clecocorp10q033109.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 March 31, 2009
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 the Registrants have submitted electronically and
posted on their corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405
of this chapter) during the preceding 12 months (or for such shorter
period that the Registrants were required to submit and post such
files). Yes ¨ 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 April
30, 2009
|
|
|
|
Cleco
Corporation
|
Common
Stock, $1.00 Par Value
|
60,401,529
|
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 |
2009 1ST 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
|
7
|
|
Cleco
Power — Condensed Consolidated Financial Statements
|
13
|
|
Notes
to the Unaudited Condensed Consolidated Financial
Statements
|
17
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
34
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
46
|
ITEM
4 and 4T.
|
Controls
and Procedures
|
47
|
|
|
|
PART
II
|
Other
Information
|
|
ITEM
1.
|
Legal
Proceedings
|
48
|
ITEM
1A.
|
Risk
Factors
|
48
|
ITEM
6.
|
Exhibits
|
49
|
|
Signatures
|
50
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST 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
|
AICPA
|
American
Institute of Certified Public Accountants
|
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
|
APH
|
Acadia
Power Holdings LLC, a wholly owned subsidiary of
Midstream
|
Attala
|
Attala
Transmission LLC, a wholly owned subsidiary of Cleco
Corporation. Prior to February 1, 2007, Attala was a wholly
owned subsidiary of Midstream.
|
Bear
Energy
|
BE
Louisiana LLC, an indirect wholly owned subsidiary of JPMorgan Chase &
Co. In September 2008, BE Louisiana LLC was merged into
JPMVEC.
|
Bear
Stearns Companies Inc.
|
The
parent company of Bear, Stearns & Co. Inc.
|
CES
|
Calpine
Energy Services, L.P.
|
Cleco
Energy
|
Cleco
Energy LLC, a wholly owned subsidiary of Midstream
|
Cleco
Innovations LLC
|
A
wholly owned subsidiary of Cleco Corporation
|
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. 08-5
|
Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third Party
Credit Enhancement
|
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
|
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. In September 2008, BE Louisiana LLC was merged into
JPMVEC.
|
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
|
FIN
45
|
Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others
|
FIN
46R
|
Consolidation
of Variable Interest Entities – an Interpretation of Accounting Research
Bulletin No. 51 (revised December 2003)
|
FIN
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 Shared Based Payment Transactions Are
Participating Securities
|
FSP
No. FAS 107-1 and APB 28-1
|
Interim
Disclosures about Fair Value of Financial Instruments
|
FSP
No. FAS 115-2 and FAS 124-2
|
Recognition
and Presentation of Other-Than-Temporary Impairments
|
FSP
No. FAS 132(R)-1
|
Employers’
Disclosures about Postretirement Benefit Plan Assets
|
FSP
No. FAS 141(R)-1
|
Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies
|
FSP
No. FAS 142-3
|
Determining
the Useful Life of Intangible Assets
|
FSP
No. FAS 157-2
|
Effective
date of FASB Statement No. 157
|
FSP
No. FAS 157-4
|
Determining
Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
|
FSP
No. FIN 39-1
|
Amendment
of FASB Interpretation No. 39
|
GAAP
|
Generally
Accepted Accounting Principles in the United
States
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
ABBREVIATION
OR ACRONYM
|
DEFINITION
|
GO
Zone
|
Gulf
Opportunity Zone Act of 2005 (Public Law 109-135)
|
ICT
|
Independent
Coordinator of Transmission
|
Interconnection
Agreement
|
One
of two Interconnection Agreement and Real Estate Agreements, one between
Attala and Entergy Mississippi, and the other between Perryville and
Entergy Louisiana
|
IRP
|
Integrated
Resource Planning
|
IRS
|
Internal
Revenue Service
|
JPMVEC
|
J.P.
Morgan Ventures Energy Corporation. In September 2008, Bear
Energy was merged into JPMVEC.
|
kWh
|
Kilowatt-hour(s)
as applicable
|
LIBOR
|
London
Inter-Bank Offer Rate
|
Lignite
Mining Agreement
|
Dolet
Hills Mine Lignite Mining Agreement, dated as of May 31,
2001
|
LPSC
|
Louisiana
Public Service Commission
|
LTICP
|
Cleco
Corporation Long-Term Incentive Compensation Plan
|
Midstream
|
Cleco
Midstream Resources LLC, a wholly owned subsidiary of Cleco
Corporation
|
MMBtu
|
Million
British thermal units
|
Moody’s
|
Moody’s
Investors Service
|
MW
|
Megawatt(s)
as applicable
|
Not
meaningful
|
A
percentage comparison of these items is not statistically meaningful
because the percentage difference is greater than
1,000%.
|
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.
|
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. 5
|
Accounting
for Contingencies
|
SFAS
No. 71
|
Accounting
for the Effects of Certain Types of Regulation
|
SFAS
No. 107
|
Disclosures
about Fair Value of Financial Instruments
|
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. 132(R)
|
Employers’
Disclosures about Postretirement Benefit Plan Assets
|
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. 161
|
Disclosures
about Derivative Instruments and Hedging Activities
|
Shaw
|
Shaw
Contractors, Inc., a subsidiary of The Shaw Group Inc.
|
SWEPCO
|
Southwestern
Electric Power Company, a wholly owned subsidiary of American Electric
Power Company, Inc.
|
Williams
|
Williams
Power Company, Inc.
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST 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; JPMVEC’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 the IRP and RFP processes, the
formation of the RTOs and the ICTs, and the compliance with the ERO
reliability standards for bulk power systems by Cleco Power, Acadia, and
Evangeline;
|
§
|
Financial
or regulatory accounting principles or policies imposed by FASB, the SEC,
the PCAOB, 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;
|
§
|
The
current global financial crisis and U.S.
recession;
|
§
|
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;
|
§
|
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, including Rodemacher Unit 3 and the joint project
to upgrade the Acadiana Load Pocket transmission
system;
|
§
|
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.
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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 the Registrants’
Combined Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
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 |
2009 1ST QUARTER
FORM 10-Q
|
PART
I — FINANCIAL INFORMATION
ITEM
1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2008. 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 |
2009 1ST QUARTER
FORM 10-Q
|
Condensed Consolidated
Statements of Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
|
|
2009
|
|
|
2008
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
202,865 |
|
|
$ |
209,881 |
|
Other operations
|
|
|
7,109 |
|
|
|
10,064 |
|
Affiliate
revenue
|
|
|
2,962 |
|
|
|
2,606 |
|
Operating
revenue
|
|
|
212,936 |
|
|
|
222,551 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
88,303 |
|
|
|
45,536 |
|
Power purchased for utility
customers
|
|
|
45,718 |
|
|
|
89,794 |
|
Other operations
|
|
|
24,951 |
|
|
|
22,275 |
|
Maintenance
|
|
|
10,559 |
|
|
|
10,113 |
|
Depreciation
|
|
|
19,134 |
|
|
|
19,547 |
|
Taxes other than income
taxes
|
|
|
7,033 |
|
|
|
8,831 |
|
Gain on sales of
assets
|
|
|
- |
|
|
|
(99 |
) |
Total operating
expenses
|
|
|
195,698 |
|
|
|
195,997 |
|
Operating
income
|
|
|
17,238 |
|
|
|
26,554 |
|
Interest
income
|
|
|
411 |
|
|
|
1,617 |
|
Allowance
for other funds used during construction
|
|
|
16,991 |
|
|
|
13,683 |
|
Equity
loss from investees
|
|
|
(11,751 |
) |
|
|
(4,574 |
) |
Other
income
|
|
|
1,285 |
|
|
|
66 |
|
Other
expense
|
|
|
(1,095 |
) |
|
|
(669 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium, and discount, net of capitalized
interest
|
|
|
21,316 |
|
|
|
14,121 |
|
Allowance for borrowed funds
used during construction
|
|
|
(6,213 |
) |
|
|
(4,577 |
) |
Total interest
charges
|
|
|
15,103 |
|
|
|
9,544 |
|
Income
before income taxes
|
|
|
7,976 |
|
|
|
27,133 |
|
Federal
and state income tax expense
|
|
|
1,326 |
|
|
|
5,061 |
|
Net
income
|
|
|
6,650 |
|
|
|
22,072 |
|
Preferred
dividends requirements, net of tax
|
|
|
12 |
|
|
|
12 |
|
Net
income applicable to common stock
|
|
$ |
6,638 |
|
|
$ |
22,060 |
|
Average
shares of common stock outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,097,929 |
|
|
|
59,907,896 |
|
Diluted
|
|
|
60,366,170 |
|
|
|
60,083,024 |
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
0.11 |
|
|
$ |
0.37 |
|
Net income applicable to common
stock
|
|
$ |
0.11 |
|
|
$ |
0.37 |
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
$ |
0.11 |
|
|
$ |
0.37 |
|
Net income applicable to common
stock
|
|
$ |
0.11 |
|
|
$ |
0.37 |
|
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 |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Net
income
|
|
$ |
6,650 |
|
|
$ |
22,072 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Net unrealized loss from
available-for-sale securities (net of tax benefit of $9 in
2008)
|
|
|
- |
|
|
|
(14 |
) |
Amortization of post-retirement
benefit net losses (net of tax benefit of $14 in 2009 and $7 in
2008)
|
|
|
1 |
|
|
|
(4 |
) |
Other
comprehensive income (loss)
|
|
|
1 |
|
|
|
(18 |
) |
Comprehensive
income, net of tax
|
|
$ |
6,651 |
|
|
$ |
22,054 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
|
|
AT
MARCH 31, 2009
|
|
|
AT
DECEMBER 31, 2008
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
85,956 |
|
|
$ |
97,483 |
|
Restricted cash
|
|
|
30,500 |
|
|
|
62,311 |
|
Customer accounts receivable
(less allowance for doubtful accounts of $1,931 in 2009 and $1,632 in
2008)
|
|
|
29,968 |
|
|
|
40,677 |
|
Accounts receivable –
affiliate
|
|
|
1,112 |
|
|
|
3,428 |
|
Other accounts
receivable
|
|
|
28,358 |
|
|
|
34,209 |
|
Taxes
receivable
|
|
|
19,675 |
|
|
|
13,663 |
|
Unbilled
revenue
|
|
|
14,854 |
|
|
|
19,713 |
|
Fuel inventory, at average
cost
|
|
|
60,185 |
|
|
|
57,221 |
|
Material and supplies
inventory, at average cost
|
|
|
38,406 |
|
|
|
37,547 |
|
Risk management
assets
|
|
|
5,643 |
|
|
|
368 |
|
Accumulated deferred
fuel
|
|
|
61,446 |
|
|
|
69,154 |
|
Cash surrender value of
company-/trust-owned life insurance policies
|
|
|
22,854 |
|
|
|
22,934 |
|
Prepayments
|
|
|
2,463 |
|
|
|
3,751 |
|
Regulatory assets -
other
|
|
|
2,553 |
|
|
|
2,553 |
|
Other current
assets
|
|
|
1,027 |
|
|
|
1,367 |
|
Total current
assets
|
|
|
405,000 |
|
|
|
466,379 |
|
Property, plant and
equipment
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
2,054,054 |
|
|
|
2,015,269 |
|
Accumulated
depreciation
|
|
|
(960,183 |
) |
|
|
(948,581 |
) |
Net property, plant and
equipment
|
|
|
1,093,871 |
|
|
|
1,066,688 |
|
Construction work in
progress
|
|
|
1,020,857 |
|
|
|
978,598 |
|
Total property, plant and
equipment, net
|
|
|
2,114,728 |
|
|
|
2,045,286 |
|
Equity investment in
investees
|
|
|
244,619 |
|
|
|
249,144 |
|
Prepayments
|
|
|
5,667 |
|
|
|
6,067 |
|
Restricted cash
|
|
|
44,492 |
|
|
|
40,671 |
|
Regulatory assets and
liabilities – deferred taxes, net
|
|
|
189,701 |
|
|
|
174,804 |
|
Regulatory assets –
other
|
|
|
159,260 |
|
|
|
158,206 |
|
Intangible asset
|
|
|
165,195 |
|
|
|
167,826 |
|
Other deferred
charges
|
|
|
35,265 |
|
|
|
32,821 |
|
Total assets
|
|
$ |
3,363,927 |
|
|
$ |
3,341,204 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited) (Continued)
(THOUSANDS)
|
|
AT
MARCH 31, 2009
|
|
|
AT
DECEMBER 31, 2008
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Long-term debt due within one
year
|
|
$ |
61,087 |
|
|
$ |
63,546 |
|
Accounts
payable
|
|
|
63,265 |
|
|
|
117,337 |
|
Retainage
|
|
|
8 |
|
|
|
12,734 |
|
Accounts payable –
affiliate
|
|
|
2,554 |
|
|
|
8,229 |
|
Customer
deposits
|
|
|
27,864 |
|
|
|
27,155 |
|
Interest
accrued
|
|
|
17,472 |
|
|
|
16,787 |
|
Accumulated current deferred
taxes, net
|
|
|
64,681 |
|
|
|
64,838 |
|
Risk management liability,
net
|
|
|
30,431 |
|
|
|
30,109 |
|
Regulatory liabilities -
other
|
|
|
261 |
|
|
|
392 |
|
Deferred
compensation
|
|
|
5,157 |
|
|
|
5,118 |
|
Other current
liabilities
|
|
|
11,360 |
|
|
|
14,588 |
|
Total current
liabilities
|
|
|
284,140 |
|
|
|
360,833 |
|
Deferred credits
|
|
|
|
|
|
|
|
|
Accumulated deferred federal
and state income taxes, net
|
|
|
373,659 |
|
|
|
373,825 |
|
Accumulated deferred investment
tax credits
|
|
|
10,953 |
|
|
|
11,286 |
|
Postretirement benefit
obligations
|
|
|
154,001 |
|
|
|
155,910 |
|
Regulatory liabilities -
other
|
|
|
101,227 |
|
|
|
85,496 |
|
Restricted storm
reserve
|
|
|
27,486 |
|
|
|
27,411 |
|
Uncertain tax
positions
|
|
|
74,860 |
|
|
|
76,124 |
|
Other deferred
credits
|
|
|
96,120 |
|
|
|
82,635 |
|
Total deferred
credits
|
|
|
838,306 |
|
|
|
812,687 |
|
Long-term debt,
net
|
|
|
1,186,220 |
|
|
|
1,106,819 |
|
Total
liabilities
|
|
|
2,308,666 |
|
|
|
2,280,339 |
|
Commitments
and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Not subject to mandatory
redemption, $100 par value, authorized 1,491,900 shares, issued 10,288
shares at
March 31, 2009 and December 31,
2008, respectively
|
|
|
1,029 |
|
|
|
1,029 |
|
Common shareholders’
equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value,
authorized 100,000,000 shares, issued 60,189,654 and 60,066,345 shares and
outstanding 60,167,322
and 60,042,514 shares at
March 31, 2009 and December 31, 2008, respectively
|
|
|
60,190 |
|
|
|
60,066 |
|
Premium on common
stock
|
|
|
395,747 |
|
|
|
394,517 |
|
Retained
earnings
|
|
|
608,525 |
|
|
|
615,514 |
|
Treasury stock, at
cost, 22,332 and 23,831 shares at March 31, 2009 and December
31, 2008, respectively
|
|
|
(398 |
) |
|
|
(428 |
) |
Accumulated other comprehensive
loss
|
|
|
(9,832 |
) |
|
|
(9,833 |
) |
Total common shareholders’
equity
|
|
|
1,054,232 |
|
|
|
1,059,836 |
|
Total shareholders’
equity
|
|
|
1,055,261 |
|
|
|
1,060,865 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
3,363,927 |
|
|
$ |
3,341,204 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Operating
activities
|
|
|
|
|
|
|
Net income
|
|
$ |
6,650 |
|
|
$ |
22,072 |
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
31,683 |
|
|
|
20,160 |
|
Gain on sale of
assets
|
|
|
- |
|
|
|
(99 |
) |
Provision for doubtful
accounts
|
|
|
726 |
|
|
|
680 |
|
Loss from equity
investments
|
|
|
11,751 |
|
|
|
4,574 |
|
Unearned compensation
expense
|
|
|
1,655 |
|
|
|
448 |
|
Allowance for other funds used
during construction
|
|
|
(16,991 |
) |
|
|
(13,683 |
) |
Amortization of investment tax
credits
|
|
|
(333 |
) |
|
|
(345 |
) |
Net deferred income
taxes
|
|
|
(10,480 |
) |
|
|
(10,563 |
) |
Deferred fuel
costs
|
|
|
24,151 |
|
|
|
(9,471 |
) |
Loss (gain) on economic
hedges
|
|
|
1,144 |
|
|
|
(1,770 |
) |
Cash surrender value of
company-/trust-owned life insurance
|
|
|
484 |
|
|
|
227 |
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
14,113 |
|
|
|
(4,654 |
) |
Accounts and notes receivable,
affiliate
|
|
|
2,316 |
|
|
|
1,781 |
|
Unbilled
revenue
|
|
|
4,859 |
|
|
|
1,193 |
|
Fuel, materials and supplies
inventory
|
|
|
(3,823 |
) |
|
|
(2,632 |
) |
Prepayments
|
|
|
1,687 |
|
|
|
1,301 |
|
Accounts
payable
|
|
|
(50,319 |
) |
|
|
(15,804 |
) |
Accounts and notes payable,
affiliate
|
|
|
(5,965 |
) |
|
|
809 |
|
Customer
deposits
|
|
|
1,833 |
|
|
|
1,262 |
|
Post retirement benefit
obligation
|
|
|
(1,909 |
) |
|
|
(662 |
) |
Regulatory assets and
liabilities, net
|
|
|
14,451 |
|
|
|
12,030 |
|
Other deferred
accounts
|
|
|
(8,313 |
) |
|
|
12,278 |
|
Retainage
payable
|
|
|
(12,725 |
) |
|
|
5,120 |
|
Taxes accrued
|
|
|
(5,974 |
) |
|
|
9,215 |
|
Interest
accrued
|
|
|
685 |
|
|
|
(9,378 |
) |
Risk management assets and
liabilities, net
|
|
|
(20,992 |
) |
|
|
5,506 |
|
Other operating
|
|
|
(2,906 |
) |
|
|
(278 |
) |
Net cash (used in) provided by
operating activities
|
|
|
(22,542 |
) |
|
|
29,317 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(66,468 |
) |
|
|
(107,187 |
) |
Allowance for other funds used
during construction
|
|
|
16,991 |
|
|
|
13,683 |
|
Proceeds from sale of property,
plant and equipment
|
|
|
130 |
|
|
|
140 |
|
Equity investment in
investees
|
|
|
(10,794 |
) |
|
|
- |
|
Premiums paid on
company-/trust-owned life insurance
|
|
|
(405 |
) |
|
|
(514 |
) |
Settlements received from
insurance policies
|
|
|
- |
|
|
|
941 |
|
Transfer of cash from (to)
restricted accounts
|
|
|
27,989 |
|
|
|
(43,200 |
) |
Other investing
|
|
|
- |
|
|
|
632 |
|
Net cash used in investing
activities
|
|
|
(32,557 |
) |
|
|
(135,505 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Retirement of long-term
obligations
|
|
|
(8,501 |
) |
|
|
(140,178 |
) |
Issuance of long-term
debt
|
|
|
65,000 |
|
|
|
240,434 |
|
Deferred financing
costs
|
|
|
- |
|
|
|
(745 |
) |
Dividends paid on preferred
stock
|
|
|
(12 |
) |
|
|
(12 |
) |
Dividends paid on common
stock
|
|
|
(13,538 |
) |
|
|
(13,501 |
) |
Other financing
|
|
|
623 |
|
|
|
111 |
|
Net cash provided by financing
activities
|
|
|
43,572 |
|
|
|
86,109 |
|
Net
decrease in cash and cash equivalents
|
|
|
(11,527 |
) |
|
|
(20,079 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
97,483 |
|
|
|
129,013 |
|
Cash
and cash equivalents at end of period
|
|
$ |
85,956 |
|
|
$ |
108,934 |
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
Interest paid (net of amount
capitalized)
|
|
$ |
16,295 |
|
|
$ |
10,362 |
|
Income taxes
paid
|
|
$ |
7,018 |
|
|
$ |
12,059 |
|
Supplementary
non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Issuance of treasury stock –
LTICP
|
|
$ |
30 |
|
|
$ |
25 |
|
Issuance of common stock –
LTICP/ESPP
|
|
$ |
71 |
|
|
$ |
53 |
|
Accrued additions to property,
plant and equipment not reported above
|
|
$ |
12,082 |
|
|
$ |
28,186 |
|
Incurrence of capital lease
obligation - barges
|
|
$ |
22,050 |
|
|
$ |
- |
|
Repayment of capital lease
obligation - barges
|
|
$ |
(245 |
) |
|
$ |
- |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
PART
I — FINANCIAL INFORMATION
ITEM
1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2008. 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 |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Income (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Operating
revenue
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
202,865 |
|
|
$ |
209,881 |
|
Other operations
|
|
|
7,086 |
|
|
|
10,061 |
|
Affiliate
revenue
|
|
|
348 |
|
|
|
508 |
|
Operating
revenue
|
|
|
210,299 |
|
|
|
220,450 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Fuel used for electric
generation
|
|
|
88,303 |
|
|
|
45,536 |
|
Power purchased for utility
customers
|
|
|
45,718 |
|
|
|
89,794 |
|
Other operations
|
|
|
23,420 |
|
|
|
20,915 |
|
Maintenance
|
|
|
9,428 |
|
|
|
9,193 |
|
Depreciation
|
|
|
18,845 |
|
|
|
19,214 |
|
Taxes other than income
taxes
|
|
|
7,709 |
|
|
|
7,813 |
|
Total operating
expenses
|
|
|
193,423 |
|
|
|
192,465 |
|
Operating
income
|
|
|
16,876 |
|
|
|
27,985 |
|
Interest
income
|
|
|
403 |
|
|
|
577 |
|
Allowance
for other funds used during construction
|
|
|
16,991 |
|
|
|
13,683 |
|
Other
income
|
|
|
1,287 |
|
|
|
101 |
|
Other
expense
|
|
|
(1,603 |
) |
|
|
(345 |
) |
Interest
charges
|
|
|
|
|
|
|
|
|
Interest charges, including
amortization of debt expenses, premium, and discount
|
|
|
21,349 |
|
|
|
12,012 |
|
Allowance for borrowed funds
used during construction
|
|
|
(6,213 |
) |
|
|
(4,577 |
) |
Total interest
charges
|
|
|
15,136 |
|
|
|
7,435 |
|
Income
before income taxes
|
|
|
18,818 |
|
|
|
34,566 |
|
Federal
and state income taxes
|
|
|
3,800 |
|
|
|
6,958 |
|
Net
income
|
|
$ |
15,018 |
|
|
$ |
27,608 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
|
|
AT
MARCH 31, 2009
|
|
|
AT DECEMBER 31,
2008
|
|
Assets
|
|
|
|
|
|
|
Utility plant and
equipment
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
$ |
2,037,896 |
|
|
$ |
1,999,119 |
|
Accumulated
depreciation
|
|
|
(948,881 |
) |
|
|
(937,568 |
) |
Net property, plant and
equipment
|
|
|
1,089,015 |
|
|
|
1,061,551 |
|
Construction work in
progress
|
|
|
1,019,464 |
|
|
|
977,377 |
|
Total utility plant,
net
|
|
|
2,108,479 |
|
|
|
2,038,928 |
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
77,109 |
|
|
|
91,542 |
|
Restricted cash
|
|
|
30,500 |
|
|
|
62,311 |
|
Customer accounts receivable
(less allowance for doubtful accounts of $1,931 in 2009 and $1,632 in
2008)
|
|
|
29,968 |
|
|
|
40,677 |
|
Other accounts
receivable
|
|
|
27,312 |
|
|
|
34,130 |
|
Taxes
receivable
|
|
|
- |
|
|
|
5,992 |
|
Accounts receivable –
affiliate
|
|
|
1,733 |
|
|
|
2,059 |
|
Unbilled
revenue
|
|
|
14,854 |
|
|
|
19,713 |
|
Fuel inventory, at average
cost
|
|
|
60,185 |
|
|
|
57,221 |
|
Material and supplies
inventory, at average cost
|
|
|
38,406 |
|
|
|
37,547 |
|
Risk management
assets
|
|
|
5,643 |
|
|
|
368 |
|
Prepayments
|
|
|
2,036 |
|
|
|
3,099 |
|
Regulatory assets –
other
|
|
|
2,553 |
|
|
|
2,553 |
|
Accumulated deferred
fuel
|
|
|
61,446 |
|
|
|
69,154 |
|
Cash surrender value of life
insurance policies
|
|
|
5,672 |
|
|
|
5,563 |
|
Other current
assets
|
|
|
660 |
|
|
|
1,144 |
|
Total current
assets
|
|
|
358,077 |
|
|
|
433,073 |
|
Prepayments
|
|
|
5,667 |
|
|
|
6,067 |
|
Restricted cash, less current
portion
|
|
|
44,396 |
|
|
|
40,574 |
|
Regulatory assets and
liabilities – deferred taxes, net
|
|
|
189,701 |
|
|
|
174,804 |
|
Regulatory assets –
other
|
|
|
159,260 |
|
|
|
158,206 |
|
Intangible asset
|
|
|
165,195 |
|
|
|
167,826 |
|
Other deferred
charges
|
|
|
24,178 |
|
|
|
22,119 |
|
Total
assets
|
|
$ |
3,054,953 |
|
|
$ |
3,041,597 |
|
Liabilities
and member’s equity
|
|
|
|
|
|
|
|
|
Member’s equity
|
|
$ |
944,106 |
|
|
$ |
929,178 |
|
Long-term debt,
net
|
|
|
1,091,220 |
|
|
|
1,076,819 |
|
Total
capitalization
|
|
|
2,035,326 |
|
|
|
2,005,997 |
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Long-term debt due within one
year
|
|
|
61,087 |
|
|
|
63,546 |
|
Accounts payable
|
|
|
61,163 |
|
|
|
109,450 |
|
Accounts payable –
affiliate
|
|
|
5,346 |
|
|
|
7,536 |
|
Retainage
|
|
|
8 |
|
|
|
12,734 |
|
Customer
deposits
|
|
|
27,864 |
|
|
|
27,155 |
|
Taxes accrued
|
|
|
33,197 |
|
|
|
- |
|
Interest accrued
|
|
|
17,818 |
|
|
|
16,762 |
|
Accumulated deferred taxes,
net
|
|
|
65,936 |
|
|
|
67,233 |
|
Risk management liability,
net
|
|
|
30,431 |
|
|
|
30,109 |
|
Regulatory liabilities -
other
|
|
|
261 |
|
|
|
392 |
|
Other current
liabilities
|
|
|
9,055 |
|
|
|
10,200 |
|
Total current
liabilities
|
|
|
312,166 |
|
|
|
345,117 |
|
Deferred
credits
|
|
|
|
|
|
|
|
|
Accumulated deferred federal and
state income taxes, net
|
|
|
335,546 |
|
|
|
337,148 |
|
Accumulated deferred investment
tax credits
|
|
|
10,953 |
|
|
|
11,286 |
|
Postretirement benefit
obligations
|
|
|
125,736 |
|
|
|
128,373 |
|
Regulatory liabilities -
other
|
|
|
101,227 |
|
|
|
85,496 |
|
Restricted storm
reserve
|
|
|
27,486 |
|
|
|
27,411 |
|
Uncertain tax
positions
|
|
|
53,448 |
|
|
|
54,306 |
|
Other deferred
credits
|
|
|
53,065 |
|
|
|
46,463 |
|
Total deferred
credits
|
|
|
707,461 |
|
|
|
690,483 |
|
Total
liabilities and member’s equity
|
|
$ |
3,054,953 |
|
|
$ |
3,041,597 |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Operating
activities
|
|
|
|
|
|
|
Net income
|
|
$ |
15,018 |
|
|
$ |
27,608 |
|
Adjustments to reconcile net
income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
21,840 |
|
|
|
19,684 |
|
Provision for doubtful
accounts
|
|
|
726 |
|
|
|
675 |
|
Unearned compensation
expense
|
|
|
358 |
|
|
|
70 |
|
Allowance for other funds used
during construction
|
|
|
(16,991 |
) |
|
|
(13,683 |
) |
Amortization of investment tax
credits
|
|
|
(333 |
) |
|
|
(345 |
) |
Net deferred income
taxes
|
|
|
(12,595 |
) |
|
|
(10,365 |
) |
Deferred fuel
costs
|
|
|
24,151 |
|
|
|
(9,471 |
) |
Loss (gain) on economic
hedges
|
|
|
1,144 |
|
|
|
(1,770 |
) |
Cash surrender value of
company-owned life insurance
|
|
|
(109 |
) |
|
|
(107 |
) |
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
15,080 |
|
|
|
(4,770 |
) |
Accounts and notes receivable,
affiliate
|
|
|
447 |
|
|
|
14,782 |
|
Unbilled
revenue
|
|
|
4,859 |
|
|
|
1,193 |
|
Fuel, materials and supplies
inventory
|
|
|
(3,823 |
) |
|
|
(2,632 |
) |
Prepayments
|
|
|
1,461 |
|
|
|
1,053 |
|
Accounts
payable
|
|
|
(44,605 |
) |
|
|
(12,547 |
) |
Accounts and notes payable,
affiliate
|
|
|
(2,349 |
) |
|
|
(8,397 |
) |
Customer
deposits
|
|
|
1,833 |
|
|
|
1,262 |
|
Post retirement benefit
obligations
|
|
|
(2,637 |
) |
|
|
(233 |
) |
Regulatory assets and
liabilities, net
|
|
|
14,451 |
|
|
|
11,601 |
|
Other deferred
accounts
|
|
|
(8,574 |
) |
|
|
8,321 |
|
Retainage
payable
|
|
|
(12,725 |
) |
|
|
5,120 |
|
Taxes accrued
|
|
|
39,189 |
|
|
|
8,617 |
|
Interest
accrued
|
|
|
1,055 |
|
|
|
(7,899 |
) |
Risk management assets and
liabilities, net
|
|
|
(20,992 |
) |
|
|
5,506 |
|
Other operating
|
|
|
(633 |
) |
|
|
(582 |
) |
Net cash provided by operating
activities
|
|
|
15,246 |
|
|
|
32,691 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(66,289 |
) |
|
|
(107,061 |
) |
Allowance for other funds used
during construction
|
|
|
16,991 |
|
|
|
13,683 |
|
Proceeds from sale of property,
plant and equipment
|
|
|
130 |
|
|
|
140 |
|
Premiums paid on company-owned
life insurance
|
|
|
- |
|
|
|
(309 |
) |
Transfer of cash from (to)
restricted accounts
|
|
|
27,989 |
|
|
|
(43,199 |
) |
Other investing
|
|
|
1 |
|
|
|
- |
|
Net cash used in investing
activities
|
|
|
(21,178 |
) |
|
|
(136,746 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Retirement of long-term
obligations
|
|
|
(8,501 |
) |
|
|
(140,178 |
) |
Issuance of long-term
debt
|
|
|
- |
|
|
|
240,434 |
|
Deferred financing
costs
|
|
|
- |
|
|
|
(745 |
) |
Net cash (used in) provided by
financing activities
|
|
|
(8,501 |
) |
|
|
99,511 |
|
Net
decrease in cash and cash equivalents
|
|
|
(14,433 |
) |
|
|
(4,544 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
91,542 |
|
|
|
11,944 |
|
Cash
and cash equivalents at end of period
|
|
$ |
77,109 |
|
|
$ |
7,400 |
|
Supplementary
cash flow information
|
|
|
|
|
|
|
|
|
Interest paid (net of amount
capitalized)
|
|
$ |
16,055 |
|
|
$ |
10,361 |
|
Income taxes
paid
|
|
$ |
7,000 |
|
|
$ |
- |
|
Supplementary
non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Accrued additions to property,
plant and equipment not reported above
|
|
$ |
12,082 |
|
|
$ |
28,186 |
|
Incurrence of capital lease
obligation – barges
|
|
$ |
22,050 |
|
|
$ |
- |
|
Repayment of capital lease
obligation – barges
|
|
$ |
(245 |
) |
|
$ |
- |
|
The
accompanying notes are an integral part of the condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST 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
|
Regulatory
Assets and Liabilities
|
Cleco
Corporation and Cleco Power
|
Note
4
|
Fair
Value Accounting
|
Cleco
Corporation and Cleco Power
|
Note
5
|
Debt
|
Cleco
Corporation and Cleco Power
|
Note
6
|
Pension
Plan and Employee Benefits
|
Cleco
Corporation and Cleco Power
|
Note
7
|
Income
Taxes
|
Cleco
Corporation and Cleco Power
|
Note
8
|
Disclosures
about Segments
|
Cleco
Corporation
|
Note
9
|
Equity
Investment in Investees
|
Cleco
Corporation
|
Note
10
|
Litigation,
Other Commitments and Contingencies, and Disclosures about
Guarantees
|
Cleco
Corporation and Cleco Power
|
Note
11
|
Affiliate
Transactions
|
Cleco
Corporation and Cleco Power
|
Note
12
|
Intangible
Asset
|
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. Cleco has determined that it is not the primary beneficiary of
Evangeline, Perryville, Attala, and Acadia. Cleco determined it was
not the primary beneficiary by examining all interests that could absorb
expected losses and expected gains. This examination used assumptions
about the expected rate of inflation, changes in the market price of natural gas
as compared to the market price of electricity, length of contracts, variability
of revenue stream as compared to variability of expenses, and maximum exposure
to loss. 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 9 — “Equity Investment in Investees.”
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; however, 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.”
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 March 31, 2009, and December 31, 2008, $75.0
million and $103.0 million of cash, respectively, were restricted. At
March 31, 2009, restricted cash consisted of $0.1 million under the Diversified
Lands mitigation escrow agreement, $6.3 million held in escrow for the
construction of Cleco Power’s solid waste disposal facilities at Rodemacher Unit
3, $37.0 million reserved at Cleco Power for GO Zone project costs, $27.6
million reserved at Cleco Power for future storm restoration costs, and $4.0
million at Cleco Katrina/Rita restricted for payment of operating expenses,
interest and principal on storm recovery bonds.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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 4 — “Fair Value Accounting.”
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 on different energy
exchanges. Cleco’s Energy Market Risk Management Policy authorizes
the use of various derivative instruments, including exchange traded futures and
option contracts, forward purchase and sales contracts, and swap transactions to
reduce exposure to fluctuations in the price of power 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 94% 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 months ended March 31, 2009, there was a
net mark-to-market loss of $1.2 million and a realized loss of $0.3 million,
recorded in other operations revenue related to these economic hedge
transactions. For the same period in 2008, Cleco Power had a net
mark-to-market gain of $1.8 million and realized gains of $0.1
million. Cleco Power could experience
realized losses in future periods as natural gas or power is purchased to meet
its contractual obligations.
Cleco
Power has entered into other positions to mitigate the volatility in customer
fuel costs. These positions are marked-to-market with the resulting
gain or loss recorded on the balance sheet as a component of the accumulated
deferred fuel asset or liability and a component of risk management assets or
liabilities. When these positions close, actual gains or losses will
be included in the fuel adjustment clause and reflected on customers’ bills as a
component of the fuel cost adjustment. Based on market prices at
March 31, 2009, and December 31, 2008, the net mark-to-market impact relating to
these positions were losses of $72.7 million and $57.4 million,
respectively. The increased loss is due to lower gas prices at March
31, 2009, compared to December 31, 2008. Deferred losses relating to
closed natural gas positions at March 31, 2009 and December 31, 2008, totaled
$6.8 million and $6.4 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 March 31, 2009, and December 31, 2008, Cleco
Power had deposited collateral of $33.0 million and $16.5 million, respectively,
to cover margin requirements relating to open natural gas futures, options, and
swap positions.
Cleco
and Cleco Power maintain a master netting agreement policy and monitor credit
risk exposure through review of counterparty credit quality, counterparty credit
exposure, and counterparty concentration levels. Cleco 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.
For
more information on accounting for derivatives, see Note 4 — “Fair Value
Accounting.”
Earnings
per Average Common Share
The
following table shows the calculation of basic and diluted earnings per
share.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
|
|
|
|
|
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
(THOUSANDS,
EXCEPT SHARES AND PER SHARE AMOUNTS)
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
|
INCOME
|
|
|
SHARES
|
|
|
PER
SHARE
AMOUNT
|
|
Income
from continuing operations
|
|
$ |
6,650 |
|
|
|
|
|
|
|
|
$ |
22,072 |
|
|
|
|
|
|
|
Deduct: non-participating
stock dividends (4.5% preferred stock)
|
|
|
12 |
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
6,638 |
|
|
|
|
|
$ |
0.11 |
|
|
$ |
22,060 |
|
|
|
|
|
$ |
0.37 |
|
Total
basic net income applicable to common stock
|
|
$ |
6,638 |
|
|
|
60,097,929 |
|
|
$ |
0.11 |
|
|
$ |
22,060 |
|
|
|
59,907,896 |
|
|
$ |
0.37 |
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: stock
option grants
|
|
|
|
|
|
|
31,062 |
|
|
|
|
|
|
|
|
|
|
|
61,527 |
|
|
|
|
|
Add: restricted
stock (LTICP)
|
|
|
|
|
|
|
237,179 |
|
|
|
|
|
|
|
|
|
|
|
113,601 |
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations plus assumed conversions
|
|
$ |
6,638 |
|
|
|
|
|
|
$ |
0.11 |
|
|
$ |
22,060 |
|
|
|
|
|
|
$ |
0.37 |
|
Total
diluted net income applicable to common stock
|
|
$ |
6,638 |
|
|
|
60,366,170 |
|
|
$ |
0.11 |
|
|
$ |
22,060 |
|
|
|
60,083,024 |
|
|
$ |
0.37 |
|
During
the first quarter of 2009, Cleco implemented FSP EITF No. 03-6-1 in connection
with calculating basic earnings per share. For additional information
on Cleco’s implementation of FSP EITF No. 03-6-1, see Note 2 — “Recent
Accounting Standards.”
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 of diluted earnings
per share for the three months ended March 31, 2008, due to the average market
price being higher than the exercise prices of the stock
options. Stock option grants excluded from the computation for the
three months ended March 31, 2009 are presented in the table below.
|
FOR
THE THREE MONTHS ENDED MARCH 31, 2009
|
|
STRIKE
PRICE
|
|
AVERAGE
MARKET
PRICE
|
|
SHARES
|
Stock
option grants excluded
|
$22.25
- $24.25
|
|
$21.97
|
|
149,034
|
Employee
Stock Purchase Plan
In
July 2000, Cleco Corporation’s Board of Directors ratified the adoption of a
procedure providing for the automatic reinvestment of dividends (the “DRIP
Feature”) received with
respect
to the stock held by participants in the ESPP. At that time, the
Board of Directors reserved 20,000 shares of common stock (40,000 after giving
effect for a 2-for-1 stock split) for issuance pursuant to the DRIP
Feature. In January 2009, the Board of Directors approved and
authorized an additional 50,000 shares of common stock to be reserved for
issuance under the DRIP Feature of the ESPP.
Stock-Based
Compensation
At
March 31, 2009, 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 30, 2009, Cleco granted 97,149 shares of non-vested stock and 74,253
common stock equivalent units to certain officers, key employees and directors
of Cleco Corporation and its subsidiaries pursuant to the
LTICP.
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
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Equity
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
stock
|
|
$ |
575 |
|
|
$ |
359 |
|
|
$ |
159 |
|
|
$ |
64 |
|
Stock
options
|
|
|
13 |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
588 |
|
|
$ |
373 |
|
|
$ |
159 |
|
|
$ |
64 |
|
Liability
classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock equivalent units
|
|
$ |
963 |
|
|
$ |
(10 |
) |
|
$ |
415 |
|
|
$ |
6 |
|
Total
|
|
$ |
963 |
|
|
$ |
(10 |
) |
|
$ |
415 |
|
|
$ |
6 |
|
Total
pre-tax compensation expense
|
|
$ |
1,551 |
|
|
$ |
363 |
|
|
$ |
574 |
|
|
$ |
70 |
|
Tax
benefit (excluding income tax gross-up)
|
|
$ |
597 |
|
|
$ |
223 |
|
|
$ |
221 |
|
|
$ |
43 |
|
Note
2 — Recent Accounting Standards
The
Registrants adopted, or will adopt, the recent accounting standards listed below
on their respective effective dates.
In
April 2008, 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 did not have an impact on the financial condition
or results of operations of the Registrants.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
In
June 2008, FASB issued FSP EITF No. 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 retrospectively to conform
to this FSP. Early adoption of this FSP is prohibited. The
implementation of this FSP did not have an impact on the financial condition
or results of operations of the Registrants.
In
September 2008, 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. The implementation of this FSP did not have an impact on
the financial condition or results of operations of the
Registrants.
In
December 2008, FASB announced the implementation of the FASB Accounting
Standards Codification which will become the single source of authoritative
nongovernmental GAAP and will supersede existing FASB, AICPA, EITF and related
literature. The thousands of GAAP pronouncements will be reorganized
into roughly 90 accounting topics which will be displayed in a consistent
format. The Codification structure is expected to be effective after
June 30, 2009.
In
December 2008, FASB issued FSP No. FAS 132(R)-1 which amends SFAS No.
132(R) which provides guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan. This FSP also
includes a technical amendment to SFAS No. 132(R) that requires a nonpublic
entity to disclose net periodic benefit cost for each annual period for which a
statement of income is presented. This FSP is effective for the first
fiscal year ending after December 15, 2009. Since the adoption of
this FSP is only a change in disclosure, the adoption of the FSP will not have
any effect on the financial condition or results of operations of the
Registrants.
In
February 2009, the SEC issued its final rules requiring public companies to
provide the SEC with supplemental financial information in interactive data
format using eXtensible Business Reporting Language, or XBRL. The
information will be provided as an exhibit to the related SEC
filing. This requirement will be phased in over a three-year period,
beginning
as early as the fiscal period ending on or after June 15, 2009.
On
April 9, 2009, FASB issued FSP No. FAS 115-2 and FAS 124-2 which amend the
other-than-temporary impairment guidance in GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. If the fair value of a debt security is less than its
amortized value, this FSP requires companies to asses whether the impairment is
recognized depending on a combination of its intent to sell the security and its
ability to hold the security until recovery of its amortized cost
basis. If an entity intends to sell the debt security or it is more
likely than not the entity will be required to sell the security, an other than
temporary impairment is considered to have occurred and an impairment expense
equal to the difference between fair market value and amortized costs should be
recognized. If an entity does not intend to sell the security and it
is not more likely than not the entity will be required to sell the security,
then the entity will only recognize the credit loss as an
expense. The amount of loss relating to other factors will be
recognized as a reduction in other comprehensive income. This FSP
also includes guidance on calculating credit loss and additional
disclosures. This FSP shall be effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. Management is currently evaluating the
impact this FSP will have on the financial condition and results of operations
of the Registrants.
On
April 9, 2009, FASB issued FSP No. FAS 157-4 which provides additional guidance
for estimating fair value in accordance with SFAS No. 157 when the volume and
level of activity for the asset or liability have significantly
decreased. This FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This FSP
applies to all assets and liabilities within the scope of SFAS No.
157. When weighing indications of fair value resulting from the use of
multiple valuation techniques, a reporting entity shall consider the
reasonableness of the range of fair value estimates. The objective is
to determine the point within that range that is most representative of fair
value under current market conditions. A reporting entity shall evaluate
the circumstances to determine whether the transaction is orderly based on the
weight of the evidence. In its determinations, a reporting entity
need not undertake all possible efforts, but shall not ignore information that
is available without undue cost and effort. A reporting entity would
be expected to have sufficient information to conclude whether a transaction is
orderly when it is party to the transaction. This FSP shall be effective
for interim and annual reporting periods ending after June 15, 2009, and shall
be applied prospectively. Early adoption is permitted for periods
ending after March 15, 2009. This FSP does not require disclosures
for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial
adoption. Management is currently
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
evaluating
the impact this FSP will have on the financial condition and results of
operations of the Registrants.
On
February 12, 2008, FASB issued 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.
On
April 9, 2009, FASB issued FSP No. FAS 107-1 and APB 28-1 which require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies. This FSP applies to all financial
instruments within the scope of SFAS No. 107 held by publicly traded
companies. A publicly traded company shall include disclosures about
the fair value of its financial instruments whenever it issues summarized
financial information for interim reporting periods. This FSP shall
be effective for interim reporting periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. An entity
may early adopt this FSP only if it also elects to early adopt FSP No. FAS
157-4, FSP No. FAS 115-2 and FAS 124-2. This FSP does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial
adoption. Since the adoption of this FSP is only a change in
disclosure, the adoption of the FSP will not have any effect on the financial
condition or results of operation of the Registrants.
On
April 1, 2009, FASB issued FSP No. FAS 141(R)-1 which amends and clarifies SFAS
No. 141(R) to address application issues raised by preparers, auditors, and
members of the legal profession on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This FSP
applies to all assets acquired and liabilities assumed in a business combination
that arise from contingencies that would be within the scope of SFAS No. 5 if
not acquired or assumed in a business combination, except for assets or
liabilities arising from contingencies that are subject to specific guidance in
SFAS No. 141(R). An acquirer shall develop a systematic and rational basis
for subsequently measuring and accounting for assets and liabilities arising
from contingencies depending on their nature. An acquirer shall
disclose information that enables users of its financial statements to evaluate
the nature and financial effects of a business combination that occurs either
during the current reporting period or after the reporting period but before the
financial statements are issued. This FSP shall be effective for
assets or liabilities arising from contingencies in 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. The
adoption of this FSP had no impact on the financial condition or results of
operations of the Registrants.
Note
3 — Regulatory Assets and Liabilities
Cleco
Power follows SFAS No. 71, which allows utilities to capitalize or defer certain
costs based on regulatory approval and management’s ongoing assessment that it
is probable these items will be recovered through the ratemaking
process.
The
following chart summarizes Cleco Power’s regulatory assets and liabilities at
March 31, 2009, and December 31, 2008:
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Regulatory
assets and liabilities – deferred taxes, net
|
|
$ |
189,701 |
|
|
$ |
174,804 |
|
Deferred
mining costs
|
|
$ |
26,127 |
|
|
$ |
26,811 |
|
Deferred
interest costs
|
|
|
7,685 |
|
|
|
7,779 |
|
Deferred
asset removal costs
|
|
|
671 |
|
|
|
658 |
|
Deferred
postretirement plan costs
|
|
|
111,732 |
|
|
|
112,213 |
|
Deferred
tree trimming costs
|
|
|
7,432 |
|
|
|
5,915 |
|
Deferred
training costs
|
|
|
2,955 |
|
|
|
2,520 |
|
Deferred
storm surcredit, net
|
|
|
5,211 |
|
|
|
4,863 |
|
Total regulatory assets –
other
|
|
$ |
161,813 |
|
|
$ |
160,759 |
|
Deferred
fuel transportation revenue
|
|
$ |
(261 |
) |
|
$ |
(392 |
) |
Deferred
construction carrying costs
|
|
|
(101,227 |
) |
|
|
(85,496 |
) |
Regulatory liabilities -
other
|
|
$ |
(101,488 |
) |
|
$ |
(85,888 |
) |
Deferred
fuel and purchased power
|
|
|
61,446 |
|
|
|
69,154 |
|
Total regulatory assets and
liabilities, net
|
|
$ |
311,472 |
|
|
$ |
318,829 |
|
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. At March 31, 2009, Cleco Power had
regulatory assets and liabilities – deferred taxes, net of $189.7
million. The $14.9 million increase is primarily the result of the
collection and deferral of carrying costs for Cleco Power’s construction of
Rodemacher Unit 3.
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 on July 14, 2008. At March 31, 2009, Cleco Power had deferred $7.4
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
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
technology
for new employees at Rodemacher Unit 3. Normally these types of training
costs would be expensed as incurred; however, this LPSC order allows Cleco Power
to defer the training costs and seek recovery in rates when Rodemacher Unit 3
goes into service. At March 31, 2009, Cleco Power had deferred $3.0
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 ratepayers with 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.
Cleco
Power also was allowed to record a corresponding regulatory asset in an amount
representing the flow back of the carrying charges to
ratepayers. This amount is being amortized over the life of the 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.
As
a result of the settlement with the LPSC, Cleco Power was required to implement
a surcredit when funds were withdrawn from the restricted storm
reserve. In October 2008, Cleco Power withdrew funds from the
restricted storm reserve to pay for damage caused by Hurricanes Gustav and Ike
resulting in the establishment of a surcredit. However, rather than
refunding this amount, Cleco Power requested and received approval from the LPSC
to replenish the restricted storm reserve. At March 31, 2009, Cleco
Power had $5.2 million in deferred storm surcredit, net.
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-month periods ended March 31, 2009, and 2008,
Cleco Power collected $15.7 million and $11.8 million,
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
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 March 31, 2009,
approximately 97% of Cleco Power’s total fuel cost was regulated by the LPSC,
while the remainder was regulated by FERC. Deferred fuel and
purchased power costs recorded at March 31, 2009, and December 31, 2008, were
under-recoveries of $61.4 million and $69.2 million, respectively, and are
scheduled to be collected from customers in future months. The $7.8
million decrease in the unrecovered funds was primarily the result of the
collection of $23.5 million in additional fuel and purchased power
costs. The decrease was partially offset by a $15.3 million decrease
in the market value of open natural gas hedge positions and a $0.4 million loss
on closed natural gas hedge positions, both due to a decrease in natural gas
prices since December 31, 2008.
For
additional information on Cleco Power’s treatment of natural gas hedges, see
Note 1 — “Summary of Significant Accounting Policies — Risk
Management.”
Note
4 — Fair Value Accounting
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
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
CLECO
CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
USING:
|
|
(THOUSANDS)
|
|
AT MARCH
31, 2009
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
ASSETS
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
|
AT
DECEMBER 31, 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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,687 |
|
|
$ |
- |
|
|
$ |
3,687 |
|
|
$ |
- |
|
Institutional money market
funds
|
|
|
157,665 |
|
|
|
- |
|
|
|
157,665 |
|
|
|
- |
|
|
|
204,789 |
|
|
|
- |
|
|
|
204,789 |
|
|
|
- |
|
Total
|
|
$ |
157,665 |
|
|
$ |
- |
|
|
$ |
157,665 |
|
|
$ |
- |
|
|
$ |
208,476 |
|
|
$ |
- |
|
|
$ |
208,476 |
|
|
$ |
- |
|
CLECO
CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
USING:
|
|
(THOUSANDS)
|
|
AT MARCH
31, 2009
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
LIABILITIES
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
|
AT
DECEMBER 31, 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
|
|
$ |
74,042 |
|
|
$ |
21,196 |
|
|
$ |
52,846 |
|
|
$ |
- |
|
|
$ |
61,295 |
|
|
$ |
13,757 |
|
|
$ |
47,538 |
|
|
$ |
- |
|
CLECO
POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:
|
|
(THOUSANDS)
|
|
AT MARCH
31, 2009
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
ASSETS
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
|
AT
DECEMBER 31, 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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,687 |
|
|
$ |
- |
|
|
$ |
3,687 |
|
|
$ |
- |
|
Institutional money market
funds
|
|
|
149,265 |
|
|
|
- |
|
|
|
149,265 |
|
|
|
- |
|
|
|
198,989 |
|
|
|
- |
|
|
|
198,989 |
|
|
|
- |
|
Total
|
|
$ |
149,265 |
|
|
$ |
- |
|
|
$ |
149,265 |
|
|
$ |
- |
|
|
$ |
202,676 |
|
|
$ |
- |
|
|
$ |
202,676 |
|
|
$ |
- |
|
CLECO
POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:
|
|
(THOUSANDS)
|
|
AT MARCH
31, 2009
|
|
|
QUOTED
PRICES IN
ACTIVE MARKETS
FOR
IDENTICAL
LIABILITIES
(LEVEL
1)
|
|
|
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL
2)
|
|
|
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL
3)
|
|
|
AT
DECEMBER 31, 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
|
|
$ |
74,042 |
|
|
$ |
21,196 |
|
|
$ |
52,846 |
|
|
$ |
- |
|
|
$ |
61,295 |
|
|
$ |
13,757 |
|
|
$ |
47,538 |
|
|
$ |
- |
|
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 March 31, 2009, a net
current risk management asset of $5.6 million represented current deferred
options. At March 31, 2009, a net current risk management liability
of $30.4 million represented the current derivative positions of $57.8 million
reduced by current margin deposits of $27.4 million. The non-current
liability derivative positions of $16.3 million, reduced by non-current margin
deposits of $5.6 million were recorded in other deferred charges. The
$157.7 million in institutional money market funds was reported on the Cleco
Consolidated balance sheet in cash and cash equivalents, current restricted
cash, and non-current restricted cash in the amounts of $82.8 million, $30.5
million, and $44.4 million, respectively. At Cleco Power, cash and
cash equivalents, current restricted cash, and restricted non-current cash
contained $74.4 million, $30.5 million, and $44.4 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 three assets or liabilities at March 31, 2009.
SFAS
No. 161
SFAS
No. 161 became effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. SFAS No. 161 requires
enhanced disclosures about a company’s derivative activities and how the related
hedged items affect a company’s financial
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
position,
financial performance and cash flows. To meet the disclosure requirements,
SFAS No. 161 requires qualitative disclosures about Cleco’s fair value amounts
of gains and losses associated with derivative instruments, as well as
disclosures about credit-risk-related contingent features in derivative
agreements. Cleco elected to report such activities for the period ended
March 31, 2009.
The
following table presents the fair values of derivative instruments and their
respective line item as recorded on the balance sheet at March 31,
2009:
|
DERIVATIVES
NOT DESIGNATED AS HEDGING INSTRUMENTS
|
|
LIABILITY
DERIVATIVES
|
(THOUSANDS)
AT
MARCH 31, 2009
|
BALANCE
SHEET LINE ITEM
|
|
FAIR
VALUE
|
Commodity
contracts
|
|
|
|
Economic
hedges:
|
|
|
|
Current
|
Risk
management liability, net
|
|
$
1,159
|
Long-term
|
Other
deferred credits
|
|
222
|
Fuel
cost hedges:
|
|
|
|
Current
|
Risk
management liability, net
|
|
56,625
|
Long-term
|
Other
deferred credits
|
|
16,036
|
Total
|
|
|
$
74,042
|
The
following table presents the effect of derivatives not designated as hedging
instruments on net income for the three months ended March 31,
2009:
(THOUSANDS)
THREE
MONTHS ENDED MARCH 31, 2009
|
LOSS
IN INCOME OF DERIVATIVES LINE ITEM
|
|
AMOUNT
OF LOSS RECOGNIZED IN INCOME ON DERIVATIVES
|
Commodity
contracts
|
|
|
|
Economic hedges
|
Energy
hedging, net
|
|
$ 1,491(1)
|
Fuel cost hedges(2)
|
Fuel
used for electric generation
|
|
42,213
|
Total
|
|
|
$
43,704
|
(1)In 2009, Cleco recognized $1.2 million of
mark-to-market losses related to economic
hedges.
|
(2)In accordance with SFAS No. 71,
an additional
$72.7 million of
unrealized losses and
$6.8 million of deferred losses associated with fuel cost hedges are
reported in Accumulated Deferred Fuel on the balance
sheet. As
gains and losses are realized in future periods, they will be recorded as
Fuel Used for Electric Generation on the Income
Statement. For more information, see Note 3 — Regulatory Assets and
Liabilities — Deferred Fuel and Purchased Power Costs.
|
At
March 31, 2009, Cleco had 2,345 MMBtus of natural gas fuel cost hedge contracts,
which is approximately 30% of the natural gas requirements for a two-year
period. Cleco had an additional 86 MMBtus hedged through 2010,
resulting from economic hedges, which is approximately 94% of the estimated
daily peak-hour sales to a wholesale customer.
Cleco
had no short-term debt outstanding at March 31, 2009 or December 31,
2008. At March 31, 2009, Cleco’s long-term debt outstanding was $1.2
billion, of which $61.1 million was due within one year, compared to $1.2
billion outstanding at December 31, 2008, which included $63.5 million due
within one year. The long-term debt due within one year at March 31, 2009
represents $50.0 million of medium-term notes which mature in May 2009 and $11.1
million of principal payments for the Cleco Katrina/Rita storm recovery bonds
scheduled to be paid in the next twelve months. For Cleco, long-term debt
increased $76.9 million primarily due to a $65.0 million increase in Cleco’s
credit facility draws and a $20.4 million increase in long-term capital leases.
These increases were partially offset by $8.4 million related to a
scheduled Cleco Katrina/Rita storm recovery bond principal payment made in March
2009. During January 2009, Cleco Power entered into a lease agreement
for barges to be used for fuel transportation for Rodemacher Unit
3. For additional information, see Note 10 — “Litigation,
Other Commitments and Contingencies and Disclosures about Guarantees — Other
Contingencies — Fuel Transportation Agreement.”
Cleco
Power had no short-term debt outstanding at March 31, 2009 or December 31,
2008. At March 31, 2009, Cleco Power’s long-term debt outstanding was
$1.2 billion, of which $61.1 million was due within one year, compared to $1.1
billion outstanding at December 31, 2008, of which $63.5 million was due within
one year. The long-term debt due within one year at March 31, 2009 represents
$50.0 million of medium-term notes which mature in May 2009 and $11.1 million of
principal payments for the Cleco Katrina/Rita storm recovery bonds scheduled to
be paid in the next twelve months. For Cleco Power, long-term debt increased
$11.9 million primarily due to a $20.4 million increase in long-term capital
leases, partially offset by $8.4 million related to a scheduled Cleco
Katrina/Rita storm recovery bond principal payment made in March
2009. During January 2009, Cleco Power entered into a lease agreement
for barges to be used for fuel transportation for Rodemacher Unit
3. For additional information, see Note 10 — “Litigation,
Other Commitments and Contingencies and Disclosures about Guarantees — Other
Contingencies — Fuel Transportation Agreement.”
Note
6 — Pension Plan and Employee Benefits
Pension
Plan and Other Benefits Plan
Most
employees hired before August 1, 2007 are covered by a noncontributory, defined
benefit pension plan. Benefits under the plan reflect an employee’s years
of service, age at retirement, and highest total average compensation for any
consecutive five calendar years during the last 10 years of employment with
Cleco Corporation. Cleco Corporation’s policy is to base its contributions
to the employee pension plan upon actuarial computations utilizing the projected
unit credit method, subject to the IRS’s full funding
limitation. During the three months ended March 31, 2009, a
discretionary contribution in the amount of $3.7 million was made to the pension
plan. Additional discretionary contributions may be made during 2009;
however, the decision to make any additional contributions and the amount, if
any, has not been determined. Currently, Cleco Power expects to be
required to make $80.0 million in contributions to the pension plan over the
next five years. The required contributions are driven by liability
funding target percentages set by law which could cause the required
contributions to be uneven among the years. The ultimate amount and
timing of the contributions will be affected by changes in the discount rate,
changes in the
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
funding
regulations, and actual returns on fund assets. Cleco Power is
considered the plan sponsor, and Support Group is considered the plan
administrator.
Cleco
Corporation’s retirees and their dependents are eligible to receive medical,
dental, vision, and life insurance benefits (other benefits). Cleco
Corporation recognizes the expected cost of these other benefits during the
periods in which the benefits are earned.
The
components of net periodic pension and other benefit cost for the three months
ended March 31, 2009, and 2008, are as follows:
|
|
PENSION
BENEFITS
|
|
|
OTHER
BENEFITS
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
1,730 |
|
|
$ |
1,409 |
|
|
$ |
353 |
|
|
$ |
344 |
|
Interest cost
|
|
|
4,095 |
|
|
|
3,935 |
|
|
|
495 |
|
|
|
479 |
|
Expected return on plan
assets
|
|
|
(5,074 |
) |
|
|
(5,043 |
) |
|
|
- |
|
|
|
- |
|
Transition obligation
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Prior period service credit
(cost)
|
|
|
481 |
|
|
|
(18 |
) |
|
|
(516 |
) |
|
|
(516 |
) |
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
232 |
|
|
|
210 |
|
Net periodic benefit
cost
|
|
$ |
1,232 |
|
|
$ |
283 |
|
|
$ |
569 |
|
|
$ |
522 |
|
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 both three-month periods ended March 31,
2009, and 2008, was $0.4 million.
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 in Cleco Power’s Condensed Consolidated Statements of
Income for both three-month periods ended March 31, 2009, and 2008 was $0.5
million, net of the estimated Medicare Part D subsidy of $0.1
million.
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, SERP Plan or Cleco contributions under the
enhanced 401(k) Plan to the extent such contributions exceed the limits of the
401(k) 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 the SERP participants’ life insurance
benefits, as well as future SERP payments. However, since this is a
non-qualified plan, the assets of the trust could be used to satisfy general
creditors of Cleco Power in the event of insolvency. All SERP
benefits are paid out of the general cash available of the respective companies
from which the officer retired. No contributions to the SERP were
made during the three months ended March 31, 2009, and 2008. 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 MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Components
of periodic benefit costs
|
|
|
|
|
|
|
Service
cost
|
|
$ |
375 |
|
|
$ |
340 |
|
Interest
cost
|
|
|
700 |
|
|
|
474 |
|
Prior
period service cost
|
|
|
13 |
|
|
|
13 |
|
Net
loss
|
|
|
254 |
|
|
|
164 |
|
Net
periodic benefit cost
|
|
$ |
1,342 |
|
|
$ |
991 |
|
The
SERP liabilities are reported on the individual subsidiaries’ financial
statements. The expense related to the SERP reflected on Cleco
Power’s Consolidated Statements of Income for both three-month periods
ended March 31, 2009 and 2008 was $0.3 million.
401(k) Plan
Most
employees are eligible to participate in the 401(k) Plan. 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. Beginning January 2008, Cleco
Corporation made matching contributions and funded dividend reinvestments with
cash.
The
table below contains information about the 401(k) Plan.
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
401(k)
Plan expense
|
|
$ |
1,139 |
|
|
$ |
1,011 |
|
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 both
three-month periods ended March 31, 2009, and 2008, was $0.3 million.
The
following table summarizes the effective income tax rates for Cleco Corporation
and Cleco Power for the three-month periods ended March 31, 2009, and March 31,
2008.
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cleco
Corporation
|
|
|
16.6 |
% |
|
|
18.7 |
% |
Cleco
Power
|
|
|
20.2 |
% |
|
|
20.1 |
% |
For
the three months ended March 31, 2009 and 2008, 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
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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. As Cleco is presently under federal and
state audits for fiscal years 2001 through 2007, it is reasonably possible that
unrecognized tax benefits could change significantly over the next twelve
months. Cleco does not expect that any such change would have a
material impact on its annual effective tax rate.
Note
8 — 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 2009 that will be presented to and are expected to be approved by
Cleco Corporation’s Board of Directors during the second quarter of
2009.
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.
SEGMENT
INFORMATION FOR THE THREE MONTHS ENDED MARCH 31,
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2009 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
202,865 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
202,865 |
|
Other operations
|
|
|
7,086 |
|
|
|
- |
|
|
|
25 |
|
|
|
(2 |
) |
|
|
7,109 |
|
Affiliate
revenue
|
|
|
6 |
|
|
|
2,363 |
|
|
|
593 |
|
|
|
- |
|
|
|
2,962 |
|
Intercompany
revenue
|
|
|
342 |
|
|
|
- |
|
|
|
10,101 |
|
|
|
(10,443 |
) |
|
|
- |
|
Operating
revenue
|
|
$ |
210,299 |
|
|
$ |
2,363 |
|
|
$ |
10,719 |
|
|
$ |
(10,445 |
) |
|
$ |
212,936 |
|
Depreciation
expense
|
|
$ |
18,845 |
|
|
$ |
45 |
|
|
$ |
244 |
|
|
$ |
- |
|
|
$ |
19,134 |
|
Interest
charges
|
|
$ |
15,136 |
|
|
$ |
1,300 |
|
|
$ |
(36 |
) |
|
$ |
(1,297 |
) |
|
$ |
15,103 |
|
Interest
income
|
|
$ |
403 |
|
|
$ |
- |
|
|
$ |
1,305 |
|
|
$ |
(1,297 |
) |
|
$ |
411 |
|
Equity
(loss) income from investees
|
|
$ |
- |
|
|
$ |
(12,150 |
) |
|
$ |
399 |
|
|
$ |
- |
|
|
$ |
(11,751 |
) |
Federal
and state income tax expense (benefit)
|
|
$ |
3,800 |
|
|
$ |
(5,418 |
) |
|
$ |
2,944 |
|
|
$ |
- |
|
|
$ |
1,326 |
|
Segment
profit (loss) (1)
|
|
$ |
15,018 |
|
|
$ |
(8,652 |
) |
|
$ |
284 |
|
|
$ |
- |
|
|
$ |
6,650 |
|
Additions
to long-lived assets
|
|
$ |
61,436 |
|
|
$ |
4 |
|
|
$ |
176 |
|
|
$ |
- |
|
|
$ |
61,616 |
|
Equity
investment in investees
|
|
$ |
- |
|
|
$ |
229,345 |
|
|
$ |
15,274 |
|
|
$ |
- |
|
|
$ |
244,619 |
|
Total
segment assets
|
|
$ |
3,054,953 |
|
|
$ |
251,511 |
|
|
$ |
377,842 |
|
|
$ |
(320,379 |
) |
|
$ |
3,363,927 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
6,650 |
|
|
|
|
|
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
requirements, net of tax
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
6,638 |
|
|
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
|
|
CLECO
|
|
|
|
|
|
RECONCILING
|
|
|
|
|
|
|
|
2008 (THOUSANDS)
|
|
POWER
|
|
|
MIDSTREAM
|
|
|
ITEMS
|
|
|
ELIMINATIONS
|
|
|
CONSOLIDATED
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
operations
|
|
$ |
209,881 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
209,881 |
|
Other operations
|
|
|
10,061 |
|
|
|
- |
|
|
|
6 |
|
|
|
(3 |
) |
|
|
10,064 |
|
Affiliate
revenue
|
|
|
7 |
|
|
|
1,918 |
|
|
|
681 |
|
|
|
- |
|
|
|
2,606 |
|
Intercompany
revenue
|
|
|
501 |
|
|
|
- |
|
|
|
9,482 |
|
|
|
(9,983 |
) |
|
|
- |
|
Operating
revenue, net
|
|
$ |
220,450 |
|
|
$ |
1,918 |
|
|
$ |
10,169 |
|
|
$ |
(9,986 |
) |
|
$ |
222,551 |
|
Depreciation
expense
|
|
$ |
19,214 |
|
|
$ |
76 |
|
|
$ |
257 |
|
|
$ |
- |
|
|
$ |
19,547 |
|
Interest
charges
|
|
$ |
7,435 |
|
|
$ |
1,969 |
|
|
$ |
2,120 |
|
|
$ |
(1,980 |
) |
|
$ |
9,544 |
|
Interest
income
|
|
$ |
577 |
|
|
$ |
- |
|
|
$ |
3,020 |
|
|
$ |
(1,980 |
) |
|
$ |
1,617 |
|
Equity
(loss) income from investees
|
|
$ |
- |
|
|
$ |
(5,013 |
) |
|
$ |
439 |
|
|
$ |
- |
|
|
$ |
(4,574 |
) |
Federal
and state income tax expense (benefit)
|
|
$ |
6,958 |
|
|
$ |
(2,803 |
) |
|
$ |
906 |
|
|
$ |
- |
|
|
$ |
5,061 |
|
Segment
profit (loss) (1)
|
|
$ |
27,608 |
|
|
$ |
(4,616 |
) |
|
$ |
(920 |
) |
|
$ |
- |
|
|
$ |
22,072 |
|
Additions
to long-lived assets
|
|
$ |
105,068 |
|
|
$ |
2 |
|
|
$ |
123 |
|
|
$ |
- |
|
|
$ |
105,193 |
|
Equity
investment in investees (2)
|
|
$ |
- |
|
|
$ |
234,273 |
|
|
$ |
14,871 |
|
|
$ |
- |
|
|
$ |
249,144 |
|
Total
segment assets (2)
|
|
$ |
3,041,597 |
|
|
$ |
250,882 |
|
|
$ |
324,232 |
|
|
$ |
(275,507 |
) |
|
$ |
3,341,204 |
|
(1)Reconciliation
of segment profit to consolidated profit:
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
$ |
22,072 |
|
|
|
|
|
(2)Balances
as of December 31, 2008
|
|
Unallocated
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
requirements, net of tax
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Net
income applicable to common stock
|
|
|
$ |
22,060 |
|
|
|
|
|
Note
9 — 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 at March 31, 2009 represents primarily Midstream’s
$180.4 million investment in Acadia, owned 50% by APH and 50% by Cajun, and its
$48.9 million investment in Evangeline, owned 100% by Midstream. Equity
investment in investees also represents a $7.6 million investment in Attala and
a $7.7 million equity investment in Perryville, both owned 100% by Cleco
Corporation. Equity investments which are less than 100% owned by
Cleco Innovations LLC represent less than $0.1 million of the total
balance.
The
following table presents the equity (loss) income from each investment accounted
for using the equity method.
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Acadia
|
|
$ |
(5,216 |
) |
|
$ |
(3,370 |
) |
Evangeline
|
|
|
(6,934 |
) |
|
|
(1,643 |
) |
Other
subsidiaries 100% owned by Cleco
Corporation
|
|
|
399 |
|
|
|
439 |
|
Total equity loss
|
|
$ |
(11,751 |
) |
|
$ |
(4,574 |
) |
Acadia
Since
Acadia is owned 50% by APH and 50% by Cajun, neither owner is the primary
beneficiary, and Acadia is accounted for as an equity method
investment. Cleco’s current assessment of its maximum exposure to
loss related to Acadia at March 31, 2009, consists of its equity investment
of $180.4 million. The table below presents the components of Midstream's
equity investment in Acadia.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Contributed
assets (cash and land)
|
|
$ |
265,956 |
|
|
$ |
259,019 |
|
Income
before taxes
|
|
|
155,228 |
|
|
|
160,444 |
|
Impairment
of investment
|
|
|
(45,847 |
) |
|
|
(45,847 |
) |
Capitalized
interest and other
|
|
|
19,722 |
|
|
|
19,722 |
|
Less: non-cash
distribution
|
|
|
78,200 |
|
|
|
78,200 |
|
Less: cash
distributions
|
|
|
136,464 |
|
|
|
136,464 |
|
Total equity investment in
investee
|
|
$ |
180,395 |
|
|
$ |
178,674 |
|
The
$78.2 million non-cash distribution is the distribution of the CES claim from
Acadia to APH. The cash distributions of $136.5 million were used to
pay interest and repay principal on a loan from Cleco Corporation relating to
this investment. Midstream’s equity, as reported on the balance sheet
of Acadia at March 31, 2009, was $206.5 million. The difference
between the $206.5 million and the equity investment in investee of $180.4
million as shown in the previous table 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
following tables contain summarized financial information for
Acadia.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Current
assets
|
|
$ |
13,086 |
|
|
$ |
5,413 |
|
Property,
plant and equipment, net
|
|
|
405,722 |
|
|
|
405,565 |
|
Total assets
|
|
$ |
418,808 |
|
|
$ |
410,978 |
|
Current
liabilities
|
|
$ |
5,768 |
|
|
$ |
1,380 |
|
Partners’
capital
|
|
|
413,040 |
|
|
|
409,598 |
|
Total liabilities and partners’
capital
|
|
$ |
418,808 |
|
|
$ |
410,978 |
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Total
revenue
|
|
$ |
4,204 |
|
|
$ |
7,768 |
|
Total
operating expenses
|
|
|
12,194 |
|
|
|
14,884 |
|
Other
(expense) income
|
|
|
(2,441 |
) |
|
|
60 |
|
Loss before
taxes
|
|
$ |
(10,431 |
) |
|
$ |
(7,056 |
) |
Income
taxes recorded on APH’s financial statements related to Midstream’s 50%
ownership interest in Acadia were benefits of $2.6 million and $2.2 million
for the three months ended March 31, 2009, and 2008, respectively.
In
2009, Cleco Power announced Acadia was selected as the winning bidder in Cleco
Power’s 2007 long-term request for capacity beginning in 2010. Cleco
Power will own and operate one of Acadia’s two 580-MW units. Cleco
Power will also operate the second unit on behalf of Acadia. Prior to
closing the transaction, valued at approximately $300 million, Cleco Power must
complete its due diligence, finalize and execute definitive agreements, and
receive approvals from the LPSC and FERC. In a process that remains
under the supervision of an independent monitor appointed by the LPSC, Cleco
Power and Acadia plan to complete the transaction by the end of 2009 with Cleco
Power operating the plant beginning in January 2010.
Evangeline
Since
its inception, Cleco has had 100% ownership and voting interest of
Evangeline. Through an analysis of variable interests, such as
Cleco’s investment, the long-term debt, the tolling counterparty, and the
potential to absorb expected losses and gains, Cleco has determined that it is
not the primary beneficiary. The determination is driven by several
factors such as:
§
|
The
tolling counterparty is at risk to absorb market losses and gains, which
are primarily determined by the relative price of electricity and natural
gas.
|
§
|
The
debt is non-recourse to Cleco; therefore, the debt-holders main security
is the underlying assets of
Evangeline.
|
§
|
Cleco’s
risk of loss is limited to its investment plus the $15.0 million letter of
credit issued on behalf of the tolling
counterparty.
|
§
|
The
size of Evangeline’s debt compared to the size of Cleco’s investment at
risk.
|
Since
Cleco is not the primary beneficiary, Evangeline is accounted for as an equity
method investment.
Cleco’s
current assessment of its maximum exposure to loss related to Evangeline at
March 31, 2009, consists of its equity investment of $48.9 million and $15.0
million of possible draws on the letter of credit Cleco has posted on
Evangeline’s behalf, for a total of $63.9 million. The following
table presents the components of Midstream's equity investment in
Evangeline.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Contributed
assets (cash)
|
|
$ |
43,580 |
|
|
$ |
49,961 |
|
Net
income
|
|
|
144,664 |
|
|
|
151,599 |
|
Less: non-cash
distributions
|
|
|
10,239 |
|
|
|
16,907 |
|
Less: cash
distributions
|
|
|
129,054 |
|
|
|
129,054 |
|
Total equity investment in
investee
|
|
$ |
48,951 |
|
|
$ |
55,599 |
|
The
following tables contain summarized financial information for
Evangeline.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Current
assets
|
|
$ |
9,043 |
|
|
$ |
25,750 |
|
Accounts
receivable - affiliate
|
|
|
2,543 |
|
|
|
1 |
|
Property,
plant and equipment, net
|
|
|
184,553 |
|
|
|
180,051 |
|
Other
assets
|
|
|
44,252 |
|
|
|
42,528 |
|
Total assets
|
|
$ |
240,391 |
|
|
$ |
248,330 |
|
Current
liabilities
|
|
$ |
24,072 |
|
|
$ |
20,244 |
|
Accounts
payable - affiliate
|
|
|
134 |
|
|
|
3,512 |
|
Long-term
debt, net
|
|
|
157,663 |
|
|
|
161,762 |
|
Other
liabilities
|
|
|
71,819 |
|
|
|
71,845 |
|
Member’s
deficit
|
|
|
(13,297 |
) |
|
|
(9,033 |
) |
Total liabilities and member’s
deficit
|
|
$ |
240,391 |
|
|
$ |
248,330 |
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Operating
revenue
|
|
$ |
10,332 |
|
|
$ |
10,430 |
|
Operating
expenses
|
|
|
10,313 |
|
|
|
6,214 |
|
Depreciation
|
|
|
1,381 |
|
|
|
1,355 |
|
Interest
charges
|
|
|
4,204 |
|
|
|
4,664 |
|
Interest
income
|
|
|
- |
|
|
|
163 |
|
Other
expense
|
|
|
1,368 |
|
|
|
2 |
|
Loss before
taxes
|
|
$ |
(6,934 |
) |
|
$ |
(1,642 |
) |
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.
Cleco
Corporation has posted a $15.0 million letter of credit on behalf of the
Evangeline Tolling Agreement counterparty. The letter of credit can
be drawn in the event Evangeline defaults on the tolling agreement.
Evangeline’s
restricted cash at March 31, 2009, and December 31, 2008, was $16.8 million and
$25.0 million, respectively. This cash is restricted under
Evangeline’s senior secured bond indenture.
Income
tax benefits recorded on Midstream’s financial statements related to Midstream’s
100% ownership interest in Evangeline were $2.7 million and $0.6 million for the
three months ended March 31, 2009, and 2008, respectively.
Prior
to November 9, 2007, all of the capacity and output of the power plant had been
tolled to Williams, 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. In May 2008, JPMorgan Chase & Co. completed the
acquisition of Bear Stearns Companies Inc., the parent company of Bear
Energy. In September 2008, Bear Energy was merged into
JPMVEC. For more information regarding the Evangeline Tolling
Agreement, see Note 10 — “Litigation,
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Other
Commitments and Contingencies, and Disclosures about Guarantees — Risks and
Uncertainties.”
Other
Subsidiaries 100% owned by Cleco Corporation
The
information about these entities is aggregated because their method of
operation, size, and risk are materially similar. Both entities own
transmission assets, provide transmission services to one customer under a
long-term contract at a FERC-approved cost of service rate, and are capitalized
with 100% equity.
Through
an analysis of variable interests, such as Cleco’s investment and the single
counterparty that has a long-term lease of the facilities, Cleco has determined
that it is not the primary beneficiary of either entity. The
determination is driven by several factors such as:
§
|
Each
entity has only one customer under the long-term agreements accounted for
as direct financing leases.
|
§
|
Both
entities can only charge FERC-approved
tariffs.
|
§
|
Both
entities have the ability to change the tariff if actual expenses are
materially different than expected
expenses.
|
§
|
The
requirement of the lease counterparty to make lease payments regardless of
the use of the assets.
|
§
|
Cleco’s
risk of loss is limited to its
investment.
|
Since
Cleco is not the primary beneficiary, the investments in Perryville and Attala
are accounted for as equity method investments.
Cleco’s
current assessment of its maximum exposure to loss with respect to Perryville
and Attala at March 31, 2009, consists of its equity investment of $15.3
million. The following table presents the components of Cleco
Corporation’s equity investment in Perryville and Attala.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
INCEPTION
TO DATE (THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Contributed
assets (cash)
|
|
$ |
132,960 |
|
|
$ |
132,960 |
|
Net
income
|
|
|
54,565 |
|
|
|
54,166 |
|
Less: non-cash
distributions
|
|
|
20,865 |
|
|
|
20,869 |
|
Less: cash
distributions
|
|
|
151,389 |
|
|
|
151,389 |
|
Total equity investment in
investee
|
|
$ |
15,271 |
|
|
$ |
14,868 |
|
The
following tables contain summarized financial information for Perryville and
Attala.
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Current
assets
|
|
$ |
1,628 |
|
|
$ |
4,905 |
|
Accounts
receivable - affiliate
|
|
|
3,660 |
|
|
|
- |
|
Other
assets
|
|
|
14,121 |
|
|
|
14,166 |
|
Total assets
|
|
$ |
19,409 |
|
|
$ |
19,071 |
|
Current
liabilities
|
|
$ |
23 |
|
|
$ |
9 |
|
Accounts
payable - affiliate
|
|
|
3 |
|
|
|
2 |
|
Other
liabilities
|
|
|
562 |
|
|
|
484 |
|
Member’s
equity
|
|
|
18,821 |
|
|
|
18,576 |
|
Total liabilities and member’s
equity
|
|
$ |
19,409 |
|
|
$ |
19,071 |
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Operating
revenue
|
|
$ |
491 |
|
|
$ |
732 |
|
Operating
expenses
|
|
|
92 |
|
|
|
85 |
|
Income before
taxes
|
|
$ |
399 |
|
|
$ |
647 |
|
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 and Attala are accounted for as
direct financing leases 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 for each
of the three months ended March 31, 2009 and 2008.
Note
10 — 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 moved to and currently is pending in the
U.S. District Court for the Western District of Louisiana. Effective
December 30, 2008, the City Council of Alexandria passed an ordinance
authorizing the mayor to settle the litigation by executing a new 13-year power
supply agreement with Cleco. Cleco expects to complete final
negotiations and satisfaction of conditions precedent for the agreement to
commence later in 2009. Pending satisfaction of these conditions, the
presiding judge has dismissed the claims asserted in the litigation without
prejudice. 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 northwest of Baton Rouge, Louisiana. The EPA has
identified Cleco as one of many companies sending the 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 has yet to make a
final determination on whether to
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
add
Devil’s Swamp Lake to the NPL. The EPA and a number of PRPs met
on January 31, 2008, for an organizational meeting to discuss the background of
the site. The PRPs began discussing a potential proposal to the EPA
on February 19, 2008. Negotiations among the PRPs and the EPA are
ongoing in regard to the remedial investigation and feasibility study at the
Devil’s Swamp site, with little progress having been made since the January 2008
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. The response to the proposal has been pending
for months. Since this investigation is in the preliminary stages,
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.
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 these obligations under their contracts and that
it is not probable that payments by Cleco will be required. Some of these
commitments reduce borrowings available to Cleco Corporation under its credit
facility pursuant to the terms of the credit facility. Cleco’s
off-balance sheet commitments as of March 31, 2009, 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
MARCH 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
177,400 |
|
|
$ |
135,000 |
|
|
$ |
42,400 |
|
|
$ |
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 |
|
Guarantee issued to Tenaska Gas
Storage, LLC on behalf of Acadia
|
|
|
10,000 |
|
|
|
- |
|
|
|
10,000 |
|
|
|
10,000 |
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under standby letter
of credit issued to the Louisiana Department of Labor
|
|
|
3,525 |
|
|
|
- |
|
|
|
3,525 |
|
|
|
- |
|
Obligations under the Lignite
Mining Agreement
|
|
|
4,589 |
|
|
|
- |
|
|
|
4,589 |
|
|
|
- |
|
Total
|
|
$ |
212,414 |
|
|
$ |
135,000 |
|
|
$ |
77,414 |
|
|
$ |
27,228 |
|
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 March 31, 2009, the aggregate guarantee of
$177.4 million is limited to $42.4 million due to the performance of some of the
underlying obligations that were guaranteed. Management believes it
is unlikely that Cleco Corporation will have any other liabilities which would
give rise to indemnity claims. The discounted probability-weighted
liability under the guarantees and indemnifications as of March 31, 2009, 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
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
the
payment and performance of the indemnity obligations of Cleco
Energy. The aggregate amount of the guarantees is $1.4 million, of
which $0.4 million expires on September 27, 2009 and $1.0 million expires on
October 20, 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 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 March 31, 2009, 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 Interconnection
Agreement. This guarantee will be effective through the life of the
agreement.
In
February 2009, Cleco Corporation provided a $10.0 million guarantee to Tenaska
Gas Storage, LLC for Acadia’s obligation under the Energy Management Services
Agreement. This guarantee will expire on October 31,
2009.
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 $3.5 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 March 31, 2009, Cleco Power’s 50% exposure for this
obligation was approximately $4.6 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
MARCH 31, 2009
|
|
|
|
|
|
|
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
|
|
$ |
58,889 |
|
|
$ |
11,400 |
|
|
$ |
4,589 |
|
|
$ |
- |
|
|
$ |
42,900 |
|
Standby
letters of credit
|
|
|
18,525 |
|
|
|
3,525 |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Total commercial
commitments
|
|
$ |
77,414 |
|
|
$ |
14,925 |
|
|
$ |
4,589 |
|
|
$ |
- |
|
|
$ |
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 Equipment Services Corporation
Cleco
Power has entered into an operating lease agreement with General Electric
Equipment Services Corporation for leasing of railcars in order to transport
coal to its Rodemacher Power Station Unit 2. 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 $1.3 million. At this time, Cleco Power has no plans to
early terminate this lease.
CBL
Capital Corporation
Cleco
Power has entered into an operating lease agreement with CBL Capital
Corporation, which was acquired by GE Capital Commercial, Inc. (GE
Capital). This is a master leasing agreement for company vehicles and
other equipment. On November 14, 2008, Cleco Power was notified by GE
Capital that it was electing to terminate the lease. Pursuant to the
terms of the lease agreement, the termination date was
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
effective
January 13, 2009. Cleco Power has one year from the termination
date to enter into a new operating lease with a third party and/or negotiate the
purchase of such equipment for the unamortized balance. The
unamortized balance of equipment under the GE Capital lease was $6.0 million at
March 31, 2009.
LPSC
Fuel Audit
The
LPSC Fuel Adjustment Clause General Order issued November 6, 1997, in Docket No.
U-21497 provides that an audit will be performed not less than every other
year. Cleco Power currently has fuel adjustment clause filings for
2003 through 2009 subject to 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
2004. In March 2009, the LPSC indicated its intent to proceed with
the audit for the years 2003 through 2008. However, this review is
still pending and Cleco Power does not anticipate the LPSC to proceed until the
second quarter of 2009. Cleco Power could be required to make a
substantial refund of previously recorded revenue as a result of these audits,
and such refund could result in a material adverse effect on the Registrants’
results of operations, financial condition, and cash flows.
Fuel
Transportation Agreement
Cleco
Power has entered into an agreement that meets the accounting definition of a
capital lease for barges in order to transport petroleum coke and limestone to
Rodemacher Unit 3. The 42 dedicated barges were delivered between
January 6 and February 12, 2009.
The
lease rate contains a fixed portion of $225 per day per barge and a variable
component of $75 adjusted by Producer Price Index (PPI) annually for executory
costs. If the barges are idle, the lessor is required to attempt to
sublease the barges to third parties with the revenue reducing Cleco Power’s
lease payment. During the three months ended March 31, 2009, Cleco
Power did not receive any revenue from subleases.
The
initial term of this agreement is five years and the agreement will
terminate December 31, 2013. Cleco will have an option to renew this
agreement for a second five-year term in full or in part and, at its option,
purchase any or all of the dedicated barges. If Cleco does not renew
this agreement for the renewal term, then the lessor may require Cleco to
purchase any or all of the barges. If Cleco Power purchases the
barges on December 31, 2013, the purchase price of all 42 barges will be $21.7
million.
This
agreement contains a provision for early termination upon the occurrence of any
one of four cancellation events.
The
following is an analysis of the leased property under capital leases by major
classes:
|
|
AT
MARCH 31,
|
|
|
AT
DECEMBER 31,
|
|
CLASSES
OF PROPERTY (THOUSANDS)
|
|
2009
|
|
|
2008
|
|
Barges
|
|
$ |
22,050 |
|
|
$ |
- |
|
Other
|
|
|
555 |
|
|
|
555 |
|
|
|
|
22,605 |
|
|
|
555 |
|
Less:
accumulated amortization
|
|
|
800 |
|
|
|
342 |
|
|
|
$ |
21,805 |
|
|
$ |
213 |
|
The
amount listed as other in the chart above includes a capital lease agreement for
miscellaneous equipment by Cleco Power. This lease terminates
December 31, 2010.
The
following is a schedule by years of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
March 31, 2009.
(THOUSANDS)
|
|
|
Nine
months ending December 31, 2009
|
|
$ |
3,577 |
|
Years
ending December 31,
|
|
|
|
|
2010
|
|
|
4,748 |
|
2011
|
|
|
4,622 |
|
2012
|
|
|
4,634 |
|
2013
|
|
|
4,622 |
|
2014
|
|
|
4,622 |
|
Thereafter
|
|
|
18,499 |
|
Total
minimum lease payments
|
|
|
45,324 |
|
Less: executory
costs
|
|
|
11,441 |
|
Net
minimum lease payments
|
|
|
33,883 |
|
Less: amount
representing interest
|
|
|
11,867 |
|
Present
value of net minimum lease payments
|
|
$ |
22,016 |
|
Current
liabilities
|
|
$ |
1,524 |
|
Non-current
liabilities
|
|
$ |
20,492 |
|
During
the three months ended March 31, 2009, Cleco Power incurred immaterial amounts
of contingent rent related to the increase in the PPI.
Oxbow
Lignite Mine Acquisition
In
April 2009, Cleco Power entered into an agreement with SWEPCO to purchase the
Oxbow Lignite Company from North American Coal Corporation (NAC). The
purchase price of approximately $42.0 million includes the lignite reserves,
mining equipment, and related assets and permits. Cleco Power’s
portion of the purchase price is approximately $12.9 million for the
lignite reserves. The lignite reserves of approximately 120 million
tons acquired under this agreement are expected to fuel the Dolet Hills Power
Station through 2026. SWEPCO’s subsidiary, Dolet Hills Lignite
Company, LLC, will operate the new mine along with its current operations at the
Dolet Hills Lignite Mine on similar terms. The existing Red River
Lignite Supply and Transportation Agreement with NAC will terminate upon the
closing of this transaction.
Other
Cleco
has accrued for liabilities to third parties, employee medical benefits, and
storm damages.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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
During
2008, JPMorgan Chase & Co. acquired The Bear Stearns Companies
Inc. In connection with the acquisition, JPMorgan Chase & Co.
guaranteed certain obligations of The Bear Stearns Companies Inc. and its
subsidiaries, including obligations under the Evangeline Tolling
Agreement. In September 2008, Bear Energy was merged into
JPMVEC. 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
entire outstanding principal amount ($165.3 million at March 31, 2009) and
interest to be immediately due and payable, which could result
in:
|
o
|
Cleco
seeking to refinance the bonds, the terms of which may be less favorable
than existing terms;
|
o
|
Cleco
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.
|
Other
Access
to capital markets is a significant source of funding for both short- and
long-term capital requirements not satisfied by operating cash
flows. Recent market conditions have limited the availability and
have increased the costs of capital for many companies. The inability
to raise capital on favorable terms could negatively affect Cleco Corporation’s
and Cleco Power’s ability to maintain and expand their
businesses. After assessing the current operating performance,
liquidity, and credit ratings of Cleco, management believes that Cleco will have
access to the capital markets at prevailing market rates for companies with
comparable credit ratings. If Cleco Corporation’s credit ratings were
to be downgraded by Moody’s or by Standard & Poor’s, Cleco Corporation would
be required to pay additional fees and higher interest rates under its bank
credit and other debt agreements.
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- and
long-term capital requirements not satisfied by operating cash
flows. Recent market conditions have limited the availability and
have increased the costs of capital for many companies. The inability
to raise capital on favorable terms could negatively affect Cleco Power’s
ability to maintain and expand its businesses. After assessing the
current operating performance, liquidity, and credit ratings of Cleco Power,
management believes that Cleco Power will have access to the capital markets at
prevailing market rates for companies with comparable credit
ratings. 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.
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.
Note
11 — Affiliate Transactions
Cleco
has affiliate balances that were not eliminated as of March 31,
2009. 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 9 — “Equity Investment in
Investees.” At March 31, 2009, the payable to Evangeline was $2.5
million and the payable to Perryville, Attala, and Acadia was less than $0.1
million combined. Also, at March 31, 2009, the receivable from
Evangeline was $0.7 million and the receivable from Perryville and
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Attala
was less than $0.1 million combined. The receivable from Acadia was
$0.4 million.
Cleco
Power has affiliate balances that are payable to or due from its
affiliates. At March 31, 2009, the payable to Support Group was $4.5
million, the payable to Cleco Corporation was $0.8 million, and the payable to
other affiliates was less than $0.1 million. Also, at March 31, 2009,
the receivable from Support Group was $1.6 million, the receivable from Cleco
Corporation was $0.1 million, and the receivable from other affiliates was less
than $0.1 million.
Note
12 — 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
ended March 31, 2009, and 2008, Cleco Katrina/Rita recognized amortization
expense of $2.6 million and $0.7 million, respectively. The tables
below provide additional information about this intangible
asset.
(THOUSANDS)
|
AT
MARCH 31, 2009
|
|
Gross
carrying amount
|
|
$ |
177,537 |
|
Accumulated
amortization
|
|
|
12,342 |
|
Intangible
asset
|
|
$ |
165,195 |
|
(THOUSANDS)
|
|
|
|
Expected
amortization expense
|
|
|
|
For the twelve months ending
March 31, 2010
|
|
$ |
10,962 |
|
For the twelve months ending
March 31, 2011
|
|
$ |
11,731 |
|
For the twelve months ending
March 31, 2012
|
|
$ |
12,536 |
|
For the twelve months ending
March 31, 2013
|
|
$ |
13,379 |
|
Thereafter
|
|
$ |
116,587 |
|
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, 2008, 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 months ended March 31,
2009, and March 31, 2008.
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, FERC, and other regulators, which serves approximately 276,000
customers across Louisiana and also engages in energy management
activities; and
|
§
|
Midstream,
a merchant energy company regulated by FERC, which owns and operates a
merchant power plant (Evangeline). Midstream also owns a 50
percent interest in a merchant power plant (Acadia) and operates the plant
on behalf of its partner.
|
While
management believes that Cleco remains a strong company, Cleco continues to
focus on several challenges and factors that could affect its results of
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 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 in the fourth quarter
of 2009. Cleco Power’s current base rates have been extended through
the commercial operation 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 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 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. 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
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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 —“Rodemacher Unit
3.”
Cleco
Power continues to evaluate a range of other power supply options for 2009 and
beyond. As such, Cleco Power is continuing to update its IRP to look
at future sources of supply. Cleco Power released a RFP in October
2007 seeking long-term resources to fill the needs identified by the latest
IRP. On February 26, 2009, Cleco Power announced that it had chosen
the acquisition of 50 percent of the Acadia power station, or one of its two
580-MW units, as the lowest bid in its 2007 long-term RFP for capacity beginning
in 2010. Cleco Power will own and operate one unit and operate the other 580-MW
unit on behalf of Acadia. Prior to closing the transaction, valued at
approximately $300.0 million, Cleco Power must complete its due diligence,
finalize and execute definitive agreements, and receive approvals from the LPSC
and FERC. In a process that remains under the supervision of an
independent monitor appointed by the LPSC, Cleco Power and Acadia plan to
complete the transaction by the end of 2009 with Cleco Power operating the plant
beginning in January 2010.
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 can be delivered. 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. At times, transmission availability limits the
wholesale markets accessible by Acadia resulting in limited buyers for Acadia’s
output. Because of Acadia’s location on the transmission grid, Acadia
has interconnections with two main suppliers of electric transmission when
accessing external power markets.
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 its 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 that began
March 1, 2009, and will end October 1, 2009.
On
February 26, 2009, Cleco Power announced that it had selected Acadia’s proposal
to fulfill Cleco Power’s capacity and energy needs as defined in the Cleco Power
2007 long-term RFP. Under the proposed arrangement, Cleco Power would
acquire and operate one of Acadia’s generating units and operate the other unit,
as described further above under “— Cleco Power.”
Midstream’s
other principal source of revenue is the Evangeline Tolling Agreement, under
which the counterparty has the right to dispatch the electric generation
capacity of the facility. Profitability of Midstream’s investment in
Evangeline depends principally upon continued performance by JPMVEC of its
payment obligations under the tolling agreement and controlling maintenance
expenses associated with the facility.
Comparison
of the Three Months Ended March 31, 2009, and 2008
Cleco
Consolidated
|
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue, net
|
|
$ |
212,936 |
|
|
$ |
222,551 |
|
|
$ |
(9,615 |
) |
|
|
(4.3 |
)% |
Operating
expenses
|
|
|
195,698 |
|
|
|
195,997 |
|
|
|
299 |
|
|
|
0.2 |
% |
Operating
income
|
|
$ |
17,238 |
|
|
$ |
26,554 |
|
|
$ |
(9,316 |
) |
|
|
(35.1 |
)% |
Interest
income
|
|
$ |
411 |
|
|
$ |
1,617 |
|
|
$ |
(1,206 |
) |
|
|
(74.6 |
)% |
Allowance
for other funds used during construction
|
|
$ |
16,991 |
|
|
$ |
13,683 |
|
|
$ |
3,308 |
|
|
|
24.2 |
% |
Equity
loss from investees
|
|
$ |
(11,751 |
) |
|
$ |
(4,574 |
) |
|
$ |
(7,177 |
) |
|
|
(156.9 |
)% |
Other
income
|
|
$ |
1,285 |
|
|
$ |
66 |
|
|
$ |
1,219 |
|
|
|
* |
|
Interest
charges
|
|
$ |
15,103 |
|
|
$ |
9,544 |
|
|
$ |
(5,559 |
) |
|
|
(58.2 |
)% |
Federal
and state income taxes
|
|
$ |
1,326 |
|
|
$ |
5,061 |
|
|
$ |
3,735 |
|
|
|
73.8 |
% |
Net
income applicable to common stock
|
|
$ |
6,638 |
|
|
$ |
22,060 |
|
|
$ |
(15,422 |
) |
|
|
(69.9 |
)% |
*Not
meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
net income applicable to common stock decreased $15.4 million, or 69.9%, in the
first quarter of 2009 compared to the first quarter of 2008 primarily due to
decreased earnings at Cleco Power and higher losses at Midstream.
Operating
revenue, net decreased $9.6 million, or 4.3%, in the first quarter of 2009
compared to the first quarter of 2008 largely as a result of lower base and
other operations revenue at Cleco Power.
Interest
income decreased $1.2 million, or 74.6%, in the first quarter of 2009 compared
to the first quarter of 2008 primarily due to lower interest rates and lower
average investment balances.
Allowance
for other funds used during construction increased $3.3 million, or 24.2%, in
the first quarter of 2009 compared to the first quarter of 2008 primarily due to
increased construction activity at Rodemacher Unit 3.
Equity
loss from investees increased $7.2 million, or 156.9%, in the first quarter of
2009 compared to the first quarter of 2008 primarily due to increased equity
losses at APH and Evangeline.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Other
income increased $1.2 million in the first quarter of 2009 compared to the first
quarter of 2008 primarily due to higher mutual assistance revenue at Cleco
Power.
Interest
charges increased $5.6 million, or 58.2%, during the first quarter of 2009
compared to the first quarter of 2008 primarily due to the carrying cost of the
tax benefits of storm damage costs, the absence of a favorable settlement with
the IRS recorded in 2008, and interest related to the issuances of senior notes,
GO Zone 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 repayment of
senior notes at Cleco Corporation, the storm damage surcredit, and lower
interest rates and lower borrowings under Cleco Power’s credit
facility.
Federal
and state income taxes decreased $3.7 million, or 73.8%, primarily due to a
decrease in pre-tax income during the first quarter of 2009 compared to the
first quarter of 2008.
Results
of operations for Cleco Power and Midstream are more fully described
below.
Cleco
Power
|
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
$ |
72,818 |
|
|
$ |
79,189 |
|
|
$ |
(6,371 |
) |
|
|
(8.0 |
)% |
Fuel cost
recovery
|
|
|
130,047 |
|
|
|
130,692 |
|
|
|
(645 |
) |
|
|
(0.5 |
)% |
Other operations
|
|
|
7,086 |
|
|
|
10,061 |
|
|
|
(2,975 |
) |
|
|
(29.6 |
)% |
Affiliate
revenue
|
|
|
6 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
(14.3 |
)% |
Intercompany
revenue
|
|
|
342 |
|
|
|
501 |
|
|
|
(159 |
) |
|
|
(31.7 |
)% |
Operating revenue,
net
|
|
|
210,299 |
|
|
|
220,450 |
|
|
|
(10,151 |
) |
|
|
(4.6 |
)% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel used for electricgeneration
– recoverable
|
|
|
86,409 |
|
|
|
43,322 |
|
|
|
(43,087 |
) |
|
|
(99.5 |
)% |
Power purchased for
utilitycustomers – recoverable
|
|
|
43,617 |
|
|
|
87,377 |
|
|
|
43,760 |
|
|
|
50.1 |
% |
Non-recoverable fuel andpower
purchased
|
|
|
3,995 |
|
|
|
4,631 |
|
|
|
636 |
|
|
|
13.7 |
% |
Other operations
|
|
|
23,420 |
|
|
|
20,915 |
|
|
|
(2,505 |
) |
|
|
(12.0 |
)% |
Maintenance
|
|
|
9,428 |
|
|
|
9,193 |
|
|
|
(235 |
) |
|
|
(2.6 |
)% |
Depreciation
|
|
|
18,845 |
|
|
|
19,214 |
|
|
|
369 |
|
|
|
1.9 |
% |
Taxes other than
incometaxes
|
|
|
7,709 |
|
|
|
7,813 |
|
|
|
104 |
|
|
|
1.3 |
% |
Total
operatingexpenses
|
|
|
193,423 |
|
|
|
192,465 |
|
|
|
(958 |
) |
|
|
(0.5 |
)% |
Operating
income
|
|
$ |
16,876 |
|
|
$ |
27,985 |
|
|
$ |
(11,109 |
) |
|
|
(39.7 |
)% |
Allowance
for other funds used during construction
|
|
$ |
16,991 |
|
|
$ |
13,683 |
|
|
$ |
3,308 |
|
|
|
24.2 |
% |
Other
income
|
|
$ |
1,287 |
|
|
$ |
101 |
|
|
$ |
1,186 |
|
|
|
* |
|
Other
expense
|
|
$ |
1,603 |
|
|
$ |
345 |
|
|
$ |
(1,258 |
) |
|
|
(364.6 |
)% |
Interest
charges
|
|
$ |
15,136 |
|
|
$ |
7,435 |
|
|
$ |
(7,701 |
) |
|
|
(103.6 |
)% |
Federal
and state income taxes
|
|
$ |
3,800 |
|
|
$ |
6,958 |
|
|
$ |
3,158 |
|
|
|
45.4 |
% |
Net
income
|
|
$ |
15,018 |
|
|
$ |
27,608 |
|
|
$ |
(12,590 |
) |
|
|
(45.6 |
)% |
*
Not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleco
Power’s net income in the first quarter of 2009 decreased $12.6 million, or
45.6%, compared to the first quarter of 2008. Contributing factors
include:
§
|
higher
interest charges,
|
§
|
lower
other operations revenue,
|
§
|
higher
other operations and maintenance expenses,
and
|
These
were partially offset by:
§
|
higher
allowance for other funds used during construction
and
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(MILLION
kWh)
|
|
2009
|
|
|
2008
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
816 |
|
|
|
840 |
|
|
|
(2.9 |
)% |
Commercial
|
|
|
542 |
|
|
|
554 |
|
|
|
(2.2 |
)% |
Industrial
|
|
|
587 |
|
|
|
686 |
|
|
|
(14.4 |
)% |
Other retail
|
|
|
33 |
|
|
|
32 |
|
|
|
3.1 |
% |
Total retail
|
|
|
1,978 |
|
|
|
2,112 |
|
|
|
(6.3 |
)% |
Sales for resale
|
|
|
89 |
|
|
|
71 |
|
|
|
25.4 |
% |
Unbilled
|
|
|
(132 |
) |
|
|
(57 |
) |
|
|
(131.6 |
)% |
Total
retail and wholesale customer sales
|
|
|
1,935 |
|
|
|
2,126 |
|
|
|
(9.0 |
)% |
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
FAVORABLE/
(UNFAVORABLE)
|
|
Electric
sales
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
32,195 |
|
|
$ |
33,044 |
|
|
|
(2.6 |
)% |
Commercial
|
|
|
22,950 |
|
|
|
23,035 |
|
|
|
(0.4 |
)% |
Industrial
|
|
|
12,820 |
|
|
|
13,001 |
|
|
|
(1.4 |
)% |
Other retail
|
|
|
1,387 |
|
|
|
1,365 |
|
|
|
1.6 |
% |
Storm surcharge
|
|
|
5,214 |
|
|
|
5,850 |
|
|
|
(10.9 |
)% |
Total retail
|
|
|
74,566 |
|
|
|
76,295 |
|
|
|
(2.3 |
)% |
Sales for resale
|
|
|
3,111 |
|
|
|
4,087 |
|
|
|
(23.9 |
)% |
Unbilled
|
|
|
(4,859 |
) |
|
|
(1,193 |
) |
|
|
(307.3 |
)% |
Total
retail and wholesale customer sales
|
|
$ |
72,818 |
|
|
$ |
79,189 |
|
|
|
(8.0 |
)% |
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- 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.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
|
|
|
|
|
|
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
CHANGE
|
|
|
|
2009
|
|
|
2008
|
|
|
NORMAL
|
|
|
PRIOR
YEAR
|
|
|
NORMAL
|
|
Heating-degree days
|
|
|
730 |
|
|
|
814 |
|
|
|
977 |
|
|
|
(10.3 |
)% |
|
|
(25.3 |
)% |
Cooling-degree days
|
|
|
126 |
|
|
|
111 |
|
|
|
70 |
|
|
|
13.5 |
% |
|
|
80.0 |
% |
Base
Base
revenue decreased $6.4 million, or 8.0%, during the first quarter of 2009
compared to the first quarter of 2008. The decrease was primarily due to
lower electric sales to retail and wholesale customers, generally resulting from
milder winter weather. In April 2009, Cleco Power began providing
service to a new wholesale customer. Cleco Power expects service to
this new customer to generate base revenue of approximately $10.6 million in
2009 and $21.9 million in 2010. 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, 2008.
Fuel
Cost Recovery
Fuel
cost recovery revenue billed to customers decreased $0.6 million, or 0.5%,
during the first quarter of 2009 compared to the first quarter in 2008 primarily
due to decreases in the per-unit cost of power purchased for utility customers
and lower volumes of fuel used for electric generation and power purchased for
utility customers. Partially offsetting the decrease were increases
in the per-unit cost of fuel used for electric generation. 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 97% of Cleco Power’s total fuel cost during
the first quarter of 2009 was regulated by the LPSC, while the remainder was
regulated by FERC. Recovery of fuel adjustment clause costs is
subject to refund until approval is received from the
LPSC.
Other
Operations
Other
operations revenue decreased $3.0 million, or 29.6%, in the first quarter of
2009 compared to the first quarter of 2008 primarily due to a $3.4 million net
loss relating to economic hedge transactions associated with fixed-price power
being provided to a wholesale customer. Partially offsetting this
decrease was $0.4 million of higher other miscellaneous 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 $1.0 million, or 0.5%, in the first quarter of 2009 compared
to the first quarter of 2008. Fuel used for electric generation
(recoverable) increased $43.1 million, or 99.5%, primarily due to higher
per-unit costs of fuel used as compared to the first quarter of 2008, as a
result of realized losses on fuel hedging due to the price
volatility
of natural gas. Partially offsetting this increase were lower volumes
of fuel used for electric generation. Power purchased for utility
customers (recoverable) decreased $43.8 million, or 50.1%, largely due to lower
per-unit costs and 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. Other operations expense increased $2.5 million, or 12.0%,
primarily due to higher general liability expense and higher employee benefit
costs and administrative expenses.
Allowance
for Other Funds Used During Construction
Allowance
for other funds used during construction increased $3.3 million, or 24.2%,
during the first quarter of 2009 compared to the first quarter of 2008 primarily
due to increased construction activity at Rodemacher Unit
3. Allowance for other funds used during construction comprised
113.1% of Cleco Power’s net income for the first quarter of 2009, compared to
49.6% for the first quarter of 2008.
Other
Income
Other
income increased $1.2 million in the first quarter of 2009 compared
to the first quarter of 2008 primarily due to higher revenue from mutual
assistance to other utilities for restoration efforts.
Other
Expense
Other
expense increased $1.3 million, or 364.6%, in the first quarter
of 2009 compared to the first quarter of 2008 primarily due to higher expenses
from mutual assistance to other utilities for restoration
efforts.
Interest Charges
Interest
charges increased $7.7 million, or 103.6%, during the first quarter of 2009
compared to the first quarter of 2008 primarily due to $4.2 million related to
the May 2008 issuance of senior notes, $2.2 million related to the carrying
cost of the tax benefits of storm damage costs, $2.1 million related to the
absence of a favorable settlement with the IRS recorded in 2008, $1.8 million
related to the December 2008 issuance of GO Zone bonds, and $1.6 million related
to the March 2008 issuance of storm recovery bonds. Partially
offsetting this increase was $2.3 million primarily related to lower interest
rates and lower borrowings under Cleco Power’s credit facility, $1.6 million of
allowance for borrowed funds used during construction associated with the
construction activity at Rodemacher Unit 3, and $0.3 million related to the
storm damage surcredit.
Income
Taxes
Income
tax expense decreased $3.2 million, or 45.4%, in the first quarter of 2009
compared to the first quarter of 2008, primarily due to a decrease in pre-tax
income excluding equity AFUDC.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Midstream
|
|
FOR
THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
FAVORABLE/(UNFAVORABLE)
|
|
(THOUSANDS)
|
|
2009
|
|
|
2008
|
|
|
VARIANCE
|
|
|
CHANGE
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
revenue
|
|
$ |
2,363 |
|
|
$ |
1,918 |
|
|
$ |
445 |
|
|
$ |
23.2 |
% |
Operating
revenue
|
|
|
2,363 |
|
|
|
1,918 |
|
|
|
445 |
|
|
|
23.2 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations
|
|
|
1,743 |
|
|
|
1,439 |
|
|
|
(304 |
) |
|
|
(21.1 |
)% |
Maintenance
|
|
|
1,095 |
|
|
|
849 |
|
|
|
(246 |
) |
|
|
(29.0 |
)% |
Depreciation
|
|
|
45 |
|
|
|
76 |
|
|
|
31 |
|
|
|
40.8 |
% |
Taxes other than
incometaxes
|
|
|
116 |
|
|
|
88 |
|
|
|
(28 |
) |
|
|
(31.8 |
)% |
Gain on sales of
assets
|
|
|
- |
|
|
|
(99 |
) |
|
|
(99 |
) |
|
|
100.0 |
% |
Total
operatingexpenses
|
|
|
2,999 |
|
|
|
2,353 |
|
|
|
(646 |
) |
|
|
(27.5 |
)% |
Operating
loss
|
|
$ |
(636 |
) |
|
$ |
(435 |
) |
|
$ |
(201 |
) |
|
|
(46.2 |
)% |
Equity
loss from investees
|
|
$ |
(12,150 |
) |
|
$ |
(5,013 |
) |
|
$ |
(7,137 |
) |
|
|
(142.4 |
)% |
Interest
charges
|
|
$ |
1,300 |
|
|
$ |
1,969 |
|
|
$ |
669 |
|
|
|
34.0 |
% |
Federal
and state income tax benefit
|
|
$ |
5,418 |
|
|
$ |
2,803 |
|
|
$ |
2,615 |
|
|
|
93.3 |
% |
Net
loss
|
|
$ |
(8,652 |
) |
|
$ |
(4,616 |
) |
|
$ |
(4,036 |
) |
|
|
(87.4 |
)% |
Factors
affecting Midstream during the first quarter of 2009 are described
below.
Equity
Loss from Investees
Equity
loss from investees increased $7.1 million, or 142.4%, during the first quarter
of 2009 compared to the first quarter of 2008. The increase was due
to a $5.3 million increase in equity losses at Evangeline and a $1.8
million increase in equity losses at APH. The increased loss at
Evangeline was primarily due to higher maintenance expenses largely relating to
a planned major outage during the first quarter of 2009. The
increased loss at APH was primarily due to a major planned outage at the
facility during 2009. This outage resulted in lower revenue, lower
fuel expense, higher removal and retirement costs, and higher turbine and
general maintenance expenses. For additional information on
Evangeline and Acadia, see Item 1, “Notes to the Unaudited Condensed
Consolidated Financial Statements — Note 9 — Equity Investment in
Investees.”
Interest
Charges
Interest
charges decreased $0.7 million, or 34.0%, during the first quarter of 2009
compared to the first quarter of 2008 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 benefit increased $2.6 million, or 93.3%, during the first quarter of 2009
compared to the first quarter of 2008 primarily due to a decrease in pre-tax
income.
Liquidity
and Capital Resources
General
Considerations and Credit-Related Risks
Credit
Ratings and Counterparties
At
March 31, 2009, 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 ratings 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.
During
2008, JPMorgan Chase & Co. acquired The Bear Stearns Companies
Inc. In connection with the acquisition, JPMorgan Chase & Co.
guaranteed certain obligations of The Bear Stearns Companies Inc. and its
subsidiaries, including obligations under the Evangeline Tolling
Agreement. In September 2008, Bear Energy was merged into
JPMVEC. At March 31, 2009, 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 10 — Litigation, Other Commitments and Contingencies, and
Disclosures about Guarantees — Risk and Uncertainties — Cleco Corporation —
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 trading positions that Cleco may
initiate in the future, Cleco may be required to provide credit support (or pay
liquidated damages). The amount of credit support that Cleco may be
required to provide at any point in the future is dependent on the amount of the
initial transaction, changes in the market price of power and natural gas, the
changes in open power and gas positions, and changes in the amount
counterparties owe Cleco. Changes in any of these factors could cause
the amount of requested credit support to increase or decrease. 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 “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, 2008.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Global
Financial Crisis
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 markets may be
severely restricted at a time when Cleco 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 Cleco’s flexibility to react to changing economic and business
conditions. The credit crisis could have a material negative impact on
Cleco’s lenders or Cleco’s customers causing them to fail to meet their
obligations to Cleco or to delay payment of such
obligations. Moreover, as a result of the global financial crisis,
the pension plan portfolio could continue to experience significant losses in
the future.
Debt
At
March 31, 2009, 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 ratings 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. A similar downgrade to credit ratings
of 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 March 31, 2009 or December 31,
2008. At March 31, 2009, Cleco’s long-term debt outstanding was $1.2
billion, of which $61.1 million was long-term debt due within one year, compared
to $1.2 billion at December 31, 2008, which included $63.5 million of long-term
debt due within one year. For Cleco, long-term debt increased $76.9
million primarily due to a $65.0 million increase in Cleco’s credit facility
draws and a $20.4 million increase in long-term capital leases. These
increases were partially offset by $8.4 million related to a scheduled Cleco
Katrina/Rita storm recovery bond principal payment made in March
2009. During January 2009, Cleco Power entered into a lease agreement
for barges to be used for fuel transportation for Rodemacher Unit 3. For
additional information, see Note 10 — “Litigation, Other Commitments
and Contingencies and Disclosures about Guarantees — Other Contingencies — Fuel
Transportation Agreement” and “— Cleco Corporation (Holding Company Level)” and
“— Cleco Power” below.
At
March 31, 2009 and December 31, 2008, Cleco had a working capital surplus of
$120.9 million and $105.5 million, respectively. Included in working
capital at March 31, 2009 and December 31, 2008, was $30.5 million and $62.3
million, respectively, which was restricted for the use of debt
payments. The $15.4 million increase in working capital is primarily
due to decreases in accounts payable, partially offset by the payment of
dividends, and additions to property, plant and equipment, including Rodemacher
Unit 3. 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 March 31, 2009, were $86.0 million combined
with $315.0 million facility capacity ($40.0 million from Cleco Corporation and
$275.0 million from Cleco Power) for total liquidity of $401.0
million. Cash and cash equivalents decreased $11.5 million as
compared to December 31, 2008. This decrease is primarily due to
additions to property, plant and equipment, including Rodemacher Unit
3.
Cleco
Corporation (Holding Company Level)
Cleco
Corporation had no short-term debt outstanding at March 31, 2009 or December 31,
2008. At March 31, 2009, and December 31, 2008, Cleco Corporation had
$95.0 million and $30.0 million of long-term debt outstanding. The
increase in long-term debt was due to the increase in draws on Cleco
Corporation’s credit facility. 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
March 31, 2009, credit facility draws and off-balance sheet commitments reduced
available borrowings by $95.0 million and $15.0 million, respectively, leaving
available capacity of $40.0 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
Corporation’s working capital needs.
Cash
and cash equivalents available at March 31, 2009, were $8.8 million, combined
with $40.0 million facility capacity for total liquidity of $48.8
million. Cash and cash equivalents increased $2.9 million, when
compared to December 31, 2008, primarily due to draws under Cleco Corporation’s
credit facility, partially offset by the use of those funds for general
operating needs.
Cleco
Power
There
was no short-term debt outstanding at Cleco Power at March 31, 2009, or December
31, 2008. At March 31, 2009, Cleco Power’s long-term debt outstanding
was $1.1 billion, of which $61.1 million was long-term debt due within one year,
compared to $1.1 billion at December 31, 2008, of which $63.5 million was due
within one year.
For
Cleco Power, long-term debt increased $11.9 million primarily due to a $20.4
million increase in long-term capital leases, partially offset by $8.4 million
related to a scheduled Cleco Katrina/Rita storm recovery bond principal payment
made in March 2009. During January 2009, Cleco Power
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
entered
into a lease agreement for barges to be used for fuel transportation for
Rodemacher Unit 3. For additional information, see Note
10 — “Litigation, Other Commitments and Contingencies and Disclosures
about Guarantees — Other Contingencies — Fuel Transportation
Agreement.”
At
March 31, 2009, and December 31, 2008, Cleco Power had a working capital surplus
of $45.9 million and $88.0 million, respectively. Included in working
capital at March 31, 2009 and 2008 was $30.5 million and $62.3 million,
respectively, which was restricted for the use of debt payments. The
$42.1 million decrease in working capital is primarily due to increased federal
income taxes payable and additions to property plant and equipment, including
Rodemacher Unit 3.
Cleco
Power’s $275.0 million five-year credit facility matures on June 2,
2011. This facility provides for working capital and other
needs. Cleco Power’s borrowing costs under the facility are equal to
LIBOR plus 0.400%, including facility fees.
At
March 31, 2009, no borrowings were outstanding under Cleco Power’s $275.0
million, five-year revolving facility. An uncommitted line of credit
with a bank in an amount up to $10.0 million also is available to support Cleco
Power’s working capital needs.
Cash
and cash equivalents available at March 31, 2009, were $77.1 million, combined
with $275.0 million facility capacity for total liquidity of $352.1
million. Cash and cash equivalents decreased $14.4 million as
compared to December 31, 2008. This decrease is primarily due to
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 $101.2 million and $84.5 million at
March 31, 2009, and December 31, 2008, respectively. In addition to
this recovery, Cleco Power is funding the construction costs related to
Rodemacher Unit 3 by utilizing cash on hand, available funds from its credit
facility, the issuance of long-term debt, and equity contributions from Cleco
Corporation.
Midstream
Midstream
had no debt outstanding at March 31, 2009, or December 31, 2008.
Evangeline,
which is accounted for under the equity method, had no short-term debt
outstanding at March 31, 2009. Evangeline had $165.3 million and
$168.9 million of long-term debt outstanding at March 31, 2009, and December 31,
2008, respectively, in the form of 8.82% Senior Secured Bonds due
2019. Of these amounts, $7.7 million and $7.1 million were due within
one year at March 31, 2009, and December 31, 2008, 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 March 31, 2009, and December 31, 2008, $75.0 million and
$103.0 million of cash, respectively, were restricted. At March 31,
2009, the $75.0 million of restricted cash consisted of $0.1 million under the
Diversified Lands mitigation escrow agreement, $6.3 million held in escrow for
the construction of Cleco Power’s solid waste disposal facilities at Rodemacher
Unit 3, $37.0 million reserved at Cleco Power for GO Zone project costs, $27.6
million reserved at Cleco Power for future storm restoration costs, and $4.0
million at Cleco Katrina/Rita restricted for payment of operating expense,
interest and principal on storm recovery bonds.
Evangeline’s
restricted cash is not reflected in Cleco Corporation’s Condensed Consolidated
Balance Sheets due to the equity method of accounting. Evangeline’s
restricted cash at March 31, 2009, and December 31, 2008, was $16.8 million and
$25.0 million, respectively. This cash is restricted under
Evangeline’s senior secured bond indenture.
Net
Cash Flows by Operating Activities
Cleco’s
net cash used in operating activities was $22.5 million during the first quarter
of 2009 compared to cash provided by operating activities of $29.3 million
during the first quarter of 2008. Cash from operating activities
during the first quarter of 2009 decreased $51.8 million from that reported for
the first quarter of 2008, primarily due to lower net income, higher gas and
power purchase payments, higher state and property taxes paid, and higher
retainage payments. These were partially offset by higher collections
of customer accounts and lower deferred fuel costs.
Cleco
Power’s net cash provided by operating activities was $15.2 million during the
first quarter of 2009 compared to $32.7 million during the first quarter of
2008. Cash from operating activities during the first quarter of 2009
decreased $17.5 million from that reported for the first quarter of 2008,
primarily due to lower net income, higher gas and power purchase payments,
higher state and property taxes paid, and higher retainage
payments. These were partially offset by higher collections of
customer accounts and lower deferred fuel costs.
Contractual
Obligations and Other Commitments
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, 2008.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
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 and Cleco
Power have also 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.
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 these obligations under their contracts and that
it is not probable that payments by Cleco will be required. Some of these
commitments reduce borrowings available to Cleco Corporation under its credit
facility pursuant to the terms of the credit facility. Cleco’s
off-balance sheet commitments as of March 31, 2009, 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
MARCH 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
177,400 |
|
|
$ |
135,000 |
|
|
$ |
42,400 |
|
|
$ |
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 |
|
Guarantee issued to Tenaska Gas
Storage, LLC on behalf of Acadia
|
|
|
10,000 |
|
|
|
- |
|
|
|
10,000 |
|
|
|
10,000 |
|
Cleco
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under standby letter
of credit issued to the Louisiana Department of Labor
|
|
|
3,525 |
|
|
|
- |
|
|
|
3,525 |
|
|
|
- |
|
Obligations under the Lignite
Mining Agreement
|
|
|
4,589 |
|
|
|
- |
|
|
|
4,589 |
|
|
|
- |
|
Total
|
|
$ |
212,414 |
|
|
$ |
135,000 |
|
|
$ |
77,414 |
|
|
$ |
27,228 |
|
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 March 31, 2009, the aggregate guarantee of
$177.4 million is limited to $42.4 million due to the performance of some of the
underlying obligations that were guaranteed. Management believes it
is unlikely that Cleco Corporation will have any other liabilities which would
give rise to indemnity claims. The discounted probability-weighted
liability under the guarantees and indemnifications as of March 31, 2009, 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, of which $0.4 million expires on September 27, 2009 and $1.0
million expires on October 20, 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
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 March 31, 2009, 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
CLECO
CORPORATION |
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CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
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the
Interconnection Agreement. This guarantee will be effective through
the life of the agreement.
In
February 2009, Cleco Corporation provided a $10.0 million guarantee to Tenaska
Gas Storage, LLC for Acadia’s obligation under the Energy Management Services
Agreement. This guarantee will expire on October 31,
2009.
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 $3.5 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 March 31, 2009, Cleco Power’s 50% exposure for this
obligation was approximately $4.6 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
MARCH 31, 2009
|
|
|
|
|
|
|
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
|
|
$ |
58,889 |
|
|
$ |
11,400 |
|
|
$ |
4,589 |
|
|
$ |
- |
|
|
$ |
42,900 |
|
Standby
letters of credit
|
|
|
18,525 |
|
|
|
3,525 |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Total commercial
commitments
|
|
$ |
77,414 |
|
|
$ |
14,925 |
|
|
$ |
4,589 |
|
|
$ |
- |
|
|
$ |
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 of such individual
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 for 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.
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, 2008.
Retail
Rates of Cleco Power
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 third quarter of
2009. On April 23, 2009, Cleco Power filed for an extension until
June 1, 2009 in which to file its monitoring report for the year ended September
30, 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, 2008.
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, 2008.
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, 2008.
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CLECO POWER |
2009 1ST QUARTER
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Generation
RFP
2008
Short-Term RFP for 2009 Resources
In
March 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 selected and
negotiated a 235-MW peaking product with Acadia. The product is for
supply that started March 1, 2009 and will end October 1,
2009.
On
January 6, 2009, Cleco Power issued a RFP for a minimum capacity amount of 50 MW
up to 200 MW in order to serve additional load. Cleco Power has
selected and negotiated a 200-MW intermediate product with NRG Power Marketing,
Inc. The product is for supply that started April 1, 2009 and will
end November 1, 2009.
2007
Long-Term RFP
In
June 2007, Cleco Power filed a proposed RFP 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 asked for products with a term of 2 to 30
years. Out of the approximately 600-MW total, up to approximately 350
MW may be sourced from a peaking resource. After the LPSC review, the
RFP was issued in October 2007, and bids were received in December
2007. On February 26, 2009, Cleco Power announced that it had chosen
the acquisition of 50 percent of the Acadia power station, or one of its two
580-MW units, as the lowest bid in its 2007 long-term RFP. Cleco Power
will own and operate one unit and operate the other 580-MW unit on behalf of
Acadia. Prior to closing the transaction, valued at approximately
$300.0 million, Cleco Power must complete its due diligence, finalize and
execute definitive agreements, and receive approvals from the LPSC and
FERC. In a process that remains under the supervision of an
independent monitor appointed by the LPSC, Cleco Power and Acadia plan to
complete the transaction by the end of 2009 with Cleco Power operating the plant
beginning in January 2010.
Rodemacher
Unit 3
In
May 2006, Cleco Power began construction of Rodemacher Unit 3 which will provide
a portion of the utility’s 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. Cleco Power has entered into contracts with suppliers to
collectively supply over 1.4 million tons of petroleum coke annually for a
three-to-five year period beginning in 2009, representing over 90% of Rodemacher
Unit 3 fuel requirements for such period. All environmental permits
for the unit have been received. By Shaw’s estimations, physical
construction is estimated at 83% complete as of March 31, 2009. Cleco
Power anticipates the plant will be substantially complete and operational in
the fourth quarter of 2009.
In
May 2006, Cleco Power and Shaw entered into an Amended EPC Contract, which
provided for substantial completion of the construction of Rodemacher Unit 3 by
September
30, 2009. On July 2, 2008, Cleco Power and Shaw amended this contract
further to provide for substantial completion as early as June 30, 2009, as well
as changes to other commercial terms for a lump-sum price of $794.5 million.
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. As of
March 31, 2009, Cleco Power had incurred approximately $908.3 million in project
costs, including AFUDC. Under the Amended EPC Contract, 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 March 31, 2009, the
maximum termination costs would have been $790.1 million or an additional $27.9
million more than the capital expended to date. In support of its
performance obligations, Shaw has 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 March 31, 2009, Shaw had issued an
additional letter of credit in the amount of $56.4 million with no retained
amounts outstanding. The retention and letters of credit are provided
in support of Shaw’s potential payment of liquidated damages, or other payment
performance obligations. The Amended EPC Contract also provides 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.
In
December 2008, Cleco Power received correspondence from Shaw requesting recovery
of $12.3 million in force majeure related costs and a schedule extension of
fifteen days allegedly incurred as a result of Hurricanes Gustav and
Ike. Shaw has since withdrawn its cost estimate but has informed
Cleco Power that it will resubmit a cost estimate after completion of further
analysis. 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.
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CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
Lignite
Deferral
At
March 31, 2009, and December 31, 2008, Cleco Power had $26.1 million and $26.8
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 Deferral” in
the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.
Oxbow
Lignite Mine Acquisition
In
April 2009, Cleco Power entered into an agreement with SWEPCO to purchase the
Oxbow Lignite Company from North American Coal Corporation (NAC). The
purchase price of approximately $42.0 million includes the lignite reserves,
mining equipment, and related assets and permits. Cleco Power’s
portion of the purchase price is approximately $12.9 million for the
lignite reserves. The lignite reserves of approximately 120 million
tons acquired under this agreement are expected to fuel the Dolet Hills Power
Station through 2026. SWEPCO’s subsidiary, Dolet Hills Lignite
Company, LLC, will operate the new mine along with its current operations at the
Dolet Hills Lignite Mine on similar terms. The existing Red River
Lignite Supply and Transportation Agreement with NAC will terminate upon
the closing of this transaction.
Acadiana
Load Pocket
In
September 2008, Cleco Power entered into an agreement with Lafayette Utilities
System, a municipal utility, and Entergy Gulf States Louisiana, a subsidiary of
Entergy Corporation, to upgrade interconnected transmission systems in south
Louisiana. The project received the LPSC’s approval in February 2009
and confirmation that it is in the public’s interest. Also in
February 2009, approval was received from Southwest Power Pool, Cleco Power’s
reliability coordinator, to begin construction. The joint project
includes expanding and upgrading the electric transmission infrastructure in
south central Louisiana in an area known as the “Acadiana Load Pocket.”
The
project includes upgrades to certain existing electric facilities as well as the
construction of new substations, transmission lines, and capacitor banks.
The total estimated cost is approximately $200.0 million. Each
utility is responsible for various components of the project. Cleco
Power’s portion of the cost is approximately $150.0 million, including
AFUDC. Construction is anticipated to begin in 2009 with the final
phase completed in 2012. Upgrading the interconnected transmission system
is expected to increase capacity, reduce transmission constraints, and improve
electric service for customers served by all three utilities.
Franchises
On
January 13, 2009, the Coushatta City Council voted to accept the early renewal
of its franchise agreement with Cleco Power. The Coushatta agreement
was set to expire in November 2010. The renewal term is set for 30
years. Approximately 1,400 Cleco Power customers are located in
Coushatta.
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, 2008.
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
January 7, 2009, the EPA issued guidance directing state permitting authorities
to make case-by-case Maximum Achievable Control Technology (MACT)
determinations, consistent with the requirements of Section 112(g) of the Clean
Air Act (CAA), for coal- and oil-fired electric generating units (EGUs) that
began actual construction or reconstruction between March 29, 2005 and March 14,
2008. Rodemacher Unit 3 is a unit that began construction between the
dates in question, and was permitted as a “minor source” within the context of
what constitutes hazardous air pollutants under Section 112(g)
rules. On March 18, 2009, Cleco received a letter from the Louisiana
Department of Environmental Quality (LDEQ) concurring with Cleco's
position that case-by-case MACT does not apply to Rodemacher Unit
3.
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. 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. Cleco has been working with the agency to resolve the
CO/NOPP and both parties have extended the dispute resolution agreement to May
15, 2009. 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 the final settlement with the LDEQ will
entail.
On
April 1, 2009 the U.S. Supreme Court held that the EPA has discretion to
consider costs relative to benefits in developing cooling water intake structure
(CWIS) regulations under section 316(b) the Clean Water Act. The
decision gives the EPA the option to retain substantial features of its July
2004 “Phase II” CWIS final rule, which set reasonable national
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
performance
standards for existing electric generating facilities, while also allowing
variances based on cost-benefit considerations. This decision by the high court
does not require that the new rule being re-written by the EPA contain a
cost-benefit provision as the suspended Phase II Rule had allowed. It
simply allows the EPA to include this method in this upcoming
rulemaking. Even with the high court’s ruling, until the EPA
finalizes its new Phase II rules, Cleco remains uncertain which technology
options will be required for its facilities.
Recent
catastrophic events involving coal ash at the Tennessee Valley Authority’s coal
ash management impoundments have prompted closer scrutiny by the EPA of coal ash
management facilities. Cleco Power has received a formal request for
information under Section 104(e) of the Comprehensive Environmental Response,
Compensation, and Liability Act regarding the safety and structural integrity of
its coal ash management units. Any new, stricter requirements imposed
on coal ash management units by the EPA could increase the cost of operating
existing units or require them to be upgraded. At this time,
management is unable to determine whether the costs associated with potential
stricter requirements will have a material adverse effect on the Registrants’
results of operations, financial condition, and cash flows.
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, 2008.
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, 2008.
CLECO
POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Set
forth below is information concerning the results of operations of Cleco Power
for the three months ended March 31, 2009, and March 31, 2008. 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 quarter of 2009 and
the first quarter of 2008. 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, 2008.
For
an explanation of material changes in the amount of revenue and expense items of
Cleco Power between the first quarter of 2009 and the first quarter of 2008, see
“— Results of Operations — Comparison of the Three Months Ended March 31, 2009,
and 2008 — Cleco Power” of this Form 10-Q, which discussion is incorporated
herein by reference.
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CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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,
aggregate counterparty credit exposure, and aggregate counterparty concentration
levels. Cleco manages these risks by establishing appropriate credit
and concentration limits on transactions with counterparties and requiring
contractual guarantees, cash deposits, or letters of credit from counterparties
or their affiliates, as deemed necessary. Cleco Power has agreements
in place with various counterparties that authorize the netting of financial
transactions and contract payments to mitigate credit risk for transactions
entered into for risk management purposes.
Access
to capital markets is a significant source of funding for both short- and
long-term capital requirements not satisfied by operating cash
flows. Recent market conditions have limited the availability and
have increased the costs of capital for many companies. The inability
to raise capital on favorable terms could negatively affect Cleco’s ability to
maintain and expand its businesses. After assessing the current
operating performance, liquidity, and credit ratings, management believes that
it will have access to the capital markets at prevailing market rates for
companies with comparable credit ratings. 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.
Interest
Rate Risks
Cleco
monitors its mix of fixed- and variable-rate debt obligations in light of
changing market conditions and from time to time may alter that mix, for
example, refinancing balances outstanding under its variable-rate credit
facility with fixed-rate debt. Calculations of the changes in fair
market value and interest expense of the debt securities are made over a
one-year period.
Sensitivity
to changes in interest rates for fixed-rate obligations is computed by
calculating the current fair market value using a net present value model based
upon a 1% change in the average interest rate applicable to such
debt. Sensitivity to changes in interest rates for variable-rate
obligations is computed by assuming a 1% change in the current interest rate
applicable to such debt.
At
March 31, 2009, Cleco had $95.0 million principal amount of long-term
variable-rate debt outstanding under its $150.0 million five-year credit
facility at a weighted average interest rate of 1.074%. The
borrowings under the credit facility are considered long-term as the credit
facility does not expire until 2011. The borrowing costs under the
facility are equal to LIBOR plus 0.65%, including facility fees. The
existing borrowings had 30-day terms and matured on April 17, 2009 and April 30,
2009. The amounts of the borrowings were renewed at maturity, rather
than repaid. Each 1% increase in the interest rate applicable to such
debt would have resulted in a $1.0 million decrease in pre-tax earnings of
Cleco. Cleco had no short-term variable-rate debt as of March 31,
2009.
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 monitoring by a risk management committee comprised of officers and the
General Manager – Internal Audit, who are appointed by Cleco Corporation’s Board
of Directors. VaR limits are recommended by the Risk Management
Committee and monitored through a daily risk report that identifies the current
VaR, market conditions.
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 March 31,
2009, the positions had a negative mark-to-market value of $1.4 million, which
is a decrease of $1.2 million from the negative mark-to-market value
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
of
$0.2 million at December 31, 2008. In addition, these positions
resulted in a realized loss of $0.3 million for the three months ended March 31,
2009. 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. Cleco Power’s fuel stabilization policy targets higher levels
of minimum hedging percentages and mitigates 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 March 31, 2009, the net
mark-to-market impact related to open natural gas positions was a loss of $72.7
million. Deferred losses relating to closed natural gas positions at
March 31, 2009, and December 31, 2008, totaled $6.8 million and $6.4 million,
respectively.
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 Cleco Power’s hedge transactions for
the three months ended March 31, 2009, as well as the VaR at December 31,
2008, is summarized below:
|
|
FOR
THE THREE MONTHS
ENDED
MARCH 31, 2009
|
|
|
AT MARCH 31,
|
|
|
AT DECEMBER 31,
|
|
(THOUSANDS)
|
|
HIGH
|
|
|
LOW
|
|
|
AVERAGE
|
|
|
2009
|
|
|
2008
|
|
Economic
hedges
|
|
$ |
268.1 |
|
|
$ |
123.3 |
|
|
$ |
175.8 |
|
|
$ |
197.4 |
|
|
$ |
239.0 |
|
Fuel
cost hedges
|
|
$ |
7,292.8 |
|
|
$ |
3,152.5 |
|
|
$ |
4,714.9 |
|
|
$ |
5,453.1 |
|
|
$ |
6,519.0 |
|
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 March 31, 2009, Cleco Power had no long-term or short-term variable-rate debt
outstanding.
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 first fiscal quarter of 2009, there
have been no changes in either Cleco Corporation’s and 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 and Cleco Power’s internal control over financial
reporting.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
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 10 —
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 10 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Litigation.”
There
have been no material changes from the risk factors disclosed under the heading
“Risk Factors” in Item 1A of the Registrants’ Combined Annual Report on Form
10-K for the fiscal year ended December 31, 2008 (the “2008 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 2008 Annual Report on Form
10-K.
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST QUARTER
FORM 10-Q
|
CLECO
CORPORATION
|
|
10.1
|
Form
of Cleco Corporation Executive Employment Agreement (Level 1)
(incorporated by reference to Exhibit 10.1 of Cleco Corporation Form 8-K
(file no. 1-15759), filed with the SEC on January 9, 2009).
|
10.2
|
2010
Long-Term Incentive Compensation Plan, effective as of January 1, 2010
(incorporated by reference to Appendix C to Cleco Corporation’s definitive
Proxy Statement relating to its Annual Meeting of Shareholders held on
April 24, 2009 (file no. 1-15759), filed with the SEC on March 12,
2009)
|
12(a)
|
Computation
of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed
Charges and Preferred Stock Dividends for the three- and twelve-month
periods ended March 31, 2009, for Cleco Corporation
|
31.1
|
CEO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
|
31.2
|
CFO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
|
32.1
|
CEO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
CFO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
CLECO
POWER
|
|
10.1
|
Form
of Cleco Corporation Executive Employment Agreement (Level 1)
(incorporated by reference to Exhibit 10.1 of Cleco Power Form 8-K
(file no. 1-05663), filed with the SEC on January 9, 2009).
|
10.3
|
Cleco
Power LLC 401(k) Savings and Investment Plan, Amendment Number 5 and Plan
of Merger with the Cleco Energy LLC 401(k) Savings Investment Plan,
effective March 1, 2009
|
12(b)
|
Computation
of Ratios of Earnings to Fixed Charges for the three- and
twelve-month periods ended March 31, 2009, for Cleco Power
|
31.3
|
CEO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
|
31.4
|
CFO
Certification in accordance with section 302 of the Sarbanes-Oxley Act of
2002
|
32.3
|
CEO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
32.4
|
CFO
Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST 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.
|
CLECO
CORPORATION
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
By: /s/
R. Russell Davis
|
|
R. Russell
Davis
|
|
Vice President, Chief
Accounting Officer & Interim
CFO
|
Date: May
6, 2009
CLECO
CORPORATION |
|
CLECO POWER |
2009 1ST 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.
|
CLECO
POWER LLC
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
By: /s/
R. Russell Davis
|
|
R. Russell
Davis
|
|
Vice President, Chief
Accounting Officer & Interim
CFO
|
51