clecocorp10q_093008.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30, 2008
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
|
|
__________________
Commission
file number 1-05663
CLECO
POWER LLC
(Exact
name of registrant as specified in its charter)
|
|
Louisiana
(State
or other jurisdiction of incorporation or organization)
|
72-0244480
(I.R.S.
Employer Identification No.)
|
|
|
2030
Donahue Ferry Road, Pineville, Louisiana
(Address
of principal executive offices)
|
71360-5226
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code: (318)
484-7400
|
|
Indicate
by check mark whether the Registrants: (1) have filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports) and (2) have been subject
to such filing requirements for the past 90 days.
Yes
x No
¨
|
|
Indicate
by check mark whether Cleco Corporation is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer x Accelerated
filer ¨
Non-accelerated
filer ¨ (Do
not check if a smaller reporting
company) Smaller
reporting company ¨
|
|
Indicate
by check mark whether Cleco Power LLC is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨ Accelerated
filer ¨
Non-accelerated
filer x (Do
not check if a smaller reporting
company) Smaller
reporting company ¨
|
|
Indicate
by check mark whether the Registrants are shell companies (as defined in
Rule 12b-2 of the Exchange Act) Yes ¨ No
x
|
Number
of shares outstanding of each of Cleco Corporation’s classes of Common Stock, as
of the latest practicable date.
Registrant
|
Description of
Class
|
Shares
Outstanding at October
31, 2008
|
|
|
|
Cleco
Corporation
|
Common
Stock, $1.00 Par Value
|
60,229,221
|
Cleco
Power LLC, a wholly owned subsidiary of Cleco Corporation, meets the conditions
set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
filing this Form 10-Q with the reduced disclosure format.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
This
combined Form 10-Q 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 Unaudited Condensed Consolidated
Financial Statements are combined.
TABLE
OF CONTENTS
|
PAGE
|
GLOSSARY OF
TERMS
|
3
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
5
|
|
|
|
PART
I
|
Financial
Information
|
|
ITEM
1.
|
Cleco
Corporation — Condensed Consolidated Financial Statements
|
6
|
|
Cleco
Power — Condensed Consolidated Financial Statements
|
14
|
|
Notes
to the Unaudited Condensed Consolidated Financial
Statements
|
19
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
38
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
54
|
ITEM
4 and 4T.
|
Controls
and Procedures
|
55
|
|
|
|
PART
II
|
Other
Information
|
|
ITEM
1.
|
Legal
Proceedings
|
56
|
ITEM
1A.
|
Risk
Factors
|
56
|
ITEM
5.
|
Other
Information
|
57
|
ITEM
6.
|
Exhibits
|
58
|
|
Signatures
|
59
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
References
in this filing, including all items in Parts I and II, to “Cleco” mean Cleco
Corporation and its subsidiaries, including Cleco Power, and references to
“Cleco Power” mean Cleco Power LLC and its subsidiary, unless the context
clearly indicates otherwise. Additional abbreviations or acronyms used in
this filing, including all items in Parts I and II are defined
below:
ABBREVIATION
OR ACRONYM
|
DEFINITION
|
401(k)
Plan
|
Cleco
Power 401(k) Savings and Investment Plan
|
Acadia
|
Acadia
Power Partners, LLC and its combined-cycle, natural gas-fired power plant
near Eunice, Louisiana, 50% owned by APH and 50% owned by
Cajun. Prior to September 13, 2007, Acadia was 50% owned by APH
and 50% owned by Calpine Acadia Holdings, LLC.
|
AFUDC
|
Allowance
for Funds Used During Construction
|
Amended
EPC Contract
|
Amended
and Restated EPC Contract between Cleco Power and Shaw, executed on May
12, 2006, for engineering, procurement, and construction of Rodemacher
Unit 3, as amended by Amendment No. 1 thereto effective March 9, 2007 and
Amendment No. 2 thereto dated as of July 2, 2008.
|
APB
|
Accounting
Principles Board
|
APB
Opinion No. 10
|
Consolidated
Financial Statements, Poolings of Interest, Convertible Debt and Debt
Issued with Stock Warrants Installment Method of
Accounting
|
APB
Opinion No. 18
|
The
Equity Method of Accounting for Investments in Common
Stock
|
APB
Opinion No. 21
|
Interest
on Receivables and Payables
|
APH
|
Acadia
Power Holdings LLC, a wholly owned subsidiary of
Midstream
|
ARB
|
Accounting
Research Bulletin
|
ARB
No. 51
|
Consolidated
Financial Statements
|
Attala
|
Attala
Transmission LLC, a wholly owned subsidiary of Cleco
Corporation. Prior to February 1, 2007, Attala was a wholly
owned subsidiary of Midstream.
|
Attala
Interconnection Agreement
|
Interconnection
Agreement and Real Estate Agreements between Attala and Entergy
Mississippi
|
Bear
Energy
|
BE
Louisiana LLC, an indirect wholly owned subsidiary of JPMorgan Chase &
Co.
|
Bear
Stearns Companies Inc.
|
The
parent company of Bear, Stearns & Co. Inc.
|
CAH
|
Calpine
Acadia Holdings, LLC
|
Cajun
|
Cajun
Gas Energy L.L.C., an affiliate of pooled investment funds managed by King
Street Capital Management, L.L.C.
|
Calpine
|
Calpine
Corporation
|
CCN
|
Certificate
of Public Convenience and Necessity
|
CES
|
Calpine
Energy Services, L.P.
|
Cleco
Energy
|
Cleco
Energy LLC, a wholly owned subsidiary of Midstream
|
Cleco
Katrina/Rita
|
Cleco
Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of
Cleco Power
|
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. 06-11
|
Accounting
for Income Tax Benefits of Dividends on Share-Based Payment
Awards
|
EITF
No. 07-1
|
Accounting
for Collaborative Arrangements Related to the Development and
Commercialization of Intellectual Property
|
EITF
No. 07-3
|
Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in
Future Research and Development Activities
|
EITF
No. 08-5
|
Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party
Credit Enhancement
|
EITF
No. 94-1
|
Accounting
for Tax Benefits Resulting from Investments in Affordable Housing
Projects
|
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
combined-cycle, natural gas-fired power plant located in Evangeline
Parish, Louisiana
|
Evangeline
Tolling Agreement
|
Capacity
Sale and Tolling Agreement between Evangeline and BE Louisiana LLC (as
successor to Williams Power Company, Inc. (formerly known as Williams
Energy Marketing & Trading Company)) which expires in 2020.
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
FIN
|
FASB
Interpretation No.
|
FIN
39
|
Offsetting
of Amounts Related to Certain Contracts – an interpretation of APB Opinion
No. 10 and FASB Statement No. 105
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
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 ARB No. 51 (revised
December 2003)
|
FIN
48
|
Accounting
for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.
109
|
FSP
|
FASB
Staff Position
|
FSP
EITF No. 03-6-1
|
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
|
FSP
No. FAS 133-1 and FIN 45-4
|
Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161
|
FSP
No. FAS 142-3
|
Determining
the Useful Life of Intangible Assets
|
FSP
No. FAS 157-1
|
Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
|
FSP
No. FAS 157-2
|
Effective
date of FASB Statement No. 157
|
FSP
No. FAS 157-3
|
Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active
|
FSP
No. FIN 39-1
|
Amendment
of FASB Interpretation No. 39
|
GAAP
|
Generally
Accepted Accounting Principles
|
ICT
|
Independent
Coordinator of Transmission
|
IRP
|
Integrated
Resource Planning
|
IRS
|
Internal
Revenue Service
|
kWh
|
Kilowatt-hour(s)
as applicable
|
LDEQ
|
Louisiana
Department of Environmental Quality
|
LIBOR
|
London
Interbank Offered 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
|
Midstream
|
Cleco
Midstream Resources LLC, a wholly owned subsidiary of Cleco
Corporation
|
Moody’s
|
Moody’s
Investors Service
|
MW
|
Megawatt(s)
as applicable
|
PCAOB
|
Public
Company Accounting Oversight Board
|
PCB
|
Polychlorinated
biphenyls
|
Perryville
|
Perryville
Energy Partners, L.L.C., a wholly owned subsidiary of Cleco
Corporation. Prior to February 1, 2007, Perryville was a wholly
owned subsidiary of Perryville Energy Holdings LLC, a wholly owned
subsidiary of Midstream.
|
Perryville
Interconnection Agreement
|
Interconnection
Agreement and Real Estate Agreements between Perryville and Entergy
Louisiana
|
Power
Purchase Agreement
|
Power
Purchase Agreement, dated as of January 28, 2004, between Perryville and
Entergy Services
|
PRP
|
Potentially
responsible party
|
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
|
RTO
|
Regional
Transmission Organization
|
Sale
Agreement
|
Purchase
and Sale Agreement, dated as of January 28, 2004, between Perryville and
Entergy Louisiana
|
SEC
|
Securities
and Exchange Commission
|
SERP
|
Cleco
Corporation Supplemental Executive Retirement Plan
|
SFAS
|
Statement
of Financial Accounting Standards
|
SFAS
No. 13
|
Accounting
for Leases
|
SFAS
No. 71
|
Accounting
for the Effects of Certain Types of Regulation
|
SFAS
No. 109
|
Accounting
for Income Taxes
|
SFAS
No. 123(R)
|
Share-Based
Payment
|
SFAS
No. 131
|
Disclosures
about Segments of an Enterprise and Related Information
|
SFAS
No. 133
|
Accounting
for Derivative Instruments and Hedging Activities
|
SFAS
No. 141(R)
|
Business
Combinations
|
SFAS
No. 142
|
Goodwill
and Other Intangible Assets
|
SFAS
No. 149
|
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
|
SFAS
No. 157
|
Fair
Value Measurements
|
SFAS
No. 159
|
The
Fair Value Option For Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115
|
SFAS
No. 160
|
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51
|
SFAS
No. 161
|
Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133
|
SFAS
No. 162
|
The
Hierarchy of Generally Accepted Accounting Principles
|
Shaw
|
Shaw
Contractors, Inc., a subsidiary of The Shaw Group Inc.
|
Support
Group
|
Cleco
Support Group LLC, a wholly owned subsidiary of Cleco
Corporation
|
SWEPCO
|
Southwestern
Electric Power Company, a wholly owned subsidiary of American Electric
Power Company, Inc.
|
VaR
|
Value-at-risk
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q includes “forward-looking statements” about future
events, circumstances, and results. All statements other than
statements of historical fact included in this Quarterly Report are
forward-looking statements, including, without limitation, statements regarding
the construction, timing and cost of Rodemacher Unit 3; timing and outcome
of Cleco Power’s proposed new rate plan; Bear Energy’s performance under the
Evangeline Tolling Agreement; future capital expenditures; projections;
business strategies; goals; competitive strengths; market and industry
developments; development and operation of facilities; future environmental
regulations and remediation liabilities; and the anticipated outcome of various
regulatory and legal proceedings. Although the Registrants believe
that the expectations reflected in such forward-looking statements are
reasonable, such forward-looking statements are based on numerous assumptions
(some of which may prove to be incorrect) and are subject to risks and
uncertainties that could cause the actual results to differ materially from the
Registrants’ expectations. In addition to any assumptions and other
factors referred to specifically in connection with these forward-looking
statements, the following list identifies some of the factors that could cause
the Registrants’ actual results to differ materially from those contemplated in
any of the Registrants’ forward-looking statements:
§
|
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; environmental
compliance costs; power transmission system constraints; or outcome of
Cleco Power’s proposed new rate plan filed with the LPSC in July
2008;
|
§
|
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;
|
§
|
Regulatory
factors such as changes in rate-setting policies, recovery of investments
made under traditional regulation, recovery of storm restoration costs,
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 compliance with ERO reliability standards for
bulk power systems by Cleco Power, Acadia, Attala, Evangeline, and
Perryville;
|
§
|
Financial
or regulatory accounting principles or policies imposed by the FASB, the
SEC, the PCAOB, 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;
|
§
|
The
amount of uncertain tax positions;
|
§
|
Employee
work force factors, including work stoppages and changes in key
executives;
|
§
|
Legal,
environmental, and regulatory delays and other obstacles associated with
mergers, acquisitions, reorganizations, investments in joint ventures, or
other capital projects;
|
§
|
Costs
and other effects of legal and administrative proceedings, settlements,
investigations, claims and other
matters;
|
§
|
Changes
in federal, state, or local laws, and changes in tax laws or rates,
regulating policies or environmental laws and regulations;
and
|
§
|
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 “Risk Factors” in this report and in the
Registrants’ second quarter Form 10-Q for the quarterly period ended June 30,
2008, and the Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
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 |
2008 3RD QUARTER
FORM 10-Q
|
PART
I — FINANCIAL INFORMATION
ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Cleco
Corporation
These
unaudited condensed consolidated financial statements should be read in
conjunction with Cleco Corporation’s Consolidated Financial Statements and Notes
included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal
year ended December 31, 2007. For more information on the basis of
presentation, see “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 1 — Summary of Significant Accounting Policies — Basis of
Presentation.”
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed Consolidated
Statements of Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
333,936 |
|
|
$ |
300,862 |
|
Other operations
|
|
|
7,004 |
|
|
|
9,238 |
|
Affiliate
revenue
|
|
|
2,735 |
|
|
|
1,591 |
|
Operating
revenue
|
|
|
343,675 |
|
|
|
311,691 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
93,717 |
|
|
|
97,863 |
|
Power purchased for utility
customers
|
|
|
150,502 |
|
|
|
108,649 |
|
Other operations
|
|
|
24,822 |
|
|
|
23,454 |
|
Maintenance
|
|
|
10,754 |
|
|
|
10,205 |
|
Depreciation
|
|
|
19,283 |
|
|
|
19,739 |
|
Taxes other than income
taxes
|
|
|
9,033 |
|
|
|
10,620 |
|
Total operating
expenses
|
|
|
308,111 |
|
|
|
270,530 |
|
Operating
income
|
|
|
35,564 |
|
|
|
41,161 |
|
Interest
income
|
|
|
1,669 |
|
|
|
2,873 |
|
Allowance
for other funds used during construction
|
|
|
17,786 |
|
|
|
9,552 |
|
Equity
income from investees
|
|
|
9,662 |
|
|
|
27,726 |
|
Other
income
|
|
|
937 |
|
|
|
28,402 |
|
Other
expense
|
|
|
(2,276 |
) |
|
|
(1,284 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium and discount, net of capitalized
interest
|
|
|
20,619 |
|
|
|
13,752 |
|
Allowance for borrowed funds
used during construction
|
|
|
(4,923 |
) |
|
|
(3,444 |
) |
Total interest
charges
|
|
|
15,696 |
|
|
|
10,308 |
|
Income
before income taxes
|
|
|
47,646 |
|
|
|
98,122 |
|
Federal
and state income tax expense
|
|
|
10,513 |
|
|
|
30,077 |
|
Net
income
|
|
|
37,133 |
|
|
|
68,045 |
|
Preferred
dividends requirements, net of tax
|
|
|
12 |
|
|
|
12 |
|
Net
income applicable to common stock
|
|
$ |
37,121 |
|
|
$ |
68,033 |
|
Average
shares of common stock outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,031,962 |
|
|
|
59,669,692 |
|
Diluted
|
|
|
60,291,616 |
|
|
|
59,947,916 |
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
0.62 |
|
|
$ |
1.14 |
|
Net income applicable to common
stock
|
|
$ |
0.62 |
|
|
$ |
1.14 |
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
0.62 |
|
|
$ |
1.13 |
|
Net income applicable to common
stock
|
|
$ |
0.62 |
|
|
$ |
1.13 |
|
Cash
dividends paid per share of common stock
|
|
$ |
0.225 |
|
|
$ |
0.225 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
CLECO
CORPORATION
Condensed
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$ |
37,133 |
|
|
$ |
68,045 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Net unrealized (loss) income
from available-for-sale securities (net of tax (benefit) expense of $(11)
in 2008 and $11 in 2007)
|
|
|
(24 |
) |
|
|
18 |
|
Amortization of post-retirement
benefit net losses (net of tax benefit of $130 in 2008 and $16 in
2007)
|
|
|
(153 |
) |
|
|
(9 |
) |
Other
comprehensive (loss) income
|
|
|
(177 |
) |
|
|
9 |
|
Comprehensive
income, net of tax
|
|
$ |
36,956 |
|
|
$ |
68,054 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed Consolidated
Statements of Income (Unaudited)
|
|
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
|
|
(THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
803,397 |
|
|
$ |
765,791 |
|
Other operations
|
|
|
29,826 |
|
|
|
26,478 |
|
Affiliate
revenue
|
|
|
7,790 |
|
|
|
4,673 |
|
Operating
revenue
|
|
|
841,013 |
|
|
|
796,942 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
162,140 |
|
|
|
204,671 |
|
Power purchased for utility
customers
|
|
|
392,245 |
|
|
|
308,388 |
|
Other operations
|
|
|
69,958 |
|
|
|
74,493 |
|
Maintenance
|
|
|
35,456 |
|
|
|
35,386 |
|
Depreciation
|
|
|
57,970 |
|
|
|
59,827 |
|
Taxes other than income
taxes
|
|
|
27,320 |
|
|
|
30,286 |
|
Gain on sales of
assets
|
|
|
(99 |
) |
|
|
- |
|
Total operating
expenses
|
|
|
744,990 |
|
|
|
713,051 |
|
Operating
income
|
|
|
96,023 |
|
|
|
83,891 |
|
Interest
income
|
|
|
4,544 |
|
|
|
8,030 |
|
Allowance
for other funds used during construction
|
|
|
46,462 |
|
|
|
21,715 |
|
Equity
income from investees
|
|
|
2,723 |
|
|
|
97,608 |
|
Other
income
|
|
|
1,094 |
|
|
|
28,644 |
|
Other
expense
|
|
|
(4,322 |
) |
|
|
(2,536 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium and discount, net of capitalized
interest
|
|
|
49,884 |
|
|
|
41,786 |
|
Allowance for borrowed funds
used during construction
|
|
|
(14,526 |
) |
|
|
(7,502 |
) |
Total interest
charges
|
|
|
35,358 |
|
|
|
34,284 |
|
Income
before income taxes
|
|
|
111,166 |
|
|
|
203,068 |
|
Federal
and state income tax expense
|
|
|
22,573 |
|
|
|
63,187 |
|
Net
income
|
|
|
88,593 |
|
|
|
139,881 |
|
Preferred
dividends requirements, net of tax
|
|
|
35 |
|
|
|
446 |
|
Net
income applicable to common stock
|
|
$ |
88,558 |
|
|
$ |
139,435 |
|
Average
shares of common stock outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
59,975,190 |
|
|
|
58,914,141 |
|
Diluted
|
|
|
60,146,501 |
|
|
|
59,717,636 |
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
1.48 |
|
|
$ |
2.35 |
|
Net income applicable to common
stock
|
|
$ |
1.48 |
|
|
$ |
2.35 |
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
1.47 |
|
|
$ |
2.34 |
|
Net income applicable to common
stock
|
|
$ |
1.47 |
|
|
$ |
2.34 |
|
Cash
dividends paid per share of common stock
|
|
$ |
0.675 |
|
|
$ |
0.675 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$ |
88,593 |
|
|
$ |
139,881 |
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
Net unrealized loss from
available-for-sale securities (net of tax benefit of $38 in 2008 and $11
in 2007)
|
|
|
(68 |
) |
|
|
(17 |
) |
Amortization of post-retirement
benefit net losses (net of tax benefit of $145 in 2008 and $ 22 in
2007)
|
|
|
(161 |
) |
|
|
(13 |
) |
Other
comprehensive loss
|
|
|
(229 |
) |
|
|
(30 |
) |
Comprehensive
income, net of tax
|
|
$ |
88,364 |
|
|
$ |
139,851 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
|
|
AT
SEPTEMBER 30, 2008
|
|
|
AT
DECEMBER 31, 2007
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
77,392 |
|
|
$ |
129,013 |
|
Restricted cash
|
|
|
43,779 |
|
|
|
17,866 |
|
Customer accounts receivable
(less allowance for doubtful accounts of $2,182 in 2008 and $1,028 in
2007)
|
|
|
58,127 |
|
|
|
39,587 |
|
Accounts receivable –
affiliate
|
|
|
3,297 |
|
|
|
9,367 |
|
Other accounts
receivable
|
|
|
39,566 |
|
|
|
39,029 |
|
Unbilled
revenue
|
|
|
19,342 |
|
|
|
17,759 |
|
Fuel inventory, at average
cost
|
|
|
49,267 |
|
|
|
43,291 |
|
Material and supplies
inventory, at average cost
|
|
|
37,556 |
|
|
|
39,195 |
|
Risk management assets,
net
|
|
|
2,954 |
|
|
|
7,201 |
|
Accumulated deferred
fuel
|
|
|
43,921 |
|
|
|
9,398 |
|
Cash surrender value of
company-/trust-owned life insurance policies
|
|
|
25,588 |
|
|
|
28,857 |
|
Prepayments
|
|
|
3,061 |
|
|
|
3,661 |
|
Regulatory assets –
other
|
|
|
2,553 |
|
|
|
20,194 |
|
Other current
assets
|
|
|
758 |
|
|
|
1,098 |
|
Total current
assets
|
|
|
407,161 |
|
|
|
405,516 |
|
Property, plant and
equipment
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
1,997,485 |
|
|
|
1,926,848 |
|
Accumulated
depreciation
|
|
|
(938,621 |
) |
|
|
(917,043 |
) |
Net property, plant and
equipment
|
|
|
1,058,864 |
|
|
|
1,009,805 |
|
Construction work in
progress
|
|
|
923,144 |
|
|
|
716,075 |
|
Total property, plant and
equipment, net
|
|
|
1,982,008 |
|
|
|
1,725,880 |
|
Equity investment in
investees
|
|
|
257,613 |
|
|
|
258,101 |
|
Prepayments
|
|
|
6,082 |
|
|
|
6,783 |
|
Restricted cash, less current
portion
|
|
|
18,807 |
|
|
|
95 |
|
Regulatory assets and
liabilities – deferred taxes, net
|
|
|
162,319 |
|
|
|
126,686 |
|
Regulatory assets –
other
|
|
|
55,616 |
|
|
|
158,268 |
|
Intangible asset
|
|
|
171,179 |
|
|
|
- |
|
Other deferred
charges
|
|
|
35,036 |
|
|
|
25,294 |
|
Total assets
|
|
$ |
3,095,821 |
|
|
$ |
2,706,623 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited) (Continued)
(THOUSANDS)
|
|
AT
SEPTEMBER 30, 2008
|
|
|
AT
DECEMBER 31, 2007
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Long-term debt due within one
year
|
|
$ |
63,546 |
|
|
$ |
100,000 |
|
Accounts
payable
|
|
|
151,549 |
|
|
|
123,061 |
|
Retainage
|
|
|
10,577 |
|
|
|
25 |
|
Accounts payable –
affiliate
|
|
|
4,017 |
|
|
|
6,860 |
|
Customer
deposits
|
|
|
26,886 |
|
|
|
25,989 |
|
Taxes accrued
|
|
|
7,228 |
|
|
|
12,411 |
|
Interest
accrued
|
|
|
18,937 |
|
|
|
21,933 |
|
Accumulated deferred taxes,
net
|
|
|
43,935 |
|
|
|
43,055 |
|
Risk management liability,
net
|
|
|
15,486 |
|
|
|
3,881 |
|
Regulatory liabilities –
other
|
|
|
523 |
|
|
|
538 |
|
Deferred
compensation
|
|
|
5,935 |
|
|
|
6,366 |
|
Other current
liabilities
|
|
|
14,833 |
|
|
|
13,348 |
|
Total current
liabilities
|
|
|
363,452 |
|
|
|
357,467 |
|
Deferred credits
|
|
|
|
|
|
|
|
|
Accumulated deferred federal
and state income taxes, net
|
|
|
384,695 |
|
|
|
366,305 |
|
Accumulated deferred investment
tax credits
|
|
|
11,631 |
|
|
|
12,665 |
|
Regulatory liabilities
– other
|
|
|
71,630 |
|
|
|
31,855 |
|
Restricted storm
reserve
|
|
|
18,865 |
|
|
|
- |
|
Uncertain tax
positions
|
|
|
65,474 |
|
|
|
68,369 |
|
Other deferred
credits
|
|
|
125,620 |
|
|
|
89,490 |
|
Total deferred
credits
|
|
|
677,915 |
|
|
|
568,684 |
|
Long-term debt,
net
|
|
|
992,869 |
|
|
|
769,103 |
|
Total
liabilities
|
|
|
2,034,236 |
|
|
|
1,695,254 |
|
Commitments
and Contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Not subject to mandatory
redemption, $100 par value, authorized 1,491,900 shares, issued 10,288
shares at September
30, 2008 and December 31, 2007
|
|
|
1,029 |
|
|
|
1,029 |
|
Common shareholders’
equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value,
authorized 100,000,000 shares, issued 60,063,711 and 59,971,945 shares and
outstanding
60,038,688 and 59,943,589
shares at September 30, 2008 and December 31, 2007,
respectively
|
|
|
60,064 |
|
|
|
59,972 |
|
Premium on common
stock
|
|
|
394,002 |
|
|
|
391,565 |
|
Retained
earnings
|
|
|
615,562 |
|
|
|
567,724 |
|
Treasury stock, at
cost, 25,023 and 28,356 shares at September 30, 2008 and December 31,
2007, respectively
|
|
|
(452 |
) |
|
|
(530 |
) |
Accumulated other comprehensive
loss
|
|
|
(8,620 |
) |
|
|
(8,391 |
) |
Total common shareholders’
equity
|
|
|
1,060,556 |
|
|
|
1,010,340 |
|
Total shareholders’
equity
|
|
|
1,061,585 |
|
|
|
1,011,369 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
3,095,821 |
|
|
$ |
2,706,623 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
Net income
|
|
$ |
88,593 |
|
|
$ |
139,881 |
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
81,335 |
|
|
|
61,492 |
|
Gain on sales of
assets
|
|
|
(99 |
) |
|
|
- |
|
Proceeds from sale of
bankruptcy claims
|
|
|
- |
|
|
|
78,200 |
|
Provision for doubtful
accounts
|
|
|
2,906 |
|
|
|
1,799 |
|
Return on equity investment in
investees
|
|
|
8,690 |
|
|
|
60,023 |
|
Income from equity
investments
|
|
|
(2,723 |
) |
|
|
(97,608 |
) |
Unearned compensation
expense
|
|
|
2,994 |
|
|
|
6,507 |
|
ESOP expense
|
|
|
- |
|
|
|
2,140 |
|
Allowance for other funds used
during construction
|
|
|
(46,462 |
) |
|
|
(21,715 |
) |
Amortization of investment tax
credits
|
|
|
(1,035 |
) |
|
|
(1,076 |
) |
Net deferred income
taxes
|
|
|
(10,098 |
) |
|
|
10,295 |
|
Deferred fuel
costs
|
|
|
(25 |
) |
|
|
400 |
|
Loss (gain) on economic
hedges
|
|
|
434 |
|
|
|
(706 |
) |
Cash surrender value of
company-/trust-owned life insurance
|
|
|
2,603 |
|
|
|
(1,486 |
) |
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(24,414 |
) |
|
|
(36,644 |
) |
Accounts and notes receivable,
affiliate
|
|
|
14,373 |
|
|
|
8,943 |
|
Unbilled
revenue
|
|
|
(1,583 |
) |
|
|
(2,288 |
) |
Fuel, materials and supplies
inventory
|
|
|
(4,336 |
) |
|
|
(2,153 |
) |
Prepayments
|
|
|
1,725 |
|
|
|
1,629 |
|
Accounts
payable
|
|
|
6,456 |
|
|
|
(12,281 |
) |
Accounts and notes payable,
affiliate
|
|
|
(38,472 |
) |
|
|
(7,415 |
) |
Customer
deposits
|
|
|
4,396 |
|
|
|
4,166 |
|
Regulatory assets and
liabilities, net
|
|
|
32,119 |
|
|
|
17,156 |
|
Other deferred
accounts
|
|
|
(63,971 |
) |
|
|
(13,618 |
) |
Retainage
payable
|
|
|
10,551 |
|
|
|
(12,384 |
) |
Taxes accrued
|
|
|
22,874 |
|
|
|
15,738 |
|
Interest
accrued
|
|
|
(2,289 |
) |
|
|
8,272 |
|
Risk management assets and
liabilities, net
|
|
|
(8,827 |
) |
|
|
14,814 |
|
Other, net
|
|
|
1,387 |
|
|
|
3,459 |
|
Net cash provided by
operating activities
|
|
|
77,102 |
|
|
|
225,540 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(264,303 |
) |
|
|
(343,458 |
) |
Allowance for other funds used
during construction
|
|
|
46,462 |
|
|
|
21,715 |
|
Proceeds from sale of property,
plant and equipment
|
|
|
99 |
|
|
|
422 |
|
Return of equity investment in
investee
|
|
|
95 |
|
|
|
- |
|
Equity investment in
investees
|
|
|
(14,697 |
) |
|
|
(2,220 |
) |
Premiums paid on
company-/trust-owned life insurance
|
|
|
(629 |
) |
|
|
(2,017 |
) |
Settlements received from
insurance policies
|
|
|
941 |
|
|
|
- |
|
Transfer of cash (to) from
restricted accounts
|
|
|
(44,625 |
) |
|
|
24,358 |
|
Other investing
|
|
|
599 |
|
|
|
96 |
|
Net cash used in investing
activities
|
|
|
(276,058 |
) |
|
|
(301,104 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Retirement of long-term
obligations
|
|
|
(350,318 |
) |
|
|
(25,290 |
) |
Issuance of long-term
debt
|
|
|
537,541 |
|
|
|
135,000 |
|
Deferred financing
costs
|
|
|
(315 |
) |
|
|
(876 |
) |
Dividends paid on preferred
stock
|
|
|
(35 |
) |
|
|
(446 |
) |
Dividends paid on common
stock
|
|
|
(40,521 |
) |
|
|
(39,805 |
) |
Other financing
|
|
|
983 |
|
|
|
9,872 |
|
Net cash provided by financing
activities
|
|
|
147,335 |
|
|
|
78,455 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(51,621 |
) |
|
|
2,891 |
|
Cash
and cash equivalents at beginning of period
|
|
|
129,013 |
|
|
|
192,471 |
|
Cash
and cash equivalents at end of period
|
|
$ |
77,392 |
|
|
$ |
195,362 |
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
Interest paid (net of amount
capitalized)
|
|
$ |
33,950 |
|
|
$ |
33,504 |
|
Income taxes
paid
|
|
$ |
40,180 |
|
|
$ |
48,000 |
|
Supplementary
non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Issuance of treasury stock –
LTICP and ESOP plans
|
|
$ |
79 |
|
|
$ |
67 |
|
Issuance of common stock –
LTICP/ESOP/ESPP
1
|
|
$ |
93 |
|
|
$ |
21,501 |
|
Accrued additions to property,
plant and equipment not reported above
|
|
$ |
10,868 |
|
|
$ |
92,789 |
|
1
Includes conversion of preferred
stock to common stock ($19,063/2007)
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
PART
I — FINANCIAL INFORMATION
ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Cleco
Power
These
unaudited condensed consolidated financial statements should be read in
conjunction with Cleco Power’s Consolidated Financial Statements and Notes
included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal
year ended December 31, 2007. For more information on the basis of
presentation, see “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 1 — Summary of Significant Accounting Policies — Basis of
Presentation.”
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
CLECO
POWER
Condensed
Consolidated Statements of Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
333,936 |
|
|
$ |
300,862 |
|
Other operations
|
|
|
6,981 |
|
|
|
9,231 |
|
Affiliate
revenue
|
|
|
425 |
|
|
|
511 |
|
Operating
revenue
|
|
|
341,342 |
|
|
|
310,604 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
93,717 |
|
|
|
97,863 |
|
Power purchased for utility
customers
|
|
|
150,502 |
|
|
|
108,649 |
|
Other operations
|
|
|
23,242 |
|
|
|
22,739 |
|
Maintenance
|
|
|
9,719 |
|
|
|
9,590 |
|
Depreciation
|
|
|
18,861 |
|
|
|
19,401 |
|
Taxes other than income
taxes
|
|
|
8,732 |
|
|
|
10,053 |
|
Total operating
expenses
|
|
|
304,773 |
|
|
|
268,295 |
|
Operating
income
|
|
|
36,569 |
|
|
|
42,309 |
|
Interest
income
|
|
|
1,545 |
|
|
|
1,082 |
|
Allowance
for other funds used during construction
|
|
|
17,786 |
|
|
|
9,552 |
|
Other
income
|
|
|
956 |
|
|
|
528 |
|
Other
expense
|
|
|
(779 |
) |
|
|
(189 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium and discount
|
|
|
19,896 |
|
|
|
11,657 |
|
Allowance for borrowed funds
used during construction
|
|
|
(4,923 |
) |
|
|
(3,444 |
) |
Total interest
charges
|
|
|
14,973 |
|
|
|
8,213 |
|
Income
before income taxes
|
|
|
41,104 |
|
|
|
45,069 |
|
Federal
and state income taxes
|
|
|
10,566 |
|
|
|
10,871 |
|
Net
income
|
|
$ |
30,538 |
|
|
$ |
34,198 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Income (Unaudited)
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
803,397 |
|
|
$ |
765,791 |
|
Other operations
|
|
|
29,757 |
|
|
|
26,413 |
|
Affiliate
revenue
|
|
|
1,527 |
|
|
|
1,540 |
|
Operating
revenue
|
|
|
834,681 |
|
|
|
793,744 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
162,140 |
|
|
|
204,671 |
|
Power purchased for utility
customers
|
|
|
392,245 |
|
|
|
308,388 |
|
Other operations
|
|
|
65,862 |
|
|
|
71,318 |
|
Maintenance
|
|
|
32,556 |
|
|
|
33,587 |
|
Depreciation
|
|
|
56,886 |
|
|
|
58,784 |
|
Taxes other than income
taxes
|
|
|
24,727 |
|
|
|
28,540 |
|
Total operating
expenses
|
|
|
734,416 |
|
|
|
705,288 |
|
Operating
income
|
|
|
100,265 |
|
|
|
88,456 |
|
Interest
income
|
|
|
3,121 |
|
|
|
3,548 |
|
Allowance
for other funds used during construction
|
|
|
46,462 |
|
|
|
21,715 |
|
Other
income
|
|
|
1,172 |
|
|
|
812 |
|
Other
expense
|
|
|
(1,643 |
) |
|
|
(985 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium and discount
|
|
|
45,961 |
|
|
|
35,385 |
|
Allowance for borrowed funds
used during construction
|
|
|
(14,526 |
) |
|
|
(7,502 |
) |
Total interest
charges
|
|
|
31,435 |
|
|
|
27,883 |
|
Income
before income taxes
|
|
|
117,942 |
|
|
|
85,663 |
|
Federal
and state income taxes
|
|
|
27,135 |
|
|
|
20,517 |
|
Net
income
|
|
$ |
90,807 |
|
|
$ |
65,146 |
|
The
accompanying notes are an integral part of the condensed financial
statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
|
|
AT
SEPTEMBER 30, 2008
|
|
|
AT DECEMBER 31,
2007
|
|
Assets
|
|
|
|
|
|
|
Utility plant and
equipment
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
$ |
1,981,568 |
|
|
$ |
1,911,626 |
|
Accumulated
depreciation
|
|
|
(927,968 |
) |
|
|
(907,434 |
) |
Net property, plant and
equipment
|
|
|
1,053,600 |
|
|
|
1,004,192 |
|
Construction work in
progress
|
|
|
921,934 |
|
|
|
714,978 |
|
Total utility plant,
net
|
|
|
1,975,534 |
|
|
|
1,719,170 |
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
67,979 |
|
|
|
11,944 |
|
Restricted cash
|
|
|
43,779 |
|
|
|
17,866 |
|
Customer accounts receivable
(less allowance for doubtful accounts of $2,182 in 2008 and $1,028 in
2007)
|
|
|
58,127 |
|
|
|
39,587 |
|
Other accounts
receivable
|
|
|
39,414 |
|
|
|
38,527 |
|
Accounts receivable –
affiliate
|
|
|
2,257 |
|
|
|
17,425 |
|
Unbilled
revenue
|
|
|
19,342 |
|
|
|
17,759 |
|
Fuel inventory, at average
cost
|
|
|
49,267 |
|
|
|
43,291 |
|
Material and supplies
inventory, at average cost
|
|
|
37,556 |
|
|
|
39,195 |
|
Risk management assets,
net
|
|
|
2,954 |
|
|
|
7,201 |
|
Prepayments
|
|
|
2,389 |
|
|
|
2,900 |
|
Regulatory assets –
other
|
|
|
2,553 |
|
|
|
20,194 |
|
Accumulated deferred
fuel
|
|
|
43,921 |
|
|
|
9,398 |
|
Cash surrender value of
company-owned life insurance policies
|
|
|
5,453 |
|
|
|
5,333 |
|
Other current
assets
|
|
|
275 |
|
|
|
439 |
|
Total current
assets
|
|
|
375,266 |
|
|
|
271,059 |
|
Prepayments
|
|
|
6,082 |
|
|
|
6,783 |
|
Restricted cash, less current
portion
|
|
|
18,711 |
|
|
|
- |
|
Regulatory assets and
liabilities – deferred taxes, net
|
|
|
162,319 |
|
|
|
126,686 |
|
Regulatory assets –
other
|
|
|
55,616 |
|
|
|
158,268 |
|
Intangible asset
|
|
|
171,179 |
|
|
|
- |
|
Other deferred
charges
|
|
|
24,533 |
|
|
|
24,516 |
|
Total
assets
|
|
$ |
2,789,240 |
|
|
$ |
2,306,482 |
|
Liabilities
and member’s equity
|
|
|
|
|
|
|
|
|
Member’s equity
|
|
$ |
906,592 |
|
|
$ |
816,110 |
|
Long-term debt,
net
|
|
|
944,869 |
|
|
|
769,103 |
|
Total
capitalization
|
|
|
1,851,461 |
|
|
|
1,585,213 |
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Long-term debt due within one
year
|
|
|
63,546 |
|
|
|
- |
|
Accounts payable
|
|
|
147,945 |
|
|
|
117,640 |
|
Accounts payable –
affiliate
|
|
|
6,242 |
|
|
|
18,881 |
|
Retainage
|
|
|
10,577 |
|
|
|
25 |
|
Customer
deposits
|
|
|
26,886 |
|
|
|
25,989 |
|
Taxes accrued
|
|
|
24,830 |
|
|
|
6,958 |
|
Interest accrued
|
|
|
18,872 |
|
|
|
17,536 |
|
Accumulated deferred taxes,
net
|
|
|
45,590 |
|
|
|
45,205 |
|
Risk management liability,
net
|
|
|
15,486 |
|
|
|
3,881 |
|
Regulatory liabilities –
other
|
|
|
523 |
|
|
|
538 |
|
Other current
liabilities
|
|
|
11,634 |
|
|
|
9,690 |
|
Total current
liabilities
|
|
|
372,131 |
|
|
|
246,343 |
|
Deferred
credits
|
|
|
|
|
|
|
|
|
Accumulated deferred federal and
state income taxes, net
|
|
|
344,939 |
|
|
|
321,747 |
|
Accumulated deferred investment
tax credits
|
|
|
11,631 |
|
|
|
12,665 |
|
Regulatory liabilities –
other
|
|
|
71,630 |
|
|
|
31,855 |
|
Restricted storm
reserve
|
|
|
18,865 |
|
|
|
- |
|
Uncertain tax
positions
|
|
|
43,223 |
|
|
|
44,960 |
|
Other deferred
credits
|
|
|
75,360 |
|
|
|
63,699 |
|
Total deferred
credits
|
|
|
565,648 |
|
|
|
474,926 |
|
Total
liabilities and member’s equity
|
|
$ |
2,789,240 |
|
|
$ |
2,306,482 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
Net income
|
|
$ |
90,807 |
|
|
$ |
65,146 |
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
63,543 |
|
|
|
60,019 |
|
Provision for doubtful
accounts
|
|
|
2,901 |
|
|
|
1,799 |
|
Unearned compensation
expense
|
|
|
867 |
|
|
|
3,044 |
|
Allowance for other funds used
during construction
|
|
|
(46,462 |
) |
|
|
(21,715 |
) |
Amortization of investment tax
credits
|
|
|
(1,035 |
) |
|
|
(1,076 |
) |
Net deferred income
taxes
|
|
|
(4,577 |
) |
|
|
(11,952 |
) |
Deferred fuel
costs
|
|
|
(25 |
) |
|
|
400 |
|
Loss (gain) on economic
hedges
|
|
|
434 |
|
|
|
(706 |
) |
Cash surrender value of
company-owned life insurance
|
|
|
(317 |
) |
|
|
(221 |
) |
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(24,760 |
) |
|
|
(36,424 |
) |
Accounts and notes receivable,
affiliate
|
|
|
15,209 |
|
|
|
(10,693 |
) |
Unbilled
revenue
|
|
|
(1,583 |
) |
|
|
(2,288 |
) |
Fuel, materials and supplies
inventory
|
|
|
(4,336 |
) |
|
|
(2,153 |
) |
Prepayments
|
|
|
1,636 |
|
|
|
1,440 |
|
Accounts
payable
|
|
|
8,947 |
|
|
|
(10,753 |
) |
Accounts and notes payable,
affiliate
|
|
|
(12,990 |
) |
|
|
(24,726 |
) |
Customer
deposits
|
|
|
4,396 |
|
|
|
4,166 |
|
Regulatory assets and
liabilities, net
|
|
|
32,119 |
|
|
|
17,156 |
|
Other deferred
accounts
|
|
|
(69,536 |
) |
|
|
(14,468 |
) |
Retainage
payable
|
|
|
10,551 |
|
|
|
(12,384 |
) |
Taxes accrued
|
|
|
17,872 |
|
|
|
13,592 |
|
Interest
accrued
|
|
|
2,043 |
|
|
|
5,981 |
|
Risk management assets and
liabilities, net
|
|
|
(8,827 |
) |
|
|
14,814 |
|
Other, net
|
|
|
2,191 |
|
|
|
3,188 |
|
Net cash provided by operating
activities
|
|
|
79,068 |
|
|
|
41,186 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(263,454 |
) |
|
|
(342,688 |
) |
Allowance for other funds used
during construction
|
|
|
46,462 |
|
|
|
21,715 |
|
Proceeds from sale of property,
plant and equipment
|
|
|
99 |
|
|
|
422 |
|
Premiums paid on company-owned
life insurance
|
|
|
(424 |
) |
|
|
(470 |
) |
Transfer of cash (to) from
restricted accounts
|
|
|
(44,624 |
) |
|
|
24,361 |
|
Net cash used in investing
activities
|
|
|
(261,941 |
) |
|
|
(296,660 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Retirement of long-term
obligations
|
|
|
(250,318 |
) |
|
|
(25,290 |
) |
Issuance of long-term
debt
|
|
|
489,541 |
|
|
|
135,000 |
|
Deferred financing
costs
|
|
|
(315 |
) |
|
|
(873 |
) |
Contribution from
parent
|
|
|
- |
|
|
|
60,000 |
|
Net cash provided by financing
activities
|
|
|
238,908 |
|
|
|
168,837 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
56,035 |
|
|
|
(86,637 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
11,944 |
|
|
|
101,878 |
|
Cash
and cash equivalents at end of period
|
|
$ |
67,979 |
|
|
$ |
15,241 |
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
Interest paid (net of amount
capitalized)
|
|
$ |
29,531 |
|
|
$ |
29,985 |
|
Income taxes
paid
|
|
|
2,100 |
|
|
|
- |
|
Supplementary
non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Accrued additions to property,
plant and equipment not reported above
|
|
$ |
10,868 |
|
|
$ |
92,789 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Index
to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements
of Registrants
Note
1
|
Summary
of Significant Accounting Policies
|
Cleco
Corporation and Cleco Power
|
Note
2
|
Recent
Accounting Standards
|
Cleco
Corporation and Cleco Power
|
Note
3
|
Fair
Value Measurement Disclosures
|
Cleco
Corporation and Cleco Power
|
Note
4
|
Regulatory
Assets and Liabilities
|
Cleco
Corporation and Cleco Power
|
Note
5
|
Restricted
Cash
|
Cleco
Corporation and Cleco Power
|
Note
6
|
Debt
|
Cleco
Corporation and Cleco Power
|
Note
7
|
Pension
Plan and Employee Benefits
|
Cleco
Corporation and Cleco Power
|
Note
8
|
Income
Taxes
|
Cleco
Corporation and Cleco Power
|
Note
9
|
Disclosures
about Segments
|
Cleco
Corporation
|
Note
10
|
Equity
Investment in Investees
|
Cleco
Corporation
|
Note
11
|
Litigation,
Other Commitments and Contingencies, and Disclosures about
Guarantees
|
Cleco
Corporation and Cleco Power
|
Note
12
|
Affiliate
Transactions
|
Cleco
Corporation and Cleco Power
|
Note
13
|
Intangible
Asset
|
Cleco
Corporation and Cleco Power
|
Note
14
|
Storm
Restoration
|
Cleco
Corporation and Cleco Power
|
Notes
to the Unaudited Condensed Consolidated Financial Statements
Note
1 — Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed consolidated financial statements of Cleco include the
accounts of Cleco 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
Evangeline, Perryville, Attala, and Acadia. These 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 of these entities
are reported as equity income from investees on Cleco Corporation’s Condensed
Consolidated Statements of Income. For additional information on the
operations of these entities, see Note 10 — “Equity Investment in
Investees.”
In
March 2008, in connection with the closing of the securitization transaction,
Cleco Power sold the right to bill and collect from customers unamortized storm
damage costs to Cleco Katrina/Rita, a special purpose, wholly owned subsidiary
of Cleco Power. Cleco Power, through a review of its relationships
with Cleco Katrina/Rita, has determined the entity should be consolidated with
Cleco Power. For additional information about Cleco Katrina/Rita, see
Note 4 — “Regulatory Assets and Liabilities — Deferred Storm Restoration Costs -
Katrina/Rita.”
In
August 2008, Cleco Corporation acquired an equity interest in a limited
liability company. Cleco will not be affected by the performance of the
investment. The
investment is reported at the cost of the investment net of the liability
incurred. For additional information about this transaction, see Note
11 — “Litigation, Other Commitments and Contingencies, and Disclosures
about Guarantees.”
Basis
of Presentation
The
condensed consolidated financial statements of Cleco Corporation and Cleco Power
have been prepared pursuant to the rules and regulations of the
SEC. Accordingly, certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although Cleco believes
that the disclosures are adequate to make the information presented not
misleading.
The
year-end condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. The unaudited financial information
included in the condensed consolidated financial statements of Cleco Corporation
and Cleco Power reflects all adjustments of a normal recurring nature which are,
in the opinion of the management of Cleco Corporation and Cleco Power, necessary
for a fair statement of the financial position and the results of operations for
the interim periods. Information for interim periods is affected by
seasonal variations in sales, rate changes, timing of fuel expense recovery and
other factors, and is not indicative necessarily of the results that may be
expected for the full fiscal year. For more information on recent
accounting standards and their effect on financial results, see Note 2 — “Recent
Accounting Standards.”
Reclassifications
Certain
reclassifications have been made to prior period financial
statements to conform them to the presentation used in the current year’s
financial statements. These reclassifications had no effect on Cleco
Corporation’s net income
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
applicable
to common stock or total common shareholders’ equity or Cleco Power’s net income
or total member’s equity.
Fair
Value Measurements
Various
accounting pronouncements require certain assets and liabilities to be measured
at their fair values. Certain assets and liabilities are required to
be measured at their fair value each reporting period, while others are required
to be measured only one time, generally the date of acquisition or
issuance. Beginning with reporting periods ending after January 1,
2008, Cleco and Cleco Power are required to disclose the fair value of financial
assets and liabilities by one of three levels. For more information
about fair value levels, see Note 3 — “Fair Value Measurement
Disclosures.”
Risk
Management
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. Cleco’s Energy 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 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 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 92% 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 three and nine months ended September 30, 2008,
and 2007, the following gains and losses related to these economic hedge
transactions were recorded in other operations revenue.
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Realized
gain (loss)
|
|
$ |
163 |
|
|
$ |
(189 |
) |
|
$ |
950 |
|
|
$ |
(205 |
) |
Mark-to-market
(loss)
gain
|
|
|
(4,940 |
) |
|
|
(522 |
) |
|
|
(433 |
) |
|
|
706 |
|
Total (loss)
gain
|
|
$ |
(4,777 |
) |
|
$ |
(711 |
) |
|
$ |
517 |
|
|
$ |
501 |
|
Cleco
Power has entered into other positions to mitigate the volatility in customer
fuel costs. These positions are recorded as risk management assets or
liabilities with the corresponding mark-to-market gain or loss recorded on the
balance sheet as a component of accumulated deferred fuel. 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 September 30, 2008, and
December 31, 2007, the net mark-to-market impacts relating to these positions
were losses of $31.8 million and $7.0 million, respectively. The
increase in losses is due to the decline in natural gas prices at September 30,
2008, compared to December 31, 2007. Deferred losses relating to
closed natural gas positions at September 30, 2008, and December 31, 2007,
totaled $4.0 million and $3.1 million, respectively.
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 September 30, 2008, and December 31, 2007,
Cleco Power had paid collateral of $11.8 million and $3.0 million, respectively,
to cover margin requirements relating to open natural gas futures, options and
swap positions. These margin requirements are netted with the
mark-to-market positions recorded in the risk management asset or liability and
other deferred charges or credits on the balance sheet.
Cleco
Power’s economic hedge positions and the positions used to mitigate the
volatility in customer fuel costs are transacted through the use of futures
positions on the NYMEX (New York Mercantile Exchange) and with OTC (over the
counter) swap and option positions traded with major banks. Exchange
traded positions (NYMEX) mitigate counterparty risk; however, the positions
require more liquidity due to the daily settlement provision. OTC
positions are executed under International Swap Dealers Association (ISDA)
agreements.
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.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Earnings
per Average Common Share
The
following tables show the calculation of basic and diluted earnings per
share.
|
|
|
|
|
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
(THOUSANDS,
EXCEPT SHARES AND PER SHARE AMOUNTS)
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
Income
from continuing operations
|
|
$ |
37,133 |
|
|
|
|
|
|
|
|
$ |
68,045 |
|
|
|
|
|
|
|
Deduct: non-participating
stock dividends (4.5% preferred stock)
|
|
|
12 |
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
37,121 |
|
|
|
|
|
$ |
0.62 |
|
|
$ |
68,033 |
|
|
|
|
|
$ |
1.14 |
|
Total
basic net income applicable to common stock
|
|
$ |
37,121 |
|
|
|
60,031,962 |
|
|
$ |
0.62 |
|
|
$ |
68,033 |
|
|
|
59,669,692 |
|
|
$ |
1.14 |
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: stock
option grants
|
|
|
- |
|
|
|
62,289 |
|
|
|
|
|
|
|
- |
|
|
|
73,517 |
|
|
|
|
|
Add: restricted
stock (LTICP)
|
|
|
- |
|
|
|
197,365 |
|
|
|
|
|
|
|
6 |
|
|
|
204,707 |
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations plus assumed conversions
|
|
$ |
37,121 |
|
|
|
|
|
|
$ |
0.62 |
|
|
$ |
68,039 |
|
|
|
|
|
|
$ |
1.13 |
|
Total
diluted net income applicable to common stock
|
|
$ |
37,121 |
|
|
|
60,291,616 |
|
|
$ |
0.62 |
|
|
$ |
68,039 |
|
|
|
59,947,916 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
(THOUSANDS,
EXCEPT SHARES AND PER SHARE AMOUNTS)
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
Income
from continuing operations
|
|
$ |
88,593 |
|
|
|
|
|
|
|
|
$ |
139,881 |
|
|
|
|
|
|
|
Deduct: non-participating
stock dividends (4.5% preferred stock)
|
|
|
35 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
Deduct: participating
preferred stock dividends
|
|
|
- |
|
|
|
|
|
|
|
|
|
412 |
|
|
|
|
|
|
|
Deduct: amount
allocated to participating preferred
|
|
|
- |
|
|
|
|
|
|
|
|
|
921 |
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
88,558 |
|
|
|
|
|
$ |
1.48 |
|
|
$ |
138,514 |
|
|
|
|
|
$ |
2.35 |
|
Total
basic net income applicable to common stock
|
|
$ |
88,558 |
|
|
|
59,975,190 |
|
|
$ |
1.48 |
|
|
$ |
138,514 |
|
|
|
58,914,141 |
|
|
$ |
2.35 |
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: stock
option grants
|
|
|
- |
|
|
|
63,833 |
|
|
|
|
|
|
|
- |
|
|
|
114,088 |
|
|
|
|
|
Add: restricted
stock (LTICP)
|
|
|
- |
|
|
|
107,478 |
|
|
|
|
|
|
|
21 |
|
|
|
140,382 |
|
|
|
|
|
Add: convertible
ESOP preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
1,333 |
|
|
|
549,025 |
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations plus assumed conversions
|
|
$ |
88,558 |
|
|
|
|
|
|
$ |
1.47 |
|
|
$ |
139,868 |
|
|
|
|
|
|
$ |
2.34 |
|
Total
diluted net income applicable to common stock
|
|
$ |
88,558 |
|
|
|
60,146,501 |
|
|
$ |
1.47 |
|
|
$ |
139,868 |
|
|
|
59,717,636 |
|
|
$ |
2.34 |
|
Stock
option grants are excluded from the computation of diluted earnings per share if
the exercise price is higher than the average market price.
There
were no stock option grants excluded from the computation for the three and nine
months ended September 30, 2008, or nine months ended September 30,
2007. Stock option grants excluded from the computation for the three
months ended September 30, 2007, are presented in the table below.
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007
|
|
STRIKE
PRICE
|
|
AVERAGE
MARKET
PRICE
|
|
SHARES
|
Stock
option grants excluded
|
$
24.25
|
|
$
24.14
|
|
37,433
|
Stock-Based
Compensation
At
September 30, 2008, Cleco had one share-based compensation plan: the
LTICP. 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.
On
January 25, 2008, Cleco granted 82,993 shares of non-vested stock and 63,733 of
common stock equivalent units to certain officers, key employees and directors
of Cleco Corporation and its subsidiaries pursuant to the
LTICP.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Cleco
and Cleco Power reported pre-tax compensation expense for their share-based
compensation plans as shown in the following table:
|
|
CLECO
CORPORATION
|
|
|
CLECO
POWER
|
|
|
CLECO
CORPORATION
|
|
|
CLECO
POWER
|
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Equity
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
stock
|
|
$ |
396 |
|
|
$ |
594 |
|
|
$ |
113 |
|
|
$ |
219 |
|
|
$ |
1,179 |
|
|
$ |
1,666 |
|
|
$ |
310 |
|
|
$ |
656 |
|
Stock
options
|
|
|
14 |
|
|
|
14 |
|
|
|
- |
|
|
|
1 |
|
|
|
42 |
|
|
|
23 |
|
|
|
- |
|
|
|
(4 |
) |
Non-forfeitable
dividends
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
|
12 |
|
Total
|
|
$ |
410 |
|
|
$ |
614 |
|
|
$ |
113 |
|
|
$ |
224 |
|
|
$ |
1,221 |
|
|
$ |
1,710 |
|
|
$ |
310 |
|
|
$ |
664 |
|
Liability
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock equivalent units
|
|
$ |
827 |
|
|
$ |
516 |
|
|
$ |
308 |
|
|
$ |
208 |
|
|
$ |
1,504 |
|
|
$ |
949 |
|
|
$ |
557 |
|
|
$ |
381 |
|
Company-funded
participants income tax obligations
|
|
|
- |
|
|
|
274 |
|
|
|
- |
|
|
|
202 |
|
|
|
- |
|
|
|
3,629 |
|
|
|
- |
|
|
|
2,001 |
|
Total
|
|
$ |
827 |
|
|
$ |
790 |
|
|
$ |
308 |
|
|
$ |
410 |
|
|
$ |
1,504 |
|
|
$ |
4,578 |
|
|
$ |
557 |
|
|
$ |
2,382 |
|
Total
pre-tax compensation expense
|
|
$ |
1,237 |
|
|
$ |
1,404 |
|
|
$ |
421 |
|
|
$ |
634 |
|
|
$ |
2,725 |
|
|
$ |
6,288 |
|
|
$ |
867 |
|
|
$ |
3,046 |
|
Tax
benefit
|
|
$ |
476 |
|
|
$ |
435 |
|
|
$ |
162 |
|
|
$ |
166 |
|
|
$ |
1,049 |
|
|
$ |
1,023 |
|
|
$ |
334 |
|
|
$ |
402 |
|
Note
2 — Recent Accounting Standards
The
Registrants adopted, or will adopt, the recent accounting standards listed below
on their respective effective dates.
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. Specifically, SFAS No. 157 creates a common definition of
fair value throughout generally accepted accounting principles, 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. In February 2008, the FASB amended
SFAS No. 157. FSP No. FAS 157-1 excludes fair value lease
calculations pursuant to SFAS No. 13, as amended, from SFAS No. 157, but does
not exclude assets and liabilities acquired pursuant to SFAS No.
141(R). FSP No. FAS 157-2 defers the effective date of SFAS No. 157
by one year for non-financial assets and liabilities that are not recognized or
disclosed at fair value on a recurring basis. The adoption of SFAS
No. 157 and the related FSPs did not have a material impact on the financial
condition or results of operations of the Registrants. For more
information regarding SFAS No. 157 related disclosures, see Note 3 — “Fair Value
Measurement Disclosures.”
In
February 2007, the FASB issued SFAS No. 159, which allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities
at fair value that are not otherwise required to be measured at fair
value. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Registrants did not elect the fair value
option for eligible items existing at the effective date. The
adoption of SFAS No. 159 did not have an impact on the financial condition or
results of operations of the Registrants.
In
April 2007, the FASB issued FSP No. FIN 39-1, which amends FIN
39. The new guidance permits companies to offset fair value amounts
recognized for derivative instruments executed with the same counterparty under
a master netting arrangement and fair value amounts recognized for the right to
reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) arising from the same master netting arrangement as the
derivative instruments. FSP No. FIN 39-1 is effective for fiscal
years beginning after November 15, 2007. Upon the adoption of FSP No.
FIN 39-1, Cleco Corporation and Cleco Power adopted the policy to net the fair
value of derivative instruments along with the right to reclaim cash collateral
or obligation to return cash collateral. In accordance with the
provisions of this FSP, the netting was applied retrospectively to the prior
balance sheet presented as a change to an accounting principle. The
following table represents the right to reclaim cash collateral netted against
the fair value of derivative instruments for both Cleco Corporation and Cleco
Power.
(THOUSANDS)
|
|
AT
SEPTEMBER 30, 2008
|
|
|
AT
DECEMBER 31, 2007
|
|
Cash
collateral
|
|
|
|
|
|
|
Right to reclaim
|
|
$ |
11,793 |
|
|
$ |
2,966 |
|
Cleco
Corporation and Cleco Power’s Condensed Consolidated Balance Sheets at December
31, 2007, have been retrospectively adjusted due to the adoption of FSP No. FIN
39-1. The retrospective adjustments to the December 31, 2007, balance
sheets are described in the following tables.
(THOUSANDS)
|
|
AS
REPORTED
|
|
|
AS
ADJUSTED
|
|
Cleco
Corporation
|
|
|
|
|
|
|
Current assets – margin
deposits
|
|
$ |
2,966 |
|
|
$ |
- |
|
Current assets – risk management
asset
|
|
$ |
7,396 |
|
|
$ |
7,201 |
|
Assets – other deferred
charges
|
|
$ |
26,245 |
|
|
$ |
25,294 |
|
Current liabilities – risk
management liability
|
|
$ |
7,993 |
|
|
$ |
3,881 |
|
(THOUSANDS)
|
|
AS
REPORTED
|
|
|
AS
ADJUSTED
|
|
Cleco
Power
|
|
|
|
|
|
|
Current assets – margin
deposits
|
|
$ |
2,966 |
|
|
$ |
- |
|
Current assets – risk management
asset
|
|
$ |
7,396 |
|
|
$ |
7,201 |
|
Assets – other deferred
charges
|
|
$ |
25,467 |
|
|
$ |
24,516 |
|
Current liabilities – risk
management liability
|
|
$ |
7,993 |
|
|
$ |
3,881 |
|
The
retrospective adoption of FSP No. FIN 39-1 had no effect on net income, earnings
per share, shareholders’ equity or member’s equity.
In
June 2007, the FASB ratified EITF No. 06-11. This consensus requires
companies to record the realized income tax benefits from dividends or dividend
equivalents that are
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
charged
to retained earnings and are paid to employees to the additional paid-in capital
pool. This consensus is effective prospectively for dividends
declared in fiscal years beginning after September 15, 2007. This
consensus may be adopted early in financial periods for which financial
statements have not been issued. Entities shall disclose the nature
of any change in their accounting policy for income tax benefits of dividends on
share-based payment awards resulting from the adoption of this
guidance. The adoption of this EITF did not have an impact on the
financial condition or results of operations of the Registrants.
In
June 2007, the FASB ratified EITF No. 07-3. This consensus requires
companies that make non-refundable advance payments for future research and
development activities to capitalize the payments until the goods have been
delivered or the related services performed. This consensus is
effective for financial statements issued for fiscal years beginning after
December 15, 2007. Earlier application is not
permitted. The adoption of this EITF did not have an impact on the
financial condition or results of operations of the Registrants.
In
December 2007, the FASB released SFAS No. 141(R). This revision
requires the acquirer of a business to recognize assets acquired, liabilities
assumed, and any non-controlling interests at their fair market
values. The statement gives guidance on the calculation of goodwill
or gain from a bargain purchase and expands the required
disclosures. The provisions of this statement are applicable to
acquisitions either through one transaction or through a step
acquisition. This SFAS is applied prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. This statement may not be adopted early. The
adoption of this statement will only impact the financial condition and results
of operations of the Registrants, if they are involved in transactions within
the scope of this statement after its effective date.
In
December 2007, the FASB released SFAS No. 160. This statement gives
guidance on the presentation and disclosure of noncontrolling interests
(currently known as minority interests) of consolidated
subsidiaries. This statement requires the noncontrolling interest to
be included in the equity section of the balance sheet, requires disclosure on
the face of the consolidated income statement of the amounts of consolidated net
income attributable to the consolidated parent and the noncontrolling interest,
and expands disclosures. The provisions of this statement are to be
applied prospectively to fiscal years beginning on or after December 15,
2008. Early adoption is prohibited. The adoption of SFAS
No. 160 is not expected to have an impact on the financial condition or results
of operations of the Registrants.
In
December 2007, the FASB ratified EITF No. 07-1. This EITF prescribes
the income statement presentation and disclosures for participants in
collaborative arrangements. A collaborative arrangement is defined as
a contractual arrangement that involves a joint operating activity, usually
outside of a legal entity. The provisions of this EITF are
effective
for fiscal years beginning after December 15, 2008, and shall be applied
retrospectively for all collaborative arrangements existing as of the effective
date. Management currently is evaluating the impact this EITF will
have on the financial condition or results of operations of the
Registrants.
In
March 2008, the FASB issued SFAS No. 161 which enhances the disclosures about an
entity’s derivative and hedging activities. The disclosures include
how and why a derivative instrument is used, how the derivative instrument and
the hedged item are related, and the impact of the derivative instrument and the
hedged item on the entity’s financial statements. SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. Since this SFAS is only a change in disclosure, the adoption
will not have an impact on the financial condition or results of operations of
the Registrants.
In
April 2008, the FASB issued FSP No. FAS 142-3 which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This FSP
amends SFAS No. 142 to allow an entity’s own experience in renewing arrangements
or to use market assumptions about renewal in determining the useful life of a
recognized intangible asset. This FSP also requires additional
disclosure about the renewal costs. FSP No. FAS 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The
adoption of FSP No. FAS 142-3 is not expected to have an impact on the financial
condition or results of operations of the Registrants.
In
May 2008, the FASB issued SFAS No. 162 which identifies, categorizes and ranks
sources of GAAP. This SFAS has four broad categories, with “a” being
the highest source of GAAP, descending to category “d.” An entity is
required to use the highest category of GAAP specified by a
pronouncement. If a particular transaction is not specified by a
pronouncement within the categories, an entity can then apply accounting
pronouncements for similar transactions (unless such analogy is prohibited by a
particular pronouncement) followed by other accounting
literature. This SFAS is effective 60 days following the SEC’s
approval of the PCAOB’s amendments to Auditing Standard Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting
Principles.” The adoption of SFAS No. 162 is not expected to
have an impact on the financial condition or results of operations of the
Registrants.
In
June 2008, the FASB issued FSP EITF 03-6-1 which gives guidance on determining
whether non-vested instruments issued in share-based payment transactions are
participating securities when calculating earnings per share. This
FSP states that non-vested share-based instruments that contain nonforfeitable
rights to dividends or dividend equivalents are participating securities and are
required to be included in the computation of earnings per share pursuant to the
two-class method. This FSP is effective for fiscal years and interim
periods beginning after December 15, 2008. Earnings per share for
prior periods presented are required to be adjusted
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
retrospectively
to conform to this FSP. Early adoption of this FSP is
prohibited. Management currently is evaluating the impact this FSP
will have on the financial condition and results of operations of the
Registrants.
In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4 which amends SFAS
No. 133 and FIN 45 by expanding disclosure requirements for entities selling
credit derivatives. The disclosures include the nature of the
derivative, the maximum potential amount of future payments, the fair value, the
nature of any recourse or collateral, and the current status of the
payment/performance risk. The provisions of this FSP are effective
for interim and annual periods ending after November 15, 2008. Since
this FSP is only a change in disclosure, the adoption will not have an impact on
the financial condition or results of operations of the
Registrants.
In
September 2008, the FASB ratified EITF No. 08-5 which provides guidance on
issuer’s accounting and disclosure at fair value for liabilities that contain
inseparable third-party credit enhancements. The EITF requires
issuers of liabilities to exclude the third-party credit enhancement when
calculating the fair value of the liability for both recognition and disclosure
purposes. Also, proceeds received by the issuer for liabilities
within the scope of the EITF represent consideration for both the liability and
the credit enhancement and shall be allocated to both the liability and the
premium for the credit enhancement. The provisions of this EITF are
effective on a prospective basis in the first reporting period beginning on or
after December 15, 2008. Earlier application is
permitted. Management currently is evaluating the impact this FSP
will have on the financial condition and results of operations of the
Registrants.
On
September 30, 2008, the SEC and the FASB issued a joint release clarifying fair
value accounting. The clarifications cover topics such as inactive
markets, broker quotes, disorderly sales, internally generated assumptions and
other-than-temporary impairment. This joint release does not have a
stated effective date, but its guidance should be considered for valuations made
on or after its release date. The application of this release did not
have an impact on the financial condition and results of operations of the
Registrants.
On
October 10, 2008, the FASB issued FSP No. FAS 157-3 which provides guidance on
calculating fair value in an inactive market. This FSP is effective
upon issuance, including prior periods for which financial statements have not
been issued. The adoption of this FSP did not have an impact on the
financial condition or results of operations of the Registrants.
Note
3 — Fair Value Measurement Disclosures
SFAS
No. 157 requires entities to classify assets and liabilities measured at their
fair value according to three different levels, depending on the inputs used in
determining fair value.
§
|
Level
1 – unadjusted quoted prices in active, liquid markets for the identical
asset or liability;
|
§
|
Level
2 – quoted prices for similar assets and liabilities in active markets or
other inputs that are observable for the asset or liability, including
inputs that can be corroborated by observable market data, observable
interest rate yield curves and
volatilities;
|
§
|
Level
3 – unobservable inputs based upon the entities own
assumptions.
|
The
tables below disclose for Cleco and Cleco Power the fair value of financial
assets and liabilities measured on a recurring basis and within the scope of
SFAS No. 157.
|
|
CLECO
CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
USING:
|
|
(THOUSANDS)
|
|
AT
SEPTEMBER
30, 2008
|
|
|
QUOTED
PRICES IN
ACTIVE
MARKETS
FOR
IDENTICAL
ASSETS
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
Asset
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
174,256 |
|
|
$ |
1,542 |
|
|
$ |
172,714 |
|
|
$ |
- |
|
Institutional
money market funds
|
|
|
113,753 |
|
|
|
- |
|
|
|
113,753 |
|
|
|
- |
|
Total
|
|
$ |
288,009 |
|
|
$ |
1,542 |
|
|
$ |
286,467 |
|
|
$ |
- |
|
|
|
CLECO
CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
USING:
|
|
(THOUSANDS)
|
|
AT
SEPTEMBER
30, 2008
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
LIABILITIES
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
Liability
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
204,475 |
|
|
$ |
5,368 |
|
|
$ |
199,107 |
|
|
$ |
- |
|
|
|
CLECO
POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:
|
|
(THOUSANDS)
|
|
AT
SEPTEMBER
30, 2008
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
ASSETS
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
Asset
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
174,256 |
|
|
$ |
1,542 |
|
|
$ |
172,714 |
|
|
$ |
- |
|
Institutional money market
funds
|
|
|
104,453 |
|
|
|
- |
|
|
|
104,453 |
|
|
|
- |
|
Total
|
|
$ |
278,709 |
|
|
$ |
1,542 |
|
|
$ |
277,167 |
|
|
$ |
- |
|
|
|
CLECO
POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:
|
|
(THOUSANDS)
|
|
AT
SEPTEMBER
30, 2008
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
LIABILITIES
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
Liability
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
204,475 |
|
|
$ |
5,368 |
|
|
$ |
199,107 |
|
|
$ |
- |
|
Cleco
chose to defer for one year the provisions of SFAS No. 157 for non-financial
assets and liabilities in accordance with FSP No. FAS 157-2.
The
derivative assets and liabilities are classified as either current or
non-current depending on when the positions close. All derivative
current assets and current liabilities are reported as a net current risk
management asset or liability. All derivative non-current assets and
non-current liabilities are reported net in other deferred charges or other
deferred credits. Net presentation is appropriate due to the right of
offset included in the master netting agreements. In accordance with
FSP No. FIN 39-1, the net current and net non-current derivative positions are
netted with the applicable margin deposits. At September 30, 2008, a
net current risk management asset of
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
$2.9
million represented current derivative positions of $0.5 million reduced by
current margin deposits of $0.2 million, and deferred option premiums of $2.6
million. Non-current derivative asset positions were $1.0 million,
reduced by non-current margin deposits of $0.4 million which was recorded in
other deferred charges on the balance sheet. At September 30, 2008, a
net current risk management liability of $15.5 million represented the current
derivative positions of $25.4 million reduced by current margin deposits of $9.9
million. The non-current liability derivative positions of $6.4
million, reduced by non-current margin deposits of $2.5 million were recorded in
other deferred charges. The $113.8 million in institutional money
market funds was reported on the Cleco Consolidated balance sheet in cash and
cash equivalents, current restricted cash, and restricted non-current cash in
the amounts of $51.3 million, $43.7 million, and $18.8 million,
respectively. At Cleco Power, cash and cash equivalents, current
restricted cash, and restricted non-current cash contained $42.0 million, $43.7
million, and $18.7 million, respectively.
Cleco
utilizes different valuation techniques for fair value
calculations. In order to measure the fair value for Level 1 assets
and liabilities, Cleco obtains the closing price from published indices in
active markets for the various instruments and multiplies by the appropriate
number of instruments held. Level 2 fair values for assets and
liabilities are determined by obtaining the closing price from published indices
in active markets for instruments that are similar to Cleco’s assets and
liabilities. The fair value obtained is then discounted to the
current period using a U.S. Treasury published interest rate as a proxy for a
risk-free rate of return. For some options, Cleco uses the
Black-Scholes model using observable and available inputs to calculate the fair
value, consistent with the income approach. These techniques have
been applied consistently from fiscal period to fiscal period. Level
3 fair values allow for situations in which there is little, if any, market
activity for the asset or liability at the measurement date. Cleco
had no Level 3 assets or liabilities at September 30, 2008.
Note
4 — 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.
The
following chart summarizes Cleco Power’s regulatory assets and liabilities at
September 30, 2008, and December 31, 2007.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Regulatory
assets and liabilities – deferred taxes, net
|
|
$ |
162,319 |
|
|
$ |
126,686 |
|
Deferred
mining costs
|
|
$ |
27,449 |
|
|
$ |
29,364 |
|
Deferred
storm restoration costs - Katrina/Rita
|
|
|
- |
|
|
|
127,578 |
|
Deferred
interest costs
|
|
|
7,874 |
|
|
|
9,389 |
|
Deferred
asset removal costs
|
|
|
646 |
|
|
|
608 |
|
Deferred
postretirement plan costs
|
|
|
11,576 |
|
|
|
11,523 |
|
Deferred
tree trimming costs
|
|
|
4,231 |
|
|
|
- |
|
Deferred
training costs
|
|
|
1,814 |
|
|
|
- |
|
Deferred
storm surcredit, net
|
|
|
4,579 |
|
|
|
- |
|
Regulatory assets –
other
|
|
$ |
58,169 |
|
|
$ |
178,462 |
|
Deferred
fuel transportation revenue
|
|
$ |
(523 |
) |
|
$ |
(930 |
) |
Deferred
construction carrying costs
|
|
|
(71,630 |
) |
|
|
(31,463 |
) |
Regulatory liabilities -
other
|
|
$ |
(72,153 |
) |
|
$ |
(32,393 |
) |
Deferred
fuel and purchased power
|
|
|
43,921 |
|
|
|
9,398 |
|
Total regulatory assets and
liabilities, net
|
|
$ |
192,256 |
|
|
$ |
282,153 |
|
Deferred
Taxes
Cleco
Power has recorded a net regulatory asset related to deferred income taxes in
accordance with SFAS No. 109. The regulatory asset or liability is
recorded under SFAS No. 71 and represents the effect of tax benefits or
detriments that must be flowed through to customers as they are received or
paid. For the most part, 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. The $35.6 million increase in
regulatory assets and liabilities – deferred taxes, net is primarily the result
of AFUDC equity for Cleco Power’s construction of Rodemacher Unit
3.
Deferred
Storm Restoration Costs - Katrina/Rita
At
December 31, 2007, Cleco Power had approximately $127.6 million of unamortized
storm restoration costs deferred as regulatory assets relating to damage caused
by Hurricanes Katrina and Rita. The restoration costs relating to
Hurricanes Katrina and Rita were amortized to depreciation expense based on
amounts collected monthly from customers through a surcharge, according to the
terms of an interim storm recovery plan approved by the LPSC in February
2006. In March 2007, after completing a review of the restoration
costs, Cleco Power and the LPSC Staff filed a settlement agreement allowing
recovery of essentially all of Cleco Power’s Hurricanes Katrina and Rita storm
costs. The agreement authorized the issuance of securitized storm
recovery bonds to finance the restoration costs from Hurricanes Katrina and Rita
and the collection of a special storm recovery charge from Cleco Power’s
customers to pay principal, interest and other amounts related to the
bonds. The LPSC approved the settlement agreement and issued a
securitization financing order in September 2007. In March 2008, the
securitization financing was completed, collection of the interim surcharge
ceased and the right to bill and collect from customers unamortized storm damage
costs was sold to Cleco Katrina/Rita, a special purpose, wholly owned subsidiary
of Cleco Power.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Cleco
Katrina/Rita issued $180.6 million aggregate principal amount of senior secured
storm recovery bonds. A portion of the net proceeds of $176.0 million
from the issuance of the bonds was used to pay Cleco Power the purchase price of
its right to bill and collect from customers unamortized storm damage costs by
Hurricanes Katrina and Rita reducing Cleco Power’s regulatory asset established
for this purpose. Cleco Power used $50.8 million of such proceeds to
establish a storm reserve fund for future storm damage, with the remaining
portion of the proceeds, which is reimbursement of previously unrecovered storm
costs from Hurricanes Katrina and Rita, to be used for working capital and other
general corporate purposes. As of September 30, 2008, Cleco Power had
earned $1.2 million in interest on the storm reserve balance. Cleco
received approval from the LPSC to offset $33.1 million of operations and
maintenance costs related to Hurricanes Gustav and Ike against Cleco Power’s
restricted storm reserves, leaving a balance of $18.9 million of storm reserve
reflected on the balance sheet at September 30, 2008. For additional
information on storm costs, see Note 6 — “Debt” and Note 14 — “Storm
Restoration.”
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 three months ended September 30, 2008,
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 September 30, 2008, and December 31, 2007,
were under-recoveries of $43.9 million and $9.4 million,
respectively. The $34.5 million increase in the unrecovered costs was
primarily the result of a $24.8 million decrease in the market value of open
natural gas positions and a $0.9 million loss on closed natural gas
positions, both due to the decrease in natural gas prices since December 31,
2007, and deferral of $8.5 million in additional fuel and purchased power costs.
For
additional information on Cleco Power’s treatment of natural gas positions, see
Note 1 — “Summary of Significant Accounting Policies — Risk
Management.”
Deferred
Construction Carrying Costs
In
February 2006, the LPSC approved Cleco Power’s plans to build Rodemacher Unit
3. Terms of the approval included authorization for Cleco Power to
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 three- and nine-month periods ended September 30, 2008,
Cleco Power collected $12.1 million and $40.2 million, respectively, compared to
$7.5 million and $18.3 million for the three and nine months ended September 30,
2007, respectively. 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 base rate application to recover Rodemacher Unit 3 ownership costs,
to submit a plan to return to customers the carrying costs over a shorter period
than the life of the Rodemacher Unit 3 asset.
Deferred
Tree Trimming Costs
In
January 2008, the LPSC approved Cleco Power’s request to establish a regulatory
asset which is being charged with actual expenditures at Cleco Power’s
grossed-up rate of return for costs incurred to trim, cut or remove trees that
were damaged by Hurricanes Katrina and Rita, but were not addressed as part of
the restoration efforts. The amount of expenditures subject to deferral as
a regulatory asset was limited to $12.0 million by the LPSC. Recovery of
these expenditures was requested as part of Cleco Power’s base rate application
filed July 14, 2008. At September 30, 2008, Cleco Power had deferred $4.2
million in tree trimming expenditures.
Deferred
Training Costs
In
February 2008, the LPSC approved Cleco Power’s request to establish a regulatory
asset which is being charged with training costs associated with existing
processes and technology for new employees at Rodemacher Unit 3. Normally
these types of training costs would be expensed as incurred; however, this order
by the LPSC allows Cleco Power to defer the training costs and seek recovery in
rates when Rodemacher Unit 3 goes into service. At September 30,
2008, Cleco Power had deferred $1.8 million of Rodemacher Unit 3 training
costs.
Deferred
Storm Surcredit, net
Cleco
Power has recorded a storm surcredit as the result of a settlement with the LPSC
that addressed, among other things, the recovery of the storm damages related to
Hurricanes Katrina and Rita. In the settlement, Cleco Power was
required to implement a surcredit to provide the ratepayers the economic benefit
of the carrying charges of all accumulated deferred income tax liabilities due
to the storm damage costs at a 12.2% rate of return. The accumulated
deferred income tax liability includes deductions for operation and maintenance
expense, casualty loss, and depreciation against taxable income in the year
incurred and all subsequent periods. The settlement, through a
true-up mechanism, allows the surcredit to be adjusted to reflect the actual tax
deductions allowed by the IRS. During the second quarter of 2008, the
regulatory liability was reduced by $4.2 million through this true-up mechanism
to reflect the expected amounts to be refunded through the surcredit to
ratepayers. During the third quarter of 2008, the regulatory
liability was reduced by an additional $0.4 million to represent the economic
benefit of a reduction in the regulatory liability when the underlying tax
positions are settled.
Cleco
Power was also allowed to record a corresponding regulatory asset in an amount
representing the flow back of the carrying charges to
ratepayers. This amount is being
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
amortized
over the life of the securitized storm recovery bonds. The corresponding
regulatory asset will be adjusted through the same surcredit true-up mechanism
at the time of a final determination of the tax benefit for storm damage
costs by the IRS.
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 September 30, 2008, and December 31, 2007,
$62.6 million and $18.0 million of cash, respectively, were restricted. At
September 30, 2008, restricted cash consisted of $0.1 million under the
Diversified Lands mitigation escrow agreement, $51.9 million reserved at Cleco
Power for future storm restoration costs, and $10.6 million at Cleco
Katrina/Rita restricted for payment of operating expenses, and interest and
principal on the Cleco Katrina/Rita storm recovery bonds. On October
9, 2008, Cleco Power received approval from the LPSC to utilize a portion of the
$51.9 million storm reserve to fund operations and maintenance expenses related
to damage caused by Hurricanes Gustav and Ike.
At
September 30, 2008, Cleco’s long-term debt outstanding was $1.1 billion, of
which $63.5 million was long-term debt due within one year, compared to $869.1
million at December 31, 2007, which included $100.0 million of long-term debt
due within one year. At September 30, 2008, Cleco Power’s long-term
debt outstanding was $1.0 billion, of which $63.5 million was long-term
debt due within one year, compared to $769.1 million at December 31, 2007, none
of which was due within one year. The long-term debt due within one
year represents $50.0 million of medium-term notes and a $13.5 million
principal payment on the Cleco Katrina/Rita storm recovery bonds scheduled to be
paid in the next twelve months.
For
Cleco, the $187.3 million increase in long-term debt from December 31, 2007, was
primarily due to $180.6 million of storm recovery bonds issued by Cleco
Katrina/Rita in March 2008, the issuance by Cleco Power of $250.0 million
aggregate principal amount of 6.65% notes due 2018 in June 2008, and $48.0
million in draws on Cleco’s $150.0 million, five-year credit
facility. These issuances were partially offset by a reduction of
$190.0 million in draws against Cleco Power’s credit facility, which was
classified as long-term debt, and the repayment at maturity of $100.0 million of
7% senior notes in May 2008, which was classified as long-term debt due within
one year.
For
Cleco Power, the $239.3 million increase in long-term debt from December 31,
2007, was primarily due to $180.6 million of storm recovery bonds issued by
Cleco Katrina/Rita in March 2008 and the issuance by Cleco Power of $250.0
million of 6.65% notes due 2018 in June 2008. These issuances were
partially offset by a reduction of $190.0 million in draws against Cleco Power’s
credit facility, which was classified as long-term debt.
On
June 3, 2008, Cleco Power issued $250.0 million aggregate principal amount of
senior unsecured notes at an interest rate of 6.65%. The notes mature
on June 15, 2018. The proceeds from this offering were used for
general corporate purposes, including financing a portion of the construction
costs of Rodemacher Unit 3 and repaying borrowings under Cleco Power's
$275.0 million, five-year credit facility, some of which were used to fund
a portion of the construction costs of Rodemacher Unit 3.
The
Cleco Katrina/Rita storm recovery bonds were issued in two
tranches. One tranche of $113.0 million initial principal amount of
bonds with an expected average life of five years was issued with an interest
rate of 4.41%, and one tranche of $67.6 million initial principal amount of
bonds with an expected average life of 10.58 years was issued with an interest
rate of 5.61%. The resulting weighted average interest rate of both
tranches is 4.86%, and the effective weighted average life is seven
years.
The
solid waste disposal bonds in the amount of $60.0 million that were issued in
2007 initially had a variable interest rate which was reset weekly via an
auction agent. In March 2008, Cleco Power exercised a provision in
the bond indenture to change the method of interest through a reoffering of the
bonds. As a part of the reoffering, the holders of the original
auction rate bonds were required to tender them. The reoffered bonds
have a five-year term with a fixed rate of 5.25% per annum, with the option to
redeem the bonds or require that they be mandatorily tendered at the end of the
five years. If Cleco Power does not cause the bonds to be optionally
redeemed or mandatorily tendered at the end of the five years, the bonds will
become variable rate. Cleco Power plans to remarket the bonds at the
end of the five-year period. The maturity date of the 2007 bonds is
November 1, 2037.
In
October 2008, Cleco Power applied to the Louisiana State Bond Commission for
$32.0 million of volume cap allocation, which is the remainder of the $152.9
million of qualifying costs of the solid waste disposal facilities at Rodemacher
Unit 3 that have been identified. In July 2008, the Governor signed
an order granting the $32.0 million of volume cap allocation. On
October 2, 2008, the Rapides Finance Authority issued for the benefit of Cleco
Power $32.0 million of its revenue bonds with a maturity date of October 1,
2038. The bonds bear interest at 6.0% per annum until October 1,
2011, at which time they are subject to mandatory tender for purchase at
par. Cleco Power plans to remarket the bonds at the end of the
three-year period.
Note
7 — Pension Plan and Employee Benefits
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
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
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 IRS’s full funding limitation. Funding regulations do not
require a contribution for 2008. No discretionary contributions were made
during the nine months ended September 30, 2008. A discretionary
contribution may be made during 2008; however, the decision by management to
make a contribution in 2008 and the amount, if any, have not been
determined. Due to current market conditions, the plan’s assets have
been negatively affected and Cleco Corporation may potentially have a required
payment after 2008. Cleco Power is considered the plan sponsor, and
Support Group is considered the plan administrator. In July 2007,
Cleco Corporation’s Board of Directors and Cleco Power’s Board of Managers
approved an amendment to the pension plan to provide that all employees hired on
or after August 1, 2007, are not eligible for benefits under the pension
plan.
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 other benefits during the
periods in which the benefits are earned.
The
components of net periodic pension and other benefit cost for the three and nine
months ended September 30, 2008, and 2007, are as follows:
|
|
PENSION
BENEFITS
|
|
|
OTHER
BENEFITS
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
1,470 |
|
|
$ |
1,990 |
|
|
$ |
359 |
|
|
$ |
339 |
|
Interest cost
|
|
|
3,964 |
|
|
|
3,919 |
|
|
|
570 |
|
|
|
454 |
|
Expected return on plan
assets
|
|
|
(5,044 |
) |
|
|
(4,740 |
) |
|
|
- |
|
|
|
- |
|
Transition obligation
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Prior period service
cost
|
|
|
(18 |
) |
|
|
209 |
|
|
|
(480 |
) |
|
|
(518 |
) |
Net loss
|
|
|
- |
|
|
|
536 |
|
|
|
195 |
|
|
|
196 |
|
Net periodic benefit
cost
|
|
$ |
372 |
|
|
$ |
1,914 |
|
|
$ |
649 |
|
|
$ |
476 |
|
|
|
PENSION
BENEFITS
|
|
|
OTHER
BENEFITS
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
4,409 |
|
|
$ |
5,810 |
|
|
$ |
1,059 |
|
|
$ |
1,049 |
|
Interest cost
|
|
|
11,892 |
|
|
|
11,644 |
|
|
|
1,486 |
|
|
|
1,374 |
|
Expected return on plan
assets
|
|
|
(15,133 |
) |
|
|
(14,235 |
) |
|
|
- |
|
|
|
- |
|
Transition obligation
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
15 |
|
Prior period service
cost
|
|
|
(53 |
) |
|
|
634 |
|
|
|
(1,549 |
) |
|
|
(1,548 |
) |
Net loss
|
|
|
- |
|
|
|
1,471 |
|
|
|
695 |
|
|
|
696 |
|
Net periodic benefit
cost
|
|
$ |
1,115 |
|
|
$ |
5,324 |
|
|
$ |
1,706 |
|
|
$ |
1,586 |
|
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 three and nine months ended September
30, 2008, was $0.4 million and $1.1 million, respectively, compared
to $0.4 million and $1.5 million for the same periods in
2007.
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 Condensed Consolidated Statements of
Income for the three and nine months ended September 30, 2008, was $0.5 million
and $1.4 million, respectively, compared to $0.4 million and $1.4 million for
the same periods in 2007.
SERP
Certain
key executives and key managers of Cleco 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, because 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 nine
months ended September 30, 2008, and 2007. Cleco Power is considered
the plan sponsor, and Support Group is considered the plan
administrator.
The
components of the net SERP cost are as follows:
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
329 |
|
|
$ |
496 |
|
|
$ |
1,046 |
|
|
$ |
1,076 |
|
Interest
cost
|
|
|
534 |
|
|
|
459 |
|
|
|
1,424 |
|
|
|
1,334 |
|
Prior
period service cost
|
|
|
13 |
|
|
|
15 |
|
|
|
40 |
|
|
|
40 |
|
Net
(gain) loss
|
|
|
(15 |
) |
|
|
277 |
|
|
|
492 |
|
|
|
762 |
|
Net
periodic benefit cost
|
|
$ |
861 |
|
|
$ |
1,247 |
|
|
$ |
3,002 |
|
|
$ |
3,212 |
|
The
SERP has no assets, and liabilities are reported on the individual subsidiaries’
financial statements. The expense related to the SERP reflected on
Cleco Power’s Condensed Consolidated Statements of Income was $0.2 million and
$0.7 million for the three and nine months ended September 30, 2008,
respectively, compared to $0.3 million and $0.8 million for the same periods in
2007.
401(k) Plan/ESOP
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 shares of
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
convertible
preferred stock 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 shares of ESOP
preferred stock were fully allocated to current and former 401(k) Plan
participants. Beginning January 2007, Cleco Corporation made matching
contributions and funded dividend reinvestments with Cleco common
stock. On March 26, 2007, the ESOP trustee converted all outstanding
190,372 shares of ESOP preferred stock into 1.8 million shares of Cleco common
stock. Beginning January 2008, Cleco Corporation made matching
contributions and funded dividend reinvestments with cash.
In
August 2007, Cleco Corporation’s Board of Directors approved an amendment to the
401(k) Plan to provide an enhanced 401(k) benefit for employees not
otherwise eligible to participate in Cleco’s pension
plan.
The
table below contains information about the 401(k) Plan and the
ESOP:
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
401(k)
Plan expense
|
|
$ |
970 |
|
|
$ |
667 |
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
401(k)
Plan expense
|
|
$ |
2,661 |
|
|
$ |
2,166 |
|
Dividend
requirements to ESOP on convertible preferred stock
|
|
$ |
- |
|
|
$ |
412 |
|
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 for the three and
nine months ended September 30, 2008, was $0.3 million and $0.7 million,
respectively compared to $0.2 million and $0.6 million for the same periods in
2007. The expense related to the payment of dividends on the
shares of convertible preferred stock held in the ESOP is reflected on
Cleco Corporation’s Condensed Consolidated Statements of Income for the nine
months ended September 30, 2007.
The
following table summarizes the effective income tax rates for Cleco Corporation
and Cleco Power for the three- and nine-month periods ended September 30, 2008,
and 2007.
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cleco
Corporation
|
|
|
22.1 |
% |
|
|
30.7 |
% |
Cleco
Power
|
|
|
25.7 |
% |
|
|
24.1 |
% |
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cleco
Corporation
|
|
|
20.3 |
% |
|
|
31.1 |
% |
Cleco
Power
|
|
|
23.0 |
% |
|
|
24.0 |
% |
For
the three- and nine-month periods ended September 30, 2008, and 2007, the
effective income tax rate for Cleco Corporation and Cleco Power was less than
the federal statutory rate primarily due to the flow-through of tax benefits
associated with AFUDC equity recorded as a result of the construction of
Rodemacher Unit 3. Cleco Corporation accounts for income taxes under
SFAS No. 109 and records uncertain tax positions under FIN 48. In the
first quarter of 2008, Cleco and the IRS agreed to apply industry-wide
guidelines as the basis for settling a potential dispute regarding the amount of
indirect overhead costs required to be capitalized for tax
purposes. Based on acceptance of the settlement guidelines, Cleco
recorded, in the first quarter of 2008, an interest benefit of approximately
$2.1 million.
Note
9 — Disclosures about Segments
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 tables
consist of the holding company, a shared services subsidiary, two transmission
interconnection facilities, 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 Corporation’s Board of Directors. Each reportable segment prepared
budgets for 2008 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.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
SEGMENT
INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2008 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
333,936 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
333,936 |
|
Other operations
|
|
|
6,981 |
|
|
|
- |
|
|
|
25 |
|
|
|
(2 |
) |
|
|
7,004 |
|
Affiliate
revenue
|
|
|
7 |
|
|
|
2,143 |
|
|
|
585 |
|
|
|
- |
|
|
|
2,735 |
|
Intercompany
revenue
|
|
|
418 |
|
|
|
(12 |
) |
|
|
10,974 |
|
|
|
(11,380 |
) |
|
|
- |
|
Operating
revenue
|
|
$ |
341,342 |
|
|
$ |
2,131 |
|
|
$ |
11,584 |
|
|
$ |
(11,382 |
) |
|
$ |
343,675 |
|
Depreciation
expense
|
|
$ |
18,861 |
|
|
$ |
78 |
|
|
$ |
344 |
|
|
$ |
- |
|
|
$ |
19,283 |
|
Interest
charges
|
|
$ |
14,973 |
|
|
$ |
1,566 |
|
|
$ |
722 |
|
|
$ |
(1,565 |
) |
|
$ |
15,696 |
|
Interest
income
|
|
$ |
1,545 |
|
|
$ |
- |
|
|
$ |
1,689 |
|
|
$ |
(1,565 |
) |
|
$ |
1,669 |
|
Equity
income from investees
|
|
$ |
- |
|
|
$ |
9,223 |
|
|
$ |
439 |
|
|
$ |
- |
|
|
$ |
9,662 |
|
Federal
and state income tax expense (benefit)
|
|
$ |
10,566 |
|
|
$ |
2,383 |
|
|
$ |
(2,436 |
) |
|
$ |
- |
|
|
$ |
10,513 |
|
Segment
profit (1)
|
|
$ |
30,538 |
|
|
$ |
4,573 |
|
|
$ |
2,022 |
|
|
$ |
- |
|
|
$ |
37,133 |
|
Additions
to long-lived assets
|
|
$ |
61,327 |
|
|
$ |
23 |
|
|
$ |
242 |
|
|
$ |
- |
|
|
$ |
61,592 |
|
Equity
investment in investees
|
|
$ |
- |
|
|
$ |
243,143 |
|
|
$ |
14,470 |
|
|
$ |
- |
|
|
$ |
257,613 |
|
Total
segment assets
|
|
$ |
2,789,240 |
|
|
$ |
260,161 |
|
|
$ |
342,881 |
|
|
$ |
(296,461 |
) |
|
$ |
3,095,821 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
37,133 |
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends requirements,
net of tax
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
37,121 |
|
|
|
|
|
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2007 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
300,862 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
300,862 |
|
Other operations
|
|
|
9,231 |
|
|
|
4 |
|
|
|
1 |
|
|
|
2 |
|
|
|
9,238 |
|
Affiliate
revenue
|
|
|
10 |
|
|
|
1,105 |
|
|
|
476 |
|
|
|
- |
|
|
|
1,591 |
|
Intercompany
revenue
|
|
|
501 |
|
|
|
- |
|
|
|
8,214 |
|
|
|
(8,715 |
) |
|
|
- |
|
Operating
revenue
|
|
$ |
310,604 |
|
|
$ |
1,109 |
|
|
$ |
8,691 |
|
|
$ |
(8,713 |
) |
|
$ |
311,691 |
|
Depreciation
expense
|
|
$ |
19,401 |
|
|
$ |
76 |
|
|
$ |
262 |
|
|
$ |
- |
|
|
$ |
19,739 |
|
Interest
charges
|
|
$ |
8,213 |
|
|
$ |
5,894 |
|
|
$ |
2,060 |
|
|
$ |
(5,859 |
) |
|
$ |
10,308 |
|
Interest
income
|
|
$ |
1,082 |
|
|
$ |
621 |
|
|
$ |
7,024 |
|
|
$ |
(5,854 |
) |
|
$ |
2,873 |
|
Equity income
from investees
|
|
$ |
- |
|
|
$ |
27,532 |
|
|
$ |
194 |
|
|
$ |
- |
|
|
$ |
27,726 |
|
Federal
and state income tax expense
|
|
$ |
10,871 |
|
|
$ |
17,947 |
|
|
$ |
1,106 |
|
|
$ |
153 |
|
|
$ |
30,077 |
|
Segment
profit (1)
|
|
$ |
34,198 |
|
|
$ |
30,415 |
|
|
$ |
3,432 |
|
|
$ |
- |
|
|
$ |
68,045 |
|
Additions
to long-lived assets
|
|
$ |
167,737 |
|
|
$ |
(4,992 |
) |
|
$ |
342 |
|
|
$ |
- |
|
|
$ |
163,087 |
|
Equity
investment in investees (2)
|
|
$ |
- |
|
|
$ |
249,758 |
|
|
$ |
8,342 |
|
|
$ |
1 |
|
|
$ |
258,101 |
|
Total
segment assets (2)
|
|
$ |
2,306,482 |
|
|
$ |
265,918 |
|
|
$ |
459,139 |
|
|
$ |
(324,916 |
) |
|
$ |
2,706,623 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
68,045 |
|
|
|
|
|
(2)Balances
as of December 31, 2007
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
requirements, net of tax
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
68,033 |
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
SEGMENT
INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2008 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
803,397 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
803,397 |
|
Other operations
|
|
|
29,757 |
|
|
|
1 |
|
|
|
76 |
|
|
|
(8 |
) |
|
|
29,826 |
|
Affiliate
revenue
|
|
|
21 |
|
|
|
5,892 |
|
|
|
1,877 |
|
|
|
- |
|
|
|
7,790 |
|
Intercompany
revenue
|
|
|
1,506 |
|
|
|
- |
|
|
|
30,859 |
|
|
|
(32,365 |
) |
|
|
- |
|
Operating
revenue
|
|
$ |
834,681 |
|
|
$ |
5,893 |
|
|
$ |
32,812 |
|
|
$ |
(32,373 |
) |
|
$ |
841,013 |
|
Depreciation
expense
|
|
$ |
56,886 |
|
|
$ |
230 |
|
|
$ |
854 |
|
|
$ |
- |
|
|
$ |
57,970 |
|
Interest
charges
|
|
$ |
31,435 |
|
|
$ |
5,057 |
|
|
$ |
3,943 |
|
|
$ |
(5,077 |
) |
|
$ |
35,358 |
|
Interest
income
|
|
$ |
3,121 |
|
|
$ |
- |
|
|
$ |
6,498 |
|
|
$ |
(5,075 |
) |
|
$ |
4,544 |
|
Equity
income from investees
|
|
$ |
- |
|
|
$ |
1,660 |
|
|
$ |
1,063 |
|
|
$ |
- |
|
|
$ |
2,723 |
|
Federal
and state income tax expense (benefit)
|
|
$ |
27,135 |
|
|
$ |
(2,298 |
) |
|
$ |
(2,264 |
) |
|
$ |
- |
|
|
$ |
22,573 |
|
Segment
profit (loss) (1)
|
|
$ |
90,807 |
|
|
$ |
(2,955 |
) |
|
$ |
741 |
|
|
$ |
- |
|
|
$ |
88,593 |
|
Additions
to long-lived assets
|
|
$ |
244,143 |
|
|
$ |
63 |
|
|
$ |
786 |
|
|
$ |
- |
|
|
$ |
244,992 |
|
Equity
investment in investees
|
|
$ |
- |
|
|
$ |
243,143 |
|
|
$ |
14,470 |
|
|
$ |
- |
|
|
$ |
257,613 |
|
Total
segment assets
|
|
$ |
2,789,240 |
|
|
$ |
260,161 |
|
|
$ |
342,881 |
|
|
$ |
(296,461 |
) |
|
$ |
3,095,821 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
88,593 |
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
requirements, net of tax
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
88,558 |
|
|
|
|
|
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2007 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
765,791 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
765,791 |
|
Other operations
|
|
|
26,413 |
|
|
|
15 |
|
|
|
60 |
|
|
|
(10 |
) |
|
|
26,478 |
|
Affiliate
revenue
|
|
|
35 |
|
|
|
3,251 |
|
|
|
1,387 |
|
|
|
- |
|
|
|
4,673 |
|
Intercompany
revenue
|
|
|
1,505 |
|
|
|
- |
|
|
|
32,025 |
|
|
|
(33,530 |
) |
|
|
- |
|
Operating
revenue
|
|
$ |
793,744 |
|
|
$ |
3,266 |
|
|
$ |
33,472 |
|
|
$ |
(33,540 |
) |
|
$ |
796,942 |
|
Depreciation
expense
|
|
$ |
58,784 |
|
|
$ |
230 |
|
|
$ |
813 |
|
|
$ |
- |
|
|
$ |
59,827 |
|
Interest
charges
|
|
$ |
27,883 |
|
|
$ |
16,457 |
|
|
$ |
6,309 |
|
|
$ |
(16,365 |
) |
|
$ |
34,284 |
|
Interest
income
|
|
$ |
3,548 |
|
|
$ |
1,044 |
|
|
$ |
19,797 |
|
|
$ |
(16,359 |
) |
|
$ |
8,030 |
|
Equity
(loss) income from investees
|
|
$ |
- |
|
|
$ |
96,459 |
|
|
$ |
1,149 |
|
|
$ |
- |
|
|
$ |
97,608 |
|
Federal
and state income tax expense
|
|
$ |
20,517 |
|
|
$ |
40,008 |
|
|
$ |
2,509 |
|
|
$ |
153 |
|
|
$ |
63,187 |
|
Segment
profit (1)
|
|
$ |
65,146 |
|
|
$ |
64,742 |
|
|
$ |
9,993 |
|
|
$ |
- |
|
|
$ |
139,881 |
|
Additions
to long-lived assets
|
|
$ |
388,545 |
|
|
$ |
8 |
|
|
$ |
762 |
|
|
$ |
- |
|
|
$ |
389,315 |
|
Equity
investment in investees (2)
|
|
$ |
- |
|
|
$ |
249,758 |
|
|
$ |
8,342 |
|
|
$ |
1 |
|
|
$ |
258,101 |
|
Total
segment assets (2)
|
|
$ |
2,306,482 |
|
|
$ |
265,918 |
|
|
$ |
459,139 |
|
|
$ |
(324,916 |
) |
|
$ |
2,706,623 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
139,881 |
|
|
|
|
|
(2)Balances
as of December 31, 2007
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
requirements, net of tax
|
|
|
|
|
|
|
|
446 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
139,435 |
|
|
|
|
|
Note
10 — Equity Investment in Investees
Cleco
reports its investment in Acadia, Evangeline and certain other
subsidiaries on the equity method of accounting in accordance with APB Opinion
No. 18, after consideration of FIN 46R. Under the equity method, the
assets and liabilities of these entities are reported as equity investment in
investees on Cleco Corporation’s Condensed 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
Condensed Consolidated Statements of Income.
Equity
investment in investees represents primarily Midstream’s $182.0 million
investment in Acadia, owned 50% by APH and 50% by Cajun, and its $61.1 million
investment in Evangeline, owned 100% by Midstream. Equity investment in
investees also represents a $7.2 million investment in Attala and a $7.3 million
investment in Perryville, both owned 100% by Cleco
Corporation.
The
table below presents the equity (loss) income from each investment accounted for
using the equity method.
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Acadia
|
|
$ |
(1,091 |
) |
|
$ |
14,146 |
|
Evangeline
|
|
|
10,314 |
|
|
|
13,386 |
|
Other
subsidiaries 100% owned by Cleco Corporation
|
|
|
439 |
|
|
|
163 |
|
Other
|
|
|
- |
|
|
|
31 |
|
Total equity
income
|
|
$ |
9,662 |
|
|
$ |
27,726 |
|
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Acadia
|
|
$ |
(7,869 |
) |
|
$ |
85,499 |
|
Evangeline
|
|
|
9,529 |
|
|
|
10,960 |
|
Other
subsidiaries 100% owned by Cleco Corporation
|
|
|
1,063 |
|
|
|
1,128 |
|
Other
|
|
|
- |
|
|
|
21 |
|
Total equity
income
|
|
$ |
2,723 |
|
|
$ |
97,608 |
|
Acadia
Cleco’s
current assessment of its maximum exposure to loss with respect to
Acadia at September 30, 2008, consists of its equity investment of $182.0
million.
The
following table presents the components of Midstream's equity investment in
Acadia.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Contributed
assets (cash and land)
|
|
$ |
259,019 |
|
|
$ |
259,019 |
|
Income
before taxes
|
|
|
163,792 |
|
|
|
171,819 |
|
Impairment
of investment
|
|
|
(45,847 |
) |
|
|
(45,847 |
) |
Capitalized
interest and other
|
|
|
19,722 |
|
|
|
19,564 |
|
Less: non-cash
distribution
|
|
|
78,200 |
|
|
|
78,200 |
|
Less: cash
distributions
|
|
|
136,464 |
|
|
|
136,464 |
|
Total equity investment in
investee
|
|
$ |
182,022 |
|
|
$ |
189,891 |
|
Midstream’s
equity, as reported on the balance sheet of Acadia at September 30, 2008, was
$208.1 million. The difference between the $208.1 million and the
equity investment in investee of $182.0 million as shown in the table above is
$26.1 million, and consists of the $45.8 million other-than-temporary impairment
of APH’s investment in Acadia, partially offset by $19.7 million of interest
capitalized on funds contributed by Acadia. The $45.8 million
impairment was the result of management’s review of the carrying value of
Midstream’s investment in Acadia after the sale of CAH’s assets to Cajun in
2007.
The
tables below contain summarized financial information for Acadia.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Current
assets
|
|
$ |
11,630 |
|
|
$ |
13,672 |
|
Property,
plant and equipment, net
|
|
|
408,973 |
|
|
|
419,882 |
|
Total assets
|
|
$ |
420,603 |
|
|
$ |
433,554 |
|
Current
liabilities
|
|
$ |
4,308 |
|
|
$ |
1,206 |
|
Partners’
capital
|
|
|
416,295 |
|
|
|
432,348 |
|
Total liabilities and partners’
capital
|
|
$ |
420,603 |
|
|
$ |
433,554 |
|
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
$ |
45,542 |
|
|
$ |
32,016 |
|
|
$ |
70,479 |
|
|
$ |
57,507 |
|
Operating
expenses
|
|
|
47,775 |
|
|
|
32,244 |
|
|
|
86,443 |
|
|
|
71,194 |
|
Gain
on settlement
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
170,200 |
|
Other
income (loss), net
|
|
|
51 |
|
|
|
21 |
|
|
|
(88 |
) |
|
|
28 |
|
(Loss) income before
taxes
|
|
$ |
(2,182 |
) |
|
$ |
(207 |
) |
|
$ |
(16,052 |
) |
|
$ |
156,541 |
|
Income
tax benefit recorded on APH’s financial statements related to Midstream’s
50% ownership interest in Acadia for the three and nine months ended
September 30, 2008, was $1.2 million and $5.3 million, respectively,
compared to income
tax expense of $13.8 million and $37.3 million for the three and nine months
ended September 30, 2007, respectively. The decrease in income tax
expense at APH is primarily due to the absence in 2008 of the settlement of
Acadia’s pre-petition unsecured claims against CES and Calpine.
Evangeline
Cleco’s
current assessment of its maximum exposure to loss with respect to Evangeline at
September 30, 2008, consists of its equity investment of $61.1
million.
The
table below presents the components of Midstream's equity investment in
Evangeline.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Contributed
assets (cash)
|
|
$ |
49,962 |
|
|
$ |
49,156 |
|
Net
income
|
|
|
156,947 |
|
|
|
147,418 |
|
Less: non-cash
distributions
|
|
|
16,907 |
|
|
|
15,685 |
|
Less: cash
distributions
|
|
|
128,881 |
|
|
|
121,022 |
|
Total equity investment in
investee
|
|
$ |
61,121 |
|
|
$ |
59,867 |
|
The
tables below contain summarized financial information for
Evangeline.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Current
assets
|
|
$ |
25,331 |
|
|
$ |
17,018 |
|
Accounts
receivable - affiliate
|
|
|
2 |
|
|
|
2,280 |
|
Property,
plant and equipment, net
|
|
|
179,072 |
|
|
|
181,604 |
|
Other
assets
|
|
|
47,325 |
|
|
|
48,999 |
|
Total assets
|
|
$ |
251,730 |
|
|
$ |
249,901 |
|
Current
liabilities
|
|
$ |
23,747 |
|
|
$ |
15,122 |
|
Accounts
payable - affiliate
|
|
|
532 |
|
|
|
2,721 |
|
Long-term
debt, net
|
|
|
161,762 |
|
|
|
168,866 |
|
Other
liabilities
|
|
|
71,621 |
|
|
|
71,501 |
|
Member’s
deficit
|
|
|
(5,932 |
) |
|
|
(8,309 |
) |
Total liabilities and member’s
deficit
|
|
$ |
251,730 |
|
|
$ |
249,901 |
|
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
$ |
26,452 |
|
|
$ |
25,026 |
|
|
$ |
49,866 |
|
|
$ |
49,279 |
|
Operating
expenses
|
|
|
9,844 |
|
|
|
5,946 |
|
|
|
22,068 |
|
|
|
18,840 |
|
Depreciation
|
|
|
1,339 |
|
|
|
1,317 |
|
|
|
4,032 |
|
|
|
3,902 |
|
Interest
charges
|
|
|
4,526 |
|
|
|
4,719 |
|
|
|
13,863 |
|
|
|
15,497 |
|
Interest
income
|
|
|
102 |
|
|
|
343 |
|
|
|
360 |
|
|
|
1,020 |
|
Other
expense
|
|
|
531 |
|
|
|
1 |
|
|
|
734 |
|
|
|
1,100 |
|
Income before taxes
|
|
$ |
10,314 |
|
|
$ |
13,386 |
|
|
$ |
9,529 |
|
|
$ |
10,960 |
|
The
difference between the equity investment in investee and member’s deficit shown
in the tables above is due to income tax items being reported in the
corresponding tax accounts on Midstream’s financial statements, rather than the
equity investment account.
Income
tax expense recorded on Midstream’s financial statements related to Midstream’s
100% ownership interest in Evangeline was $3.7 million and $3.4 million for
the three and nine months ended September 30, 2008, respectively, compared to
$4.7 million and $4.0 million for the three and nine months ended September
30, 2007, respectively.
Since
its inception, Cleco has had 100% ownership and voting interest of
Evangeline. Prior to November 9, 2007, all of
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
the
capacity and output of the power plant had been tolled to Williams Power
Company, Inc., which paid Evangeline certain fixed and variable
amounts. In November 2007, The Williams Companies, Inc. assigned all
of its rights and interests in its tolling agreement with Evangeline to Bear
Energy. On March 16, 2008, JPMorgan Chase & Co. announced it was
acquiring Bear Stearns Companies Inc., the parent company of Bear
Energy. On May 30, 2008, JPMorgan Chase & Co. completed the
acquisition of Bear Stearns Companies Inc. For more information
regarding Bear Energy and the announced purchase by JPMorgan Chase & Co.,
see Note 11 — Litigation, Other Commitments and Contingencies, and Disclosures
about Guarantees — Risks and Uncertainties.”
Other
Subsidiaries 100% owned by Cleco Corporation
Cleco’s
current assessment of its maximum exposure to loss with respect to Perryville
and Attala at September 30, 2008, consists of its equity investment of $14.5
million.
The
table below presents the components of Cleco Corporation’s equity investments in
Perryville and Attala.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Contributed
assets (cash)
|
|
$ |
132,960 |
|
|
$ |
126,591 |
|
Net
income
|
|
|
53,764 |
|
|
|
52,735 |
|
Less: non-cash
distributions
|
|
|
20,869 |
|
|
|
20,555 |
|
Less: cash
distributions
|
|
|
151,388 |
|
|
|
150,433 |
|
Total equity investment in
investee
|
|
$ |
14,467 |
|
|
$ |
8,338 |
|
The
tables below contain summarized financial information for Perryville and
Attala.
|
|
AT
SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
Current
assets
|
|
$ |
798 |
|
|
$ |
691 |
|
Accounts
receivable - affiliate
|
|
|
3,746 |
|
|
|
493 |
|
Other
assets
|
|
|
14,216 |
|
|
|
14,499 |
|
Total assets
|
|
$ |
18,760 |
|
|
$ |
15,683 |
|
Current
liabilities
|
|
$ |
11 |
|
|
$ |
175 |
|
Accounts
payable - affiliate
|
|
|
- |
|
|
|
2,968 |
|
Other
liabilities
|
|
|
441 |
|
|
|
328 |
|
Member’s
equity
|
|
|
18,308 |
|
|
|
12,212 |
|
Total liabilities and member’s
equity
|
|
$ |
18,760 |
|
|
$ |
15,683 |
|
|
|
FOR
THE THREE MONTHS ENDED
SEPTEMBER
30,
|
|
|
FOR
THE NINE MONTHS ENDED
SEPTEMBER
30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
revenue
|
|
$ |
492 |
|
|
$ |
223 |
|
|
$ |
1,484 |
|
|
$ |
1,337 |
|
Operating
expenses
|
|
|
53 |
|
|
|
60 |
|
|
|
421 |
|
|
|
209 |
|
Incomebefore
taxes
|
|
$ |
439 |
|
|
$ |
163 |
|
|
$ |
1,063 |
|
|
$ |
1,128 |
|
The
difference between the equity investment in investee and member’s equity shown
in the tables above is due to income tax items being reported in the
corresponding tax accounts on Cleco Corporation’s financial statements, rather
than the equity investment account.
The
transmission assets utilized by Perryville under the Perryville Interconnection
Agreement are accounted for as a direct financing lease by Perryville and are
included in other assets in the summarized financial information
above.
Income
tax expense recorded on Cleco’s financial statements related to Cleco
Corporation’s 100% interest in Perryville and Attala was $0.2 million and $0.4
million for the three and nine months ended September 30, 2008, respectively,
compared to a benefit of $1.3 million and an expense of $0.4 million for the
three and nine months ended September 30, 2007, respectively.
Note
11 — Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees
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. In June
2008, the City and Cleco agreed in principle to resolve all outstanding issues
between them that were involved in the litigation. The agreement in
principle is subject to execution of definitive agreements, which the parties
are currently negotiating and preparing, and serves to eliminate the March 3,
2009 termination of the current service agreement. Management
believes the dispute will not have a material adverse effect on the Registrants’
financial condition, results of operations, or cash flows.
On
October 8, 2007, Cleco received a Special Notice for Remedial Investigation and
Feasibility Study from the EPA. The special notice requested that
Cleco Corporation and Cleco Power, along with many other listed potentially
responsible parties, enter into negotiations with the EPA for the performance of
a Remedial Investigation and Feasibility Study at an area known as the Devil’s
Swamp Lake just northwest of Baton Rouge, Louisiana. The EPA has
identified Cleco as one of many companies sending PCB wastes for disposal to the
site. The Devil’s Swamp Lake site has been proposed to be added
to the National Priorities List (NPL) based on the release of PCBs to fisheries
and wetlands located on the site. The EPA will make a final decision
on the listing of the site to the NPL after considering relevant
comments. Cleco has contacted the EPA in response to the special
notice and is reviewing the available information. The EPA and a
number of PRPs met in January 2008, for an organizational meeting to discuss the
background of the site. Negotiations among the PRPs and the EPA are
ongoing in regards to the remedial investigation and feasibility study at the
Devil’s Swamp Lake site with little progress having been made since the
January 2008 organizational meeting. The PRPs, alleged to have
disposed PCBs at the site, have proposed a tentative cost sharing formula with
the facility owner to fund the remedial investigation. At this
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
time,
management is unable to determine whether the costs associated with possible
remediation of the facility site will have a material adverse effect on the
Registrants’ results of operations, financial condition, and 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.
Off-Balance
Sheet Commitments and Disclosures about Guarantees
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 and Cleco
Power also 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 ended after December 15, 2002.
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 Condensed
Consolidated Balance Sheets, because it has been determined that Cleco’s
affiliates are able to perform the 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 September 30, 2008, 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
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Entergy
Mississippi on behalf of Attala
|
|
|
500 |
|
|
|
- |
|
|
|
500 |
|
|
|
500 |
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under standby letter
of credit issued to the Louisiana Department of Labor
|
|
|
525 |
|
|
|
- |
|
|
|
525 |
|
|
|
- |
|
Obligations under the Lignite
Mining Agreement
|
|
|
6,070 |
|
|
|
- |
|
|
|
6,070 |
|
|
|
- |
|
Total
|
|
$ |
300,895 |
|
|
$ |
135,000 |
|
|
$ |
165,895 |
|
|
$ |
17,228 |
|
Cleco
Corporation provided a limited guarantee and an indemnification, which fall
within the recognition scope of FIN 45, 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 September 30, 2008, 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. It is unlikely that Cleco Corporation will have any other
liabilities which would give rise to indemnity claims under the agreements
providing for the Perryville disposition. The discounted
probability-weighted liability under the guarantees and indemnifications as of
September 30, 2008, 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 facility by an amount equal to the maximum reasonably
anticipated liability in respect of the contingent obligation as determined in
good faith.
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. These guarantees
do not fall within the scope of FIN 45. Cleco Energy issued guarantees and
indemnifications that 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
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
maximum
aggregate potential payment under the guarantees and indemnifications is $1.2
million. The discounted probability-weighted liability under the FIN
45 guarantees and indemnifications as of September 30, 2008, was $0.1
million.
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. Rating 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.
In
January 2006, Cleco Corporation provided a $0.5 million guarantee to Entergy
Mississippi for Attala’s obligations under the Attala Interconnection
Agreement. This guarantee will be effective through the life of the
agreement.
The
State of Louisiana allows employers of certain financial net worth to
self-insure their workers’ compensation benefits. Cleco Power has a
certificate of self-insurance from the Louisiana Office of Workers’ Compensation
and is required 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 September 30, 2008, Cleco Power’s 50% exposure for this
obligation was approximately $6.1 million. The lignite mining contract is
in place until 2011 and does not affect the amount Cleco Corporation can borrow
under its credit facility.
The
following table summarizes the expected termination dates of the guarantees and
standby letters of credit discussed above:
|
|
|
|
|
|
|
|
|
|
|
AT
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
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
|
|
$ |
150,370 |
|
|
$ |
100,400 |
|
|
$ |
7,070 |
|
|
$ |
- |
|
|
$ |
42,900 |
|
Standby
letters of credit
|
|
|
15,525 |
|
|
|
525 |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Total commercial
commitments
|
|
$ |
165,895 |
|
|
$ |
100,925 |
|
|
$ |
7,070 |
|
|
$ |
- |
|
|
$ |
57,900 |
|
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 indemnification as described above with
respect to its managers, officers, agents, and employees.
Generally,
neither Cleco Corporation nor Cleco Power has recourse that would enable them to
recover amounts paid under their guarantee or indemnification
obligations. The one exception is the insurance contracts associated
with the indemnification of 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.
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 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 terminate this lease prior to the expiration of the lease term.
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. Cleco Power
may terminate the agreement at any time during the lease. 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
September 30, 2008, was approximately $5.9 million. At this
time, Cleco Power has no plans to terminate this lease prior to expiration of
the lease term.
LPSC
Fuel Audit
In
July 2006, the LPSC informed Cleco Power that it was planning to conduct a
periodic fuel audit that included fuel adjustment clause filings for January
2003 through December
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
2004. Cleco
Power believes that it has provided the LPSC Staff with all of the information
requested. 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. However, it is not anticipated that the LPSC Staff will begin
another audit until the current audit is complete. Management is
unable to predict the time of completion or 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.
New
Market Tax Credits
In
August 2008, Cleco Corporation acquired a 99.9% equity interest in USB NMTC Fund
2008-1 LLC (the LLC). The LLC was formed by U.S. Bancorp Community
Development Corporation to provide capital for investments to businesses in
distressed or low income areas. These investments will generate new
market tax credits and historical tax credits that can be used to reduce the
federal income tax liability of Cleco Corporation. The transaction
obligates Cleco to make $213.1 million of delayed equity contributions to the
entity, of which $204.7 million remains payable over the next five years:
(THOUSANDS)
|
|
CONTRIBUTION
|
|
2008
|
|
$ |
3,857 |
|
2009
|
|
|
25,044 |
|
2010
|
|
|
43,389 |
|
2011
|
|
|
48,634 |
|
2012
|
|
|
46,659 |
|
2013
|
|
|
37,133 |
|
Total
|
|
$ |
204,716 |
|
Of
the $204.7 million, $19.6 million is due to be paid within the next twelve
months. The investment and associated debt are presented on the
balance sheet, net in other deferred credits due to the right of
offset.
The
delayed equity contribution requirement did not contain a stated rate of
interest. In accordance with APB Opinion No. 21, Cleco has recorded the
liability and investment at its calculated fair value within the framework of
SFAS No. 157. In order to calculate the fair value, management used
an imputed rate of interest assuming that Cleco obtained the financing of
similar nature from a third party. The imputed rate was used in a net
present value model in order to calculate the fair value of the remaining
portion of the delayed equity contributions. The table below contains
the disclosures required by APB Opinion No. 21 for liabilities with an imputed
interest.
(THOUSANDS)
|
|
|
|
Delayed
equity contributions, imputed interest rate 9%
|
|
|
|
Principal payment schedule
above:
|
|
$ |
204,716 |
|
Less: unamortized
discount
|
|
|
46,413 |
|
Total
|
|
$ |
158,303 |
|
The
gross investment amortization expense is recognized over the seven-year
compliance period using the cost method in accordance with EITF No.
94-1.
Other
Cleco
has accrued for liabilities to third parties, employee medical benefits, and
storm damages. Prior to Cleco Katrina/Rita’s issuance of the storm recovery
bonds in March 2008, charges to Cleco Power’s operating expenses to provide a
reserve for future storm damages were 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. The settlement agreement signed with the LPSC in March 2007
allowed, among other items, the funding and securitization of $50.8 million for
a reserve for future storm costs; at which time, the amount authorized to accrue
for future storm damages was reduced. For more information regarding
storm restoration costs, see Note 4 — “Regulatory Assets and Liabilities —
Deferred Storm Restoration Costs - Katrina/Rita” and Note 14 — “Storm
Restoration.”
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.
Evangeline
Tolling Agreement
In
May 2008, JPMorgan Chase & Co. acquired Bear Stearns Companies
Inc. In connection with the acquisition, JPMorgan Chase & Co. has
guaranteed certain obligations of its subsidiaries, including Bear Energy’s
obligations under the Evangeline Tolling Agreement. If JPMorgan Chase
& Co. or any successor or assignee were to fail to perform its
payment obligations, such failure could have a material adverse effect on Cleco
Corporation’s results of operations, financial condition, and cash flows for the
following reasons, among others:
§
|
If
such 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 ($168.9 million at September 30, 2008) and
interest to be immediately due and payable, which could result
in:
|
o
|
Cleco’s
seeking to refinance the bonds, the terms of which may be less favorable
than existing terms;
|
o
|
Cleco’s
causing Evangeline to seek protection under federal bankruptcy laws;
or
|
o
|
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 |
2008 3RD QUARTER
FORM 10-Q
|
Other
Access
to capital markets is a significant source of funding for both short-term and
long-term capital requirements not satisfied by operating cash
flows. Current market conditions have limited the availability and
have increased the costs of capital for some companies. The inability
to raise capital on favorable terms could negatively affect Cleco’s ability to
maintain and expand its businesses. After assessing Cleco’s current
operating performance, liquidity, and credit ratings, management believes that
Cleco will continue for the foreseeable future to have access to the capital
markets at reasonable rates. If Cleco Corporation’s or Cleco Power’s
credit ratings were to be downgraded by Moody’s or by Standard & Poor’s,
Cleco Corporation or Cleco Power, as the case may be, would be required to pay
additional fees and higher interest rates under its bank credit and other debt
agreements.
Changes
in the regulatory environment or market forces could cause Cleco to determine
its assets have suffered an other-than-temporary decline in value, whereby an
impairment would be required to be taken and Cleco’s financial condition could
be materially adversely affected.
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. Due to 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.
Access
to capital markets is a significant source of funding for both short-term and
long-term capital requirements not satisfied by operating cash
flows. Current market conditions have limited the availability and
have increased the costs of capital for some companies. The inability
to raise capital on favorable terms could negatively affect Cleco Power’s
ability to maintain and expand its businesses. After assessing Cleco
Power’s current operating performance, liquidity, and credit ratings, management
believes that Cleco will continue for the foreseeable future to have access to
the capital markets at reasonable rates. If Cleco Power’s credit
ratings were 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
12 — Affiliate Transactions
Cleco
has affiliate balances that were not eliminated as of September 30,
2008. The balances were not eliminated due to the use of the equity
method of accounting for Evangeline, Perryville, Attala, and
Acadia. For information on the Evangeline, Perryville, Attala, and
Acadia equity investments, see Note 10 — “Equity Investment in
Investees.” At September 30, 2008, the payable to Evangeline was $3.9
million, and the payable to Attala was $0.1 million. Also, at
September 30, 2008, the receivable from Evangeline was $2.9 million, and the
receivable from Acadia was $0.4 million.
Cleco
Power has affiliate balances that are payable to or due from its
affiliates. At September 30, 2008, the payable to Support Group was
$5.3 million, the payable to Cleco Corporation was $0.7 million, and the payable
to other affiliates was less than $0.3 million. Also, at September
30, 2008, the receivable from Support Group was $1.7 million, and the receivable
from other affiliates was less than $0.6 million.
Note
13 — Intangible Asset
During
the first quarter of 2008, Cleco Katrina/Rita acquired a $177.5 million
intangible asset which includes $176.0 million for the right to bill and
collect storm recovery charges from customers of Cleco Power and $1.5 million of
financing costs. This intangible asset is expected to have a life of
12 years, but could have a life of up to 15 years depending on the time period
required to collect the required amount from Cleco Power’s
customers. The intangible asset is being amortized according to the
estimated collections from Cleco Power’s customers. At the end of its
life, this asset will have no residual value. During the three months
and nine months ended September 30, 2008, Cleco Katrina/Rita recognized
amortization expense of $2.7 million and $6.3 million,
respectively. For additional information on Cleco Katrina/Rita storm
costs and securitization, see Note 4 — “Regulatory Assets and Liabilities —
Deferred Storm Restoration Costs - Katrina/Rita.” The following
tables provide additional information about this intangible
asset.
(THOUSANDS)
|
|
AT
SEPTEMBER 30, 2008
|
|
Gross
carrying amount
|
|
$ |
177,507 |
|
Accumulated
amortization
|
|
|
6,328 |
|
Intangible
asset
|
|
$ |
171,179 |
|
(THOUSANDS)
|
|
|
|
Expected
amortization expense
|
|
|
|
For the twelve months ending
September 30, 2009
|
|
$ |
10,335 |
|
For the twelve months ending
September 30, 2010
|
|
$ |
11,538 |
|
For the twelve months ending
September 30, 2011
|
|
$ |
12,330 |
|
For the twelve months ending
September 30, 2012
|
|
$ |
13,167 |
|
Note
14 — Storm Restoration
In
September 2008, Cleco Power’s distribution and transmission systems sustained
substantial damage from two separate hurricanes.
On
September 1, 2008, Hurricane Gustav made landfall in southeastern Louisiana as a
Category 2 hurricane, causing power outages to approximately 246,000, or 90%, of
Cleco Power’s electric customers and affecting Cleco Power’s entire service
territory. By September 9, 2008, power was restored to all customers
who lost service after Hurricane Gustav.
On
September 13, 2008, Hurricane Ike made landfall in southeast Texas as a Category
2 hurricane, affecting power service to approximately 80,000 of Cleco Power’s
electric customers in Cleco Power’s southern service territory. By
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
September
16, 2008, restoration efforts for all customers whose service could be
reconnected were complete.
The
current estimate of the cost of restoration for Hurricanes Gustav and Ike is
approximately $85.0 million, of which approximately 80% relates to Hurricane
Gustav and the remaining 20% to Hurricane Ike.
The
damage to equipment from both storms required replacement, as well as repair of
existing assets. Therefore, the balance sheets of Cleco and Cleco
Power reflect the capitalization of approximately 53% of the restoration costs
recorded at September 30, 2008, or approximately $45.0 million. The
remaining cost was offset against Cleco Power’s existing storm damage
reserve.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in combination with the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, and Cleco Corporation and Cleco Power’s Condensed
Consolidated Financial Statements contained in this Form 10-Q. The
information included therein is essential to understanding the following
discussion and analysis. Below is information concerning the
consolidated results of operations of Cleco for the three and nine months ended
September 30, 2008, and September 30, 2007.
Cleco
is a regional energy services holding company that conducts substantially all of
its business operations through its two primary subsidiaries:
§
|
Cleco
Power, an integrated electric utility services company regulated by the
LPSC, the FERC, and other regulators, that serves approximately 273,000
customers across Louisiana and also engages in energy management
activities; and
|
§
|
Midstream,
a merchant energy company regulated by the FERC, that owns and operates a
merchant power plant (Evangeline). Midstream also has 50
percent ownership in a merchant power plant (Acadia) and operates the
plant on behalf of its partner.
|
Current
market conditions have limited the availability and have increased the costs of
capital for some companies. The inability to raise capital on
favorable terms could negatively affect Cleco and Cleco Power’s ability to
maintain and expand its businesses. After assessing the current
operating performance, liquidity, and credit ratings of Cleco and Cleco Power,
management believes that they will continue for the foreseeable future to have
access to the capital markets at reasonable rates.
While
management believes that Cleco remains a strong company, Cleco continues to
focus on several challenges and factors that could affect its operations and
financial condition in the near term.
Cleco
Power
Many
factors affect Cleco Power’s primary business of selling
electricity. These factors include the presence of a stable
regulatory environment, which can impact cost recovery and return on equity, as
well as the recovery of costs related to growing energy demand and rising fuel
prices; the ability to increase energy sales while containing costs; and the
ability to meet increasingly stringent regulatory and environmental
standards.
As
part of a plan to diversify its fuel mix, combat rising fuel prices and resolve
its long-term generation capacity needs, Cleco Power began constructing a 600-MW
solid-fuel generating unit at its Rodemacher power plant in May
2006. When complete, Rodemacher Unit 3 will meet 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 substantially complete and operational by the summer of
2009. Cleco Power’s current base rates have been extended through the
start of Rodemacher Unit 3.
On
July 14, 2008, Cleco Power filed a request with the LPSC for a new rate plan to
establish rates that would allow Cleco Power to recover its Rodemacher Unit 3
investment and go into effect when the unit begins commercial
operations. Cleco Power has requested a 12.25% return on equity in
the new rate plan. Cleco Power’s current base rates allow it the
opportunity to earn a maximum regulated return on equity of 11.65%, which is
based on a return on equity of 11.25% and 12.25% shared between shareholders and
customers in a 40/60 ratio. Cleco Power is currently recording AFUDC
associated with construction of Rodemacher Unit 3. Once the unit
begins commercial operations, Cleco Power will no longer record AFUDC related to
Rodemacher Unit 3. Recovery of the Rodemacher Unit 3 investment is
the largest component in Cleco Power’s new rate plan proposal. If the
LPSC does not increase Cleco Power’s base rates or denies Cleco Power’s request
to recover costs incurred in the construction of Rodemacher Unit 3, Cleco
Power’s results of operations, financial condition, and cash flows could be
materially adversely affected. For additional information, see “—
Financial Condition — Liquidity and Capital Resources — Regulatory Matters —
Cleco Power’s Rate Case” and — “Rodemacher Unit 3.”
In
September 2008, Cleco Power's distribution and transmission systems sustained
substantial damage from two separate hurricanes. On September 1,
2008, Hurricane Gustav made landfall in southeastern Louisiana as a Category 2
hurricane, affecting Cleco Power's entire service territory leaving 90%, or
approximately 246,000 customers (out of approximately 273,000 customers),
without electricity. On September 12, 2008, only three days after
Cleco Power’s storm team restored service to customers affected by Hurricane
Gustav, Hurricane Ike began moving toward the Texas
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
coastline
causing new power outages. The storm officially made landfall in
Texas on September 13, 2008, also as a Category 2
hurricane. Hurricane Ike left approximately 80,000 customers without
power and caused extensive flooding in the southern portion of Cleco Power’s
service territory. Crews restored power by September 16, 2008, to all
customers whose service could be reconnected after Hurricane Ike. The
current estimate of the cost of restoration for Hurricanes Gustav and Ike is
approximately $85.0 million, of which approximately 80% relates to Hurricane
Gustav and the remaining 20% to Hurricane Ike. Cleco Power and the
LPSC have agreed on a plan to recover Hurricanes Gustav and Ike storm
restoration costs. The plan allows Cleco Power to capitalize
approximately $45.0 million of the storm costs. The remaining cost
will be offset against Cleco Power's existing storm damage
reserve. Cleco Power will also pursue any federal funds made
available to utilities. For additional information on the financial
impact of Hurricanes Gustav and Ike, see Item 1, “Notes to the Unaudited
Condensed Financial Statements — Note 14 — Storm Restoration.”
Midstream
Acadia
resides in the Southeastern Electric Reliability Council (SERC)-Entergy
sub-region. For merchant generators, this sub-region is challenged
both by the general oversupply of gas-fired generation available to serve the
Entergy system needs and the physical transmission constraints that can limit
the amount of power that Acadia can deliver. The SERC-Entergy
sub-region has reserve margins among the highest in the nation. These
high reserve margins can lead to lower capacity factors and lower profitability
for Acadia. In the coming years, the wholesale power market within
the SERC-Entergy sub-region is expected to tighten as load grows. The
tightening wholesale power market is expected to result in higher wholesale
power prices. Due to Acadia’s location on the transmission
grid, Acadia relies on two main suppliers of electric transmission when
accessing external power markets. At times, transmission availability
limits the wholesale markets accessible by Acadia resulting in limited buyers
for Acadia’s output.
To
address these risks, Acadia markets short-, mid- and long-term products
where available. Through its third-party energy marketer, Acadia
pursues opportunities in the hourly, weekly, monthly, and annual
markets. In addition, Acadia actively participates in long-term
requests for capacity and energy. Acadia’s success in these marketing
efforts is a primary driver of Acadia’s earnings and cash
flow.
In
May 2008, Acadia was notified that Cleco Power selected its proposal to fulfill
Cleco Power’s capacity and energy needs as defined in the Cleco Power 2009
short-term RFP. The proposal was for a 235-MW product beginning March
1, 2009, and ending September 30, 2009. The definitive agreement
between Acadia and Cleco Power was executed on July 31,
2008. Approval of this agreement by both the LPSC and FERC is
required.
Comparison
of the Three Months Ended September 30, 2008, and 2007
Cleco
Consolidated
|
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue, net
|
|
$ |
343,675 |
|
|
$ |
311,691 |
|
|
$ |
31,984 |
|
|
|
10.26 |
% |
Operating
expenses
|
|
|
308,111 |
|
|
|
270,530 |
|
|
|
(37,581 |
) |
|
|
(13.89 |
)% |
Operating
income
|
|
$ |
35,564 |
|
|
$ |
41,161 |
|
|
$ |
(5,597 |
) |
|
|
(13.60 |
)% |
Interest
income
|
|
$ |
1,669 |
|
|
$ |
2,873 |
|
|
$ |
(1,204 |
) |
|
|
(41.91 |
)% |
Allowance
for other funds used during construction
|
|
$ |
17,786 |
|
|
$ |
9,552 |
|
|
$ |
8,234 |
|
|
|
86.20 |
% |
Equity
income from investees
|
|
$ |
9,662 |
|
|
$ |
27,726 |
|
|
$ |
(18,064 |
) |
|
|
(65.15 |
)% |
Other
income
|
|
$ |
937 |
|
|
$ |
28,402 |
|
|
$ |
(27,465 |
) |
|
|
(96.70 |
)% |
Other
expense
|
|
$ |
(2,276 |
) |
|
$ |
(1,284 |
) |
|
$ |
(992 |
) |
|
|
(77.26 |
)% |
Interest
charges
|
|
$ |
15,696 |
|
|
$ |
10,308 |
|
|
$ |
(5,388 |
) |
|
|
(52.27 |
)% |
Federal
and state income taxes
|
|
$ |
10,513 |
|
|
$ |
30,077 |
|
|
$ |
19,564 |
|
|
|
65.05 |
% |
Net
income applicable to common stock
|
|
$ |
37,121 |
|
|
$ |
68,033 |
|
|
$ |
(30,912 |
) |
|
|
(45.44 |
)% |
Consolidated
net income applicable to common stock decreased $30.9 million, or 45.4%, in the
third quarter of 2008 compared to the third quarter of 2007 primarily due to
decreased Cleco Power, Midstream and corporate
earnings.
Operating
revenue, net increased $32.0 million, or 10.3%, in the third quarter of 2008
compared to the third quarter of 2007, largely as a result of higher fuel cost
recovery revenue at Cleco Power.
Operating
expenses increased $37.6 million, or 13.9%, in the third quarter of 2008
compared to the third quarter of 2007 primarily due to higher fuel costs at
Cleco Power.
Interest
income decreased $1.2 million, or 41.9%, in the third quarter of 2008 compared
to the third quarter of 2007 largely as a result of lower rates of return and
lower average investment balances.
Allowance
for other funds used during construction increased $8.2 million, or 86.2%, in
the third quarter of 2008 compared to the same period of 2007 primarily due to
increased construction activity at Rodemacher Unit 3.
Equity
income from investees decreased $18.1 million, or 65.2%, in the third quarter of
2008 compared to the same period of 2007. Other income decreased $27.5
million, or 96.7%, in the third quarter of 2008 compared to the same period of
2007. These decreases were primarily due to amounts received by APH in
2007 relating to Cajun’s purchase of CAH’s 50% equity ownership interest in
Acadia, offset by a pre-tax impairment loss recorded during the third quarter of
2007.
Other
expense increased $1.0 million, or 77.3%, in the third quarter of 2008 compared
to the same period of 2007 primarily due to a decrease in the cash surrender
value of life insurance policies at Cleco Corporation. Partially
offsetting this increase was the absence in 2008 of APH’s payment to acquire
Calpine’s interest in Acadia’s claim against Cleco Power regarding a potential
electric metering error at the facility.
Interest
charges increased $5.4 million, or 52.3%, in the third quarter of 2008 compared
to the same period of 2007 primarily due to interest related to the March 2008
issuance of
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
storm
recovery bonds, the carrying cost of the tax benefits of Hurricanes Katrina and
Rita storm damage costs, the storm damage surcredit, and the issuance of senior
notes and solid waste disposal facility bonds at Cleco
Power. Partially offsetting this increase was the allowance for
borrowed funds used during construction associated with the construction
activity at Rodemacher Unit 3, interest related to draws against Cleco Power’s
credit facility, and repayments of medium-term and senior notes at Cleco Power
and Cleco Corporation, respectively.
Federal
and state income taxes decreased $19.6 million, or 65.1%, primarily due to a
decrease in pre-tax income during the third quarter of 2008 compared to the same
period of 2007.
Results
of operations for Cleco Power and Midstream are more fully described
below.
Cleco
Power
Cleco
Power’s net income in the third quarter of 2008 decreased $3.7 million, or
10.7%, compared to the third quarter of 2007. Contributing factors
include:
§
|
higher
interest charges,
|
§
|
lower
other operations revenue, and
|
§
|
higher
other operations and maintenance
expenses.
|
These
were partially offset by:
§
|
higher
allowance for other funds used during construction,
and
|
§
|
lower
taxes other than income taxes.
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
$ |
99,090 |
|
|
$ |
104,476 |
|
|
$ |
(5,386 |
) |
|
|
(5.16 |
)% |
Fuel cost
recovery
|
|
|
234,846 |
|
|
|
196,386 |
|
|
|
38,460 |
|
|
|
19.58 |
% |
Other operations
|
|
|
6,981 |
|
|
|
9,231 |
|
|
|
(2,250 |
) |
|
|
(24.37 |
)% |
Affiliate
revenue
|
|
|
7 |
|
|
|
10 |
|
|
|
(3 |
) |
|
|
(30.00 |
)% |
Intercompany
revenue
|
|
|
418 |
|
|
|
501 |
|
|
|
(83 |
) |
|
|
(16.57 |
)% |
Operating revenue,
net
|
|
|
341,342 |
|
|
|
310,604 |
|
|
|
30,738 |
|
|
|
9.90 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel used for electricgeneration
– recoverable
|
|
|
90,833 |
|
|
|
94,838 |
|
|
|
4,005 |
|
|
|
4.22 |
% |
Power purchased for
utilitycustomers – recoverable
|
|
|
144,000 |
|
|
|
101,508 |
|
|
|
(42,492 |
) |
|
|
(41.86 |
)% |
Non-recoverable fuel andpower
purchased
|
|
|
9,386 |
|
|
|
10,166 |
|
|
|
780 |
|
|
|
7.67 |
% |
Other operations
|
|
|
23,242 |
|
|
|
22,739 |
|
|
|
(503 |
) |
|
|
(2.21 |
)% |
Maintenance
|
|
|
9,719 |
|
|
|
9,590 |
|
|
|
(129 |
) |
|
|
(1.35 |
)% |
Depreciation
|
|
|
18,861 |
|
|
|
19,401 |
|
|
|
540 |
|
|
|
2.78 |
% |
Taxes other than income
taxes
|
|
|
8,732 |
|
|
|
10,053 |
|
|
|
1,321 |
|
|
|
13.14 |
% |
Total operating
expenses
|
|
|
304,773 |
|
|
|
268,295 |
|
|
|
(36,478 |
) |
|
|
(13.60 |
)% |
Operating
income
|
|
$ |
36,569 |
|
|
$ |
42,309 |
|
|
$ |
(5,740 |
) |
|
|
(13.57 |
)% |
Allowance
for other funds used during construction
|
|
$ |
17,786 |
|
|
$ |
9,552 |
|
|
$ |
8,234 |
|
|
|
86.20 |
% |
Interest
charges
|
|
$ |
14,973 |
|
|
$ |
8,213 |
|
|
$ |
(6,760 |
) |
|
|
(82.31 |
)% |
Federal
and state income taxes
|
|
$ |
10,566 |
|
|
$ |
10,871 |
|
|
$ |
305 |
|
|
|
2.81 |
% |
Net
income
|
|
$ |
30,538 |
|
|
$ |
34,198 |
|
|
$ |
(3,660 |
) |
|
|
(10.70 |
)% |
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(MILLION
kWh)
|
|
2008
|
|
|
2007
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,144 |
|
|
|
1,170 |
|
|
|
(2.22 |
)% |
Commercial
|
|
|
721 |
|
|
|
733 |
|
|
|
(1.64 |
)% |
Industrial
|
|
|
762 |
|
|
|
786 |
|
|
|
(3.05 |
)% |
Other retail
|
|
|
36 |
|
|
|
35 |
|
|
|
2.86 |
% |
Total retail
|
|
|
2,663 |
|
|
|
2,724 |
|
|
|
(2.24 |
)% |
Sales for resale
|
|
|
153 |
|
|
|
165 |
|
|
|
(7.27 |
)% |
Unbilled
|
|
|
(134 |
) |
|
|
(44 |
) |
|
|
(204.55 |
)% |
Total
retail and wholesale customer sales
|
|
|
2,682 |
|
|
|
2,845 |
|
|
|
(5.73 |
)% |
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
51,490 |
|
|
$ |
53,190 |
|
|
|
(3.20 |
)% |
Commercial
|
|
|
25,195 |
|
|
|
25,270 |
|
|
|
(0.30 |
)% |
Industrial
|
|
|
14,585 |
|
|
|
14,686 |
|
|
|
(0.69 |
)% |
Other retail
|
|
|
1,469 |
|
|
|
1,456 |
|
|
|
0.89 |
% |
Storm surcharge
|
|
|
5,455 |
|
|
|
6,644 |
|
|
|
(17.90 |
)% |
Total retail
|
|
|
98,194 |
|
|
|
101,246 |
|
|
|
(3.01 |
)% |
Sales for resale
|
|
|
5,759 |
|
|
|
4,744 |
|
|
|
21.40 |
% |
Unbilled
|
|
|
(4,863 |
) |
|
|
(1,514 |
) |
|
|
(221.20 |
)% |
Total
retail and wholesale customer sales
|
|
$ |
99,090 |
|
|
$ |
104,476 |
|
|
|
(5.16 |
)% |
Cleco
Power’s residential customers’ demand for electricity largely is affected by
weather. Weather generally is 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.
The
following chart shows how cooling-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
degree days.
|
|
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
CHANGE
|
|
|
|
2008
|
|
|
2007
|
|
|
NORMAL
|
|
|
PRIOR
YEAR
|
|
|
NORMAL
|
|
Cooling-degree days
|
|
|
1,541 |
|
|
|
1,601 |
|
|
|
1,468 |
|
|
|
(3.75 |
)% |
|
|
4.97 |
% |
Base
Base
revenue during the third quarter of 2008 decreased $5.4 million, or 5.2%,
compared to the same period of 2007. The decrease was primarily due
to lower electric sales to retail and wholesale customers net, resulting from
hurricane-related outages and cooler weather in the third quarter of 2008 as
compared to the same period in 2007. Also contributing to the
decrease in base revenue was a decrease in the amount being recovered for storm
restoration costs through a monthly customer surcharge and a base rate reduction
related to storm damage expenses. The monthly cost to customers was
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
reduced
in March 2008 when the storm costs were financed through the issuance of storm
recovery bonds by Cleco Katrina/Rita.
For
information on the effects of future energy sales on Cleco Power’s financial
condition, results of operations, and cash flows, see “Risk Factors — Future
Electricity Sales” in the Registrants’ Combined Annual Report on Form 10-K for
the fiscal year ended December 31, 2007.
Fuel
Cost Recovery
Fuel
cost recovery revenue billed to customers during the third quarter of 2008
compared to the same period in 2007 increased $38.5 million, or 19.6%, primarily
due to increases in the per-unit cost of power purchased for utility
customers. Partially offsetting this increase was a decrease in the
per-unit cost of fuel used for electric generation and lower volumes of fuel
used for electric generation and power purchased for utility
customers. Changes in fuel costs historically have not significantly
affected Cleco Power’s net income. 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. Approximately 96% of Cleco Power’s total fuel cost
during the third quarter of 2008 was regulated by the LPSC, while the remainder
was regulated by the FERC. Recovery of fuel adjustment clause costs
is subject to refund until approval is received from the LPSC. For
information on Cleco Power’s ongoing 2003 through 2004 fuel audit, see Item 1,
“Notes to the Unaudited Condensed Consolidated Financial Statements — Note 11 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Other Contingencies — LPSC Fuel Audit.”
Other
Operations
Other
operations revenue decreased $2.3 million, or 24.4%, in the third quarter of
2008 compared to the third quarter of 2007 primarily due to a $4.9 million
mark-to-market loss in the third quarter of 2008 compared to a $0.5 million
mark-to-market loss in the third quarter of 2007 relating to economic hedge
transactions associated with fixed-price power being provided to a wholesale
customer. These losses were primarily due to the volatility in
natural gas prices. Partially offsetting this decrease was $0.1
million of realized gains from these hedge transactions in the third quarter of
2008 compared to $0.2 million of realized losses in the third quarter of 2007
and $1.8 million of higher transmission revenue, customer fees, and pole
attachment revenue. For information on Cleco’s energy commodity
activities, see Item 3, “Quantitative and Qualitative Disclosures about Market
Risk — Risk Overview — Commodity Price Risks.”
Operating
Expenses
Operating
expenses increased $36.5 million, or 13.6%, in the third quarter of 2008
compared to the same period of 2007. Fuel used for electric generation
(recoverable) decreased $4.0 million, or 4.2%, primarily due to lower per-unit
costs and volumes of fuel used as compared to the same period of
2007. Power purchased for utility customers (recoverable)
increased
$42.5 million, or 41.9%, largely due to higher per-unit costs of purchased
power. Partially offsetting this increase was lower volumes of
purchased power. Fuel used for electric generation and power
purchased for utility customers generally are influenced by natural gas prices,
as well as availability of transmission. However, other factors such
as scheduled and/or unscheduled outages, unusual 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 $0.8 million, or 7.7%, primarily due to a $1.1 million
reclassification from non-recoverable to recoverable fuel expense during the
third quarter of 2008 and $0.1 million of lower other miscellaneous
non-recoverable expenses. Partially offsetting these decreases was
$0.4 million of higher capacity payments made during the third quarter of
2008. Other operations expense increased $0.5 million, or 2.2%,
primarily due to higher employee benefit costs and higher professional
fees. Taxes other than income taxes decreased $1.3 million, or 13.1%,
primarily due to a change in the accounting treatment of city franchise fees as
a result of an LPSC order.
Allowance
for Other Funds Used During Construction
Allowance
for other funds used during construction increased $8.2 million, or 86.2%,
during the third quarter of 2008 compared to the same period of 2007 primarily
due to increased construction activity at Rodemacher Unit
3. Allowance for other funds used during construction comprised 58.2%
of Cleco Power’s net income for the third quarter of 2008, compared to 27.9% for
the third quarter of 2007.
Interest Charges
Interest
charges increased $6.8 million, or 82.3%, during the third quarter of 2008
compared to the same period of 2007 primarily due to $4.2 million related to the
May 2008 issuance of senior notes, $2.2 million related to the March 2008
issuance of storm recovery bonds, $0.8 million related to the November 2007
issuance of solid waste disposal facility bonds, $2.5 million related primarily
to the carrying cost of the tax benefits of Hurricanes Katrina and Rita
storm damage costs, and $0.6 million related primarily to the storm damage
surcredit. Partially offsetting this increase was $1.4 million of
allowance for borrowed funds used during construction associated with the
construction activity at Rodemacher Unit 3, $0.4 million related to the
repayment of medium-term notes and $1.7 million related primarily to draws
against Cleco Power’s credit facility.
Income
Taxes
Income
tax expense decreased $0.3 million, or 2.8%, primarily due to a decrease in
pre-tax income during the third quarter of 2008 compared to the same period of
2007.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Midstream
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations
|
|
$ |
- |
|
|
$ |
4 |
|
|
$ |
(4 |
) |
|
|
(100.00 |
)% |
Affiliate
revenue
|
|
|
2,131 |
|
|
|
1,105 |
|
|
|
1,026 |
|
|
|
92.85 |
% |
Operating
revenue
|
|
|
2,131 |
|
|
|
1,109 |
|
|
|
1,022 |
|
|
|
92.16 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations
|
|
|
1,717 |
|
|
|
1,024 |
|
|
|
(693 |
) |
|
|
(67.68 |
)% |
Maintenance
|
|
|
938 |
|
|
|
506 |
|
|
|
(432 |
) |
|
|
(85.38 |
)% |
Depreciation
|
|
|
78 |
|
|
|
76 |
|
|
|
(2 |
) |
|
|
(2.63 |
)% |
Taxes other than
incometaxes
|
|
|
94 |
|
|
|
74 |
|
|
|
(20 |
) |
|
|
(27.03 |
)% |
Total
operatingexpenses
|
|
|
2,827 |
|
|
|
1,680 |
|
|
|
(1,147 |
) |
|
|
(68.27 |
)% |
Operating
loss
|
|
$ |
(696 |
) |
|
$ |
(571 |
) |
|
$ |
(125 |
) |
|
|
(21.89 |
)% |
Equity
income from investees
|
|
$ |
9,223 |
|
|
$ |
27,532 |
|
|
$ |
(18,309 |
) |
|
|
(66.50 |
)% |
Other
income
|
|
$ |
- |
|
|
$ |
27,924 |
|
|
$ |
(27,924 |
) |
|
|
(100.00 |
)% |
Other
expense
|
|
$ |
(5 |
) |
|
$ |
(1,250 |
) |
|
$ |
1,245 |
|
|
|
99.60 |
% |
Interest
charges
|
|
$ |
1,566 |
|
|
$ |
5,894 |
|
|
$ |
4,328 |
|
|
|
73.43 |
% |
Federal
and state income tax expense
|
|
$ |
2,383 |
|
|
$ |
17,947 |
|
|
$ |
15,564 |
|
|
|
86.72 |
% |
Net
income
|
|
$ |
4,573 |
|
|
$ |
30,415 |
|
|
$ |
(25,842 |
) |
|
|
(84.96 |
)% |
Midstream’s
net income in the third quarter of 2008 decreased $25.8 million, or 85.0%,
compared to the third quarter of 2007. Factors affecting Midstream
during the third quarter of 2008 are described below.
Operating
Revenue and Operating Expenses
Operating
revenue increased $1.0 million, or 92.2%, in the third quarter of 2008 compared
to the third quarter of 2007. Operating expenses increased $1.1
million, or 68.3%, in the third quarter of 2008 compared to the third quarter of
2007. The increases were primarily due to the accounting treatment of
Acadia's power plant operations, maintenance, and engineering services resulting
from Cajun's purchase of Calpine’s 50% ownership interest in Acadia in September
2007. Prior to September 2007, Calpine employees provided power plant
operations, maintenance, and engineering services to
Acadia. Subsequent to September 2007, these services were provided by
Midstream. As a result, revenue and expenses associated with plant
operations for Acadia are included in affiliate revenue and operating
expenses, respectively.
Equity
Income from Investees
Equity
income from investees decreased $18.3 million, or 66.5%, during the third
quarter of 2008 compared to the same period of 2007. The decrease was
due to a $15.2 million decrease in equity earnings at APH and a $3.1 million
decrease in equity earnings at Evangeline. The decrease at APH was
primarily due to the absence of APH’s priority distributions from Acadia that
were received at the closing of Cajun’s purchase of CAH’s 50% equity ownership
interest in Acadia, partially offset by an impairment loss recorded in the third
quarter of 2007. The decrease at Evangeline was primarily due to
higher maintenance expenses and write-offs of obsolete equipment, both related
to an unplanned 2008 outage. For
additional information on Evangeline and Acadia, see Item 1, “Notes to the
Unaudited Condensed Consolidated Financial Statements — Note 10 — Equity
Investment in Investees.”
Other
Income
Other
income decreased $27.9 million, or 100.0%, during the third quarter of 2008
compared to the same period of 2007 as a result of amounts received by APH
during the third quarter of 2007 relating to Cajun's purchase of CAH's 50%
equity ownership interest in Acadia. Of this amount, $25.0 million
represented consideration of APH's guaranteed payments from Acadia and $2.9
million represented break-up fees.
Other
Expense
Other
expense decreased $1.2 million, or 99.6%, during the third quarter of 2008
compared to the same period of 2007. This decrease is primarily due to
APH's payment during the third quarter of 2007 to acquire Calpine's interest in
Acadia's claim against Cleco Power regarding a potential electric metering error
at the Acadia facility.
Interest
Charges
Interest
charges decreased $4.3 million, or 73.4%, during the third quarter of 2008
compared to the same period of 2007 primarily due to lower interest rates and a
lower balance on affiliate debt relating to APH’s investment in
Acadia.
Income
Taxes
Income
tax expense decreased $15.6 million, or 86.7%, primarily due to a decrease in
pre-tax income during the third quarter of 2008 compared to the same period of
2007.
Comparison
of the Nine Months Ended September 30, 2008, and 2007
Cleco
Consolidated
|
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue, net
|
|
$ |
841,013 |
|
|
$ |
796,942 |
|
|
$ |
44,071 |
|
|
|
5.53 |
% |
Operating
expenses
|
|
|
744,990 |
|
|
|
713,051 |
|
|
|
(31,939 |
) |
|
|
(4.48 |
)% |
Operating
income
|
|
$ |
96,023 |
|
|
$ |
83,891 |
|
|
$ |
12,132 |
|
|
|
14.46 |
% |
Interest
income
|
|
$ |
4,544 |
|
|
$ |
8,030 |
|
|
$ |
(3,486 |
) |
|
|
(43.41 |
)% |
Allowance
for other funds used during construction
|
|
$ |
46,462 |
|
|
$ |
21,715 |
|
|
$ |
24,747 |
|
|
|
113.96 |
% |
Equity
income from investees
|
|
$ |
2,723 |
|
|
$ |
97,608 |
|
|
$ |
(94,885 |
) |
|
|
(97.21 |
)% |
Other
income
|
|
$ |
1,094 |
|
|
$ |
28,644 |
|
|
$ |
(27,550 |
) |
|
|
(96.18 |
)% |
Other
expense
|
|
$ |
(4,322 |
) |
|
$ |
(2,536 |
) |
|
$ |
(1,786 |
) |
|
|
(70.43 |
)% |
Interest
charges
|
|
$ |
35,358 |
|
|
$ |
34,284 |
|
|
$ |
(1,074 |
) |
|
|
(3.13 |
)% |
Federal
and state income taxes
|
|
$ |
22,573 |
|
|
$ |
63,187 |
|
|
$ |
40,614 |
|
|
|
64.28 |
% |
Net
income applicable to common stock
|
|
$ |
88,558 |
|
|
$ |
139,435 |
|
|
$ |
(50,877 |
) |
|
|
(36.49 |
)% |
Consolidated
net income applicable to common stock decreased $50.9 million, or 36.5%, in the
first nine months of 2008 compared to the first nine months of 2007, primarily
due to decreased Midstream and corporate earnings. Partially
offsetting these decreases were increased Cleco Power
earnings.
Operating
revenue, net increased $44.1 million, or 5.5%, in the first nine months of 2008
compared to the same period of
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
2007 primarily
as a result of higher fuel cost recovery and other operations revenues at Cleco
Power.
Operating
expenses increased $31.9 million, or 4.5%, in the first nine months of 2008
compared to the first nine months of 2007 primarily due to higher fuel costs at
Cleco Power.
Interest
income decreased $3.5 million, or 43.4%, in the first nine months of 2008
compared to the first nine months of 2007 primarily due to lower rates of return
and lower average investment balances.
Allowance
for other funds used during construction increased $24.7 million, or 114.0%, in
the first nine months of 2008 compared to the same period of 2007 primarily due
to increased construction activity at Rodemacher Unit 3.
Equity
income from investees decreased $94.9 million, or 97.2%, in the first nine
months of 2008 compared to the same period of 2007. The decrease
primarily was due to decreased equity earnings at APH, resulting from the
absence of the 2007 settlement of Acadia’s claims against CES and Calpine and
amounts received by APH during 2007 relating to Cajun’s purchase of CAH’s 50%
equity ownership interest in Acadia, offset by a pre-tax impairment
loss.
Other
income decreased $27.6 million, or 96.2%, in the first nine months of 2008
compared to the first nine months of 2007 as a result of amounts received by APH
during 2007 relating to Cajun’s purchase of CAH’s 50% equity ownership interest
in Acadia.
Other
expense increased $1.8 million, or 70.4%, in the first nine months of 2008
compared to the first nine months of 2007 primarily due to a decrease in the
cash surrender value of life insurance policies at Cleco Corporation.
Partially offsetting this increase was the absence in 2008 of penalties
related to the FERC Staff investigation and the absence in 2008 of APH’s payment
to acquire Calpine’s interest in Acadia’s claim against Cleco Power regarding a
potential electric metering error at the Acadia facility.
Interest
charges increased $1.1 million, or 3.1%, in the first nine months of 2008
compared to the same period of 2007 primarily due to the carrying cost of
the tax benefits of Hurricanes Katrina and Rita storm damage costs, and
interest related to the issuances of new senior notes, solid waste disposal
facility bonds and storm recovery bonds. Partially offsetting this
increase was the allowance for borrowed funds used during construction
associated with the construction activity at Rodemacher Unit 3, the repayments
of medium-term and senior notes at Cleco Power and Cleco Corporation,
respectively, interest related to the storm damage surcredit, and interest
related to retainage from Shaw.
Federal
and state income taxes decreased $40.6 million, or 64.3%, during the first nine
months of 2008 compared to the same period of 2007 primarily due to a decrease
in pre-tax income.
Results
of operations for Cleco Power and Midstream are fully described
below.
Cleco
Power
Cleco
Power’s net income in the first nine months of 2008 increased $25.7 million, or
39.4%, compared to the first nine months of 2007. Contributing
factors include:
§
|
higher
allowance for other funds used during
construction,
|
§
|
lower
other operations and maintenance
expenses,
|
§
|
lower
taxes other than income taxes,
|
§
|
higher
other operations revenue, and
|
§
|
lower
depreciation expense.
|
These
were partially offset by:
§
|
higher
interest charges,
|
§
|
lower
base revenue, and
|
§
|
higher
non-recoverable fuel and power
purchased.
|
|
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
$ |
270,933 |
|
|
$ |
272,765 |
|
|
$ |
(1,832 |
) |
|
|
(0.67 |
)% |
Fuel cost
recovery
|
|
|
532,464 |
|
|
|
493,026 |
|
|
|
39,438 |
|
|
|
8.00 |
% |
Other operations
|
|
|
29,757 |
|
|
|
26,413 |
|
|
|
3,344 |
|
|
|
12.66 |
% |
Affiliate
revenue
|
|
|
21 |
|
|
|
35 |
|
|
|
(14 |
) |
|
|
(40.00 |
)% |
Intercompany
revenue
|
|
|
1,506 |
|
|
|
1,505 |
|
|
|
1 |
|
|
|
0.07 |
% |
Operating revenue,
net
|
|
|
834,681 |
|
|
|
793,744 |
|
|
|
40,937 |
|
|
|
5.16 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel used for electricgeneration
– recoverable
|
|
|
154,296 |
|
|
|
196,872 |
|
|
|
42,576 |
|
|
|
21.63 |
% |
Power purchased for
utilitycustomers – recoverable
|
|
|
378,137 |
|
|
|
296,071 |
|
|
|
(82,066 |
) |
|
|
(27.72 |
)% |
Non-recoverable fuel andpower
purchased
|
|
|
21,952 |
|
|
|
20,116 |
|
|
|
(1,836 |
) |
|
|
(9.13 |
)% |
Other operations
|
|
|
65,862 |
|
|
|
71,318 |
|
|
|
5,456 |
|
|
|
7.65 |
% |
Maintenance
|
|
|
32,556 |
|
|
|
33,587 |
|
|
|
1,031 |
|
|
|
3.07 |
% |
Depreciation
|
|
|
56,886 |
|
|
|
58,784 |
|
|
|
1,898 |
|
|
|
3.23 |
% |
Taxes other than
incometaxes
|
|
|
24,727 |
|
|
|
28,540 |
|
|
|
3,813 |
|
|
|
13.36 |
% |
Total
operatingexpenses
|
|
|
734,416 |
|
|
|
705,288 |
|
|
|
(29,128 |
) |
|
|
(4.13 |
)% |
Operating
income
|
|
$ |
100,265 |
|
|
$ |
88,456 |
|
|
$ |
11,809 |
|
|
|
13.35 |
% |
Allowance
for other funds used during construction
|
|
$ |
46,462 |
|
|
$ |
21,715 |
|
|
$ |
24,747 |
|
|
|
113.96 |
% |
Interest
charges
|
|
$ |
31,435 |
|
|
$ |
27,883 |
|
|
$ |
(3,552 |
) |
|
|
(12.74 |
)% |
Federal
and state income taxes
|
|
$ |
27,135 |
|
|
$ |
20,517 |
|
|
$ |
(6,618 |
) |
|
|
(32.26 |
)% |
Net
income
|
|
$ |
90,807 |
|
|
$ |
65,146 |
|
|
$ |
25,661 |
|
|
|
39.39 |
% |
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(MILLION
kWh)
|
|
2008
|
|
|
2007
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2,789 |
|
|
|
2,789 |
|
|
|
- |
|
Commercial
|
|
|
1,874 |
|
|
|
1,869 |
|
|
|
0.27 |
% |
Industrial
|
|
|
2,177 |
|
|
|
2,255 |
|
|
|
(3.46 |
)% |
Other retail
|
|
|
101 |
|
|
|
102 |
|
|
|
(0.98 |
)% |
Total retail
|
|
|
6,941 |
|
|
|
7,015 |
|
|
|
(1.05 |
)% |
Sales for resale
|
|
|
327 |
|
|
|
384 |
|
|
|
(14.84 |
)% |
Unbilled
|
|
|
12 |
|
|
|
67 |
|
|
|
(82.09 |
)% |
Total
retail and wholesale customer sales
|
|
|
7,280 |
|
|
|
7,466 |
|
|
|
(2.49 |
)% |
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
121,236 |
|
|
$ |
122,567 |
|
|
|
(1.09 |
)% |
Commercial
|
|
|
71,258 |
|
|
|
70,219 |
|
|
|
1.48 |
% |
Industrial
|
|
|
41,580 |
|
|
|
42,398 |
|
|
|
(1.93 |
)% |
Other retail
|
|
|
4,205 |
|
|
|
4,323 |
|
|
|
(2.73 |
)% |
Storm surcharge
|
|
|
15,641 |
|
|
|
18,295 |
|
|
|
(14.51 |
)% |
Total retail
|
|
|
253,920 |
|
|
|
257,802 |
|
|
|
(1.51 |
)% |
Sales for resale
|
|
|
15,430 |
|
|
|
12,675 |
|
|
|
21.74 |
% |
Unbilled
|
|
|
1,583 |
|
|
|
2,288 |
|
|
|
(30.81 |
)% |
Total
retail and wholesale customer sales
|
|
$ |
270,933 |
|
|
$ |
272,765 |
|
|
|
(0.67 |
)% |
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
degree-days.
|
|
|
|
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
CHANGE
|
|
|
|
2008
|
|
|
2007
|
|
|
NORMAL
|
|
|
PRIOR
YEAR
|
|
|
NORMAL
|
|
Heating-degree days
|
|
|
860 |
|
|
|
950 |
|
|
|
1,035 |
|
|
|
(9.47 |
)% |
|
|
(16.91 |
)% |
Cooling-degree days
|
|
|
2,699 |
|
|
|
2,635 |
|
|
|
2,437 |
|
|
|
2.43 |
% |
|
|
10.75 |
% |
Base
Base
revenue during the first nine months of 2008 decreased $1.8 million, or
0.7%, compared to the same period in 2007. The decrease was primarily due
to lower electric sales to retail and wholesale customers, generally resulting
from milder winter weather, hurricane-related outages, and a decrease in the
amount being recovered for storm restoration costs through a monthly customer
surcharge and a base rate reduction related to storm damage
expenses. The monthly cost to customers was reduced in March 2008
when the storm costs were financed through the issuance of storm recovery bonds
by Cleco Katrina/Rita. These decreases were partially offset by
higher sales to municipal customers.
For
information on the effects of future energy sales on Cleco Power’s financial
condition, results of operations, and cash flows, see “Risk Factors — Future
Electricity Sales” in the Registrants’ Combined Annual Report on Form 10-K for
the fiscal year ended December 31, 2007.
Fuel
Cost Recovery
Fuel
cost recovery revenue billed to customers during the first nine months of 2008
compared to the same period in 2007 increased $39.4 million, or 8.0%, primarily
due to increases in the per-unit cost of power purchased for utility customers
and higher volumes of fuel used for electric generation. Partially
offsetting the increase were decreased volumes of power purchased for utility
customers and decreases in the per-unit cost of fuel used for electric
generation. For information on Cleco Power’s ability to recover fuel
and purchase power costs, see “— Comparison of the Three Months Ended September
30, 2008, and 2007 — Cleco Power — Fuel Cost Recovery.”
Other
Operations
Other
operations revenue increased $3.3 million, or 12.7%, in the first nine months of
2008 compared to the first nine months of 2007 primarily due to higher
transmission revenue, customer fees, and pole attachment
revenue.
Operating
Expenses
Operating
expenses increased $29.1 million, or 4.1%, in the first nine months of 2008
compared to the same period of 2007. Fuel used for electric generation
(recoverable) decreased $42.6 million, or 21.6%, primarily due to lower per-unit
costs of fuel used as compared to the same period of 2007, as a result of
realized gains on fuel hedging due to the price volatility of natural
gas. Partially offsetting this decrease were higher volumes of fuel
used for electric generation, primarily from the absence in 2008 of plant
outages as compared to the same period of 2007. Power purchased for
utility customers (recoverable) increased $82.1 million, or 27.7%, primarily due
to higher per-unit costs of purchased power. Partially offsetting
this increase were lower volumes of purchased power. Fuel used for
electric generation and power purchased for utility customers generally are
influenced by natural gas prices, as well as availability of
transmission. However, other factors such as scheduled and/or
unscheduled outages, unusual 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 $1.8
million, or 9.1%, primarily due to higher capacity payments made during the
first nine months of 2008. Other operations expense decreased $5.5
million, or 7.7%, primarily due to lower professional fees, and lower employee
benefit costs and administrative expenses. Maintenance expenses during the
first nine months of 2008 decreased $1.0 million, or 3.1%, compared to the
same period of 2007 primarily due to less generating station maintenance work
performed during the first nine months of 2008. Depreciation expense
decreased $1.9 million, or 3.2%, primarily due to $2.9 million of lower storm
amortization costs, partially offset by $1.0 million related to normal recurring
additions to fixed assets. Taxes other than income taxes decreased
$3.8 million, or 13.4%, primarily due to a change in the accounting treatment of
city franchise fees as a result of an LPSC order.
Allowance
for Other Funds Used During Construction
Allowance
for other funds used during construction increased $24.7 million, or 114.0%,
during the first nine months of 2008 compared to the same period of 2007
primarily due to increased construction activity at Rodemacher Unit
3. Allowance for other funds used during construction comprised 51.2%
of Cleco Power’s net income for the first nine months of 2008, compared to 33.3%
for the first nine months of 2007.
Interest
Charges
Interest
charges increased $3.6 million, or 12.7%, during the first nine months of 2008
compared to the same period of 2007 primarily due to $5.0 million related to the
March 2008 issuance of storm recovery bonds, $5.5 million related to the May
2008 issuance of senior notes, $2.8 million related to the November 2007
issuance of solid waste disposal facility
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
bonds,
and $5.1 million related primarily to the carrying cost of the tax
benefits of Hurricanes Katrina and Rita storm damage costs. Partially
offsetting this increase was $6.9 million of allowance for borrowed funds used
during construction associated with the construction activity at Rodemacher Unit
3, $5.2 million related primarily to the storm damage surcredit, $1.7 million
related to the repayment of medium-term notes during 2007, and $1.0 million
related to interest on retainage from Shaw.
Income
Taxes
Income
tax expense increased $6.6 million, or 32.3%, during the first nine months of
2008 compared to the same period of 2007, primarily due to an increase in
pre-tax income.
Midstream
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2008
|
|
|
2007
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations
|
|
$ |
1 |
|
|
$ |
15 |
|
|
$ |
(14 |
) |
|
|
(93.33 |
)% |
Affiliate
revenue
|
|
|
5,892 |
|
|
|
3,251 |
|
|
|
2,641 |
|
|
|
81.24 |
% |
Operating
revenue
|
|
|
5,893 |
|
|
|
3,266 |
|
|
|
2,627 |
|
|
|
80.43 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations
|
|
|
4,662 |
|
|
|
4,231 |
|
|
|
(431 |
) |
|
|
(10.19 |
)% |
Maintenance
|
|
|
2,667 |
|
|
|
1,568 |
|
|
|
(1,099 |
) |
|
|
(70.09 |
)% |
Depreciation
|
|
|
230 |
|
|
|
230 |
|
|
|
- |
|
|
|
- |
|
Taxes other than
incometaxes
|
|
|
272 |
|
|
|
206 |
|
|
|
(66 |
) |
|
|
(32.04 |
)% |
Gain on sales of
assets
|
|
|
(99 |
) |
|
|
- |
|
|
|
99 |
|
|
|
- |
|
Total
operatingexpenses
|
|
|
7,732 |
|
|
|
6,235 |
|
|
|
(1,497 |
) |
|
|
(24.01 |
)% |
Operating
loss
|
|
$ |
(1,839 |
) |
|
$ |
(2,969 |
) |
|
$ |
1,130 |
|
|
|
38.06 |
% |
Interest
income
|
|
$ |
- |
|
|
$ |
1,044 |
|
|
$ |
(1,044 |
) |
|
|
(100.00 |
)% |
Equity
income from investees
|
|
$ |
1,660 |
|
|
$ |
96,460 |
|
|
$ |
(94,800 |
) |
|
|
(98.28 |
)% |
Other
income
|
|
$ |
- |
|
|
$ |
27,924 |
|
|
$ |
(27,924 |
) |
|
|
(100.00 |
)% |
Other
expense
|
|
$ |
(17 |
) |
|
$ |
(1,252 |
) |
|
$ |
1,235 |
|
|
|
98.64 |
% |
Interest
charges
|
|
$ |
5,057 |
|
|
$ |
16,457 |
|
|
$ |
11,400 |
|
|
|
69.27 |
% |
Federal
and state income tax (benefit) expense
|
|
$ |
(2,298 |
) |
|
$ |
40,008 |
|
|
$ |
42,306 |
|
|
|
105.74 |
% |
Net
(loss) income
|
|
$ |
(2,955 |
) |
|
$ |
64,742 |
|
|
$ |
(67,697 |
) |
|
|
(104.56 |
)% |
Factors
affecting Midstream during the first nine months of 2008 are described
below.
Operating
Revenue and Operating Expenses
Operating
revenue increased $2.6 million, or 80.4%, in the first nine months of 2008
compared to the first nine months of 2007. Operating expenses
increased $1.5 million, or 24.0%, in the first nine months of 2008 compared to
the first nine months of 2007. The increases were primarily due to
the accounting treatment of Acadia’s power plant operations, maintenance, and
engineering services resulting from Cajun’s purchase of Calpine’s 50% ownership
interest in Acadia in September 2007. Prior to September 2007,
Calpine employees provided power plant operations, maintenance, and engineering
services to Acadia. Subsequent to September 2007, these services were
provided by Midstream. As a result, revenue and expenses associated
with plant operations for Acadia are included in affiliate revenue and operating
expenses, respectively.
Interest
Income
Interest
income decreased $1.0 million, or 100.0%, in the first nine months of 2008
compared to the first nine months of 2007. The decrease was primarily
due to lower investment balances at APH.
Equity
Income from Investees
Equity
income from investees decreased $94.8 million, or 98.3%, in the first nine
months of 2008 compared to the first nine months of 2007. The decrease was
due to a $93.4 million decrease in equity earnings at APH and a $1.4 million
decrease in equity earnings at Evangeline. This decrease at APH was
primarily due to the absence in 2008 of the settlement of Acadia’s pre-petition
unsecured claims against CES and Calpine and amounts received by APH in 2007
relating to CAH’s 50% equity ownership interest in Acadia. Partially
offsetting these decreases was an impairment loss recorded during
2007. The decrease at Evangeline was primarily due to higher
maintenance expenses. For additional information on Evangeline and
Acadia, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 10 — Equity Investment in Investees.”
Other
Income
Other
income decreased $27.9 million, or 100.0%, in the first nine months of 2008
compared to the first nine months of 2007 as a result of amounts being received
by APH during 2007 relating to Cajun’s purchase of CAH’s 50% equity ownership
interest in Acadia. Of this amount, $25.0 million represented
consideration of APH’s guaranteed payments from Acadia and $2.9 million
represented break-up fees.
Other
Expense
Other
expense decreased $1.2 million, or 98.6%, in the first nine months of 2008
compared to the first nine months of 2007. This decrease is primarily
due to APH’s payment during 2007 to acquire Calpine’s interest in Acadia’s claim
against Cleco Power regarding a potential electric metering error at the Acadia
facility.
Interest
Charges
Interest
charges decreased $11.4 million, or 69.3%, during the first nine months of 2008
compared to the same period of 2007 primarily due to a lower interest rate and a
lower balance on affiliate debt relating to APH’s investment in
Acadia.
Income
Taxes
Income
tax expense decreased $42.3 million, or 105.7%, during the first nine months of
2008 compared to the same period of 2007 primarily due to a decrease in
pre-tax income.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Liquidity
and Capital Resources
General
Considerations and Credit-Related Risks
Credit
Ratings and Counterparties
At
September 30, 2008, Moody’s and Standard & Poor’s outlooks for both Cleco
Corporation and Cleco Power were stable. If Cleco Corporation’s 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, other debt agreements,
and collateral for derivatives.
On
May 30, 2008, JPMorgan Chase & Co. announced it completed the acquisition of
the Bear Stearns Companies Inc. JPMorgan Chase & Co. is
guaranteeing the obligations of Bear Stearns Companies Inc. and its
subsidiaries, including obligations under the Evangeline Tolling
Agreement. At September 30, 2008, Moody’s outlook for Evangeline was
stable. The tolling agreement is the principal source of cash flow
for Evangeline. For more information regarding Evangeline’s tolling
agreement, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 11 — Litigation, Other Commitments and Contingencies, and
Disclosures about Guarantees — Risk and Uncertainties — Evangeline Tolling
Agreement.”
In
August 2005, Cleco Power entered into an EPC contract with Shaw to construct
Rodemacher Unit 3. Under the terms of the Amended EPC Contract, in
the event Cleco Power does not maintain a senior unsecured credit rating of
either: (i) Baa3 or better from Moody’s or (ii) BBB- or better from Standard
& Poor’s, Cleco Power will be required to provide a letter of credit to Shaw
in the amount of $20.0 million. In the event of further downgrade to
both of its credit ratings to: (i) Ba2 or below from Moody’s, and (ii) BB or
below from Standard & Poor’s, Cleco Power will be required to provide an
additional $15.0 million letter of credit to Shaw.
With
respect to any open power or natural gas hedging 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. For
additional information, as well as a discussion of other factors affecting
Cleco’s financial condition relating to its credit ratings, the credit ratings
of its counterparties, and other credit-related risks, please read Note 1 —
“Summary of Significant Accounting Policies — Risk Management” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Liquidity and Capital Resources — General Considerations
and Credit-Related Risks — Credit Ratings and Counterparties” in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Debt
At
September 30, 2008, Cleco Corporation and Cleco Power were in compliance with
the covenants in their credit facilities. If Cleco Corporation were
to default under the covenants in its various credit facilities, it would be
unable to borrow additional funds under the facilities. Further, if
Cleco Power were to default under its credit facility, Cleco Corporation would
be considered in default under its 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. 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.
Cleco
Consolidated
Cleco
had no short-term debt outstanding at September 30, 2008, or December 31,
2007. At September 30, 2008, Cleco’s long-term debt outstanding was
$1.1 billion, of which $63.5 million was long-term debt due within one
year, compared to $869.1 million at December 31, 2007, which included $100.0
million of long-term debt due within one year. For additional
information, see “— Cleco Corporation (Holding Company Level)” and “— Cleco
Power” below.
At
September 30, 2008, Cleco had a working capital surplus of $43.7 million
compared to $48.1 million at December 31, 2007. The $4.4 million
decrease in working capital is primarily due to additions to property, plant and
equipment, construction costs for Rodemacher Unit 3, payment of dividends, and
the mark-to-mark losses on gas hedges, partially offset by the movement of $33.1
million non-current restricted cash reserved at Cleco Power for storm
restoration costs to current restricted cash. An uncommitted bank
line of credit up to $10.0 million also is available to support Cleco’s working
capital needs.
Cash
and cash equivalents available at September 30, 2008, were $77.4 million
combined with $362.0 million facility capacity ($87.0 million from Cleco
Corporation and $275.0 million from Cleco Power) for total liquidity of $439.4
million. Cash and cash equivalents decreased $51.6 million, when
compared to December 31, 2007, primarily due to additions to property, plant and
equipment, including Rodemacher Unit 3, partially offset by cash received from
the issuance of bonds.
Cleco
Corporation (Holding Company Level)
Cleco
Corporation had no short-term debt outstanding at September 30, 2008, or
December 31, 2007. At September 30, 2008, Cleco Corporation’s long-term
debt outstanding was $48.0 million, of which none was due within one year,
compared to $100.0 million due within one year at December 31,
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
2007. Cleco
Corporation’s 7.00% Senior Notes were repaid May 1, 2008 upon
maturity.
Cleco
Corporation’s $150.0 million five-year credit facility matures on June 2,
2011. This facility provides for working capital and other
needs. Cleco Corporation’s borrowing costs under the facility are
equal to LIBOR plus 0.65%, including facility fees.
At
September 30, 2008, Cleco Corporation’s capacity was reduced by $48.0 million in
draws on Cleco Corporation’s $150.0 million, five-year facility with an interest
rate of 3.02%, and off-balance sheet commitments of $15.0 million, leaving
available capacity of $87.0 million. For more information about these
commitments, see “— Off-Balance Sheet Commitments.” An uncommitted
bank line of credit up to $10.0 million also is available to support Cleco’s
working capital needs.
Cash
and cash equivalents available at September 30, 2008, were $9.4 million,
combined with $87.0 million facility capacity for total liquidity of $96.4
million. Cash and cash equivalents decreased $107.7 million, when
compared to December 31, 2007, primarily due to the payment of dividends and the
settlement of affiliate payables and receivables.
Cleco
Power
There
was no short-term debt outstanding at Cleco Power at September 30, 2008, or
December 31, 2007. At September 30, 2008, Cleco Power’s long-term
debt outstanding was $1.0 billion, of which $63.5 million was long-term
debt due within one year, compared to $769.1 million at December 31, 2007, of
which none was due within one year.
At
September 30, 2008, there were no borrowings under Cleco Power’s $275.0 million,
five-year facility, which matures in June 2011. An uncommitted bank
line of credit up to $10.0 million also is available to support Cleco Power’s
working capital needs.
On
June 3, 2008, Cleco Power issued $250.0 million aggregate principal amount of
senior unsecured notes at an interest rate of 6.65%. The notes mature
on June 15, 2018. The proceeds from this offering were used for
general corporate purposes, including financing a portion of the construction
costs of Rodemacher Unit 3 and repaying borrowings under Cleco Power’s $275.0
million, five-year credit facility, a portion of which was used to fund some of
the construction costs of Rodemacher Unit 3.
On
March 6, 2008, Cleco Katrina/Rita issued $180.6 million aggregate principal
amount of senior secured storm recovery bonds. The bonds were issued
in two tranches, with one tranche of $113.0 million initial principal amount
with an expected average life of five years and bearing interest of 4.41% per
annum. The other tranche was for $67.6 million initial principal
amount with an expected average life of 10.58 years and bearing interest at
5.61% per annum. The resulting weighted average interest rate of both
tranches is 4.86% per annum, and the effective weighted average life is
seven years. Proceeds from the bonds were used to repay loans under
Cleco Power’s revolving credit facility and for general corporate
purposes. Debt service for the bonds will be paid by a special
monthly storm recovery surcharge paid by all Cleco Power's retail customers, as
discussed below.
Cash
and cash equivalents available at September 30, 2008, were $68.0 million,
combined with $275.0 million facility capacity for total liquidity of $343.0
million. Cash and cash equivalents increased $56.0 million when
compared to December 31, 2007, primarily due to cash received from the issuance
of bonds, partially offset by additions to property, plant and equipment,
including Rodemacher Unit 3.
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 carrying costs of capital during the construction phase of the
unit. Cleco Power had collected $71.6 million and $31.5 million
at September 30, 2008, and December 31, 2007, respectively. 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 the receipt of 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. The Governor’s office
allocated $60.0 million for issuance in 2006, and another $60.0 million for
issuance in 2007. These bonds were issued by the Rapides Finance
Authority in November 2006 and November 2007, respectively. The bonds
issued in 2006 have a fixed interest rate of 4.70% per annum, and the maturity
date is November 1, 2036. The 2006 bonds may be called at the option
of the issuer at the direction of Cleco Power after November 1,
2016. The bonds issued in 2007 initially had a variable interest rate
which was reset weekly via an auction agent. In March 2008, Cleco
Power exercised a provision in the bond indenture to change the variable
interest rate to a fixed interest rate through a reoffering of the
bonds. As a part of the reoffering, the holders of the original
auction rate bonds were required to tender them. The reoffered bonds
have a five-year term with a fixed rate of 5.25% per annum, with the option to
call at the end of the five years. If Cleco Power does not call the
bonds at the end of the five years, the bonds will become variable
rate. Cleco Power currently plans to remarket the bonds at the end of
the five-year period. The maturity date of the 2007 bonds is November
1, 2037. Again in 2008, Cleco Power applied for $32.0 million of
volume cap allocation, which is the remainder of the $152.9 million of
qualifying costs that have been identified. In July 2008, the
Governor signed an order granting the $32.0 million of volume cap
allocation. On October 2, 2008, the Rapides Finance Authority
issued, for the benefit of Cleco Power, $32.0 million of its revenue bonds
with a maturity date of October 1, 2038. The bonds bear interest at
6.0% per annum until October 1, 2011, at which time they are subject to
mandatory tender for purchase at par. Cleco Power plans to remarket
the bonds at the end of the three-year period.
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Storm
restoration costs from Hurricanes Katrina and Rita totaled $158.0
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 March 2007, after completing this review,
Cleco Power and the LPSC Staff signed a settlement term sheet allowing the
recovery and securitization of essentially all of Cleco Power’s Hurricanes
Katrina and Rita storm costs, along with the funding and securitization of an
approximately $50.0 million reserve for future storm costs. The
agreement also allowed Cleco Power to recover debt service costs and other storm
related expenses through a customer billing surcharge. For each of
the nine-month periods ended September 30, 2008, and 2007, Cleco Power collected
$15.6 million and $18.3 million, respectively, of storm recovery
surcharges. For more information regarding storm restoration costs,
see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements
— Note 4 — Regulatory Assets and Liabilities — Deferred Storm Restoration Costs
- Katrina/Rita.”
Cleco
Power has identified certain generating, transmission, and distribution
construction projects in the Gulf Opportunities Zone (GO Zone)
areas. Cleco Power filed an application with the Louisiana State Bond
Commission requesting $100.0 million to fund these projects, and approval was
received in May 2008. Management continues to monitor the tax-exempt
municipal bond market and is working toward the Louisiana Public Facilities
Authority issuing the GO Zone bonds on behalf of Cleco Power later this
year.
Midstream
Midstream
had no debt outstanding at September 30, 2008, or December 31,
2007.
Evangeline,
which is accounted for under the equity method, had no short-term debt
outstanding at September 30, 2008, or December 31, 2007. Evangeline
had $168.9 million and $177.1 million of long-term debt outstanding at September
30, 2008, and December 31, 2007, respectively, in the form of 8.82% senior
secured bonds due in 2019. Of these amounts, $7.1 million and $8.2
million were due within one year at September 30, 2008, and December 31, 2007,
respectively. The bonds issued by Evangeline are non-recourse to
Cleco Corporation.
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 September 30, 2008, and December 31, 2007,
$62.6 million and $18.0 million of cash, respectively, were
restricted. At September 30, 2008, the $62.6 million of restricted
cash consisted of $0.1 million under the Diversified Lands mitigation escrow,
$51.9 million reserved at Cleco Power for future storm restoration costs, and
$10.6 million at Cleco Katrina/Rita restricted for payment of operating
expenses, interest and principal on storm securitization bonds under the storm
recovery bonds loan agreement. Restricted cash at Cleco Power at
September 30, 2008, increased $44.6 million compared to December 31, 2007,
primarily due to the establishment of the reserve for future storm restoration
costs, partially offset by the release of funds for construction at Rodemacher
Unit 3. On October 9, 2008, Cleco Power received approval from the
LPSC to utilize a portion of the $51.9 million storm reserve to fund operations
and maintenance expenses related to damage caused by Hurricanes Gustav and Ike,
which will occur in the fourth quarter of 2008. Restricted cash at
Cleco Katrina/Rita at September 30, 2008, increased $10.6 million compared to
December 31, 2007, due to the issuance of the storm recovery
bonds.
The
restricted cash at Evangeline is not included in restricted cash on Cleco
Corporation’s Condensed Consolidated Balance Sheets due to the equity method of
accounting. Evangeline’s restricted cash at September 30, 2008, and
December 2007, was $31.5 million and $33.3 million,
respectively. This cash is restricted under Evangeline’s senior
secured bond indenture.
Cleco,
in the normal course of 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 other commitments,
some firm and some based on uncertainties, are not reflected in the consolidated
financial statements.
For
additional information regarding Cleco’s Contractual Obligations and Other
Commitments, please read “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Liquidity and
Capital Resources — Cash Generation and Cash Requirements — Contractual
Obligations and Other Commitments” in the Registrants’ Combined Annual Report on
Form 10-K for the fiscal year ended December 31, 2007 and Item 1, “Notes to the
Unaudited Condensed Consolidated Financial Statements — Note 11 — Litigation,
Other Commitments and Contingencies, and Disclosures about Guarantees — Other
Contingencies — New Market Tax Credits” of this Form 10-Q.
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 Condensed
Consolidated Balance Sheets, because it
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
has
been determined that Cleco’s affiliates are able to perform the 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 September
30, 2008, 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
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Entergy
Mississippi on behalf of Attala
|
|
|
500 |
|
|
|
- |
|
|
|
500 |
|
|
|
500 |
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under standby letter
of credit issued to the Louisiana Department of Labor
|
|
|
525 |
|
|
|
- |
|
|
|
525 |
|
|
|
- |
|
Obligations under the Lignite
Mining Agreement
|
|
|
6,070 |
|
|
|
- |
|
|
|
6,070 |
|
|
|
- |
|
Total
|
|
$ |
300,895 |
|
|
$ |
135,000 |
|
|
$ |
165,895 |
|
|
$ |
17,228 |
|
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 September 30, 2008, 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. It is unlikely that Cleco Corporation will have any other
liabilities which would give rise to indemnity claims under the agreements
providing for the Perryville disposition. The discounted
probability-weighted liability under the guarantees and indemnifications as of
September 30, 2008, 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 facility by an amount equal to the maximum reasonably
anticipated liability in respect of the contingent obligation as determined in
good faith.
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.
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. Rating 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.
In
January 2006, Cleco Corporation provided a $0.5 million guarantee to Entergy
Mississippi for Attala’s obligations under the Attala Interconnection
Agreement. This guarantee will be in effect through the life of the
agreement.
The
State of Louisiana allows employers of certain financial net worth to
self-insure their workers’ compensation benefits. Cleco Power has a
certificate of self-insurance from the Louisiana Office of Workers’ Compensation
and is required 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 September 30, 2008, Cleco Power’s 50% exposure for this
obligation was approximately $6.1 million. The lignite mining contract is
in place until 2011 and does not affect the amount Cleco Corporation can borrow
under its credit facility.
The
following table summarizes the expected termination date of the guarantees and
standby letters of credit discussed above:
CLECO
CORPORATION |
|
CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
|
|
|
|
|
|
|
|
|
|
|
AT
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
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
|
|
$ |
150,370 |
|
|
$ |
100,400 |
|
|
$ |
7,070 |
|
|
$ |
- |
|
|
$ |
42,900 |
|
Standby
letters of credit
|
|
|
15,525 |
|
|
|
525 |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Total commercial
commitments
|
|
$ |
165,895 |
|
|
$ |
100,925 |
|
|
$ |
7,070 |
|
|
$ |
- |
|
|
$ |
57,900 |
|
Wholesale
Rates of Cleco
For
information on the wholesale rates of Cleco, please read “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Liquidity and Capital Resources — Regulatory Matters —
Wholesale Rates of Cleco” in the Registrants’ Combined Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
Retail
Rates of Cleco Power
In
March 2007, after completing a review of restoration costs related to Hurricanes
Katrina and Rita, Cleco Power and the LPSC Staff filed a settlement agreement
allowing recovery of essentially all of Cleco Power's Hurricanes Katrina and
Rita storm costs. The agreement authorized the issuance of
securitized bonds to finance the restoration costs and collection of a special
storm recovery charge from Cleco Power's customers to pay principal,
interest and other amounts related to the bonds. The LPSC approved
the settlement agreement and issued a securitization financing order in
September 2007. In March 2008, securitization financing was
completed. For additional information about the recovery of storm
restoration costs, see Item 1, “Notes to the Unaudited Condensed Financial
Statements — Note 4 — Regulatory Assets and Liabilities — Deferred Storm
Restoration Costs - Katrina/Rita.”
In
January 2008, Cleco Power filed its monitoring report for the 12-month period
ended September 30, 2007. Cleco Power anticipates that the LPSC Staff
will complete their review of this report by the end of the fourth quarter of
2008.
For
additional information on other regulatory aspects of retail rates concerning
Cleco Power, please read “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Liquidity and
Capital Resources — Regulatory Matters — Retail Rates of Cleco Power” in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Wholesale
Electric Markets
For
information on regulatory aspects of wholesale electric markets affecting Cleco,
please read “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Financial Condition — Liquidity and Capital Resources —
Regulatory Matters — Market Restructuring — Wholesale Electric Markets” in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Retail
Electric Markets
For
a discussion of the regulatory aspects of retail electric markets affecting
Cleco Power, please read “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Liquidity and
Capital Resources — Regulatory Matters — Retail Electric Markets” in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Cleco
Power's Rate Case
On
July 14, 2008, Cleco Power filed a request for a new rate plan with the LPSC to
increase its base rates for electricity. The LPSC directed Cleco
Power to file a full base rate case at least 12 months prior to the expected
in-service date for Rodemacher Unit 3. If the new rate plan proposed
by Cleco Power is approved by the LPSC, it is expected to result in a net
decrease in billings to its retail customers of approximately $72.0 million in
the first normal year of commercial operation of Rodemacher Unit 3. Cleco
Power primarily is seeking recovery of revenues sufficient to cover the addition
of Rodemacher Unit 3 to its existing expense and rate base
levels. Although base revenues will increase under Cleco Power's
proposed rate plan, overall retail billings are expected to decrease.
Factors contributing to this net decrease are: (i) anticipated
additional retail revenues of approximately $250.0 million recoverable through
its base rates and proposed riders; (ii) an expected decrease in projected costs
recoverable through its retail fuel clause of approximately $224.0 million; and
(iii) an expected decrease of $98.0 million of Rodemacher Unit 3 financing costs
which includes a refund of the cash collected from retail customers and the
absence of previously collected Rodemacher Unit 3 financing costs. If
Cleco Power's proposed rate plan is approved, Cleco Power's customers would
begin realizing benefits of lower fuel costs immediately upon commercial
operation of Rodemacher Unit 3. Seven industrial customers have filed
interventions in the rate case. The rate case is currently in the
discovery phase. Cleco Power currently expects a settlement of the
rate case with new rates to coincide with the commercial operation date of
Rodemacher Unit 3, currently projected to be the summer of 2009.
Generation
RFP
2007
Long-Term RFP
In
June 2007, Cleco Power filed draft documents with the LPSC for up to
approximately 600 MW of intermediate and/or peaking resources to meet projected
load growth over a 10-year period beginning in 2010. To meet these
needs, Cleco Power is looking for products for a term of 2 to 30
years. Out of the approximately 600-MW total, up to approximately 350
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MW
may be sourced from a peaking resource. The final version of the RFP
was issued in October 2007, and bids were received in December 2007.
Cleco Power has notified bidders if their bids have been selected for the
short list. Cleco Power expects to have an agreement with the winning
bidder by the end of this year or in early 2009. Cleco Power will
seek approval by the LPSC of the final selections after negotiations with the
bidder/bidders have been completed. The LPSC filing is targeted for
the first quarter of 2009.
2008
Short-Term RFP for 2009 Resources
On
March 5, 2008, Cleco Power issued a RFP for a minimum of 50 MW up to 450 MW to
meet its 2009 capacity and energy requirements. Cleco Power has
selected and negotiated a 235-MW product with Acadia. The product is
for supply starting March 2009 and ending September 2009. Cleco Power
has filed for CCN with the LPSC for this capacity. Approval of this
agreement by both the LPSC and the FERC is required.
For
additional information on Cleco Power’s generation RFPs, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Financial Condition — Liquidity and Capital Resources — Regulatory
Matters — Generation RFP” in the Registrants’ Combined Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
Rodemacher
Unit 3
In
May 2006, Cleco Power began 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. Cleco Power has entered into contracts with suppliers
to collectively supply over 900,000 tons per year of petroleum coke for a three
to five-year period beginning in 2009. This is two-thirds of
Rodemacher Unit 3 fuel requirements for such period. Cleco Power is
in late stage negotiations to procure the remaining Rodemacher Unit 3 fuel
requirements for such period.
In
May 2006, Cleco Power and Shaw entered into an Amended EPC Contract, which
provided for substantial completion of the construction by September 30,
2009. On July 2, 2008, Cleco Power and Shaw amended this contract
further to provide for substantial completion and commencement of commercial
operation as of June 30, 2009, as well as changes to other commercial
terms. As a result of the amendment, Cleco Power is no longer liable
for excess labor costs as contemplated under the original
agreement. The total capital cost estimate for the project, including
AFUDC, Amended EPC Contract costs, and other development expenses, remains at
$1.0 billion. The lump sum price under the scope of the Amended EPC
Contract, including accepted change orders under the contract, is $794.5
million. As of September 30, 2008, Cleco Power had incurred approximately
$816.1 million in project costs. Shaw is subject to payment of
liquidated damages if certain operating performance criteria and
schedule
dates are not met. The Amended EPC Contract allows for termination at
Cleco Power’s sole discretion, which would require payment of termination fees,
or if certain milestones, approvals, or other typical commercial terms and
conditions are not met. As of September 30, 2008, the maximum
termination costs would have been $738.1 million, or an additional $28.2 million
more than the capital expended to date. Upon issuance of the notice to
start construction in May 2006, and in support of its performance obligations,
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 Amended EPC Contract
also provides for Shaw to: (a) allow retention, or (b) issue an
additional letter of credit, in an amount equal to 7.5% of the payments made by
Cleco Power under the contract. Effective January 31, 2008, Shaw had
issued an additional letter of credit in the amount of $42.0 million and Cleco
has retained amounts of $10.6 million. The retention and letters of
credit are provided in support of Shaw’s potential payment of liquidated
damages, or other payment performance obligations.
In
October 2008, Cleco Power received correspondence from Shaw indicating its
intent to file a force majeure claim alleging schedule disruptions and
additional costs due to Hurricanes Gustav and Ike. As of the date of
this Report, Cleco Power has received no documentation to support these
allegations. The Registrants do not believe the resolution of this
potential claim will have a material adverse impact to the Registrants' results
of operations or financial condition. Additionally, the Registrants
do not believe the resolution of this potential claim will have a material
adverse impact on the cost of Rodemacher Unit 3.
For
additional information on the CCN and construction of Rodemacher Unit 3, please
read “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Financial Condition — Liquidity and Capital Resources —Regulatory
Matters — Rodemacher Unit 3” in the Registrants’ Combined Annual Report on Form
10-K for the fiscal year ended December 31, 2007. For a discussion of
risks associated with the Rodemacher Unit 3 project, see “Risk Factors —
Rodemacher Unit 3 Construction Costs,” — “Rodemacher Unit 3 Technical
Specifications,” and — “Termination of the Rodemacher Unit 3 Project or the
Amended EPC Contract” in the Registrants’ Combined Annual Report on Form 10-K
for the fiscal year ended December 31, 2007.
Lignite
Deferral
At
September 30, 2008, and December 31, 2007, Cleco Power had $27.4 million and
$29.4 million, respectively, in deferred costs remaining
uncollected.
For
additional information on Cleco Power’s deferred lignite mining
expenditures, please read “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Liquidity and
Capital Resources — Regulatory Matters — Other Matters — Lignite
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Deferral”
in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.
Franchises
On
May 14, 2008, the Town of Elizabeth entered into a lease/franchise agreement
with Cleco Power under which its electrical system will be leased to Cleco
Power. The agreement is for 10 years with two 10-year renewal
terms. Approximately 225 Cleco Power customers are located in
Elizabeth.
For
additional information on Cleco Power’s electric service franchises, please read
“Business — Regulatory Matters, Industry Developments, and Franchises —
Franchises” in the Registrants’ Combined Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
Environmental
Matters
Cleco
is subject to extensive environmental regulation by federal, state and local
authorities and is required to comply with numerous environmental laws and
regulations, and to obtain and to comply with numerous governmental permits, in
operating its facilities. In addition, existing environmental laws,
regulations and permits could be revised or reinterpreted; new laws and
regulations could be adopted or become applicable to Cleco or its facilities;
and future changes in environmental laws and regulations could occur, including
potential regulatory and enforcement developments related to air
emissions. Cleco may incur significant additional costs to comply with
these revisions, reinterpretations and requirements. If Cleco fails to
comply with these revisions, reinterpretations and requirements, it could be
subject to civil or criminal liabilities and fines.
On
February 8, 2008, the U.S. Court of Appeals for the D.C. Circuit in New Jersey
v. EPA vacated both the EPA's rule delisting coal-fired electric generating
units (EGUs) from regulation under section 112 of the Clean Air Act (CAA) and
the entire Clean Air Mercury Rule (CAMR). As a result of the court's
action, EGUs are subject to regulation under section 112, which will require the
EPA to promulgate Maximum Achievable Control Technology (MACT) standards for
hazardous air pollutants for coal and oil-fired EGUs.
On
May 20, 2008, the U.S. Court of Appeals for the D.C. Circuit denied the EPA’s
and industry intervenors’ petitions asking all of the judges of the D.C. Circuit
to re-hear the decision in New Jersey v. EPA vacating CAMR and the EPA’s rule
delisting coal and oil-fired EGUs from regulation under section 112 of the CAA
(Delisting Rule). The court also denied the industry intervenors’
petition requesting rehearing by the three-judge panel that decided New
Jersey. On September 17, 2008, Industry intervenors filed a petition
with the U.S. Supreme Court requesting a review of the D.C. Circuit’s decision
in New Jersey v. EPA vacating CAMR and the EPA’s rule delisting coal- and
oil-fired EGUs from regulation under section 112 of the CAA (Delisting
Rule). On October 17, 2008, the EPA filed a similar petition with the
U.S. Supreme Court.
On
July 11, 2008, the D.C. Circuit Court of Appeals vacated the Clean Air
Interstate Rule (CAIR). On September 24, 2008, the EPA, industry
groups and environmental groups filed petitions with the D.C. Circuit Court,
requesting a rehearing in the matter of the CAIR vacature. The
environmental groups filed a petition asking the D.C. Circuit for a rehearing en
banc (by the full Court) while the EPA and industry groups filed separate
petitions seeking rehearing en banc or, in the alternative, rehearing by the
three-judge panel that heard the case. The D.C. Circuit is not
required to rule on petitions for rehearing in a specified time; however, it is
expected that the court will grant or deny the petitions within the next few
months. The 90-day time period in which parties may file a petition
for certiorari with the Supreme Court will run from the date the D.C. Circuit
denies rehearing or, if rehearing is granted, the subsequent entry of
judgment.
On
March 19, 2008, Cleco Power received a consolidated compliance order and notice
of potential penalty (CO/NOPP) from the LDEQ for alleged violations of the air
quality rules at its Dolet Hills and Rodemacher Power Stations. For
Dolet Hills, the CO/NOPP alleges that upon a file review conducted on or about
February 26, 2008, the LDEQ found that Cleco Power was in violation of
conditions in its Title V permit regarding compliance assurance tests to be
conducted upon its continuous monitoring systems. Upon review of the LDEQ
findings and the Part 75 regulations, Cleco Power contends that the actions
taken by Cleco Power were allowed under the Part 75 regulations, as well as the
Title V permit. In regard to the Rodemacher Power Station violations,
the CO/NOPP states that a file review of the Rodemacher facility was conducted
on or about September 14, 2007, and that upon the agency’s review of the
Quarterly Stack Emissions Reports required under 40 CFR Part 60 submitted by
Cleco Power, the LDEQ found that Rodemacher Unit 2 exceeded opacity limits at
various times during the second, third and fourth quarters of
2007. Cleco Power has met with the LDEQ in regard to these alleged
violations and is responding to LDEQ’s requests for additional
information. On April 16, 2008, Cleco filed a Request for
Administrative Hearing with the LDEQ with regard to the CO/NOPP, because Cleco
contends that there are several factual errors in the CO/NOPP. On May
15, 2008, Cleco Power and the LDEQ entered into a dispute resolution agreement
to give the parties additional time to discuss resolution of this
CO/NOPP. The parties initially had until September 26, 2008 to
resolve the matter. The agreement was amended to extend the September
26, 2008, deadline until December 15, 2008. Cleco continues to
negotiate a settlement with the LDEQ and anticipates reaching a final agreement
by the new deadline. Cleco is unable to determine what, if any,
action the LDEQ will take with respect to the CO/NOPP.
For
a discussion of other Cleco environmental matters, please read “Business —
Environmental Matters” in the Registrants’ Combined Annual Report on Form 10-K
for the fiscal year ended December 31, 2007.
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2008 3RD QUARTER
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Recent
Accounting Standards
For
a discussion of recent accounting standards, see Item 1, “Notes to the Unaudited
Condensed Consolidated Financial Statements — Note 2 — Recent Accounting
Standards” of this Form 10-Q, which discussion is incorporated herein by
reference.
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 a discussion of Cleco’s
critical accounting policies, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Critical Accounting Policies” in
the Registrant’s Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
CLECO
POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Set
forth below is information concerning the results of operations of Cleco Power
for the three and nine months ended September 30, 2008, and September 30,
2007. The following narrative analysis should be read in combination with
Cleco Power’s Unaudited Condensed Consolidated Financial Statements and the
Notes contained in this Form 10-Q.
Cleco
Power meets the conditions specified in General Instructions H(1)(a) and (b) to
Form 10-Q and is therefore 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 2 (Management’s
Discussion and Analysis of Financial Condition and Results of Operations) and
Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part I of
Form 10-Q and the following Part II items of Form 10-Q: Item 2 (Unregistered
Sales of Equity Securities and Use of Proceeds) and Item 3 (Defaults upon Senior
Securities). Pursuant to the General Instructions, Cleco Power has
included an explanation of the reasons for material changes in the amount of
revenue and expense items of Cleco Power between the first nine months of 2008
and the first nine months of 2007. Reference is made to Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of the Registrants’ Combined Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.
For
an explanation of material changes in the amount of revenue and expense items of
Cleco Power between the third quarter of 2008 and the third quarter of 2007, see
“— Results of Operations — Comparison of the Three Months Ended September 30,
2008, and 2007 — Cleco Power” of this Form 10-Q, which discussion is
incorporated herein by reference.
For
an explanation of material changes in the amount of revenue and expense items of
Cleco Power between the first nine months of 2008 and the first nine months of
2007, see “— Results of Operations — Comparison of the Nine Months Ended
September 30, 2008, and 2007 — Cleco Power” of this Form 10-Q, which discussion
is incorporated herein by reference.
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2008 3RD QUARTER
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ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
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
counterparty. For additional information concerning Cleco’s market
risk associated with its remaining counterparty, see Item 2, “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 takes physical delivery and
the instruments and positions are used to satisfy customer
requirements.
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, by refinancing balances outstanding under its variable-rate credit
facility with fixed-rate debt. Calculations of the changes in fair
market value and interest expense of the debt securities are made over a
one-year period.
Access
to capital markets is a significant source of funding for both short-term and
long-term capital requirements not satisfied by operating cash
flows. Current market conditions have limited the availability and
have increased the costs of capital for some companies. The inability
to raise capital on favorable terms could negatively affect Cleco’s ability to
maintain and expand its businesses. After assessing Cleco’s current
operating performance, liquidity, and credit ratings, management believes that
Cleco will continue for the foreseeable future to have access to the capital
markets at reasonable rates. If Cleco Corporation’s or Cleco Power’s
credit ratings were to be downgraded by Moody’s or by Standard & Poor’s,
Cleco Corporation or Cleco Power, as the case may be, would be required to pay
additional fees and higher interest rates under its bank credit and other debt
agreements.
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 September 30, 2008, Cleco had no short-term variable-rate
debt. However, at September 30, 2008, Cleco Corporation had
borrowings of $48.0 million outstanding, classified as long-term debt, under its
$150.0 million five-year credit facility at an interest rate of
3.02%. The borrowing costs under the facility are equal to LIBOR plus
0.65%, including facility fees. The existing borrowings have 30-day
terms and various maturity dates. If the amounts of the individual
borrowings are renewed at maturity, rather than repaid, each 1% change in the
average interest rates applicable to such debt would result in a change of
approximately $0.5 million in Cleco's annual pre-tax earnings.
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 the General Manager –
Internal Audit, who are appointed by Cleco Corporation’s Board of
Directors. Risk limits are recommended by the Risk Management
Committee and monitored through a daily risk report that identifies the current
VaR, market conditions, and concentration of energy market
transactions.
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 September 30,
2008, the positions had a mark-to-market value of $1.5 million, which is a
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decrease
of $0.5 million from the mark-to-market value of $2.0 million at December 31,
2007. In addition, these positions resulted in a realized gain of
$1.0 million for the nine-month period ended September 30, 2008. 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 customer fuel costs, 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 September 30,
2008, the net mark-to-market impact related to open natural gas positions was a
loss of $31.8 million. Deferred losses relating to closed natural gas
positions at September 30, 2008, totaled $4.0 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 with delta approximation,
assuming a holding period of one day, and 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
the three and nine months ended September 30, 2008, as well as the VaR at
September 30, 2008, and December 31, 2007, is summarized
below:
|
|
FOR
THE THREE MONTHS
ENDED
SEPTEMBER 30, 2008
|
|
(THOUSANDS)
|
|
HIGH
|
|
|
LOW
|
|
|
AVERAGE
|
|
Cleco
Power
|
|
$ |
425.0 |
|
|
$ |
233.8 |
|
|
$ |
321.9 |
|
|
|
FOR
THE NINE MONTHS
ENDED
SEPTEMBER 30, 2008
|
|
|
AT SEPTEMBER 30,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
HIGH
|
|
|
LOW
|
|
|
AVERAGE
|
|
|
2008
|
|
|
2007
|
|
Cleco
Power
|
|
$ |
502.3 |
|
|
$ |
167.3 |
|
|
$ |
328.8 |
|
|
$ |
270.2 |
|
|
$ |
160.1 |
|
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-rate debt obligations. Please
refer to “— Interest Rate Risks” above for a discussion of Cleco Power’s
borrowing under its credit facility and how it monitors its mix of fixed-rate
debt obligations and the manner of calculating changes in fair market value and
interest expense of its debt obligations.
As
of September 30, 2008, 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.
ITEM
4
AND 4T. 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, each of Cleco Corporation’s and Cleco Power’s management has evaluated, as
of the end of the period covered by this report, with the supervision and
participation of each of Cleco Corporation’s and Cleco Power’s chief executive
officer and chief financial officer, the effectiveness of Cleco Corporation’s
and Cleco Power’s disclosure controls and procedures as defined by Rules
13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934 (Disclosure
Controls), as the case may be. Based on that evaluation, such
officers concluded that each of Cleco Corporation’s and Cleco
Power’s disclosure controls were effective as of the date of that
evaluation.
During
Cleco Corporation’s and Cleco Power’s third fiscal quarter of 2008, there
have been no changes in either Cleco Corporation’s or Cleco Power’s
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, respectively, each of Cleco
Corporation’s or Cleco Power’s internal control over financial
reporting.
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PART
II — OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
For
information on legal proceedings affecting Cleco, see Part I, Item 1, “Notes to
the Unaudited Condensed Consolidated Financial Statements — Note 11 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Litigation.”
For
information on legal proceedings affecting Cleco Power, see Part I, Item 1,
“Notes to the Unaudited Condensed Consolidated Financial Statements — Note 11 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Litigation.”
Other
than the changes to the risk factors described below, there have been no
material changes from the risk factors disclosed under the heading “Risk
Factors” in Item 1A of the Registrants’ second quarter Form 10-Q for the
quarterly period ended June 30, 2008 and the Combined Annual Report on Form 10-K
for the fiscal year ended December 31, 2007 (the “2007 Annual Report on Form
10-K”). For risks that 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, see the risk factors disclosed under “Risk
Factors” in Item 1A of the second quarter Form 10-Q for the quarterly period
ended June 30, 2008, and the 2007 Annual Report on Form 10-K. The
risk factors below should be read in conjunction with the risk factors disclosed
in the second quarter Form 10-Q for the quarterly period ended June 30, 2008,
and the 2007 Annual Report on Form 10-K.
Storm
Restoration Cost
The
recovery of costs resulting from Hurricanes Gustav and Ike is subject to LPSC
review and approval, and recovery of some of the costs could be
disallowed.
Restoration
costs incurred by Cleco Power from damage caused by Hurricanes Gustav and Ike
during the third quarter of 2008 are subject to a prudency review by the LPSC in
which Cleco Power will be required to demonstrate that the costs were prudently
incurred. Accordingly, Cleco Power may not be able to recover some of
the storm costs incurred, which could be material.
The
costs will be reviewed by the LPSC as part of Cleco’s pending rate
case. If the LPSC were to deny Cleco Power’s request to recover
substantial restoration costs incurred, such a decision could have a material
adverse effect on the Registrants’ results of operations, financial condition,
and cash flows.
Cleco
Power’s Rates and Rate Case
The
LPSC and the FERC regulate the rates that Cleco Power can charge its
customers. On July 14, 2008, Cleco Power filed a new rate plan for
its rates that is expected to go into effect when Rodemacher Unit 3 starts
commercial operations. The LPSC could disallow the recovery of
material costs or an adequate return on capital.
Cleco
Power’s ongoing financial viability depends on its ability to recover its costs
from its LPSC customers in a timely manner through its LPSC-approved rates and
its ability to pass through to its FERC customers in rates its FERC-authorized
revenue requirements. Cleco Power’s financial viability also depends
on its ability to recover in rates an adequate return on capital, including
long-term debt and equity. If Cleco Power is unable to recover any
material amount of its costs in rates in a timely manner or recover an adequate
return on capital, its results of operations, financial condition and cash flows
could be materially adversely affected.
Cleco
Power’s revenues and earnings are substantially affected by regulatory
proceedings known as rate cases. During those cases, the LPSC
determines Cleco Power’s rate base, depreciation rates, operation and
maintenance costs, and administrative and general costs that Cleco Power may
recover from its retail customers through its rates. These
proceedings may examine, among other things, the prudence of the company's
operation and maintenance practices, level of subject expenditures, allowed
rates of return, and previously incurred capital expenditures. The
LPSC has the authority to disallow costs found not to have been prudently
incurred. These regulatory proceedings typically involve multiple
parties, including governmental bodies and officials, consumer advocacy groups,
and various consumers of energy, who have differing concerns but who have the
common objective of limiting rate increases or reducing rates. Rate
cases generally have long timelines, which may or may not be limited by
statute. Decisions are typically subject to appeal, potentially
leading to additional uncertainty.
Cleco
Power’s current base rates have been extended through the start of Rodemacher
Unit 3. On July 14, 2008, Cleco Power filed a rate plan to establish
new rates to be effective upon commercial operation of the Rodemacher Unit
3. As part of the new rate plan, Cleco Power has requested a return
on equity of 12.25%. Cleco Power’s current base rates
CLECO
CORPORATION |
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CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
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allow
it the opportunity to earn a maximum regulated return on equity of 11.65%, which
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. Seven industrial customers have filed interventions in the
rate case. The rate case is currently in the discovery
phase. Cleco Power currently expects a settlement of the rate case
with new rates to coincide with the commercial operation date of Rodemacher Unit
3, currently projected to be the summer of 2009. Cleco Power
currently is recording AFUDC associated with construction of Rodemacher Unit
3. Once the plant begins commercial operations, Cleco Power will no
longer record AFUDC related to Rodemacher Unit 3. Recovery of the
Rodemacher Unit 3 investment is the largest component in Cleco Power’s general
rate plan that was filed with the LPSC July 14, 2008. If the LPSC
does not increase Cleco Power’s base rates or denies Cleco Power’s request to
recover costs incurred in the construction of Rodemacher Unit 3, Cleco Power’s
results of operations, financial condition, and cash flows could be materially
adversely affected. For additional information on Cleco Power’s rate
case, see Part I, Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Liquidity and
Capital Resources — Regulatory Matters — Cleco Power’s Rate Case.”
Global
Financial Crisis
The
global financial crisis may negatively impact Cleco's business and financial
condition.
The
continued credit crisis and related turmoil in the global financial system may
have an impact on Cleco’s business and financial condition. Cleco may
face significant challenges if conditions in the financial markets do not
improve. Cleco’s ability to access the capital market may be severely
restricted at a time when the company would like, or need, to do so, which could
have a material impact on its ability to fund capital expenditures or debt
service or on the company’s flexibility to react to changing economic and
business conditions. If Cleco Corporation’s or Cleco Power’s credit ratings were
to be downgraded by Moody’s or by Standard & Poor’s, Cleco Corporation or
Cleco Power, as the case may be, would be required to pay additional fees and
higher interest rates under its bank credit and other debt
agreements. The credit crisis could have a material negative impact
on Cleco’s lenders or the company’s customers causing them to fail to meet their
obligations to Cleco or to delay payment of such
obligations. Additionally, the crisis could lead to reduced
electricity usage, which could have a material negative impact on Cleco’s
results of operations and financial condition.
ITEM
5.
OTHER INFORMATION
CLECO
CORPORATION |
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CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
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CLECO
CORPORATION
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3.1
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Bylaws
of Cleco Corporation, revised effective October 1, 2008
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10.1
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First
Amendment to Annual Incentive Compensation Plan, effective as of January
1, 2005
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10.2
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First
Amendment to Cleco Corporation Deferred Compensation Plan, effective as of
January 1, 2005
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10.3
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2000
Long-Term Incentive Compensation Plan, Amendment Number 4, effective as of
January 1, 2005
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10.4
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Supplemental
Executive Retirement Plan amended and restated, effective January 1,
2005
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12(a)
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Computation
of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed
Charges and Preferred Stock Dividends for the three-, nine-, and
twelve-month periods ended September 30, 2008, for Cleco
Corporation
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31.1
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CEO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
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31.2
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CFO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
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32.1
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CEO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
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32.2
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CFO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
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CLECO
POWER
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3.2
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Operating
Agreement of Cleco Power LLC, revised effective October 1,
2008
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12(b)
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Computation
of Ratios of Earnings to Fixed Charges for the three-, nine-, and
twelve-month periods ended September 30, 2008, for Cleco
Power
|
31.3
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CEO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
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31.4
|
CFO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
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32.3
|
CEO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
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32.4
|
CFO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
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CLECO
CORPORATION |
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CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Pursuant
to the requirements 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.
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CLECO
CORPORATION
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(Registrant)
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By: /s/
R. Russell Davis
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R. Russell
Davis
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Vice President, Chief
Accounting Officer & Interim
CFO
|
Date: November
5, 2008
CLECO
CORPORATION |
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CLECO POWER |
2008 3RD QUARTER
FORM 10-Q
|
Pursuant
to the requirements 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.
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CLECO
POWER LLC
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(Registrant)
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By: /s/
R. Russell Davis
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R. Russell
Davis
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Vice President, Chief
Accounting Officer & Interim
CFO
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60