockets U-21453, U-20925(SC), and U-22092(SC) (Subdocket
G), retail ratepayers are receiving fuel cost savings equal to at least 2%
of
the projected costs under the previous mining contract through 2011. Costs
above
98% of the previous contract’s projected mining costs (the benchmark price) are
deferred. Deferred costs will be recovered from retail customers
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
through
the fuel adjustment clause when the actual mining costs under the new contract
are below 98% of the projected costs of the previous contract. As of December
31, 2006, and 2005, Cleco Power had remaining deferred costs and interest
relating to its lignite mining contract of $20.1 million and $15.1 million,
respectively.
The
benchmark price uses the GDP-IPD index as a proxy for the numerous escalators
in
the previous contract. However, the GDP-IPD index does not appropriately reflect
the increase in mining costs caused by the sharp increases in diesel fuel and
electricity costs associated with the mining operation. Because of this
disconnect between the GDP-IPD index and actual mining costs, Cleco Power
recognizes that there is a possibility it may not be able to recover all or
part
of the lignite mining costs currently deferred.
In
November 2006, Cleco Power and SWEPCO submitted a joint application to the
LPSC
requesting an amendment to the LPSC order, allowing Cleco Power to recover
its
existing deferral balance, and eliminate any future use of a benchmarking price.
Cleco Power requested a decision on this application be made within the first
quarter of 2007. The application was docketed by the LPSC, and Cleco Power
and
SWEPCO filed testimony in support of the application on January 29, 2007. Cleco
Power expects a favorable response to its request, and current and future
deferrals are expected to be collected. It is anticipated the LPSC Staff will
finalize its review of this information and issue a recommendation during the
second quarter of 2007.
If
this
request is not granted, Cleco Power could be required to recognize an expense
for future amounts instead of deferring them. Cleco Power also could be required
to expense a portion of the current deferred amount.
Deferred
Storm Restoration Costs
Cleco
Power incurred approximately $29.0
million of storm restoration costs, primarily during the fourth quarter of
2002,
to replace utility poles and conductors damaged by Tropical Storm Isidore and
Hurricane Lili. According to an agreement with the LPSC, approximately $8.2
million of these restoration costs were recorded as a regulatory asset ($7.0
million in 2002 and $1.2 million in 2003) and are being amortized to maintenance
expense over the six-year period which began in January 2003. The balance
deferred at December 31, 2006, and 2005, was $2.8 million and $4.2 million,
respectively.
In
late
August and September 2005, Cleco Power’s distribution
and transmission systems sustained substantial damage from Hurricanes Katrina
and Rita.
At
December 31, 2005, Cleco Power deferred $25.0 million of repair-related storm
restoration costs related to Hurricanes Katrina and Rita as a regulatory asset
with the approval of the LPSC. Additional costs totaling $126.3 million were
recorded either as additions to property, plant and equipment ($115.5 million),
offset against a reserve for storm damage ($4.4 million), or expensed ($6.4
million).
In
November 2005, Cleco Power filed an application with the LPSC for the recovery
in rates of the costs associated with the restoration of service to Cleco
Power’s customers resulting from Hurricanes Katrina and Rita. On February 22,
2006, the LPSC approved an interim rate increase of $23.4 million annually
for a
ten-year period to recover approximately $161.8 million of estimated storm
restoration costs. The interim rate increase became effective in May 2006 and
remains in effect until the LPSC completes a review to verify and approve the
total amount of storm restoration costs to be recovered (Phase II). As a result
of this action by the LPSC, Cleco Power transferred to individual regulatory
asset accounts the storm restoration costs for Hurricanes Katrina and Rita
disclosed above that previously were charged to property, plant and equipment,
and expense.
At
December 31, 2006, Cleco Power had recorded a regulatory asset of $138.9 million
representing costs to repair or replace property damaged by Hurricanes Katrina
and Rita. These deferred storm-related amounts are being amortized to expense
based on the amounts collected monthly from customers through a surcharge.
For
the twelve-month period ended December 31, 2006, Cleco Power has recovered
$16.3
million through this surcharge. For the twelve-month period ended December
31,
2006, Cleco Power has amortized $11.9 million of storm-related costs to expense
for Hurricanes Katrina and Rita. The difference between the recovery amount
and
the amortization is the carrying costs related to the unamortized storm
restoration costs.
On
February 21, 2007, as a result of Phase II of the LPSC Staff’s review of storm
restoration costs, Cleco Power and the LPSC Staff signed a settlement term
sheet
allowing the recovery and securitization of essentially all of Cleco Power’s
Hurricane Katrina and Rita storm costs. For information concerning this
agreement, see Note 24 — “Subsequent Events — Storm Cost Recovery.”
Deferred
Interest Costs
Cleco
Power’s deferred
interest costs include additional deferred capital construction financing costs
authorized by the LPSC. At December 31, 2006, and 2005, these costs totaled
$8.4
million
and $8.7 million, respectively, and are being amortized over the estimated
lives
of the respective assets constructed.
Deferred
Asset Removal Costs
Under
SFAS No. 143, Cleco Power determined that a liability
exists for cleanup and closing costs of solid waste facilities associated with
its generating stations that use lignite and coal for fuel. Applying FIN 47,
Cleco Power determined that a liability exists for costs which may be incurred
in the future for removal of asbestos from its general service buildings, the
removal of transmission towers on leased rights-of-way and for the abatement
of
Polychlorinated Biphenyls (PCB) in transformers.
Due
to
the remote probability that the site used by Cleco Power’s generating station
utilizing coal for fuel would be retired
and the plan to construct another unit at the site, a liability under FIN 47
was
not recorded. Under FIN 47, Cleco Power did not recognize an obligation for
the
costs of removing transmission towers on leased rights-of-way because of
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
the
indeterminate life of these assets. PCBs were common in transformers purchased
before 1976. During the 30 years since then, most of the transformers containing
PCBs either have been replaced or, during routine maintenance, have been
remediated. The liability on remaining pre-1976 transformers is considered
immaterial to Cleco Power.
At
December 31, 2006 and 2005, the liability for solid waste facility closure
costs
at the generating station using lignite is estimated at $0.4 million and is
included in other deferred credits. At December 31, 2006, and 2005, Cleco
Power’s liability for removal of asbestos is estimated at $0.2 million and $0.1
million, respectively, and also is included in other deferred credits. At the
adoption of FIN 47, Cleco Power’s ARO liability at January 1, 2005, was $0.5
million.
Under
SFAS No. 143, the ARO liability recorded is accreted to its present value each
accounting period, and the ARO asset is depreciated. Cleco Power defers the
accretion and depreciation expense as a regulatory asset based on its
determination that these costs can be collected from customers. At December
31,
2006, and 2005, Cleco Power’s regulatory assets relating to AROs totaled $0.6
million and $0.5 million, respectively, and is equal to the sum of the
accumulated accretion of the ARO liability and the accumulated depreciation
on
the ARO assets. The sum of the yearly accretion expense and depreciation expense
is less than $0.1 million.
Prior
to
the adoption of SFAS No. 143, Cleco Power did not recover in rates any
allowances for closure costs for any assets in use or retired and has not
recognized any additional depreciation or utilized depreciation rates that
include a negative salvage component.
Deferred
Postretirement Plan Costs
On
December 31, 2006, Cleco adopted SFAS No. 158, which requires companies to
recognize the funded status of their postretirement benefit plans as a net
liability or asset. The net liability or asset is defined as the difference
between the benefit
obligation and the fair market value of plan assets. For defined benefit pension
plans, the benefit obligation is the projected benefit obligation. Since Cleco
Power is considered the plan sponsor, at December 31, 2006, Cleco Power
recognized a change in net pension plan liability of $38.7 million.
Historically, the LPSC has allowed Cleco Power to recover pension plan expense.
Cleco Power, therefore, recorded the $38.7 million as a regulatory asset based
on its determination that these costs can be collected from customers. The
amount and timing of the recovery will be based on the changing funded status
of
the pension plan in future periods. For additional information on Cleco’s
pension plan and adoption of SFAS No. 158, see Note 9 — “Pension Plan and
Employee Benefits.”
Deferred
Fuel
Transportation Revenue
In
June
2003, pipeline assets owned by a Cleco Power affiliate,
providing transportation of fuel to two Cleco Power generating stations, were
sold to Cleco Power. Prior to June 2003, the expenses associated with the
pipeline assets were recovered from customers through Cleco Power’s fuel
adjustment clause, since these expenses were billed to Cleco Power by the
affiliate energy company. Rather than prepare a formal rate filing requesting
recovery of the pipeline assets’ cost, in March 2005, Cleco Power requested and
the LPSC authorized Cleco Power to recover the cost of the assets until Cleco
Power’s next base rate case. Cleco Power recorded a regulatory liability
representing the estimated amount of revenue to be collected from customers
through
October 2009,
when
the current RSP is estimated to expire. The balance deferred at December 31,
2006, was
$1.6
million.
Deferred
Construction Carrying Costs
In
February 2006, the LPSC approved Cleco Power’s plans to build Rodemacher Unit 3.
Terms of the approval included acceptance of an LPSC Staff recommendation that
Cleco Power collect from customers an amount equal to 75% of the LPSC
jurisdictional portion of the carrying costs of capital during the construction
phase of the unit. In any calendar year during the construction period, the
amount collected from customers is not to
exceed
6.5% of Cleco Power’s projected retail revenues. Cleco Power began collection of
the carrying costs in May 2006. For the twelve-month period ended December
31,
2006, Cleco Power has collected $4.9 million. A regulatory liability was
established for the carrying costs due to the terms of the LPSC order which
requires Cleco Power, as part of its next base rate application to recover
Rodemacher Unit 3 ownership costs, to submit a plan to return to customers
the
carrying costs collected during the construction period.
Deferred
Fuel and Purchased Power Costs
The
cost
of fuel used for
electric generation and the cost of power purchased for utility customers are
recovered through the LPSC-established fuel adjustment clause, which enables
Cleco Power to pass on to its customers substantially all such charges. For
the
year 2006, approximately 96% of Cleco Power’s total fuel cost was regulated by
the LPSC, while the remainder was regulated by the FERC. Deferred fuel and
purchased power costs recorded at December 31, 2006, and 2005, were
under-recoveries of $77.4 million and $23.2 million, respectively, and are
scheduled to be collected from customers in future months. The $54.2 million
increase in the unrecovered costs was primarily the result of a $69.0 million
decrease in the market value of open natural gas hedge positions along with
a
$9.5 million loss in closed natural gas hedge positions, both due to declining
natural gas prices. The decrease and loss were partially offset by $24.3 million
in collections of previously deferred fuel and purchased power costs.
Note
4 — Jointly Owned Generation Units
Two
electric generation units operated by Cleco Power are jointly owned with other
utilities.
Cleco
Power recognized $85.6 million, $81.6 million, and $73.2 million as its
proportionate share of operation and maintenance expenses associated with these
two units, including fuel costs of $70.0 million, $67.6 million, and $60.3
million, during the years ended December 31, 2006, 2005, and 2004,
respectively.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
2006
|
(DOLLAR
AMOUNTS IN THOUSANDS)
|
RODEMACHER UNIT
#2
|
|
DOLET
HILLS
|
|
TOTAL
|
Ownership
|
30%
|
|
50%
|
|
|
Utility
plant in service
|
$85,843
|
|
$278,768
|
|
$364,611
|
Accumulated
depreciation
|
$60,670
|
|
$169,035
|
|
$229,705
|
Unit
capacity (MW)
|
523
|
|
650
|
|
|
Share
of capacity (MW)
|
157
|
|
325
|
|
|
Note
5 — Fair Value of Financial Instruments
The
amounts reflected in Cleco’s
and
Cleco Power’s Balance Sheets at December 31, 2006, and 2005, for cash and cash
equivalents, accounts receivable, accounts payable, and short-term debt
approximate fair value because of their short-term nature. Estimates of
the fair value of Cleco’s and Cleco Power’s long-term debt and Cleco’s
nonconvertible preferred stock are based upon the quoted market price for the
same or similar issues or by a discounted present value analysis of future
cash
flows using current rates obtained by Cleco and Cleco Power for debt and by
Cleco for preferred stock with similar maturities. Cleco’s convertible
preferred stock relates to establishment of the ESOP. The ESOP borrowed $30.0
million, and subsequently, Cleco Power purchased the loan. The amount of
the loan was directly offset by Cleco Power’s guarantee of the loan. The
fair value of Cleco’s convertible preferred stock is estimated assuming its
conversion into common stock at the market price per common share at December
31, 2006, and 2005, with proceeds from the sale of the common stock used to
repay the principal balance of Cleco Power’s loan to the ESOP. The loan
was repaid in full in July 2006. The estimated fair value of energy market
positions is based upon observed market prices when available. When such
market prices are not available, management estimates market value at a discrete
point in time by assessing market conditions and observed volatility.
These estimates are subjective in nature and involve uncertainties.
Therefore, actual results may differ from these estimates.
Cleco |
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
2006
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
|
CARRYING
VALUE
|
|
ESTIMATED
FAIR
VALUE
|
|
|
CARRYING
VALUE
|
|
ESTIMATED
FAIR
VALUE
|
|
Financial
instruments not marked-to-market
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
192,471
|
|
$
|
192,471
|
|
|
|
$
|
219,153
|
|
$
|
219,153
|
|
Long-term
debt
|
|
$
|
670,777
|
|
$
|
681,366
|
|
|
|
$
|
651,062
|
|
$
|
665,152
|
|
Preferred
stock not subject to mandatory redemption
|
|
$
|
20,092
|
|
$
|
46,906
|
|
|
|
$
|
20,034
|
|
$
|
40,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
|
ORIGINAL
VALUE
|
|
OTHER
UNREALIZED LOSSES DURING
THE
PERIOD
|
|
ESTIMATED
FAIR
VALUE
|
|
ORIGINAL
VALUE
|
|
OTHER
UNREALIZED GAINS(LOSSES) DURING THE PERIOD
|
|
ESTIMATED
FAIR
VALUE
|
|
Financial
instruments marked-to-market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Market Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
177,669
|
|
$
|
(1,902
|
)
|
$
|
179,571
|
|
$
|
12,799
|
|
$
|
(291
|
)
|
$
|
12,508
|
|
Liabilities
|
|
$
|
280,516
|
|
$
|
(57,487
|
)
|
$
|
223,029
|
|
$
|
95,973
|
|
$
|
15,300
|
|
$
|
111,273
|
|
Cleco
Power |
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
2006
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
|
CARRYING
VALUE
|
|
ESTIMATED
FAIR
VALUE
|
|
|
CARRYING
VALUE
|
|
ESTIMATED
FAIR
VALUE
|
|
Financial
instruments not marked-to-market
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
101,878
|
|
$
|
101,878
|
|
|
|
$
|
183,381
|
|
$
|
183,381
|
|
Long-term
debt
|
|
$
|
570,777
|
|
$
|
579,819
|
|
|
|
$
|
551,062
|
|
$
|
562,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
|
ORIGINAL
VALUE
|
|
OTHER
UNREALIZED LOSSES DURING
THE
PERIOD
|
|
ESTIMATED
FAIR
VALUE
|
|
ORIGINAL
VALUE
|
|
OTHER
UNREALIZED GAINS(LOSSES) DURING THE PERIOD
|
|
ESTIMATED
FAIR
VALUE
|
|
Financial
instruments marked-to-market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Market Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
177,669
|
|
$
|
(1,902
|
)
|
$
|
179,571
|
|
$
|
12,799
|
|
$
|
(291
|
)
|
$
|
12,508
|
|
Liabilities
|
|
$
|
280,516
|
|
$
|
(57,487
|
)
|
$
|
223,029
|
|
$
|
95,973
|
|
$
|
15,300
|
|
$
|
111,273
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
financial instruments not marked-to-market are reported on Cleco’s and Cleco
Power’s Balance Sheets at carrying value. The financial instruments
marked-to-market represent market risk recorded in the financial statements
because, to the extent Cleco and Cleco Power have an open position, they are
exposed to the risk that fluctuating market prices may adversely affect their
financial condition or results of operations upon settlement. Original
value represents the fair value of the positions at the time
originated.
At
December 31, 2006, Cleco and Cleco Power were exposed to concentration of credit
risk through their short-term investments classified as cash equivalents. Cleco
had $30.4 million in short-term investments in an institutional money market
fund and $59.9 million in agency obligations. If the money market funds or
agencies failed to perform under the terms of the investment, Cleco would be
exposed to a loss of the invested amounts. Cleco Power had $59.9 million in
short-term investments in several institutional money market funds and $39.0
million in commercial paper divided evenly among two issuers. If the money
market funds or the commercial paper issuers failed to perform under the terms
of the investments, Cleco Power would be exposed to a loss of the invested
amounts. Collateral on these types of investments is not required by either
Cleco or Cleco Power. In order to mitigate potential credit risk, Cleco and
Cleco Power have established guidelines for short-term investments. Money market
funds must have at least $1.0 billion in assets under management; must have
been
in existence for not less than two years; must have portfolios not comprised
of
more than 50% of securities issued by foreign entities and must be rated in
the
top two ratings categories by at least one nationally recognized rating agency.
Commercial paper must be issued by a company with headquarters in the U.S.
which
is rated not less than A1 by Standard & Poor’s or P1 by Moody’s. Investments
in commercial paper rated A2 by Standard & Poor’s or P2 by Moody’s may be
made if approved by the Treasurer, Senior Vice President - Financial Services
or
the President of the respective company.
Cleco
Power was exposed to concentration of credit risk through its energy marketing
assets. At December 31, 2006, Cleco Power had energy marketing assets with
an
estimated fair value of $179.6 million. These energy marketing assets represent
open natural gas purchase positions, primarily financial hedge transactions.
Cleco Power entered into these positions to mitigate the volatility in the
cost
of fuel purchased for utility generation and the risk associated with the
fixed-price power that is being provided to a wholesale customer through
December 2010. If the counterparties to these assets fail to perform under
the
terms of the investment, Cleco would be exposed to a loss of $179.6 million.
For
information about credit risk management on energy marketing assets, see Note
2
— “Summary of Significant Accounting Policies — Risk Management.”
Note
6 — Debt
Cleco
Cleco’s
total indebtedness as of December 31, 2006,
and
2005, was as follows:
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Cleco
Corporation’s senior notes, 7.00%, due 2008
|
|
$
|
100,000
|
|
$
|
100,000
|
|
Cleco
Power’s senior notes, 5.375%, due 2013
|
|
|
75,000
|
|
|
75,000
|
|
Cleco
Power’s senior notes, 4.95%, due 2015
|
|
|
50,000
|
|
|
50,000
|
|
Cleco
Power’s senior notes, 6.50%, due 2035
|
|
|
150,000
|
|
|
150,000
|
|
Cleco
Power’s pollution control revenue bonds, 5.875% due 2029, callable after
September 1, 2009
|
|
|
61,260
|
|
|
61,260
|
|
Cleco
Power’s solid waste disposal facility bonds, 4.70% due 2036, callable
after November 1, 2016
|
|
|
60,000
|
|
|
-
|
|
Total
bonds
|
|
|
496,260
|
|
|
436,260
|
|
Cleco
Power’s medium-term notes
|
|
|
|
|
|
|
|
6.20%,
due 2006
|
|
|
-
|
|
|
15,000
|
|
6.32%,
due 2006
|
|
|
-
|
|
|
15,000
|
|
6.95%,
due 2006
|
|
|
-
|
|
|
10,000
|
|
6.53%,
due 2007
|
|
|
10,000
|
|
|
10,000
|
|
7.00%,
due 2007
|
|
|
25,000
|
|
|
25,000
|
|
7.50%,
due 2007
|
|
|
15,000
|
|
|
15,000
|
|
6.52%,
due 2009
|
|
|
50,000
|
|
|
50,000
|
|
Total
medium-term notes
|
|
|
100,000
|
|
|
140,000
|
|
Cleco
Power’s insured quarterly notes
|
|
|
|
|
|
|
|
6.05%,
due 2012, callable after June 1, 2004
|
|
|
49,810
|
|
|
49,955
|
|
6.125%,
due 2017, callable after March 1, 2005
|
|
|
24,707
|
|
|
24,847
|
|
Total
insured quarterly notes
|
|
|
74,517
|
|
|
74,802
|
|
Capital
lease, ending January 1, 2011
|
|
|
452
|
|
|
544
|
|
Less:
|
|
|
|
|
|
|
|
Amount
due within one year
|
|
|
(102
|
)
|
|
(97
|
)
|
Capital
lease - long-term
|
|
|
350
|
|
|
447
|
|
Gross
amount of long-term debt
|
|
|
671,127
|
|
|
651,509
|
|
Less:
|
|
|
|
|
|
|
|
Amount
due within one year
|
|
|
(50,000
|
)
|
|
(40,000
|
)
|
Unamortized
premium and discount, net
|
|
|
(1,786
|
)
|
|
(1,866
|
)
|
Total
long-term debt, net
|
|
$
|
619,341
|
|
$
|
609,643
|
|
The
amounts payable under long-term debt agreements for each year through 2011
and
thereafter are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
THEREAFTER
|
|
Amounts
payable under long-term debt agreements
|
|
$
|
50,102
|
|
$
|
100,111
|
|
$
|
50,116
|
|
$
|
123
|
|
$
|
-
|
|
$
|
470,777
|
|
At
December 31, 2006, and 2005, Cleco had no outstanding
short-term debt. Cleco did have $50.0 million and $40.0 million of long-term
debt due within one year at December 31, 2006, and 2005,
respectively.
The
capital lease in the chart above is for mobile computers
with local area network capabilities. The lease term is for five years. The
mobile computers can be purchased at the end of the lease term. The lease
payments are due at the beginning of each month. The monthly lease payment
is
derived by multiplying the total acquisition costs by 1.92% for a full month
and
0.06% per day for a partial month.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
amounts payable under the capital lease agreement for the next five years are
listed below:
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Amounts
payable under the capital lease agreement
|
|
$
|
102
|
|
$
|
111
|
|
$
|
116
|
|
$
|
123
|
|
$
|
-
|
|
Cleco
Power
Cleco
Power’s total indebtedness as of December 31, 2006,
and
2005, was as follows:
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Senior
notes, 5.375%, due 2013
|
|
$
|
75,000
|
|
$
|
75,000
|
|
Senior
notes, 4.95%, due 2015
|
|
|
50,000
|
|
|
50,000
|
|
Senior
notes, 6.50%, due 2035
|
|
|
150,000
|
|
|
150,000
|
|
Pollution
control revenue bonds, 5.875%, due 2029, callable after September
1, 2009
|
|
|
61,260
|
|
|
61,260
|
|
Cleco
Power’s solid waste disposal facility bonds, 4.70% due 2036, callable
after November 1, 2016
|
|
|
60,000
|
|
|
-
|
|
Total
bonds
|
|
|
396,260
|
|
|
336,260
|
|
Medium-term
notes
|
|
|
|
|
|
|
|
6.20%,
due 2006
|
|
|
-
|
|
|
15,000
|
|
6.32%,
due 2006
|
|
|
-
|
|
|
15,000
|
|
6.95%,
due 2006
|
|
|
-
|
|
|
10,000
|
|
6.53%,
due 2007
|
|
|
10,000
|
|
|
10,000
|
|
7.00%,
due 2007
|
|
|
25,000
|
|
|
25,000
|
|
7.50%,
due 2007
|
|
|
15,000
|
|
|
15,000
|
|
6.52%,
due 2009
|
|
|
50,000
|
|
|
50,000
|
|
Total
medium-term notes
|
|
|
100,000
|
|
|
140,000
|
|
Insured
quarterly notes
|
|
|
|
|
|
|
|
6.05%,
due 2012, callable after June 1, 2004
|
|
|
49,810
|
|
|
49,955
|
|
6.125%,
due 2017, callable after March 1, 2005
|
|
|
24,707
|
|
|
24,847
|
|
Total
insured quarterly notes
|
|
|
74,517
|
|
|
74,802
|
|
Capital
lease, ending January 1, 2011
|
|
|
452
|
|
|
544
|
|
Less:
|
|
|
|
|
|
|
|
Amount
due within one year
|
|
|
(102
|
)
|
|
(97
|
)
|
Capital
lease - long-term
|
|
|
350
|
|
|
447
|
|
Gross
amount of long-term debt
|
|
|
571,127
|
|
|
551,509
|
|
Less:
|
|
|
|
|
|
|
|
Amount
due within one year
|
|
|
(50,000
|
)
|
|
(40,000
|
)
|
Unamortized
premium and discount,
net
|
|
|
(1,786
|
)
|
|
(1,866
|
)
|
Total
long-term debt, net
|
|
$
|
519,341
|
|
$
|
509,643
|
|
The
amounts payable under long-term debt agreements for each year through
2011
and
thereafter are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
THEREAFTER
|
|
Amounts
payable under long-term debt agreements
|
|
$
|
50,102
|
|
$
|
111
|
|
$
|
50,116
|
|
$
|
123
|
|
$
|
-
|
|
$
|
470,777
|
|
At
December 31, 2006,
and
2005, Cleco Power had no outstanding short-term debt. Cleco Power did have
$50.0
million and $40.0 million of long-term debt due within one year at December
31,
2006, and 2005, respectively.
On
June
21, 2006, Cleco Power paid at maturity $10.0 million
principal amount of 6.95% medium-term notes. On September 15, 2006, Cleco Power
paid at maturity $15.0 million of 6.20% medium-term notes and $15.0 million
of
6.32% medium-term notes. On November 21, 2006, the Rapides Finance Authority
issued $60.0 million of 4.70% solid waste disposal facility bonds due 2036,
callable after November 1, 2016. Cleco Power is obligated to pay the debt
service on such bonds.
The
capital lease in the chart above is for mobile computers with local area network
capabilities. The lease term is for five years. The mobile computers can be
purchased at the end of the lease term. The lease payments are due at the
beginning of each month. The monthly lease payment is derived by multiplying
the
total acquisition costs by 1.92% for a full month and 0.06% per day for a
partial month.
The
amounts payable under the capital lease agreement for the next five years are
listed below:
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Amounts
payable under the capital lease agreement
|
|
$
|
102
|
|
$
|
111
|
|
$
|
116
|
|
$
|
123
|
|
$
|
-
|
|
Credit
Facilities
Cleco
has
two separate revolving credit facilities,
one for
Cleco Corporation and one for Cleco Power, with a maximum aggregate capacity
of
$425.0 million.
Cleco
Corporation has a revolving five-year
credit facility with a maximum capacity of $150.0 million that matures in 2011.
Cleco Corporation’s borrowing costs under this facility are equal to LIBOR plus
0.65%, including facility fees. This facility provides for working capital
and
other needs. If Cleco Power defaults under the Cleco Power facility, then Cleco
Corporation would be considered in default under the Cleco Corporation facility.
At December 31, 2006, there were no outstanding draws under this credit
facility, and Cleco Corporation was in compliance with the covenants in this
credit facility. Off-balance sheet commitments entered into by Cleco Corporation
with third parties for certain types of transactions between those parties
and
Cleco’s subsidiaries, other than Cleco Power, reduce the amount of credit
available to Cleco Corporation under the facility by an amount equal to the
stated or determinable amount of the primary obligation. At December 31, 2006,
the $150.0 million of capacity was reduced by off-balance sheet commitments
of
$17.6, million leaving available capacity of $132.4 million. An uncommitted
line
of credit with a bank in an amount up to $10.0 million also is available to
support Cleco Corporation’s working capital needs. This line of credit also is
available to Cleco Power.
Cleco
Power has a revolving credit facility with a maximum capacity of $275.0 million
that matures in 2011. This facility provides for working capital and other
needs. Cleco Power’s borrowing cost under this facility is equal to LIBOR plus
0.40%, including facility fees. At December 31, 2006, there were no outstanding
draws under this credit facility, and Cleco Power was in compliance with the
covenants in this credit facility.
Interest
Rate Swaps
On
February 20, 2004,
and May
3, 2004, respectively, Cleco Corporation entered into two $50.0 million
fixed-to-floating interest rate swaps involving Cleco Corporation’s 8.75% Senior
Notes. Under the swaps, the 8.75% fixed-rate on its Senior Notes was swapped
for
floating rate exposure based on the
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
six-month
LIBOR on the last day of each calculation period, plus agreed upon spreads
of
6.615% and 6.03%, respectively, on the $50.0 million notional amounts associated
with each of the swaps. A net settlement amount was paid semi-annually on June
1
and December 1. The fixed-rate senior notes matured, and the interest rate
swaps
terminated on June 1, 2005. For the years ended December 31, 2005, and 2004,
Cleco Corporation paid the swap counterparty a net settlement amount of $0.6
million and $0.1 million, respectively. During 2006 and 2005, Cleco did not
enter into any interest rate swap transactions.
Note
7 — Common Stock
Stock-Based
Compensation
Effective
January 1, 2006, Cleco adopted the provisions of SFAS No. 123(R)
for
its share-based compensation plans. Cleco previously accounted for these plans
under APB Opinion No. 25 and related interpretations and provided disclosure
requirements established by SFAS No. 123. At December 31, 2006, Cleco had two
stock-based plans within the scope of SFAS No. 123(R): the ESPP and the LTICP.
Substantially all employees, excluding officers and general managers, may choose
to participate in the ESPP and purchase a limited amount of common stock at
a
discount through a stock option agreement. Options or restricted shares of
stock, known as non-vested stock as defined by SFAS No. 123(R), common stock
equivalents, and stock appreciation rights may be granted to certain officers,
key employees, or directors of Cleco Corporation and its subsidiaries pursuant
to the LTICP.
Under
APB
Opinion No. 25, no share-based employee compensation was reflected in
Cleco’s
income statement, other than for non-vested stock grants, as all compensatory
stock options granted had an exercise price equal to the fair market value
of
common stock on the date of grant, and ESPP options were considered
noncompensatory. However, Cleco disclosed a pro forma fair value expense, as
required by SFAS No. 123. The fair market value of non-vested stock was recorded
as compensation expense during the service periods, which is generally three
years, in which the restrictions lapse and if obtainment of vesting requirements
was probable. Under SFAS No. 123(R), all share-based compensation cost is
measured at the grant date, based on the fair value of the award, and is
recognized as an expense in the income statement over an employee’s requisite
service period, which is typically three years. Awards that vest pro rata during
the requisite service period that contain only a service condition could be
viewed not as one award, but instead as multiple awards with separate vesting
schedules and are defined as having a graded vesting schedule. As allowed by
SFAS No. 123(R), Cleco has elected to view grants with graded vesting schedules
as one award and recognize the related compensation expense on a straight-line
basis over the requisite service period. Effective January 1, 2006, the ESPP
was
amended and met the definition of a noncompensatory plan pursuant to SFAS No.
123(R). The ESPP’s discount rate is 5%, substantially all employees can
participate in the ESPP, and the plan does not contain optionality features
beyond those listed by SFAS No. 123(R). Cleco is not required to recognize
a
fair-value expense related to the ESPP.
Cleco
adopted SFAS No. 123(R) using the modified prospective method, which requires
compensation expense to be recorded for all non-vested options and non-vested
stock beginning in the first quarter of adoption. Under this transition method,
compensation cost recognized for the year ended December 31, 2006, includes
the
cost for all share-based payments granted prior to, but not yet vested, as
of
January 1, 2006. This cost was based on the grant-date fair value. The cost
for
all share-based awards granted subsequent to January 1, 2006, represents the
grant-date fair value. Results for prior periods have not been restated. Cleco
Corporation and Cleco Power reported pre-tax compensation expense for their
share-based compensation plans as shown in the following table:
|
|
|
|
|
|
|
|
CLECO
|
|
CLECO
POWER
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Equity
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
stock
|
|
$
|
2,246
|
|
$
|
4,455
|
|
$
|
1,125
|
|
$
|
1,118
|
|
$
|
1,667
|
|
$
|
66
|
|
Stock
options (1)
|
|
|
99
|
|
|
-
|
|
|
-
|
|
|
25
|
|
|
-
|
|
|
-
|
|
Non-forfeitable
dividends (1)
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
2,381
|
|
$
|
4,455
|
|
$
|
1,125
|
|
$
|
1,162
|
|
$
|
1,667
|
|
$
|
66
|
|
Liability
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock equivalent units
|
|
$
|
539
|
|
$
|
-
|
|
$
|
-
|
|
$
|
216
|
|
$
|
-
|
|
$
|
-
|
|
Company
funded participants income tax obligations
|
|
|
1,158
|
|
|
2,014
|
|
|
1,030
|
|
|
613
|
|
|
740
|
|
|
193
|
|
Total
|
|
$
|
1,697
|
|
$
|
2,014
|
|
$
|
1,030
|
|
$
|
829
|
|
$
|
740
|
|
$
|
193
|
|
Total
pre-tax compensation expense
|
|
$
|
4,078
|
|
$
|
6,469
|
|
$
|
2,155
|
|
$
|
1,991
|
|
$
|
2,407
|
|
$
|
259
|
|
Tax
benefit (excluding income tax gross-up)
|
|
$
|
1,123
|
|
$
|
1,714
|
|
$
|
433
|
|
$
|
530
|
|
$
|
641
|
|
$
|
25
|
|
(1)For
the year ended December 31, 2006, compensation expense charged against
income for the first time for non-forfeitable dividends paid on non-vested
stock not expected to vest and stock options was $0.1
million.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Net
income and net income per common share for Cleco and net income for Cleco Power
would approximate the pro forma amounts shown in the following table, if the
compensation expense for these plans was recognized in compliance with SFAS
No.
123 in 2005 and 2004, prior to the adoption of SFAS No. 123(R). The income
tax
gross-up related to the shares of non-vested stock granted under the LTICP
is
not included in the pro forma amounts as shown below, since its treatment was
the same under APB Opinion No. 25 and SFAS No. 123.
Cleco |
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
(THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
|
|
|
2005
|
|
2004
|
|
Net
income applicable to common stock, as reported
|
|
|
|
$
|
180,779
|
|
$
|
63,973
|
|
Add:
stock-based
employee compensation expense recognized and included in reported
net
income applicable to common stock, net of related tax
effects
|
|
|
|
|
2,741
|
|
|
707
|
|
Deduct:
total
stock-based employee compensation expense determined under fair value
based method of all awards, net of related tax effects
|
|
|
|
|
2,616
|
|
|
2,693
|
|
Pro
forma net income applicable to common stock
|
|
|
|
$
|
180,904
|
|
$
|
61,987
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
|
|
$
|
3.54
|
|
$
|
1.33
|
|
Basic
- pro forma
|
|
|
|
$
|
3.55
|
|
$
|
1.29
|
|
Diluted
- as reported
|
|
|
|
$
|
3.53
|
|
$
|
1.32
|
|
Diluted
- pro forma
|
|
|
|
$
|
3.53
|
|
$
|
1.28
|
|
Cleco
Power |
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
(THOUSANDS)
|
|
|
2005
|
|
2004
|
|
Net
income, as reported
|
|
|
|
$
|
59,081
|
|
$
|
52,202
|
|
Add:
stock-based
employee compensation expense recognized and included in reported
net
income, net of related tax effects
|
|
|
|
|
1,025
|
|
|
41
|
|
Deduct:
total
stock-based employee compensation expense determined under the fair
value
based method of all awards, net of related tax effects
|
|
|
|
|
1,271
|
|
|
892
|
|
Pro
forma net income
|
|
|
|
$
|
58,835
|
|
$
|
51,351
|
|
In
the
pro forma disclosures presented for periods prior to the adoption of SFAS No.
123(R),
Cleco did not disclose the amount of the stock-based compensation costs
capitalized in property, plant and equipment. As required by SFAS No. 123(R),
the amount of stock-based compensation capitalized in property, plant and
equipment for the year ended December 31, 2006, was $0.7 million.
Cash
received from options exercised under all share-based compensation plans for
the
year ended December 31, 2006, was $3.5 million. No cash was paid to settle
equity instruments granted under the share-based compensation plans for the
year
ended December 31, 2006.
Share-Based
Plan Descriptions and Share Information
Stock
Options
LTICP
stock options
may be granted to certain officers, key employees, or directors of Cleco. The
directors’ stock options have an exercise price calculated by averaging the high
and low stock price on the grant date rounded to the nearest one-eighth, are
immediately exercisable, and expire after ten years. The employees’ stock
options have an exercise price calculated by averaging the high and low stock
price on the grant date rounded to the nearest one-eighth, vest one-third each
year, beginning on the third anniversary of the grant date, and expire after
ten
years. Prior to the adoption of SFAS No. 123(R), Cleco recorded no charge to
expense with respect to the granting of stock options at fair market value
or
above to employees or directors. However, pursuant to SFAS No.123 the estimated
fair value was calculated using the Black-Scholes option pricing model and
was
included in the pro forma disclosures. Cleco did not grant any LTICP stock
options in 2005. Cleco granted ESPP options during 2005. The fair market values
of LTICP stock options granted in 2006 and the stock options granted prior
to
the adoption of SFAS No. 123(R), which are being expensed for the first time,
were measured on the grant date using the Black-Scholes option-pricing model,
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
DECEMBER
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Expected
term (in years) (1)
|
|
|
7.0
|
|
|
1.0
|
|
|
1.0
|
|
Volatility
(2)
|
|
|
28.0%
to 30.4
|
%
|
|
22.0
|
%
|
|
22.0
|
%
|
Expected
dividend yield
|
|
|
4.2
|
%
|
|
4.2
|
%
|
|
5.0
|
%
|
Risk-free
interest rate
|
|
|
4.4
|
%
|
|
2.8
|
%
|
|
1.3
|
%
|
Weighted
average fair value (Black-Scholes
value)
|
|
$
|
4.75
|
|
$
|
4.04
|
|
$
|
2.58
|
|
(1)The
expected term was determined using an SEC safe harbor
method due to the small number of recipients of these
options.
|
(2)The
volatility rate is based on historical stock prices over an appropriate
period, generally equal to the expected
term.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
A
summary
of LTICP stock option activity during the year ended December 31, 2006, is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
WEIGHTED-AVERAGE
EXERCISE
PRICE
|
|
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL
TERM
(YEARS)
|
|
AGGREGATE
INTRINSIC
VALUE
(THOUSANDS)
|
|
Outstanding
at January 1, 2006
|
|
|
1,023,729
|
|
$
|
20.01
|
|
|
|
|
|
|
|
Granted
|
|
|
60,000
|
|
$
|
22.00
|
|
|
|
|
|
|
|
Exercised
|
|
|
(185,902
|
)
|
$
|
19.30
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26,699
|
)
|
$
|
18.86
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
871,128
|
|
$
|
20.34
|
|
|
5.91
|
|
$
|
4,262
|
|
Exercisable
at December 31, 2006
|
|
|
784,345
|
|
$
|
20.19
|
|
|
6.25
|
|
$
|
3,952
|
|
The
total
intrinsic value of options exercised during the year
ended December 31, 2006, 2005, and 2004 was $0.8 million, $0.4 million, and
less
than $0.1 million, respectively.
Non-Vested
Stock and Common Stock Equivalent Units
Through
December 31, 2005, Cleco granted employees two types of non-vested stock with
market and/or performance objectives.
The first type, target shares, can be voted, and employees receive dividends
on
the shares prior to the lapse of the restrictions. The second type, opportunity
shares, is not issued to employees until the market and/or performance
objectives have been met; therefore, these shares cannot be voted, nor do
employees receive dividends on the shares prior to the lapse of the
restrictions. Both types of grants require the satisfaction of the service
requirement, as well as the achievement of one or more market-based or
performance-based objectives in order to obtain vesting. However, if certain
events occur, such as retirement after age 55 or termination as part of a plan
of reorganization prior to the end of the service period, then employees would
vest in a pro rata number of target and opportunity shares.
In
2006,
Cleco granted non-vested stock and common stock equivalent units (CEUs) to
certain employees. The non-vested stock is classified as equity since the grant
can only be settled in shares of Cleco
Corporation common stock. The recipients of the non-vested stock can vote the
shares; however, dividends are not paid until the end of the service period
and
only in proportion to the non-vested stock that actually vests. The CEUs granted
are classified as liabilities since the grant can only be settled in cash.
Recipients of the CEUs will receive a dividend equivalent under the same terms
as the dividends paid on the non-vested stock. In order to vest, both
instruments require the satisfaction of a service requirement and a market-based
requirement. Recipients of both types of instruments are eligible to receive
opportunity instruments if certain market-based measures are exceeded.
At
December 31, 2006, the number of target and opportunity restricted shares and
CEUs previously granted for which restrictions had not lapsed totaled 422,404.
Cleco also grants to employees and directors non-vested stock with only a
service period requirement. These grants require the satisfaction of a
pre-determined service period in order for the shares to vest. During the
vesting period, the employees and directors can vote and receive dividends
on
the shares. At December 31, 2006, the number of shares of non-vested stock
previously granted with only a service period requirement for which the period
had not ended was 63,992.
The
fair
value of shares of non-vested stock granted in 2006 and 2005 under the LTICP
is
estimated on the date of grant, and the CEUs granted in 2006 under the LTICP
are
marked-to-market using the Monte Carlo simulation model with the assumptions
listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
NON-VESTED
STOCK
|
|
CEUs
|
|
NON-VESTED
STOCK
|
|
Expected
term (in years) (1)
|
|
|
3.0
|
|
|
3.0
|
|
|
3.0
|
|
3.0
|
Volatility
of Cleco stock (2)
|
|
|
23.0
|
%
|
|
18.7
|
%
|
|
33.0
|
%
|
34.8%
|
Correlation
between Cleco stock
volatility and peer group
|
|
|
33.7
|
%
|
|
34.6
|
%
|
|
41.4
|
%
|
37.8%
|
Expected
dividend yield
|
|
|
4.1
|
%
|
|
3.6
|
%
|
|
4.2
|
%
|
5.0%
|
Weighted
average fair value (Monte
Carlo model)
|
|
$
|
24.85
|
|
$
|
26.19
|
|
$
|
24.98
|
|
$20.91
|
(1)The
expected term was based on the service period of the
award.
|
(2)The
volatility rate is based on historical stock prices over an appropriate
period, generally equal to the expected
term.
|
A
summary
of non-vested stock activity during the year
ended December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
WEIGHTED-AVERAGE
GRANT-DATE
FAIR
VALUE
|
|
UNITS
|
|
WEIGHTED-AVERAGE
GRANT-DATE
FAIR
VALUE
|
|
|
|
NON-VESTED
STOCK
|
|
CEUs
|
|
Non-vested
at January 1, 2006
|
|
|
289,267
|
|
$
|
22.08
|
|
|
-
|
|
$
|
-
|
|
Granted
|
|
|
83,425
|
|
$
|
24.11
|
|
|
61,145
|
|
$
|
26.19
|
|
Vested
|
|
|
(142,631
|
)
|
$
|
20.77
|
|
|
-
|
|
$
|
-
|
|
Expected
to vest (1)
|
|
|
(105,458
|
)
|
$
|
23.83
|
|
|
(18,618
|
)
|
$
|
26.19
|
|
Forfeited
|
|
|
(10,722
|
)
|
$
|
24.44
|
|
|
(5,290
|
)
|
$
|
26.19
|
|
Non-vested
at December 31, 2006
|
|
|
113,381
|
|
$
|
23.36
|
|
|
37,237
|
|
$
|
26.19
|
|
(1)Expected
to vest is the pro rata amount of shares that have been earned as
of
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
fair
value of shares of non-vested stock which vested during the year ended December
31, 2006, 2005, and 2004 was $3.9 million, $3.2 million, and $0.3 million,
respectively.
During
the year ended December 31, 2006, 2005, and 2004, Cleco did not significantly
modify any of the terms of outstanding awards. Certain awards of stock-based
compensation allowed vesting of a pro rata share of granted instruments upon
retirement after age 55 but before the end of the normal vesting period,
regardless of whether the performance or market-based measures were achieved.
These same awards contained a provision of accelerated vesting of the entire
grant upon retirement after age 65 but before the end of the normal vesting
period, regardless of whether the performance or market-based measures were
achieved. In all periods presented, Cleco has recognized stock-based
compensation expense for these provisions, which is known as the non-substantive
vesting period approach. The grant of non-vested stock to employees in January
2006 did not contain the accelerated vesting provisions included in the prior
years’ grants.
A
maximum
of 3.2 million shares of Cleco Corporation common stock can be granted under
the
LTICP. As of December 31, 2006, there were approximately 1.8 million shares
available for future grants under the LTICP. Equity instruments awarded to
employees and directors historically have come from issuing new shares of common
stock. As of December 31, 2006, there was $3.7 million of total unrecognized
before-tax compensation cost related to non-vested share-based compensation
arrangements granted under the LTICP. The compensation expense will be
recognized over a weighted average period of 2.5 years.
Retained
Earnings Restrictions
Various
debt agreements contain covenants that restrict the amount of retained earnings
that may be distributed as dividends
to
common shareholders. The most restrictive covenant requires Cleco Corporation’s
total indebtedness to be less than or equal to 65% of total capitalization.
At
December 31, 2006, approximately $436.2 million of retained earnings were
unrestricted.
Shareholder
Rights Plan
In
July
2000, Cleco Corporation’s Board of Directors adopted the Shareholder Rights Plan
(Rights Plan). Under the Rights Plan, the holders of common stock as of August
14, 2000, received
a
dividend of one right for each share of common stock held on that date. In
the
event an acquiring party accumulates 15% or more of Cleco Corporation’s common
stock, the rights would, in essence, allow the holder to purchase Cleco
Corporation’s common stock at half the current fair market value. Cleco
Corporation generally would be entitled to redeem the rights at $.01 per right
at any time until the tenth day following the
time
the rights become exercisable. The rights expire on July 30, 2010.
Employee
Stock Purchase Plan
In
January 2000, Cleco Corporation’s Board of Directors adopted the
ESPP.
Shareholders approved the plan in April 2000, and the plan was implemented
on
October 1, 2000.
Regular,
full-time, and part-time employees of Cleco Corporation
and its participating subsidiaries, except officers, general managers, and
employees who own 5% or more of Cleco Corporation’s stock, may participate in
the ESPP. An eligible employee enters into an option agreement to become a
participant in the ESPP. Under the agreement, the employee authorizes payroll
deductions in an amount not less than $10 but not more than $350 each pay
period. Payroll deductions are accumulated during a calendar quarter and applied
to the purchase of common stock at the end of each quarter, which is referred
to
as an “offering period.” Pending the purchase of common stock, payroll
deductions remain as general assets of Cleco. No trust or other fiduciary
account has been established in connection with the ESPP. At the end of each
offering period, payroll deductions are automatically applied to the purchase
of
shares of common stock. The number of shares of common stock purchased is
determined by dividing each participant’s payroll deductions during the offering
period by the option price of a share of common stock. Prior to January 1,
2006,
the option price of a share of common stock was equal to 85% of the lower of
the
closing price at the beginning or the end of each offering period. Effective
January 1, 2006, the option price of a share of common stock is equal to 95%
of
the price of stock on the last trading day of each offering period.
A
maximum
of 684,000 shares of common stock may be purchased under the ESPP, subject
to
adjustment for changes in the capitalization of Cleco Corporation. The
Compensation Committee of Cleco Corporation’s Board of Directors administers the
ESPP. The Compensation Committee and the Board of Directors each possess the
authority to amend the ESPP, but shareholder approval is required for any
amendment that increases the number of shares covered by the ESPP. As of
December 31, 2006, there were 467,895 shares of common stock left to be
purchased under the ESPP.
Common
Stock Issuance
In
November 2004, Cleco Corporation issued 2.0 million shares of common stock
in a
public offering. Cleco’s net proceeds
from the issuance totaled $35.7 million.
In
August
2006, Cleco Corporation issued 6.9 million shares of common stock in a public
offering. Cleco’s net proceeds
from the issuance totaled $157.5 million.
Common
Stock Repurchase Program
In
1991,
Cleco Corporation began a common stock repurchase
program in which up to $30.0 million of common stock may be repurchased. At
December 31, 2006, approximately $16.1 million of common stock was available
for
repurchase under this program. Purchases are made on a discretionary basis
at
times and in amounts as determined by management, subject to market conditions,
legal requirements, and other factors. The purchases may not be announced in
advance
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
and
may
be made in the open market or in privately negotiated transactions. Cleco
Corporation did not purchase any common stock under the repurchase program
in
2006, 2005, or 2004. There is no expiration date for the program.
Note
8 — Preferred Stock
Within
the ESOP, each share of Cleco Corporation 8.125%
Convertible Preferred Stock Series of 1991 is convertible into 9.6 shares of
Cleco Corporation common stock. The annual dividend rate on the Cleco
Corporation ESOP preferred stock generally is the higher of $8.125 per share
or
9.6 times the Cleco Corporation common stock annual dividend.
The
amount of total capitalization reflected in Cleco Corporation’s
Consolidated Financial Statements has been reduced by an amount of deferred
compensation expense related to the shares of convertible preferred stock that
have not yet been allocated to ESOP participants. The amounts shown in Cleco
Corporation’s Consolidated Financial Statements for preferred dividend
requirements in 2005 and 2004 have been reduced by approximately $17,000 and
$124,000, respectively, to reflect the benefit of the income tax deduction
for
dividend requirements on unallocated shares held by the ESOP. For the year
2006,
no income tax benefit is recorded in Cleco Corporation’s Consolidated Financial
Statements since substantially all of the ESOP preferred shares were fully
allocated by late March 2006.
Upon
involuntary liquidation of their stock, preferred shareholders are entitled
to
receive par value for shares held before any distribution is made to common
shareholders. Upon voluntary liquidation, preferred shareholders are entitled
to
receive the redemption price per share applicable at the time such liquidation
occurs, plus any accrued dividends.
Information
about the components of preferred stock capitalization is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
|
BALANCE
|
|
|
|
BALANCE
|
|
|
|
BALANCE
|
|
|
JAN.
1,
|
|
|
|
DEC.
31,
|
|
|
|
DEC.
31,
|
|
|
|
DEC.
31,
|
|
(THOUSANDS,
EXCEPT SHARE AMOUNTS)
|
2004
|
|
CHANGE
|
|
2004
|
|
CHANGE
|
|
2005
|
|
CHANGE
|
|
2006
|
|
Cumulative
preferred stock,
$100 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
subject to mandatory redemption 4.50%
|
$
|
1,029
|
|
$
|
-
|
|
$
|
1,029
|
|
$
|
-
|
|
$
|
1,029
|
|
$
|
-
|
|
$
|
1,029
|
|
Convertible,
Series of 1991, Variable rate
|
|
24,295
|
|
|
(1,908
|
)
|
|
22,387
|
|
|
(1,599
|
)
|
|
20,788
|
|
|
(1,725
|
)
|
|
19,063
|
|
Preferred
stock not subject to mandatory redemption
|
$
|
25,324
|
|
$
|
(1,908
|
)
|
$
|
23,416
|
|
$
|
(1,599
|
)
|
$
|
21,817
|
|
$
|
(1,725
|
)
|
$
|
20,092
|
|
Deferred
compensation related to convertible preferred
stock
held by the ESOP
|
$
|
(6,607
|
)
|
$
|
2,417
|
|
$
|
(4,190
|
)
|
$
|
2,407
|
|
$
|
(1,783
|
)
|
$
|
1,783
|
|
$
|
-
|
|
Cumulative
preferred stock,
$100 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
1,491,900
|
|
|
-
|
|
|
1,491,900
|
|
|
-
|
|
|
1,491,900
|
|
|
-
|
|
|
1,491,900
|
|
Issued
and outstanding
|
|
253,240
|
|
|
(19,080
|
)
|
|
234,160
|
|
|
(15,990
|
)
|
|
218,170
|
|
|
(17,248
|
)
|
|
200,922
|
|
Cumulative
preferred stock,
$25 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares authorized (None outstanding)
|
|
3,000,000
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
3,000,000
|
|
Preferred
stock, other than the convertible preferred stock held by the ESOP, is
redeemable at Cleco Corporation’s option,
subject to 30 days’ prior written notice to shareholders. The convertible
preferred stock is redeemable at any time at Cleco Corporation’s option. If
Cleco Corporation was to elect to redeem the convertible preferred stock,
shareholders could elect to receive the optional redemption price or convert
the
preferred stock into common stock. The redemption provisions for the various
series of preferred stock are shown in the following table.
|
|
|
OPTIONAL
REDEMPTION
PRICE
PER SHARE
|
Series
|
|
4.50%
|
$101
|
Convertible,
Series of 1991
|
$100
|
Note
9 — Pension Plan and Employee Benefits
SFAS
No. 158
On
December 31, 2005, Cleco adopted SFAS No. 158, which requires companies to
recognize the funded status of their postretirement benefit plans as a net
liability or asset.
The net
liability or asset is defined as the difference between the benefit obligation
and the fair market value of plan assets. For defined benefit pension plans,
the
benefit obligation is the projected benefit obligation, whereas for other
benefit plans, the benefit obligation is the accumulated postretirement benefit
obligation. Net actuarial gains/losses, prior period service costs and
transition obligations/assets will become a component of accumulated other
comprehensive income, net of income tax in shareholders’ equity. SFAS No. 158
also amends the disclosure requirements for annual financial
statements.
SFAS
No.
158 requires companies to set their measurement
date to correspond with their fiscal year end, eliminating the option to use
an
earlier measurement date. The measurement date provision is effective for fiscal
years ending after December 15, 2008. Cleco’s measurement date currently is the
same as its fiscal year end; therefore, the measurement date provision will
have
no impact on the Registrants.
Pension
Plan and Other Benefits Plan
Most
employees are covered by a noncontributory, defined benefit pension
plan.
Benefits
under the plan reflect an employee’s years of service, age at retirement, and
highest total average compensation for any consecutive five calendar years
during the last 10 years of employment with Cleco Corporation. Cleco
Corporation’s policy is to base its contributions to the employee pension plan
upon actuarial computations utilizing the projected unit credit method, subject
to the Internal Revenue Service’s full funding limitation. No discretionary
contributions were made in 2006 or 2005,
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
while
a
$14.0 million discretionary contribution was made in 2004. Currently, a
contribution required by funding regulations is not expected during 2007. A
discretionary contribution may be made during 2007; however, the decision by
management to make a contribution and the amount, if any, has not been
determined. Cleco Power is considered the plan sponsor, and Support Group is
considered the plan administrator.
Cleco
Corporation’s retirees and their dependents are eligible
to
receive medical, dental, vision, and life insurance benefits (other benefits).
Cleco Corporation recognizes the expected cost of these benefits during the
periods in which the benefits are earned.
The
employee pension plan and other benefits obligation plan assets and funded
status at December 31, 2006, and 2005, are presented in the following
table.
|
|
|
|
|
|
|
|
PENSION
BENEFITS
|
|
OTHER
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning
of year
|
|
$
|
256,221
|
|
$
|
238,598
|
|
$
|
32,498
|
|
$
|
40,555
|
|
Service
cost
|
|
|
7,841
|
|
|
6,794
|
|
|
1,537
|
|
|
2,150
|
|
Interest
cost
|
|
|
14,422
|
|
|
13,308
|
|
|
1,694
|
|
|
2,048
|
|
Plan
participants’ contributions
|
|
|
-
|
|
|
-
|
|
|
1,050
|
|
|
777
|
|
Amendments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,618
|
)
|
Actuarial
loss/(gain)
|
|
|
846
|
|
|
9,161
|
|
|
(1,006
|
)
|
|
(1,099
|
)
|
Expenses
paid
|
|
|
(1,343
|
)
|
|
(1,257
|
)
|
|
-
|
|
|
-
|
|
Benefits
paid
|
|
|
(10,731
|
)
|
|
(10,383
|
)
|
|
(3,341
|
)
|
|
(3,315
|
)
|
Benefit
obligation at end of year
|
|
|
267,256
|
|
|
256,221
|
|
|
32,432
|
|
|
32,498
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning
of year
|
|
|
225,265
|
|
|
219,578
|
|
|
-
|
|
|
-
|
|
Actual
return on plan assets
|
|
|
37,264
|
|
|
17,327
|
|
|
-
|
|
|
-
|
|
Expenses
paid
|
|
|
(1,343
|
)
|
|
(1,257
|
)
|
|
-
|
|
|
-
|
|
Benefits
paid
|
|
|
(10,731
|
)
|
|
(10,383
|
)
|
|
-
|
|
|
-
|
|
Fair
value of plan assets at end
of year
|
|
|
250,455
|
|
|
225,265
|
|
|
-
|
|
|
-
|
|
Funded
status
|
|
|
(16,801
|
)
|
|
(30,956
|
)
|
|
(32,432
|
)
|
|
(32,498
|
)
|
Unrecognized
net actuarial loss
|
|
|
-
|
|
|
52,837
|
|
|
-
|
|
|
14,344
|
|
Unrecognized
transition obligation/(asset)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
173
|
|
Unrecognized
prior service cost
|
|
|
-
|
|
|
7,529
|
|
|
-
|
|
|
(10,485
|
)
|
Prepaid
(accrued) benefit cost
|
|
$
|
(16,801
|
)
|
$
|
29,410
|
|
$
|
(32,432
|
)
|
$
|
(28,466
|
)
|
The
employee pension plan accumulated benefit obligation
at
December 31, 2006, and 2005, is presented in the following
table.
|
|
|
|
|
|
PENSION
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Accumulated
benefit obligation
|
|
$
|
225,884
|
|
$
|
213,744
|
|
The
following table presents the incremental effect on individual
line items of Cleco Corporation’s Consolidated Balance Sheets, as of December
31, 2006, resulting from the initial application of the recognition provisions
of SFAS No. 158.
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
BEFORE
APPLICATION
OF
SFAS NO. 158
|
|
ADJUSTMENTS
|
|
AFTER
APPLICATION OF SFAS
NO. 158
|
|
Assets
|
|
|
|
|
|
|
|
Regulatory
assets - other
|
|
$
|
153,342
|
|
$
|
38,719
|
|
$
|
192,061
|
|
Other
deferred charges
|
|
$
|
40,973
|
|
$
|
(22,519
|
)
|
$
|
18,454
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
Other
current liabilities
|
|
$
|
11,730
|
|
$
|
4,420
|
|
$
|
16,150
|
|
Accumulated
deferred federal
and state income taxes
|
|
$
|
440,917
|
|
$
|
(4,142
|
)
|
$
|
436,775
|
|
Other
deferred credits
|
|
$
|
85,049
|
|
$
|
20,177
|
|
$
|
105,226
|
|
Accumulated
other comprehensive
loss
|
|
$
|
5,055
|
|
$
|
4,255
|
|
$
|
9,310
|
|
The
following table presents the incremental effect on individual
line items of Cleco Power’s Balance Sheets, as of December 31, 2006, resulting
from the initial application of the recognition provisions of SFAS No.
158.
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
BEFORE
APPLICATION OF SFAS NO. 158
|
|
ADJUSTMENTS
|
|
AFTER
APPLICATION OF SFAS
NO. 158
|
|
Assets
|
|
|
|
|
|
|
|
Regulatory
assets - other
|
|
$
|
153,342
|
|
$
|
38,719
|
|
$
|
192,061
|
|
Other
deferred charges
|
|
$
|
39,258
|
|
$
|
(22,166
|
)
|
$
|
17,092
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
Other
current liabilities
|
|
$
|
4,263
|
|
$
|
3,347
|
|
$
|
7,610
|
|
Accumulated
deferred federal
and state income taxes
|
|
$
|
391,147
|
|
$
|
(2,577
|
)
|
$
|
388,570
|
|
Other
deferred credits
|
|
$
|
62,784
|
|
$
|
18,047
|
|
$
|
80,831
|
|
Member’s
equity
|
|
$
|
648,669
|
|
$
|
(2,265
|
)
|
$
|
646,404
|
|
SFAS
No.
158 requires the disclosure of the net actuarial gains/losses, transition
obligations/assets and prior period service costs initially recognized in
accumulated other comprehensive
income and subsequently recognized as a component of net periodic benefit cost.
The following table presents those items for the employee pension plan and
other
benefits plan at December 31, 2006, and the subsequent twelve-month
period:
|
|
|
|
|
|
|
|
PENSION
BENEFITS
|
|
OTHER
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
SUBSEQUENT
PERIOD*
|
|
2006
|
|
SUBSEQUENT
PERIOD*
|
|
Net
actuarial loss
|
|
$
|
32,162
|
|
$
|
1,924
|
|
$
|
12,472
|
|
$
|
779
|
(1)
|
Transition
obligation/(asset)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
153
|
|
$
|
20
|
(2)
|
Prior
service cost (benefit)
|
|
$
|
6,557
|
|
$
|
845
|
|
$
|
(8,420)
|
|
$
|
(2,065)
|
(3)
|
*Estimated
amount to be recognized as a component of net periodic benefit
cost.
(1)Net
of the estimated Medicare Part D subsidy of $297.
(2)Net
of the estimated Medicare Part D subsidy of $0.
(3)Net
of the estimated Medicare Part D subsidy of
$397.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
The
components of net periodic pension and other benefits
cost for 2006, 2005, and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION
BENEFITS
|
|
|
|
OTHER
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
7,841
|
|
$
|
6,794
|
|
$
|
6,086
|
|
$
|
1,537
|
|
$
|
2,150
|
|
$
|
2,300
|
|
Interest
cost
|
|
|
14,422
|
|
|
13,308
|
|
|
12,642
|
|
|
1,694
|
|
|
2,048
|
|
|
2,399
|
|
Expected
return on plan
assets
|
|
|
(18,285
|
)
|
|
(18,366
|
)
|
|
(17,410
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of transition
obligation (asset)
|
|
|
-
|
|
|
-
|
|
|
(37
|
)
|
|
20
|
|
|
20
|
|
|
389
|
|
Prior
period service cost
amortization
|
|
|
971
|
|
|
986
|
|
|
986
|
|
|
(2,065
|
)
|
|
(708
|
)
|
|
-
|
|
Net
loss amortization
|
|
|
2,543
|
|
|
1,015
|
|
|
64
|
|
|
866
|
|
|
825
|
|
|
841
|
|
Net
periodic benefit cost
|
|
$
|
7,492
|
|
$
|
3,737
|
|
$
|
2,331
|
|
$
|
2,052
|
|
$
|
4,335
|
|
$
|
5,929
|
|
Since
Cleco Power is the pension plan sponsor and the related
trust holds the assets, the prepaid benefit cost of the pension plan is
reflected at Cleco Power. The liability of Cleco Corporation’s other
subsidiaries is transferred, with a like amount of assets, to Cleco Power
monthly. The expense of the pension plan related to Cleco Corporation’s other
subsidiaries for the years ending December 31, 2006, 2005, and 2004 was $2.2
million, $2.2 million, and $2.1 million, respectively.
Cleco
Corporation is the plan sponsor for the other benefit plans. There are no assets
set aside in a trust, and the liabilities are reported on the individual
subsidiaries’ financial statements. The expense related to other benefits
reflected on Cleco Power’s Statements of Income for the years ending December
31, 2006, and 2005, was $1.7 million and $3.7 million, net of the estimated
Medicare Part D subsidy of $0.4 million and $0.9 million. For the year ending
December 31, 2004, Cleco Power recognized an expense of $5.0 million. Cleco
Power’s allocated amount of the other benefit liability was $25.4 million and
$22.5 million at December 31, 2006, and 2005, respectively.
The
measurement date used to determine the pension and other postretirement benefits
is December 31. The assumptions
used to determine the benefit obligation and the periodic costs are as
follows:
|
|
|
|
|
|
|
|
PENSION
BENEFITS
|
|
OTHER
BENEFITS
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Weighted-average
assumptions used to determine the benefit obligation as of December
31:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.90
|
%
|
|
5.50
|
%
|
|
5.90
|
%
|
|
5.50
|
%
|
Rate
of compensation increase
|
|
|
4.46
|
%
|
|
4.65
|
%
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION
BENEFITS
|
|
|
|
OTHER
BENEFITS
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted-average
assumptions used to determine the net benefit cost (income) for the
year
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.50
|
%
|
|
5.75
|
%
|
|
6.00
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
|
6.00
|
%
|
Expected
return on plan
assets
|
|
8.40
|
%
|
|
8.50
|
%
|
|
8.70
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Rate
of compensation increase
|
|
4.46
|
%
|
|
4.65
|
%
|
|
4.59
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
The
expected return on plan assets was determined by examining the risk profile
of
each target category as compared
to
the expected return on that risk, within the parameters determined by the
retirement committee. The result was compared to the expected rate of return
of
other comparable plans to ensure Cleco Corporation’s estimation was within a
reasonable range. In assessing the risk as compared to return profile,
historical returns as compared to risk was one factor considered. The historical
risk compared to returns was adjusted for the expected future long-term
relationship between risk and return. The adjustment for the future risk
compared to returns was, in part, subjective and not based on any measurable
or
observable events.
Employee
pension plan assets may be invested in publicly traded domestic common stocks,
including Cleco Corporation common stock; U.S. Government, federal agency and
corporate obligations; an international equity fund, commercial real estate
funds; a hedge fund-of-funds; and pooled temporary investments. The table below
shows a breakdown of the plan assets by investment category based on market
values at December 31, 2006, and 2005.
|
|
|
|
|
|
PENSION
BENEFITS
|
|
|
|
2006
|
|
2005
|
|
Fair
value of plan assets by category
|
|
|
|
|
|
Debt
securities
|
|
|
|
|
|
Short-term
investment funds
|
|
|
3.2
|
%
|
|
1.8
|
%
|
U.S.
Government obligations
|
|
|
7.8
|
%
|
|
8.3
|
%
|
Domestic
corporate obligations
|
|
|
10.2
|
%
|
|
11.6
|
%
|
International
corporate obligations
|
|
|
0.1
|
%
|
|
0.3
|
%
|
Equity
securities
|
|
|
|
|
|
|
|
Domestic
corporate stock
|
|
|
43.5
|
%
|
|
44.2
|
%
|
International
corporate stock
|
|
|
20.9
|
%
|
|
20.3
|
%
|
Real
estate
|
|
|
8.8
|
%
|
|
8.2
|
%
|
Hedge
fund of funds
|
|
|
5.4
|
%
|
|
5.2
|
%
|
Other
assets
|
|
|
0.1
|
%
|
|
0.1
|
%
|
In
2004,
the pension plan disposed of its 28,292 shares of Cleco Corporation common
stock,
and as
of December 31, 2006, the pension plan held no shares of Cleco Corporation
common stock. None of the plan participants’ future annual benefits is covered
by insurance contracts.
Cleco
Corporation’s retirement committee has established investment performance
objectives of the pension plan assets. Over a three- to five-year period, the
objectives are for the pension plan’s annualized total return to:
§ |
Exceed
the assumed rate of return on plan assets;
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
§ |
Exceed
the annualized total return of a customized index
consisting of a mixture of Standard & Poor’s 500 Index; Russell Mid
Cap Value Index; Morgan Stanley Capital International Europe, Australia,
Far East Index; Lehman Brothers U.S. Universal Index; and the median
real
estate manager performance in the Hewitt Investment Group open end
real
estate universe; and
|
§ |
Rank
in the upper 50 percent of a universe of composite pension
funds.
|
In
order
to meet the objectives and to control risk, the retirement
committee has established guidelines that the investment managers must
follow.
Domestic
Equity Portfolios
§ |
Equity
holdings of a single company must not exceed 10% of the manager’s
portfolio.
|
§ |
A
minimum of 25 stocks should be
owned.
|
§ |
Equity
holdings in a single sector should not exceed the lesser of three
times
the sector’s weighting in the Standard
& Poor’s 500 Index or 35% of the
portfolio.
|
International
Equity Portfolios
§ |
Equity
holdings of a single company should not exceed 5% of the manager’s
portfolio.
|
§ |
A
minimum of 30 stocks should be
owned.
|
§ |
Equity
holdings in a single sector should not exceed
35%.
|
§ |
Currency
hedging decisions are at the discretion of the investment
manager.
|
Debt
Portfolios
§ |
At
least 85% of the debt securities should be investment
grade securities (BBB- by Standard & Poor’s or Baa3 by Moody’s) or
higher.
|
§ |
Bond
purchases should be limited to readily marketable
securities.
|
Real
Estate Portfolios
§ |
Real
estate funds should be invested primarily in direct equity positions,
with
debt and other investments representing
less than 25% of the fund.
|
§ |
Leverage
should be less than 70% of the market value of the
fund.
|
§ |
Investments
should be focused on existing income-producing properties, with land
and
development properties
representing less than 40% of the
fund.
|
Hedge
Fund-of-Funds
§ |
The
fund should be invested in a minimum of 20 individual
partnerships.
|
§ |
No
individual partnership should exceed 10% of the
fund-of-funds.
|
§ |
The
fund should be diversified across several different “styles” of
partnerships, including event-driven strategies,
fixed income arbitrage and trading, and other arbitrage strategies.
The
fund generally should not be invested in emerging markets, short-term
only, traditional Commodity Trading Advisor’s or derivative-only
strategies.
|
During
2004, the Cleco Retirement Committee approved a change in the policy concerning
the use of derivatives. Fund managers are allowed limited use of derivatives,
subject to policies and guidelines established by the committee and to the
following restrictions:
§ |
Derivatives
may be used only if the vehicle is deemed by the manager to be more
attractive than a similar investment
in the underlying cash market; or if the vehicle is being used to
manage
risk of the portfolio.
|
§ |
The
derivatives may not be used in a speculative manner
or to leverage the portfolio.
|
§ |
The
derivatives may not be used as short-term trading
vehicles.
|
§ |
Investment
managers shall alert the Retirement Committee, in writing, before
engaging
in strategies which use derivatives. The written communication shall
include the nature and purpose of the strategy, a quantification
of the
magnitude of the program in absolute dollar terms, an outline of
the
methods to be used to monitor the program, and an outline of the
process
to be followed in reporting
on commitments relative to established guidelines and on the success
of
the proposed strategy.
|
Due
to
the nature of the hedge fund-of-funds, its manager is exempt from the above
derivative policy.
The
Retirement
Committee has established the following investment asset allocation target
percentages for the pension plan assets.
|
|
|
|
|
|
PERCENT
OF TOTAL PLAN
ASSETS*
|
|
|
|
MINIMUM
|
|
TARGET
|
|
MAXIMUM
|
|
Equity
|
|
|
|
|
|
|
|
Domestic
|
|
|
39
|
%
|
|
47
|
%
|
|
55
|
%
|
International
|
|
|
13
|
%
|
|
18
|
%
|
|
23
|
%
|
Total
equity
|
|
|
60
|
%
|
|
65
|
%
|
|
70
|
%
|
Debt
securities
|
|
|
18
|
%
|
|
23
|
%
|
|
28
|
%
|
Real
estate
|
|
|
4
|
%
|
|
7
|
%
|
|
10
|
%
|
Hedge
fund-of-funds
|
|
|
2
|
%
|
|
5
|
%
|
|
8
|
%
|
Cash
equivalents
|
|
|
0
|
%
|
|
0
|
%
|
|
5
|
%
|
* Minimums
and maximums within subcategories not intended to equal total for
category.
|
On
December 8, 2003, the President signed into law the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act). The Act introduces a
prescription drug benefit under Medicare (Medicare Part D), as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare
Part D. In May 2004, the FASB issued FSP SFAS No. 106-2 to provide guidance
on
accounting for the effects of the Act by employers whose prescription drug
benefits are actuarially equivalent to the drug benefit under Medicare Part
D.
FSP SFAS No. 106-2 is effective as of the first interim period beginning after
June 15, 2004.
Cleco
adopted FSP SFAS No. 106-2 on July 1, 2004. Final requirements
to
determine actuarial equivalence were issued
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
on
January 21, 2005. Cleco, with consideration of input from its actuarial
advisors, determined that benefits provided by the plan as of the date of
enactment are at least actuarially equivalent to Medicare Part D. FSP SFAS
No.
106-2 provides two methods of transition, including retroactive application
to
either the date of enactment or the next normal measurement date after the
enactment or prospective application from the date of adoption. Cleco has
elected retroactive application to the next normal measurement date after
enactment, which for Cleco, was January 1, 2004.
The
estimated impact of future Medicare subsidies reduced the January 1, 2006,
and
2005, accumulated postretirement benefit obligation by $4.9 million and $6.9
million, respectively, and reduced the other benefit costs for the twelve months
ended December 31, 2006, and 2005, as follows:
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Components
of other benefit costs:
|
|
|
|
|
|
Reduction
in service cost
|
|
$
|
222
|
|
$
|
350
|
|
Reduction
in interest cost
|
|
|
283
|
|
|
376
|
|
Reduction
in net loss amortization
|
|
|
403
|
|
|
440
|
|
Reduction
in prior period service cost amortization
|
|
|
(397
|
)
|
|
(66
|
)
|
Reduction
in net other benefit cost
|
|
$
|
511
|
|
$
|
1,100
|
|
The
assumed health care cost trend rates used to measure
the
expected cost of other benefits was 9.0% in 2006 and 2005, and 10.0% in 2004.
The rate declines to 5.0% by 2011 and remains at 5.0% thereafter. Assumed health
care cost trend rates have a significant effect on the amount reported for
the
health care plans. A one-percentage point change in assumed health care cost
trend rates would have the following effects on other benefits:
|
|
|
|
|
|
ONE-PERCENTAGE
POINT
|
|
(THOUSANDS)
|
|
INCREASE
|
|
DECREASE
|
|
Effect
on total of service
and interest cost components
|
|
$
|
57
|
|
$
|
(67
|
)
|
Effect
on postretirement
benefit obligation
|
|
$
|
753
|
|
$
|
(1,504
|
)
|
The
projected benefit payments and projected receipts pursuant to Medicare Part
D
subsidy, the employee pension plan, and other benefits obligation plan for
each
year through 2011 and the next five years thereafter are listed
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
NEXT
FIVE
YEARS
|
|
Pension
plan
|
|
$
|
10,853
|
|
$
|
11,125
|
|
$
|
11,457
|
|
$
|
11,914
|
|
$
|
12,486
|
|
$
|
74,633
|
|
Other
benefits obligation plan, gross
|
|
$
|
2,505
|
|
$
|
2,689
|
|
$
|
2,782
|
|
$
|
2,948
|
|
$
|
3,124
|
|
$
|
18,333
|
|
Medicare
Part D subsidy receipts
|
|
$
|
195
|
|
$
|
223
|
|
$
|
258
|
|
$
|
285
|
|
$
|
313
|
|
$
|
2,064
|
|
SERP
Certain
key executives and key managers are covered by the
SERP.
The SERP is a non-qualified, non-contributory, defined benefit pension plan.
Benefits under the plan reflect an employee’s years of service, age at
retirement, and the sum of the highest base salary paid out of the last five
calendar years and the average of the three highest bonuses paid during the
last
60 months prior to retirement, reduced by benefits received from any other
defined benefit pension plan. Cleco Corporation does not fund the SERP
liability, but instead pays for current benefits out of the general funds
available. Cleco Power has formed a Rabbi Trust designated as the beneficiary
for life insurance policies issued on the SERP participants. Proceeds from
the
life insurance policies are expected to be used to pay SERP participants’ life
insurance benefits, as well as future SERP payments. However, since this is
a
non-qualified plan, the assets of the trust could be used to satisfy general
creditors of Cleco Power in the event of insolvency. No contributions to the
SERP were made during the three-year period ended December 31, 2006. Cleco
Power
is considered the plan sponsor, and Support Group is considered the plan
administrator.
The
SERP’s funded status at December 31, 2006,
and
2005, is presented in the following table.
|
|
|
|
|
|
SERP
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Change
in benefit obligation
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
27,378
|
|
$
|
21,918
|
|
Service
cost
|
|
|
1,379
|
|
|
1,281
|
|
Interest
cost
|
|
|
1,586
|
|
|
1,390
|
|
Actuarial
loss
|
|
|
722
|
|
|
3,763
|
|
Benefits
paid
|
|
|
(1,376
|
)
|
|
(974
|
)
|
Benefit
obligation at end of year
|
|
|
29,689
|
|
|
27,378
|
|
Funded
status
|
|
|
(29,689
|
)
|
|
(27,378
|
)
|
Unrecognized
net actuarial loss
|
|
|
N/A |
|
|
12,070
|
|
Unrecognized
prior service cost
|
|
|
N/A |
|
|
655
|
|
Accrued
benefit cost
|
|
$
|
(29,689
|
)
|
$
|
(14,653
|
)
|
Amounts
recognized in the statement of financial position consist
of:
|
|
|
|
|
|
|
|
Accrued
benefit costs
|
|
|
|
|
$
|
(22,252
|
)
|
Intangible
asset
|
|
|
|
|
|
655
|
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
6,944
|
|
Net
amount recognized
|
|
|
|
|
$
|
(14,653
|
)
|
The
SERP’s accumulated benefit obligation at December 31, 2006,
and
2005, is presented in the following table.
|
|
|
|
|
|
SERP
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Accumulated
benefit obligation
|
|
$
|
26,098
|
|
$
|
22,252
|
|
SFAS
No.
158 requires the disclosure of the net actuarial gains/losses, transition
obligations/assets and prior period service costs initially recognized in
accumulated other comprehensive
income and subsequently recognized as a component of net periodic benefit cost.
The following table presents those items for the SERP at December 31, 2006,
and
the subsequent twelve-month period:
|
|
|
|
|
|
SERP
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
SUBSEQUENT
PERIOD*
|
|
Net
actuarial loss
|
|
$
|
11,957
|
|
$
|
799
|
|
Prior
service cost
|
|
|
601
|
|
|
54
|
|
*
Estimated amount to be recognized as a component of net periodic
benefit
cost.
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
The
components of the net SERP cost for 2006, 2005, and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
SERP
BENEFITS
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,379
|
|
$
|
1,281
|
|
$
|
924
|
|
Interest
cost
|
|
|
1,586
|
|
|
1,390
|
|
|
1,164
|
|
Prior
period service cost amortization
|
|
|
54
|
|
|
54
|
|
|
53
|
|
Net
loss amortization
|
|
|
836
|
|
|
696
|
|
|
470
|
|
Net
periodic benefit cost
|
|
$
|
3,855
|
|
$
|
3,421
|
|
$
|
2,611
|
|
To
calculate periodic costs and the benefit obligation, the SERP uses the same
discount rate and average rate of compensation
increase as the employee pension plan for the same time periods. The SERP also
uses the same measurement dates. The expected return on plan assets is not
applicable since the SERP has no assets.
The
liabilities of the SERP are reported on the individual subsidiaries’ financial
statements.
The expense related to the SERP reflected on Cleco Power’s Statements of Income
for the years ending December 31, 2006, 2005, and 2004 was $1.0 million, $1.0
million, and $0.7 million, respectively. Cleco Power’s allocated amount of the
SERP liability was $12.0 million and $6.3 million at December 31, 2006, and
2005, respectively. Cleco Corporation’s other subsidiaries reflected expense
relative to SERP of $2.8 million, $2.4 million, and $1.9 million for the years
ending December 31, 2006, 2005, and 2004, respectively. At December 31, 2006,
and 2005, Cleco Corporation’s other subsidiaries’ allocated amount of SERP
liability was $17.6 million and $8.4 million, respectively.
During
2006 and 2005, Cleco recorded a reduction in other comprehensive income of
$1.4
million and $1.6 million, respectively. The associated tax benefit related
to
this reduction was $0.5 million and $0.6 million, respectively. The reduction
was primarily due to the recognition of an additional minimum pension liability
for the SERP, as defined by SFAS No. 87. During 2004, Cleco recorded an increase
in other comprehensive income of $0.4 million, net of the associated income
tax
expense of $0.2 million. The increase was primarily due to the reduction of
the
minimum pension liability for the SERP, as defined by SFAS No. 87. The
accumulated other comprehensive loss, net of income tax, associated with the
recognition of the SERP minimum pension liability at December 31, 2006, and
2005
was $7.7 million and $4.3 million, respectively.
The
projected benefit payments for the SERP for each year through 2011 and the
next
five years thereafter are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
NEXT
FIVE
YEARS
|
|
SERP
|
|
$
|
1,915
|
|
$
|
1,402
|
|
$
|
1,455
|
|
$
|
1,616
|
|
$
|
1,810
|
|
$
|
10,643
|
|
401(k)/ESOP
Plan
Most
employees are eligible to participate in the
401(k) Plan, which was amended in April 1991 to include a leveraged ESOP. The
ESOP was established with 300,000 convertible preferred shares which served
as
Cleco Corporation’s match to employees’ 401(k) Plan contributions and funded
dividend payments on allocated shares. By late March 2006, substantially all
of
the ESOP preferred shares were fully allocated to current and former 401(k)
Plan
participants. As a result, the March 28, 2006, dividend payment on the ESOP
convertible preferred stock was funded by 19,107 shares of Cleco Corporation
common stock. Compensation expense related to the 401(k) Plan prior to April
1,
2006 was based upon the value of the preferred shares allocated to 401(k) Plan
participants and the amount of interest incurred by the ESOP, less dividends
on
unallocated shares held by the ESOP. At December 31, 2006, and 2005, the ESOP
had allocated to employees 190,635 and 203,001 preferred shares,
respectively.
Beginning
April 1, 2006, Cleco Corporation made matching
contributions to, and funded dividend reinvestments by, 401(k) Plan participants
with Cleco Corporation common stock. The Company has reserved 1.5 million
authorized, but unissued common shares for this program. Compensation expense
related to the newly issued common shares is based upon the fair market value
of
the common stock issued to 401(k) Plan participants. At December 31, 2006,
Cleco
Corporation had issued 140,189 common shares to 401(k) Plan participants,
including dividend reinvestments.
The
table
below contains information about the 401(k) Plan and the ESOP:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
401(k)
Plan expense
|
|
$
|
1,851
|
|
$
|
1,295
|
|
$
|
847
|
|
Dividend
requirements to ESOP on convertible
preferred stock
|
|
$
|
1,689
|
|
$
|
1,835
|
|
$
|
2,294
|
|
Interest
incurred
by ESOP on its indebtedness
|
|
$
|
8
|
|
$
|
171
|
|
$
|
344
|
|
Company
contributions to ESOP
|
|
$
|
19
|
|
$
|
243
|
|
$
|
711
|
|
Cleco
Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan
related to Cleco Corporation’s other subsidiaries was $0.5 million, $0.3
million, and $0.2 million
for
the years ending December 31, 2006, 2005, and 2004, respectively. The expense
related to the dividend requirements of the ESOP on convertible preferred stock
is reflected on Cleco Corporation’s Consolidated Statements of Income for the
years ended December 31, 2006, 2005, and 2004.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Note
10 — Income Taxes
Cleco
For
the
years
ended
December 31, 2006, December 31, 2005, and December 31, 2004, federal income
tax
expense is less than the amount computed by applying the statutory federal
rate
to income before tax. The differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
2006
|
|
|
|
|
2005
|
|
|
|
|
|
2004
|
|
(THOUSANDS,
EXCEPT FOR %)
|
AMOUNT
|
|
|
%
|
|
AMOUNT
|
|
|
%
|
|
AMOUNT
|
|
|
|
%
|
|
Income
before tax
|
$
|
116,719
|
|
|
|
|
100.0
|
|
$
|
298,929
|
|
|
|
|
100.0
|
|
$
|
101,983
|
|
|
|
|
|
100.0
|
|
Tax
at statutory rate on book income before tax
|
$
|
40,851
|
|
|
|
|
35.0
|
|
$
|
104,625
|
|
|
|
|
35.0
|
|
$
|
35,694
|
|
|
|
|
|
35.0
|
|
Increase
(decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect of AFUDC
|
|
(3,899
|
)
|
|
|
|
(3.3
|
)
|
|
(1,871
|
)
|
|
|
|
(0.6
|
)
|
|
(2,068
|
)
|
|
|
|
|
(2.0
|
)
|
Amortization
of investment tax credits
|
|
(1,531
|
)
|
|
|
|
(1.3
|
)
|
|
(1,671
|
)
|
|
|
|
(0.6
|
)
|
|
(1,712
|
)
|
|
|
|
|
(1.7
|
)
|
Tax
effect of prior-year tax benefits not deferred
|
|
3,226
|
|
|
|
|
2.7
|
|
|
3,200
|
|
|
|
|
1.1
|
|
|
3,069
|
|
|
|
|
|
3.0
|
|
Other,
net
|
|
(2,281
|
)
|
|
|
|
(2.0
|
)
|
|
(365
|
)
|
|
|
|
(0.1
|
)
|
|
(1,879
|
)
|
|
|
|
|
(1.8
|
)
|
Total
federal income tax expense
|
|
36,366
|
|
|
|
|
31.1
|
|
|
103,918
|
|
|
|
|
34.8
|
|
|
33,104
|
|
|
|
|
|
32.5
|
|
Current
and deferred state income tax expense, net of federal benefit for
state
income tax expense
|
|
5,683
|
|
|
|
|
4.9
|
|
|
12,033
|
|
|
|
|
4.0
|
|
|
2,760
|
|
|
|
|
|
2.7
|
|
Total
federal and state income tax expense
|
$
|
42,049
|
|
|
|
|
36.0
|
|
$
|
115,951
|
|
|
|
|
38.8
|
|
$
|
35,864
|
|
|
|
|
|
35.2
|
|
Information
about current and deferred income tax expense
is
as follows:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Current
federal income tax expense
|
|
$
|
46,669
|
|
$
|
10,115
|
|
$
|
6,181
|
|
Deferred
federal income tax expense
|
|
|
(9,646
|
)
|
|
91,512
|
|
|
28,099
|
|
Amortization
of accumulated deferred investment tax credits
|
|
|
(1,531
|
)
|
|
(1,671
|
)
|
|
(1,712
|
)
|
Total
federal income tax expense
|
|
|
35,492
|
|
|
99,956
|
|
|
32,568
|
|
Current
state income tax (benefit)
expense
|
|
|
(96
|
)
|
|
2,985
|
|
|
2,034
|
|
Deferred
state income tax expense
|
|
|
6,653
|
|
|
13,010
|
|
|
1,262
|
|
Total
state income tax expense
|
|
|
6,557
|
|
|
15,995
|
|
|
3,296
|
|
Total
federal and state income tax expense
|
|
|
42,049
|
|
|
115,951
|
|
|
35,864
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense from income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
Federal
current
|
|
|
377
|
|
|
(683
|
)
|
|
(155
|
)
|
Federal
deferred
|
|
|
(14
|
)
|
|
518
|
|
|
(680
|
)
|
State
current
|
|
|
(480
|
)
|
|
-
|
|
|
(20
|
)
|
State
deferred
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
Total
tax benefit from loss from discontinued operations
|
|
|
(117
|
)
|
|
(165
|
)
|
|
(858
|
)
|
Income
tax expense from gain on disposal of segment:
|
|
|
|
|
|
|
|
|
|
|
Federal
current
|
|
|
-
|
|
|
-
|
|
|
(662
|
)
|
Federal
deferred
|
|
|
-
|
|
|
-
|
|
|
1,569
|
|
Total
tax expense from gain on disposal of segment
|
|
|
-
|
|
|
-
|
|
|
907
|
|
Items
charged or credited directly to stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Federal
deferred
|
|
|
(4,066
|
)
|
|
(550
|
)
|
|
198
|
|
State
deferred
|
|
|
(657
|
)
|
|
(89
|
)
|
|
31
|
|
Total
tax (benefit) expense from items charged directly to stockholders’
equity
|
|
|
(4,723
|
)
|
|
(639
|
)
|
|
229
|
|
Total
federal and state income tax expense
|
|
$
|
37,209
|
|
$
|
115,147
|
|
$
|
36,142
|
|
The
$4.1
million change in total tax benefit from items charged directly to stockholders’
equity in 2006 compared
to
2005 was primarily due to the tax effect of other post-employment benefit
adjustments booked to accumulated other comprehensive income per SFAS No. 158.
For additional information, see Note 2 — “Summary of Significant Accounting
Policies — Recent Accounting Standards.”
The
balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 2006, and 2005, was comprised of the tax effect
of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
CURRENT
|
|
NONCURRENT
|
|
CURRENT
|
|
|
|
NONCURRENT
|
|
Depreciation
and property basis differences
|
$
|
(16,644
|
)
|
$
|
(366,708
|
)
|
$
|
(17,614
|
)
|
|
|
|
$
|
(357,925
|
)
|
State
net operating tax losses
|
|
-
|
|
|
2,181
|
|
|
2,303
|
|
|
|
|
|
2,060
|
|
Fuel
costs
|
|
-
|
|
|
(432
|
)
|
|
-
|
|
|
|
|
|
-
|
|
Mark-to-market
|
|
-
|
|
|
(1,047
|
)
|
|
-
|
|
|
|
|
|
-
|
|
Rodemacher
Unit 3
|
|
-
|
|
|
1,714
|
|
|
-
|
|
|
|
|
|
-
|
|
SERP
- other comprehensive income
|
|
-
|
|
|
7,339
|
|
|
-
|
|
|
|
|
|
2,617
|
|
AFUDC
|
|
-
|
|
|
(36,175
|
)
|
|
-
|
|
|
|
|
|
(32,185
|
)
|
Investment
tax
credits
|
|
-
|
|
|
8,021
|
|
|
-
|
|
|
|
|
|
8,893
|
|
SFAS
No. 109
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonplant
flow through
|
|
-
|
|
|
(3,108
|
)
|
|
-
|
|
|
|
|
|
(4,935
|
)
|
Depreciation
and property
basis differences
flow through
|
|
-
|
|
|
(52,579
|
)
|
|
-
|
|
|
|
|
|
(53,220
|
)
|
Prior
years flow through
|
|
-
|
|
|
(8,747
|
)
|
|
-
|
|
|
|
|
|
(9,226
|
)
|
Postretirement
benefits other than pension
|
|
471
|
|
|
13,812
|
|
|
3,798
|
|
|
|
|
|
9,382
|
|
Other
|
|
(7,060
|
)
|
|
(1,046
|
)
|
|
(5,889
|
)
|
|
|
|
|
(14,590
|
)
|
Accumulated
deferred federal
and state income
taxes
|
$
|
(23,233
|
)
|
$
|
(436,775
|
)
|
$
|
(17,402
|
)
|
|
|
|
$
|
(449,129
|
)
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Management
considers it more likely than not that all deferred tax assets will be realized.
Consequently, deferred tax assets have not been reduced by a valuation
allowance.
During
2005, the LPSC required Cleco to record deferred tax expense and normalize
the
state tax benefit derived from the casualty losses relating to Hurricanes
Katrina and Rita. Generally, the LPSC requires that Cleco Power flow through
impacts
of state income taxes to current earnings; however, the LPSC found normalization
for state taxes related to storm deductions to be more appropriate due to
the
size of such deductions. This change in treatment resulted in additional
deferred state income tax expense in 2005 and 2006.
The
state
net operating tax loss consists of $28.2
million of carryforwards that expire in 2019 and $12.2 million of carryforwards
that expire in 2020. Deferred state tax benefits are available to the extent
that Cleco has state taxable income prior to expiration of the carryforwards.
Although Cleco currently has not provided a valuation allowance to reduce the
state net operating tax loss, a valuation may be provided in the future if
estimates of future taxable state income are reduced.
Cleco
Power
Federal
income tax expense is less than the amount computed by applying the statutory
federal rate to income before tax, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
|
|
|
|
2006
|
|
|
|
|
2005
|
|
|
|
|
|
2004
|
|
(THOUSANDS,
EXCEPT FOR %)
|
AMOUNT
|
|
|
%
|
|
AMOUNT
|
|
|
%
|
|
AMOUNT
|
|
|
|
%
|
|
Income
before tax
|
$
|
97,887
|
|
|
|
|
100.0
|
|
$
|
96,576
|
|
|
|
|
100.0
|
|
$
|
79,893
|
|
|
|
|
|
100.0
|
|
Tax
at statutory rate on book income before tax
|
$
|
34,260
|
|
|
|
|
35.0
|
|
$
|
33,801
|
|
|
|
|
35.0
|
|
$
|
27,963
|
|
|
|
|
|
35.0
|
|
Increase
(decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect of AFUDC
|
|
(3,899
|
)
|
|
|
|
(4.0
|
)
|
|
(1,871
|
)
|
|
|
|
(2.0
|
)
|
|
(2,068
|
)
|
|
|
|
|
(2.6
|
)
|
Amortization
of investment tax credits
|
|
(1,531
|
)
|
|
|
|
(1.5
|
)
|
|
(1,671
|
)
|
|
|
|
(1.7
|
)
|
|
(1,712
|
)
|
|
|
|
|
(2.1
|
)
|
Tax
effect of prior-year tax benefits not deferred
|
|
3,226
|
|
|
|
|
3.3
|
|
|
3,200
|
|
|
|
|
3.3
|
|
|
3,069
|
|
|
|
|
|
3.8
|
|
Other,
net
|
|
(2,913
|
)
|
|
|
|
(3.0
|
)
|
|
1
|
|
|
|
|
-
|
|
|
(1,236
|
)
|
|
|
|
|
(1.5
|
)
|
Total
federal income tax expense
|
|
29,143
|
|
|
|
|
29.8
|
|
|
33,460
|
|
|
|
|
34.6
|
|
|
26,016
|
|
|
|
|
|
32.6
|
|
Current
and deferred state income tax expense, net of federal benefit for
state
income tax expense
|
|
3,916
|
|
|
|
|
4.0
|
|
|
4,035
|
|
|
|
|
4.2
|
|
|
1,675
|
|
|
|
|
|
2.1
|
|
Total
federal and state income taxes
|
$
|
33,059
|
|
|
|
|
33.8
|
|
$
|
37,495
|
|
|
|
|
38.8
|
|
$
|
27,691
|
|
|
|
|
|
34.7
|
|
Information
about current and deferred income tax expense
is
as follows:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Current
federal income tax (benefit)
expense
|
|
$
|
31,166
|
|
$
|
(37,680
|
)
|
$
|
7,803
|
|
Deferred
federal income tax expense
|
|
|
(492
|
)
|
|
72,811
|
|
|
19,925
|
|
Amortization
of accumulated deferred investment tax credits
|
|
|
(1,531
|
)
|
|
(1,671
|
)
|
|
(1,712
|
)
|
Total
federal income tax expense
|
|
|
29,143
|
|
|
33,460
|
|
|
26,016
|
|
Current
state income tax
(benefit) expense
|
|
|
(97
|
)
|
|
907
|
|
|
1,739
|
|
Deferred
state income tax (benefit)
expense
|
|
|
4,013
|
|
|
3,128
|
|
|
(64
|
)
|
Total
state income tax expense
|
|
|
3,916
|
|
|
4,035
|
|
|
1,675
|
|
Total
federal and state income taxes
|
|
$
|
33,059
|
|
$
|
37,495
|
|
$
|
27,691
|
|
Items
charged or credited directly to stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Federal
deferred
|
|
|
(2,417
|
)
|
|
(231
|
)
|
|
48
|
|
State
deferred
|
|
|
(391
|
)
|
|
(37
|
)
|
|
8
|
|
Total
tax (benefit) expense from items charged directly to stockholders’
equity
|
|
|
(2,808
|
)
|
|
(268
|
)
|
|
56
|
|
Total
federal and state income tax expense
|
|
$
|
30,251
|
|
$
|
37,227
|
|
$
|
27,747
|
|
The
$2.5
million change in total tax (benefit) expense from items charged directly to
stockholders’ equity in 2006 compared
to
2005 was primarily due to the tax effect of other post-employment benefit
adjustments booked to accumulated other comprehensive income per SFAS No. 158.
For additional information, see Note 2 — “Summary of Significant Accounting
Policies — Recent Accounting Standards.”
The
balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 2006, and 2005, was comprised of the tax effect
of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
(THOUSANDS)
|
CURRENT
|
|
NONCURRENT
|
|
CURRENT
|
|
|
|
NONCURRENT
|
|
Depreciation
and property basis differences
|
$
|
(16,644
|
)
|
$
|
(300,390
|
)
|
$
|
(17,614
|
)
|
|
|
|
$
|
(295,607
|
)
|
State
net operating loss
|
|
-
|
|
|
-
|
|
|
2,303
|
|
|
|
|
|
-
|
|
Fuel
costs
|
|
-
|
|
|
(432
|
)
|
|
-
|
|
|
|
|
|
-
|
|
Mark-to-market
|
|
-
|
|
|
(1,047
|
)
|
|
-
|
|
|
|
|
|
-
|
|
Rodemacher
Unit 3
|
|
-
|
|
|
1,714
|
|
|
-
|
|
|
|
|
|
-
|
|
SERP
- other comprehensive income
|
|
-
|
|
|
3,940
|
|
|
-
|
|
|
|
|
|
1,133
|
|
AFUDC
|
|
-
|
|
|
(36,175
|
)
|
|
-
|
|
|
|
|
|
(32,185
|
)
|
Investment
tax
credits
|
|
-
|
|
|
8,021
|
|
|
-
|
|
|
|
|
|
8,893
|
|
SFAS
No. 109
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonplant
flow through
|
|
-
|
|
|
(3,108
|
)
|
|
-
|
|
|
|
|
|
(4,935
|
)
|
Depreciation
and property
basis differences
flow through
|
|
-
|
|
|
(52,579
|
)
|
|
-
|
|
|
|
|
|
(53,220
|
)
|
Prior
years flow through
|
|
-
|
|
|
(8,747
|
)
|
|
-
|
|
|
|
|
|
(9,226
|
)
|
Postretirement
benefits other than pension
|
|
3,158
|
|
|
4,286
|
|
|
5,324
|
|
|
|
|
|
941
|
|
Other
|
|
(9,096
|
)
|
|
(4,053
|
)
|
|
(8,046
|
)
|
|
|
|
|
(6,700
|
)
|
Accumulated
deferred federal and state income taxes
|
$
|
(22,582
|
)
|
$
|
(388,570
|
)
|
$
|
(18,033
|
)
|
|
|
|
$
|
(390,906
|
)
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Management
considers it more likely than not that all deferred tax assets will be realized.
Consequently, deferred tax assets have not been reduced by a valuation
allowance.
During
2005, the LPSC required Cleco Power to record deferred
tax expense and normalize the state tax benefit derived from the casualty losses
relating to Hurricanes Katrina and Rita. Generally, the LPSC requires that
Cleco
Power flow through impacts of state income taxes to current earnings; however,
the LPSC found normalization for state taxes related to storm deductions to
be
more appropriate due to the size of such deductions. This change in treatment
resulted in additional deferred state income tax expense in 2005 and 2006.
Regulatory
assets and liabilities, net recorded for deferred taxes at December 31,
2006,
and
2005, were $94.7 million and $91.0 million, respectively. Regulatory assets
and
liabilities will be realized over the accounting lives of the related properties
to the extent past ratemaking practices are continued by regulators. For
additional information on deferred taxes, see Note 3 — “Regulatory Assets and
Liabilities — Deferred Taxes.”
Note
11 — Disclosures About Segments
Cleco
Cleco’s
reportable segments are based on its method of internal reporting, which
disaggregates business units by first-tier subsidiary. Reportable segments
were
determined by applying SFAS No. 131. Cleco’s reportable segments are Cleco Power
and Midstream.
The
reconciling
items in the following chart consist of the holding company, a shared services
subsidiary, and an investment subsidiary.
Each
reportable segment
engages in business activities from which it earns revenue and incurs
expenses.
Segment
managers report periodically to Cleco’s Chief Executive Officer (the chief
operating decision-maker) with discrete financial information and, at least
quarterly, present discrete financial information to Cleco’s Board of Directors.
Each reportable segment prepared budgets for 2006 that were presented to and
approved by Cleco Corporation’s Board of Directors.
The
financial results of Cleco’s segments are presented on an accrual basis.
Management evaluates the performance of its segments and allocates resources
to
them based on segment profit and the requirements to implement new strategic
initiatives and projects to meet current business objectives. Material
intercompany transactions occur on a regular basis. These intercompany
transactions relate primarily to joint and common administrative support
services provided by Support Group. For information on these services, see
Note
19 — “Affiliate Transactions.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
SEGMENT
INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
2006 (THOUSANDS)
|
|
CLECO
POWER
|
|
MIDSTREAM
|
|
RECONCILING
ITEMS
|
|
ELIMINATIONS
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$
|
959,393
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
959,393
|
|
Other
operations
|
|
|
30,056
|
|
|
42
|
|
|
157
|
|
|
(22
|
)
|
|
30,233
|
|
Electric
customer credits
|
|
|
4,693
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,693
|
|
Affiliate
revenue
|
|
|
49
|
|
|
4,358
|
|
|
1,949
|
|
|
-
|
|
|
6,356
|
|
Intercompany
revenue
|
|
|
2,000
|
|
|
-
|
|
|
42,529
|
|
|
(44,529
|
)
|
|
-
|
|
Operating
revenue, net
|
|
$
|
996,191
|
|
$
|
4,400
|
|
$
|
44,635
|
|
$
|
(44,551
|
)
|
$
|
1,000,675
|
|
Depreciation
expense
|
|
$
|
73,360
|
|
$
|
307
|
|
$
|
1,308
|
|
$
|
-
|
|
$
|
74,975
|
|
Interest
charges
|
|
$
|
36,250
|
|
$
|
18,918
|
|
$
|
7,877
|
|
$
|
(18,774
|
)
|
$
|
44,271
|
|
Interest
income
|
|
$
|
7,425
|
|
$
|
-
|
|
$
|
21,801
|
|
$
|
(18,774
|
)
|
$
|
10,452
|
|
Equity
income (loss)
from investees
|
|
$
|
-
|
|
$
|
24,574
|
|
$
|
(122
|
)
|
$
|
-
|
|
$
|
24,452
|
|
Federal
and state income tax expense
|
|
$
|
33,059
|
|
$
|
4,716
|
|
$
|
4,783
|
|
$
|
(509
|
)
|
$
|
42,049
|
|
Segment
profit (loss)
from continuing operations, net
|
|
$
|
64,828
|
|
$
|
(2,015
|
)
|
$
|
11,857
|
|
$
|
-
|
|
$
|
74,670
|
|
Loss
from
discontinued operations
|
|
|
-
|
|
|
(79
|
)
|
|
-
|
|
|
-
|
|
|
(79
|
)
|
Segment
profit
(loss) (1)
|
|
$
|
64,828
|
|
$
|
(2,094
|
)
|
$
|
11,857
|
|
$
|
-
|
|
$
|
74,591
|
|
Additions
to long-lived assets
|
|
$
|
293,050
|
|
$
|
13
|
|
$
|
531
|
|
$
|
-
|
|
$
|
293,594
|
|
Equity
investment in investees
|
|
$
|
-
|
|
$
|
307,031
|
|
$
|
105
|
|
$
|
-
|
|
$
|
307,136
|
|
Total
segment
assets
|
|
$
|
2,023,852
|
|
$
|
330,019
|
|
$
|
810,532
|
|
$
|
(703,299
|
)
|
$
|
2,461,104
|
|
(1) Reconciliation
of segment profit to consolidated profit:
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
$
|
74,591
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends
requirements,
net of tax
|
|
|
(1,735
|
)
|
|
|
|
|
|
Net
income applicable to common
stock
|
$
|
72,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 (THOUSANDS)
|
|
CLECO
POWER
|
|
MIDSTREAM
|
|
RECONCILING
ITEMS
|
|
ELIMINATIONS
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$
|
874,557
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
874,557
|
|
Other
operations
|
|
|
38,357
|
|
|
113
|
|
|
242
|
|
|
(2
|
)
|
|
38,710
|
|
Electric
customer
credits
|
|
|
(992
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(992
|
)
|
Affiliate
revenue
|
|
|
49
|
|
|
4,871
|
|
|
2,959
|
|
|
-
|
|
|
7,879
|
|
Intercompany
revenue
|
|
|
2,002
|
|
|
42
|
|
|
44,175
|
|
|
(46,219
|
)
|
|
-
|
|
Operating
revenue, net
|
|
$
|
913,973
|
|
$
|
5,026
|
|
$
|
47,376
|
|
$
|
(46,221
|
)
|
$
|
920,154
|
|
Depreciation
expense
|
|
$
|
58,696
|
|
$
|
316
|
|
$
|
1,318
|
|
$
|
-
|
|
$
|
60,330
|
|
Interest
charges
|
|
$
|
27,593
|
|
$
|
15,302
|
|
$
|
12,793
|
|
$
|
(15,153
|
)
|
$
|
40,535
|
|
Interest
income
|
|
$
|
4,355
|
|
$
|
-
|
|
$
|
16,093
|
|
$
|
(15,138
|
)
|
$
|
5,310
|
|
Equity
income (loss) from investees
|
|
$
|
-
|
|
$
|
218,505
|
|
$
|
(64
|
)
|
$
|
-
|
|
$
|
218,441
|
|
Federal
and state income tax expense
|
|
$
|
37,495
|
|
$
|
77,992
|
|
$
|
524
|
|
$
|
(60
|
)
|
$
|
115,951
|
|
Segment
profit from continuing operations, net
|
|
$
|
59,081
|
|
$
|
122,355
|
|
$
|
1,542
|
|
$
|
-
|
|
$
|
182,978
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
(334
|
)
|
|
-
|
|
|
-
|
|
|
(334
|
)
|
Segment
profit (1)
|
|
$
|
59,081
|
|
$
|
122,021
|
|
$
|
1,542
|
|
$
|
-
|
|
$
|
182,644
|
|
Additions
to long-lived assets
|
|
$
|
186,441
|
|
$
|
13
|
|
$
|
939
|
|
$
|
-
|
|
$
|
187,393
|
|
Equity
investment in investees
|
|
$
|
-
|
|
$
|
317,554
|
|
$
|
208
|
|
$
|
-
|
|
$
|
317,762
|
|
Total
segment assets
|
|
$
|
1,765,934
|
|
$
|
338,645
|
|
$
|
658,914
|
|
$
|
(614,005
|
)
|
$
|
2,149,488
|
|
(1) Reconciliation
of segment profit to consolidated profit:
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
$
|
182,644
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends
requirements, net of tax
|
|
|
(1,865
|
)
|
|
|
|
|
|
Net
income applicable to common stock
|
$
|
180,779
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
(THOUSANDS)
|
|
CLECO
POWER
|
|
MIDSTREAM
|
|
RECONCILING
ITEMS
|
|
ELIMINATIONS
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$
|
718,151
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
718,151
|
|
Tolling
operations
|
|
|
-
|
|
|
10,255
|
|
|
-
|
|
|
-
|
|
|
10,255
|
|
Other
operations
|
|
|
30,165
|
|
|
115
|
|
|
259
|
|
|
(6
|
)
|
|
30,533
|
|
Electric
customer credits
|
|
|
(20,889
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,889
|
)
|
Affiliate
revenue
|
|
|
22
|
|
|
4,474
|
|
|
3,271
|
|
|
-
|
|
|
7,767
|
|
Intercompany
revenue
|
|
|
1,860
|
|
|
285
|
|
|
41,350
|
|
|
(43,495
|
)
|
|
-
|
|
Operating
revenue, net
|
|
$
|
729,309
|
|
$
|
15,129
|
|
$
|
44,880
|
|
$
|
(43,501
|
)
|
$
|
745,817
|
|
Depreciation
expense
|
|
$
|
56,731
|
|
$
|
2,197
|
|
$
|
1,002
|
|
$
|
-
|
|
$
|
59,930
|
|
Interest
charges
|
|
$
|
28,445
|
|
$
|
17,764
|
|
$
|
18,526
|
|
$
|
(12,529
|
)
|
$
|
52,206
|
|
Interest
income
|
|
$
|
3,561
|
|
$
|
49
|
|
$
|
12,851
|
|
$
|
(12,505
|
)
|
$
|
3,956
|
|
Equity
income (loss)
from investees
|
|
$
|
-
|
|
$
|
47,538
|
|
$
|
(288
|
)
|
$
|
-
|
|
$
|
47,250
|
|
Federal
and state income tax expense (benefit)
|
|
$
|
27,691
|
|
$
|
12,022
|
|
$
|
(3,690
|
)
|
$
|
(159
|
)
|
$
|
35,864
|
|
Segment
profit (loss) from continuing operations, net
|
|
$
|
52,202
|
|
$
|
17,829
|
|
$
|
(3,912
|
)
|
$
|
-
|
|
$
|
66,119
|
|
Gain
from discontinued operations, including gain on disposal of $1,685,
net of
tax
|
|
|
-
|
|
|
70
|
|
|
-
|
|
|
-
|
|
|
70
|
|
Segment
profit (loss) (1)
|
|
$
|
52,202
|
|
$
|
17,899
|
|
$
|
(3,912
|
)
|
$
|
-
|
|
$
|
66,189
|
|
Additions
to (adjustments
of) long-lived assets
|
|
$
|
78,700
|
|
$
|
(142
|
)
|
$
|
1,315
|
|
$
|
-
|
|
$
|
79,873
|
|
Equity
investment in investees
|
|
$
|
-
|
|
$
|
314,247
|
|
$
|
37
|
|
$
|
-
|
|
$
|
314,284
|
|
Total
segment
assets
|
|
$
|
1,425,388
|
|
$
|
328,512
|
|
$
|
611,578
|
|
$
|
(528,415
|
)
|
$
|
1,837,063
|
|
(1) Reconciliation
of segment profit to consolidated profit:
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
$
|
66,189
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends requirements,
net of tax
|
|
|
(2,216
|
)
|
|
|
|
|
|
Net
loss applicable to common stock
|
$
|
63,973
|
|
|
|
|
Cleco
Power
Cleco
Power is a vertically integrated, regulated electric utility operating within
Louisiana and is viewed as one unit by management.
Discrete financial reports are prepared only at the company level. This approach
is consistent with the standards applicable to segment reporting as defined
by
SFAS No. 131.
Note
12 —
Electric Customer Credits
Cleco’s
reported earnings for December 31, 2006, reflect reversals
of previously accrued credits of $4.7 million under terms of a RSP established
in an earnings review settlement with the LPSC in 1996. Cleco’s reported
earnings for December 31, 2005, and 2004 reflect accruals of $1.0 million and
$4.9 million, respectively, within Cleco Power for electric customer credits
that are expected to be required under the terms of the same RSP. In addition
to
the $4.9 million electric customer credits accrual for the year ending December
31, 2004, Cleco Power recorded a $16.0 million accrual for additional credits
to
retail customers as a result of Cleco Power’s settlement of the 2001-2002 fuel
audit (the $16.0 million was refunded to customers in the first quarter of
2005). Together, the reported customer credits accrual for the year ending
December 31, 2004, is $20.9 million. For information on the LPSC fuel audit
settlement, see Note 18 — “FERC and Fuel Audit Settlements.”
The
original terms of the 1996 LPSC earnings review settlement
were extended without modification to September 30, 2006, through subsequent
amendments and two approved one-year extensions. As part of the settlement,
Cleco Power was allowed to retain all regulated earnings up to a 12.25% return
on equity, and to share equally with customers, as credits on their bills,
all
regulated earnings between 12.25% and 13% return on equity. All regulated
earnings above a 13% return on equity were credited to customers. This
effectively allowed Cleco Power the opportunity to realize a regulatory rate
of
return up to 12.625%. The amount of credits due customers, if any, is determined
by Cleco Power and the LPSC annually, based on results for each 12-month period
ended September 30. The 1996 LPSC settlement provided for such credits to be
made on customers’ bills the following summer.
In
July
2006, Cleco Power’s request for an extension of the RSP to the in-service date
of Rodemacher Unit 3, which is expected to be operational no later than the
fourth quarter of 2009, was approved by the LPSC with several modifications
to
the terms of the original RSP. Effective October 1, 2006, Cleco Power began
operating under the new RSP, which allows Cleco Power to earn a maximum
regulated return on equity of 11.65%. This maximum return is based on a return
on equity of 11.25%, with any regulated earnings between 11.25% and 12.25%
shared between shareholders and customers in a 40/60 ratio. All regulated
earnings over 12.25% will be returned to customers.
In
April
2006, the LPSC approved a recommendation of the LPSC Staff requiring Cleco
Power
to refund $1.3 million to customers relating to Cleco Power’s RSP filings for
the 12-month periods ended September 30, 2002, 2003, and 2004. Cleco Power
refunded the amount as credits on customers’ September 2006 utility bills.
Coincident with the $1.3 million refund, in the first quarter of 2006 Cleco
Power reversed previously accrued customer credits of $3.2 million for the
periods ended September 30, 2002, 2003, and 2004. In this same proceeding,
the
LPSC also reserved the right to further review Cleco Power’s calculation of
working capital included in the filings for the 12-month periods ended September
30, 2002, 2003, and 2004. Cleco Power has reached an agreement of the working
capital issue with the LPSC consultant and anticipates final LPSC approval
of
this resolution in the
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
first
quarter of 2007. In conjunction with this proposed agreement, Cleco Power
reversed previously accrued customer credits in the amount of $0.3
million.
In
April
2006, Cleco Power filed its required monitoring report for the 12-month period
ended September 30, 2005. Cleco Power anticipates a completion of the review
of
this report during 2007. Based on the reassessment of amounts filed in this
monitoring report, the results of the Staff’s review as discussed above, and
projections for the year 2006, in the first quarter of 2006 Cleco Power reversed
$1.2 million of customer credits previously accrued for the 12-month periods
ended September 30, 2005, and 2006. Cleco Power anticipates filing its
monitoring report for the 12-month period ended September 30, 2006, by the
end
of the first quarter of 2007.
Cleco
Power’s Balance Sheets at December 31, 2006, and 2005 reflect the following
accruals for estimated electric customer credits relating to the 12-month
periods ended September 30, 2002, through September 30, 2007.
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Provision
for rate refund
|
|
$
|
3,174
|
|
$
|
7,927
|
|
Other
deferred credits
|
|
|
1,933
|
|
|
3,154
|
|
Total
customer credits
|
|
$
|
5,107
|
|
$
|
11,081
|
|
Amounts
reported under the line item provision for rate refund
relate to the 12-month periods ended September 30, 2002, through September
30,
2004, and reflect estimated amounts due currently. The amounts reported under
the line item other deferred credits currently are not due. All customer credits
relating to Cleco Power’s RSP were recorded as a reduction in revenue due to the
nature of the credits. The accruals are based upon the original 1996 settlement,
the modified terms of the RSP extension, the resolution of the 2001-2002 fuel
audit which was settled in 2004, annual issues as agreed to between Cleco and
the LPSC, and Cleco’s assessment of issues that remain outstanding.
In
February 2006, the LPSC approved Cleco Power’s request
to
recover storm restoration costs incurred for Hurricanes Katrina and Rita. As
part of this approval, the LPSC required that effective during the interim
recovery period (Phase I), which began with the May 2006 billing cycle, Cleco
Power’s portion of the shared regulated earnings between the 12.25% and 13.00%
allowed return on equity (between 11.25% and 12.25% effective October 1, 2006)
be credited against outstanding Katrina and Rita storm restoration costs, rather
than being shared between shareholders and customers. On February 21, 2007,
as a
result of Phase II of the LPSC Staff’s review of storm restoration costs, Cleco
Power and the LPSC Staff signed a settlement term sheet allowing the recovery
of
essentially all of Cleco Power’s Hurricane Katrina and Rita storm
costs. For information concerning this agreement, see Note 24 — “Subsequent
Events — Storm Cost Recovery.” As of December 31, 2006, Cleco Power had not
credited any earnings against storm restoration costs.
Note
13 — Equity Investment in Investees
Equity
investment in investees represents primarily Midstream's
$239.3 million investment in Acadia, owned 50% by APH and 50% by Calpine; its
$62.9 million investment in Evangeline, owned 100% by Midstream; and its $6.9
million investment in Attala, owned 100% by Midstream. These are partially
offset by its $(2.1) million return of investment in Perryville, owned 100%
by
PEH. The remaining $0.1 million relates to equity investments held by Cleco
Innovations, LLC, a wholly owned subsidiary of Cleco Corporation.
Cleco
reports its investment in Acadia, Attala, Evangeline, Perryville and the
investments held by Cleco Innovations LLC on the equity method of
accounting.
Under
the equity method, the assets and liabilities of these entities are reported
as
equity investment in investees on Cleco Corporation’s Consolidated Balance
Sheets. The revenue and expenses (excluding income taxes) of these entities
are
netted and reported as equity income from investees on Cleco Corporation’s
Consolidated Statements of Income.
The
table
below presents the equity income (loss) from each investment accounted for
using
the equity method.
|
|
|
|
|
|
FOR
THE YEAR ENDING DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
APH
|
|
$
|
8,984
|
|
$
|
22,579
|
|
Attala
|
|
|
902
|
|
|
-
|
|
Evangeline
|
|
|
12,362
|
|
|
20,292
|
|
Perryville
|
|
|
2,326
|
|
|
175,633
|
|
Other
|
|
|
(122
|
)
|
|
(63
|
)
|
Total
equity income
|
|
$
|
24,452
|
|
$
|
218,441
|
|
Perryville’s
equity earnings for the year ended December 31, 2005, have been adjusted
retroactively to reflect the reintegration
of Perryville on Cleco Corporation’s consolidated financial results beginning in
the third quarter of 2005. Perryville’s income before taxes and equity income
are different by $7.7 million for the year ended December 31, 2005. The
difference is due to the inclusion in equity income of losses incurred in 2004
resulting from the retroactive reintegration of Perryville. For a discussion
of
the reintegration of Perryville’s and PEH’s financial results, see Note 20 —
“Perryville.”
For
the
year ended December 31, 2006, APH’s equity income
includes the drawing in full of the $15.0 million letter of credit. The letter
of credit, of which APH is the beneficiary, was posted by Calpine to support
its
obligations under the Calpine Tolling Agreements.
Acadia
Cleco’s
current assessment of its maximum exposure to loss at December
31, 2006, consists of its equity investment of $239.3 million.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
table
below presents the components of Midstream's equity
investment in Acadia.
|
|
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
AT
DECEMBER 31, 2006
|
Contributed
assets (cash and land)
|
|
$
|
250,612
|
|
Net
income
|
|
|
105,698
|
|
Capitalized
interest and other
|
|
|
19,469
|
|
Less:
Cash distributions
|
|
|
136,464
|
|
Total
equity investment in investee
|
|
$
|
239,315
|
|
Midstream’s
equity, as reported on the balance sheet of Acadia at December 31, 2006, was
$268.2 million. The difference
of
$28.9 million between the equity investment in investee of $239.3 million as
shown in the table above and Midstream’s equity includes $19.5 million of
interest capitalized on funds contributed to Acadia. It also includes
other miscellaneous charges related to the construction of the Acadia facility
offset by $55.9 million which represents the difference between the accounting
treatments used by the partnership entities to record the allocation of
termination agreement income. The remaining $7.5 million difference is due
to the difference in accounting treatment of the letter of credit draws between
Acadia and APH. The cash distributions of $136.5 million were used to pay
interest and repay principal on debt at Cleco Corporation relating to this
investment.
On
December 20, 2005, the Calpine Debtors, including CES and the subsidiary which
owns the other 50% of Acadia, filed voluntary petitions in the Calpine Debtors
Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy
Code. In February 2006, APH drew $2.8 million against the $15.0 million Calpine
letter of credit due to the default of CES under the tolling agreements. In
August 2006, APH drew the remaining $12.2 million available under Calpine’s
$15.0 million letter of credit. These amounts were reported as equity income
from investees on Cleco Corporation’s Consolidated Statements of Income. For
more information about the bankruptcy filing by the Calpine Debtors and the
letter of credit, see Note 21 — “Calpine Bankruptcy.”
The
table
below contains summarized financial information for Acadia.
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Current
assets
|
|
$
|
6,285
|
|
$
|
6,258
|
|
Property,
plant and equipment, net
|
|
|
437,800
|
|
|
451,759
|
|
Other
assets
|
|
|
-
|
|
|
624
|
|
Total
assets
|
|
$
|
444,085
|
|
$
|
458,641
|
|
Current
liabilities
|
|
$
|
3,897
|
|
$
|
6,878
|
|
Other
liabilities
|
|
|
458
|
|
|
-
|
|
Partners’
capital
|
|
|
439,730
|
|
|
451,763
|
|
Total
liabilities and partners’ capital
|
|
$
|
444,085
|
|
$
|
458,641
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDING DECEMBER 31,
|
(THOUSANDS)
|
2006
|
|
|
|
2005
|
|
2004
|
Total
revenue
|
$
|
154,347
|
|
|
|
$
|
71,402
|
|
$
|
74,693
|
|
Total
operating expenses
|
|
150,953
|
|
|
|
|
40,392
|
|
|
33,405
|
|
Other
(expense) income
|
|
(426
|
)
|
|
|
|
70
|
|
|
13
|
|
Income
before taxes
|
$
|
2,968
|
* |
|
|
$
|
31,080
|
|
$
|
41,301
|
|
*
The $3.0 million income from continuing operations for the year
ended
December 31, 2006, includes the $15.0 million in draws against
the letter
of credit which was allocated 100% to APH
earnings.
|
Income
tax benefit
recorded on APH’s financial statements related to Midstream’s 50% ownership
interest in Acadia was $4.1 million for the year ended December 31, 2006,
compared to income tax expense of $2.9 million and $5.4 million for the years
ended December 31, 2005 and 2004, respectively.
Attala
Cleco’s
current assessment of its maximum exposure to loss at December
31, 2006, consists of its equity investment of $6.9 million. The table below
presents the components of Midstream’s equity investment in Attala. No results
are shown for 2005 due to Attala not commencing operations until January
2006.
|
|
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
AT
DECEMBER 31, 2006
|
Contributed
assets (cash)
|
|
$
|
7,006
|
|
Income
before taxes
|
|
|
902
|
|
Less:
distributions
|
|
|
972
|
|
Total
equity investment in investee
|
|
$
|
6,936
|
|
The
table
below contains summarized financial information for Attala.
|
|
|
|
(THOUSANDS)
|
|
AT
DECEMBER 31, 2006
|
Current
assets
|
|
$
|
249
|
|
Other
assets
|
|
|
6,930
|
|
Total
assets
|
|
$
|
7,179
|
|
Current
liabilities
|
|
$
|
63
|
|
Accounts
payable - affiliate
|
|
|
180
|
|
Member’s
equity
|
|
|
6,936
|
|
Total
liabilities and member’s equity
|
|
$
|
7,179
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDED
|
(THOUSANDS)
|
|
DECEMBER
31, 2006
|
|
Operating
revenue
|
|
$
|
988
|
|
Operating
expenses
|
|
|
86
|
|
Income
before taxes
|
|
$
|
902
|
|
The
$6.9
million in Other Assets in the summarized financial
information for Attala listed above primarily consists of the transmission
assets utilized by Attala in the Interconnection Agreement. These transmission
assets are accounted for as a direct financing lease on Attala’s Balance Sheet
at December 31, 2006.
Income
tax expense recorded on Attala’s
financial statements related to Midstream’s 100% interest in Attala for the year
ended December 31, 2006, was $0.3 million.
Evangeline
Cleco’s
current assessment of its maximum exposure to loss at December 31, 2006,
consists of its equity investment of $62.9 million.
The
table
below presents the components of Midstream's equity
investment in Evangeline.
|
|
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
AT
DECEMBER 31, 2006
|
Contributed
assets (cash)
|
|
$
|
43,580
|
|
Net
income
|
|
|
136,182
|
|
Less:
distributions
|
|
|
116,910
|
|
Total
equity investment in investee
|
|
$
|
62,852
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
The
table
below contains summarized financial information for Evangeline.
Certain
prior year amounts in the following tables have been restated due to incorrect
fixed asset accounting and related depreciation expense recognition. At December
31, 2005, property, plant and equipment, net was reduced by $2.7 million and
other liabilities were reduced by $1.0 million. Depreciation expense increased
by $1.0 million and $0.5 million, and federal and state income taxes were
reduced by $0.4 million and $0.2 million for the years ended December 31, 2005,
and 2004, respectively. While these adjustments are not material to Cleco,
they
are considered material to Evangeline as a stand-alone entity and are reflected
as such on its stand-alone financial statements and are included in the restated
2005 and 2004 amounts in the summarized financial information.
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
|
|
|
|
RESTATED
|
|
Current
assets
|
|
$
|
17,071
|
|
$
|
19,142
|
|
Accounts
receivable - affiliate
|
|
|
5,052
|
|
|
146
|
|
Property,
plant and equipment, net
|
|
|
185,958
|
|
|
191,468
|
|
Other
assets
|
|
|
48,520
|
|
|
46,728
|
|
Total
assets
|
|
$
|
256,601
|
|
$
|
257,484
|
|
Current
liabilities
|
|
$
|
17,453
|
|
$
|
16,649
|
|
Accounts
payable - affiliate
|
|
|
1,643
|
|
|
475
|
|
Long-term
debt, net
|
|
|
177,064
|
|
|
184,716
|
|
Other
liabilities
|
|
|
64,201
|
|
|
58,533
|
|
Member’s
deficit
|
|
|
(3,760
|
)
|
|
(2,889
|
)
|
Total
liabilities and member’s deficit
|
|
$
|
256,601
|
|
$
|
257,484
|
|
|
|
|
|
|
|
|
|
FOR
THE YEAR ENDING DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
RESTATED
|
|
RESTATED
|
|
Operating
revenue
|
|
$
|
58,324
|
|
|
|
$
|
58,030
|
|
$
|
59,084
|
|
Operating
expenses
|
|
|
20,720
|
|
|
|
|
15,528
|
|
|
14,603
|
|
Depreciation
|
|
|
6,353
|
|
|
|
|
6,193
|
|
|
6,180
|
|
Interest
charges
|
|
|
17,152
|
|
|
|
|
17,278
|
|
|
17,841
|
|
Other
income
|
|
|
1,405
|
|
|
|
|
832
|
|
|
277
|
|
Other
expense
|
|
|
1,610
|
|
|
|
|
77
|
|
|
31
|
|
Income
before taxes
|
|
$
|
13,894
|
|
|
|
$
|
19,786
|
|
$
|
20,706
|
|
Federal
and state income taxes
|
|
|
589
|
|
|
|
|
(387
|
)
|
|
326
|
|
Cumulative
change in accounting principle
|
|
|
-
|
|
|
|
|
(500
|
)
|
|
-
|
|
Since
its
inception, Cleco has had 100% ownership and voting interest of Evangeline.
All
of the capacity and output of the power plant has been tolled to Williams,
which pays Evangeline certain fixed and variable amounts.
The
increase in operating expenses in 2006 is primarily due to increased plant
run
time.
At
December 31, 2006, Evangeline had a member’s deficit of $3.8 million. This
deficit was caused by Evangeline’s ability to generate cash, either through
operations or through income tax savings, that was distributed to its member
in
excess of its net income. The deficit did not cause a default under
Evangeline’s
8.82% Senior Secured Bonds due 2019 and is not expected to impact Evangeline’s
ability to fund its operations.
In
addition to the income tax expense reflected in the chart above, income tax
expense recorded on Midstream’s
financial statements related to Midstream’s 100% ownership interest in
Evangeline (subsequent to its deconsolidation) was $7.4 million
for the year ending December 31, 2006, $8.8 million for the year ended December
31, 2005, and $8.2 million for the year ended December 31, 2004.
Perryville
Cleco’s
current assessment of its maximum exposure to loss at December 31,
2006,
consists of its return on investment of $(2.1) million. The negative equity
investment balance in Perryville is due to the allocation of 2002-2006 state
income tax balances to Cleco Corporation, along with a true-up of 2005 federal
income taxes. The total of these adjustments decreased the equity investment
balance by $8.0 million.
The
table
below presents the components of PEH’s return
of
investment in Perryville.
|
|
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
AT
DECEMBER 31, 2006
|
Contributed
assets (cash)
|
|
$
|
102,174
|
|
Net
income
|
|
|
50,285
|
|
Less:
distributions
|
|
|
154,532
|
|
Total
return of investment in investee
|
|
$
|
(2,073
|
)
|
The
table
below contains summarized financial information for Perryville.
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Current
assets
|
|
$
|
39
|
|
$
|
9,249
|
|
Accounts
receivable - affiliate
|
|
|
20
|
|
|
43
|
|
Other
assets
|
|
|
23,697
|
|
|
14,035
|
|
Total
assets
|
|
$
|
23,756
|
|
$
|
23,327
|
|
Current
liabilities
|
|
$
|
4,622
|
|
$
|
7,366
|
|
Accounts
payable - affiliate
|
|
|
9,628
|
|
|
111
|
|
Other
liabilities
|
|
|
328
|
|
|
328
|
|
Member’s
equity
|
|
|
9,178
|
|
|
15,522
|
|
Total
liabilities and member’s equity
|
|
$
|
23,756
|
|
$
|
23,327
|
|
The
decrease in current assets from 2005 to 2006 is primarily
due to the settlement of affiliate receivables with Cleco Corporation and the
decrease in cash from equity distributions from Perryville to PEH.
The
transmission assets utilized by Perryville in the interconnection agreement
with
Entergy Louisiana are accounted for as a direct financing lease by Perryville,
and are included in Other Assets in the summarized financial information above.
The negative amount in operating expenses is primarily due to insurance proceeds
received for a failed transformer.
|
|
|
|
|
|
FOR
THE YEAR ENDING DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Operating
revenue
|
|
$
|
1,055
|
|
$
|
10,316
|
|
Operating
expenses
|
|
|
(1,096
|
)
|
|
8,632
|
|
Depreciation
|
|
|
-
|
|
|
3,135
|
|
Gain
on sale of assets
|
|
|
-
|
|
|
9,622
|
|
Interest
charges
|
|
|
(108
|
)
|
|
5,401
|
|
Other
income
|
|
|
67
|
|
|
207,735
|
|
Other
expense
|
|
|
-
|
|
|
27,135
|
|
Income
before taxes
|
|
$
|
2,326
|
|
$
|
183,370
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Income
tax expense recorded on PEH’s financial statements
related to Midstream’s 100% interest in Perryville for the year ended December
31, 2006, was $1.1 million, and $70.6 million for the year ended December 31,
2005.
Note
14 — Operating Leases
The
following is a schedule of operating leases that Cleco maintains in the ordinary
course of business activities. The majority of Cleco’s operating leases are for
line construction and operating vehicles and for railcars for coal deliveries,
both utilized by Cleco Power.
The
remaining leases provide for office and operating facilities and office
equipment. These leases have various terms and expiration dates. The following
table is a summary of expected operating lease payments for the years
indicated.
|
|
|
|
|
|
|
|
|
|
YEAR
ENDING DECEMBER
31,
|
|
|
|
CLECO
|
|
CLECO
|
|
|
|
(THOUSANDS)
|
|
CORPORATION
|
|
POWER
|
|
TOTAL
|
|
2007
|
|
$
|
79
|
|
$
|
5,332
|
|
$
|
5,411
|
|
2008
|
|
|
2
|
|
|
4,961
|
|
|
4,963
|
|
2009
|
|
|
-
|
|
|
4,344
|
|
|
4,344
|
|
2010
|
|
|
-
|
|
|
3,769
|
|
|
3,769
|
|
2011
|
|
|
-
|
|
|
3,034
|
|
|
3,034
|
|
Thereafter
|
|
|
-
|
|
|
9,373
|
|
|
9,373
|
|
Total
operating lease payments
|
|
$
|
81
|
|
$
|
30,813
|
|
$
|
30,894
|
|
Cleco’s
operating leases for line construction and maintenance
vehicles have a term of seven years with an additional one-year renewal. The
lease payment is determined by taking the equipment’s original cost multiplied
by the adjusted rental factor. Contingent rents are based on the change in
the
LIBOR rate at May 15, 2001, compared to December 31, 2006, 2005, and 2004.
For
the years ended December 31, 2006, 2005, and 2004, lease expense of $1.4
million, $1.3 million, and $0.6 million, respectively, were recognized.
Contingent rents were less than $0.1 million for the years ended December 31,
2006, 2005, and 2004, respectively.
The
railcar leases are divided into two groups. The first group has 120 railcars,
and the lease expires on March 31, 2021. The second group of railcars has 125
cars, and the lease term expires on March 31, 2017. Cleco Power pays a monthly
rental fee per car. For the years ended December 31, 2006, 2005, and 2004,
operating lease expense of $1.0 million,
$1.1 million, and $1.1 million, respectively, was recognized. The railcar leases
do not contain contingent rent payments.
Cleco’s
operating leases for vehicles, office and operating facilities, and office
equipment have lease terms from three to ten years. The monthly lease payment
is
determined by summing the monthly equipment amortization with the lowest monthly
interest rate multiplied by the amortized value. Contingent rents are calculated
by comparing the difference between the lowest rate at December 1984 to the
lowest rate at December 2006, 2005, and 2004. For the years ended December
31,
2006, 2005, and 2004, lease expense of $1.3 million, $1.8 million, and $1.9
million, respectively, was recognized. For the years ended December 31, 2006,
2005, and 2004, contingent rents were approximately $0.1 million
each.
Note
15
— Litigation and Other Commitments and Contingencies
Other
Litigation
On
June
22, 2005, the City of Alexandria, Louisiana (the City), a current wholesale
municipal customer of Cleco Power, filed a lawsuit in Ninth Judicial District
Court against Cleco Corporation,
Cleco Power, and certain other subsidiaries. The lawsuit alleges unspecified
damages as a result of certain sales made to the City, revenue derived by
Cleco
using the City’s power generating facilities under contracts with the City, and
other alleged improper conduct, including, without limitation, allegations
that
Cleco fraudulently mishandled the management of the City’s power requirements
under the contracts. The lawsuit was removed to and currently is pending
in the
U.S. District Court for the Western District of Louisiana. Cleco filed responses
which include claims for unspecified amounts owed by the City to Cleco. On
January 13, 2006, Cleco and the City agreed upon guidelines whereby an audit
and
subsequent mediation of the disputed transactions would be performed. On
February 21, 2006, the court designated KPMG LLP (KPMG) to examine the claims
made by both parties and subsequently serve as the mediator. Under terms
of the
court’s original order, a preliminary audit report was scheduled to be issued to
Cleco’s attorneys and the City’s attorneys by June 30, 2006. Subsequent court
orders rescheduled the issuance date to February 23, 2007. On February 23,
2007,
KPMG delivered a report to outside counsel for each party. Pursuant to a
court
order, outside counsel is prohibited from distributing KPMG’s report or its
content until February 28, 2007, at which time the court will consider the
City’s request to establish protocols for the distribution of the KPMG report.
The KPMG report will be used as the basis for the mediation process. At the
request of the court, the City and Cleco agreed to an additional mediator
who
will be assisted by KPMG. Management believes the dispute will not have a
material adverse effect on the Registrants’ financial condition, results of
operations, or cash flows.
Cleco
is
involved in regulatory, environmental, and legal proceedings before various
courts, regulatory commissions, and governmental agencies regarding matters
arising in the ordinary course of business.
Some of
these proceedings, such as fuel review and environmental issues, could involve
substantial amounts. Management regularly analyzes current information and,
as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. Management believes the disposition of these
matters will not have a material adverse effect on the Registrants’ financial
condition, results of operations, or cash flows. In several lawsuits, Cleco
has
been named as a defendant by individuals who claim injury due to exposure to
asbestos while working at sites in central Louisiana. Most of the claimants
were
workers who participated in the construction of various generation facilities,
and some of the claimants had worked at locations owned by Cleco. With two
exceptions, all filed, asbestos-related
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
lawsuits
have been settled. The result of the settlements had no material impact on
Cleco’s financial condition, results of operations, or cash flows. The two
remaining lawsuits were dismissed by the trial court and have been appealed
by
the claimants. Management believes that the eventual disposition of these
lawsuits will have no material impact on the Registrants’ financial condition,
results of operations, or cash flows. There is no assurance that new
asbestos-related lawsuits will not be filed against the Registrants in the
future.
Off-Balance
Sheet Commitments
Cleco
Corporation and Cleco Power have entered into various off-balance sheet
commitments, in the form of guarantees and standby letters
of
credit, in order to facilitate their activities and the activities of Cleco
Corporation’s subsidiaries and equity investees (affiliates). Cleco Corporation
entered into these off-balance sheet commitments in order to entice desired
counterparties to contract with its affiliates by providing some measure of
credit assurance to the counterparty in the event Cleco’s affiliates do not
fulfill certain contractual obligations. If Cleco Corporation had not provided
the off-balance sheet commitments, the desired counterparties may not have
contracted with Cleco’s affiliates or may have contracted with them at terms
less favorable to its affiliates.
The
off-balance sheet commitments are not recognized on Cleco’s Consolidated Balance
Sheets,
because
it has been determined that Cleco’s affiliates are able to perform these
obligations under their contracts and that it is not probable that payments
by
Cleco will be required. Some of these commitments reduce borrowings available
to
Cleco Corporation under its credit facility pursuant to the terms of the credit
facility. Cleco’s off-balance sheet commitments as of December 31, 2006, are
summarized in the following table, and a discussion of the off-balance sheet
commitments follows the table. The discussion should be read in conjunction
with
the table to understand the impact of the off-balance sheet commitments on
Cleco’s financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
REDUCTIONS
TO THE
|
|
|
|
|
|
|
|
|
AMOUNT
AVAILABLE
|
|
|
|
|
|
|
|
|
TO
BE DRAWN ON
|
|
|
FACE
|
|
|
|
NET
|
|
CLECO
CORPORATION’S
|
|
(THOUSANDS)
|
AMOUNT
|
|
REDUCTIONS
|
|
AMOUNT
|
|
CREDIT
FACILITY
|
|
Cleco
Corporation
|
|
|
|
|
|
|
|
|
Guarantee
issued to Entergy companies for performance obligations of
Perryville
|
$
|
277,400
|
|
$
|
135,000
|
|
$
|
142,400
|
|
$
|
328
|
|
Guarantees
issued to purchasers of the assets of Cleco Energy
|
|
1,400
|
|
|
-
|
|
|
1,400
|
|
|
1,400
|
|
Obligations
under standby letter of credit issued to the Evangeline
Tolling Agreement counterparty
|
|
15,000
|
|
|
-
|
|
|
15,000
|
|
|
15,000
|
|
Guarantee
issued to Central Mississippi Generating Co. on behalf of Attala
|
|
363
|
|
|
-
|
|
|
363
|
|
|
363
|
|
Guarantee
issued to Entergy Mississippi on behalf of Attala
|
|
500
|
|
|
-
|
|
|
500
|
|
|
500
|
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
under standby letter of credit issued to Louisiana Department of
Labor
|
|
525
|
|
|
-
|
|
|
525
|
|
|
-
|
|
Obligations
under the Lignite Mining Agreement
|
|
11,659
|
|
|
-
|
|
|
11,659
|
|
|
-
|
|
Obligations
under standby letter of credit issued to Louisiana Department of
Wildlife
and Fisheries
|
|
85
|
|
|
-
|
|
|
85
|
|
|
-
|
|
Total
|
$
|
306,932
|
|
$
|
135,000
|
|
$
|
171,932
|
|
$
|
17,591
|
|
Cleco
Corporation provided a limited guarantee to Entergy Louisiana and Entergy Gulf
States for Perryville’s performance,
indemnity, representation, and warranty obligations under the Sale Agreement,
the Power Purchase Agreement, and other ancillary agreements related to the
sale
of the Perryville facility. As of December 31, 2006, the aggregate guarantee
of
$277.4 million is limited to $142.4 million (other than with respect to the
indemnification of environmental matters to which there is no limit) due to
the
performance of some of the underlying obligations that were guaranteed. The
discounted probability-weighted liability under the guarantees and
indemnifications as of December 31, 2006, was $0.3 million, resulting in a
corresponding reduction in the available credit under Cleco’s credit facility,
which was determined in accordance with the facility’s definition of a
contingent obligation. The contingent obligation reduces the amount available
under the credit agreements by an amount equal to the reasonably anticipated
liability in respect of the contingent obligation as determined in good faith
if
the total amount of indebtedness outstanding, including such contingent
obligations, exceeds certain thresholds. For additional information on this
guarantee, see Note 17 — “Disclosures about Guarantees.”
In
November 2004, Cleco completed the sale of substantially all of the assets
of
Cleco Energy. Cleco Corporation provided guarantees to the buyers of Cleco
Energy’s assets for the payment and performance of the indemnity obligations of
Cleco Energy. The aggregate amount of the guarantees is $1.4 million, and the
guarantees expire in 2009. The purchaser of Cleco Energy’s assets has invoked
its indemnification provisions pursuant to the purchase and sale agreement
that
Cleco guaranteed, as a result of a lawsuit filed against the purchaser and
Cleco
Energy (related to the price charged for certain natural gas sales by Cleco
Energy). The lawsuit has been settled, and the settlement had no material impact
on Cleco’s
financial condition, results of operations, or cash flows. The settlement of
the
lawsuit had no effect on the $1.4 million guarantee.
If
Evangeline fails to perform certain obligations under its tolling agreement,
Cleco Corporation will be required to make payments to the Evangeline Tolling
Agreement counterparty. Cleco Corporation’s obligation under the Evangeline
commitment is in the form of a standby letter of credit from investment grade
banks and is limited to $15.0 million. Ratings triggers do not exist in the
Evangeline Tolling Agreement. Cleco expects Evangeline to be able to meet
its
obligations under the
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
tolling
agreement and does not expect Cleco Corporation to be required to make payments
to the counterparty. However, under the covenants associated with Cleco
Corporation’s credit facility, the entire net amount of the Evangeline
commitment reduces the amount that can be borrowed under the credit facility.
The letter of credit for Evangeline is expected to be renewed annually until
2020.
On
March
16, 2005, Cleco Corporation issued a guarantee to Central Mississippi Generating
Company, LLC for Attala’s obligations and liabilities under the purchase and
sale agreement between Central Mississippi Generating Company, LLC and Attala.
This agreement provides for the acquisition of transmission assets by Attala,
including Attala’s obligations to pay the purchase price for the assets and to
indemnify the seller. The maximum amount originally payable under the guarantee
was $6.9 million. On January 20, 2006, Cleco completed the purchase of the
transmission assets, and the guarantee was reduced to $0.7 million. On July
21,
2006, the guarantee amount was reduced to $0.4 million, pursuant to the terms
of
the purchase and sale agreement. On January 20, 2007, the guarantee expired.
In
addition, on January 20, 2006, Cleco Corporation provided a $0.5 million
guarantee to Entergy Mississippi for Attala’s obligations under the
Interconnection Agreement. This guarantee has no time limit.
The
State
of Louisiana allows employers of certain financial net worth to self-insure
their workers’ compensation benefits. Cleco Power applied to the Louisiana
Office of Workers' Compensation for a certificate of self-insurance. The State
of Louisiana required Cleco Power to post a $0.5 million letter of credit,
an
amount equal to 110% of the average losses over the previous three years, as
surety.
As
part
of the Lignite Mining Agreement entered into in 2001, Cleco Power and SWEPCO,
joint owners of Dolet Hills, have agreed to pay the lignite miner’s loan and
lease principal obligations when due, if the lignite miner does not have
sufficient funds or credit to pay. Any amounts paid on behalf of the miner
would
be credited by the lignite miner against the next invoice for lignite delivered.
At December 31, 2006, Cleco Power’s 50% exposure for this obligation was
approximately $11.7 million. The lignite mining contract is in place until
2011
and does not affect the amount Cleco Corporation can borrow under its credit
facility.
On
December 1, 2006, Cleco Power issued a standby letter of credit to the Louisiana
Department of Wildlife and Fisheries in order to obtain a permit to allow for
dredging operations at the Rodemacher Unit 3 site. The letter of credit is
for
approximately $0.1 million and will expire on April 1, 2007.
The
following table summarizes the expected termination date of the guarantees
and
standby letters of credit discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
2006
|
|
|
|
|
|
AMOUNT
OF COMMITMENT EXPIRATION
PER PERIOD
|
|
|
|
NET
|
|
|
|
|
|
|
|
MORE
|
|
|
|
AMOUNT
|
|
LESS
THAN
|
|
|
|
|
|
THAN
|
|
(THOUSANDS)
|
|
COMMITTED
|
|
ONE
YEAR
|
|
1-3
YEARS
|
|
3-5
YEARS
|
|
5
YEARS
|
|
Guarantees
|
|
$
|
156,322
|
|
$
|
363
|
|
$
|
1,400
|
|
$
|
111,659
|
|
$
|
42,900
|
|
Standby
letters of credit
|
|
|
15,610
|
|
|
610
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
Total
commercial commitments
|
|
$
|
171,932
|
|
$
|
973
|
|
$
|
1,400
|
|
$
|
111,659
|
|
$
|
57,900
|
|
Long-term
Purchase Obligations
Cleco
Corporation had no unconditional long-term purchase obligations at December
31,
2006.
Cleco
Power has several unconditional long-term purchase obligations related to the
purchase of lignite, coal, energy capacity, and energy delivery facilities.
The
aggregate amount of payments required under such obligations at December 31,
2006, is as follows:
|
|
|
|
YEAR
ENDING DECEMBER 31,
|
|
(THOUSANDS)
|
|
2007
|
|
$
|
18,723
|
|
2008
|
|
|
17,144
|
|
2009
|
|
|
11,964
|
|
2010
|
|
|
7,977
|
|
2011
|
|
|
3,193
|
|
Thereafter
|
|
|
4,719
|
|
Total
long-term purchase obligations
|
|
$
|
63,720
|
|
Payments
under these agreements for the years ended December 31, 2006, 2005, and 2004
were $13.4 million, $13.0 million, and $14.9 million, respectively.
Acadia
In
May
2005,
a
detailed review of the gas and electric metering at the Acadia plant resulted
in
the discovery of a potential electric metering error whereby Acadia unknowingly
generated excess power to its electric interconnections for the period beginning
June 1, 2002, and ending May 31, 2005. Acadia has made a claim against Cleco
Power for the delivery of the excess generation for which it has not received
compensation. Cleco Power has evaluated the claim and communicated to Acadia
that to the extent any unmetered power was generated, Entergy received the
predominant benefit of that power and therefore Acadia’s claim, if any, is
primarily against Entergy rather than Cleco Power. Acadia has responded,
insisting that its claim against Cleco Power is valid. As such, in a letter
dated July 19, 2006, Acadia demanded compensation from Cleco Power totaling
approximately $4.5 million, allegedly representing the value of the energy
delivered. Cleco Power continues to assert that Acadia’s claim is against Entergy,
not Cleco Power. The three parties are attempting to resolve the
dispute.
On
December 20, 2005, the Calpine Debtors filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the Calpine Debtors Bankruptcy
Court. For more information about the Calpine Bankruptcy, see Note 21 — “Calpine
Bankruptcy.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Other
Contingencies
General
Electric Services Corporation
Cleco
Power has entered into an operating lease agreement with General Electric
Services Corporation for leasing of railcars
in
order to transport coal deliveries to its Rodemacher Power Station. The lease
contains a provision for early termination, along with an associated termination
fee. The termination provision can only be exercised in December 2010. If
exercised by Cleco Power, the termination fee would be approximately $1.4
million. At this time, Cleco Power has no plans to early terminate this
lease.
CBL
Capital Corporation
Cleco
Power has entered into an operating lease agreement with CBL Capital
Corporation. This is a master leasing agreement for company vehicles and other
equipment. The lease contains a provision
for
early termination, along with an associated termination fee. At any time during
the lease, Cleco Power may terminate the agreement. The termination fee is
based
upon the unamortized residual value of the equipment under lease at the end
of
the month of termination. The fee is decreased by any sale proceeds obtained
by
CBL Capital Corporation. Cleco Power would be liable for 87% of the termination
fee net of any sale proceeds. Cleco Power’s maximum obligation at December 31,
2006, is approximately $2.5 million. At this time, Cleco Power has no plans
to
terminate this lease prior to expiration of the lease term.
FERC
Staff Investigation
In
November 2005, after a review of Cleco’s October 2005 quarterly compliance
report, the FERC Staff initiated a preliminary,
non-public investigation into certain representations made by Cleco. In response
to data requests from the FERC Staff, Cleco provided information regarding
those
representations as well as compliance with the Code of Conduct and Compliance
Plan contained in the Consent Agreement. The information primarily concerns
the
possible sharing of employees and information among Cleco’s subsidiaries, as
well as the accuracy of information furnished to the FERC Staff in connection
with reporting on compliance with the Consent Agreement. Discussions with the
FERC Staff are ongoing. Management is unable to predict the results of the
outcome of the investigation, which are not expected, but could have a material
adverse effect on the Registrants’ results of operations and cash flows.
Fuel
Audit
On
July
14, 2006, the LPSC informed Cleco Power that it was planning to conduct a
periodic fuel audit. The audit commenced on July 26, 2006, and included fuel
adjustment clause filings for January 2003 through December 2004. Cleco Power
has produced to the LPSC Staff all of the requested information. The audit
is
pursuant to the Fuel Adjustment Clause General Order issued November 6, 1997,
in
Docket No. U-21497 which anticipates that an audit will be performed not less
than every other year. This review is ongoing and Cleco Power anticipates that
a
preliminary consultant’s report will be issued to the LPSC during 2007.
Management is unable to predict the results of the LPSC audit, which could
require Cleco Power to refund previously recovered revenue and could result
in a
significant material adverse effect on the Registrants’ results of operations,
financial condition, and cash flows.
Other
Cleco
has
accrued for liabilities to third parties, employee medical benefits, storm
damages, and deductibles under insurance
policies that it maintains on major properties, primarily generation stations
and transmission substations.
Consistent
with regulatory treatment, annual charges to operating expenses to provide
a
reserve for future storm damages are based upon the average amount of
noncapital, uninsured storm damages experienced by Cleco Power during
the
previous six years, excluding costs for Hurricanes Katrina and Rita for which
Cleco Power is requesting authorization from the LPSC to recover.
Risks
and Uncertainties
Cleco
Corporation
Cleco
Corporation could be subject to possible adverse consequences
if Cleco’s counterparties fail to perform their obligations or if Cleco
Corporation or its affiliates are not in compliance with loan agreements or
bond
indentures.
Williams
The
credit ratings of the senior unsecured debt of The Williams
Companies, Inc. (Moody’s - Ba2; Standard & Poor’s - BB-), the parent company
of Williams under the Evangeline Tolling Agreement, remains below investment
grade. The following list discusses some possible adverse consequences if
Williams should fail to perform its obligations under the Evangeline Tolling
Agreement:
§ |
If
Williams’ failure to perform constituted a default under the tolling
agreement, the holders of the Evangeline bonds would have the right
to
declare the entire outstanding principal amount ($184.7 million at
December 31, 2006) and interest to be immediately due and payable,
which
could result in:
|
§ |
Cleco
seeking to refinance the bonds, the terms of which may be less favorable
than existing terms;
|
§ |
Cleco
causing Evangeline to seek protection under federal bankruptcy laws;
or
|
§ |
the
trustee of the bonds foreclosing on the mortgage and assuming ownership
of
the Evangeline plant;
|
§ |
Cleco
may not be able to enter into agreements in replacement of the Evangeline
Tolling Agreement on terms as favorable as that agreement or at
all;
|
§ |
Cleco’s
equity investment in Evangeline may be impaired, requiring a write-down
to
its fair market value, which could be substantial;
and
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
§ |
Cleco’s
credit ratings could be downgraded, which would increase borrowing
costs
and limit sources of financing.
|
CES
On
December 20, 2005, the Calpine Debtors filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the Calpine Debtors Bankruptcy
Court, and on December 21, 2005, the Calpine Debtors filed a motion with the
court seeking to reject the Calpine Tolling Agreements. For additional
information on the Calpine bankruptcy, see — Note 21 — “Calpine Bankruptcy.”
Although
neither Acadia nor Cleco were required to record an impairment of their assets
or equity investment at December
31,
2006, future events could cause the valuation of those assets or equity
investment to be higher than market whereby an impairment would be required
and
Cleco’s financial condition would be adversely affected.
Other
Financing
for operational needs and construction requirements
is
dependent upon the cost and availability of external funds from capital markets
and financial institutions. Access to funds is dependent upon factors such
as
general economic conditions, regulatory authorizations and policies, the credit
ratings of Cleco Corporation and Cleco Power, the cash flows from routine
operations and the credit ratings of project counterparties. If Cleco
Corporation’s credit rating was to be downgraded by Moody’s or by Standard &
Poor’s, Cleco Corporation would be required to pay additional fees and higher
interest rates under its bank credit and other debt agreements.
Cleco
Power
Cleco
Power supplies a portion of its customers’ electric power requirements from
its
own
generation facilities. In addition to power obtained from power purchase
agreements, Cleco Power purchases power from other utilities and marketers
to
supplement its generation at times of relatively high demand or when the
purchase price of power is less than its own cost of generation. Because of
its
location on the transmission grid, Cleco Power relies on two main suppliers
of
electric transmission when accessing external power markets. At times,
constraints limit the amount of purchased power these transmission providers
can
deliver into Cleco Power’s service territory.
Financing
for operational needs and construction requirements
is
dependent upon the cost and availability of external funds from capital markets
and financial institutions. Access to funds is dependent upon factors such
as
general economic conditions, regulatory authorizations and policies, the credit
ratings of Cleco Corporation and Cleco Power, the cash flows from routine
operations and the credit ratings of project counterparties. If Cleco Power’s
credit rating was to be downgraded by Moody’s or by Standard & Poor’s, Cleco
Power would be required to pay additional fees and higher interest rates under
its bank credit and other debt agreements.
Note
16
— Discontinued Operations and Dispositions
In
late
2003, Cleco decided to sell Cleco Energy. Management
formed two disposal groups comprised of the Company’s natural gas pipeline and
marketing operations and the Company’s oil and gas production properties.
In
September 2004, Cleco Energy completed the sale of the second disposal group
for
a gross sales price of $0.8 million (subject to certain adjustments). This
resulted in a $0.3 million loss for the year ended December 31, 2004. In
November 2004, Cleco Energy completed the sale of the first disposal group
for a
gross sales price of $9.1 million (subject to certain adjustments). This
resulted in a $2.0 million gain for the year ended December 31, 2004. Both
the
$0.3 million loss and $2.0 million gain are netted and included in discontinued
operations, gain from disposal of segment, net of tax in Cleco Corporation’s
Consolidated Statements of Income.
For
information on guarantees entered into related to the sale of the disposal
groups, see Note 15 — “Litigation and Other Commitments and Contingencies —
Off-Balance Sheet Commitments.” For additional information on impairments
related to Cleco Energy, see Note 2 — “Summary of Significant Accounting
Policies.”
The
following table summarizes the operating results that have been classified
as
discontinued operations on Cleco Corporation’s Consolidated Statements of Income
and are reported in the Midstream segment in Note 11 — “Disclosures about
Segments.” Prior period results have been reclassified from income from
continuing operations to discontinued operations.
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
DISCONTINUED
OPERATIONS (THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
revenue,
net
|
|
$
|
-
|
|
$
|
-
|
|
$
|
44,355
|
|
Pre-tax
operating loss
|
|
|
(196
|
)
|
|
(499
|
)
|
|
(2,473
|
)
|
Federal
and state income tax benefit
|
|
|
(117
|
)
|
|
(165
|
)
|
|
(858
|
)
|
Operating
loss, net of tax
|
|
|
(79
|
)
|
|
(334
|
)
|
|
(1,615
|
)
|
Gain
from
disposal, net of tax expense of $907
|
|
|
-
|
|
|
-
|
|
|
1,685
|
|
Total
(loss) income
|
|
$
|
(79
|
)
|
$
|
(334
|
)
|
$
|
70
|
|
Note
17
— Disclosures About Guarantees
Cleco
Corporation and Cleco Power have agreed to contractual
terms that require them to pay third parties if certain triggering events occur.
These contractual terms generally are defined as guarantees in FIN 45.
Guarantees issued or modified after December 31, 2002, that fall within the
initial recognition scope of FIN 45 are required to be recorded as a liability.
Outstanding
guarantees that fall within the disclosure scope of FIN 45 are required to
be
disclosed for all accounting periods ending after December 15,
2002.
Guarantees
and indemnifications were issued in connection
with the sale of the generation assets to Entergy Louisiana by Perryville.
These
guarantees and indemnifications fall within the recognition scope of FIN
45
because they relate to the past performance, indemnity, representation, and
warranty obligations of the disposed assets and also contain provisions
requiring payment for potential damages. The potential length of these
liabilities range from a five-year life to an indefinite life. Each
indemnification and guarantee was assigned a
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
probability
and an estimate of potential damages. The maximum aggregate potential damages
under the guarantees and indemnifications are $42.4 million (excluding maximum
aggregate potential damages of $100.0 million for discharge of project debt
discussed in more detail below and the indemnification of environmental matters
to which there is no limit). On June 30, 2005, Perryville paid all interest
and
principal owed under the Senior Loan Agreement, and on July 19, 2005, it
exercised offset rights against MAI to satisfy its obligations of $98.7 million
under the Subordinated Loan Agreement. As a result, it is unlikely that Cleco
Corporation will have any other liabilities which would give rise to indemnity
claims against Perryville and trigger any actual obligation under the $100.0
million portion of the guarantee which terminates on June 30, 2010. The
discounted probability-weighted liability under the guarantees and
indemnifications as of December 31, 2006, calculated in accordance with FIN
45,
was $0.3 million. For information on the sale of the generation assets of
Perryville, see Note 20 — “Perryville.”
Guarantees
and indemnifications were issued in connection with the asset sales of Cleco
Energy's oil and gas properties and natural gas pipelines. These guarantees
and
indemnifications fall within the recognition scope of FIN 45, because they
relate to the past performance obligations of the disposed assets and also
contain provisions requiring payment for potential damages. The potential
liabilities expire either after a two- or five-year life. Each indemnification
and guarantee was assigned probabilities and estimates of potential damages.
On
September 15, 2006, the portion of the guarantee with a two-year life expired.
The maximum aggregate potential payment under the guarantees and
indemnifications is $1.2 million. The discounted probability-weighted liability
under the guarantees and indemnifications as of December 31, 2006, was less
than
$0.1 million. The buyers of the Cleco Energy assets would be entitled to amounts
under the guarantees and indemnifications due to breach or default of
performance of Cleco Energy under their respective sale agreements. Cleco
Corporation has guaranteed Cleco Energy’s indemnification obligations under the
sale agreements. Maximum potential payments under the Cleco Corporation
guarantees are $1.4 million but are not within the recognition scope of FIN
45.
The purchaser of Cleco Energy’s assets has invoked its indemnification
provisions pursuant to the purchase and sale agreement that Cleco guaranteed,
as
a result of a lawsuit filed against the purchaser and Cleco
Energy
(related to the price charged for certain natural gas sales by Cleco Energy).
The lawsuit has been settled, and the settlement had no material impact on
Cleco’s financial condition, results of operations, or cash flows. The
settlement of the lawsuit had no effect on the $1.4 million
guarantee.
In
its
bylaws, Cleco Corporation has agreed to indemnify directors, officers, agents
and employees who are made a party to a pending or completed suit, arbitration,
investigation, or other proceeding whether civil, criminal, investigative or
administrative, if the basis of inclusion arises as the result of acts conducted
in the discharge of their official capacity. Cleco Corporation has purchased
various insurance policies to reduce the risks associated with the
indemnification. In its Operating Agreement, Cleco Power provides for the same
indemnifications as described above with respect to its managers, officers,
agents, and employees.
Cleco
Corporation has issued guarantees and a letter of credit to support the
activities of Perryville, Attala, and Evangeline. These commitments are not
within the scope of FIN 45, since these are guarantees of performance by wholly
owned subsidiaries. For information regarding these commitments, see Note 15
—
“Litigation and Other Commitments and Contingencies — Off-Balance Sheet
Commitments.”
Under
the
Lignite Mining Agreement, Cleco Power and SWEPCO have agreed to pay the lignite
miner’s loan and lease principle obligation. For information on the Lignite
Mining Agreement, see Note 15 — “Litigation and Other Commitments and
Contingencies — Off-Balance Sheet Commitments.”
Generally,
neither Cleco Corporation nor Cleco Power has recourse that would enable them
to
recover amounts paid under the guarantees. The one exception is the insurance
contracts associated with the indemnifications issued to directors, managers,
officers, agents and employees. There are no assets held as collateral for
third
parties that either Cleco Corporation or Cleco Power could obtain and liquidate
to recover amounts paid pursuant to the guarantees.
Note
18
— FERC and Fuel Audit Settlements
FERC
Settlement
On
July
25, 2003, the FERC issued an order approving a Consent
Agreement between the FERC Staff and Cleco that settled the FERC investigation
following Cleco’s disclosure in November 2002 of certain energy marketing and
trading practices. The terms of the Consent Agreement, effective on August
24,
2003, included, but were not limited to: (i) filing revised codes of conduct
by
Cleco’s public utility subsidiaries that impose more stringent restrictions on
affiliate relations; (ii) implementation of a Compliance Plan for FERC
regulatory compliance; and (iii) payment of certain penalties and remedies,
including payment of a $0.8 million civil penalty to the FERC.
The
Compliance Plan requires that Cleco obtain from the FERC Staff their approval
of
the plan’s policies and procedures.
On April 7, 2004, the FERC Staff confirmed, in writing, Cleco’s substantial
compliance to date with the Consent Agreement
and Compliance Plan. On October 25, 2005, an external audit of Cleco’s
compliance with the requirements of the Compliance Plan for the period August
25, 2004, to August 23, 2005, was provided to the FERC. In November 2005, the
FERC Staff began an investigation into certain representations made by Cleco
during the FERC Staff’s review of the Compliance Plan. Cleco has provided
additional information to the FERC Staff primarily concerning the possible
sharing of employees and information among Cleco’s subsidiaries and the accuracy
of information furnished to the FERC Staff in connection with reporting on
compliance with the Consent Agreement.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
On
October 26, 2006, Cleco filed with the FERC the results of the external audit
of
Cleco’s compliance with the requirements of the Compliance Plan for the
period August 24, 2005, to August 23, 2006.
2001-2002
Fuel Audit Settlement
The
2001-2002 Fuel Audit
commenced in March 2003 and included Fuel Adjustment Clause filings for January
2001 through December 2002. In July 2004, the LPSC issued an order approving
settlement of the fuel audit and related issues with the LPSC Staff and
intervenors in the fuel audit proceeding. The settlement of the LPSC fuel audit
and related trading issues called for Cleco Power to refund $16.0 million to
its
retail customers, which was completed in February 2005. This also resolved
issues related to recovery of fuel and purchased power expenses for 2001 and
2002, including related gas put options and gas transportation charges, and
all
trading issues covered by the audit. Cleco Power’s pre-tax earnings in the
second quarter of 2004 were reduced by $10.0 million due to the settlement,
which represented the amount of the customer refund and intervenors’ attorney
fees associated with the settlement, less amounts previously recorded in
conjunction with issues covered by the settlement.
2003-2004
Fuel Audit
In
July
2006, the LPSC began a periodic fuel audit of Cleco Power’s fuel adjustment
clause filings for January 2003 through December 2004. The audit, as well as
the
audit of the years 2001 and 2002 mentioned above, is pursuant to the Fuel
Adjustment Clause General Order issued November 6, 1997, in Docket No. U-21497,
which anticipates that an audit will be performed not less than every other
year. The review is on-going and Cleco Power has not received any preliminary
results
from the LPSC Staff.
Fuel
Cost Prudency Review
In
November 2005, due to the increased price of natural gas and its effect on
the
cost of generating fuel and purchased power, the LPSC established a proceeding,
Docket No. U-29174, to review the prudency of utility fuel costs incurred
during
the
period January 1, 2005, through October 31, 2005. This review was completed
in
April 2006. The LPSC’s conclusion was that Cleco’s operations during this time
period were reasonable.
Note
19
— Affiliate Transactions
Cleco
Cleco
has
affiliate balances that were not eliminated as of December
31, 2006. The balances were not eliminated due to the use of the equity method
of accounting for Evangeline, Perryville and Attala. For information on these
deconsolidations, see Note 13 — “Equity Investment in Investees” and Note 20 —
“Perryville — Financial Results.”
Effective
July 1, 1999, Cleco entered into service agreements
with affiliates that provide Cleco access to professional services and goods.
Services and goods provided by Cleco Power are charged at management’s estimate
of fair market value or fully loaded cost, whichever is higher. Services
provided to Cleco Power are charged at management’s estimate of fair market
value or fully loaded cost, whichever is lower, with the exception of Support
Group, which charges only fully loaded cost in order to comply with Cleco’s
affiliate policy.
Affiliate
goods and services received by Cleco primarily involve services provided by
Support Group and Generation Services. Support Group provides joint and common
administrative
support services in the areas of information technology; finance, cash
management, accounting and auditing; human resources; corporate communications;
project consulting; risk management; strategic and corporate development; legal,
ethics and regulatory compliance; facilities management; supply chain and
inventory management and other administrative services. Generation Services
provides electric power plant operations and maintenance expertise. Following
is
a summary of charges from each affiliate included in Cleco Corporation’s
Statements of Income:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Support
Group
|
|
|
|
|
|
|
|
Other
operations
|
|
$
|
1,524
|
|
$
|
1,923
|
|
$
|
2,149
|
|
Maintenance
|
|
|
265
|
|
|
828
|
|
|
902
|
|
Taxes
other than income taxes
|
|
|
(1
|
)
|
|
10
|
|
|
9
|
|
Income
taxes
|
|
|
(5
|
)
|
|
(7
|
)
|
|
11
|
|
Other
expenses
|
|
|
(27
|
)
|
|
15
|
|
|
54
|
|
Interest
charges
|
|
|
-
|
|
|
2
|
|
|
2
|
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
|
51
|
|
|
62
|
|
|
22
|
|
Maintenance
|
|
|
56
|
|
|
139
|
|
|
-
|
|
Other
expenses
|
|
|
-
|
|
|
5
|
|
|
-
|
|
Generation
Services
|
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
|
1,374
|
|
|
1,876
|
|
|
1,759
|
|
Maintenance
|
|
|
1,955
|
|
|
2,125
|
|
|
2,026
|
|
CLE
Intrastate
|
|
|
|
|
|
|
|
|
|
|
Fuel
purchased
|
|
|
949
|
|
|
848
|
|
|
620
|
|
Following
is a reconciliation of Cleco intercompany
revenue:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Evangeline
|
|
$
|
6,344
|
|
$
|
5,702
|
|
$
|
4,306
|
|
Perryville
|
|
|
10
|
|
|
2,177
|
|
|
3,461
|
|
Attala
|
|
|
2
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
6,356
|
|
$
|
7,879
|
|
$
|
7,767
|
|
Cleco
had
the following affiliate receivable and payable balances associated with the
service agreements between Cleco and its affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
(THOUSANDS)
|
|
RECEIVABLE
|
|
PAYABLE
|
|
RECEIVABLE
|
|
PAYABLE
|
|
Evangeline
|
|
$
|
1,643
|
|
$
|
5,052
|
|
$
|
989
|
|
$
|
1,316
|
|
Perryville
|
|
|
9,628
|
|
|
20
|
|
|
82
|
|
|
2,123
|
|
Attala
|
|
|
180
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
11,451
|
|
$
|
5,072
|
|
$
|
1,071
|
|
$
|
3,439
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Cleco
Power
Effective
July 1, 1999, Cleco Power entered into service agreements with affiliates
that
provide Cleco Power access
to
professional
services and goods. The services and goods are charged to Cleco Power at
management’s estimate of fair market value or fully loaded cost, whichever is
lower, with the exception of Support Group, which charges only fully loaded
cost
in order to comply with Cleco’s affiliate policy.
Affiliate
goods and services received by Cleco Power primarily
involve services provided by Support Group. Support Group provides joint and
common administrative support services in the areas of information technology;
finance, cash management, accounting and auditing; human resources; corporate
communications; project consulting; risk management; strategic and corporate
development; legal, ethics and regulatory compliance; facilities management;
supply chain and inventory management and other administrative services. It
also
provides electric power plant operations, maintenance, and engineering expertise
to Cleco Power. A summary of charges from each affiliate included in the
Statements of Income of Cleco Power follows:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Support
Group
|
|
|
|
|
|
|
|
Other
operations
|
|
|
34,825
|
|
|
32,942
|
|
|
30,129
|
|
Maintenance
|
|
|
2,688
|
|
|
4,768
|
|
|
4,050
|
|
Taxes
other than income taxes
|
|
|
109
|
|
|
125
|
|
|
101
|
|
Other
expenses
|
|
|
1,128
|
|
|
527
|
|
|
600
|
|
Interest
charges
|
|
|
-
|
|
|
14
|
|
|
-
|
|
Income
taxes
|
|
|
466
|
|
|
42
|
|
|
-
|
|
Midstream
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
1
|
|
|
-
|
|
|
-
|
|
Evangeline
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
4
|
|
|
4
|
|
|
-
|
|
Generation
Services
|
|
|
|
|
|
|
|
|
|
|
Other
operations
|
|
|
-
|
|
|
-
|
|
|
12
|
|
Maintenance
|
|
|
-
|
|
|
-
|
|
|
1
|
|
CLE
Intrastate
|
|
|
|
|
|
|
|
|
|
|
Fuel
purchased
|
|
|
-
|
|
|
-
|
|
|
292
|
|
Diversified
Lands
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
27
|
|
|
53
|
|
|
58
|
|
Perryville
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
-
|
|
|
35
|
|
|
-
|
|
Cleco
Power also entered into agreements to provide goods and services to affiliated
companies.
The
goods and services are charged by Cleco Power at fully loaded cost or
management’s estimate of fair market value, whichever is higher, in order to
comply with Cleco’s affiliate policy. The majority of the services provided by
Cleco Power to affiliates relates to the lease of office space to Support Group.
Following is a reconciliation of Cleco Power’s affiliate
revenue:
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Support
Group
|
|
$
|
1,972
|
|
$
|
1,974
|
|
$
|
1,829
|
|
Midstream
|
|
|
28
|
|
|
28
|
|
|
24
|
|
Evangeline
|
|
|
49
|
|
|
49
|
|
|
29
|
|
Total
|
|
$
|
2,049
|
|
$
|
2,051
|
|
$
|
1,882
|
|
Cleco
Power
had the following affiliate receivable and payable balances associated with
the
service agreements between Cleco Power and its affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
DECEMBER 31,
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
ACCOUNTS
|
|
(THOUSANDS)
|
|
RECEIVABLE
|
|
PAYABLE
|
|
RECEIVABLE
|
|
PAYABLE
|
|
Cleco
Corporation
|
|
$
|
337
|
|
$
|
29,691
|
|
$
|
1,988
|
|
$
|
1,604
|
|
Support
Group
|
|
|
2,480
|
|
|
5,774
|
|
|
2,429
|
|
|
6,309
|
|
Midstream
|
|
|
10
|
|
|
1
|
|
|
17
|
|
|
1
|
|
Evangeline
|
|
|
4
|
|
|
1
|
|
|
(45
|
)
|
|
-
|
|
Generation
Services
|
|
|
23
|
|
|
2
|
|
|
20
|
|
|
5
|
|
Cleco
Energy
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8
|
|
Diversified
Lands
|
|
|
6
|
|
|
-
|
|
|
12
|
|
|
86
|
|
Others
|
|
|
-
|
|
|
-
|
|
|
109
|
|
|
109
|
|
Total
|
|
$
|
2,860
|
|
$
|
35,469
|
|
$
|
4,530
|
|
$
|
8,122
|
|
For
the
year ended December 31, 2006, Cleco Power received
a
$50.0 million contribution from Cleco Corporation, and for the year ended
December 31, 2005, Cleco Power paid a $52.9 million cash dividend to Cleco
Corporation.
Affiliates
that participate in the defined benefit pension plan sponsored by Cleco Power
transfer their liability and an equal amount of cash on a periodic basis to
Cleco Power.
The
table below shows the amounts transferred by affiliates during 2006 and
2005:
|
|
|
|
|
|
FOR
THE YEAR ENDED
|
|
|
|
DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Support
Group
|
|
$
|
1,986
|
|
$
|
1,887
|
|
Generation
Services
|
|
|
175
|
|
|
241
|
|
Midstream
|
|
|
62
|
|
|
78
|
|
Total
|
|
$
|
2,223
|
|
$
|
2,206
|
|
Background
Perryville
owned and operated a 718-MW natural gas-fired power plant near Perryville,
Louisiana. In July 2001, Perryville began operating under the Perryville
Tolling Agreement, a 21-year capacity and energy sale agreement for use of
Perryville’s
entire capacity, with MAEM, a subsidiary of Mirant.
Mirant
Bankruptcy and MAEM’s Rejection of the Perryville Tolling
Agreement
On
July
14, 2003, the Mirant Debtors filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in the Mirant Debtors Bankruptcy Court. As a result of the
bankruptcy filing, the
Perryville
Tolling Agreement was rejected, and MAEM’s rights and obligations under such
agreement were terminated.
Perryville
asserted an administrative expense claim against MAEM arising out of
post-petition services performed by Perryville under the Perryville Tolling
Agreement prior to its rejection. In addition, Perryville filed damage
claims against MAEM due to the rejection of the Perryville Tolling Agreement
and
against Mirant and MAI under their respective limited guarantees.
On May 27, 2005, Perryville and PEH and the Mirant Debtors executed a settlement
agreement (the Mirant Settlement Agreement) resolving Perryville’s claims
against
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
the
Mirant Debtors, as well as MAI’s $98.7 million claims against Perryville and PEH
related to the Subordinated Loan Agreement (the MAI Claim). The Mirant
Settlement Agreement became effective on July 8, 2005.
Subject
to the terms and conditions therein, the Mirant Settlement Agreement provided
that Perryville’s claims in Mirant’s bankruptcy cases were allowed in the amount
of $207.0 million, which was reduced to $108.3 million when Perryville elected
to offset its $98.7 million claim (the Subordinated Debt Claim) against MAI
with
MAI’s $98.7 million claim against Perryville. Perryville sold its
remaining claims of $108.3 million against MAEM and Mirant in August 2005
to
various parties at 76.5% of the face amount of these claims. The pre-tax
net proceeds from this sale were $81.2 million.
Perryville
Bankruptcy
On
January 28, 2004, to facilitate an orderly sales process, Perryville and PEH
filed voluntary petitions in the Perryville and PEH Bankruptcy Court for
protection under Chapter 11 of the U.S. Bankruptcy Code.
On
October
11, 2005, the Perryville and PEH Bankruptcy Court confirmed Perryville and
PEH’s
First Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy
Code. Perryville and PEH completed their bankruptcy process on November
30, 2005, when the Bankruptcy Court approved the granting of final decree and
closed the case.
As
of
December 31, 2005, all allowed pre-petition claims ($2.2 million) against
Perryville and PEH were paid in full in accordance with the Plan. In
addition, cash in the amount of $116.4 million, including dividends of $90.0
million, was distributed to Cleco Corporation following the reorganization
of
Perryville and PEH. The additional cash distributed to Cleco Corporation
represented a net settlement of intercompany payables, resulting primarily
from
income tax allocations.
Sale
of the Perryville Facility
On
June
30, 2005, Perryville sold its 718-MW power plant to Entergy Louisiana
for
$162.0 million. The assets sold to Entergy Louisiana did not include
Perryville’s claims against the Mirant Debtors, transmission assets or any other
cash-related assets of Perryville. Perryville recorded a pre-tax gain on
the sale of the generating assets of $9.6 million.
On
June
30, 2005, Perryville used $131.0 million of the proceeds from the sale of the
generating assets to Entergy Louisiana to repay all principal and interest
owed
under the Senior Loan Agreement.
Cleco
Corporation provided a limited guarantee to Entergy Louisiana and Entergy Gulf
States for Perryville’s performance, indemnity, representation, and warranty
obligations under the Sale Agreement, the Power Purchase Agreement, and other
ancillary agreements related to the sale. As of December 31, 2006, the
aggregate guarantee of $277.4 million is limited to $142.4 million (other than
with respect to the indemnification of environmental matters, to which there
is
no limit). For additional information on this guarantee, see Note 17 —
“Disclosures About Guarantees.”
Perryville
Operations
Perryville
has retained ownership of its transmission interconnection
equipment. The transmission assets, comprised primarily of transformers and
interconnection equipment, provide transmission service for Entergy Louisiana
to
interconnect and deliver the output of the Perryville generating assets to
the
Entergy transmission grid. Perryville provides transmission and
interconnection service to Entergy Louisiana under a cost of service based
tariff agreed to in settlement by Perryville and Entergy Louisiana and approved
by the FERC on August 3, 2005. Under the terms of the settlement, Perryville
charges Entergy Louisiana an interconnect service charge of approximately $1.0
million annually. The settlement also requires Perryville to make an
informational filing with the FERC showing the actual operation and maintenance,
general and administrative costs, and the actual property taxes incurred during
the calendar year periods 2006 through 2008 to operate the Interconnect
Facilities and to provide Interconnect Services to Entergy
Louisiana.
Financial
Results
The
financial results of Perryville and PEH prior to their filing
for
bankruptcy protection on January 27, 2004 are included in Cleco Corporation’s
consolidated results. During the reorganization period (January 28, 2004 through
October 10, 2005), Cleco Corporation utilized the cost method to account for
its
investment in Perryville and PEH. As of the effective date of the plan of
reorganization, the cost method was no longer the appropriate method to use
to
account for the investment in Perryville and PEH. Through a review of equity
interests and other contractual relationships, as required by FIN 46R, Cleco
Corporation was determined to be the primary beneficiary of PEH; however, Cleco
Corporation was not considered the primary beneficiary of Perryville.
Accordingly, PEH would be reintegrated with Cleco Corporation’s consolidated
financial results and Perryville would be reported on the equity method of
accounting retroactively to January 28, 2004. However, in accordance with APB
Opinion No. 18, Perryville and PEH would not be reflected in Cleco Corporation’s
consolidated results until such time they had sufficient income to exceed their
negative cost basis and cumulative losses, which occurred during the third
quarter of 2005. Therefore, the financial results of Perryville and PEH were
reintegrated with Cleco Corporation’s consolidated results in 2005.
For
information about Perryville subsequent to bankruptcy, see Note 13 — “Equity
Investment in Investees.”
Note
21
— Calpine Bankruptcy
Bankruptcy
Proceedings
On
December 20, 2005, the Calpine Debtors filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the Calpine Debtors Bankruptcy
Court. On December 21, 2005, the Calpine Debtors filed a motion (Rejection
Motion) with the Calpine Debtors Bankruptcy Court seeking to reject the Calpine
Tolling Agreements in addition to six other power supply contracts with other
entities. The issue was referred to the
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
U.S.
District Court for the Southern District of New York (District Court), where
on
January 27, 2006, a federal judge dismissed the Rejection Motion ruling that
the
FERC, not the bankruptcy court, has exclusive jurisdiction over the disposition
of the energy contracts. The Calpine Debtors have appealed the District Court
ruling to the U. S. Court of Appeals for the Second Circuit. As of the date
of
this filing, no decision has been rendered by the U. S. Court of Appeals for
the
Second Circuit.
In
March
2006, Acadia filed a motion (Motion to Compel) with the Calpine Debtors
Bankruptcy Court to, among other things, compel CES to perform under the Calpine
Tolling Agreements, and to pay amounts due under such agreements since the
commencement
of
the Calpine Debtors’ bankruptcy cases. On March 15, 2006, Acadia and CES
executed an amendment to each of the Calpine Tolling Agreements, which permitted
Acadia to suspend its obligations under the Calpine Tolling Agreements. The
amendments were approved by the Calpine Debtors Bankruptcy Court on March 22,
2006, and Acadia’s obligations under the Calpine Tolling Agreements were
suspended as of that date. Acadia’s request for payment of post-petition amounts
owed under the Calpine Tolling Agreements, as set forth in the Motion to Compel,
is scheduled to be heard by the Calpine Debtors Bankruptcy Court on March
14,
2007.
Outstanding
Claims
Acadia
has invoiced CES for obligations performed under the Calpine Tolling Agreements
totaling $3.5 million related to pre-petition bankruptcy claims, $2.0 million
for post-petition claims through December 31, 2005, and $64.5 million for
post-petition claims for the year ending December 31, 2006. As
of
December 31, 2006, Acadia has recorded a reserve for uncollectible accounts
of
$55.0 million, net of the full amount drawn by APH during 2006 against the
$15.0
million letter of credit issued by Calpine. As
of
December 31, 2005, the reserve balance was $5.5 million.
CES made
a $0.2 million payment in May 2006 for amounts related to post-petition
billings. CES has failed to make any other payments on amounts invoiced by
Acadia since Calpine filed for bankruptcy protection.
Other
In
May
2006, Acadia signed an amendment to its agreement with a third party marketer
to
provide energy management services at Acadia through the end of 2006. After
2006, the amendment allows for the renewal, on a monthly basis, of the energy
management agreement. For information regarding a dispute over electric metering
at Acadia, see
Note
15 — “Litigation and Other Commitments and Contingencies — Acadia.”
Note
22
— Accumulated Other Comprehensive Loss
The
components of accumulated other comprehensive loss are summarized below for
both
Cleco and Cleco Power. Where applicable, transactions
are reported net of income taxes.
Cleco
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
HOLDING
GAINS
ON AVAILABLE
FOR
SALE
SECURITIES
|
|
MINIMUM
PENSION
LIABILITY
ADJUSTMENT
|
|
LOSSES
AND
PRIOR
SERVICE
COST
|
|
TOTAL
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
Balance,
December 31, 2004
|
|
$
|
17
|
|
$
|
(3,285
|
)
|
$
|
-
|
|
$
|
(3,268
|
)
|
Current-period
change
|
|
|
126
|
|
|
(988
|
)
|
|
-
|
|
|
(862
|
)
|
Balance,
December 31, 2005
|
|
|
143
|
|
|
(4,273
|
)
|
|
-
|
|
|
(4,130
|
)
|
Current-period
change
|
|
|
(52
|
)
|
|
(873
|
)
|
|
-
|
|
|
(925
|
)
|
Implementation
of SFAS No.
158
|
|
|
-
|
|
|
5,146
|
|
|
(9,401
|
)
|
|
(4,255
|
)
|
Balance,
December 31, 2006
|
|
$
|
91
|
|
$
|
-
|
|
$
|
(9,401
|
)
|
$
|
(9,310
|
)
|
Cleco
Power |
|
|
|
|
|
|
|
(THOUSANDS)
|
|
MINIMUM
PENSION
LIABILITY
ADJUSTMENT
|
|
LOSSES
AND
PRIOR
SERVICE
COST
|
|
TOTAL
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
Balance,
December 31, 2004
|
|
$
|
(1,383
|
)
|
$
|
-
|
|
$
|
(1,383
|
)
|
Current-period
change
|
|
|
(428
|
)
|
|
-
|
|
|
(428
|
)
|
Balance,
December 31, 2005
|
|
|
(1,811
|
)
|
|
-
|
|
|
(1,811
|
)
|
Current-period
change
|
|
|
(369
|
)
|
|
-
|
|
|
(369
|
)
|
Implementation
of SFAS No. 158
|
|
|
2,180
|
|
|
(4,445
|
)
|
|
(2,265
|
)
|
Balance,
December 31, 2006
|
|
$
|
-
|
|
$
|
(4,445
|
)
|
$
|
(4,445
|
)
|
Note
23
— Miscellaneous Financial Information (Unaudited)
Cleco
Quarterly
information for Cleco for 2006
and
2005 is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
1ST
|
|
2ND
|
|
3RD
|
|
4TH
|
|
(THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
Operating
revenue
|
|
$
|
223,418
|
|
$
|
250,952
|
|
$
|
294,103
|
|
$
|
232,202
|
|
Operating
income
|
|
$
|
25,973
|
|
$
|
29,416
|
|
$
|
37,200
|
|
$
|
22,389
|
|
(Loss)
income from discontinued operations, net
|
|
$
|
(87
|
)
|
$
|
(103
|
)
|
$
|
36
|
|
$
|
75
|
|
Net
income applicable to common stock
|
|
$
|
11,679
|
|
$
|
22,799
|
|
$
|
27,592
|
|
$
|
10,786
|
|
Basic
net income per average share
|
|
$
|
0.23
|
|
$
|
0.45
|
|
$
|
0.50
|
|
$
|
0.19
|
|
Diluted
net income per average common share
|
|
$
|
0.23
|
|
$
|
0.44
|
|
$
|
0.50
|
|
$
|
0.19
|
|
Dividends
paid per common share
|
|
$
|
0.225
|
|
$
|
0.225
|
|
$
|
0.225
|
|
$
|
0.225
|
|
Closing
market price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
21.91
|
|
$
|
22.84
|
|
$
|
25.48
|
|
$
|
26.09
|
|
Low
|
|
$
|
20.47
|
|
$
|
20.86
|
|
$
|
22.52
|
|
$
|
25.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
1ST
|
|
2ND
|
|
3RD
|
|
4TH
|
|
(THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
Operating
revenue
|
|
$
|
172,116
|
|
$
|
194,108
|
|
$
|
283,656
|
|
$
|
270,274
|
|
Operating
income
|
|
$
|
15,808
|
|
$
|
30,926
|
|
$
|
45,240
|
|
$
|
19,754
|
|
Loss
from discontinued operations, net
|
|
$
|
(134
|
)
|
$
|
(72
|
)
|
$
|
(25
|
)
|
$
|
(103
|
)
|
Net
income applicable to common stock
|
|
$
|
8,966
|
|
$
|
20,179
|
|
$
|
149,980
|
|
$
|
1,654
|
|
Basic
net income per average share
|
|
$
|
0.18
|
|
$
|
0.40
|
|
$
|
2.92
|
|
$
|
0.03
|
|
Diluted
net income per average common share
|
|
$
|
0.18
|
|
$
|
0.40
|
|
$
|
2.91
|
|
$
|
0.03
|
|
Dividends
paid per common share
|
|
$
|
0.225
|
|
$
|
0.225
|
|
$
|
0.225
|
|
$
|
0.225
|
|
Closing
market price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
20.99
|
|
$
|
21.20
|
|
$
|
23.59
|
|
$
|
23.79
|
|
Low
|
|
$
|
18.25
|
|
$
|
19.49
|
|
$
|
21.09
|
|
$
|
20.51
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Cleco
Corporation’s common stock is listed for trading on the New York Stock
Exchange under the ticker symbol “CNL.” Cleco Corporation’s preferred stock is
not listed on any stock exchange. On December 31, 2006, Cleco had 7,667 common
shareholders and 90 preferred shareholders, as determined from the records
of
the transfer agent.
On
January 26,
2007,
Cleco Corporation’s Board of Directors declared a quarterly dividend of $0.225
per share payable on February 15, 2007, to common shareholders of record on
February 5, 2007. Preferred dividends also were declared payable March 1, 2007,
to preferred shareholders of record on February 15, 2007.
Cleco
Power
Quarterly
information for Cleco Power for 2006
and
2005 is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
1ST
|
|
2ND
|
|
3RD
|
|
4TH
|
|
(THOUSANDS)
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
Operating
revenue
|
|
$
|
222,432
|
|
$
|
249,681
|
|
$
|
292,625
|
|
$
|
231,453
|
|
Operating
income
|
|
$
|
27,162
|
|
$
|
30,784
|
|
$
|
37,825
|
|
$
|
23,944
|
|
Net
income
|
|
$
|
13,873
|
|
$
|
17,047
|
|
$
|
21,556
|
|
$
|
12,352
|
|
Contribution
received from Cleco (as sole member)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
1ST
|
|
2ND
|
|
3RD
|
|
4TH
|
|
(THOUSANDS)
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
QUARTER
|
|
Operating
revenue
|
|
$
|
170,188
|
|
$
|
192,158
|
|
$
|
282,269
|
|
$
|
269,358
|
|
Operating
income
|
|
$
|
18,052
|
|
$
|
33,005
|
|
$
|
46,013
|
|
$
|
20,975
|
|
Net
income adjusted
|
|
$
|
7,609
|
|
$
|
17,324
|
|
$
|
27,183
|
|
$
|
6,964
|
|
Distributions
paid to Cleco (as sole member)
|
|
$
|
12,300
|
|
$
|
7,600
|
|
$
|
33,000
|
|
$
|
-
|
|
Note
24
— Subsequent Events
Organizational
Change
On
November 27, 2006, Cleco Corporation and certain subsidiaries
(Attala, Midstream, PEH and Perryville) filed an application with the FERC
requesting approval for the internal reorganization of Midstream’s
FERC-jurisdictional facilities. The reorganization plan calls for Midstream
to
transfer to Cleco Corporation all of its membership interests in Attala, and
PEH
will transfer to Cleco Corporation all of its membership interest in Perryville.
The FERC-jurisdictional facilities affected by the transaction consist of
interconnection facilities and interconnection agreements.
On
January 22, 2007, the FERC approved the transfer of the ownership interests
of
Attala and Perryville to Cleco Corporation
whereby Attala and Perryville would become first-tier subsidiaries of Cleco
Corporation. The transfer was effective February 1, 2007.
Storm
Cost Recovery
On
February 21, 2007, after
completion of Phase II of the LPSC Staff’s review of storm restoration costs,
Cleco Power and the LPSC Staff signed a settlement term sheet allowing the
recovery of essentially all Cleco Power’s Hurricane Katrina and Rita storm
costs, currently estimated to total $158.7 million. Cleco Power is currently
recovering these storm costs under an interim rate increase approved by the
LPSC. The settlement term sheet also allows Cleco Power to securitize the
amount of the storm costs and to fund and securitize a $50.0 million reserve
for
future, extraordinary storm damage costs.
The
LPSC
Staff and Cleco Power are working on a settlement agreement that will further
develop the settlement term sheet. Management expects the settlement agreement
to be approved by the LPSC in the second quarter of 2007.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
In
accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, the
Registrants’ management has evaluated, as of the end of the period covered by
this annual report, with the supervision and participation of the Registrants’
chief executive officer and chief financial officer, the effectiveness of the
Registrants’ disclosure controls and procedures as defined by Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (Disclosure Controls).
Based on that evaluation, such officers concluded that the Registrants’
Disclosure Controls were effective as of the date of that
evaluation.
During
the Registrants’ fourth fiscal quarter, there were
no
changes to the Registrants’ internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
have materially affected or are reasonably likely to materially affect the
Registrants’ internal control over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
The
management of Cleco Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined
in
the rules promulgated under the Securities Exchange Act of 1934. Cleco
Corporation’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding
the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of
compliance with the policies or procedures may deteriorate.
Cleco
Corporation’s management conducted an assessment of the effectiveness of Cleco
Corporation’s internal control over financial reporting as of December 31, 2006.
In making this assessment, management used the criteria in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, Cleco Corporation’s
management concluded that, as of December 31, 2006, Cleco Corporation’s internal
control over financial reporting was effective.
Management’s
assessment of the effectiveness of Cleco Corporation’s internal control over
financial reporting as of December 31, 2006, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as
stated in their report which appears on page 60 of this Annual Report on Form
10-K.
Certifications
The
certifications of the Registrants’ Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed
as
Exhibits 31(a) and 31(b) to this Annual Report on Form 10-K. Additionally,
as
required by Section 303A.12(a) of the New York Stock Exchange (“NYSE”) Listed
Company Manual, Cleco’s Chief Executive Officer filed a certification with the
NYSE on May
15,
2006,
reporting that he was not aware of any violation by Cleco of the NYSE’s
Corporate Governance listing standards.
ITEM
9B. OTHER
INFORMATION
None.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANTS
Audit
Committee Financial Expert
Cleco’s
board of directors has determined that Mr. W. Larry Westbrook, who serves as
the
Chairman of the Audit Committee of the Board of Directors, fulfills the
requirements for an independent audit committee financial expert for both Cleco
Corporation and Cleco Power.
Financial
Manager’s Code of Conduct
Both
Cleco
Corporation and Cleco Power have a code of conduct that applies to their
principal executive officer, principal financial officer, principal accounting
officer and treasurer. This code of conduct is posted on Cleco’s homepage on the
Internet’s World Wide Web located at http://www.cleco.com. This code of conduct
also is available free of charge by request sent to: Shareholder Services,
Cleco, P.O. Box 5000, Pineville, LA 71361-5000.
The
information set forth, (i) under the caption “Proposal Number
I
— Election of Four Class I Directors,” (ii) under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” and (iii) under the caption “Report
of the Audit Committee” in the 2007 Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 20, 2007, filed with the SEC
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (2007
Proxy
Statement), is incorporated herein by reference. See also “Part I — Item 4 —
Board of Directors of Cleco.”
The
information called for by Item 10 with respect to Cleco Power is omitted
pursuant to General Instruction I(2)(c) to Form 10-K (Omission of Information
by
Certain Wholly Owned Subsidiaries).
ITEM
11. EXECUTIVE
COMPENSATION
The
information set forth, (i) under the subcaption “Independence and Organization
of the Board of Directors” under the caption “Proposal Number
I
— Election of Four Class I Directors,” (ii) under the caption “Compensation
Discussion and Analysis,” (iii) under the caption “Executive Officers
Compensation,” (iv) under the caption “Director Compensation,” and (v) under the
caption “Report of the Compensation Committee” in the 2007 Proxy Statement is
incorporated herein by reference.
The
information called for by Item 11 with respect to Cleco Power is omitted
pursuant to General Instruction I(2)(c) to Form 10-K (Omission of Information
by
Certain Wholly Owned Subsidiaries).
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security
Ownership
The
information set forth, (i) under the caption “Security Ownership of Directors
and Management” and (ii) under the caption “Security Ownership of Certain
Beneficial Owners” in the 2007
Proxy
Statement is incorporated herein by reference.
Equity
Compensation Plan Information
Cleco
has
compensation plans under which equity securities of Cleco Corporation are
authorized for issuance as approved by security holders.
Cleco
does not have such plans that have not been approved by security holders. The
table below provides information about compensation plans under which equity
securities of Cleco Corporation were authorized for issuance at December 31,
2006.
|
|
|
|
|
|
|
PLAN
CATEGORY
|
NUMBER
OF
SECURITIES
TO BE
ISSUED
UPON EXERCISE
OF
OUTSTANDING
OPTIONS,
WARRANTS
OR
RIGHTS
|
|
WEIGHTED-AVERAGE
EXERCISE
PRICE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND
RIGHTS
|
|
NUMBER
OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE
ISSUANCE
UNDER EQUITY
COMPENSATION
PLANS
(EXCLUDING SECURITIES
REFLECTED
IN
COLUMN (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
|
|
3,009
|
(1)
|
$
|
23.97
|
|
|
467,895
|
|
Long-term
incentive compensation plans
|
|
871,128
|
|
$
|
20.34
|
|
|
1,786,719
|
(2)
|
Total
|
|
874,137
|
|
$
|
20.35
|
|
|
2,254,614
|
|
(1) The
number of options in column (a) for the Employee Stock Purchase
Plan
represents the number of options granted at December 31, 2006,
based on
employee withholdings and the option grant calculation under the
plan.
|
(2) Stock
options and restricted stock may be issued pursuant to the 2000
LTICP.
This plan requires the number of securities available to be issued
to be
reduced by the number of options and the number of restricted shares
previously awarded, net of forfeitures. At December 31, 2006, there
were
228,815 shares of restricted stock awarded, net of forfeitures,
pursuant
to the 2000 LTICP. New options or restricted stock cannot be issued
pursuant to the 1990 LTICP, which expired in December 1999. However,
stock
options issued prior to December 1999 under the 1990 LTICP remain
outstanding until they
expire.
|
For
additional information on compensation plans using equity securities,
see
Item
8, “Financial Statements and Supplementary Data — Notes to the Financial
Statements — Note 7 — Common Stock.” This information should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto.
The
information called for by Item 12 with respect to Cleco Power is omitted
pursuant to General Instruction I(2)(c) to Form 10-K (Omission of Information
by
Certain Wholly Owned Subsidiaries).
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information set forth under the subcaptions
“Independence and Organization of the Board of Directors,” and “Cleco’s Code of
Business Conduct & Ethics” under the caption “Proposal Number I — Election
of Four Class I Directors” in the 2007 Proxy Statement is incorporated herein by
reference.
The
information called for by Item 13 with respect to Cleco Power is omitted
pursuant to General Instruction I(2)(c) to Form 10-K (Omission of Information
by
Certain Wholly Owned Subsidiaries).
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
information set forth under “Relationship
with Accountants” regarding fees paid to Cleco’s independent auditors in the
2007 Proxy Statement is incorporated herein by reference.
The
information set forth under “Relationship
with Accountants” regarding fees paid to Cleco’s independent auditors in the
2007 Proxy Statement is incorporated herein by reference.
PricewaterhouseCoopers
LLP
provides professional services for Cleco Power that are directly billed to
Cleco
Corporation, the cost of which is allocated to Cleco Power though not billed
directly to them.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES |
|
|
|
FORM
10-K
ANNUAL
REPORT
|
|
Report
of Independent Registered
Public Accounting Firm
|
60
|
15(a)(1)
|
Consolidated
Statements of Income
for the years ended December 31, 2006, 2005, and 2004
|
61
|
|
Consolidated Balance
Sheets at December 31, 2006, and 2005
|
62
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006,
2005, and 2004
|
64
|
|
Consolidated
Statements of Comprehensive Income for the years ended December 31,
2006,
2005, and 2004
|
66
|
|
Consolidated
Statements of Changes in Common Shareholders’ Equity for the years ended
December 31, 2006,
2005, and 2004
|
66
|
|
Report
of Independent Registered
Public Accounting Firm
|
67
|
|
Financial
Statements of Cleco Power
|
|
|
Cleco
Power Statements of Income for the years ended December 31, 2006,
2005,
and 2004
|
68
|
|
Cleco
Power Balance Sheets at December 31, 2006, and 2005
|
69
|
|
Cleco
Power Statements of Cash Flows for the years ended December 31, 2006,
2005, and 2004
|
70
|
|
Cleco
Power Statements of Comprehensive Income for the years ended December
31,
2006, 2005, and 2004
|
71
|
|
Cleco
Power Statements of Changes in Member’s Equity for the years ended
December 31, 2006, 2005, and 2004
|
71
|
|
Notes
to the Financial Statements
|
72
|
15(a)(2)
|
Financial
Statement Schedules
|
|
|
Schedule
I — Financial Statements of Cleco Corporation
|
|
|
Condensed
Statements of Income for the years ended December 31, 2006, 2005,
and
2004
|
125
|
|
Condensed
Balance Sheets at December 31, 2006 and 2005
|
126
|
|
Condensed
Statements of Cash Flows for the years ended December 31, 2006, 2005,
and
2004
|
127
|
|
Notes
to the Condensed Financial Statements
|
128
|
|
Schedule
II — Valuation and Qualifying Accounts
|
|
|
Cleco
Corporation
|
130
|
|
Cleco
Power
|
130
|
|
Financial
Statement Schedules other than those shown in the above index are
omitted
because they are either not required or are not applicable or the
required
information is shown in the Consolidated Financial Statements and
Notes
thereto
|
|
15(a)(3)
|
List
of Exhibits
|
120
|
The
Exhibits designated by an asterisk are filed herewith.
The
Exhibits not so designated previously have been filed with the SEC and are
incorporated herein by reference. The Exhibits designated by two asterisks
are
management contracts and compensatory plans and arrangements required to be
filed as Exhibits to this Report.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
EXHIBITS
|
|
|
|
CLECO
|
SEC
FILE OR
REGISTRATION
NUMBER
|
REGISTRATION
STATEMENT
OR
REPORT
|
EXHIBIT
NUMBER
|
2(a)
|
Plan
of Reorganization and Share Exchange Agreement
|
333-71643-01
|
S-4(6/30/99)
|
C
|
3(a)(1)
|
Articles
of Incorporation of the Company, effective July 1, 1999
|
333-71643-01
|
S-4(6/30/99)
|
A
|
3(a)(2)
|
Articles
of Amendment to the Amended and Restated Articles of Incorporation
of
Cleco setting forth the terms of the $25 Preferred Stock
|
1-15759
|
8-K(7/28/00)
|
1
|
3(a)(3)
|
Articles
of Amendment to the Amended and Restated Articles of Incorporation
to
increaseamount
authorized common stock and to effect a two-for-one split of the
Company’s
common stock
|
1-15759
|
2001
Proxy
Statement
(3/01)
|
B-1
|
3(b)
|
Bylaws
of Cleco Corporation (revised effective April
21, 2006)
|
1-15759
|
10-Q(8/3/06)
|
3(a)
|
4(a)(1)
|
Indenture
of Mortgage dated as of July 1, 1950, between Cleco and First
National
Bank of New Orleans, as Trustee
|
1-5663
|
10-K(1997)
|
4(a)(1)
|
4(a)(2)
|
First
Supplemental Indenture dated as of October 1, 1951, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(2)
|
4(a)(3)
|
Second
Supplemental Indenture dated as of June 1, 1952, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(3)
|
4(a)(4)
|
Third
Supplemental Indenture dated as of January 1, 1954, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(4)
|
4(a)(5)
|
Fourth
Supplemental Indenture dated as of November 1, 1954, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(5)
|
4(a)(6)
|
Tenth
Supplemental Indenture dated as of September 1, 1965, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1986)
|
4(a)(11)
|
4(a)(7)
|
Eleventh
Supplemental Indenture dated as of April 1, 1969, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1998)
|
4(a)(8)
|
4(a)(8)
|
Eighteenth
Supplemental Indenture dated as of December
1, 1982, to Exhibit 4(a)(1)
|
1-5663
|
10-K(1993)
|
4(a)(8)
|
4(a)(9)
|
Nineteenth
Supplemental Indenture dated as of January 1, 1983, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1993)
|
4(a)(9)
|
4(a)(10)
|
Indenture
between Cleco and Bankers Trust Company, as Trustee, dated as
of
October 1, 1988
|
33-24896
|
S-3(10/11/88)
|
4(b)
|
4(a)(11)
|
Twenty-Sixth
Supplemental Indenture dated as of March 15, 1990, to Exhibit
4(a)(1)
|
1-5663
|
8-K(3/90)
|
4(a)(27)
|
4(a)(12)
|
Trust
Indenture dated as of December 10, 1999 Between Cleco Evangeline
LLC
and
Bank One Trust Company, N.A. as Trustee Relating to $218,600,000,
8.82%
Senior Secured Bonds due 2019
|
1-15759
|
10-K(1999)
|
4(m)
|
4(a)(13)
|
Senior
Indenture, dated as of May 1, 2000, between Cleco and Bank One, N.A.,
as
trustee
|
333-33098
|
S-3/A(5/8/00)
|
4(a)
|
4(a)(14)
|
Supplemental
Indenture No. 1, dated as of May 25, 2000, to Senior Indenture
providing
for the issuance of Cleco’s
8
¾% Senior Notes due 2005
|
1-15759
|
8-K(5/24/00)
|
4.1
|
4(a)(15)
|
Form
of Supplemental Indenture No. 2 providing for the issuance of $100,000,000
principal amount of 7.000% Notes due May 1, 2008
|
1-15759
|
10-Q(3/31/03)
|
4(a)
|
4(b)
|
Agreement
Appointing Successor Trustee dated as of April 1, 1996, by and among
Central Louisiana Electric Company, Inc., Bankers Trust Company,
and
The Bank of New York
|
333-02895
|
S-3(4/26/96)
|
4(a)(2)
|
4(c)
|
Agreement
Under Regulation S-K Item 601(b)(4)(iii)(A)
|
333-71643-01
|
10-Q(9/99)
|
4(c)
|
4(d)
|
Form
of 8 ¾% Senior Notes due 2005 (included
in Exhibit 4(a)(14) above)
|
1-15759
|
8-K(5/24/00)
|
4.1
|
4(e)(1)
|
Rights
agreement between Cleco and EquiServe Trust Company, as Right
Agent
|
1-15759
|
8-K(7/28/00)
|
1
|
4(e)(2)
|
First
Amendment to Rights Agreement between Cleco Corporation and Computershare
Trust Company, N.A., as Rights Agent
|
1-15759
|
8-K(3/2/06)
|
4.1
|
4(f)
|
Perryville
Energy Partners, LLC Construction and Term Loan Agreement
dated as of June 7, 2001
|
1-15759
|
10-K(2002)
|
4.I
|
4(g)
|
Form
of $100,000,000 7.000% Notes due May 1, 2008
|
1-15759
|
10-Q(3/31/03)
|
4(b)
|
**10(a)(1)
|
1990
Long-Term Incentive Compensation Plan
|
1-5663
|
1990
Proxy
Statement(4/90)
|
A
|
**10(a)(2)
|
2000
Long-Term Incentive Compensation Plan
|
333-71643-01
|
2000
Proxy
Statement(3/00)
|
A
|
**10(a)(3)
|
2000
Long-Term Incentive Compensation Plan, Amendment Number 1, Effective
as of
December 12, 2003
|
1-15759
|
10-Q(5/3/05)
|
10(a)
|
**10(a)(4)
|
2000
Long-Term Incentive Compensation Plan, Amendment Number 2, Effective
as of
July 23, 2004
|
1-15759
|
10-Q(9/30/04)
|
10(a)
|
**10(a)(5)
|
2000
Long-Term Incentive Compensation Plan, Amendment Number 3, Dated
as of
January 28, 2005
|
1-15759
|
10-Q(5/3/05)
|
10(b)
|
**10(a)(6)
|
2000
Long-Term Incentive Compensation Plan, Administrative Procedure No.
1
|
1-15759
|
10-K(2005)
|
10(a)(6)
|
**10(b)
|
Annual
Incentive Compensation Plan amended and restated as of January 23,
2003
|
1-15759
|
10-K(2003)
|
10(b)
|
**10(c)
|
Participation
Agreement, Annual Incentive Compensation
Plan
|
1-5663
|
10-K(1995)
|
10(c)
|
**10(d)(1)
|
Table
of 2006 Base Salaries and Bonuses for Cleco Corporation Named Executive
Officers
|
1-15759
|
8-K(2/2/06)
|
10.1
|
**10(d)(2)
|
Table
of [Cycle
13 (2003-2005)] LTIP Payouts for the Named Executive Officers of
the
Company
|
1-15759
|
8-K(2/2/06)
|
10.2
|
**10(d)(3)
|
Table
of Additional Awards for the Named Executive Officers of the
Company
|
1-15759
|
8-K(2/2/06)
|
10.3
|
**10(d)(4)
|
Amended
2006 compensation information to include the grant of stock options
to CEO
|
1-15759
|
8-K(2/17/06)
|
|
**10(e)(1)
|
Summary
of Director Compensation and Benefits
|
1-15759
|
8-K(1/28/05)
|
10.2
|
**10(e)(2)
|
Summary
of Director Compensation, Benefits and Policies
|
1-15759
|
8-K(7/28/05)
|
10.1
|
**10(f)(1)
|
Supplemental
Executive Retirement Plan
|
1-5663
|
10-K(1992)
|
10(o)(1)
|
**10(f)(2)
|
First
Amendment to Supplemental Executive Retirement Plan effective
July 1, 1999
|
1-15759
|
10-K(2003)
|
10(e)(1)(a)
|
**10(f)(3)
|
Second
Amendment to Supplemental Executive Retirement
Plan dated July 28, 2000
|
1-15759
|
10-K(2003)
|
10(e)(1)(b)
|
**10(f)(4)
|
Supplemental
Executive Retirement Trust dated December
13, 2000
|
1-15759
|
10-K(2003)
|
10(e)(1)(c)
|
**10(f)(5)
|
Form
of Supplemental Executive Retirement Plan Participation
Agreement
between the Company and the following officers: David M. Eppler and
Catherine C. Powell
|
1-5663
|
10-K(1992)
|
10(o)(2)
|
**10(f)(6)
|
Supplemental
Executive Retirement Plan Participation Agreement between
Cleco
and Dilek Samil
|
1-15759
|
10-K(2002)
|
10(z)(1)
|
**10(f)(7)
|
Supplemental
Executive Retirement Plan Participation Agreement between
Cleco
and Samuel H. Charlton, III
|
1-15759
|
10-K(2002)
|
10(z)(2)
|
**10(f)(8)
|
Supplemental
Executive Retirement Plan Participation Agreement between Cleco and
Michael H. Madison
|
1-15759
|
10-K(2004)
|
10(v)(3)
|
**10(f)(9)
|
Supplemental
Executive Retirement Plan Participation Agreement between Cleco and
R.
O’Neal Chadwick, Jr.
|
1-15759
|
10-K(2004)
|
10(v)(4)
|
**10(f)(10)
|
Supplemental
Executive Retirement Plan Participation Agreement between Cleco and
David
M. Eppler
|
1-15759
|
10-K(2004)
|
10(v)(5)
|
**10(g)(1)
|
Executive
Employment Agreement between Cleco and Dilek Samil,
dated January 1, 2002
|
1-15759
|
10-K(2002)
|
10(AA)(1)
|
**10(g)(2)
|
Amendment
to Executive Employment Agreement between Cleco Corporation and Dilek
Samil dated September 26, 2003
|
1-15759
|
10-K(2003)
|
10(AA)(1)(a)
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
|
|
|
|
CLECO
|
SEC
FILE OR
REGISTRATION
NUMBER
|
REGISTRATION
STATEMENT
OR
REPORT
|
EXHIBIT
NUMBER
|
**10(g)(3)
|
Amended
and Restated Executive Employment Agreement between Cleco Corporation
and
David Eppler dated January 1, 2002
|
1-15759
|
10-K(2003)
|
10(AA)(2)
|
**10(g)(4)
|
Executive
Employment Agreement between Cleco Corporation and Samuel
H. Charlton, III dated August 28, 2002
|
1-15759
|
10-K(2003)
|
10(AA)(3)
|
**10(g)(5)
|
Executive
Employment Agreement between Cleco Corporation and Neal Chadwick
dated
October 25, 2002
|
1-15759
|
10-K(2003)
|
10(AA)(4)
|
**10(g)(6)
|
Executive
Employment Agreement between Cleco Corporation and Michael H. Madison
dated October 1, 2003
|
1-15759
|
10-K(2004)
|
10(AA)(4)(a)
|
**10(g)(7)
|
Executive
Employment Agreement between Cleco Corporation and Samuel H. Charlton,
III
dated June 29, 2006
|
1-15759
|
8-K(7/6/06)
|
10.1
|
**10(g)(8)
|
Separation
Agreement and General Release between Cleco Corporation and R. O’Neal
Chadwick, Jr. dated
August
14, 2006
|
1-15759
|
8-K(8/29/06)
|
10.1
|
**10(h)
|
Form
of Executive Severance Agreement between Cleco and the following
officers:
David M. Eppler and Catherine C. Powell
|
1-5663
|
10-K(1995)
|
10(f)
|
10(i)
|
Term
Loan Agreement dated as of April 2, 1991, among the 401(k) Savings
and
Investment Plan ESOP Trust, Cleco, as Guarantor, the Banks listed
therein
and The Bank of New York, as Agent
|
1-5663
|
10-Q(3/91)
|
4(b)
|
10(j)
|
Reimbursement
Agreement (The Industrial Development Board of the Parish of
Rapides, Inc. (Louisiana) Adjustable Tender Pollution Control Revenue
Refunding Bonds, Series 1991) dated as of October 15, 1997, among
the
Company, various financial institutions, and Westdeutsche Landesbank
Gironzentrale, New York Branch, as Agent
|
1-5663
|
10-K(1997)
|
10(i)
|
10(k)(1)
|
Assignment
and Assumption Agreement, effective as of May 6, 1991, between
The Bank of New York and the Canadian Imperial Bank of Commerce,
relating
to Exhibit 10(h)(1)
|
1-5663
|
10-Q(3/91)
|
4(c)
|
10(k)(2)
|
Assignment
and Assumption Agreement dated as of July 3, 1991, between
The Bank of New York and Rapides Bank and Trust Company in Alexandria,
relating to Exhibit 10(h)(1)
|
1-5663
|
10-K(1991)
|
10(y)(3)
|
10(k)(3)
|
Assignment
and Assumption Agreement dated as of July 6, 1992, among
The Bank of New York, CIBC, Inc. and Rapides Bank and Trust Company
in
Alexandria, as Assignors, the 401(k) Savings and Investment Plan
ESOP
Trust, as Borrower, and Cleco, as Guarantor, relating to Exhibit
10(h)(1)
|
1-5663
|
10-K(1992)
|
10(bb)(4)
|
10(l)(1)
|
401(k)
Savings and Investment Plan ESOP Trust Agreement dated as of
August 1, 1997, between UMB Bank, N.A. and Cleco
|
1-5663
|
10-K(1997)
|
10(m)
|
10(l)(2)
|
First
Amendment to 401(k) Savings and Investment Plan ESOP Trust
Agreement
dated as of October 1, 1997, between UMB Bank, N.A. and
Cleco
|
1-5663
|
10-K(1997)
|
10(m)(1)
|
10(m)(1)
|
Form
of Notice and Acceptance of Grant of Nonqualified Stock Options,
with fixed option price under Cleco’s 1990 Long-term Incentive
Compensation Plan
|
333-71643-01
|
10-Q(9/99)
|
10(a)
|
10(m)(2)
|
Form
of Notice and Acceptance of Grant of Nonqualified Stock Options,
with variable option prices
|
333-71643-01
|
10-Q(9/99)
|
10(b)
|
10(m)(3)
|
Form
of Notice and Acceptance of Directors’ Grant of Nonqualified Stock
Options
under Cleco’s 2000 Long-Term Incentive Compensation Plan
|
1-15759
|
10-Q(6/00)
|
10(a)
|
10(m)(4)
|
Form
of Notice and Acceptance of Grant of Nonqualified Stock Options,
with
fixed option price under Cleco’s 2000 Long-Term Incentive Compensation
Plan
|
1-15759
|
10-Q(6/00)
|
10(c)
|
10(m)(5)
|
Form
of Notice and Acceptance of Grant of Nonqualified Stock Options,
with
variable option price under Cleco’s 2000 Long-Term Incentive Compensation
Plan
|
1-15759
|
10-Q(6/00)
|
10(d)
|
**10(m)(6)
|
Formal
Notice and Acceptance of Director’s Grant of Nonqualified Stock
Option
|
1-5663
|
10-Q(9/01)
|
10
|
10(n)(1)
|
Form
of Notice and Acceptance of Grant of Restricted Stock under Cleco’s
2000
Long-Term Incentive Compensation Plan
|
1-15759
|
10-Q(6/00)
|
10(b)
|
10(n)(2)
|
Notice
and Acceptance of Grant of Restricted Stock and Allocation of Opportunity
Shares
|
1-15759
|
10-Q(11/2/05)
|
10(c)
|
*10(n)(3)
|
Notice
and Acceptance of Grant of Restricted Stock, Common Stock Equivalent
Units
and Allocation of Opportunity Shares and Opportunity Common Stock
Equivalents
|
|
|
|
10(o)(1)
|
Cleco
Corporation Employee Stock Purchase Plan
|
333-44364
|
S-8(8/23/00)
|
4.3
|
10(o)(2)
|
Employee
Stock Purchase Plan, Amendment No. 1, dated January 22,
2004
|
1-15759
|
10-K(2003)
|
10(s)(1)
|
10(o)(3)
|
Employee
Stock Purchase Plan, Amendment No. 2, effective as of January 1,
2006
|
1-15759
|
10-Q(8/2/05)
|
10(a)
|
**10(p)(1)
|
Cleco
Corporation Deferred Compensation Plan
|
333-59696
|
S-8(4/27/01)
|
4.3
|
10(p)(2)
|
Deferred
Compensation Trust dated January 2001
|
1-15759
|
10-K(2003)
|
10(u)
|
10(q)
|
First
Amended and Restated Credit Agreement dated as of June 2, 2006 among
Cleco
Corporation, The Bank of New York, as Administrative Agent, and the
lenders and other parties thereto
|
1-15759
|
10-Q(8/3/06)
|
10.1
|
10(r)(1)
|
Acadia
Power Partners - Second amended and restated limited liability company
agreement dated May 9, 2003
|
1-15759
|
10-Q(6/30/03)
|
10(c)
|
10(r)(2)
|
Acadia
Power Partners, LLC - First Amendment to Second Amended and Restated
Limited Liability Company Agreement dated August 9, 2005
|
1-15759
|
10-Q(11/2/05)
|
10(a)
|
10(s)(1)
|
Purchase
and Sale Agreement by and between Perryville Energy Partners, L.L.C.
and
Entergy Louisiana, Inc. dated January 28, 2004
|
1-15759
|
10-K(2003)
|
10(AC)
|
10(s)(2)
|
Purchase
and Sale Agreement by and between Perryville Energy Partners, L.L.C.
and
Entergy Louisiana, Inc. dated October 21, 2004
|
1-15759
|
10-K(2004)
|
10(AD)
|
10(t)
|
Settlement
Agreement dated May 26, 2005 by and among Mirant Corporation, Mirant
Americas Energy Marketing, LP, Mirant Americas, Inc., Perryville
Energy
Partners, L.L.C. and Perryville Energy Holdings LLC
|
1-15759
|
8-K(6/1/05)
|
99.1
|
*12(a)
|
Computation
of Ratios of Earnings (loss) to Fixed Charges and of Earnings (loss)
to
Combined Fixed Charges and Preferred Stock Dividends
|
|
|
|
*21
|
Subsidiaries
of the Registrant
|
|
|
|
*23(a)
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
*24(a)
|
Power
of Attorney from each Director of Cleco whose signature is affixed
to this
Form 10-K for the year ended December 31, 2006
|
|
|
|
*31(a)
|
CEO
and CFO Certification in accordance with section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
*32(a)
|
CEO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
CFO
Certification pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
CLECO
|
SEC
FILE OR
REGISTRATION
NUMBER
|
REGISTRATION
STATEMENT
OR
REPORT
|
EXHIBIT
NUMBER
|
99(a)
|
Perryville
Energy Partners, L.L.C. and Perryville Energy Holdings LLC - Debtors’
First Amended Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code effective October 11, 2005
|
1-15759
|
10-Q(11/2/05)
|
99(a)
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
CLECO
POWER
|
SEC
FILE OR
REGISTRATION
NUMBER
|
REGISTRATION
STATEMENT
OR
REPORT
|
EXHIBIT
NUMBER
|
2(a)
|
Joint
Agreement of Merger of Cleco Utility Group Inc. with and into Cleco
Power
LLC,
dated December 15, 2000
|
333-52540
|
S-3/A(1/26/01)
|
2
|
3(a)
|
Articles
of Organization and Initial Report of Cleco Power LLC, dated
December 11, 2000
|
533-52540
|
S-3/A(1/26/01)
|
3(a)
|
3(b)
|
Operating
Agreement of Cleco Power LLC (revised effective
October 24, 2003)
|
1-5663
|
10-Q(11/6/03)
|
3(b)
|
4(a)(1)
|
Indenture
of Mortgage dated as of July 1, 1950, between the Company and First
National Bank of New Orleans, as Trustee
|
1-5663
|
10-K(1997)
|
4(a)(1)
|
4(a)(2)
|
First
Supplemental Indenture dated as of October 1, 1951, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(2)
|
4(a)(3)
|
Second
Supplemental Indenture dated as of June 1, 1952, to Exhibit
4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(3)
|
4(a)(4)
|
Third
Supplemental Indenture dated as of January 1, 1954, to Exhibit 4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(4)
|
4(a)(5)
|
Fourth
Supplemental Indenture dated as of November 1, 1954, to
Exhibit 4(a)(1)
|
1-5663
|
10-K(1997)
|
4(a)(5)
|
4(a)(6)
|
Tenth
Supplemental Indenture dated as of September 1, 1965, to
Exhibit 4(a)(1)
|
1-5663
|
10-K(1986)
|
4(a)(11)
|
4(a)(7)
|
Eleventh
Supplemental Indenture dated as of April 1, 1969, to Exhibit 4(a)(1)
|
1-5663
|
10-K(1998)
|
4(a)(8)
|
4(a)(8)
|
Eighteenth
Supplemental Indenture dated as of December 1, 1982, to Exhibit 4(a)(1)
|
1-5663
|
10-K(1993)
|
4(a)(8)
|
4(a)(9)
|
Nineteenth
Supplemental Indenture dated as of January 1, 1983, to
Exhibit 4(a)(1)
|
1-5663
|
10-K(1993)
|
4(a)(9)
|
4(a)(10)
|
Indenture
between the Company and Bankers Trust
Company, as Trustee, dated as of October 1, 1988
|
33-24896
|
S-3(10/11/88)
|
4(b)
|
4(a)(11)
|
Twenty-Sixth
Supplemental Indenture dated as of March 15, 1990, to Exhibit 4(a)(1)
|
1-5663
|
8-K(3/90)
|
4(a)(27)
|
4(a)(12)
|
First
Supplemental Indenture, dated as of December 1, 2000, between
Cleco Utility Group Inc. and the Bank of New York
|
333-52540
|
S-3/A(1/26/01)
|
4(a)(2)
|
4(a)(13)
|
Second
Supplemental Indenture, dated as of January 1, 2001, between Cleco
Power
LLC
and The Bank of New York
|
333-52540
|
S-3/A(1/26/01)
|
4(a)(3)
|
4(a)(14)
|
Third
Supplemental Indenture, dated as of April 26, 2001, between Cleco
Power
LLC
and the Bank of New York
|
1-5663
|
8-K(4/01)
|
4(a)
|
4(a)(15)
|
Fourth
Supplemental Indenture, dated as of February 1, 2002, between Cleco
Power
LLC
and the Bank of New York
|
1-5663
|
8-K(2/02)
|
4.1
|
4(a)(16)
|
Fifth
Supplemental Indenture, dated as of May 1, 2002, between Cleco Power
LLC
and the Bank of New York
|
1-5663
|
8-K(5/8/02)
|
4.1
|
4(a)(17)
|
Form
of Sixth Supplemental Indenture providing for the issuance of
$75,000,000
principal amount of 5.375% Notes due May 1, 2013
|
333-71643-01
|
10-Q(3/31/03)
|
4(a)
|
4(a)(18)
|
Form
of Seventh Supplemental Indenture, dated as of July 6, 2005, between
Cleco
Power LLC and the Bank of New York Trust Company, N.A.
|
1-5663
|
8-K(7/6/05)
|
4.1
|
4(a)(19)
|
Form
of Eighth Supplemental Indenture, dated as of November 30, 2005,
between
Cleco Power LLC and the Bank of New York Trust Company,
N.A.
|
1-5663
|
8-K(11/28/05)
|
4.1
|
4(b)
|
Agreement
Appointing Successor Trustee dated as of April 1, 1996, by and
among
Central Louisiana Electric Company, Inc., Bankers Trust Company,
and The
Bank of New York
|
333-02895
|
S-3(4/26/96)
|
4(a)(2)
|
4(c)
|
Agreement
Under Regulation S-K Item 601(b)(4)(iii)(A)
|
333-71643-01
|
10-Q(9/99)
|
4(c)
|
4(d)
|
Form
of $75,000,000 5.375% Notes due May 1, 2013
|
333-71643-01
|
10-Q(3/31/03)
|
4(b)
|
4(e)
|
Loan
Agreement dated as of November 1, 2006 between Cleco Power LLC and
the
Rapides Finance Authority
|
1-5663
|
8-K(11/27/06)
|
4.1
|
**10(a)
|
Deferred
Compensation Plan for Directors
|
1-5663
|
10-K(1992)
|
10(n)
|
**10(b)(1)
|
Supplemental
Executive Retirement Plan
|
1-5663
|
10-K(1992)
|
10(o)(1)
|
**10(b)(2)
|
Form
of Supplemental Executive Retirement Plan Participation
Agreement
between Cleco and the following officers: Gregory L. Nesbitt,
David M. Eppler, Catherine C. Powell and Mark H. Segura
|
1-5663
|
10-K(1992)
|
10(o)(2)
|
**10(c)
|
Form
of Executive Severance Agreement between Cleco and the following
officers:
David M. Eppler, Catherine C. Powell and Mark H.
Segura
|
1-5663
|
10-K(1995)
|
10(f)
|
10(d)
|
Term
Loan Agreement dated as of April 2, 1991, among the 401(k) Savings
and
Investment Plan ESOP Trust, the Company, as Guarantor, the Banks
listed
therein and The Bank of New York, as Agent
|
1-5663
|
10-Q(3/91)
|
4(b)
|
10(e)
|
Reimbursement
Agreement (The Industrial Development Board of the Parish
of
Rapides, Inc. (Louisiana) Adjustable Tender Pollution Control Revenue
Refunding Bonds, Series 1991) dated as of October 15, 1997, among
the
Company, various financial institutions, and Westdeutsche Landesbank
Gironzentrale, New York Branch, as Agent
|
1-5663
|
10-K(1997)
|
10(I)
|
10(f)(1)
|
Assignment
and Assumption Agreement, effective as of May 6, 1991,
between
The Bank of New York and the Canadian Imperial Bank of Commerce,
relating
to Exhibit 10(f)(1)
|
1-5663
|
10-Q(3/91)
|
4(c)
|
10(f)(2)
|
Assignment
and Assumption Agreement dated as of July 3, 1991, between
The
Bank of New York and Rapides Bank and Trust Company in Alexandria,
relating to Exhibit 10(f)(1)
|
1-5663
|
10-K(1991)
|
10(y)(3)
|
10(f)(3)
|
Assignment
and Assumption Agreement dated as of July 6, 1992,
between
The Bank of New York, CIBC, Inc. and Rapides Bank and Trust Company
in
Alexandria, as Assignors, the 401(k) Savings and Investment Plan
ESOP
Trust, as Borrower, and the Company, as Guarantor, relating to
Exhibit 10(f)(1)
|
1-5663
|
10-K(1992)
|
10(bb)(4)
|
10(g)
|
Selling
Agency Agreement between the Company and Salomon Brothers
Inc.,
Merrill Lynch & Co., Smith Barney Inc. and First Chicago Capital
Markets, Inc. dated as of December 12, 1996
|
333-02895
|
S-3(12/10/96)
|
1
|
10(h)(1)
|
401(k)
Savings and Investment Plan ESOP Trust Agreement dated as of
August 1, 1997, between UMB Bank, N.A. and the
Company
|
1-5663
|
10-K(1997)
|
10(m)
|
10(h)(2)
|
First
Amendment to 401(k) Savings and Investment Plan ESOP Trust Agreement
dated
as of October 1, 1997, between UMB Bank, N.A. and the Company
|
1-5663
|
10-K(1997)
|
10(m)(1)
|
10(h)(3)
|
401(k)
Savings and Investment Plan as amended and restated effective January
1,
2004
|
1-5663
|
10-Q(3/31/04)
|
10(a)
|
10(h)(4)
|
401(k)
Savings and Investment Plan, Stock Trust Agreement, Amendment Number
2,
Effective January 1, 2004
|
1-5663
|
10-Q(6/30/04)
|
10(b)
|
10(h)(5)
|
401(k)
Savings and Investment Plan, Stock Trust Agreement, Amendment Number
3,
Effective October 1, 2005
|
1-5663
|
10-Q(11/2/05)
|
10(e)
|
10(h)(6)
|
401(k)
Savings and Investment Plan, First Amendment, effective as of June
1,
2005
|
1-5663
|
10-Q(8/2/05)
|
10(b)
|
10(h)(7)
|
401(k)
Savings and Investment Plan, Amended and Restated, effective October
1,
2005
|
333-127496
|
S-8(8/12/05)
|
10.8
|
*10(h)(8)
|
401(k)
Savings and Investment Plan, Amended and Restated, Amendment Number
1,
Effective October 1, 2005,
|
|
|
|
10(i)
|
First
Amended and Restated Credit Agreement dated as of June 2, 2006 among
Cleco
Power LLC, The Bank of New York, as Administrative Agent, and the
lenders
and other parties thereto
|
1-5663
|
10-Q(8/3/06)
|
10.2
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
|
|
|
|
CLECO
POWER
|
SEC
FILE OR
REGISTRATION
NUMBER
|
REGISTRATION
STATEMENT
OR
REPORT
|
EXHIBIT
NUMBER
|
*12(b)
|
Computation
of Ratios of Earnings to Fixed Charges
|
|
|
|
*23(b)
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
*24(b)
|
Power
of Attorney from each Manager of Cleco Power whose signature is affixed
to
this Form 10-K for the year ended December 31, 2006
|
|
|
|
*31(b)
|
CEO
and CFO Certification in accordance with section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
*32(b)
|
CEO
Certification pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
CFO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM
10-K
|
CLECO
CORPORATION (Parent
Company Only) |
SCHEDULE
I
|
Condensed
Statements
of Income
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Administrative
and general
|
|
$
|
1,025
|
|
$
|
1,171
|
|
$
|
2,124
|
|
Other
operating expense
|
|
|
795
|
|
|
715
|
|
|
1,247
|
|
Total
operating expenses
|
|
$
|
1,820
|
|
$
|
1,886
|
|
$
|
3,371
|
|
Operating
loss
|
|
|
(1,820
|
)
|
|
(1,886
|
)
|
|
(3,371
|
)
|
Equity
income of subsidiaries, net of tax
|
|
|
62,992
|
|
|
181,186
|
|
|
71,052
|
|
Interest
income
|
|
|
21,794
|
|
|
16,090
|
|
|
12,850
|
|
Other
income
|
|
|
5,557
|
|
|
1,034
|
|
|
1,051
|
|
Other
expense
|
|
|
(1,381
|
)
|
|
(369
|
)
|
|
-
|
|
Interest
charges
|
|
|
(7,942
|
)
|
|
(12,726
|
)
|
|
(18,172
|
)
|
Income
before income taxes
|
|
|
79,200
|
|
|
183,329
|
|
|
63,410
|
|
Income
tax (expense)
benefit
|
|
|
(4,609
|
)
|
|
(685
|
)
|
|
2,779
|
|
Net
income
|
|
|
74,591
|
|
|
182,644
|
|
|
66,189
|
|
Preferred
dividends requirements, net
|
|
|
1,735
|
|
|
1,865
|
|
|
2,216
|
|
Income
applicable to common stock
|
|
$
|
72,856
|
|
$
|
180,779
|
|
$
|
63,973
|
|
The
accompanying notes are an integral part of the condensed financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION (Parent
Company Only) |
SCHEDULE
I
|
Condensed
Balance
Sheets |
|
|
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
90,593
|
|
$
|
35,737
|
|
Accounts
receivable - affiliate
|
|
|
253,467
|
|
|
209,605
|
|
Other
accounts receivable
|
|
|
101
|
|
|
1,321
|
|
Cash
surrender value of life insurance policies
|
|
|
21,011
|
|
|
17,808
|
|
Total
currents assets
|
|
|
365,172
|
|
|
264,471
|
|
Investment
in subsidiaries
|
|
|
670,390
|
|
|
578,064
|
|
Deferred
charges
|
|
|
7,798
|
|
|
5,917
|
|
Total
assets
|
|
$
|
1,043,360
|
|
$
|
848,452
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable - affiliate
|
|
$
|
10,202
|
|
$
|
17,047
|
|
Other
current liabilities
|
|
|
36,799
|
|
|
25,098
|
|
Total
current liabilities
|
|
|
47,001
|
|
|
42,145
|
|
Long-term
debt, net
|
|
|
100,000
|
|
|
100,000
|
|
Deferred
credits
|
|
|
138
|
|
|
44
|
|
Total
liabilities
|
|
|
147,139
|
|
|
142,189
|
|
Commitments
and Contingencies (Note 5)
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
Not
subject to mandatory redemption, $100 par value, authorized 1,491,900
shares, issued 200,922 and 218,170 shares at
December 31, 2006, and 2005, respectively
|
|
|
20,092
|
|
|
21,817
|
|
Deferred
compensation related to preferred stock held by ESOP
|
|
|
-
|
|
|
(1,783
|
)
|
Total
preferred stock not subject to mandatory redemption
|
|
|
20,092
|
|
|
20,034
|
|
Common
shareholders’ equity
|
|
|
|
|
|
|
|
Common
stock, $1 par value, authorized 100,000,000 shares, issued 57,605,695
and 50,030,035 shares and outstanding 57,524,498 and
50,030,035 shares at December 31, 2006, and 2005,
respectively
|
|
|
57,524
|
|
|
50,030
|
|
Premium
on common stock
|
|
|
358,707
|
|
|
202,416
|
|
Retained
earnings
|
|
|
469,824
|
|
|
443,912
|
|
Unearned
compensation
|
|
|
-
|
|
|
(5,285
|
)
|
Treasury
stock, at cost 31,957
and 36,644 shares at December 31, 2006, and 2005,
respectively
|
|
|
(616
|
)
|
|
(714
|
)
|
Accumulated
other comprehensive loss
|
|
|
(9,310
|
)
|
|
(4,130
|
)
|
Total
common shareholders’ equity
|
|
|
876,129
|
|
|
686,229
|
|
Total
shareholders’ equity
|
|
|
896,221
|
|
|
706,263
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
1,043,360
|
|
$
|
848,452
|
|
The
accompanying notes are an integral part of the condensed financial
statements.
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION (Parent Company Only) |
SCHEDULE
I
|
Condensed
Statements
of Cash Flows
|
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER
31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
cash (used
in) provided by operating activities
|
|
$
|
(15,054
|
)
|
$
|
184,384
|
|
$
|
72,592
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Notes
receivable from subsidiaries
|
|
|
(8,044
|
)
|
|
(5,188
|
)
|
|
43,049
|
|
Investment
in subsidiaries
|
|
|
(50,000
|
)
|
|
(75,000
|
)
|
|
(17,915
|
)
|
Return
of equity investment in investee
|
|
|
15,500
|
|
|
9,631
|
|
|
16,698
|
|
Investment
in cost method investments
|
|
|
-
|
|
|
(1,385
|
)
|
|
(5,485
|
)
|
Other
investing
|
|
|
(2,897
|
)
|
|
(3,066
|
)
|
|
(6,294
|
)
|
Net
cash (used
in) provided by investing activities
|
|
|
(45,441
|
)
|
|
(75,008
|
)
|
|
30,053
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
|
|
157,474
|
|
|
-
|
|
|
35,705
|
|
Change
in short-term debt, net
|
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
Retirement
of long-term obligations
|
|
|
-
|
|
|
(100,000
|
)
|
|
-
|
|
Dividends
paid on preferred stock
|
|
|
(2,184
|
)
|
|
(1,915
|
)
|
|
(2,350
|
)
|
Dividends
paid on common stock
|
|
|
(46,871
|
)
|
|
(44,870
|
)
|
|
(42,767
|
)
|
Other
financing
|
|
|
6,932
|
|
|
3,557
|
|
|
2,136
|
|
Net
cash provided by (used in) financing activities
|
|
|
115,351
|
|
|
(143,228
|
)
|
|
(57,276
|
)
|
Net
increase (decrease)
in cash and cash equivalents
|
|
|
54,856
|
|
|
(33,852
|
)
|
|
45,369
|
|
Cash
and cash equivalents at beginning of period
|
|
|
35,737
|
|
|
69,589
|
|
|
24,220
|
|
Cash
and cash equivalents at end of period
|
|
$
|
90,593
|
|
$
|
35,737
|
|
$
|
69,589
|
|
Supplementary
noncash financing activity
|
|
|
|
|
|
|
|
|
|
|
Issuance
of treasury stock - LTICP and ESOP plans
|
|
$
|
99
|
|
$
|
173
|
|
$
|
1,492
|
|
Issuance
of common stock - LTICP/ESOP/ESPP
|
|
$
|
4,400
|
|
$
|
2,820
|
|
$
|
4,784
|
|
The
accompanying notes are an integral part of the condensed financial
statements.
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Cleco
Corporation (Parent Company Only) Notes to the Condensed Financial Statements
Note
1 — Summary of Significant Accounting Policies
The
condensed financial statements represent the financial information
required by SEC Regulation S-X 5-04 for Cleco Corporation, which requires the
inclusion of parent company only financial statements if the restricted net
assets of consolidated subsidiaries exceed 25% of total consolidated net assets
as of the last day of its most recent fiscal year. As of December 31, 2006,
Cleco Corporation’s restricted net assets of consolidated subsidiaries were
$302.1 million and exceeded 25% of its total consolidated net
assets.
Cleco
Corporation’s
major, first-tier subsidiaries consist of Cleco Power and
Midstream.
Cleco
Power contains the LPSC-jurisdictional generation, transmission, and
distribution electric utility operations serving Cleco’s traditional retail and
wholesale customers. Midstream owns and operates merchant generation stations,
invests in joint ventures that own and operate merchant generation stations,
and
owns and operates transmission interconnection facilities.
On
November 27, 2006, Cleco Corporation and certain subsidiaries (Attala,
Midstream, PEH and Perryville) filed an application with the FERC requesting
approval for the internal reorganization of Midstream’s FERC-jurisdictional
facilities. The reorganization plan calls for Midstream to transfer to Cleco
all
of its membership interests in Attala, and PEH will transfer to Cleco all of
its
membership interest in Perryville. The FERC-jurisdictional facilities affected
by the transaction consist of interconnection facilities and interconnection
agreements. On January 22, 2007, the FERC approved the transfer of the ownership
interests of Attala and Perryville to Cleco Corporation whereby Attala and
Perryville would become first-tier subsidiaries of Cleco Corporation. The
transfer was effective February 1, 2007.
The
accompanying financial statements have been prepared to present the financial
position, results of operations, and cash flows of Cleco Corporation on a
stand-alone basis as a holding company. Investments in subsidiaries and other
investees are stated at cost plus equity in undistributed earnings from the
date
of acquisition. These financial statements should be read in conjunction with
Cleco’s consolidated financial statements.
Cleco
Corporation had
no
short-term debt outstanding at December 31, 2006, or December 31, 2005. At
December 31, 2006, and December 31, 2005, Cleco Corporation had $100.0 million
of long-term debt outstanding consisting of its 7.00% Senior Notes due May
1,
2008.
On
June
2, 2006, Cleco Corporation amended its existing $150.0 million five-year credit
facility originally entered into on April 25, 2005. The amendment extends the
maturity date of this facility to June 2, 2011, while the facility amount
remains at $150.0 million. This
facility provides for working capital and other needs. Cleco Corporation’s
borrowing costs under this facility are equal to LIBOR plus 0.650%. Cleco
Corporation’s borrowing costs under the previous facility were equal to LIBOR
plus 0.875%. At December 31, 2006, off-balance sheet commitments reduced
available borrowings by an additional $17.6 million, leaving available capacity
of $132.4 million. An uncommitted line of credit with a bank in an amount up
to
$10.0 million also is available to support Cleco’s working capital needs. This
line of credit is available to either Cleco Corporation or Cleco
Power.
Total
indebtedness was as follows:
|
|
|
|
|
FOR
THE YEAR ENDED DECEMBER 31,
|
|
(THOUSANDS)
|
|
2006
|
|
2005
|
|
Senior
notes, 7.00% due 2008
|
|
$
|
100,000
|
|
$
|
100,000
|
|
Gross
amount of long-term debt
|
|
|
100,000
|
|
|
100,000
|
|
Less
amount due in one year
|
|
|
-
|
|
|
-
|
|
Total
long-term debt, net
|
|
$
|
100,000
|
|
$
|
100,000
|
|
The
amounts payable under long-term debt agreements for each year through
2011
and
thereafter are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(THOUSANDS)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
THEREAFTER
|
|
Amounts
payable under long-term debt agreements
|
|
$
|
-
|
|
$
|
100,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Note
3 — Dividends and
Equity Contributions
Cleco
Corporation
received $52.9 million and $44.7 million in cash dividends from Cleco Power
during the years 2005 and 2004, respectively. No dividends were received from
Cleco Power for the year ended December 31, 2006. Some provisions in Cleco
Power’s debt instruments restrict the amount of equity available for
distribution to Cleco Corporation by Cleco Power under specified circumstances.
The most restrictive covenant requires Cleco Power’s total indebtedness to be
less than or equal to 65% of total capitalization. At December 31, 2006,
approximately $344.3 million of member’s equity were unrestricted. During the
years 2006 and 2005, Cleco Corporation made equity contributions to Cleco Power
of $50.0 million and $75.0 million, respectively. There were no equity
contributions from Cleco Corporation to Cleco Power for the year ended December
31, 2004.
Cleco
Corporation received $15.5 million, $106.0 million,
and $27.7 million in cash dividends from Midstream during the years ended 2006,
2005, and 2004, respectively. For the year ended December 31, 2006, Cleco
Corporation made no equity contributions to Midstream. However, Cleco
Corporation made equity contributions to Midstream of $1.4 million and $5.5
million for the years 2005 and 2004, respectively.
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
In
addition to the income tax expense (benefit) of $4.6 million, $0.7 million,
and
$(2.8) million reflected in Cleco Corporation (Parent Company Only) Condensed
Statements of Income, income
tax
expense of $37.4 million, $115.3 million, and $38.6 million is reflected in
equity income of subsidiaries, net of tax for the years ending 2006, 2005,
and
2004, respectively.
Note
5
— Commitments and Contingencies
For
information regarding commitments and contingencies related
to
Cleco Corporation, see Part II, Item 8, “Financial Statements and Supplementary
Data — Notes to the Financial Statements — Note 15 — Litigation and Other
Commitments and Contingencies — Off-Balance Sheet Commitments” and Note 17 —
“Disclosures About Guarantees.”
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
CLECO
CORPORATION |
SCHEDULE
II
|
VALUATION
AND QUALIFYING ACCOUNTS
Years
ended December 31, 2006,
2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT
|
|
ADDITIONS
|
|
UNCOLLECTIBLE
|
|
BALANCE
AT
|
|
|
|
BEGINNING
|
|
CHARGED
TO COSTS
|
|
ACCOUNT
WRITE-OFFS
|
|
END
OF
|
|
Allowance
For Uncollectible Accounts (THOUSANDS)
|
|
OF
PERIOD
|
|
AND
EXPENSES
|
|
LESS
RECOVERIES
|
|
PERIOD
|
(1) |
Year
Ended December 31, 2006
|
|
$
|
1,262
|
|
$
|
2,874
|
|
$
|
3,347
|
|
$
|
789
|
|
Year
Ended December 31, 2005
|
|
$
|
506
|
|
$
|
3,202
|
|
$
|
2,446
|
|
$
|
1,262
|
|
Year
Ended December 31, 2004
|
|
$
|
1,407
|
(2)
|
$
|
1,610
|
|
$
|
2,511
|
|
$
|
506
|
|
(1) Deducted
in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Adjustment
due to deconsolidation of Perryville of $15,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLECO
POWER
LLC |
SCHEDULE
II
|
VALUATION
AND QUALIFYING ACCOUNTS
Years
ended December 31, 2006,
2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT
|
|
ADDITIONS
|
|
UNCOLLECTIBLE
|
|
BALANCE
AT
|
|
|
|
BEGINNING
|
|
CHARGED
TO COSTS
|
|
ACCOUNT
WRITE-OFFS
|
|
END
OF
|
|
Allowance
For Uncollectible Accounts (THOUSANDS)
|
|
OF
PERIOD
|
|
AND
EXPENSES
|
|
LESS
RECOVERIES
|
|
PERIOD
|
(1) |
Year
Ended December 31, 2006
|
|
$
|
1,262
|
|
$
|
2,874
|
|
$
|
3,347
|
|
$
|
789
|
|
Year
Ended December 31, 2005
|
|
$
|
506
|
|
$
|
3,202
|
|
$
|
2,446
|
|
$
|
1,262
|
|
Year
Ended December 31, 2004
|
|
$
|
755
|
|
$
|
1,610
|
|
$
|
1,859
|
|
$
|
506
|
|
(1) Deducted
in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
CLECO
CORPORATION
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
By:
|
/s/
Michael H. Madison
|
|
|
|
(Michael
H. Madison)
|
|
|
|
(President,
Chief Executive Officer and Director)
|
|
Date:
February
27, 2007
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
/s/
Michael H. Madison
|
President,
Chief Executive Officer and Director
|
February
27,
2007
|
(Michael
H. Madison)
|
(Principal
Executive Officer)
|
|
/s/
Kathleen F. Nolen
|
Senior
Vice President and Chief Financial Officer
|
February
27,
2007
|
(Kathleen
F. Nolen)
|
(Principal
Financial Officer)
|
|
/s/
R.
Russell Davis
|
Vice
President and Chief Accounting Officer
|
February
27,
2007
|
(R.
Russell Davis)
|
(Principal
Accounting Officer)
|
|
|
DIRECTORS*
|
|
|
SHERIAN
G. CADORIA
|
|
|
RICHARD
B. CROWELL
|
|
|
J.
PATRICK GARRETT
|
|
|
F.
BEN JAMES, JR.
|
|
|
ELTON
R. KING
|
|
|
WILLIAM
L. MARKS
|
|
|
ROBERT
T. RATCLIFF,
SR.
|
|
|
WILLIAM
H. WALKER, JR.
|
|
|
W.
LARRY WESTBROOK
|
|
*By:
|
/s/
Michael
H. Madison
|
|
February
27, 2007
|
|
(Michael
H. Madison, as Attorney-in-Fact)
|
|
|
CLECO
CORPORATION
CLECO
POWER
|
2006
FORM 10-K
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
CLECO
POWER LLC
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
By:
|
/s/
Michael H. Madison
|
|
|
|
(Michael
H. Madison)
|
|
|
|
(Chief
Executive Officer and Manager)
|
|
Date:
February
27, 2007
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
/s/
Michael H. Madison
|
Chief
Executive Officer and Manager
|
February
27,
2007
|
(Michael
H. Madison)
|
(Principal
Executive Officer)
|
|
/s/
Kathleen F. Nolen
|
Senior
Vice President and Chief Financial Officer
|
February
27,
2007
|
(Kathleen
F. Nolen)
|
(Principal
Financial Officer)
|
|
/s/
R.
Russell Davis
|
Vice
President and Chief Accounting Officer
|
February
27,
2007
|
(R.
Russell Davis)
|
(Principal
Accounting Officer)
|
|
|
MANAGERS*
|
|
|
SHERIAN
G. CADORIA
|
|
|
RICHARD
B. CROWELL
|
|
|
J.
PATRICK GARRETT
|
|
|
F.
BEN JAMES, JR.
|
|
|
ELTON
R. KING
|
|
|
WILLIAM
L. MARKS
|
|
|
ROBERT
T. RATCLIFF,
SR.
|
|
|
WILLIAM
H. WALKER, JR.
|
|
|
W.
LARRY WESTBROOK
|
|
*By:
|
/s/
Michael
H. Madison
|
|
February
27, 2007
|
|
(Michael
H. Madison, as Attorney-in-Fact)
|
|
|
132