Document

FOR THE YEAR ENDED DEC. 31,

(THOUSANDS)

Support Group

(Exact name of registrant as specified in its charter)



Louisiana (State or other jurisdiction of incorporation or organization)		72-0244480 (I.R.S. Employer Identification No.)

2030 Donahue Ferry Road, Pineville, Louisiana (Address of principal executive offices)		71360-5226 (Zip Code)

Registrant’s telephone number, including area code: (318) 484-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None


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

Indicate by check mark if Cleco Corporate Holdings LLC is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if Cleco Power LLC is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the Registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o

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 o Nox

Indicate by check mark whether the Registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revise accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revise accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

References in Part III, Item 11 in this filing to “we,” “our,” and “the Company” mean Cleco Corporate Holdings LLC, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing, including all items in Parts I, II, III, and IV are defined below:



ABBREVIATION OR ACRONYM	DEFINITION
2016 Merger	Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016
2016 Merger Commitments	Cleco Partners’, Cleco Group’s, Cleco Holdings’, and Cleco Power’s 77 commitments to the LPSC as defined in Docket No. U-33434 of which a performance report must be filed annually by October 31 for the 12 months ending June 30
401(k) Plan	Cleco Power 401(k) Savings and Investment Plan
ABR	Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or LIBOR plus 1.0%
Acadia	Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1	Cleco Power’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2	Entergy Louisiana’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power
ADIT	Accumulated Deferred Income Tax
AFUDC	Allowance for Funds Used During Construction
ALJ	Administrative Law Judge
Amended Lignite Mining Agreement	Amended and restated lignite mining agreement effective December 29, 2009
AMI	Advanced Metering Infrastructure
AOCI	Accumulated Other Comprehensive Income (Loss)
ARO	Asset Retirement Obligation
ARRA	American Recovery and Reinvestment Act of 2009
Attala	Attala Transmission LLC, a wholly owned subsidiary of Cleco Holdings
BCI	British Columbia Investment Management Corporation
Brame Energy Center	A facility consisting of Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3
CAA	Clean Air Act
CCR	Coal combustion by-products or residual
CEO	Chief Executive Officer
CFO	Chief Financial Officer
Cleco	Cleco Holdings and its subsidiaries
Cleco Cajun	Cleco Cajun LLC, formerly Cleco Energy LLC, a wholly owned subsidiary of Cleco Holdings
Cleco Cajun Transaction	The transaction between Cleco Cajun and NRG Energy in which Cleco Cajun acquired all the membership interest in NRG South Central which closed on February 4, 2019.
Cleco Corporation	Pre-2016 Merger entity that was converted to a limited liability company and changed its name to Cleco Corporate Holdings LLC on April 13, 2016
Cleco Group	Cleco Group LLC, a wholly owned subsidiary of Cleco Partners
Cleco Holdings	Cleco Corporate Holdings LLC, a wholly owned subsidiary of Cleco Group
Cleco Katrina/Rita	Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Cleco Partners	Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by MIRA, BCI, John Hancock Financial, and other infrastructure investors
Cleco Power	Cleco Power LLC and its subsidiaries, a wholly owned subsidiary of Cleco Holdings
CO₂	Carbon dioxide
Cottonwood Energy	Cottonwood Energy Company LP, a wholly owned subsidiary of Cleco Cajun. Prior to the closing of the Cleco Cajun Transaction on February 4, 2019, Cottonwood Energy was an indirect subsidiary of NRG South Central.
Coughlin	Cleco Power’s 775-MW, combined-cycle power plant located in St. Landry, Louisiana
CPP	Clean Power Plan
CSAPR	Cross-State Air Pollution Rule
DHLC	Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands	Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings
Dolet Hills	A facility consisting of Dolet Hills Power Station, the Dolet Hills mine, and the Oxbow mine
Dolet Hills Power Station	A 650-MW generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of Dolet Hills.
EAC	Environmental Adjustment Clause
EBITDA	Earnings before interest, taxes, depreciation, and amortization
EGU	Electric Generating Unit
Entergy Gulf States	Entergy Gulf States Louisiana, LLC
Entergy Louisiana	Entergy Louisiana, LLC
EPA	U.S. Environmental Protection Agency
ERO	Electric Reliability Organization
ESPP	Employee Stock Purchase Plan



ABBREVIATION OR ACRONYM	DEFINITION
Evangeline	Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC	Fuel Adjustment Clause
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fitch	Fitch Ratings, a credit rating agency
FTR	Financial Transmission Right
FRP	Formula Rate Plan
GAAP	Generally Accepted Accounting Principles in the U.S.
GO Zone	Gulf Opportunity Zone Act of 2005 (Public Law 109-135)
IRC	Internal Revenue Code
IRP	Integrated Resource Plan
IRS	Internal Revenue Service
ISO	Independent System Operator
kWh	Kilowatt-hour(s)
LDEQ	Louisiana Department of Environmental Quality
LED	Louisiana Economic Development
LIBOR	London Interbank Offered Rate
LMP	Locational Marginal Price
LPSC	Louisiana Public Service Commission
LTIP	Long-Term Incentive Compensation Plan
Madison Unit 3	A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana
MATS	Mercury and Air Toxics Standards
Merger Agreement	Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation relating to the 2016 Merger
Merger Sub	Cleco MergerSub Inc., previously an indirect wholly owned subsidiary of Cleco Partners that was merged with and into Cleco Corporation, with Cleco Corporation surviving the 2016 Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings
Midstream	Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Holdings
MIRA	Macquarie Infrastructure and Real Assets Inc.
MISO	Midcontinent Independent System Operator, Inc.
MMBtu	Million British thermal units
Moody’s	Moody’s Investors Service, a credit rating agency
MW	Megawatt(s)
MWh	Megawatt-hour(s)
N/A	Not Applicable
NAAQS	National Ambient Air Quality Standards
NERC	North American Electric Reliability Corporation
NMTC	New Markets Tax Credit
NMTC Fund	USB NMTC Fund 2008-1 LLC was formed to invest in projects qualifying for New Markets Tax Credits and Solar Projects. This fund was dissolved effective January 25, 2019.
NOAA	National Oceanic and Atmospheric Administration
Not Meaningful	A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000%
NO₂	Nitrogen dioxide
NO_x	Nitrogen oxide
NRG Energy	NRG Energy, Inc.
NRG South Central	NRG South Central Generating LLC
Other Benefits	Includes medical, dental, vision, and life insurance for Cleco’s retirees
Oxbow	Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO
PCB	Polychlorinated biphenyl
Perryville	Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings
ppb	Parts per billion
Predecessor	Pre-merger activity of Cleco. Cleco has accounted for the 2016 Merger transaction by applying the acquisition method of accounting. The predecessor period is not comparable to the successor period.
Purchase and Sale Agreement	Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, NRG South Central, and Cleco Cajun
RE	Regional Entity
Registrant(s)	Cleco Holdings and/or Cleco Power
Rodemacher Unit 2	A 523-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana. Cleco Power has a 30% ownership interest in the capacity of Rodemacher Unit 2.
ROE	Return on Equity
RTO	Regional Transmission Organization

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


•	the effects of the Cleco Cajun Transaction and the 2016 Merger on Cleco Holdings’ and Cleco Power’s business relationships, operating results, and business generally,

•

regulatory factors, such as changes in rate-setting practices or policies; political actions of governmental regulatory bodies; adverse regulatory ratemaking actions; recovery of investments made under traditional regulation; recovery of storm restoration costs; the frequency, timing, and amount of rate increases or decreases; the impact that rate cases or requests for FRP extensions may have on operating decisions of Cleco Power; the results of periodic NERC, LPSC, and FERC audits; participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to additional suppliers; and compliance with the ERO reliability standards for bulk power systems by Cleco Power,


•	the ability to recover fuel costs through the FAC,


•	the ability to successfully integrate the assets acquired in the Cleco Cajun Transaction into Cleco’s operations,

•

factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other storms or severe drought conditions; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs or fuel supply costs, shortages, transportation problems, or other developments; fuel mix of Cleco’s generating facilities; decreased customer load; environmental incidents and compliance costs; and power transmission system constraints,


•	reliance on third parties for determination of Cleco’s commitments and obligations to markets for generation resources and reliance on third-party transmission services,


•	global and domestic economic conditions, including the

ability of customers to continue paying their utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates,


•	political uncertainty in the U.S., including the ongoing debates related to the U.S. federal government budget and debt ceiling, and volatility and disruption in global capital and credit markets,


•	the ability of the lignite reserves at Dolet Hills to provide sufficient fuel to the Dolet Hills Power Station for seasonal operations until at least 2036,


•	Cleco Power’s ability to maintain its right to sell wholesale power at market-based rates within its control area,


•	Cleco Power’s dependence on energy from sources other than its facilities and future sources of such additional energy,


•	reliability of Cleco Power’s generating facilities,


•	the imposition of energy efficiency requirements or increased conservation efforts of customers,


•	the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of Cleco’s generating units, increase costs, or reduce customer demand for electricity,


•	the ability to recover costs of compliance with environmental laws and regulations, including those through the EAC,


•	financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight,


•	changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,


•	legal, environmental, and regulatory delays and other obstacles associated with acquisitions, reorganizations, investments in joint ventures, or other capital projects,


•	costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,


•	the availability and use of alternative sources of energy and technologies, such as wind, solar, battery storage, and distributed generation,


•	changes in federal, state, or local laws (including the TCJA and other tax laws), changes in tax rates, disallowances of tax positions, or changes in other regulating policies that may result in a change to tax benefits or expenses,


•	the restriction on the ability of Cleco Power to make distributions to Cleco Holdings in certain instances, as a result of the 2016 Merger Commitments,


•	Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations,


•	acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters,


•	credit ratings of Cleco Holdings and Cleco Power,


•	Cleco Holdings’ and Cleco Power’s ability to remain in compliance with their respective debt covenants,


•	the availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and


•	workforce factors, including aging workforce, changes in management, and unavailability of skilled employees.

For more discussion of these factors and other factors that could cause actual results to differ materially from those

contemplated in the Registrants’ forward-looking statements, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Comparison of the Years Ended December 31, 2018, and 2017 — Cleco Power — Significant Factors Affecting Cleco Power” in this Annual Report on Form 10-K.

All subsequent written and oral forward-looking statements attributable to the Registrants, or persons acting on their behalf, are expressly qualified in their entirety by the factors identified above.

Any forward-looking statement is considered only as of the date of this Annual Report on Form 10-K and, except as required by law, the Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.



GENERAL

Cleco Holdings is a public utility holding company that holds investments in several subsidiaries, including Cleco Power. Prior to the Cleco Cajun Transaction, substantially all of Cleco Holdings’ operations were conducted through Cleco Power. Cleco Holdings, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to provisions of the Public Utility Holding Company Act of 2005. Cleco Holdings’ predecessor was incorporated on October 30, 1998, under the laws of the state of Louisiana. On April 13, 2016, Cleco Holdings completed its merger with Merger Sub whereby Merger Sub merged with and into Cleco Corporation, with Cleco Corporation surviving the 2016 Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings, as a direct, wholly owned subsidiary of Cleco Group and an indirect, wholly owned subsidiary of Cleco Partners. For more information on the 2016 Merger, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 4 — Business Combinations.”

Cleco Power is a regulated electric utility engaged principally in the generation, transmission, distribution, and sale of electricity within Louisiana. Cleco Power owns nine generating units with a total nameplate capacity of 3,310 MW and serves approximately 291,000 customers in Louisiana through its retail business. Additionally, Cleco Power supplies wholesale power in Louisiana and Mississippi. Cleco Power was organized as a limited liability company under the laws of the state of Louisiana on December 12, 2000. Cleco Power’s predecessor was incorporated on January 2, 1935, under the laws of the state of Louisiana.

Cleco Cajun was organized on December 28, 2017, under the laws of the state of Louisiana. On February 4, 2019, the Cleco Cajun Transaction was completed. For more information on the Cleco Cajun Transaction, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 21 — Cleco Cajun Transaction.”

At December 31, 2018, Cleco had 1,212 employees. Cleco’s mailing address is P.O. Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is (318) 484-7400. Cleco’s website is located at https://www.cleco.com. Cleco and Cleco Power’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC are available, free of charge, through Cleco’s website after those reports or filings are filed electronically with or furnished to the SEC. Cleco’s electronically filed reports can also be obtained on the SEC’s website located at https://www.sec.gov. Cleco’s governance guidelines, code of conduct for financial managers, ethics and business standards, and the charters of its boards of managers’ audit, leadership development and compensation, business planning and budget review, governance and public affairs, and asset management committees are available on its website and available in print upon request. Information on Cleco’s website or any other website is not incorporated by reference into this Annual Report on Form 10-K and does not constitute a part of this Annual Report on Form 10-K.

At December 31, 2018, Cleco Power had 996 employees. Cleco Power’s mailing address is P.O. Box 5000, Pineville, Louisiana, 71361-5000, and its telephone number is (318) 484-7400.

Cleco Power meets the conditions specified in General Instructions I(1)(a) and (b) to Form 10-K and, therefore, is permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, Cleco Power has omitted from this Annual Report on Form

10-K the information called for by the following Part II items of Form 10-K: Item 6 (Selected Financial Data) and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations); and the following Part III items of Form 10-K: Item 10 (Directors, Executive Officers, and Corporate Governance of the Registrants), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), and Item 13 (Certain Relationships and Related Transactions, and Director Independence).

Because the Cleco Cajun Transaction closed after December 31, 2018, the Registrants’ respective consolidated financial statements and the notes thereto do not include or take into account the closing and the effects of the Cleco Cajun Transaction. For more information on the Cleco Cajun Transaction, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 21 — Cleco Cajun Transaction.”



OPERATIONS

Cleco Power

Certain Factors Affecting Cleco Power

As an electric utility, Cleco Power is affected by a number of factors influencing the electric utility industry in general. For more information on these factors, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Comparison of the Years Ended December 31, 2018, and 2017 — Cleco Power — Significant Factors Affecting Cleco Power.”

Power Generation

As of December 31, 2018, Cleco Power’s aggregate net electric generating capacity was 3,162 MW. This amount reflects the maximum production capacity these units can sustain over a specified period of time. Beginning March 1, 2019, Cleco Power intends to operate Dolet Hills Power Station from June through September of each year; however, Dolet Hills Power Station will be available to operate in other months, as needed. Cleco Power will continue to evaluate the cost of operating the Dolet Hills Power Station compared with other alternatives and decide the best course of action for the Dolet Hills Power Station within the LPSC regulatory requirements and recovery mechanism. The following table sets forth certain information with respect to Cleco Power’s generating facilities as of December 31, 2018:

⁽⁴⁾Represents Cleco Power’s 50% ownership interest in the capacity of Dolet Hills, a 650-MW generating unit.

The following table sets forth the amounts of power generated by Cleco Power for the years indicated:



YEAR	THOUSAND MWh	PERCENT OF TOTAL ENERGY REQUIREMENTS
2018	11,848	94.6	%
2017	10,864	91.1	%
2016	12,759	103.6	%
2015	12,564	100.2	%
2014	9,858	74.9	%

Cleco Power’s generation dispatch and transmission operations are integrated with MISO. The amount of power generated by Cleco Power is dictated by the availability of Cleco Power’s generating fleet and the manner in which MISO dispatches each generating unit. Depending on how generating units are dispatched by MISO, the amount of power generated may be greater than or less than total energy requirements. Generating units are dispatched by referencing each unit’s economic efficiency as it relates to the overall MISO market. For more information on MISO, see Part II, Item 7,

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates of Cleco Power.”

Fuel and Purchased Power

Changes in fuel expenses reflect fluctuations in the amount, type, and pricing of fuel used for electric generation; fuel transportation and delivery costs; and deferral of expenses for recovery from customers through the FAC in subsequent months. Changes in purchased power expenses are a result of the quantity and price of economic power purchased from the MISO market. These quantity changes can be affected by Cleco plant outages and plant performance. For a discussion of certain risks associated with changes in fuel costs and their impact on utility customers, see Item 1A, “Risk Factors — Transmission Constraints” and “— LPSC Audits.”

The following table sets forth the percentages of power generated from various fuels at Cleco Power’s electric generating plants, the cost of fuel used per MWh attributable

to each such fuel, and the weighted average fuel cost per MWh:



			LIGNITE				COAL				NATURAL GAS			PETROLEUM COKE				WEIGHTED AVERAGE COST PER MWh
YEAR	COST PER MWh		PERCENT OF GENERATION		COST PER MWh		PERCENT OF GENERATION		COST PER MWh			PERCENT OF GENERATION		COST PER MWh		PERCENT OF GENERATION		WEIGHTED AVERAGE COST PER MWh
2018	$	93.88	6.9	%	$	22.55	16.7	%	$	26.81		52.6	%	$	26.54	23.8	%	$	30.66
2017	$	44.70	8.9	%	$	24.75	12.4	%	$	27.19		51.3	%	$	22.50	27.4	%	$	27.16
2016	$	50.39	13.0	%	$	28.13	9.3	%	$	20.84		52.9	%	$	18.77	24.8	%	$	24.86
2015	$	46.87	16.9	%	$	28.68	9.7	%	$	21.37		50.6	%	$	19.80	22.8	%	$	26.04
2014	$	44.79	14.6	%	$	27.34	15.6	%	$	37.00		35.0	%	$	21.52	34.8	%	$	31.19

Power Purchases

Cleco Power is a participant in the MISO market. MISO makes economic and routine dispatch decisions regarding Cleco Power’s generating units. Power purchases are made at prevailing market prices, also referred to as LMP, which are highly correlated to natural gas prices. LMP includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have higher LMPs. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power’s pricing zones. For information on Cleco Power’s ability to pass on to its customers substantially all of its fuel and purchased power expenses, see “— Regulatory Matters, Industry Developments, and Franchises — Rates.” For information on the cost benefit analysis of Cleco Power’s MISO

membership, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Retail Rates of Cleco Power — MISO Cost Benefit Analysis.”

Coal, Petroleum Coke, and Lignite Supply

Cleco Power uses coal for generation at Rodemacher Unit 2. During 2018, Cleco Power contracted with Cloud Peak Energy, Arch Coal Sales, and Coal Network LLC to provide Cleco Power’s coal needs at Rodemacher Unit 2, utilizing short-term spot coal agreements. The coal supply agreements were fixed-price contracts or based on market indexes. For 2019, Cleco Power intends to meet its coal needs through short-term spot coal agreements which are expected to be fixed-price contracts or based on market indexes. For the transportation of coal, Cleco Power has an agreement with Union Pacific Railroad Company to transport coal from Wyoming’s Powder

River Basin to Rodemacher Unit 2. The transportation agreement is for three years, expiring December 31, 2019. Cleco Power expects to renegotiate with Union Pacific Railroad Company to continue this transportation agreement. Cleco Power leases 200 railcars to transport its coal under two leases. One lease expires on March 31, 2021, and the newest lease, which was entered into on April 1, 2017, expires on March 31, 2020.

The continuous supply of coal may be subject to interruption due to adverse weather conditions or other factors that may disrupt transportation to the plant site. At December 31, 2018, Cleco Power’s coal inventory at Rodemacher Unit 2 was approximately 77,000 tons (approximately a 32-day supply).

Cleco Power uses a combination of petroleum coke and Illinois Basin coal for generation at Madison Unit 3. Petroleum coke is a by-product of the oil refinery process and is not considered a fuel specifically produced for a market; however, ample petroleum coke supplies are produced from refineries each year throughout the world, particularly in the Gulf Coast region. During 2018, Cleco received its petroleum coke supply from multiple refineries located along the upper and lower Mississippi River. Cleco purchased slightly more than 900,000 tons of petroleum coke during 2018, all of which were either an evergreen extension of a previous agreement or a negotiated agreement for one year ending December 31, 2018. For 2019, Cleco has contracted for 650,000 tons of petroleum coke from multiple refineries located along the upper and lower Mississippi River through one-year agreements ending December 31, 2019. The agreements are priced according to the Jacobs Consultancy Petroleum Coke Quarterly Monthly Price Index or the “PACE” Monthly Index.

During 2018, Cleco purchased approximately 525,000 tons of Illinois Basin coal. Cleco Power uses Louisiana waterways, such as the Mississippi River and the Red River, to deliver both petroleum coke and Illinois Basin coal to the Madison Unit 3 plant site. The continuous supply of petroleum coke and Illinois Basin coal may be subject to interruption due to adverse weather conditions or other factors that may disrupt transportation to the plant site. Savage Inland Marine is Cleco Power’s exclusive transportation coordinator and provider. From September 2017 until April 2, 2018, Cleco Power had a logistics agreement with Savage Services that renewed on a month-to-month basis. On April 2, 2018, Cleco Power entered into a new logistics agreement with Savage Inland Marine that is set to expire in March 2033. At December 31, 2018, Cleco Power’s petroleum coke inventory at Madison Unit 3 was approximately 366,000 tons and Cleco Power’s Illinois Basin coal inventory at Madison Unit 3 was approximately 126,000 tons. The total fuel inventory was 492,000 tons (approximately a 98-day supply).

Cleco Power uses lignite for generation at the Dolet Hills Power Station. Cleco Power and SWEPCO each own an undivided 50% interest in the other’s leased and owned lignite reserves within the Dolet Hills mine in northwestern Louisiana. Additionally, through Oxbow, which is owned 50% by Cleco Power and 50% by SWEPCO, Cleco Power and SWEPCO control 74 million tons of estimated recoverable lignite reserves also located in northwestern Louisiana. Cleco Power and SWEPCO have entered into a long-term agreement with DHLC for the mining and delivery of lignite reserves at both mines, which are operated by SWEPCO. The Amended Lignite Mining Agreement requires Cleco Power and SWEPCO to purchase

the lignite mined and delivered by DHLC at cost plus a specified management fee. The term of this contract runs until all economically mineable lignite has been mined. The reserves from these mines are expected to be sufficient to fuel the Dolet Hills Power Station for seasonal operations until at least 2036. At December 31, 2018, Cleco Power’s investment in Oxbow was $18.2 million. For information regarding deferred mining costs and obligations associated with this mining agreement see, Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 5 — Regulatory Assets and Liabilities — Mining Costs,” Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees,” and “— Long-Term Purchase Obligations.” For more information on Oxbow, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Variable Interest Entities.”

The continuous supply of lignite may be subject to interruption due to adverse weather conditions or other factors that may disrupt mining operations or transportation to the plant site. During 2018, the cost of lignite per MWh increased primarily due to the mine continuing to incur fixed costs, despite fewer tons of lignite mined compared to prior years. At December 31, 2018, Cleco Power’s lignite inventory at Dolet Hills was approximately 239,000 tons (approximately a 38-day supply).

Natural Gas Supply

During 2018, Cleco Power purchased 36.1 million MMBtu of natural gas for the generation of electricity. The annual and average per-day quantities of gas purchased by Cleco Power from each supplier are shown in the following table:



NATURAL GAS SUPPLIER	2018 PURCHASES (MMBtu)	AVERAGE AMOUNT PURCHASED PER DAY (MMBtu)	PERCENT OF TOTAL NATURAL GAS USED
Tenaska Marketing Ventures	10,087,891	27,638	28.0	%
Shell Energy North America	5,107,793	13,994	14.2	%
DTE Energy Trading, Inc.	4,439,000	12,162	12.3	%
Sequent Energy Management	4,323,600	11,845	12.0	%
BP Energy Company	2,506,778	6,868	7.0	%
Range Resources	2,302,930	6,309	6.4	%
Spire Marketing, Inc.	1,600,108	4,384	4.4	%
Mansfield Power and Gas	1,199,400	3,286	3.3	%
Others	4,487,609	12,295	12.4	%
Total	36,055,109	98,781	100.0	%

Cleco Power owns natural gas pipelines and interconnections at all of its generating facilities that allow it to access various natural gas supply markets and maintain a reliable, economical fuel supply for Cleco Power’s customers.

Natural gas was available without interruption throughout 2018. Cleco Power expects to continue to meet its natural gas requirements with purchases on the spot market through daily, monthly, and seasonal contracts with various natural gas suppliers. However, future supplies to Cleco Power remain vulnerable to disruptions due to weather events and transportation issues. Large industrial users of natural gas, including electric utilities, generally have low priority among gas users in the event pipeline suppliers are forced to curtail deliveries due to inadequate supplies. As a result, prices may increase rapidly in response to temporary supply interruptions. During 2018, in order to partially address potential natural gas fuel curtailments and interruptions, Cleco contracted for natural gas firm transportation with several interstate pipelines

for a period of one year ending in late 2019. Additionally, the Coughlin Pipeline project, expected to be completed in the third quarter of 2019, is expected to increase reliability for natural gas delivery and mitigate exposure to transportation cost increases. For more information on the Coughlin Pipeline project see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Cleco Power — Coughlin Pipeline Project.”

Cleco uses gas storage in order to supply gas to Cleco Power’s generating facilities in the event of an interruption of supply due to events of force majeure and to operationally balance gas supply to the units. The storage volume is contracted by paying a capacity reservation charge at a fixed rate. There are also variable charges incurred to withdraw and inject gas from storage. At December 31, 2018, Cleco Power had 1.7 million MMBtu of gas in storage. Currently, Cleco Power anticipates that its diverse supply options and gas storage, combined with its solid-fuel generation resources, are adequate to meet its generation needs during any temporary interruption of natural gas supplies.

Sales

Cleco Power’s 2018 and 2017 system peak demands, which occurred on January 17, 2018, and July 20, 2017, were 2,879 MW and 2,508 MW, respectively. Sales and system peak demand are affected by weather and are typically highest during the summer air-conditioning season; however, peaks may occur during the winter season as well. In 2018, Cleco Power experienced warmer than normal summer weather conditions and warmer than normal winter weather conditions. In 2017, Cleco Power experienced warmer than normal summer weather conditions and warmer than normal winter weather conditions. For information on the effects of future energy sales on Cleco Power’s results of operations, financial condition, and cash flows, see Item 1A, “Risk Factors — Future Electricity Sales” and “— Weather Sensitivity.” For information on the financial effects of seasonal demand on Cleco Power’s quarterly operating results, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 20 — Miscellaneous Financial Information (Unaudited).”

Reserve margin is the net capacity resources (either owned or purchased) less native load demand, divided by native load demand. Members of MISO submit their forecasted native load demand to MISO each year. During 2018, Cleco Power’s reserve margin was 21.2%, which was above MISO’s unforced planning reserve margin benchmark of 8.4%. During 2017, Cleco Power’s reserve margin was 17.9%, which was above MISO’s unforced planning reserve margin benchmark of 7.8%. Cleco Power expects to meet or exceed MISO’s unforced planning reserve margin benchmark of 7.9% in 2019. For more information on MISO, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates of Cleco Power.”

Capital Investment Projects

For a discussion of certain Cleco Power major capital investment projects, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Cleco Power — St. Mary Clean Energy Center Project,” “— Terrebonne to Bayou Vista

Transmission Project,” “— Coughlin Pipeline Project,” “— Bayou Vista to Segura Transmission Project,” “— START Project,” and “— DSMART Project.”

Customers

No single customer accounted for 10% or more of Cleco or Cleco Power’s consolidated revenue in 2018, 2017, or 2016. Cleco Power has a significant wholesale customer that accounted for 9.9% of Cleco and Cleco Power’s consolidated revenue in 2018, 9.3% in 2017, and 9.2% in 2016. For more information regarding Cleco’s sales and revenue, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Capital Expenditures and Financing

For information on Cleco’s capital expenditures, financing, and related matters, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures.”



REGULATORY MATTERS, INDUSTRY DEVELOPMENTS, AND FRANCHISES

Rates

Cleco Power’s electric operations are subject to the jurisdiction of the LPSC with respect to retail rates, standards of service, accounting, and other matters. Also, Cleco Power is subject to the jurisdiction of FERC with respect to transmission tariffs, accounting, interconnections with other utilities, reliability, and the transmission of power. Periodically, Cleco Power has sought and received from both the LPSC and FERC increases in retail rates and transmission tariffs, respectively, to cover increases in operating costs and costs associated with additions to generation, transmission, and distribution facilities. The rates Cleco Power charges its wholesale customers are subject to FERC’s triennial market power analysis.

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of the FRP, Cleco Power is allowed to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60% of retail earnings between 10.9% and 11.75% and all retail earnings over 11.75% are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds are ultimately subject to LPSC approval. Cleco Power expects to file an application with the LPSC for a new FRP by July 1, 2019, with anticipated new rates being effective on July 1, 2020.

For more information on the FAC and the most recent fuel audit, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

In 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides for an EAC to recover from customers certain costs of environmental compliance. These expenses are eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC. For more information on the EAC and the ongoing environmental audit covering January 1, 2016, through December 31, 2017, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit.”

For more information on the LPSC Staff’s FRP reviews, amounts accrued by Cleco Power as a result of the TCJA, and information on the tax dockets, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — FRP” and “— TCJA.”

For more information on Cleco Power’s retail and wholesale rates, including Cleco Power’s FRP, see Item 1A, “Risk Factors — LPSC Audits,” “— Cleco Power’s Rates,” “— Retail Electric Service,” and “— Wholesale Electric Service” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Retail Rates of Cleco Power,” and “— Wholesale Rates of Cleco Power.”

Franchises

Cleco Power operates under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state law. These franchises are for fixed terms, which vary from 10 years to more than 50 years. Historically, Cleco Power has been substantially successful in the timely renewal of franchises as each neared the end of its term. Cleco Power’s next municipal franchise expires in July 2021.

Franchise Renewals

Cleco Power renewed the following franchise agreements:



RENEWAL DATE	CITY/TOWN/VILLAGE	TERM	NUMBER OF CUSTOMERS
April 2017	Slidell	35 years	13,823
July 2017	Rosepine	33 years	916
July 2017	Cheneyville	33 years	356
October 2017	New Llano⁽¹⁾	15 years	7
January 2019	Jeanerette	22 years	2,849

⁽¹⁾This franchise agreement provides Cleco Power the opportunity to compete for future growth opportunities in the town.

Industry Developments

For information on industry developments, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring.”

Wholesale Electric Competition

For a discussion of wholesale electric competition, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring — Wholesale Electric Markets.”

Retail Electric Competition

For a discussion of retail electric competition, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring — Retail Electric Markets.”

Legislative and Regulatory Changes and Matters

Various federal and state legislative and regulatory bodies are considering a number of issues that could shape the future of the electric utility industry. Such issues include, among others:


•	the ability of electric utilities to recover stranded costs,


•	the impact of the TCJA on regulated public utilities,


•	the role of electric utilities, independent power producers, and competitive bidding in the purchase, construction, and operation of new generating capacity,


•	the role of electric utilities and independent transmission providers in competitive bidding in the construction of new transmission facilities,


•	the pricing of transmission service on an electric utility’s transmission system, or the cost of transmission services provided by an RTO/ISO,


•	FERC’s assessment of market power and a utility’s ability to buy generation assets,


•	mandatory transmission reliability standards,


•	NERC’s imposition of additional reliability and cybersecurity standards,


•	the authority of FERC to grant utilities the power of eminent domain,


•	increasing requirements for renewable energy sources,


•	demand response and energy efficiency standards,


•	comprehensive multi-emissions environmental regulation in the areas of air, water, and waste,


•	regulation of greenhouse gas emissions,


•	regulation of the disposal and management of CCRs from coal-fired power plants, and


•	FERC’s increased ability to impose financial penalties.

At this time, management is unable to predict the outcome of such issues or the effects thereof on the results of operations, financial condition, or cash flows of the Registrants.

For information on certain regulatory matters and regulatory accounting affecting Cleco, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters.”



ENVIRONMENTAL MATTERS

Environmental Quality

Cleco is subject to federal, state, and local laws and regulations governing the protection of the environment. Violations of these laws and regulations may result in substantial fines and penalties. Cleco has obtained the environmental permits necessary for its operations, and management believes Cleco is in compliance in all material respects with these permits, as well as all applicable environmental laws and regulations. Environmental requirements affecting electric power generating facilities are complex, change frequently, and have become more stringent over time as a result of new legislation, administrative actions, and judicial interpretations. Therefore, the capital costs and

other expenditures necessary to comply with existing and new environmental requirements are difficult to determine. Cleco Power may request recovery of the costs to comply with certain environmental laws and regulations from its retail customers. If revenue relief were to be approved by the LPSC, then Cleco Power’s retail rates could increase. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, then Cleco Power would bear those costs directly. Such a decision could negatively impact the results of operations, financial condition, or cash flows of the Registrants. For Cleco Power’s expected capital expenditures related to environmental compliance in 2019, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures.”

Air Quality

Air emissions from each of Cleco’s generating units are strictly regulated by the EPA and the LDEQ. The LDEQ has authority over and implements certain air quality programs established by the EPA under the federal CAA, as well as its own air quality regulations. The LDEQ establishes standards of performance and requires permits for EGUs in Louisiana. All of Cleco’s generating units are subject to these requirements.

The EPA has proposed and adopted rules under the authority of the CAA relevant to the emissions of SO₂ and NO_x from Cleco’s generating units. The CAA contains a regional haze program with the goal of returning certain areas of the nation to natural visibility by 2064. States are required to develop regional haze State Implementation Plans (SIP) and revise them every ten years. A SIP must include requirements for the installation of Best Available Retrofit Technology (BART) for applicable EGUs in Louisiana. The EPA issued a final approval of the Louisiana SIP in December 2017 and it is currently on appeal to the U.S. Court of Appeals for the Fifth Circuit by the Sierra Club and the National Parks Conservation Association. Because the Louisiana SIP mandates use of existing controls and participation in the Cross State Air Pollution rule as BART, Cleco does not believe the Louisiana SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

The CAA also established the Acid Rain Program to address the effects of acid rain and imposed restrictions on acid rain-causing SO₂ emissions from certain generating units. The CAA requires these EGUs to possess a regulatory allowance for each ton of SO₂ emitted beginning in the year 2000. The EPA allocates a set number of allowances to each affected unit based on its historic emissions. Cleco expects to have sufficient allowances for 2019 operations under the Acid Rain Program.

The Acid Rain Program also established emission rate limits on NO_x emissions for certain generating units. Cleco Power is able to achieve compliance with the acid rain permit limits for NO_x at all of its affected facilities.

In December 2015, the EPA published the proposed CSAPR update for the 2008 ozone NAAQS in the Federal Register. The EPA finalized the rule in October 2016 with publication in the Federal Register. The EPA proposed Federal Implementation Plans (FIP) that update the existing EGU CSAPR NO_x ozone season emission budgets and implement the budgets through the existing CSAPR NO_x ozone-season allowance trading program. The FIP required implementation began with the 2017 ozone season. Cleco is in compliance

with the rule. This rule did not have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

In October 2015, the EPA promulgated a revision to the 2015 ozone NAAQS, lowering the level of both the primary and secondary standards to 70 ppb. Under the CAA, each state is required to submit a state implementation plan (SIP) that provides for the implementation, maintenance and enforcement of each primary and secondary NAAQS. In particular, each SIP must contain adequate provisions prohibiting emissions activity within the state which will contribute significantly to non-attainment or interfere with maintenance by any other state with respect to any such primary or secondary ambient air quality standard. This “good neighbor” SIP is to be submitted to the EPA by the state within three years of promulgation of a new or revised NAAQS. But until the EPA has approved the Louisiana submission and the final information is published, Cleco cannot determine if the SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

In February 2012, the EPA finalized the MATS ruling that requires affected EGUs to meet strict emission limits on new and existing coal- and liquid oil-fired EGUs for mercury, acid gases, and non-mercury metallic pollutants. Cleco Power units impacted by the rule included Rodemacher Unit 2, Madison Unit 3, and Dolet Hills. MATS controls equipment was installed, and Cleco Power’s three EGUs affected by the MATS rule were compliant by the April 2015 deadline. In February 2016, the LPSC approved Cleco Power’s request for authorization to recover the revenue requirements associated with the MATS equipment. In 2017, this project was completed at a cost of $106.2 million. In March 2016, the Sierra Club filed a petition for judicial review in the 19th Judicial District Court, state of Louisiana, requesting that the LPSC’s approval of MATS be vacated. In January 2018, the 19th Judicial District Court affirmed the LPSC ruling in the Cleco MATS cost recovery case. Consequently, that same month, the Sierra Club filed an appeal seeking reversal by the Louisiana Supreme Court of the District Court’s and the LPSC’s rulings approving Cleco’s decision to install the MATS controls equipment. In March 2018, the Sierra Club filed a request to abandon their appeal and the District Court executed an order dismissing the Sierra Club’s appeal. Cleco Power has since recovered the eligible capital costs through its FRP, which is subject to periodic review by the LPSC.

For more information on the legal proceedings of the MATS ruling, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit.”

In August 2015, the EPA released the final guidelines referred to as the CPP. These guidelines provide each state with standards for CO₂ emissions from the state’s utility industry. The EPA derived the limits for each state through a strategy involving a combination of unit efficiency improvements, dispatching away from boilers to combined cycle units, and applying renewable energy. The CPP requires significant reductions of CO₂ emissions. The CPP sets interim and final CO₂ emission goals for each state. The interim emission goals begin in 2022, with final emission goals required by 2030. In February 2016, the U.S. Supreme Court issued a stay of the CPP, which will remain in place until the

D.C. Circuit Court of Appeals rules on the merits, followed by a U.S. Supreme Court ruling.

In August 2015, the EPA released the New Source Performance Standards (NSPS) rules for CO₂ emissions from new, modified, or reconstructed units. The rules set requirements and conditions with respect to CO₂ emission standards for new units and those that are modified or reconstructed. Cleco does not anticipate a modification or reconstruction of its existing sources that would trigger the application of the CO₂ emission limits.

In March 2017, the President signed a broad executive order. Among other measures, the order directed the EPA to review the CPP, the proposed FIP for the CPP, and the greenhouse gas new source performance standards (GHG NSPS). The executive order also gave the U.S. Department of Justice discretion to request that the U.S. Court of Appeals of the D.C. Circuit stay or otherwise delay the litigation challenging the CPP and the GHG NSPS while the administrative review is underway. In April 2017, the Court began the postponement of the litigation. In October 2017, following a review as directed by the President, the EPA published a proposed rule to repeal the CPP. In December 2017, the EPA published Advance Notice of Proposed Rulemaking (ANPR), soliciting information as it considers a potential future rule under CAA section 111(d) to reduce GHG emissions from existing EGUs. On August 31, 2018, the EPA published in the Federal Register a proposed rule to replace the CPP. The Proposed Rule, titled Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units; Revisions to Emission Guideline Implementing Regulations, Revision to New Source Review Program, would establish emission guidelines for states to address CO₂ emissions from existing fossil fuel-fired electric generating units. The Proposed Rule is informally named the Affordable Clean Energy (ACE) Rule. Whether the EPA will finalize its proposed rule to repeal the CPP is uncertain. In addition, the date for finalizing the ACE rule is also uncertain. As a result, the CPP rule is not currently in force and the future regulation of greenhouse gas emissions from existing EGUs is uncertain.

In December 2018, following a review as directed by the President, the EPA published proposed rules to replace the August 2015 NSPS rules for CO₂ emissions from new, modified, or reconstructed units. As with the current NSPS rules, the proposed rules set requirements and conditions with respect to CO₂ emission standards for new, modified, or reconstructed units. Cleco does not anticipate a future modification or future reconstruction of its existing units, as defined in the proposal, that would trigger the application of the proposed CO₂ emission limits. Until the EPA finalizes the rule, management cannot state what the final standards will entail or if the new rule will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

Until all directions of the executive order are carried out, management cannot predict what the final standards will entail or what controls the EPA and the state of Louisiana may require of Cleco in a final state implementation plan for existing units. However, any new rules that require significant reductions of CO₂ emissions could require significant capital expenditures or curtailment of operations of certain EGUs to achieve compliance.

The enactment of federal or state renewable portfolio standards (RPS) mandating the use of renewable and

alternative fuel sources such as wind, solar, biomass, and geothermal energy could result in certain changes in Cleco’s business or its competitive position. These changes could include additional costs for renewable energy credits, alternate compliance payments, or capital expenditures for renewable generation resources. RPS legislation has been enacted in many states, and Congress is considering various bills that would create a national RPS. Cleco continues to evaluate the impacts of potential RPS legislation on its business based on the RPS programs in other states.

A primary NAAQS for NO₂ promulgated by the EPA became effective in April 2010. The EPA established a new one-hour standard at a level of 100 ppb to supplement the existing annual standard. In January 2012, the EPA determined that no area in the country was violating the standard. In April 2018, the EPA published, following the required review of the NAAQS, a final action that retains the ambient air standards for NO₂. The EPA may redesignate areas based on new data it receives from states. Due to the fact that fossil fuel-fired EGUs are a significant source of NO₂ emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their NO₂ emissions. However, because the EPA has not yet completed any new designations, Cleco cannot predict the likelihood or potential impacts of such a rule on its generating units at this time.

The EPA revised the NAAQS for SO₂ in June 2010. The new standard is now a one-hour health standard of 75 ppb, designed to reduce short-term exposures to SO₂ ranging from five minutes to 24 hours. An important aspect of the new SO₂ standard is a revised emission monitoring network combined with a new ambient air modeling approach to determine compliance with the new standard. The EPA expects to use monitoring or modeling data developed in the future to confirm the status of areas that currently have no monitoring data. Classification of those areas without adequate data will be deferred until adequate data has been developed. On January 9, 2018, the EPA published a final rule designating all areas containing Cleco generation facilities as either attainment/unclassifiable or unclassifiable. Therefore, there is no adverse impact to Cleco’s generating units.

Water Quality

Cleco’s facilities are subject to federal and state laws and regulations regarding wastewater discharges. Cleco has received, from the EPA and the LDEQ, permits required under the federal Clean Water Act (CWA) for wastewater discharges from its generating stations. Wastewater discharge permits have fixed dates of expiration, and Cleco applies for renewal of these permits within the applicable time periods.

In March 2011, the EPA proposed regulations which would establish standards for cooling water intake structures at existing power plants and other facilities pursuant to Section 316(b) of the CWA. The EPA published its final rule in August 2014. The standards are intended to protect fish and other aquatic wildlife by minimizing capture, both in screens attached to intake structures (impingement mortality) and in the actual intake structures themselves (entrainment mortality). The proposed standards would (1) set a performance standard, dealing with fish impingement mortality or reduce the flow velocity at cooling water intakes to less than 0.5 feet per second and (2) require entrainment standards to be determined on a case-by-case basis by state-delegated permitting authorities. Facilities subject to the proposed standards are required to complete a number of studies within

a 45-month period and then comply with the rule as soon as possible after the next discharge permit renewal, by a date determined by the permitting authorities. Portions of the final rule could apply to a number of Cleco’s fossil fuel steam electric generating stations. Until the required studies are conducted, including technical and economic evaluations of the control options available, and regulatory agency officials have reviewed the studies and made determinations, Cleco remains uncertain as to which technology options or retrofits will be required to be installed on its affected facilities. The costs of required technology options and retrofits may be significant, particularly if closed cycle cooling is required.

The CWA requires the EPA to periodically review and, if appropriate, revise technology-based effluent limitations guidelines for categories of industrial facilities, including power generating facilities. In September 2015, the EPA released the revised steam electric effluent limitation guidelines. The rule is focused on reducing the discharge of metals in wastewater from generating facilities to surface waters. In April 2017, the EPA Administrator indicated that it is appropriate and in the public interest to reconsider the rule.

In September 2017, the EPA published a rule postponing for a two year period the earliest compliance dates for some of the wastewater streams that fall under the rule. The EPA intends to conduct a rulemaking to potentially revise certain effluent limitations for those particular wastewater streams. The rule may require costly technological upgrades at Cleco’s facilities, particularly if additional wastewater treatment systems are required to be installed or if waste streams must be eliminated. Until the EPA finalizes the rule, management cannot predict what the final standards will entail, what controls the EPA and the state of Louisiana may require of Cleco, or if the new rule will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

Solid Waste Disposal

In the course of operations, Cleco’s facilities generate solid and hazardous waste materials requiring eventual disposal. The Solid Waste Division of the LDEQ has adopted a permitting system for the management and disposal of solid waste generated by power stations. Cleco has received all required permits from the LDEQ for the on-site disposal of solid waste from its generating stations.

In April 2015, the EPA published a final rule in the

Federal Register for regulating the disposal and management of CCRs from coal-fired power plants. The federal regulation classifies CCRs as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows beneficial use of CCRs with some restrictions. The rule establishes extensive requirements for existing and new CCR landfills and surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria, groundwater monitoring and corrective action, closure requirements and post closure care, and recordkeeping, notification, and Internet posting requirements. In September 2017, the EPA Administrator indicated that it is appropriate and in the public interest to reconsider the provisions of the final CCR rule. On August 21, 2018, the Court of Appeals for the D.C. Circuit vacated several requirements in the CCR regulation. As a result, until the EPA has completed its evaluation of the CCR rule and made a decision on revising the provisions of the final rule, Cleco cannot determine if the rule will have a material impact

on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power continues to be subject to state regulations pertaining to the disposal of coal ash. As a result, Cleco Power has an ARO for the retirement of certain ash disposal facilities. In March 2018, Cleco Power recorded a $1.5 million decrease to its ARO related to certain ash management areas. All costs of the CCR rule are expected to be recovered from customers in future rates. The actual asset retirement costs related to the CCR rule requirements may vary substantially from the estimates used to record the increased obligation due to the uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. Cleco Power will continue to gather additional data in future periods and will make decisions about compliance strategies and the timing of closure activities. As additional information becomes available and management makes decisions about compliance strategies and the timing of closure activities, Cleco Power will update the ARO balance to reflect these changes in estimates. However, management does not expect any required adjustment to the ARO to have a material effect on the results of operations, financial condition, or cash flows of the Registrants. At December 31, 2018, management’s analysis confirmed that no additional adjustments were needed to update Cleco Power’s ARO balance.

In December 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act), including the WIIN Act’s provisions regarding CCRs was signed into law. The WIIN Act’s CCR provisions allow for implementation of the federal CCR rule through a state-based permit program. However, until the state of Louisiana has evaluated the WIIN Act and made a decision on implementing a state-based option, Cleco cannot determine if the rule will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

Cleco produces certain wastes that are classified as hazardous at its electric generating stations and at other locations. Cleco does not treat, store long-term, or dispose of these wastes on-site; therefore, no permits are required. Hazardous wastes produced by Cleco are properly disposed of at permitted hazardous waste disposal sites.

Toxic Substances Control Act (TSCA)

The TSCA directs the EPA to regulate the marketing, disposing, manufacturing, processing, distributing in commerce, and usage of various toxic substances, including PCBs. Cleco operates and may continue to operate equipment containing PCBs under the TSCA. Once the equipment reaches the end of its useful life, the EPA regulates handling and disposing of the equipment and fluids containing PCBs. Within these regulations, handling and disposing is allowed only through facilities approved and permitted by the EPA. Cleco properly disposes of its PCB waste material at TSCA-permitted disposal facilities.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)

The CERCLA imposes liability on parties responsible for, in whole or in part, the presence of hazardous substances at a site. In 2007, Cleco received a Special Notice for Remedial Investigation and Feasibility Study (RI/FS) from the EPA for a facility known as the Devil’s Swamp Lake site located just

northwest of Baton Rouge, Louisiana. The notice requested that Cleco and Cleco Power, along with many other listed potentially responsible parties (PRP), enter into negotiations with the EPA for the performance of an RI/FS at the Devil’s Swamp Lake site. In 2008 the EPA identified Cleco as one of many companies that sent PCB wastes for disposal to the site. The EPA proposed to add the Devil’s Swamp Lake site to the National Priorities List, based on the release of PCBs to fisheries and wetlands located on the site, but no final listing decision has been made. The EPA issued a Unilateral Administrative Order to two PRP’s, Clean Harbors, Inc. and Baton Rouge Disposal, to conduct an RI/FS in 2009. The Tier 1 part of the study was completed in June 2012. The tier 2 remedial investigation report, that fish and crawfish from the area should not be eaten, was made public in December 2015. Currently, the study/remedy selection task continues, and there is no record of a decision. Therefore, management is unable to determine how significant Cleco’s share of the costs associated with the RI/FS and possible response action at the site, if any, may be and whether this will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

Emergency Planning and Community Right-to-Know Act (EPCRA)

Section 313 of the EPCRA requires certain facilities that manufacture, process, or otherwise use minimum quantities of listed toxic chemicals to file an annual report with the EPA called a Toxic Release Inventory (TRI) report. The TRI report requires industrial facilities to report on approximately 650 substances that the facilities release into the air, water, and land. The TRI report ranks companies based on the amount of a particular substance they release on a state and parish (county) level. Annual reports are due to the EPA on July 1 following the reporting year-end. Cleco has submitted required TRI reports on its activities, and the TRI rankings are available to the public. The rankings do not result in any federal or state penalties.

Electric and Magnetic Fields (EMFs)

The possibility that exposure to EMFs emanating from electric power lines, household appliances, and other electric devices may result in adverse health effects and damage to the environment has been a subject of some public attention. Lawsuits alleging that the presence of electric power transmission and distribution lines has an adverse effect on health and/or property values have arisen in several states. Cleco Power is not a party in any lawsuits related to EMFs.

The following risk factors could have a material adverse effect on results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrants.

Cleco Cajun Transaction

The success of the Cleco Cajun Transaction depends, in part, on Cleco’s ability to realize anticipated benefits and conduct an effective integration process.

On February 4, 2019, Cleco acquired all of the membership interests of NRG South Central upon the closing of the Cleco Cajun Transaction. The success of the Cleco Cajun Transaction will depend, in part, on Cleco’s ability to realize the expected benefits in the anticipated timeframe, including operating efficiencies, growth opportunities, cost savings and customer retention, from integrating Cleco’s and NRG South Central’s businesses, while at the same time continuing to provide consistent, high quality services. The integration process could be complex, costly and time consuming, including the diversion of significant management time and resources thereto, and may result in the following challenges, among others:


•	unanticipated delays, disruptions, issues or costs in integrating operations, financial and accounting, information technology, communications and other systems;


•	potential inconsistencies in procedures, practices, policies, controls, and standards;


•	possible differences in compensation arrangements, management perspectives and corporate culture; and


•	loss of or difficulties retaining valuable employees or third-party relationships.

Even with the successful integration of the businesses, Cleco may not achieve the expected results or economic benefits. Any of the factors addressed above could decrease

or delay the projected neutral or accretive effect of the Cleco Cajun Transaction. Failure to fully realize the anticipated benefits could adversely affect Cleco’s results of operations, financial condition and cash flows.

From time to time, Cleco may continue to make acquisitions or divestitures of businesses and assets, form joint ventures or undertake restructurings. If Cleco is unable to make acquisitions or if those acquisitions do not perform as anticipated, Cleco’s future growth may be adversely affected.

Holding Company

Cleco Holdings is a holding company and its ability to meet its debt obligations is dependent on the cash generated by its subsidiaries.

Cleco Holdings is a holding company and conducts its operations primarily through its subsidiaries. Accordingly, Cleco Holdings’ ability to meet its debt obligations is largely dependent upon the cash generated by these subsidiaries. Cleco Holdings’ subsidiaries are separate and distinct entities and have no obligations to pay any amounts due on Cleco Holdings’ debt or to make any funds available for such payment. In addition, Cleco Holdings’ subsidiaries’ ability to make dividend payments or other distributions to Cleco Holdings may be restricted by their obligations to holders of their outstanding securities and to other general business creditors. Substantially all of Cleco’s consolidated assets are held by Cleco Power. Cleco Holdings’ right to receive any assets of any subsidiary, and therefore the right of its creditors to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if Cleco Holdings were a creditor of any subsidiary, its rights as a creditor would be subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary senior to that held by Cleco Holdings. Moreover, Cleco Power is subject to regulation by the LPSC, which may impose limits on the amount of dividends that Cleco Power may pay Cleco Holdings. The 2016 Merger Commitments also provide for limitations on the amount of

distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings.

Regulatory Compliance

Cleco operates in a highly regulated environment and adverse regulatory decisions or changes in applicable regulations could have a material adverse effect on the Registrants’ business or result in significant additional costs.

Cleco’s business is subject to extensive federal, state, and local energy, environmental, and other laws and regulations. The LPSC regulates Cleco’s retail operations and FERC regulates Cleco’s wholesale operations. The construction, planning, and siting of Cleco’s power plants and transmission lines are also subject to the jurisdiction of the LPSC and FERC. Additional regulatory authorities have jurisdiction over some of Cleco’s operations and construction projects including the EPA, the U.S. Bureau of Land Management, the U.S. Fish and Wildlife Services, the U.S. Department of Energy, the U.S. Coast Guard, the U.S. Army Corps of Engineers, the U.S. Department of Homeland Security, the Occupational Safety and Health Administration, the U.S. Department of Transportation, the U.S. Department of Agriculture, the U.S. Bureau of Economic Analysis, the Federal Communications Commission, the LDEQ, the Louisiana Department of Health and Hospitals, the Louisiana Department of Natural Resources, the Louisiana Department of Public Safety, the Louisiana Department of Agriculture, the Louisiana Bureau of Economic Analysis, regional water quality boards, and various local regulatory districts.

Should Cleco be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on Cleco, Cleco’s business could be adversely affected. Existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to Cleco or Cleco’s facilities in a manner that may have a material adverse effect on the Registrants’ business or result in significant additional costs.

As a result of the 2016 Merger, Cleco Holdings and Cleco Power made 2016 Merger Commitments to the LPSC including but not limited to the extension of Cleco Power’s current FRP for an additional two years, maintaining employee headcount, salaries, and benefits for ten years, and a limitation from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved.

In April 2016, the LPSC issued Docket No. R-34026 to investigate the double leveraging issues for all LPSC-jurisdictional utilities whereby double leveraging is utilized to fund a utility’s capital structure, and to consider whether any costs associated with such double leveraging should be included in the rates paid by the utility’s retail ratepayers. Cleco Power has intervened in this proceeding, along with other Louisiana utilities. In April 2016, the LPSC also issued Docket No. R-34029 to investigate the tax structure issues for all LPSC-jurisdictional utilities to consider whether only the state and federal taxes included in a utility’s retail rate will be those that do not exceed the utility’s share of the actual taxes paid to those federal and state taxing authorities. Cleco Power filed a motion to intervene in this proceeding along with other Louisiana utilities. In October 2016, Cleco received the first set

of data requests from the LPSC Staff for each of the above mentioned dockets. Cleco has filed responses to the non-confidential requests and is waiting on the completion of a confidentiality agreement to respond to the confidential requests. Cleco is unable to determine if or when the completion of this confidentiality agreement will occur. If the LPSC were to disallow such costs incurred by the utility to be included in retail rates, such disallowance could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Commodity Prices

Cleco Power and Cleco Cajun may be exposed to fluctuations in commodity prices and other factors.

Cleco Power

Cleco Power may enter into fuel cost hedge positions to mitigate the volatility in fuel costs passed through to its retail customers. As a transmission owner in the MISO market, Cleco Power receives Auction Revenue Rights, which can be converted to FTRs. FTRs provide a financial hedge to manage the risk of transmission congestion costs in the day-ahead energy market. Cleco Power may purchase additional FTRs to further hedge its residual congestion cost risk.

When these positions close, actual gains or losses are deferred and included in the FAC in the month the physical contract settles. Recovery of any of these FAC costs is subject to, and may be disallowed as part of, a prudency review or a periodic fuel audit conducted by the LPSC.

Cleco Cajun

Cleco Cajun may be exposed to market price fluctuations due to generation and customer load uncertainty, unexpected plant outages, changes in fuel costs or changes in load driven by weather or other factors.

Cleco Cajun may also enter into commercial or hedging transactions that introduce locational basis exposure, transmission or transportation risks, counterparty credit risk, or do not perfectly match the price or volumetric exposure of hourly demand and prices.

Cleco Power and Cleco Cajun may not be adequately hedged against changes in commodity prices, which could materially affect Cleco Power and Cleco Cajun’s results of operations, financial condition, and liquidity.

Cleco may enter into transactions to hedge portions of customer supply agreements, natural gas, solid fuel requirements (coal), and other commodities within established risk management guidelines to manage the financial exposure related to uncertainty in commodity prices. As part of this strategy, Cleco may utilize fixed and variable price forward physical purchase and sales contracts, FTRs, firm transportation for fuels, futures, financial swaps, and physical or financial option contracts traded bilaterally with counterparties, in the over-the-counter markets, or on exchanges.

Additionally, Cleco may be able to only cover a portion of the exposure of its assets and commodities exposed to market price volatility, and the coverage will vary over time. To the extent Cleco has unhedged exposure, fluctuating commodity prices can materially affect Cleco’s results of operations and financial position.

Cleco may guarantee the performance of a portion of the obligations relating to hedging and risk management activities. Reductions in Cleco or Cleco Power’s credit quality or changes in the market prices of transaction related energy commodities could increase the cash (margining) or letter of credit collateral required to be posted in connection with hedging and risk management activities, which could materially affect Cleco or Cleco Power’s liquidity and financial position.

Transmission Constraints

Transmission constraints could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have a higher LMP. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power’s pricing zones. Cleco Power purchases FTRs to mitigate transmission congestion price risks. However, insufficient FTR allocations or increased FTR costs due to negative congestion flows may result in an unexpected increase in energy costs to Cleco Power’s customers. If a disallowance of additional fuel costs associated with congestion is ordered by the LPSC resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

LPSC Audits

The LPSC conducts fuel audits that could result in Cleco Power making substantial refunds of previously recorded revenue.

Generally, fuel and purchased power expenses are recovered through the LPSC-established FAC, that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. The LPSC FAC General Order issued in November 1997, in Docket No. U-21497 provides that an audit will be performed at least every other year.

Cleco Power has FAC filings for 2018 and thereafter subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. If a disallowance of fuel costs is ordered, resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The LPSC conducts audits of environmental costs that could result in Cleco Power making substantial refunds of previously recorded revenue.

In 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides for an EAC to recover from customers certain costs of environmental compliance. The costs eligible for recovery are prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other

things. Cleco Power began incurring additional environmental compliance expenses beginning in 2015 for reagents associated with compliance with MATS. These expenses are eligible for recovery through Cleco Power’s EAC and subject to periodic review by the LPSC.

Cleco Power has EAC filings for 2016 and thereafter subject to audit. On May 22, 2018, Cleco Power received notice of an EAC audit from the LPSC for the period of January 1, 2016, to December 31, 2017, and Cleco Power has responded to several sets of data requests. The total amount of environmental expense included in the audit is $30.7 million. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. If a disallowance of environmental costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

FERC Audit

FERC conducts audits that could result in Cleco Power making refunds of previously recorded revenue.

Generally, Cleco Power records wholesale transmission revenue through Attachment O of the MISO tariff and certain grandfathered agreements. These formulas are based on inputs from Cleco Power’s FERC Form 1. These rates and regulatory filings are subject to periodic audits by FERC. On March 13, 2018, the Division of Audits and Accounting within the Office of Enforcement of FERC initiated an audit of Cleco Power for the period of January 1, 2014, to the present. Cleco has responded to several sets of data requests. Management is unable to predict or give a reasonable estimate of the possible range of the refund, if any, related to this audit. Any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Hedging and Risk Management Activities

Cleco Power and Cleco Cajun are exposed to the risk that counterparties may not meet their obligations, which may materially affect Cleco Power and Cleco Cajun’s operating and financial performance.

The supply, commercial, and hedging transaction activities of Cleco Power and Cleco Cajun can be exposed to the risk that counterparties may not perform on their physical or financial obligations. Currently, some master agreements contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Cleco, or specifically to Cleco Power or Cleco Cajun. If the counterparties to these arrangements fail to perform, Cleco may enforce and recover the proceeds from the credit support provided and acquire alternative hedging arrangements; however, credit support may not always be adequate to cover the related obligations. In such event, Cleco may incur losses in excess of amounts, if any, already paid to the counterparties. In addition, the credit commitments of Cleco’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such lenders, which could materially affect the adequacy of its liquidity sources.

The accounting for Cleco’s hedging activities may increase the volatility in the Registrants’ quarterly and annual financial results.

Cleco engages in transactions to economically hedge forward commodity market price risk exposure utilizing both physical and financial commodity purchases and sales commitments. Some of these contracts are accounted for as derivatives, which requires Cleco to record the fair value of the commitment on the balance sheet with changes in the fair value of all derivatives reflected within current period earnings. As a result, Cleco is unable to accurately predict the effect that its risk management decisions may have on quarterly and annual financial results, which could materially adversely affect the results of operations of the Registrants.

Global Economic Environment and Uncertainty; Access to Capital

Adverse capital market performance could result in reductions in the fair value of benefit plan assets and increase the Registrant’s liabilities related to such plans. Sustained declines in the fair value of the plan’s assets or sustained increases in plan liabilities could result in significant increases in funding requirements, which could adversely affect the Registrant’s liquidity and results of operations.

Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under Cleco’s defined benefit pension plan. Sustained adverse market performance could result in lower rates of return for these assets than projected by Cleco and could increase Cleco’s funding requirements related to the pension plan. Additionally, changes in interest rates affect the present value of Cleco’s liabilities under the pension plan. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.

Inflation

Annual inflation rates, as measured by the U.S. Consumer Price Index, have averaged 2% during the three years ended December 31, 2018. Under established regulatory practice, historical costs have traditionally formed the basis for recovery from customers. As a result, Cleco Power’s future cash flows designed to provide recovery of historical plant costs may not be adequate to replace property, plant, and equipment in future years.

Disruptions in the capital and credit markets may adversely affect the Registrants’ cost of capital and ability to meet liquidity needs or access capital to operate and grow the business.

The Registrants’ business is capital intensive and dependent upon the Registrants’ respective abilities to access capital at reasonable rates and other terms. The Registrants’ liquidity needs could significantly increase in the event of a hurricane or other weather-related or unforeseen disaster or when there are spikes in the price for natural gas and other commodities. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel, purchased power, or storm restoration costs; higher than expected required pension contributions; an acceleration of payments or decreased credit lines; less cash flow from operations than expected; or other unexpected events, could cause the financing needs of the Registrants to increase materially.

Events beyond the Registrants’ control, such as political uncertainty in the U.S. (including the ongoing debates related to the U.S. federal government budget and debt ceiling), volatility and disruption in global capital and credit markets, may create uncertainty that could increase their cost of capital

or impair their ability to access the capital markets, including the ability to draw on their respective bank credit facilities. The Registrants are unable to predict the degree of success they will have in renewing or replacing their respective credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If the Registrants are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities, and/or bear an unfavorable cost of capital, which, in turn, could have a material adverse effect on the Registrants’ ability to fund capital expenditures or to service debt, or on the Registrants’ flexibility to react to changing economic and business conditions.

Future Electricity Sales

Cleco Power’s future electricity sales and corresponding base revenue and cash flows could be adversely affected by adverse macroeconomic conditions.

Adverse macroeconomic conditions resulting in low economic growth can negatively impact the businesses of Cleco Power’s residential, industrial, and commercial customers resulting in decreased power consumption, which causes a corresponding decrease in base revenue. Reduced production or the shutdown of any of these customers’ facilities could substantially reduce Cleco Power’s base revenue.

Energy conservation, energy efficiency efforts, and other factors that reduce energy demand could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Regulatory and legislative bodies have proposed or introduced requirements and incentives to reduce peak energy consumption. Conservation and energy efficiency programs are designed to reduce energy demand. Future electricity sales could be impacted by customers switching to alternative sources of energy, such as solar and wind, on-site power generation, and retail customers purchasing less electricity due to increased conservation efforts or expanded energy efficiency measures. Declining usage could result in an under-recovery of fixed costs at Cleco Power’s rate regulated business. An increase in energy conservation, energy efficiency efforts, and other efforts that reduce energy demand could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power’s Generation, Transmission, and Distribution Facilities

Cleco Power’s generation facilities are susceptible to unplanned outages, significant maintenance requirements, and interruption of fuel deliveries.

The operation of power generation facilities involves many risks, including breakdown or failure of equipment, fuel supply interruption, and performance below expected levels of output or efficiency. Approximately 25% of Cleco Power’s net capacity was constructed before 1980. Aging equipment, even if maintained in accordance with good engineering practices, may require significant expenditures to operate at peak efficiency, or to comply with environmental permits. Newer equipment can also be subject to unexpected failures. Accordingly, Cleco Power may incur more frequent unplanned

outages, higher than anticipated operating and maintenance expenditures, higher replacement costs of purchased power, increased fuel costs, MISO related costs, and the loss of potential revenue related to competitive opportunities. The costs of such repairs, maintenance, and purchased power may not be fully recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power’s generating facilities are fueled primarily by coal, natural gas, petroleum coke, and lignite. The deliverability of these fuel sources may be constrained due to such factors as higher demand, decreased regional supply, production shortages, weather-related disturbances, railroad constraints, waterway levels, labor strikes, or lack of transportation capacity. If suppliers are unable to deliver the contracted volume of fuel and associated inventories are depleted, Cleco Power may be unable to operate generating units which may cause Cleco Power to operate at higher overall energy costs, which would increase the cost to customers. Fuel and MISO-procured/settled energy expenses, which are recovered from customers through the FAC, are subject to refund until either a prudency review or a periodic fuel audit is conducted by the LPSC.

Competition for access to other natural resources, particularly oil and natural gas, could negatively impact Cleco Power’s ability to access its lignite reserves. Placement of drilling rigs and pipelines for developing oil and gas reserves can preclude access to lignite in the same areas. Additionally, Cleco Power could be indirectly liable for the impacts of other companies’ activities on lands that have been mined and reclaimed by Cleco Power. Access to lignite reserves or the liability for impacts on reclaimed lands may not be recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The construction of, and capital improvements to, power generation and transmission and distribution facilities involve substantial risks. Should construction or capital improvement efforts be significantly more expensive than planned, the financial condition, results of operations, or liquidity of Cleco Power could be materially affected.

Cleco Power’s ability to complete construction of capital improvements to power generation and transmission and distribution facilities in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include engineering and project execution risk and escalating costs for materials, labor, and environmental compliance. Delays in obtaining permits, shortages in materials and qualified labor, suppliers and contractors not performing as set forth under their contracts, changes in the scope and timing of projects, inaccurate cost estimates, the inability to raise capital on favorable terms, changes in commodity prices affecting revenue, fuel or material costs, changes in the economy, changes in laws or regulations, including environmental compliance requirements, and other events beyond the control of Cleco Power may materially affect the schedule and cost of these projects. If these projects are significantly delayed or become subject to cost overruns or cancellation, Cleco Power could incur additional costs including termination payments, face increased risk of potential write-off of the investment in the project, or may not be able to recover such costs in rates. Furthermore, failure to maintain various levels of generating

unit availability or transmission and distribution reliability may result in various disallowances of Cleco Power’s investments.

Cleco Credit Ratings

A downgrade in Cleco Holdings’ or Cleco Power’s credit ratings could result in an increase in their respective borrowing costs, a reduced pool of potential investors and funding sources, and a restriction on Cleco Power making distributions to Cleco Holdings.

Neither Cleco Holdings nor Cleco Power can assure that its current debt ratings will remain in effect for any given period of time or that one or more of its debt ratings will not be lowered or withdrawn entirely by a rating agency. If S&P, Moody’s, or Fitch were to downgrade Cleco Holdings’ or Cleco Power’s long-term ratings, particularly below investment grade, the value of their debt securities would be adversely affected. Downgrades of either Cleco Holdings’ or Cleco Power’s credit ratings could result in additional fees and higher interest rates for borrowings under their respective credit facilities. In addition, Cleco Holdings or Cleco Power, as the case may be, would likely be required to pay higher interest rates in future debt financings, may be subject to more onerous debt covenants, and their pool of potential investors and funding sources could decrease. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings in the event of a ratings downgrade.

MISO

MISO market operations could have a material adverse effect on the results of operations, generation revenues, energy supply costs, financial condition, or cash flows of the Registrants.

Cleco is a member of the MISO market region referred to as “MISO South,” which encompasses parts of Arkansas, Louisiana, Mississippi, and Texas. Dispatch of generation resources and generation volumes to the market is determined by MISO. Costs in the MISO South region are heavily influenced by commodity fuel prices, transmission congestion, dispatch of the generating assets owned not only by Cleco, but by all market participants in the MISO South region, and the overall demand and generation availability in the region.

MISO evaluates forced outage rates to assess generating unit capacity for planning reserve margins. If Cleco is subject to a significant amount of forced outages, Cleco may not possess sufficient planning reserves to serve its needs and could be forced to purchase capacity from the MISO resource adequacy auction. For Cleco Power, the costs of such capacity may not be recoverable in its rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Using MISO’s unforced capacity method for determining generating unit capacity, Cleco Power’s fleet provided for 323 MW of capacity in excess of its peak, coincident to MISO’s peak, in 2018.

Technology and Terrorism Threats

The operational and information technology systems on which Cleco relies to conduct its business and serve customers could fail to function properly due to technological problems, cyber attacks, physical attacks on Cleco’s assets, acts of terrorism, severe weather, solar events, electromagnetic events, natural disasters, the age and condition of information technology assets, human error, or other reasons that could disrupt Cleco’s operations and cause Cleco to incur unanticipated losses and expense.

The operation of Cleco’s extensive electrical systems relies on evolving operational and information technology systems and network infrastructures that are becoming extremely complex as new technologies and systems are implemented to more safely and reliably deliver electric services. Cleco’s business is highly dependent on its ability to process and monitor, on a real-time daily basis, a large number of tasks and transactions, many of which are highly complex. The failure of Cleco’s operational and information technology systems and networks due to a physical or cyber attack, or other event would significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco’s systems, including its financial information, operational systems, advanced metering, and billing systems, require constant maintenance, monitoring, security patches, modification or configuration of systems, and update and upgrade of systems, which can be costly and increase the risk of errors and malfunction. Any disruptions or deficiencies in existing systems, or disruptions, delays, or deficiencies in the modification or implementation of new systems, could result in increased costs, the inability to track or collect revenues and the diversion of management’s and employees’ attention and resources, and could adversely affect the effectiveness of Cleco’s control environment, and/or its ability to accurately or timely file required regulatory reports.

Despite implementation of security and mitigation measures, all of Cleco’s technology systems and those of Cleco’s vendors are vulnerable to inoperability or impaired operations or failures due to cyber or physical attacks on the facilities and equipment needed to operate the technology systems, viruses, human errors, acts of war or terrorism, and other events. If Cleco’s or its vendor’s information technology systems or network infrastructure were to fail, Cleco might be unable to fulfill critical business functions and serve its customers, which could have a material adverse effect on the financial conditions, results of operations, or cash flows of the Registrants.

In addition, in the ordinary course of its business, Cleco collects and retains sensitive information including personal identification information about customers and employees, customer energy usage, and other confidential information. The theft, damage, or improper disclosure of sensitive electronic data could subject Cleco to both penalties for violation of applicable privacy laws and claims from third parties, or harm Cleco’s reputation. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate costs,

and any failure to comply with these laws and regulations could result in significant penalties and legal liability.

Taxes

Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The Registrants make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate their obligations to taxing authorities. Tax obligations include income, franchise, real estate, sales and use, and employment-related taxes. These judgments may include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken by the Registrants could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Changes in taxation due to uncertain effects of the TCJA could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The budget reconciliation act commonly referred to as the TCJA was signed into law on December 22, 2017. Proposed rulemakings issued in 2018 by the IRS subsequent to the TCJA could have a material adverse effect on the results of operations, financial conditions, or cash flows of the Registrants. The Registrants continue to assess the regulatory treatment of the TCJA, which could also have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Reliability and Infrastructure Protection Standards Compliance

Cleco is subject to mandatory reliability and critical infrastructure protection standards. Fines and civil penalties are imposed on those who fail to comply with these standards.

NERC serves as the ERO with authority to establish and enforce mandatory reliability and infrastructure protection standards, subject to FERC approval, for users of the nation’s transmission system. FERC enforces compliance with these standards. New standards are being developed and existing standards are continuously being modified.

As these standards continue to be adopted and modified, they may impose additional compliance requirements on Cleco Power, which may result in increased capital expenditures and operating expenses. Failure to comply with these standards can result in the imposition of material fines and civil penalties. Furthermore, failure to maintain various levels of generating unit availability or transmission and distribution reliability may result in various disallowances of Cleco Power’s investments.

The SERC RE conducts a NERC Reliability Standards audit and a NERC Critical Infrastructure Protection audit every three years. Cleco Power’s next NERC Reliability Standards audit is scheduled to begin in October 2019 and the next NERC Critical Infrastructure Protection audit is scheduled to begin in 2020. Management is unable to predict the outcome of any future audits or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Environmental Compliance

Cleco’s costs of compliance with environmental laws and regulations are significant. The costs of compliance with new environmental laws and regulations, as well as the incurrence of incremental environmental liabilities, could be significant to the Registrants.

Cleco is subject to extensive environmental oversight by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations related to air quality, water quality, waste management, natural resources, and health and safety. Cleco also is required to obtain and comply with numerous governmental permits in operating its facilities. Existing environmental laws, regulations, and permits could be revised or reinterpreted, and new laws and regulations could be adopted or become applicable to Cleco. For example, the EPA has issued the CPP to reduce CO₂emissions from existing EGUs by 32% from 2005 levels of CO₂emissions; however, on February 9, 2016, the U.S. Supreme Court issued orders staying implementation of the CPP pending resolution of challenges to the rule. On October 16, 2017, following a review as directed by the President, the EPA published a proposed rule to repeal the CPP. Whether the EPA will finalize its proposed rule to repeal the CPP remains uncertain; however, the EPA has proposed a draft rule called the Affordable Clean Energy (ACE) rule to replace the CPP. These proposed actions by the EPA could also be subject to future legal challenges. As a result, there is currently no regulation in force and the future regulation of greenhouse gas emissions from existing EGUs is uncertain. Changes under the stayed CPP would have environmental regulations governing power plant emissions effective beginning 2022, with final emission goals required by 2030, and, if implemented, could render some of Cleco’s EGUs uneconomical to maintain or operate and could prompt early retirement of certain generation units. Any legal obligation that would require Cleco to substantially reduce its emissions beyond present levels could require extensive mitigation efforts and could raise uncertainty about the future viability of some fossil fuels as fuel for new and existing electric generating facilities. Cleco will evaluate potential solutions to comply with such regulations and monitor rulemaking and any legal matters impacting the proposed regulations. Cleco may incur significant capital expenditures or additional operating costs to comply with such revisions, reinterpretations, and new requirements. If Cleco were to fail to comply, it could be subject to civil or criminal liabilities and fines or may be forced to shut down or reduce production from its facilities. Cleco cannot predict the timing or the outcome of pending or future legislative and rulemaking proposals.

Cleco Power may request from its customers recovery of its costs to comply with new environmental laws and regulations. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, there could be a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power’s Rates

The LPSC and FERC regulate the retail rates and wholesale transmission tariffs, respectively, that Cleco Power can charge its customers.

Cleco Power’s ongoing financial viability depends on its ability to recover its costs in a timely manner from its LPSC-

jurisdictional customers through LPSC-approved rates and its ability to recover its FERC-authorized revenue requirements from its FERC-jurisdictional wholesale transmission customers. Cleco Power’s financial viability also depends on its ability to recover in rates an adequate return on capital, including long-term debt and equity. If Cleco Power is unable to recover any material amount of its costs in rates in a timely manner or recover an adequate return on capital, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected.

Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases or, in some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. In some instances, the outcome of a rate case or request for extension of an FRP may impact wholesale decisions of Cleco Power. These proceedings may examine, among other things, the prudence of Cleco Power’s operation and maintenance practices, level of subject expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of limiting rate increases or reducing rates.

Transmission rates that MISO transmission owners may collect are regulated by FERC. Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. There is one complaint currently open. Any reduction to the ROE component of the transmission rates could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Retail Electric Service

Cleco Power’s retail electric rates and business practices are regulated by the LPSC and reviews may result in refunds to customers.

Cleco Power’s retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC, which conducts an annual review of Cleco Power’s earnings and regulatory ROE. Cleco Power could be required to make a substantial refund of previously recorded revenue as a result of the LPSC review and such refund could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Wholesale Electric Service

Cleco Power’s business practices are regulated by FERC, and its wholesale rates are subject to FERC’s triennial market power analysis. Cleco could lose the right to sell wholesale generation at market-based rates.

FERC conducts a review of Cleco Power’s generation market power every three years in addition to each time generation capacity changes. Cleco’s next triennial market power analysis is expected to be filed in 2020. In the future, if FERC determines Cleco Power possesses generation market power in excess of certain thresholds, Cleco Power could lose the right to sell wholesale generation at market-based rates, which could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Weather Sensitivity

The operating results of Cleco Power are affected by weather conditions and may fluctuate on a seasonal basis.

Weather conditions directly influence the demand for electricity, particularly with respect to residential customers. In Cleco Power’s service territory, demand for power typically peaks during the hot summer months. As a result, Cleco Power’s financial results may fluctuate on a seasonal basis. In addition, Cleco Power has sold less power and, consequently, earned less income when weather conditions were milder. Unusually mild weather in the future could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Severe weather, including hurricanes and winter storms, can affect transportation of fuel to plant sites and can be destructive, causing outages and property damage that can potentially result in additional expenses, lower revenue, and additional capital restoration costs. Extreme drought conditions can impact the availability of cooling water to support the operations of generating plants, which can also result in additional expenses and lower revenue.

The physical risks associated with climate changes could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

If climate changes occur that result in warmer temperatures in Cleco’s service territories, it could result in one or more physical risks, such as an increase in sea level, wind and storm surge damages, wetland and barrier island erosion, risks of flooding, and changes in weather conditions, such as changes in temperature and precipitation patterns, and potential increased impacts of extreme weather conditions or storms, or could affect the Registrants’ operations. The Registrants’ assets are in and serve communities that are at risk from sea level rise, changes in weather conditions, storms, and loss of the protection offered by coastal wetlands. A significant portion of the nation’s oil and gas infrastructure is located in these areas and is susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to fuel supply interruptions and price spikes.

These and other physical changes could result in changes in customer demand, increased costs associated with repairing and maintaining generating facilities and transmission and distribution systems, resulting in increased maintenance and capital costs (and potential increased

financing needs), limits on Cleco Power’s ability to meet peak customer demand, increased regulatory oversight, and lower customer satisfaction. Also, to the extent that climate change would adversely impact the economic health of a region or result in energy conservation or demand side management programs, it may adversely impact customer demand and revenues. Such physical or operational risks could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Litigation

Cleco is subject to litigation related to the 2016 Merger.

In connection with the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. One of the actions filed in Rapides Parish has been dismissed. The remaining three actions in Rapides Parish have been consolidated. The three actions in Orleans Parish have been transferred to Rapides Parish and consolidated with the other litigation in Rapides Parish. The actions were filed against Cleco Corporation and, among others, Cleco Partners, Merger Sub, and members of the Board of Directors of Cleco Corporation. The petitions generally allege, among other things, that the members of Cleco Corporation’s Board of Directors breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process, agreeing to the 2016 Merger at a price that allegedly undervalues Cleco, and failing to disclose material information about the 2016 Merger. The petitions also allege that Cleco Partners, Cleco, and Merger Sub and, in some cases, certain of the investors in Cleco Partners, either aided and abetted or entered into a civil conspiracy to advance those supposed breaches of duty. The petitions seek various remedies, including monetary damages, which includes attorneys’ fees and expenses. In September 2016, the District Court granted the exceptions filed by Cleco and dismissed all claims asserted by the former shareholders. The plaintiffs appealed the District Court’s ruling and on December 13, 2017, the Third Circuit Court of Appeal issued an order reversing and remanding the case back to the District Court for further proceedings. On January 12, 2018, Cleco filed a writ with the Louisiana Supreme Court seeking review of the Third Circuit Court of Appeal’s decision. On March 2, 2018, the Louisiana Supreme Court denied the writ. Cleco filed writs of exception of res judicata and no cause of action in the District Court seeking dismissal of the case. On January 14, 2019, the District Court denied the writs.

It is possible that additional claims beyond those that have already been filed will be brought by the current plaintiffs or by others in an effort to seek monetary relief from Cleco. Cleco is not able to predict the outcome of these actions, or others, nor can Cleco predict the amount of time and expense that will be required to resolve the actions. In addition, the cost to Cleco of defending the actions, even if resolved in Cleco’s favor, could be substantial. Such actions could also divert the attention of Cleco’s management and resources from day-to-day operations.

The outcome of legal proceedings cannot be predicted. An adverse finding could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The Registrants are party to various litigation matters arising out of the ordinary operations of their business. The ultimate

outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability that the Registrants may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters and, as a result, these matters may have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Government Reform

Changes in environmental, fiscal, and tax policies could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

The current Administration has called for substantial changes to environmental, fiscal, and tax policies. It is possible that these changes could adversely affect Cleco’s business. Until changes are enacted, management is unable to determine the impact of the changes on the Registrants’ business, results of operations, financial condition, or cash flows.

Workforce

Failure to attract and retain an appropriately qualified workforce could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Certain events, such as an aging workforce without appropriate replacements, matching of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge, and a lengthy time period associated with skill development. In this case, costs, including costs for contractors to replace employees, productivity costs, and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the Registrants’ businesses. If the Registrants are unable to successfully attract and retain an appropriately qualified workforce, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected.

Alternative Generation Technology

Changes in technology may have a material adverse effect on the value of Cleco Power’s generating facilities.

A basic premise of Cleco’s business is that generating electricity at central power plants achieves economies of scale and produces electricity at a relatively low price. There are alternative technologies to produce electricity, most notably wind turbines, photovoltaic cells, and other solar generated power. Many companies and organizations conduct research and development activities to seek improvements in alternative technologies. As new technologies are developed and become available, the quantity and pattern of electricity purchased by customers could decline, with a corresponding decline in revenues derived by generating assets. As a result, the value of Cleco Power’s generating facilities could be reduced.

Insurance

Cleco’s insurance coverage may not be sufficient.

Cleco currently has property, casualty, cyber security and liability insurance policies in place to protect its employees, directors, and assets in amounts that it considers appropriate. Such policies are subject to certain limits and deductibles. Insurance coverage may not be available in the future at current costs, on commercially reasonable terms, or at all, and the insurance proceeds received for any loss of, or any damage to, any of Cleco’s facilities may not be sufficient to restore the loss or damage without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Like other utilities that serve coastal regions, Cleco Power does not have insurance covering its transmission and distribution system, other than substations, because it believes such insurance to be cost prohibitive. In the future, Cleco Power may not be able to recover the costs incurred in restoring transmission and distribution properties following hurricanes or other natural disasters through issuance of storm recovery bonds or a change in Cleco Power’s regulated rates or otherwise, or any such recovery may not be timely granted. Therefore, Cleco Power may not be able to restore any loss of, or damage to, any of its transmission and distribution properties without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power LLC’s Unsecured and Unsubordinated Obligations

Cleco Power LLC’s unsecured and unsubordinated obligations, including, without limitation, its senior notes, will be effectively subordinated to any secured debt of Cleco Power LLC, certain unsecured debt of Cleco Power LLC, and any preferred equity of any of Cleco Power LLC’s subsidiaries.

Some of Cleco Power LLC’s senior notes and its obligations under various loan agreements and refunding agreements with the Rapides Finance Authority, the Louisiana Public Facilities Authority, and other issuers of tax-exempt bonds for the benefit of Cleco Power LLC are unsecured and rank equally with all of Cleco Power LLC’s existing and future unsecured and unsubordinated indebtedness. As of December 31, 2018, Cleco Power LLC had an aggregate of $1.36 billion of unsecured and unsubordinated indebtedness net of debt discount and debt expense. The unsecured and unsubordinated indebtedness of Cleco Power LLC will be effectively subordinated to, and thus have a junior position to, any secured debt that Cleco Power LLC may have outstanding from time to time (including any mortgage bonds) with respect to the assets securing such debt. Certain agreements entered into by Cleco Power LLC with other lenders that are unsecured provide that if Cleco Power LLC issues secured debt, Cleco Power LLC is obligated to grant these lenders the same security interest in certain assets of Cleco Power LLC. If such a security interest were to arise, it would further subordinate Cleco Power LLC’s unsecured and unsubordinated obligations.

As of December 31, 2018, Cleco Power LLC had no secured indebtedness outstanding. Cleco Power LLC may issue mortgage bonds in the future under any future Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power LLC material assets upon dissolution, winding up, liquidation, or reorganization.

All of Cleco Power’s electric generating stations and all other electric operating properties are located in Louisiana. Cleco Power considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power — Power Generation.”

Electric Generating Stations

As of December 31, 2018, Cleco Power either owned or had an ownership interest in five steam electric generating stations, three combined cycle units, and one gas turbine with a combined nameplate capacity of 3,310 MW, and a combined electric net generating capacity of 3,162 MW. The nameplate capacity is the capacity at the start of commercial operations, and the net generating capacity is the result of capacity tests and operational tests performed during 2018, as required by MISO. This amount reflects the maximum production capacity these units can sustain over a specified period of time. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power — Power Generation.”

Electric Substations

As of December 31, 2018, Cleco Power owned 86 active transmission substations and 238 active distribution substations.

Electric Lines

As of December 31, 2018, Cleco Power’s transmission system consisted of 67 circuit miles of 500-kiloVolt (kV) lines; 549

circuit miles of 230-kV lines; 672 circuit miles of 138 kV lines; and 29 circuit miles of 69-kV lines. Cleco Power’s distribution system consisted of 3,680 circuit miles of 34.5-kV lines and 8,381 circuit miles of other lines.

General Properties

Cleco Power owns various properties throughout Louisiana, which include a headquarters office building, regional offices, service centers, telecommunications equipment, and other general-purpose facilities.

Title

Cleco Power’s electric generating plants and certain other principal properties are owned in fee simple. Electric transmission and distribution lines are located either on private rights-of-way or along streets or highways by public consent.

Substantially all of Cleco Power’s property, plant, and equipment are subject to a lien of Cleco Power’s Indenture of Mortgage, which does not impair the use of such properties in the operation of its business. As of December 31, 2018, no mortgage bonds were outstanding under the Indenture of Mortgage. Some of the unsecured and unsubordinated indebtedness of Cleco Power will be effectively subordinated to, and thus have a junior position to, any mortgage bonds that Cleco Power may have outstanding from time to time with respect to the assets subject to the lien of the Indenture of Mortgage. Cleco Power may issue mortgage bonds in the future under its Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power material assets upon dissolution, winding up, liquidation, or reorganization.



CLECO HOLDINGS

On April 13, 2016, upon completion of the 2016 Merger, Cleco Corporation’s common stock was delisted from trading on the New York Stock Exchange. There is no established public trading market for Cleco Holdings’ membership interests.

In connection with the 2016 Merger, Cleco Holdings replaced its credit facility. Cleco Holdings’ new credit facility still requires a total indebtedness of less than or equal to 65% of total capitalization in order to declare dividend payments. Additionally, in accordance with the 2016 Merger Commitments, Cleco Holdings is subjected to certain provisions limiting the amount of distributions that may be paid from Cleco Holdings to Cleco Group or Cleco Partners, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings.

Cleco Holdings made $71.4 million, $84.1 million, and $88.8 million of distribution payments to Cleco Group in 2018, 2017, and 2016, respectively.

Cleco Holdings received no equity contributions in 2018 and 2017 from Cleco Group. In 2016, Cleco Holdings received $100.7 million of equity contributions from Cleco Group.

For more information about the 2016 Merger, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 4 — Business Combinations.”



CLECO POWER

There is no market for Cleco Power’s membership interests. All of Cleco Power’s outstanding membership interests are owned by Cleco Holdings. Distributions on Cleco Power’s membership interests are paid when and if declared by Cleco Power’s Board of Managers. Any future distributions also may be restricted by any credit or loan agreements into which Cleco Power may enter.

Some provisions in Cleco Power’s debt instruments restrict the amount of equity available for distribution to Cleco Holdings by Cleco Power by requiring Cleco Power’s total indebtedness to be less than or equal to 65% of total capitalization. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings.

During 2018, 2017, and 2016, Cleco Power made $121.4 million, $135.0 million, and $110.0 million, respectively, of distribution payments to Cleco Holdings.

Cleco Power received no equity contributions from Cleco Holdings in 2018 and 2017. Cleco Power received $50.0 million of equity contributions from Cleco Holdings in 2016.

Cleco uses its website, https://www.cleco.com, as a routine channel for distribution of important information, including news releases and financial information. Cleco’s website is the primary source of publicly disclosed news about Cleco. Cleco is providing the address to its website solely for informational purposes and does not intend for the address to be an active link. The contents of the website are not incorporated into this Annual Report on Form 10-K.



OVERVIEW

Cleco is a regional energy company that, prior to the close of the Cleco Cajun Transaction, conducted substantially all of its business operations through its primary subsidiary, Cleco Power. Cleco Power is a regulated electric utility company that owns nine generating units with a total nameplate capacity of 3,310 MW and serves approximately 291,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi.

Cleco Cajun Transaction

On February 4, 2019, the Cleco Cajun Transaction was completed. For the Registrants’ Combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, Cleco Cajun is expected to become a new reportable segment. For more information on the transaction, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 21 — Cleco Cajun Transaction.”

Because the Cleco Cajun Transaction closed after December 31, 2018, the Registrants’ respective consolidated financial statements and the notes thereto do not include or take into account the closing and the effects of the Cleco Cajun Transaction. For more information on the Cleco Cajun Transaction, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 21 — Cleco Cajun Transaction.”

Cleco Power

Many factors affect Cleco Power’s primary business of generating, delivering, and selling electricity. These factors include weather and the presence of a stable regulatory environment, which impacts cost recovery and the ROE, 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; the ability to reliably deliver power to its jurisdictional customers; the ability to comply with increasingly stringent regulatory and environmental standards; and the ability to successfully perform in MISO while subject to the related operating challenges and uncertainties, including increased wholesale competition. Cleco Power’s current key initiatives are continuing construction on the St. Mary Clean Energy Center project, the Terrebonne to Bayou Vista Transmission project, and the Coughlin Pipeline project; beginning construction on the Bayou Vista to Segura Transmission project; continuing the START project; initiating the DSMART project; and maintaining and growing its

wholesale and retail business. These initiatives are discussed below.

St. Mary Clean Energy Center Project

The St. Mary Clean Energy Center project includes Cleco Power constructing, owning, and operating a 47.6 net MW generating unit to be fueled by waste heat from Cabot Corporation’s carbon black manufacturing plant in Franklin, Louisiana. Construction began in October 2016 and the unit is expected to be commercially operational in the second quarter of 2019 at an estimated cost of $128.2 million. The project is expected to generate more than 300,000 MWh of zero additional carbon emitting energy each year. As of December 31, 2018, Cleco Power had spent $111.4 million on the project. Legal proceedings have been filed in connection with the St. Mary Clean Energy Center project. For more information about the ongoing litigation, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Dispute with Saulsbury Industries.”

Terrebonne to Bayou Vista Transmission Project

The Terrebonne to Bayou Vista Transmission project includes the construction of additional transmission interconnection facilities south of Teche Power Station. The project is expected to increase reliability, reduce congestion, and provide hurricane hardening of the 230-kilovolt transmission system for customers in south Louisiana. Cleco Power’s portion of the joint project with Entergy Louisiana is expected to cost $64.5 million. Construction began in July 2018 and is expected to be completed in the second quarter of 2019. As of December 31, 2018, Cleco Power had spent $51.9 million on the project.

Coughlin Pipeline Project

The Coughlin Pipeline project includes construction of a pipeline directly connecting the Pine Prairie Energy Center to Cleco’s Coughlin Power Station. The project is expected to increase reliability for fuel delivery and mitigate exposure to transportation cost increases. In June 2017, the LPSC approved a regulatory asset to be established upon the completion of the Coughlin Pipeline project for the revenue requirement associated with the project until Cleco Power seeks recovery in the new FRP, which is anticipated to be effective July 1, 2020. Construction on the Coughlin Pipeline project began in September 2018. The project is expected to be completed in the third quarter of 2019 with an estimated cost of $32.5 million. As of December 31, 2018, Cleco Power had spent $20.3 million on the project.

Bayou Vista to Segura Transmission Project

The Bayou Vista to Segura Transmission project includes the construction of 47 miles of 230kV transmission line, a 230/138kV substation and three substation expansions in south Louisiana. The project is expected to cost approximately $142.7 million. The project is expected to increase reliability,

provide transmission system redundancy, and provide hurricane hardening for customers in south Louisiana. Cleco Power received MISO approval for the project in December 2017. The project is currently in the early planning and engineering phase and is expected to begin construction in the fourth quarter of 2019, with the northern phase expected to be completed in the fourth quarter of 2020 and the southern phase expected to be completed in the fourth quarter of 2021. As of December 31, 2018, Cleco Power had spent $1.0 million on the project.

START Project

The START project includes replacement of and improvement to Cleco’s enterprise business applications. The project’s objectives are to gain efficiencies through consistent, industry-leading work processes and practices; enable better decision making through data transparency across business functions; mitigate risk through knowledge transfer and better process documentation; provide a modernized, flexible platform to support future growth and changing business models; and provide customer-centric focus through technology and flexibility. The project is in the testing phase. Management expects the project to be completed in the second quarter of 2019. The total estimated project cost is $147.5 million. As of December 31, 2018, Cleco had spent $113.1 million on the project.

DSMART Project

The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment utilizing new and emerging technologies to facilitate automatic fault isolation, service restoration, and fault location. The project is expected to provide savings through a reduction in outage restoration time, time to locate faults, and improved operational efficiencies. The project is also expected to improve safety and reliability of Cleco Power’s distribution assets by minimizing outage patrols and improving situational awareness in the distribution operations center. The total estimated project cost is $90.2 million. The project implementation will be completed in phases and management expects the total project will be completed by the end of 2025. In January 2019, Cleco Power began the first phase of the project.

Other

Cleco Power is working to secure load growth opportunities that include renewing existing franchises and wholesale contracts, pursuing new wholesale contracts and franchises, and adding new retail load opportunities with large industrial, commercial, and residential load. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government and military, wood and paper, health care, information technology, transportation, and other manufacturing.



RESULTS OF OPERATIONS

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the

reporting period. Actual results could differ materially from those estimates.

Comparison of the Years Ended December 31, 2018, and 2017



Cleco
	FOR THE YEAR ENDED DEC. 31,
							FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2018			2017			VARIANCE			CHANGE
Operating revenue, net	$	1,231,044		$	1,175,646		$	55,398		4.7	%
Operating expenses	986,487			910,419			$	(76,068	)	(8.4	)%
Operating income	$	244,557		$	265,227		$	(20,670	)	(7.8	)%
Interest income	$	6,073		$	1,424		$	4,649		326.5	%
Allowance for equity funds used during construction	$	14,159		$	8,320		$	5,839		70.2	%
Other expense, net	$	(14,328	)	$	(6,899	)	$	(7,429	)	(107.7	)%
Federal and state income tax expense	$	29,382		$	7,079		$	(22,303	)	(315.1	)%
Net income	$	94,437		$	138,080		$	(43,643	)	(31.6	)%

Operating revenue, net increased $55.4 million during 2018 compared to the 2017 primarily due to $56.6 million of higher fuel cost recovery revenue at Cleco Power, and $27.7 million higher base revenue at Cleco Power, partially offset by $31.6 million of higher electric customer credits at Cleco Power.

Operating expenses increased $76.1 million during 2018 compared to 2017 primarily due to $56.7 million of higher recoverable fuel and power purchased expenses at Cleco Power and $14.4 million of expenses associated with the Cleco Cajun Transaction at Cleco Holdings.

Interest income increased $4.6 million during 2018 compared to 2017 primarily due to $2.7 million of higher interest rates and balances on temporary investments and $1.2 million of interest on a note receivable at Cleco Power.

Allowance for equity funds used during construction increased $5.8 million during 2018 compared to 2017 primarily due to higher construction costs related to various projects.

Other expense, net increased $7.4 million during 2018 compared to 2017 primarily due to $6.4 million of change in value of life insurance policies as a result of unfavorable market conditions at Cleco Holdings.

Federal and state income tax expense increased $22.3 million during 2018 compared to 2017 primarily due to $46.3 million for the absence of adjustments related to the TCJA and $3.7 million for the flowthrough of state tax benefits. The increases were partially offset by $15.2 million for the reduction in the federal statutory tax rate as prescribed by the TCJA and $10.5 million for the change in pretax income, excluding AFDUC equity. The effective income tax rate for the year ended December 31, 2018, was 23.7%. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA” and “Note 13 — Regulation and Rates — TCJA.”

Results of operations for Cleco Power are more fully described below.

Cleco Power

Significant Factors Affecting Cleco Power

Revenue is primarily affected by the following factors:

As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors influencing the electric utility industry. These factors include, among others, an increasingly competitive business environment; the ability to recover costs through rate-setting proceedings; the ability to successfully perform in MISO and the related operating challenges; the cost of compliance with environmental and reliability regulations; conditions in the credit markets and global economy; changes in the federal and state regulation of generation, transmission, and the sale of electricity; the regulatory treatment of the TCJA, and the increasing uncertainty of future federal and state regulatory and environmental policies. For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see “Cautionary Note Regarding Forward-Looking Statements,” Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises,” and “— Financial Condition — Regulatory and Other Matters — Market Restructuring.” For a discussion of risk factors affecting Cleco Power’s business, see Part I, Item 1A, “Risk Factors.” For more information about the TCJA, see “— Financial Condition — Liquidity and Capital Resources — General Considerations and Credit-Related Risks — TCJA.”

Cleco Power’s residential customers’ demand for electricity is affected largely by weather. Weather is generally measured in cooling degree-days and heating degree-days. A cooling degree-day is an indication of the likelihood that a consumer will use air conditioning, while a heating degree-day is an indication of the likelihood that a consumer will use heating. An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days because alternative heating sources are more readily available, and energy used in the winter is typically priced below the rate charged for energy used in the summer. 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.

Over the last five years, Cleco Power has experienced moderate growth in retail non-industrial sales and anticipates the same over the next five years. Cleco Power may experience increases in the retail industrial class in 2019, due to the oil and gas industry. In addition, Cleco Power expects to begin providing service to expansions of current customers’ operations, as well as service to new retail customers. Cleco Power’s expectations and projections regarding retail sales are dependent upon factors such as weather conditions, natural gas prices, customer conservation efforts, retail marketing and business development programs, and the economy of Cleco Power’s service area. Cleco Power is pursuing load growth opportunities that include renewal of existing franchises and wholesale contracts as well as adding new wholesale customers and franchises. For more information on other expectations of future energy sales on Cleco Power, see “— Base,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Future Electricity Sales.”

Other issues facing the electric utility industry that could affect sales include:


•	imposition of federal and/or state renewable portfolio standards,


•	imposition of energy efficiency mandates,


•	legislative and regulatory changes,


•	increases in environmental regulations and compliance costs,


•	cost of power impacted by the price movement of fuels and the addition of new generation capacity,


•	transmission congestion costs,


•	increases in capital and operations and maintenance costs due to higher construction and labor costs,


•	changes in electric rates compared to customers’ ability to pay, and


•	changes in the credit markets and local and global economies.

For more information on energy legislation in regulatory matters that could affect Cleco, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Legislative and Regulatory Changes and Matters.”

Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases, or in some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. In some instances, the outcome of a rate case or request for extension of an FRP may impact wholesale decisions of Cleco Power. These proceedings may examine, among other things, the prudence of Cleco Power’s operation and maintenance practices, level of expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of limiting rate increases or reducing rates.

Other expenses are primarily affected by the following factors:

The majority of Cleco Power’s non-fuel cost recovery expenses consist of other operations, maintenance, depreciation and amortization, and taxes other than income taxes. Other operations expenses are affected by, among other things, the cost of employee benefits, insurance expense, and the costs associated with energy delivery and customer service. Annual maintenance expenses associated with Cleco Power’s plants generally depend upon their physical characteristics, maintenance practices, and the effectiveness of their preventive maintenance programs. Transmission and distribution maintenance expenses are generally affected by the level of repair and rehabilitation of lines to maintain reliability. Depreciation and amortization expense is primarily affected by the cost of the facilities in service, the time the facilities were placed in service, and the estimated useful life

of the facilities. Taxes other than income taxes generally include payroll taxes, franchise taxes, and property taxes. Cleco Power anticipates certain non-fuel cost recovery expenses to be higher in 2019 compared to 2018. These expenses include higher depreciation and amortization expense, higher interest expense, and higher customer relations expense, partially offset by lower administration and general operations expense and lower generation maintenance expense.



	FOR THE YEAR ENDED DEC. 31,
							FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2018			2017			VARIANCE			CHANGE
Operating revenue
Base	$	678,378		$	651,732		$	26,646		4.1	%
Fuel cost recovery	513,209			456,657			56,552			12.4	%
Electric customer credits	(33,195		)	(1,566		)	(31,629		)	*
Other operations	82,330			77,522			4,808			6.2	%
Affiliate revenue	874			851			23			2.7	%
Operating revenue, net	$	1,241,596		$	1,185,196		$	56,400		4.8	%
Operating expenses
Recoverable fuel and power purchased	513,206			456,509			(56,697		)	(12.4	)%
Non-recoverable fuel and power purchased	37,530			35,750			(1,780		)	(5.0	)%
Other operations and maintenance	202,556			202,738			182			0.1	%
Depreciation and amortization	162,069			158,415			(3,654		)	(2.3	)%
Taxes other than income taxes	47,267			46,539			(728		)	(1.6	)%
Gain on sale of asset	(4		)	—			4			—
Total operating expenses	962,624			899,951			(62,673		)	(7.0	)%
Operating income	$	278,972		$	285,245		$	(6,273	)	(2.2	)%
Interest income	$	5,052		$	1,283		$	3,769		293.8	%
Allowance for equity funds used during construction	$	14,159		$	8,320		$	5,839		70.2	%
Interest charges	$	71,303		$	69,362		$	(1,941	)	(2.8	)%
Federal and state income tax expense	$	55,924		$	67,331		$	11,407		16.9	%
Net income	$	162,257		$	150,738		$	11,519		7.6	%
*Not Meaningful

Cleco Power’s net income for 2018 increased $11.5 million compared to 2017 primarily as a result of the following factors:


•	higher base revenue,


•	lower federal and state income tax expense,


•	higher allowance for equity funds used during construction,


•	higher other operations revenue, and


•	higher interest income.

These increases were partially offset by:


•	higher electric customer credits,


•	higher depreciation and amortization, and


•	higher interest charges.

The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:



	FOR THE YEAR ENDED DEC. 31,
			FAVORABLE/
(MILLION kWh)	2018	2017	(UNFAVORABLE)
Electric sales
Residential	3,780	3,526	7.2	%
Commercial	2,731	2,650	3.1	%
Industrial	2,243	2,078	7.9	%
Other retail	133	131	1.5	%
Total retail	8,887	8,385	6.0	%
Sales for resale	2,991	2,959	1.1	%
Total retail and wholesale customer sales	11,878	11,344	4.7	%

The following table shows the components of Cleco Power’s base revenue:



	FOR THE YEAR ENDED DEC. 31,
					FAVORABLE/
(THOUSANDS)	2018		2017		(UNFAVORABLE)
Electric sales
Residential	$	304,708	$	286,587	6.3	%
Commercial	192,781		188,431		2.3	%
Industrial	90,291		87,528		3.2	%
Other retail	10,918		10,592		3.1	%
Storm surcharge	23,138		20,965		10.4	%
Total retail	621,836		594,103		4.7	%
Sales for resale	56,542		57,629		(1.9	)%
Total base revenue	$	678,378	$	651,732	4.1	%

The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by NOAA to determine cooling and heating degree-days.



	FOR THE YEAR ENDED DEC. 31,
				2018 CHANGE
	2018	2017	NORMAL	PRIOR YEAR		NORMAL
Cooling degree-days	3,311	3,044	2,779	8.8	%	19.1	%
Heating degree-days	1,470	1,029	1,546	42.9	%	(4.9	)%

Base

Base revenue increased $26.6 million in 2018 compared to 2017 primarily due to $22.6 million of higher usage from warmer summer weather and colder winter weather and $4.1 million due to higher rates.

Cleco Power expects increased base revenue of

$13.0 million in 2019 and an additional $11.7 million in 2020 through an FRP rider associated with the recovery of expenditures for capital projects. For more information on other expectations of future energy sales on Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Future Electricity Sales.”

Fuel Cost Recovery/Recoverable Fuel and Power Purchased

the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. Fuel and purchased power expenses were also impacted by the interruption of the continuous supply of lignite due to adverse weather conditions and other factors that disrupted mining operations and transportation to Dolet Hills Power Station. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s fuel audit, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

Electric Customer Credits

Electric customer credits increased $31.6 million in 2018 compared to 2017 primarily due to accrued estimated refunds for the tax-related benefits of the TCJA. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA,” and “Note 13 — Regulation and Rates — TCJA.”

Other Operations Revenue

Other operations revenue increased $4.8 million in 2018 compared to 2017 primarily due to $2.3 million of higher revenue from wholesale customers due to the absence of the 2017 customer credits relating to the MISO ROE complaints, $1.6 million of higher net transmission and distribution revenue, and $0.2 million of higher generation revenue from the Teche Unit 3 SSR. The $0.2 million of Teche Unit 3 SSR revenue consisted of $1.8 million higher revenue, partially offset by $1.6 million of expected refunds to MISO as a result of the SSR settlement agreement. For more information on the SSR, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — SSR.”

Other Operations and Maintenance Expense

Other operations and maintenance expense decreased $0.2 million in 2018 compared to 2017 primarily due to $7.6 million of higher deferrals of production operations and maintenance

expenses to a regulatory asset, $7.5 million of lower compensation expense, and the absence of $1.9 million for the write-off of an uncollectible account. These decreases were

partially offset by $5.6 million of higher fees for outside services, $3.4 million of higher employee benefits expenses, $2.9 million of higher net generating station outage and routine maintenance expenses, $2.8 million of higher customer service expenses, $1.7 million of higher distribution operations expenses, and $1.5 million of higher generation operations expenses.

Depreciation and Amortization

Depreciation and amortization expense increased $3.7 million in 2018 compared to 2017 primarily due to $4.2 million of normal recurring additions to fixed assets and $3.8 million of higher amortization of storm damages which is based on

collections from customers. These increases were partially offset by $2.7 million of higher deferrals of corporate franchise taxes to a regulatory asset and $1.4 million of lower amortization of the production operations and maintenance regulatory asset.

Interest Income

Interest income increased $3.8 million in 2018 compared to 2017 primarily due to $1.7 million of higher interest rates and balances on temporary investments and $1.2 million of interest on a note receivable.

Allowance for Equity Funds Used During Construction

Allowance for equity funds used during construction increased $5.8 million in 2018 compared to 2017 primarily due to higher construction costs related to the St. Mary Clean Energy Center project, the Coughlin Pipeline project, the START project, the Terrebonne to Bayou Vista Transmission project, and the Bayou Vista to Segura Transmission project.

Interest Charges

Interest charges increased $1.9 million in 2018 compared to 2017 primarily due to $4.9 million of interest on senior notes issued in December 2017 and March 2018. This increase was partially offset by $2.4 million of higher allowance for borrowed funds used during construction and $1.0 million of lower interest on Cleco Katrina/Rita storm recovery bonds.

Income Taxes

Federal and state income taxes decreased $11.4 million in 2018 compared to 2017. Tax expense decreased primarily due to $26.9 million related to the reduction in the federal statutory tax rate as prescribed by the TCJA, $2.2 million for the change in pretax income, excluding AFUDC equity, and $1.3 million for adjustments for permanent tax differences. These decreases were partially offset by $14.3 million for the absence of adjustments related to the TCJA and $3.7 million for the flowthrough of state tax benefits. The effective income tax rate is 25.6%, which is different than the federal statutory rate primarily due to permanent tax differences, the flowthrough of benefits associated with AFUDC equity, adjustments for tax returns as filed, tax credits, and state tax expense. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA” and “Note 13 — Regulation and Rates — TCJA.”

Comparison of the Years Ended December 31, 2017, and 2016



Cleco
	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Operating revenue, net	$	1,175,646		$	853,005		$	299,870
Operating expenses	910,419			808,096			276,060
Operating income	$	265,227		$	44,909		$	23,810
Interest income	1,424			840			265
Allowance for equity funds used during construction	8,320			3,735			723
Other expense, net	(6,899		)	(6,653		)	(3,167		)
Interest charges	122,913			89,766			22,123
Federal and state income tax expense (benefit)	7,079			(22,822		)	3,468
Net income (loss)	$	138,080		$	(24,113	)	$	(3,960	)

Cleco’s net income attributable to the year ended December 31, 2017, was $138.1 million. There were no significant changes in the underlying trends impacting net income with the exception of the impact of a $46.3 million tax benefit for an adjustment related to the TCJA. The effective income tax rate for 2017 was 4.9%. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA” and “Note 13 — Regulation and Rates — TCJA.”

Cleco’s net loss attributable to the successor period April 13, 2016, through December 31, 2016, was $24.1 million. There were no significant changes in the underlying trends impacting net loss with the exception of the change in pretax loss primarily related to:


•	$174.7 million of merger transaction and commitment costs relating to the 2016 Merger,


•	$34.0 million of interest costs related to debt obtained as a result of the 2016 Merger,


•	$7.5 million of an offset to operating revenue related to the amortization of the intangible asset recorded for the fair value adjustment of wholesale power supply agreements as a result of the 2016 Merger, and


•	$6.4 million of amortization of the fair value adjustment made as a result of the 2016 Merger to record the stepped-up basis for the Coughlin assets.

The effective income tax rate for the successor period April 13, 2016, through December 31, 2016, was 48.6%.

Cleco’s net loss attributable to the predecessor period January 1, 2016, through April 12, 2016, was $4.0 million. There were no significant changes in the underlying trends impacting net loss with the exception of the change in pretax loss primarily related to $34.9 million of merger transaction costs relating to the 2016 Merger. The effective income tax rate for the predecessor period January 1, 2016, through April 12, 2016, was (704.9)%.

Results of operations for Cleco Power are more fully described below.



Cleco Power
	FOR THE YEAR ENDED DEC. 31,
							FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2017			2016			VARIANCE			CHANGE
Operating revenue
Base	$	651,732		$	660,974		$	(9,242	)	(1.4	)%
Fuel cost recovery	456,657			430,255			26,402			6.1	%
Electric customer credits	(1,566		)	(1,513		)	(53		)	(3.5	)%
Other operations	77,522			68,573			8,949			13.1	%
Affiliate revenue	851			884			(33		)	(3.7	)%
Operating revenue, net	$	1,185,196		$	1,159,173		$	26,023		2.2	%
Operating expenses
Recoverable fuel and power purchased	456,509			430,422			(26,087		)	(6.1	)%
Non-recoverable fuel and power purchased	35,750			35,684			(66		)	(0.2	)%
Other operations and maintenance	202,738			203,452			714			0.4	%
Depreciation and amortization	158,415			153,393			(5,022		)	(3.3	)%
Taxes other than income taxes	46,539			48,287			1,748			3.6	%
Merger commitment costs	—			151,501			151,501			100.0	%
Gain on sale of asset	—			(1,095		)	(1,095		)	(100.0	)%
Total operating expenses	899,951			1,021,644			121,693			11.9	%
Operating income	$	285,245		$	137,529		$	147,716		107.4	%
Allowance for equity funds used during construction	$	8,320		$	4,458		$	3,862		86.6	%
Interest charges	$	69,362		$	76,446		$	7,084		9.3	%
Federal and state income tax expense	$	67,331		$	18,369		$	(48,962	)	(266.5	)%
Net income	$	150,738		$	39,128		$	111,610		285.2	%

Cleco Power’s net income for 2017 increased $111.6 million compared to 2016 primarily as a result of the following factors:


•	the absence of 2016 Merger commitment costs,


•	higher other operations revenue,


•	lower interest charges, and


•	higher allowance for equity funds used during construction.

These increases were partially offset by:


•	higher income taxes,


•	lower base revenue, and


•	higher depreciation and amortization.

The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:



	FOR THE YEAR ENDED DEC. 31,
			FAVORABLE/
(MILLION kWh)	2017	2016	(UNFAVORABLE)
Electric sales
Residential	3,526	3,671	(3.9	)%
Commercial	2,650	2,724	(2.7	)%
Industrial	2,078	1,988	4.5	%
Other retail	131	133	(1.5	)%
Total retail	8,385	8,516	(1.5	)%
Sales for resale	2,959	3,143	(5.9	)%
Total retail and wholesale customer sales	11,344	11,659	(2.7	)%

The following table shows the components of Cleco Power’s base revenue:



	FOR THE YEAR ENDED DEC. 31,
					FAVORABLE/
(THOUSANDS)	2017		2016		(UNFAVORABLE)
Electric sales
Residential	$	286,587	$	292,397	(2.0	)%
Commercial	188,431		191,440		(1.6	)%
Industrial	87,528		86,299		1.4	%
Other retail	10,592		10,589		—	%
Surcharge	20,965		21,175		(1.0	)%
Total retail	594,103		601,900		(1.3	)%
Sales for resale	57,629		59,074		(2.4	)%
Total base revenue	$	651,732	$	660,974	(1.4	)%



			FOR THE YEAR ENDED DEC. 31,
				2017 CHANGE
	2017	2016	NORMAL	PRIOR YEAR		NORMAL
Cooling degree-days	3,044	3,309	2,779	(8.0	)%	9.5	%
Heating degree-days	1,029	1,145	1,546	(10.1	)%	(33.4	)%

Base

Base revenue decreased $9.2 million in 2017 compared to 2016 primarily due to $5.8 million of lower rates to a site specific industrial customer and $4.3 million of lower usage as a result of milder weather and lower sales to wholesale customers.

Fuel Cost Recovery/Recoverable Fuel and Power Purchased

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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 76% of Cleco Power’s total fuel costs during 2017 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. For more information on the accounting for

MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s fuel audit, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

Other Operations Revenue

Other operations revenue increased $8.9 million in 2017 compared to 2016 primarily due to $9.4 million of generation revenue from the Teche Unit 3 SSR and $1.7 million of higher forfeited discounts and reconnect fees mostly due to the absence of the 2016 customer rate credits as a result of the 2016 Merger and the absence of LPSC executive orders relating to 2016 flooding, which allowed impacted customers to defer utility payments. These increases were partially offset by $2.3 million of lower transmission revenue from wholesale customers as a result of issuing customer credits relating to the MISO ROE complaints. For more information on the SSR, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — SSR.”

Non-recoverable Fuel and Power Purchased

Non-recoverable fuel and power purchased increased $0.1 million in 2017 compared to 2016 primarily due to $4.1 million of MISO SSR transmission expenses, $0.8 million related to higher MISO administrative fees, and $0.6 million of expenses related to flood damages. These increases were partially offset by a $2.3 million refund from MISO for wholesale customers relating to the MISO ROE complaints, $1.8 million of lower MISO transmission expenses, and $1.3 million due to the absence of expenses in 2017 related to fuel accounting software. For more information on the SSR, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — SSR.”

Other Operations and Maintenance Expense

Other operations and maintenance expense decreased $0.7 million in 2017 compared to 2016 primarily due to $5.4 million of lower net generating station outage and routine maintenance expenses, $2.1 million of higher capitalized administrative and general expenses, $1.5 million for flood related uncollectible accounts deferred to regulatory assets, $1.5 million of lower employee benefits expenses, and $1.3 million for lower provision for other uncollectible accounts. These decreases were partially offset by $6.8 million of lower deferrals of production operations and maintenance expenses to a regulatory asset, $4.0 million of higher salaries, and $1.2 million for higher fees for outside services.

Depreciation and Amortization

Depreciation and amortization expense increased $5.0 million in 2017 compared to 2016 primarily due to higher depreciation due to additions to fixed assets.

Merger Commitment Costs

Merger commitment costs decreased $151.5 million in 2017 compared to 2016 due to the close of the 2016 Merger which resulted in $136.0 million one-time customer rate credits.

Allowance for Equity Funds Used During Construction

Allowance for equity funds used during construction increased $3.9 million in 2017 compared to 2016 primarily due to higher costs related to the St. Mary Clean Energy Center and other capital projects, partially offset by the completion of the Cenla Transmission Expansion project.

Interest Charges

Interest charges decreased $7.1 million in 2017 compared to 2016 primarily due to lower interest of $7.1 million due to long-term debt redeemed and replaced with lower interest rate debt in the fourth quarter of 2016.

Income Taxes

Federal and state income taxes increased $49.0 million in 2017 compared to 2016 primarily due to $62.5 million for the change in pretax income, excluding AFUDC equity. This increase was partially offset by $14.3 million for adjustments related to the TCJA. The effective income tax rate for 2017 was 30.9% which is different than the federal statutory rate primarily due to the TCJA, permanent tax differences, the flowthrough of benefits associated with AFUDC equity, adjustments for tax returns as filed, and state tax expense. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA” and “Note 13 — Regulation and Rates — TCJA.”



CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

For a narrative analysis of the results of operations explaining the reasons for material changes in the amount of revenue and expense items of Cleco Power between the year ended December 31, 2018, and the year ended December 31, 2017, see “— Results of Operations — Comparison of the Years Ended December 31, 2018, and 2017 — Cleco Power.”

For a narrative analysis of the results of operations explaining the reasons for material changes in the amount of revenue and expense items of Cleco Power between the year ended December 31, 2017, and the year ended December 31, 2016, see “— Results of Operations — Comparison of the Years Ended December 31, 2017, and 2016 — Cleco Power.”

The narrative analysis referenced above should be read in combination with Cleco Power’s Financial Statements and the Notes contained in this Annual Report on Form 10-K.



CRITICAL ACCOUNTING POLICIES

Cleco’s critical accounting policies include accounting policies that are important to Cleco’s financial condition and results of operations and 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. The preparation of financial statements contained in this report requires management to make estimates and assumptions. Estimates and assumptions about future events and their effects cannot be made with certainty. These estimates involve judgments regarding many factors that in and of themselves could materially affect the financial statements and disclosures. 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 more

information on Cleco’s accounting policies, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies.”

Cleco believes that the following are the most significant critical accounting policies:

•

To determine assets, liabilities, and expenses relating to pension and other postretirement benefits, management must make assumptions about future trends. Assumptions and estimates include, but are not limited to, discount rates, expected return on plan assets, mortality rates, future rate of compensation increases, and medical inflation trend rates. These assumptions are reviewed and updated on an annual basis. Changes in the rates from year-to-year and newly-enacted laws could have a material effect on Cleco’s financial condition and results of operations by changing the recorded assets, liabilities, expense, or required funding of the pension plan obligation. One component of pension expense is the expected return on plan assets. It is an assumed percentage return on the market-related value of plan assets. The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. The 2018 return on plan assets was (7.31)% compared to an expected long-term return of 5.86%. For 2017, the return on plan assets was 16.32% compared to an expected long-term return of 6.08%. For the calculation of the 2019 periodic expense, Cleco decreased the expected long-term return on plan assets to 6.55%.

Management uses a theoretical bond portfolio in order to calculate the discount rate for the measurement of liabilities. As a result of the annual review of assumptions, the pension plan discount rate increased from 3.73% to 4.35% for the December 31, 2018, measurement of liabilities.

A change in the assumed discount rate creates a deferred actuarial gain or loss. Generally, when the assumed discount rate decreases compared to the prior measurement date, a deferred actuarial loss is created. When the assumed discount rate increases compared to the prior measurement date, a deferred actuarial gain is created. Actuarial gains and losses also are created when actual results, such as compensation increases, differ from assumptions. Historically, Cleco Power has been allowed to recover pension plan expenses; therefore, deferred actuarial gains and losses are recorded as a regulatory asset or liability. The net of the deferred gains and losses is amortized to pension expense over the average service life of the remaining plan participants (approximately 9 years as of December 31, 2018, for Cleco’s plan) when it exceeds certain thresholds. This approach of amortizing gains and losses has the effect of reducing the volatility of pension expense. Over time, it is not expected to reduce or increase the pension expense relative to an approach that immediately recognizes losses and gains.

In October 2016, the Society of Actuaries released an updated mortality improvement scale which indicated lower mortality improvements than previously indicated in the 2015 mortality improvement scale. As a result, in December 2016, Cleco updated its mortality assumptions using the new data

released by the Society of Actuaries. The update resulted in a decrease of $6.8 million in the pension plan obligation at December 31, 2016.

In October 2017, the Society of Actuaries released another updated mortality improvement scale which indicated lower mortality improvements than previously indicated in the 2016 mortality improvement scale. As a result, in December 2017, Cleco updated its mortality assumptions using the new data released by the Society of Actuaries. The update resulted in a decrease of $3.1 million in the pension plan obligation at December 31, 2017.

In October 2018, the Society of Actuaries released another updated mortality improvement scale which indicated lower mortality improvements than previously indicated in the 2017 mortality improvement scale. As a result, in December 2018, Cleco updated its mortality assumptions using the new data released by the Society of Actuaries. The update resulted in a decrease of $1.4 million in the pension plan obligation at December 31, 2018.

The following table shows the impact of a 0.5% change in Cleco’s pension plan discount rate, salary scale, and rate of return on plan assets:



ACTUARIAL ASSUMPTION (THOUSANDS)	CHANGE IN ASSUMPTION	CHANGE IN PROJECTED BENEFIT OBLIGATION			CHANGE IN ESTIMATED BENEFIT COST
Discount rate	0.5% increase	$	(34,289	)	$	(3,452	)
	0.5% decrease	$	38,295		$	3,794
Salary scale	0.5% increase	$	7,412		$	1,481
	0.5% decrease	$	(6,776	)	$	(1,351	)
Expected return on assets	0.5% increase	$	—		$	(2,022	)
	0.5% decrease	$	—		$	2,022

Cleco Power did not make any required or discretionary contributions to the pension plan in 2018, 2017, or 2016. Based on funding assumptions at December 31, 2018, management estimates that $95.5 million in pension contributions will be required through 2023. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Future required contributions are driven by liability funding target percentages set by law which could cause the required contributions to change from year-to-year. The ultimate amount and timing of the contributions will be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.

For more information on pension and other postretirement benefits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Pension Plan and Employee Benefits.”

•

Cleco has concluded it is probable that regulatory assets can be recovered from ratepayers in future rates. At December 31, 2018, Cleco Power had $134.8 million in regulatory assets, net. As a result of the 2016 Merger, Cleco Holdings recognized regulatory assets. At December 31, 2018, Cleco Holdings had $172.6 million of regulatory assets. Actions by the LPSC could limit the recovery of Cleco’s regulatory assets, causing Cleco to record a loss on

some or all of the regulatory assets. If future recovery of costs ceases to be probable, Cleco Holdings could be required to record a loss of its regulatory assets associated with acquisition adjustments. For more information on the LPSC and regulatory assets, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Regulation,” and “Note 5 — Regulatory Assets and Liabilities.”

•

Income tax expense and related balance sheet amounts are comprised of a “current” portion and a “deferred” portion. The current portion represents Cleco’s estimate of the income taxes payable or receivable for the current year. The deferred portion represents Cleco’s estimate of the future income tax effects of events that have been recognized in the financial statements or income tax returns in the current or prior years. Cleco makes assumptions and estimates when it records income taxes, such as its ability to deduct items on its tax returns, the timing of the deduction, and the effect of regulation on income taxes. Cleco’s income tax expense and related assets and liabilities could be affected by changes in its assumptions and estimates and by ultimate resolution of assumptions and estimates with taxing authorities. The actual results may differ from the estimated results based on these assumptions and may have a material effect on Cleco’s results of operations.

For more information on income taxes, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes.”

•

Cleco is currently involved in certain legal proceedings and management has estimated the probable costs for the resolution of these claims. These estimates are based on an analysis of potential results, assuming a combination of litigation and settlement assumptions. For more information on legal proceedings affecting Cleco, see Part I, Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Litigation,” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”

•

Assets acquired and liabilities assumed in an acquired business are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if it exceeds the estimated fair value. On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion. Goodwill is required to be tested for impairment at the reporting segment level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting segment below its carrying value. Additionally, on the date of the 2016 Merger, intangible assets were recognized for fair value adjustments of the Cleco trade name and long-term wholesale power supply contracts. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment, often utilizing independent valuation experts, and involves the use of significant estimates and assumptions. Management’s judgments and

estimates can materially impact the financial statements in periods after acquisition, such as through depreciation, amortization, and goodwill impairment. For more information on intangible assets and goodwill recorded in connection with the 2016 Merger, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill.”

Cleco Power

Cleco Power’s retail rates are regulated by the LPSC. Future rate changes could have a material impact on the results of operations, financial condition, or cash flows of Cleco Power. Areas that could be materially impacted by future actions of regulators are described below:

•

The LPSC determines the ability of Cleco Power to recover prudent costs incurred in developing long-lived assets. If the LPSC were to rule that the cost of current or future long-lived assets was imprudent and not recoverable, Cleco Power could be required to write down the imprudent cost and incur a corresponding impairment loss. At December 31, 2018, the carrying value of Cleco Power’s long-lived assets was $3.21 billion. Currently, Cleco Power has concluded that none of its long-lived assets are impaired.

•

The LPSC determines the amount and type of fuel and purchased power expenses that Cleco Power can charge customers through the FAC. Changes in the determination of allowable costs already incurred by Cleco Power could cause material changes in fuel revenue. Cleco Power has FAC filings for January 2018 and thereafter that are subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. For more information on LPSC fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees —Litigation — LPSC Audits.” For information on fuel revenue, see “— Results of Operations — Comparison of the Years Ended December 31, 2018, and 2017 — Cleco Power — Significant Factors Affecting Cleco Power — Fuel Cost Recovery/Recoverable Fuel and Power Purchased.”



FINANCIAL CONDITION

Liquidity and Capital Resources

General Considerations and Credit-Related Risks

Credit Ratings and Counterparties

Financing for operational needs and capital expenditure requirements not satisfied by operating cash flows depends upon the cost and availability of external funds through both short- and long-term financing. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain or expand its businesses. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, Cleco Holdings’ and Cleco Power’s credit ratings, cash flows from routine operations, and credit ratings of project counterparties. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings

and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. The following table presents the credit ratings of Cleco Holdings and Cleco Power at December 31, 2018:



	SENIOR UNSECURED DEBT			CORPORATE/LONG-TERM ISSUER
	S&P	MOODY’S	FITCH	S&P	MOODY’S	FITCH
Cleco Holdings	BBB-	Baa3	BBB-	BBB-	Baa3	BBB-
Cleco Power	BBB+	A3	BBB+	BBB+	A3	BBB

Credit ratings are not recommendations to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Taking into consideration the Cleco Cajun Transaction, Moody’s completed its review on January 10, 2019, and updated its credit opinion of Cleco Holdings to Baa3 (stable) and affirmed Cleco Power at A3 (stable). On January 24, 2019, taking into consideration the Cleco Cajun Transaction, Fitch affirmed Cleco Holdings’ and Cleco Power’s long-term issuer default ratings at BBB- and BBB, respectively. Also on January 24, 2019, taking into consideration the Cleco Cajun Transaction, Fitch affirmed Cleco Holdings’ and Cleco Power’s senior unsecured ratings at BBB- (stable) and BBB+ (stable), respectively. On February 5, 2019, after the completion of the Cleco Cajun Transaction, S&P affirmed Cleco Holdings’ and Cleco Power’s credit ratings at BBB- (stable) and BBB+ (stable), respectively. On February 11, 2019, after the completion of the Cleco Cajun Transaction, Fitch affirmed Cleco Holdings’ long-term issuer default ratings at BBB-.

Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest rating held. Savings are dependent upon the level of borrowings. If Cleco Holdings’ or Cleco Power’s credit ratings were to be downgraded, Cleco Holdings or Cleco Power, respectively, could be required to pay additional fees and incur higher interest rates for borrowings under their respective credit facilities.

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, 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.

Cleco Power and Cleco Cajun participate in the MISO market, which operates a fully functioning RTO market with two major market processes: the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. Both use market-based mechanisms to manage transmission congestion across the MISO market area. MISO requires Cleco Power to provide credit support which may increase or decrease due to the timing of the settlement schedules. At December 31, 2018, Cleco Power had a $2.0 million letter of credit to MISO pursuant to the credit requirements of FTRs. The letter of credit automatically renews each year. In anticipation of the Cleco Cajun Transaction, Cleco was required to provide credit support for MISO related to Cleco Cajun’s participation in MISO. On January 11, 2019, Cleco provided a $34.5 million letter of credit to MISO pursuant to energy market requirements. This letter of credit decreases availability under

the Cleco Holdings’ credit facility. For more information about MISO, see “— Regulatory and Other Matters — Transmission Rates of Cleco Power.”

In connection with Cleco Cajun Transaction, Cleco Holdings, on behalf of Cleco Cajun, issued three letters of credit totaling $1.1 million to a capacity agreement customer and a gas transport company. These letters of credit automatically renew each year and have no impact on the Cleco Holdings’ credit facility.

Global and U.S. Economic Environment

Global and domestic economic conditions may have an impact on Cleco’s business and financial condition. Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. During periods of capital market volatility, the availability of capital could be limited and the costs of capital may increase for many companies. Although the Registrants have not experienced restrictions in the financial markets, their ability to access the capital markets may be restricted at a time when the Registrants would like, or need, to do so. Any restrictions could have a material impact on the Registrants’ ability to fund capital expenditures or debt service, or on their flexibility to react to changing economic and business conditions. Credit constraints could have a material negative impact on the Registrants’ lenders or customers, causing them to fail to meet their obligations to the Registrants or to delay payment of such obligations. The lower interest rates to which the Registrants have been exposed have been beneficial to debt issuances; however, these rates have negatively affected interest income for the Registrants’ short-term investments.

TCJA

The TCJA was signed into law on December 22, 2017. The provisions of the law reduce the top federal statutory corporate income tax rate from 35% to 21%, generally allow for 100% bonus depreciation for new and used equipment purchased after September 27, 2017, generally restrict deduction of interest expense to 30% of adjusted taxable EBITDA, and repeal the corporate alternative minimum tax. As defined by the TCJA, rate regulated activities are not allowed to utilize 100% bonus depreciation and are not subject to the restricted interest deduction.

As a result of a request by the LPSC, Cleco Power began accruing an estimated reserve for the change in the tax rates beginning January 1, 2018. At December 31, 2018, Cleco Power had $31.6 million accrued for the estimated tax-related benefits from the TCJA. On October 26, 2018, the LPSC Staff approved a final rule that would require utilities to adjust formula rates on the earlier of January 31, 2019, or the next date required for implementation of compliance rate changes under the normal operation of the FRP. Cleco Power filed its report with the LPSC on December 3, 2018, describing its methodology for TCJA refunds and related items, including the allocation of such refunds among jurisdictional customers. On January 31, 2019, Cleco Power filed an application with the LPSC requesting the implementation of rate reductions and modifications of certain tariffs resulting from TCJA to be effective July 1, 2019. Cleco Power also requested to reduce the annual FRP rate, effective July 1, 2019, by the amount accrued for the change in tax rates as of June 30, 2019. Cleco Power recommended that the revenue reduction due to the change in the statutory corporate tax rate be allocated to only residential customers. Cleco Power also requested to address

the regulatory liability for excess ADIT resulting from the enactment of the TCJA in Cleco Power’s application for its new FRP, which is expected to be filed by July 1, 2019, with anticipated new rates being effective July 1, 2020. All items requested in the January 31, 2019, application are subject to LPSC review and approval.

At December 31, 2017, Cleco reduced net ADIT liability due to the reduction in the income tax rate from 35% to 21%. During the fourth quarter of 2018, Cleco finalized the remeasurement and accounting for the effects of the TCJA. While activities not subject to cost of service rate regulation recognize the reduction in ADIT liability in income tax expense, Cleco Power is required to recognize a regulatory liability for the portion of the net reduction subject to regulatory treatment.

The following tables summarize the effects on Cleco and Cleco Power for the TCJA:



Cleco
(THOUSANDS)	NET REDUCTION TO ADIT			RECOGNIZED AS REGULATORY LIABILITY			RECOGNIZED IN INCOME TAX EXPENSE
Provisional at Dec. 31, 2017	$	(394,881	)	$	(348,590	)	$	(46,291	)
TCJA adjustments recorded in 2018	(26,390		)	(26,371		)	(19		)
Final at Dec. 31, 2018	$	(421,271	)	$	(374,961	)	$	(46,310	)



Cleco Power
(THOUSANDS)	NET REDUCTION TO ADIT			RECOGNIZED AS REGULATORY LIABILITY			RECOGNIZED IN INCOME TAX EXPENSE
Provisional at Dec. 31, 2017	$	(362,882	)	$	(348,590	)	$	(14,292	)
TCJA adjustments recorded in 2018	(26,390		)	(26,371		)	(19		)
Final at Dec. 31, 2018	$	(389,272	)	$	(374,961	)	$	(14,311	)

Due to the uncertainty around the regulatory treatment, the entire regulatory liability is reflected in non-current liabilities.

As a result of the TCJA, Cleco’s current and deferred income tax expense in future periods is expected to be lower than in past periods. Cleco also expects to pay lower cash taxes for federal income taxes; however, higher income taxes are expected to be paid for state income taxes because of the lower federal income tax deduction.

Fair Value Measurements

Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power are required to disclose the fair value of certain assets and liabilities by one of three levels. Other financial assets and liabilities are reported at their carrying values at their date of issuance on the consolidated balance sheets with their fair values as of the balance sheet date disclosed within the three levels. For more information about fair value levels, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 7 — Fair Value Accounting.”

Cash Generation and Cash Requirements

Restricted Cash and Cash Equivalents

Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its

intended purposes and/or general company purposes. For more information on Cleco and Cleco Power’s restricted cash and cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”

Debt

Cleco Consolidated

Cleco had no short-term debt outstanding at December 31, 2018, or 2017. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in aggregate, to support their working capital needs.

At December 31, 2018, Cleco’s long-term debt outstanding was $2.90 billion, of which $21.1 million was due within one year. The long-term debt due within one year at December 31, 2018, represents $20.6 million of principal payments for the Cleco Katrina/Rita storm recovery bonds and $0.5 million of capital lease payments. For Cleco, long-term debt increased by $40.3 million from December 31, 2017, primarily due to the March 2018 issuance of $50.0 million principal amount of senior notes due in December 2024, a $16.8 million increase in capital lease obligations, and $1.5 million related to debt discount and expense. These increases were partially offset by $19.2 million of scheduled payments on Cleco Katrina/Rita storm recovery bonds, $8.4 million for amortization of long-term debt fair value adjustments related to the 2016 Merger, and $0.4 million of capital lease principal payments.

On December 18, 2017, Cleco entered into an agreement for the issuance and sale in a private placement of an aggregate principal amount of $175.0 million of senior notes. For more information, see “— Cleco Power” below.

On April 2, 2018, Cleco entered into a capital lease agreement for use of 42 dedicated barges to transport petroleum coke and limestone to Madison Unit 3. For more information on the capital lease agreement, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments — Fuel Transportation Agreement.”

Cash and cash equivalents available at December 31, 2018, were $110.2 million combined with $400.0 million available credit facility capacity ($100.0 million from Cleco Holdings and $300.0 million from Cleco Power) for total liquidity of $510.2 million.

At December 31, 2018, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 7 — Fair Value Accounting.”

At December 31, 2018, and 2017, Cleco had a working capital surplus of $185.9 million and $271.4 million, respectively. The $85.5 million decrease in working capital is primarily due to:


•	a $31.6 million increase in provision for rate refund primarily due to estimated refunds for the tax-related benefits of the TCJA,


•	a $21.0 million increase in taxes payable primarily due to higher provisions for income taxes and higher corporate franchise taxes,


•	a $10.1 million decrease in customer accounts receivable primarily due to the timing of a payment received from a wholesale customer and payments received on deferred agreements


•	a $9.6 million increase in other current liabilities primarily due to the timing of LTIP accruals, higher accruals for the refund of the SSR capital portion, and higher accruals for hydroelectric power purchases as a result of a contract that began in April 2018,


•	an $8.9 million decrease in cash and cash equivalents,


•	a $6.4 million increase in accounts payable, excluding FTR purchases, primarily due to the timing of payables, higher accruals of capital projects, and an increase in fuel costs, partially offset by lower accruals for STIP,


•	a $4.7 million decrease in fuel inventory primarily due to lower lignite deliveries and lower coal purchases, partially offset by higher per unit lignite costs, and


•	a $3.6 million decrease in other accounts receivable primarily due to the receipt of an insurance reimbursement and lower receivables from joint owners, partially offset by a NMTC receivable for the difference between guaranteed benefits and actual benefits received.

These decreases in working capital were partially offset by:


•	a $19.4 million increase in accumulated deferred fuel, excluding FTRs, primarily due to additional deferrals through a fuel surcharge and timing of collections and


•	a $7.3 million increase in material and supplies inventory primarily due to higher purchases.

At December 31, 2018, Cleco’s Consolidated Balance Sheets reflected $4.31 billion of total liabilities compared to $4.18 billion at December 31, 2017. The $130.0 million increase in total liabilities during 2018 was primarily due to:


•	an increase in long-term debt of $40.3 million, as previously discussed,


•	a higher provision for rate refund of $31.6 million due to the estimated refunds for the tax-related benefits of the TCJA,


•	an increase in taxes payable of $21.0 million primarily due to higher provisions for income taxes and higher corporate franchise taxes, and


•	an increase in net deferred taxes regulatory liability of $15.1 million primarily due to the finalization of the TCJA.

Holdings to maintain (i) a debt to capital ratio (as defined in the applicable agreement) below 65% and (ii) a rating applicable to the company’s senior debt rating (as defined in the applicable agreement). Cleco Holdings anticipates that some or all of the variable rate debt may be replaced or repaid with long-term financing, markets permitting, within 12 months of the closing of the Cleco Cajun Transaction. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.

Cleco Holdings (Holding Company Level)

Cleco Holdings had no short-term debt outstanding at December 31, 2018, or 2017. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in aggregate, to support their working capital needs.

At December 31, 2018, Cleco Holding’s long-term debt outstanding was $1.34 billion, none of which was due within one year.

At December 31, 2018, and 2017, Cleco Holdings had no borrowings outstanding under its $100.0 million credit facility. This credit facility provides for working capital and other financing needs. The credit facility includes restricted financial covenants and expires in 2021.

Cash and cash equivalents available at Cleco Holdings at December 31, 2018, were $76.9 million, combined with $100.0 million credit facility capacity for a total liquidity of $176.9 million.

Cleco Power

There was no short-term debt outstanding at Cleco Power at December 31, 2018, or 2017. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in aggregate, to support their working capital needs.

At December 31, 2018, Cleco Power’s long-term debt outstanding was $1.41 billion, of which $21.1 million was due within one year. The long-term debt due within one year at December 31, 2018, represents $20.6 million of principal payments for the Cleco Katrina/Rita storm recovery bonds and $0.5 million of capital lease payments. For Cleco Power, long-term debt increased $48.2 million from December 31, 2017, primarily due to the March 2018 issuance of $50.0 million principal amount of senior notes due in December 2024, a $16.8 million increase in capital obligations, and $1.0 million related to debt discount and expense. These increases were partially offset by $19.2 million of scheduled payments on Cleco Katrina/Rita storm recovery bonds and a $0.4 million in capital lease principal payments.

At December 31, 2018, and 2017, Cleco Power had no borrowings outstanding under its $300.0 million credit facility. This credit facility provides for working capital and other financing needs. The credit facility includes restricted financial covenants and expires in 2021.

On December 18, 2017, Cleco Power entered into an agreement for the issuance and sale in a private placement of an aggregate principal amount of $175.0 million of senior notes. The senior notes were issued in two tranches. The first tranche was issued on December 18, 2017, with a principal amount of $25.0 million at an interest rate of 2.94% and $100.0 million at an interest rate of 3.08%, with final maturity dates in December 2022 and 2023, respectively. The second tranche was issued on March 26, 2018, with a principal amount of $50.0 million at an interest rate of 3.17%, with a final maturity date in December 2024. The proceeds from the issuance and sale were used for capital investments and general utility purposes.

Cash and cash equivalents available at December 31, 2018, were $32.0 million combined with $300.0 million credit facility capacity for total liquidity of $332.0 million.

At December 31, 2018, and 2017, Cleco Power had a working capital surplus of $62.3 million and $169.6 million, respectively. The $107.3 million decrease in working capital is primarily due to:


•	a $37.8 million decrease in cash and cash equivalents,


•	a $31.6 million increase in provision for rate refund primarily due to estimated refunds for the tax-related benefits of the TCJA,


•	a $16.6 million increase in taxes payable primarily due to higher provisions for income taxes and higher corporate franchise taxes,


•	a $10.1 million decrease in customer accounts receivable primarily due to the timing of a payment received from a wholesale customer and payments received on deferred agreements,


•	a $9.4 million increase in accounts payable, excluding FTR purchases, primarily due to the timing of payables, higher accruals of capital projects, and an increase in fuel costs, partially offset by lower accruals for STIP,


•	a $6.4 million increase in other current liabilities primarily due to the timing of LTIP accruals, higher accruals for the refund of the SSR capital portion, and higher accruals for hydroelectric power purchases as a result of a contract that began in April 2018,


•	a $6.1 million decrease in other accounts receivable primarily due to the receipt of an insurance reimbursement and lower receivables from joint owners, and


•	a $4.7 million decrease in fuel inventory primarily due to lower lignite deliveries and lower coal purchases, partially offset by higher per unit lignite costs.

These decreases in working capital were partially offset by:


•	a $19.4 million increase in accumulated deferred fuel, excluding FTRs, primarily due to additional deferrals through a fuel surcharge and timing of collections and


•	a $7.3 million increase in material and supplies inventory primarily due to higher purchases.

At December 31, 2018, Cleco Power’s Consolidated Balance Sheets reflected $2.75 billion of total liabilities compared to $2.64 billion at December 31, 2017. The $116.5 million increase in total liabilities during 2018 was primarily due to:


•	an increase in long-term debt of $48.2 million, as previously discussed,


•	a higher provision for rate refund of $31.6 million due to the estimated refunds for the tax-related benefits of the TCJA,


•	an increase in taxes payable of $16.6 million primarily due to higher provisions for income taxes and higher corporate franchise taxes,


•	an increase in net deferred taxes regulatory liability of $15.1 million primarily due to the finalization of the TCJA, and


•	an increase in accounts payable of $11.9 million primarily due to the timing of payables, higher accruals of capital projects, and an increase in fuel costs, partially offset by lower accruals for STIP.

These increases were partially offset by a decrease of $25.6 million in accumulated deferred federal and state income taxes primarily due to adjustments related to the TCJA.

Credit Facilities

At December 31, 2018, Cleco had two separate revolving credit facilities, one for Cleco Holdings and one for Cleco Power, with a maximum aggregate capacity of $400.0 million.

At December 31, 2018, Cleco Holdings had a $100.0 million credit facility. The credit facility includes restricted financial covenants and expires in 2021. Under covenants contained in Cleco Holdings’ credit facility, Cleco is required to maintain total indebtedness less than or equal to 65% of total capitalization. At December 31, 2018, Cleco Holdings was in compliance with the covenants of its credit facility. The borrowing costs under the facility are equal to LIBOR plus 1.75% or ABR plus 0.75%, plus commitment fees of 0.275%. At December 31, 2018, Cleco Holdings had no borrowings outstanding under its $100.0 million credit facility. If Cleco Holdings’ credit ratings were to be downgraded one level by either agency, Cleco Holdings would be required to pay higher fees and additional interest of 0.075% and 0.50%, respectively, under the pricing levels for its credit facility. In connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million, for a total credit facility of $175.0 million. All other terms remained the same. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.

At December 31, 2018, Cleco Power had a $300.0 million credit facility. The credit facility includes restricted financial covenants and expires in 2021. Under covenants contained in Cleco Power’s credit facility, Cleco Power is required to maintain total indebtedness less than or equal to 65% of total capitalization. At December 31, 2018, Cleco Power was in

compliance with the covenants of its credit facility. The borrowing costs under the facility are equal to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees of 0.125%. At December 31, 2018, Cleco Power had no borrowings outstanding under its $300.0 million credit facility. If Cleco Power’s credit ratings were to be downgraded one level by either agency, Cleco Power would be required to pay higher fees and additional interest of 0.05% and 0.125%, respectively, under the pricing levels of its credit facility.

If Cleco Holdings or Cleco Power were to default under the covenants in their respective credit facilities or other debt agreements, they would be unable to borrow additional funds under the facilities, and the lenders could accelerate all principal and interest outstanding. Further, if Cleco Power were to default under its credit facility or other debt agreements, Cleco Holdings would be considered in default under its credit facility.

Debt Limitations

The 2016 Merger Commitments include provisions for limiting the amount of distributions that can be made from Cleco Holdings to Cleco Group or Cleco Partners, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings. Cleco Holdings may not make any distribution unless, after giving effect to such distribution, Cleco Holdings’ debt to EBITDA ratio is equal to or less than 6.50 to 1.00 and Cleco Holdings’ corporate credit rating is investment grade with one or more of the three credit rating agencies. Additionally, in accordance with the 2016 Merger Commitments, Cleco Power is subject to certain provisions limiting the amount of distributions that may be paid to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings. Cleco Power may not make any distribution unless, after giving effect to such distribution, Cleco Power’s common equity ratio would not be less than 48% and Cleco Power’s corporate credit rating is investment grade with two of the three credit rating agencies. The 2016 Merger Commitments also prohibit Cleco from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. At December 31, 2018 and 2017, Cleco Holdings and Cleco Power were in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. For more information on additional merger commitments, see Part I, Item 1A, “Risk Factors — Holding Company.”

Cleco Cash Flows

Net Operating Cash Flow

Net cash provided by operating activities was $317.8 million and $265.4 million for the years ended December 31, 2018, and 2017, respectively. Net cash provided by operating activities during 2018 increased $52.4 million from 2017 primarily due to:


•	higher collections from customers of $25.3 million due to lower 2016 Merger credits used in 2018 and the timing of collections of accounts receivables,


•	lower payments for fuel purchases of $23.6 million primarily due to lower deliveries of lignite and petroleum coke,


•	lower payments for affiliate settlements of $18.1 million


•	lower payments of $18.0 million due to timing of property tax payments, and


•	higher receipts of $8.1 million primarily due to timing of receipts of joint owners’ portion of generating station expenditures.

These increases were partially offset by:


•	lower net fuel and power purchase collections of $30.4 million primarily due to timing of collections and


•	higher payments for employee benefits of $8.2 million.

For the year ended December 31, 2017, there were no significant changes in the underlying trends impacting cash provided by operating activities.

Net cash provided by operating activities for the successor period April 13, 2016, through December 31, 2016, was $69.9 million. There were no significant changes in the underlying trends impacting cash provided by operating activities with the exception of the following:


•	lower collections from customers of $121.5 million due to 2016 Merger credits used in 2016 and


•	$23.7 million related to payments for 2016 Merger transaction costs.

Net cash provided by operating activities for the predecessor period January 1, 2016, through April 12, 2016, was $129.8 million. There were no significant changes in the underlying trends impacting cash provided by operating activities.

Net Investing Cash Flow

Net cash used in investing activities was $288.2 million and$203.6 million during the years ended December 31, 2018, and 2017, respectively. Net cash used in investing activities increased $84.6 million primarily due to:


•	higher additions to property, plant, and equipment, net of AFUDC, of $48.3 million,


•	issuance of a $16.8 million note receivable, and


•	the absence of proceeds from the sale of transmission assets of $16.7 million.

For more information about the note receivable, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments — Fuel Transportation Agreement.”

For the year ended December 31, 2017, there were no significant changes in the underlying trends impacting cash provided by investing activities with the exception of $16.7 million of proceeds from the sale of transmission assets sold by Cleco on December 20, 2017.

Cleco’s net cash used in investing activities for the successor period April 13, 2016, through December 31, 2016, was $135.3 million. There were no significant changes in the underlying trends impacting cash used in investing activities.

Cleco’s net cash used in investing activities for the predecessor period January 1, 2016, through April 12, 2016, was $41.7 million. There were no significant changes in the underlying trends impacting cash used in investing activities.

Net Financing Cash Flow

Net cash used in financing activities was $41.7 million for the year ended December 31, 2018. Net cash provided by financing activities was $20.8 million for the year ended December 31, 2017. Net cash used in financing activities increased $62.5 million primarily due to:


•	absence of draws on Cleco’s credit facilities of $179.0 million and


•	lower issuances issuances of senior notes of $75.0 million.

These increases were partially offset by:


•	absence of payments on Cleco’s credit facility of $179.0 million and


•	lower distributions to Cleco Group of $12.7 million.

For the year ended December 31, 2017, there were no significant changes in the underlying trends impacting cash provided by financing activities.

Cleco’s net cash used in financing activities for the successor period April 13, 2016, through December 31, 2016, was $6.0 million. There were no significant changes in the underlying trends impacting cash provided by financing activities with the exception of $100.7 million in contributions from Cleco Group.

Cleco’s net cash used in financing activities for the predecessor period January 1, 2016, through April 12, 2016, was $40.9 million. There were no significant changes in the underlying trends impacting cash used in financing activities.

Cleco Power Cash Flows

Net Operating Cash Flow

Net cash provided by operating activities was $339.7 million during 2018, $287.1 million during 2017, and $234.3 million during 2016. Net cash provided by operating activities during 2018 increased $52.6 million from 2017 primarily due to:


•	higher collections from customers of $25.3 million due to lower 2016 Merger credits used in 2018 and the timing of collections of accounts receivables,


•	lower payments for fuel purchases of $23.6 million primarily due to lower deliveries of lignite and petroleum coke,


•	lower payments of $18.0 million due to timing of property tax payments,


•	higher receipts of $8.1 million primarily due to timing of receipts of joint owners’ portion of generating station expenditures, and


•	lower payment for affiliate settlements of $5.3 million.

These increases in net operating cash were partially offset by:


•	lower net fuel and power purchase collections of $30.4 million primarily due to timing of collections and


•	higher payments for employee benefits of $6.4 million.

Net cash provided by operating activities during 2017 increased $52.8 million from 2016 primarily due to:


•	higher collections from customers of $109.9 million due to lower 2016 Merger credits used,


•	higher net fuel and power purchase collections of $19.1 million primarily due to the timing of collections, and


•	lower interest payments of $8.2 million due to long-term debt redeemed and replaced with lower interest rate debt in the fourth quarter of 2016.

These increases in net operating cash were partially offset by:


•	higher payments for fuel inventory of $59.9 million primarily due to higher per unit lignite and petroleum coke costs and higher coal purchases and


•	higher payments for affiliate settlements of $23.4 million.

Net Investing Cash Flow

Net cash used in investing activities was $289.0 million during 2018, $222.2 million during 2017, and $177.6 million during 2016. Net cash used in investing activities during 2018 increased $66.8 million from 2017 primarily due to:


•	higher additions to property, plant, and equipment, net of AFUDC, of $48.1 million and


•	issuance of a $16.8 million note receivable.

Net cash used in investing activities during 2017 increased $44.6 million from 2016 primarily due to higher payments for additions to property, plant, and equipment, net of AFUDC, of $45.2 million.

Net Financing Cash Flow

Net cash used in financing activities was $91.7 million during 2018, $29.9 million during 2017, and $79.9 million during 2016. Net cash used in financing activities during 2018 increased $61.8 million from 2017 primarily due to:


•	the absence of draws on Cleco Power’s credit facilities of $106.0 million and


•	lower issuances of senior notes of $75.0 million.

These increases were partially offset by:


•	the absence of payments on Cleco Power’s credit facility of $106.0 million and


•	lower distributions to Cleco Holdings of $13.6 million.

Net cash used in financing activities during 2017 decreased $50.0 million from 2016 primarily due to:


•	lower repayments of long-term debt of $308.9 million and


•	the absence of an $18.6 million make-whole payment made in connection with the redemption of $250.0 million of 6.65% senior notes in 2016.

These decreases in net financing activities were partially offset by:


•	lower issuances of long-term debt of $205.0 million,


•	the absence of contributions from Cleco Holdings of $50.0 million, and


•	higher distributions to Cleco Holdings of $25.0 million.

Capital Expenditures

Prior to the Cleco Cajun Transaction, Cleco’s capital expenditures were primarily incurred at Cleco Power. Cleco

Power’s capital expenditures relate primarily to assets that may be included in Cleco Power’s rate base and, if considered prudent by the LPSC, can be recovered from its customers. Those assets also earn a rate of return authorized by the LPSC and are subject to the FRP. Such assets primarily consist of improvements to Cleco Power’s distribution system, transmission system, and generating stations as well as hardware and software upgrades.

During the years ended December 31, 2018, 2017, and 2016, Cleco Power had capital expenditures, excluding AFUDC, of $275.0 million, $226.9 million, $181.7 million, respectively. In 2018, 2017, and 2016, 100% of Cleco Power’s capital expenditure requirements were funded internally.

During the years ended December 31, 2018, December 31, 2017, and the successor period April 13, 2016, through December 31, 2016, other subsidiaries had capital expenditures of $1.9 million, $1.7 million, and $0.7 million, respectively. During the predecessor period January 1, 2016, through April 12, 2016, other subsidiaries had capital expenditures of less than $0.1 million.

In 2019 and for the five-year period ending 2023, Cleco Power expects to materially fund its capital expenditure requirements with internally generated funds. However, Cleco Power may choose to issue debt in order to achieve its stipulated regulatory capital structure. All computations of internally funded capital expenditures exclude AFUDC.

Cleco and Cleco Power’s estimated capital expenditures and debt maturities for 2019 and for the five-year period ending December 31, 2023 are presented in the following tables. All amounts exclude AFUDC and Cleco Cajun estimated capital expenditures. Following the Cleco Cajun Transaction, Cleco expects to incur capital expenditures at Cleco Cajun. Cleco Cajun’s estimated capital expenditures are expected to be included in the Registrants’ Combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.



Cleco
PROJECT (THOUSANDS)	2019		%		2019-2023		%
Environmental	$	1,000	—	%	$	20,000	1	%
New business	38,000		16	%	166,000		12	%
Transmission reliability	33,000		14	%	157,000		12	%
Fuel optimization	22,000		9	%	287,000		22	%
General ⁽¹⁾	144,000		61	%	704,000		53	%
Total capital expenditures	$	238,000	100	%	$	1,334,000	100	%
Debt payments	21,000				622,000
Total capital expenditures and debt payments	$	259,000			$	1,956,000
⁽¹⁾Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades at Cleco Power.



Cleco Power
PROJECT (THOUSANDS)	2019		%		2019-2023		%
Environmental	$	1,000	—	%	$	20,000	2	%
New business	38,000		16	%	166,000		12	%
Transmission reliability	33,000		14	%	157,000		12	%
Fuel optimization	22,000		9	%	287,000		22	%
General ⁽¹⁾	142,000		61	%	698,000		52	%
Total capital expenditures	$	236,000	100	%	$	1,328,000	100	%
Debt payments	21,000				157,000
Total capital expenditures and debt payments	$	257,000			$	1,485,000
⁽¹⁾Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades.

Capital expenditures for other subsidiaries, excluding Cleco Cajun, in 2019 are estimated to total $2.0 million. For the five-year period ending December 31, 2023, capital expenditures for other subsidiaries, excluding Cleco Cajun, are estimated to total $6.0 million. Cleco expects cash and cash equivalents on hand in addition to cash generated from operations, borrowings from credit facilities, and the net proceeds of any issuances of debt securities to be adequate to fund normal ongoing capital expenditures, working capital, and debt service requirements for the foreseeable future.

Other Cash Requirements

Prior to the Cleco Cajun Transaction, Cleco Power’s regulated operations were Cleco’s primary source of internally generated funds. These funds, along with Cleco Cajun’s operation and the issuance of additional debt in future years, will be used for general company purposes, capital expenditures, and debt service.

Contractual Obligations

Cleco, in the course of normal business activities, enters into a variety of contractual obligations. Some of these result in direct obligations that are reflected in Cleco’s Consolidated Balance Sheets while others are commitments, some firm and some based on uncertainties, that are not reflected in the consolidated financial statements. Additionally, the obligations listed in the following table do not include amounts related to Cleco Cajun; however, as a result of the Cleco Cajun Transaction, Cleco expects to incur contractual obligations at Cleco Cajun. The obligations listed in the following table do not include amounts for ongoing needs for which no contractual obligation existed as of December 31, 2018, and represent only the projected future payments that Cleco was contractually obligated to make as of December 31, 2018.

or other event could significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; result in damage to Cleco’s reputation; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. In addition, Cleco’s recent acquisition of NRG South Central could increase the risk associated with cybersecurity that could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows including phishing attacks, denial of service attacks, and employee insider attacks. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. Cleco’s Chief Administrative Officer leads Cleco’s cybersecurity team and oversees Cleco’s cybersecurity maturity plan. Each quarter, management provides cybersecurity updates to Cleco’s Board of Managers. For more information on risks related to Cleco’s cybersecurity, see Part I, Item 1A, “Risk Factors — Technology and Terrorism Threats” in this Annual Report on Form 10-K.

Regulatory and Other Matters

Inflation

Annual inflation rates, as measured by the U.S. Consumer Price Index, have averaged 2% during the three years ended December 31, 2018. Under established regulatory practice, historical costs have traditionally formed the basis for recovery from customers. As a result, Cleco Power’s cash flows designed to provide recovery of historical plant costs may not be adequate to replace property, plant, and equipment in future years.

Environmental Matters

For information on environmental matters, see Part I, Item 1, “Business — Environmental Matters.”

Retail Rates of Cleco Power

Retail rates (comprised of base revenue, FAC revenue, and EAC revenue) regulated by the LPSC accounted for approximately 86% of Cleco Power’s 2018 revenue and 85% of Cleco Power’s 2017 revenue.

Fuel Rates

Environmental Rates

In July 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides for an EAC to recover from customers certain costs of environmental compliance. These expenses are eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC. For more information

on the EAC and the ongoing environmental audit covering January 1, 2016, through December 31, 2017, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit.”

Base Rates

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. For more information on the LPSC’s regulation of Cleco Power’s base rates, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Rates.”

For more information on the LPSC Staff’s FRP reviews, amounts accrued by Cleco Power as a result of the TCJA, and information on the tax dockets, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — FRP” and “— TCJA.”

SSR

Energy Efficiency

In 2009, the LPSC opened a docket to study the promotion of energy efficiency by jurisdictional electric and natural gas utilities. In 2013, the LPSC issued a General Order adopting rules promoting energy efficiency programs. The order addressed two energy efficiency programs, Phase I and Phase II. Phase I, known as the Quick Start program, was a three-year program to expedite the energy efficiency implementation and was expected to develop into Phase II, a more detailed and comprehensive program. Cleco Power participated in the Phase I program beginning in November 2014 for three years and designed several energy efficiency programs for customers. In January 2017, the LPSC amended the third year of the Phase I program to allocate no less than 50% of its annual program budgets to applicable government and state agencies. Beginning in November 2014, Cleco Power recovered approximately $3.3 million annually for each of the three program years through an approved rate tariff.

In September 2017, the LPSC extended Phase I for an additional year. Cleco Power began recovery of approximately $3.3 million for estimated costs for the fourth program year beginning January 1, 2018. Also in September 2017, the LPSC approved a motion for additional energy efficiency program funds for the exclusive benefit of school districts, local governments, state agencies, and higher education institutions or any other public entities (political subdivision). The recovery of approximately $3.3 million annually for estimated costs for the political subdivision program began on January 1, 2018.

On December 19, 2018, the LPSC extended Phase I for an additional year.

Utility companies are allowed to recover from customers the accumulated decrease in revenues associated with the energy efficiency programs. In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the accumulated decrease in revenues. Beginning March 1, 2019, this amount will be recovered over approximately four years, subject to LPSC review and approval.

In November 2017, the LPSC initiated an audit on the first two program years to consider all program costs. Cleco Power has responded to the two sets of data requests on the energy efficiency audit. On December 6, 2018, Cleco Power received the LPSC’s preliminary audit report, which concluded that the costs were reasonable and prudent, and eligible for recovery consistent with the Energy Efficiency Rules.

MISO Cost Benefit Analysis

Cleco Power entered into MISO in 2013. Within five years of joining MISO, the LPSC required Cleco Power to conduct a study of the costs and benefits of its membership in MISO. During the second quarter of 2017, Cleco Power submitted an analysis with both a backward-looking, historical analysis and a forward-looking, prospective analysis of the costs and benefits of operating in MISO, as compared to a scenario where Cleco Power and Entergy Louisiana exit MISO and operate independently. Cleco Power’s analysis indicated that continued MISO membership would best serve the public interest. Cleco Power has responded to several sets of data requests on the analysis. Management is unable to predict the outcome of this analysis or give a reasonable estimate of the possible range of disallowance of costs, if any.

Wholesale Rates of Cleco Power

The rates Cleco Power charges its wholesale customers are subject to FERC’s triennial market power analysis. FERC requires a utility to pass a screening test as a condition for securing and/or retaining approval to sell electricity in wholesale markets at market-based rates. An updated market power analysis is to be filed with FERC every three years or upon the occurrence of a change in status as defined by FERC regulation. Cleco filed its triennial market power analysis with FERC in December 2017. On November 8, 2018, FERC determined that Cleco Power has satisfied the requirements for market-based rate authority. Cleco’s next triennial market power analysis is expected to be filed during the fourth quarter of 2020.

Transmission Rates of Cleco Power

In July 2011, FERC issued Order No. 1000 that reforms the electric transmission planning and cost allocation requirements for public utility transmission providers. The rule builds on the reforms of Order No. 890 and corrects remaining deficiencies with respect to transmission planning processes and cost allocation methods. In 2015, MISO and the SPP made separate filings containing different metrics to meet specific requirements. A compliance determination for both filings has not been made and no timetable is available for when a determination will be made. Until a determination is made, Cleco is unable to determine if this order will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Cleco Power’s generation dispatch and transmission operations are integrated with MISO. MISO operates a fully

functioning RTO market with two major market processes: the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. Both use market-based mechanisms to manage transmission congestion across the MISO market area. For more information about the risks associated with Cleco Power’s participation in MISO, see Part I, Item 1A, “Risk Factors — MISO.”

In May 2017, Cleco Power filed a MISO Schedule 2 rate increase request with FERC. MISO Schedule 2 provides for compensation to Cleco Power for providing reactive power to MISO customers. On July 1, 2017, Cleco Power began collecting revenue at the requested rate, subject to refund. On December 1, 2017, a new rate in pursuance with interveners became effective. FERC approved this rate through a settlement agreement on February 1, 2018. In April 2018, Cleco refunded $0.1 million, including accrued interest, for the amount over-collected in 2017.

Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. For more information about the ROE complaints, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

Transmission and Generation Projects

Cleco Power is currently involved in the Terrebonne to Bayou Vista and Bayou Vista to Segura transmission projects, as well as the DSMART project. Cleco Power is also involved in the St. Mary Clean Energy Center project, which is a waste heat generating unit, and the Coughlin Pipeline project. For information on these projects, see “— Overview — Cleco Power.”

Market Restructuring

Wholesale Electric Markets

RTO

In 1999, FERC issued Order No. 2000, which established a general framework for all transmission-owning entities in the nation to voluntarily place their transmission facilities under the control of an appropriate RTO. Cleco Power’s generation dispatch and transmission operations are integrated with MISO. For more information about Cleco Power’s integration into MISO, see “— Transmission Rates of Cleco Power.”

ERO

The Energy Policy Act of 2005 added Section 215 to the Federal Power Act, which provides for a uniform system of mandatory, enforceable reliability standards. In 2006, FERC named NERC as the ERO that will be required to develop and enforce the mandatory reliability standards.

In July 2017, the SPP RTO’s board of directors and members committee voted to authorize the SPP’s President and CEO to terminate the delegation agreement between the SPP and NERC. On February 8, 2018, NERC approved Cleco Power’s proposed RE. On July 1, 2018, SERC assumed the delegated authority as the new RE for Cleco Power, which replaced the SPP RE. Management does not expect the movement to SERC to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.

A NERC Reliability Standards audit is conducted every three years. Cleco Power’s next NERC Reliability Standards audit is scheduled to begin in October 2019.

A NERC Critical Infrastructure Protection audit is also conducted every three years. A NERC Critical Infrastructure Protection audit was conducted in February 2017. There were three violations associated with the February 2017 audit. Cleco Power has completed the mitigation plans for the violations. The SPP RE has approved two of the mitigation plans. The third mitigation plan has been transferred to SERC due to the dissolution of the SPP RE. SERC continues to analyze Cleco Power’s mitigation plan.

Cleco Power’s next NERC Critical Infrastructure Protection audit is scheduled to begin in 2020. Management is unable to predict the final outcome of the remaining violation, or any future audits, or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

For a discussion of risks associated with FERC’s regulation of Cleco Power’s transmission system, see Part I, Item 1A, “Risk Factors — Reliability and Infrastructure Protection Standards Compliance.”

Retail Electric Markets

Currently, the LPSC does not provide exclusive service territories for electric utilities under its jurisdiction. Instead, retail service is obtained through a long-term nonexclusive franchise. The LPSC uses a “300-foot rule” for determining the supplier for new customers. The “300-foot rule” requires a customer to take service from the electric utility that is within 300 feet of the respective customer. If the customer is beyond 300 feet from any existing utility service, they may choose their electric supplier. The “300-foot rule” is currently under review by the LPSC in Docket No. R-32763. Management is unable to predict the time of completion and cannot determine the impact any potential rulemaking may have on the results of operations, financial condition, or cash flows of Cleco Power. The application of the current rule has led to competition with neighboring utilities for retail customers at the borders of Cleco Power’s service areas. Cleco Power also competes in its service area with suppliers of alternative forms of energy, some of which may be less costly than electricity for certain applications. Cleco Power could experience some competition for electric sales to industrial customers in the form of cogeneration or from independent power producers.

Lignite Deferral

Cleco Power operates a generating unit jointly owned with SWEPCO that uses lignite as its primary fuel source.

Cleco Power, along with SWEPCO, maintains a lignite mining agreement with DHLC, the operator of the Dolet Hills Mine. As ordered by the LPSC, Cleco Power’s retail customers received fuel cost savings through the year 2011, while actual mining costs above a certain percentage of the benchmark price were deferred. These deferred costs could be recovered from retail customers through the FAC only when the actual mining costs were below a certain percentage of the benchmark price.

In 2006, Cleco Power recognized that there was a possibility it may not recover all or part of the lignite mining costs it had deferred and sought relief from the LPSC. In December 2007, the LPSC approved a settlement agreement between Cleco Power, SWEPCO, and the LPSC Staff authorizing Cleco Power to recover the existing deferred

mining cost balance, including interest, over 11.5 years. In connection with its 2009 approval of the Oxbow Lignite Mine acquisition, the LPSC agreed to discontinue benchmarking and the corresponding potential to defer future lignite mining costs while preserving the previously authorized recovery of the legacy deferred fuel balance. At December 31, 2018, and 2017, Cleco Power had $1.3 million and $3.8 million, respectively, deferred as a regulatory asset.

IRP

In accordance with the General Order in LPSC Docket No. R-30021, on October 20, 2017, Cleco Power filed a request with the LPSC to initiate an IRP process. On February 20, 2018, Cleco Power filed the data assumptions to be used in its IRP analysis. The IRP process includes conducting stakeholder meetings and receiving feedback from stakeholders. The first stakeholder meeting was held on April 5, 2018. Comments from the stakeholders were filed on June 5, 2018. Cleco Power has responded to multiple sets of data requests. Cleco Power filed a draft IRP report on January 29, 2019, and expects to file the final report no later than August 30, 2019, with final LPSC approval expected in early 2020.

Service Quality Plan (SQP)

In October 2015, the LPSC proposed an SQP containing 21 requirements for Cleco Power. The SQP has provisions relating to employee headcount, customer service, reliability, vegetation management, and reporting. In April 2016, the SQP was approved by the LPSC. The SQP will remain in effect until 2021. Prior to the expiration of the SQP, a new five-year program must be negotiated and submitted to the LPSC for approval. Cleco Power filed its annual monitoring report on March 29, 2018.

Franchises

For information on franchises, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Franchises.”

Recent Authoritative Guidance

For a discussion of recent authoritative guidance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Recent Authoritative Guidance.”



RISK OVERVIEW

Cleco Power evaluates derivatives and hedging activities to determine whether market risk-sensitive instruments and positions are required to be marked-to-market. When positions close, actual gains or losses are included in the FAC and reflected on customers’ bills as a component of the FAC.

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, FTRs, 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 maintains a master netting agreement policy and 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 buys and sells 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. Future actions or inactions of the federal government, including a failure to increase the government debt limit, could increase the actual or perceived risk that the U.S. may not pay its obligations when due and may disrupt financial markets, including capital markets, potentially limiting availability and increasing costs of capital. 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 of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. Cleco Holdings and Cleco Power pay fees and interest under their respective credit facilities based on the highest rating held. For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — General Considerations and Credit-Related Risks.”

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 variable-rate obligations is computed by assuming a 1% change in the current interest rate applicable to such debt.

At December 31, 2018, Cleco Holdings had no debt outstanding under its $100.0 million credit facility. The borrowing costs under Cleco Holdings’ credit facility are equal to LIBOR plus 1.75% or ABR plus 0.75%, plus commitment fees of 0.275%.

At December 31, 2018, Cleco Holdings had a $300.0 million long-term variable rate bank term loan outstanding. Amounts outstanding under the bank term loan bear interest at LIBOR plus 1.625%. At December 31, 2018, the all-in rate was 3.08%. Each 1% increase in the interest rate applicable to such debt would result in a decrease in Cleco Holdings’ pretax earnings of $3.0 million.

For information on variable-rate debt related to Cleco Power, see “— Cleco Power.”

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), and regulatory compliance staff. All forward commodity positions have established risk limits and are monitored through a daily market report that identifies the VaR, current market conditions, and concentration of energy market positions.

Cleco Power provides fuel for generation and purchases power to meet the power demands of customers. Cleco Power may enter into positions to mitigate the volatility in customer fuel costs, as encouraged by various LPSC orders. These positions would be 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 energy risk management assets or liabilities. When these positions close, actual gains or losses would be included in the FAC and reflected in customers’ bills as a component of the fuel charge. There were no open natural gas positions at December 31, 2018. Cleco Power is currently working with the LPSC to establish a natural gas hedging pilot program. For more information on the program, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Risk Management.”

Cleco Power purchases FTRs in auctions facilitated by MISO. The majority of its FTRs are purchased in annual auctions during the second quarter, but Cleco Power may purchase additional FTRs in monthly auctions. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Cleco Power’s customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power records FTRs at their estimated fair value when purchased. Each accounting period, Cleco Power adjusts the carrying value of FTRs to their estimated fair value based on the most recent MISO FTR auction prices. Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco Power’s Consolidated Balance Sheets.

Realized gains or losses on settled FTRs are recorded in Fuel used for electric generation on Cleco Power’s Consolidated Statements of Income. At December 31, 2018, Cleco Power’s Consolidated Balance Sheets reflected open FTR positions of

$23.4 million in Energy risk management assets and $0.5 million in Energy risk management liabilities. For more information on FTRs, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 7 — Fair Value Accounting — Commodity Contracts.”



CLECO POWER

Please refer to “— Risk Overview” for a discussion of market risk inherent in Cleco Power’s market risk-sensitive instruments.

Cleco Power may enter into various fixed- and variable-rate debt obligations. Please refer to “— Interest Rate Risks” for a discussion of how Cleco Power monitors its mix of fixed-

and variable-rate debt obligations and the manner of

calculating changes in fair market value and interest expense of its debt obligations.

At December 31, 2018, Cleco Power had no variable-rate debt outstanding.

At December 31, 2018, Cleco Power had no debt outstanding under its $300.0 million credit facility. The borrowing costs under the Cleco Power credit facility are equal to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees of 0.125%.

Please refer to “— Commodity Price Risks” for a discussion of controls, transactions, VaR, and market value maturities associated with Cleco Power’s energy commodity activities.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cleco Corporate Holdings LLC and its subsidiaries (Successor and “the Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2018 and 2017 and for the period April 13, 2016 to December 31, 2016, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended December 31, 2018 and 2017 and for the period April 13, 2016 to December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana

February 26, 2019

We have served as the Company’s auditor since 2016.

In our opinion, the accompanying consolidated statements of income, comprehensive income, changes in equity and cash flows present fairly, in all material respects, the results of operations and cash flows of Cleco Corporation and its subsidiaries (Predecessor) for the period January 1, 2016 to April 12, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) for the period January 1, 2016 to April 12, 2016 present fairly, in all material respects, the information set forth therein when read in conjunction with the consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit of these financial statements in

accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana

February 22, 2017



CLECO

Consolidated Statements of Income
	SUCCESSOR									PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Operating revenue
Electric operations	$	1,181,907		$	1,097,632		$	802,592		$	281,154
Other operations	82,332			79,580			51,562			19,080
Gross operating revenue	1,264,239			1,177,212			854,154			300,234
Electric customer credits	(33,195		)	(1,566		)	(1,149		)	(364		)
Operating revenue, net	1,231,044			1,175,646			853,005			299,870
Operating expenses
Fuel used for electric generation	382,556			339,346			250,142			96,378
Power purchased for utility customers	168,180			152,913			92,337			27,249
Other operations and maintenance	197,038			197,610			138,298			59,929
Depreciation and amortization	170,414			166,854			116,990			44,076
Taxes other than income taxes	48,791			48,546			35,543			14,611
Merger transaction and commitment costs	19,514			5,152			174,786			34,912
Gain on sale of assets	(6		)	(2		)	—			(1,095		)
Total operating expenses	986,487			910,419			808,096			276,060
Operating income	244,557			265,227			44,909			23,810
Interest income	6,073			1,424			840			265
Allowance for equity funds used during construction	14,159			8,320			3,735			723
Other income	1,515			6,474			3,350			870
Other expense	(15,843		)	(13,373		)	(10,003		)	(4,037		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	131,348			125,200			90,852			22,330
Allowance for borrowed funds used during construction	(4,706		)	(2,287		)	(1,086		)	(207		)
Total interest charges	126,642			122,913			89,766			22,123
Income (loss) before income taxes	123,819			145,159			(46,935		)	(492		)
Federal and state income tax expense (benefit)	29,382			7,079			(22,822		)	3,468
Net income (loss)	$	94,437		$	138,080		$	(24,113	)	$	(3,960	)
The accompanying notes are an integral part of the Consolidated Financial Statements.



CLECO

Consolidated Balance Sheets
	AT DEC. 31,
(THOUSANDS)	2018			2017
Assets
Current assets
Cash and cash equivalents	$	110,175		$	119,040
Restricted cash and cash equivalents	11,241			13,081
Customer accounts receivable (less allowance for doubtful accounts of $814 in 2018 and $1,457 in 2017)	50,043			60,117
Other accounts receivable	27,196			30,806
Unbilled revenue	35,314			36,398
Fuel inventory, at average cost	82,836			87,520
Materials and supplies, at average cost	92,671			85,404
Energy risk management assets	23,355			7,396
Accumulated deferred fuel	20,112			13,980
Cash surrender value of company-/trust-owned life insurance policies	80,391			83,117
Prepayments	7,911			9,050
Regulatory assets	22,461			24,670
Other current assets	1,256			1,146
Total current assets	564,962			571,725
Property, plant, and equipment
Property, plant, and equipment	3,728,477			3,594,525
Accumulated depreciation	(303,727		)	(192,348		)
Net property, plant, and equipment	3,424,750			3,402,177
Construction work in progress	354,045			186,629
Total property, plant, and equipment, net	3,778,795			3,588,806
Equity investment in investee	18,172			18,172
Goodwill	1,490,797			1,490,797
Prepayments	2,251			1,887
Restricted cash and cash equivalents	18,670			20,081
Note receivable	15,829			—
Regulatory assets	425,330			432,358
Intangible assets	84,307			114,850
Tax credit fund investment, net	—			4,355
Other deferred charges	37,701			35,351
Total assets	$	6,436,814		$	6,278,382
The accompanying notes are an integral part of the Consolidated Financial Statements.

(Continued on next page)



CLECO

Consolidated Balance Sheets
	AT DEC. 31,
(THOUSANDS)	2018		2017
Liabilities and member’s equity
Liabilities
Current liabilities
Long-term debt and capital leases due within one year	$	21,128	$	19,193
Accounts payable	156,589		147,562
Customer deposits	61,736		58,582
Provision for rate refund	35,842		4,206
Taxes payable, net	43,674		22,698
Interest accrued	15,828		14,703
Energy risk management liabilities	468		352
Regulatory liabilities - other	2,496		—
Deferred compensation	10,753		12,132
Other current liabilities	30,536		20,926
Total current liabilities	379,050		300,354
Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net	608,030		614,812
Accumulated deferred investment tax credits	1,853		2,089
Postretirement benefit obligations	249,264		242,135
Regulatory liabilities - other	2,496		—
Regulatory liabilities - deferred taxes, net	155,537		140,426
Restricted storm reserve	15,485		14,469
Other deferred credits	25,874		31,635
Total long-term liabilities and deferred credits	1,058,539		1,045,566
Long-term debt and capital leases, net	2,874,485		2,836,105
Total liabilities	4,312,074		4,182,025
Commitments and contingencies (Note 16)
Member’s equity
Membership interest	2,069,376		2,069,376
Retained earnings	53,578		29,902
Accumulated other comprehensive income (loss)	1,786		(2,921		)
Total member’s equity	2,124,740		2,096,357
Total liabilities and member’s equity	$	6,436,814	$	6,278,382
The accompanying notes are an integral part of the Consolidated Financial Statements.



CLECO

Consolidated Statements of Cash Flows
	SUCCESSOR									PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Operating activities
Net income (loss)	$	94,437		$	138,080		$	(24,113	)	$	(3,960	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	187,426			186,326			141,544			45,869
Gain on sales of assets	(6		)	(2		)	—			(1,095		)
Provision for doubtful accounts	797			2,778			4,473			1,212
Unearned compensation expense	5,837			3,745			1,147			3,276
Allowance for equity funds used during construction	(14,159		)	(8,320		)	(3,735		)	(723		)
Deferred income taxes	6,543			(41,966		)	(21,053		)	2,219
Deferred fuel costs	(18,549		)	11,909			(8,192		)	977
Cash surrender value of company-/trust-owned life insurance	2,726			(5,892		)	(2,561		)	(840		)
Changes in assets and liabilities
Accounts receivable	3,123			(25,584		)	(21,537		)	(1,865		)
Unbilled revenue	1,084			(2,129		)	(837		)	563
Fuel inventory and materials and supplies	(2,981		)	(44,995		)	2,880			19,312
Prepayments	153			2,852			(2,514		)	2,395
Accounts payable	18,898			14,705			5,183			8,348
Customer deposits	13,757			12,381			7,333			3,342
Provision for merger commitments	(3,273		)	(12,971		)	21,964			—
Postretirement benefit obligations	4,646			4,884			3,750			9,746
Regulatory assets and liabilities, net	3,032			12,531			13,750			5,178
Other deferred accounts	(9,748		)	(8,380		)	(9,441		)	6,878
Taxes accrued	20,976			23,118			(24,210		)	10,820
Interest accrued	1,124			(582		)	(11,104		)	17,909
Deferred compensation	(1,521		)	308			(799		)	(793		)
Other operating	3,439			2,632			(2,038		)	1,012
Net cash provided by operating activities	317,761			265,428			69,890			129,780
Investing activities
Additions to property, plant, and equipment	(291,061		)	(236,932		)	(144,444		)	(42,392		)
Allowance for equity funds used during construction	14,159			8,320			3,735			723
Proceeds from sale of property, plant, and equipment	995			17,499			766			1,932
Reimbursement for property loss	1,375			187			3,159			53
Contributions to equity investment in investee	—			—			—			(2,450		)
Return of equity investment in tax credit fund	2,775			7,502			901			476
Issuance of note receivable	(16,800		)	—			—			—
Other investing	397			(130		)	622			—
Net cash used in investing activities	(288,160		)	(203,554		)	(135,261		)	(41,658		)
The accompanying notes are an integral part of the Consolidated Financial Statements.

(Continued on next page)



CLECO

Consolidated Statements of Cash Flows
	SUCCESSOR											PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018				FOR THE YEAR ENDED DEC. 31, 2017				APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Financing activities
Draws on credit facilities	—				179,000				15,000			3,000
Payments on credit facilities	—				(179,000		)		(15,000		)	(10,000		)
Issuances of long-term debt	50,000				125,000				1,680,000			—
Repayments of long-term debt	(19,193		)		(17,896		)		(1,668,268		)	(8,546		)
Payments for long-term debt prepayment costs	—				—				(18,569		)	—
Payment of financing costs	(791		)		(463		)		(8,655		)	(43		)
Dividends paid on common stock	—				—				(572		)	(24,579		)
Contribution from member	—				—				100,720			—
Distributions to member	(71,350		)		(84,065		)		(88,765		)	—
Other financing	(383		)		(1,819		)		(1,890		)	(717		)
Net cash (used in) provided by financing activities	(41,717		)		20,757				(5,999		)	(40,885		)
Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents	(12,116		)		82,631				(71,370		)	47,237
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period	152,202			⁽¹⁾	69,571				140,941			93,704
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	140,086		⁽²⁾	$	152,202		⁽¹⁾	$	69,571		$	140,941

Supplementary cash flow information
Interest paid, net of amount capitalized	$	124,154			$	118,009			$	97,927		$	2,478
Income taxes paid (refunded), net	$	272			$	(6	)		$	4,263		$	(481	)
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	56,450			$	31,083			$	17,599		$	10,619
Non-cash additions to property, plant, and equipment	$	1,224			$	3,015			$	—		$	—
Incurrence of capital lease obligation - barges	$	16,800			$	—			$	—		$	—
⁽¹⁾ Includes cash and cash equivalents of $119,040, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,081. ⁽²⁾ Includes cash and cash equivalents of $110,175, current restricted cash and cash equivalents of $11,241, and non-current restricted cash and cash equivalents of $18,670. The accompanying notes are an integral part of the Consolidated Financial Statements.



CLECO

Consolidated Statements of Changes in Equity
(THOUSANDS)	COMMON STOCK⁽¹⁾/ MEMBERSHIP INTEREST			RETAINED EARNINGS/ (ACCUMULATED DEFICIT)			AOCI			TOTAL SHAREHOLDERS’/ MEMBER’S EQUITY
PREDECESSOR
Balances, Dec. 31, 2015	$	456,412		$	1,245,014		$	(26,585	)	$	1,674,841
Common stock issued for compensatory plans	(1,277		)	—			—			(1,277		)
Dividends on common stock, $0.40 per share	—			(24,190		)	—			(24,190		)
Net loss	—			(3,960		)	—			(3,960		)
Other comprehensive income, net of tax	—			—			647			647
Balances, Apr. 12, 2016	$	455,135		$	1,216,864		$	(25,938	)	$	1,646,061
SUCCESSOR
Balances, Apr. 13, 2016⁽²⁾	$	2,158,141		$	—		$	—		$	2,158,141
Distributions to member	(88,765		)	—			—			(88,765		)
Net loss	—			(24,113		)	—			(24,113		)
Other comprehensive income, net of tax	—			—			1,500			1,500
Balances, Dec. 31, 2016	$	2,069,376		$	(24,113	)	$	1,500		$	2,046,763
Distributions to member	—			(84,065		)	—			(84,065		)
Net income	—			138,080			—			138,080
Other comprehensive loss, net of tax	—			—			(4,421		)	(4,421		)
Balances, Dec. 31, 2017	$	2,069,376		$	29,902		$	(2,921	)	$	2,096,357
Distributions to member	—			(71,350		)	—			(71,350		)
Net income	—			94,437			—			94,437
Other comprehensive income, net of tax	—			—			5,296			5,296
Reclassification of effect of tax rate change	—			589			(589		)	—
Balances, Dec. 31, 2018	$	2,069,376		$	53,578		$	1,786		$	2,124,740
⁽¹⁾At April 12, 2016, and December 31, 2015, shareholders’ equity of the predecessor company included $61.1 million of common stock. At April 12, 2016, and December 31, 2015, shareholders’ equity of the predecessor company included premium on common stock of $414.6 million and $418.5 million, respectively. At April 12, 2016, and December 31, 2015, shareholders’ equity of the predecessor company included treasury stock of $20.5 million and $23.2 million, respectively. ⁽²⁾The April 13, 2016, beginning balance of the successor company differs from the April 12, 2016, ending balances of the predecessor company due to acquisition accounting adjustments related to the 2016 Merger.
The accompanying notes are an integral part of the Consolidated Financial Statements.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cleco Power LLC and its subsidiaries (“the Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in member’s equity, and cash flows for each of the three years ended December 31, 2018, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana

February 26, 2019

We have served as the Company’s auditor since 2016.



CLECO POWER

Consolidated Statements of Income
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018			2017			2016
Operating revenue
Electric operations	$	1,191,587		$	1,108,389		$	1,091,229
Other operations	82,330			77,522			68,573
Affiliate revenue	874			851			884
Gross operating revenue	1,274,791			1,186,762			1,160,686
Electric customer credits	(33,195		)	(1,566		)	(1,513		)
Operating revenue, net	1,241,596			1,185,196			1,159,173
Operating expenses
Fuel used for electric generation	382,556			339,346			346,520
Power purchased for utility customers	168,180			152,913			119,586
Other operations and maintenance	202,556			202,738			203,452
Depreciation and amortization	162,069			158,415			153,393
Taxes other than income taxes	47,267			46,539			48,287
Merger commitment costs	—			—			151,501
Gain on sale of asset	(4		)	—			(1,095		)
Total operating expenses	962,624			899,951			1,021,644
Operating income	278,972			285,245			137,529
Interest income	5,052			1,283			860
Allowance for equity funds used during construction	14,159			8,320			4,458
Other income	2,742			2,990			1,601
Other expense	(11,441		)	(10,407		)	(10,505		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	76,009			71,649			77,739
Allowance for borrowed funds used during construction	(4,706		)	(2,287		)	(1,293		)
Total interest charges	71,303			69,362			76,446
Income before income taxes	218,181			218,069			57,497
Federal and state income tax expense	55,924			67,331			18,369
Net income	$	162,257		$	150,738		$	39,128
The accompanying notes are an integral part of the Consolidated Financial Statements.



CLECO POWER

Consolidated Balance Sheets
	AT DEC. 31,
(THOUSANDS)	2018			2017
Assets
Utility plant and equipment
Property, plant, and equipment	$	5,015,004		$	4,893,484
Accumulated depreciation	(1,804,563		)	(1,712,590		)
Net property, plant, and equipment	3,210,441			3,180,894
Construction work in progress	351,828			185,507
Total utility plant and equipment, net	3,562,269			3,366,401
Current assets
Cash and cash equivalents	31,987			69,816
Restricted cash and cash equivalents	11,241			13,081
Customer accounts receivable (less allowance for doubtful accounts of $814 in 2018 and $1,457 in 2017)	50,043			60,117
Accounts receivable - affiliate	3,318			1,355
Other accounts receivable	24,523			30,680
Unbilled revenue	35,314			36,398
Fuel inventory, at average cost	82,836			87,520
Materials and supplies, at average cost	92,671			85,404
Energy risk management assets	23,355			7,396
Accumulated deferred fuel	20,112			13,980
Cash surrender value of company-owned life insurance policies	20,497			20,278
Prepayments	6,143			7,236
Regulatory assets	13,603			15,812
Other current assets	1,162			475
Total current assets	416,805			449,548
Equity investment in investee	18,172			18,172
Prepayments	2,251			1,887
Restricted cash and cash equivalents	18,649			20,060
Note receivable	15,829			—
Regulatory assets	261,569			257,408
Intangible asset	21,093			41,701
Other deferred charges	32,419			33,564
Total assets	$	4,349,056		$	4,188,741
The accompanying notes are an integral part of the Consolidated Financial Statements.

(Continued on next page)



CLECO POWER

Consolidated Statements of Cash Flows
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018			2017			2016
Operating activities
Net income	$	162,257		$	150,738		$	39,128
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	168,248			165,200			152,978
Gain on sales of asset	(4		)	—			(1,095		)
Provision for doubtful accounts	797			2,677			5,512
Unearned compensation expense	1,873			1,972			1,572
Allowance for equity funds used during construction	(14,159		)	(8,320		)	(4,458		)
Deferred income taxes	(11,545		)	(34,191		)	20,492
Deferred fuel costs	(18,549		)	11,909			(7,215		)
Changes in assets and liabilities
Accounts receivable	3,967			(25,696		)	(23,306		)
Accounts receivable, affiliate	426			1,865			2,612
Unbilled revenue	1,084			(2,129		)	(274		)
Fuel inventory and materials and supplies	(2,981		)	(44,995		)	22,192
Prepayments	107			2,745			228
Accounts payable	22,419			11,005			9,140
Accounts payable, affiliate	(4,700		)	1,349			(3,639		)
Customer deposits	13,757			12,381			10,675
Provision for merger commitments	(3,273		)	(12,971		)	21,964
Postretirement benefit obligations	4,252			4,849			5,076
Regulatory assets and liabilities, net	1,044			10,544			17,506
Other deferred accounts	(5,421		)	(8,137		)	(3,249		)
Taxes accrued	16,566			44,101			(29,535		)
Interest accrued	1,169			(59		)	(671		)
Other operating	2,354			2,241			(1,308		)
Net cash provided by operating activities	339,688			287,078			234,325
Investing activities
Additions to property, plant, and equipment	(289,153		)	(235,252		)	(186,143		)
Allowance for equity funds used during construction	14,159			8,320			4,458
Proceeds from sale of property, plant, and equipment	995			4,078			2,698
Reimbursement for property loss	1,375			187			3,212
Issuance of note receivable	(16,800		)	—			—
Contributions to equity investment in investee	—			—			(2,450		)
Other investing	397			500			622
Net cash used in investing activities	(289,027		)	(222,167		)	(177,603		)
The accompanying notes are an integral part of the Consolidated Financial Statements.

(Continued on next page)



CLECO POWER

Consolidated Statements of Cash Flows
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018				2017				2016
Financing activities
Draws on credit facility	—				106,000				15,000
Payments on credit facility	—				(106,000		)		(15,000		)
Issuances of long-term debt	50,000				125,000				330,000
Repayments of long-term debt	(19,193		)		(17,896		)		(326,814		)
Payments for long-term debt prepayment costs	—				—				(18,569		)
Contribution from member	—				—				50,000
Distributions to member	(121,400		)		(135,000		)		(110,000		)
Other financing	(1,148		)		(2,013		)		(4,526		)
Net cash used in financing activities	(91,741		)		(29,909		)		(79,909		)
Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents	(41,080		)		35,002				(23,187		)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period	102,957			⁽¹⁾	67,955				91,142
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	61,877		⁽²⁾	$	102,957		⁽¹⁾	$	67,955

Supplementary cash flow information
Interest paid, net of amount capitalized	$	70,357			$	65,984			$	74,016
Income taxes refunded, net	$	—			$	—			$	(485	)
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	55,718			$	30,883			$	16,755
Non-cash additions to property, plant, and equipment	$	1,224			$	3,015			$	—
Incurrence of capital lease obligation - barges	$	16,800			$	—			$	—
⁽¹⁾ Includes cash and cash equivalents of $69,816, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,060. ⁽²⁾ Includes cash and cash equivalents of $31,987, current restricted cash and cash equivalents of $11,241, and non-current restricted cash and cash equivalents of $18,649. The accompanying notes are an integral part of the Consolidated Financial Statements.



Note 1 — The Company

Cleco is composed of the following:

•

Cleco Power, a regulated electric utility subsidiary, which owns nine generating units with a total nameplate capacity of 3,310 MW and serves approximately 291,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi. Cleco Power also owns a 50% interest in an entity that owns lignite reserves. Cleco Power owns all of the outstanding membership interests in Cleco Katrina/Rita, a special purpose entity that is consolidated with Cleco Power in its financial statements.


•	Cleco’s other operations consist of the following:


◦	Cleco Holdings, a holding company,


◦	Support Group, a shared services subsidiary,


◦	Diversified Lands, an investment subsidiary, and


◦	Attala and Perryville, two subsidiaries that owned and operated transmission interconnection facilities prior to the assets being sold by Cleco on December 29, 2017.


◦	Cleco Cajun, a subsidiary formed to facilitate the Cleco Cajun Transaction. For more information on the transaction, see Note 21 — “Cleco Cajun Transaction.”



Note 2 — Summary of Significant Accounting Policies

Use of Estimates

Principles of Consolidation

The accompanying consolidated financial statements of Cleco include the accounts of Cleco and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

Reclassifications

Certain reclassifications have been made to the 2017 and 2016 financial statements to conform to the presentation used in the 2018 financial statements. These reclassifications had no effect on Cleco and Cleco Power’s net income, financial condition, or cash flows.

Cleco and Cleco Power’s Consolidated Statements of Income for the years ended December 31, 2017, and 2016, have been retrospectively adjusted by $0.4 million and $7.3 million, respectively, for the reclassification of deferred expenses from Depreciation and amortization to Other operations and maintenance.

Goodwill

Goodwill is the excess of the purchase price (consideration transferred and liabilities assumed) over the estimated fair value of net assets of the acquired business and is not subject to amortization. Goodwill is assessed annually or more often if

an event occurs or circumstances change that would indicate the carrying amount may be impaired. For more information on goodwill, see Note 18 — “Intangible Assets and Goodwill.”

Intangible Assets

Intangible assets include Cleco Katrina/Rita’s right to bill and collect storm recovery charges, fair value adjustments for long-term wholesale power supply agreements, and a fair value adjustment for the valuation of the Cleco trade name. The intangible assets are being amortized over their estimated useful lives in a manner that best reflects the economic benefits derived from such assets. Impairment will be tested if there are events or circumstances that indicate that an impairment analysis should be performed. If such an event or circumstance occurs, intangible impairment testing will be performed prior to goodwill impairment testing. Impairment is calculated as the excess of the asset’s carrying amount over its fair value. For more information on intangible assets, see Note 18 — “Intangible Assets and Goodwill.”

Statements of Cash Flows

Cleco and Cleco Power’s Consolidated Statements of Cash Flows are prepared using the indirect method. This method requires adjusting net income to remove the effects of all deferrals and accruals of operating cash receipts and payments and to remove items whose cash effects are related to investing and financing cash flows. Derivatives meeting the definition of an accounting hedge are classified in the same category as the item being hedged.

Regulation

Cleco Power is subject to regulation by FERC and the LPSC. Cleco Power complies with the accounting policies and practices prescribed by its regulatory commissions. Cleco Power’s retail rates are regulated by the LPSC and its tariffs for transmission services are regulated by FERC. Rates for wholesale power sales are based on market-based rates, pending FERC review of Cleco Power’s generation market power analysis. Cleco Power capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered through the ratemaking process. Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. Pursuant to this regulatory approval, Cleco has recorded regulatory assets and liabilities.

Any future plan adopted by the LPSC for purposes of transitioning utilities from LPSC regulation to retail competition may affect the regulatory assets and liabilities recorded by Cleco if the criteria for the application of the authoritative guidelines for industry regulated operations cannot continue to be met. At this time, Cleco cannot predict whether any legislation or regulation affecting Cleco will be enacted or adopted and, if enacted, what form such legislation or regulation may take.

For more information regarding the regulatory assets and liabilities recorded by Cleco Power, see Note 5 — “Regulatory Assets and Liabilities.”

AROs

Cleco Power recognizes an ARO when there is a legal obligation under existing or enacted law, statute, written or oral contract, or by legal construction under the doctrine of

promissory estoppel to incur costs to remove an asset when the asset is retired. These guidelines also require an ARO which is conditional on a future event to be recorded even if the event has not yet occurred.

Cleco Power recognizes AROs at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted to its present value each accounting period. Cleco Power defers this accretion as a regulatory asset based on its determination that these costs can be collected from customers. Concurrent with the recognition of the liability, these costs are capitalized to the related property, plant, and equipment asset. These capitalized costs are depreciated over the same period as the related property asset. Cleco Power also defers the current depreciation of the asset retirement cost as a regulatory asset.

In March 2018, Cleco Power recorded a $1.5 million decrease to its ARO related to the retirement of certain ash management areas. Cleco Power will continue to gather additional data in future periods and will make decisions about compliance strategies and the timing of closure activities. As this additional information becomes available, Cleco Power will update the ARO balance for these changes in estimates. At December 31, 2018, management’s analysis confirmed that no additional adjustments were needed to update Cleco Power’s ARO balance. For more information on Cleco Power’s current AROs, see Note 5 — “Regulatory Assets and Liabilities — AROs.”

Property, Plant, and Equipment

Property, plant, and equipment consists primarily of regulated utility generation and energy transmission and distribution assets. Regulated assets, utilized primarily for retail operations and electric transmission and distribution, are stated at the cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. Jointly owned assets are reflected in property, plant, and equipment at Cleco Power’s share of the cost to construct or purchase the assets. For information on jointly owned assets, see Note 6 — “Jointly Owned Generation Units.”

Most of the carrying values of Cleco’s assets were determined to be stated at fair value at the 2016 Merger date, considering that most of these assets are subject to regulation by the LPSC and FERC. A fair value adjustment was made to record the stepped-up basis for the Coughlin assets, because Cleco Power is able to earn a return on and recover these costs from customers. At the date of the 2016 Merger, the gross balance of fixed depreciable assets at Cleco was adjusted to be net of accumulated depreciation, as no accumulated depreciation existed on the date of the 2016 Merger. Since pushdown accounting was not elected at the Cleco Power level, Cleco Power retained its accumulated depreciation. For more information about 2016 Merger related adjustments to property, plant, and equipment, see Note 4 — “Business Combinations.”

Cleco’s cost of improvements to property, plant, and equipment is capitalized. Costs associated with repairs and major maintenance projects are expensed as incurred. Cleco capitalizes the cost to purchase or develop software for internal use. The amounts of unamortized computer software costs on Cleco’s Consolidated Balance Sheets at December 31, 2018, and 2017 were $7.2 million and $7.9 million, respectively. The amounts of unamortized computer

software costs on Cleco Power’s Consolidated Balance Sheets at December 31, 2018, and 2017 were $5.8 million and $6.6 million, respectively. Amortization of capitalized computer software costs charged to expense in Cleco and Cleco Power’s Consolidated Statements of Income for the years ending December 31, 2018, 2017, and 2016 is shown in the following tables:



Cleco
	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018		FOR THE YEAR ENDED DEC. 31, 2017		APR. 13, 2016 - DEC. 31, 2016		JAN. 1, 2016 - APR. 12, 2016
Amortization	$	2,154	$	2,367	$	2,351	$	921



Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017		2016
Amortization	$	1,607	$	1,887	$	2,405

Upon retirement or disposition, the cost of Cleco Power’s depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation. For Cleco’s other depreciable assets, upon disposition or retirement, the difference between the net book value of the property and any proceeds received for the property is recorded as a gain or loss on asset disposition on Cleco’s Consolidated Statements of Income. Any cost incurred to remove the asset is charged to expense. Annual depreciation provisions expressed as a percentage of average depreciable property for Cleco Power for 2018, 2017, and 2016 was 2.80%, 2.72%, and 2.68%, respectively.

Depreciation on property, plant, and equipment is calculated primarily on a straight-line basis over the useful lives of the assets, as follows:



CATEGORY	YEARS
Utility Plants
Generation	10	–	95
Distribution	15	–	50
Transmission	5	–	55
Other utility plant	5	–	45
Other property, plant, and equipment	5	–	45

At December 31, 2018, and 2017, Cleco and Cleco Power’s property, plant, and equipment consisted of the following:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018			2017
Utility plants
Generation	$	1,949,042		$	1,908,344
Distribution	1,081,650			1,015,472
Transmission	519,269			512,428
Other utility plant	174,010			153,900
Other property, plant, and equipment	4,506			4,381
Total property, plant, and equipment	3,728,477			3,594,525
Accumulated depreciation	(303,727		)	(192,348		)
Net property, plant, and equipment	$	3,424,750		$	3,402,177



Cleco Power
	AT DEC. 31,
(THOUSANDS)	2018			2017
Regulated utility plants
Generation	$	2,476,733		$	2,442,987
Distribution	1,523,885			1,462,193
Transmission	731,432			725,199
Other utility plant	282,954			263,105
Total property, plant, and equipment	5,015,004			4,893,484
Accumulated depreciation	(1,804,563		)	(1,712,590		)
Net property, plant, and equipment	$	3,210,441		$	3,180,894

During 2018, Cleco Power’s regulated utility property, plant, and equipment increased primarily due to general installation and rehabilitation of transmission, distribution, and generation assets.

Deferred Project Costs

Cleco Power defers costs related to the initial stage of a construction project during which time the feasibility of the construction of property, plant, and equipment is being investigated. At December 31, 2018, and 2017, Cleco Power had deferred $1.4 million and $3.2 million, respectively, for projects that are in the initial stages of development. These amounts are classified as Other deferred charges on Cleco Power’s Consolidated Balance Sheets.

Fuel Inventory and Materials and Supplies

Fuel inventory consists primarily of petroleum coke, coal, limestone, lignite, and natural gas used to generate electricity.

Materials and supplies consists of transmission and distribution line construction and repair materials. It also consists of generating station and transmission and distribution substation repair materials.

Both fuel inventory and materials and supplies are recorded at the lower of cost or market value using the average cost method and are issued from stock using the average cost of existing stock. Materials and supplies are recorded when purchased and subsequently charged to expense or capitalized to property, plant, and equipment when installed.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. It is the policy of management to review the outstanding accounts receivable monthly, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered.

Reserves

Cleco maintains property insurance on generating stations, buildings and contents, and substations. Cleco is self-insured for any damage to transmission and distribution lines. To mitigate the exposure to potential financial loss for damage to lines, Cleco maintains an LPSC-approved funded storm reserve.

Cleco Power also maintains liability and workers’ compensation insurance to mitigate financial losses due to injuries and damages to the property of others. Cleco’s insurance covers claims that exceed certain self-insured limits. For claims that do not meet the limits to be covered by

insurance, Cleco Power maintains reserves. At December 31, 2018, and 2017, the general liability and workers compensation reserves together were $4.8 million and $4.5 million, respectively.

Additionally, Cleco maintains directors and officers insurance to protect managers from claims which may arise from their decisions and actions taken within the scope of their regular duties.

Cash Equivalents

Cleco considers highly liquid, marketable securities, and other similar instruments with original maturity dates of three months or less to be cash equivalents.

Restricted Cash and Cash Equivalents

Cleco and Cleco Power’s restricted cash and cash equivalents consisted of:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018		2017
Current
Cleco Katrina/Rita’s storm recovery bonds	$	9,505	$	8,597
Cleco Power’s charitable contributions	1,200		1,200
Cleco Power’s rate credit escrow	536		3,284
Total current	11,241		13,081
Non-current
Diversified Lands’ mitigation escrow	21		21
Cleco Power’s future storm restoration costs	15,391		14,456
Cleco Power’s charitable contributions	2,753		3,575
Cleco Power’s rate credit escrow	505		2,029
Total non-current	18,670		20,081
Total restricted cash and cash equivalents	$	29,911	$	33,162



Cleco Power
	AT DEC. 31,
(THOUSANDS)	2018		2017
Current
Cleco Katrina/Rita’s storm recovery bonds	$	9,505	$	8,597
Charitable contributions	1,200		1,200
Rate credit escrow	536		3,284
Total current	11,241		13,081
Non-current
Future storm restoration costs	15,391		14,456
Charitable contributions	2,753		3,575
Rate credit escrow	505		2,029
Total non-current	18,649		20,060
Total restricted cash and cash equivalents	$	29,890	$	33,141

Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of administration fees, interest, and principal on storm recovery bonds. The change from December 31, 2017, to December 31, 2018, was due to Cleco Katrina/Rita collecting $22.7 million net of administration fees, partially offset by $19.2 million for scheduled storm recovery bond principal payments and $2.6 million for related interest payments.

Equity Investments

Cleco and Cleco Power account for investments in unconsolidated affiliated companies using the equity method of accounting. The amounts reported on Cleco and Cleco Power’s Consolidated Balance Sheets represent assets contributed by Cleco or Cleco Power, plus their share of the net income of the affiliate, less any distributions of earnings (dividends) received from the affiliate. The revenues and expenses (excluding income taxes) of these affiliates are netted and reported on one line item as equity income from investees on Cleco and Cleco Power’s Consolidated Statements of Income.

Cleco evaluates for impairments of equity method investments at each balance sheet date to determine if events and circumstances have occurred that indicate a possible other-than-temporary decline in the fair value of the investment and the possible inability to recover the carrying value through operations. Cleco uses estimates of the future cash flows from the investee and observable market transactions in order to calculate fair value and recoverability. An impairment is recognized when an other-than-temporary decline in market value occurs and recovery of the carrying value is not probable. There were no impairments recorded for 2018, 2017, or 2016. For more information on Cleco’s equity investments, see Note 14 — “Variable Interest Entities.”

Income Taxes

Cleco accounts for income taxes under the asset and liability method. Cleco provides for federal and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are classified as non-current on Cleco and Cleco Power’s Consolidated Balance Sheets. Cleco’s income tax expense and related regulatory assets and liabilities could be affected by changes in its assumptions and estimates and by ultimate resolution of assumptions and estimates with taxing authorities. Cleco Group files a federal income tax return for all wholly owned subsidiaries. Cleco Power computes its federal and state income taxes as if it were a stand-alone taxpayer. The LPSC generally requires Cleco Power to flow the effects of state income taxes to customers immediately. The LPSC specifically requires that the state tax benefits associated with the deductions related to certain storm damages be normalized. For more information on income taxes, see Note 11 — “Income Taxes.”

Investment Tax Credits

Investment tax credits, which were deferred for financial statement purposes, are amortized as a reduction to income tax expense over the estimated service lives of the properties that gave rise to the credits.

NMTC Fund

In 2008, Cleco Holdings and the USBCDC formed the NMTC Fund. The purpose of the NMTC Fund was to invest in projects

located in qualified active low-income communities that are underserved by typical debt capital markets. These investments were designed to generate NMTCs and Historical Rehabilitation tax credits. The NMTC Fund was later amended to include renewable energy investments. The majority of the energy investments qualified for grants under Section 1603 of the ARRA. By using the cost method for investments, the gross investment amortization expense of the NMTC Fund was recognized over a ten-year period, which ended in 2018. The grants received under Section 1603, which allowed certain projects to receive a federal grant in lieu of tax credits, and other cash reduced the basis of the investment. Periodic amortization of the investment and the deferred taxes generated by the basis reduction temporary difference were included as components of income tax expense.

For more information, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments — NMTC Fund.”

Accounting for Renewable Energy Tax Credits and Grants Under the ARRA

Cleco and the NMTC Fund elected to receive cash grants under the ARRA for investments in various projects. Cleco elected to reduce the carrying value of the qualifying assets as cash grants were received, which reduced the amount of depreciation expense recognized after the underlying assets were placed in service. Certain cash grants also reduced the tax basis of the underlying assets. Grants received via the NMTC Fund reduced the carrying value of the investment for GAAP, but did not reduce the income tax basis of the investment.

Debt Issuance Costs, Premiums, and Discounts

Issuance costs, premiums, and discounts applicable to debt securities are amortized to interest expense ratably over the lives of the related issuances. Expenses and call premiums related to refinanced Cleco Power debt are deferred and amortized over the life of the new issuance. Debt issuance costs, premiums, and discounts are presented as a direct deduction from the carrying value of the related debt liability.

Revenue and Fuel Costs

Utility Revenue

Revenue from sales of electricity is recognized when the service is provided. The costs of fuel and purchased power used for retail customers currently are recovered from customers through the FAC. These costs are subject to audit and final determination by regulators. Excise taxes and pass-through fees collected on the sale of electricity are not recorded in utility revenue.

Unbilled Revenue

Cleco Power accrues estimated revenue monthly for energy used by customers but not yet billed. The monthly estimated unbilled revenue amounts are recorded as unbilled revenue and a receivable. Cleco Power uses actual customer energy consumption data available from AMI to calculate unbilled revenues.

Other Operations Revenue

Other operations revenue is recognized at the time products or services are provided to and accepted by customers, and collectability is reasonably assured.

Sales/Excise Taxes

Cleco Power collects a sales and use tax on the sale of electricity that subsequently is remitted to the state in accordance with state law. These amounts are not recorded as income or expense on Cleco’s Consolidated Statements of Income but are reflected at gross amounts on Cleco’s Consolidated Balance Sheets as a receivable until the tax is collected and as a payable until the liability is paid. Cleco currently does not have any excise taxes reflected on its income statement.

Franchise Fees

Cleco Power collects a consumer fee for one of its franchise agreements. This fee is not recorded on Cleco’s Consolidated Statements of Income as revenue and expense, but is reflected at gross amounts on Cleco’s Consolidated Balance Sheets as a receivable until it is collected and as a payable until the liability is paid.

AFUDC

The capitalization of AFUDC by Cleco Power is a utility accounting practice prescribed by FERC and the LPSC. AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance construction of new and existing facilities. While cash is not realized currently from such allowance, AFUDC increases the revenue requirement over the same life of the plant through a higher rate base and higher depreciation. Under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. The composite AFUDC rate, including borrowed and other funds, was 9.58% on a pretax basis (7.08% net of tax) for 2018, 11.07% on a pretax basis (6.81% net of tax) for 2017, and 11.94% on a pretax basis (7.39% net of tax) for 2016.

Fair Value Measurements and Disclosures

Risk Management

Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes in value arising from changes in interest rates and the commodity market prices of power, FTRs, and natural gas in the industry on different energy exchanges. Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power, FTRs, and natural gas. Cleco evaluates derivatives and hedging activities to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market.

Cleco Power may also enter into risk mitigating positions that would not meet the requirements of a normal-purchase, normal-sale transaction in order to attempt to mitigate the volatility in customer fuel costs. These positions would be

marked-to-market with the resulting gain or loss recorded on Cleco and Cleco Power’s Consolidated Balance Sheets as a component of energy risk management assets or liabilities. Such gain or loss would be deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. When these positions close, actual gains or losses would be included in the FAC and reflected on customers’ bills as a component of the fuel charge. There were no open natural gas positions at December 31, 2018, or 2017.

In 2015, the LPSC approved a long-term natural gas hedging pilot program that required Cleco Power to establish a proposal for a program that is designed to provide gas price stability for a minimum of five years. This proposal was submitted to the LPSC in July 2017. An ALJ was assigned to the docket and a status conference was held in October 2017. In February 2018, Cleco Power responded to LPSC data requests for the gas hedging docket. Cleco Power is currently awaiting a new procedural schedule to be established for the gas hedging docket.

Cleco Power records FTRs at their estimated fair value when purchased. Each accounting period, Cleco Power adjusts the carrying value of FTRs to their estimated fair value based on the most recent MISO FTR auction prices.

Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco Power’s Consolidated Balance Sheets. Realized gains or losses on settled FTRs are recorded in Fuel used for electric generation on Cleco Power’s Consolidated Statements of Income. For more information on FTRs, see Note 7 — “Fair Value Accounting — Commodity Contracts.”

Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, aggregate counterparty credit exposure, and aggregate counterparty concentration levels. Cleco manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits, or letters of credit from counterparties or their affiliates, as deemed necessary. Cleco Power has agreements in place with various counterparties that authorize the netting of financial buys and sells and contract payments to mitigate credit risk for transactions entered into for risk management purposes.

Cleco and Cleco Power may enter into contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks. For the years ended December 31, 2018, and 2017, Cleco did not enter into any contracts to mitigate the volatility in interest rate risk.

Accounting for MISO Transactions

Cleco Power participates in MISO’s Energy and Operating Reserve market where sales and purchases are netted hourly. If the hourly activity nets to sales, the result is reported in Electric operations on Cleco and Cleco Power’s Consolidated Statements of Income. If the hourly activity nets to purchases,

the result is reported in Power purchased for utility customers on Cleco and Cleco Power’s Consolidated Statements of Income.

Recent Authoritative Guidance

In February 2016, FASB amended the guidance to account for leases. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Cleco adopted this new standard on January 1, 2019, using the optional transition method, which allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption and apply the new disclosure requirements beginning in the period of adoption. The new standard provides a number of optional practical expedients. Cleco has elected the following:


•	Transition Elections - Cleco elected the package of practical expedients that permits entities to not reassess prior conclusions about lease identification, lease classification, and initial direct costs under the new standard, as well as the practical expedient that permits entities to not assess existing land easements under the new standard;

•

Lessee Accounting Policy Elections - Cleco elected the short-term lease recognition exemption whereby right-of-use (ROU) assets and lease liabilities will not be recognized for leasing arrangements with terms one year or less, and the practical expedient to not separate lease and non-lease components for all classes of underlying assets other than the marine transportation asset class, which includes barges and towboats; and

•

Lessor Accounting Policy Election - Cleco elected the practical expedient to account for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Cleco does not currently have lessor marine transportation agreements, but if any are entered into in the future then the practical expedient to not separate lease and non-lease components will not be elected for this class of underlying asset.

Adoption of this standard resulted in the recognition of ROU assets and lease liabilities for operating leases of $16.6 million and $16.0 million, respectively, as of January 1, 2019. There was no impact to retained earnings as a result of adopting this standard. Adoption of this standard did not materially impact the results of operations, financial condition, or cash flows of the Registrants.

In August 2016, FASB amended the guidance for certain cash flow issues with the objective of reducing existing diversity in practice. This guidance affects the cash flow classification related to certain types of transactions including debt, contingent consideration, proceeds from the settlement of insurance claims, and distributions from equity method investees. The amended guidance was adopted by the Registrants at January 1, 2018. This amendment was applied using a retrospective transition method to each period presented. This guidance impacted the presentation of Cleco and Cleco Power’s cash flow statements for the year ended December 31, 2016, by moving make-whole payments of $18.6 million, which were made in connection with the redemption of $250.0 million of 6.65% senior notes in 2016,

from Other deferred accounts to Payments for long-term debt prepayment costs. Also, this amount was removed from Interest paid, net of amount capitalized, in the supplementary cash flow information. This guidance did not impact the results of operations or financial condition of the Registrants.

In November 2016, FASB amended guidance for certain cash flow issues. The amended guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash and cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance was adopted by the Registrants at January 1, 2018, by moving the presentation of restricted cash and restricted cash equivalents in the statement of cash flows to net cash flows of total cash, cash equivalents, restricted cash, and restricted cash equivalents. This amendment was applied using a retrospective transition method to each period presented. This guidance impacted the presentation of the cash flows statement, as noted above, but did not have an impact on the results of operations or financial condition of the Registrants.

In January 2017, FASB amended the accounting guidance to simplify the measurement of a goodwill impairment loss. The amended guidance eliminates step two of the goodwill impairment test, which requires a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance, a goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Cleco elected to early adopt this guidance effective January 1, 2018. Adoption of this guidance did not impact the results of operations, financial condition, or cash flows of the Registrants.

In March 2017, FASB amended guidance related to defined benefit pension and other postretirement benefit plans. The new amendment requires an entity to present service cost in the same line item as other current employee compensation costs and to present the remaining components of net benefit cost in a separate line item outside of operating items. The amendment also allows only the service cost component of net benefit cost to be eligible for capitalization within property, plant, and equipment. The non-service costs capitalized for ratemaking purposes will be reflected as a regulatory asset or liability for GAAP. Cleco adopted this guidance as of January 1, 2018. This amendment was applied retrospectively for the presentation of the service cost in the income statement while the capitalization of the service cost was applied prospectively. This guidance did not have a significant impact on the results of operations, financial condition, or cash flows of the Registrants. The change in presentation for Cleco and Cleco Power was as follows:



Cleco
	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Other operations and maintenance	$	(11,071	)	$	(8,618	)	$	(3,447	)
Other expense	$	11,071		$	8,618		$	3,447



Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2017			2016
Other operations and maintenance	$	(7,612	)	$	(8,529	)
Other expense	$	7,612		$	8,529

In February 2018, FASB amended guidance that permits, but does not require, companies to reclassify stranded tax effects from the TCJA from AOCI to retained earnings. The adoption of this guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those years. Management has elected to early adopt. On December 31, 2018, Cleco and Cleco Power reclassed $0.6 million and $2.5 million, respectively, of stranded tax effects associated with the TCJA from AOCI to retained earnings.

In March 2018, FASB issued clarifying guidance regarding a company’s ability to comply with the accounting requirements for the income tax effects of the TCJA in the period of enactment. The guidance clarifies accounting for income taxes if information is not yet available or complete. In December 2018, Cleco recorded its final adjustments related to the TCJA.

In August 2018, FASB issued guidance that allows for the deferral of certain implementation costs incurred in a cloud computing arrangement. The adoption of this guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. Management does not expect this guidance to have significant impact on the results of operations, financial condition, or cash flows of the Registrants.

In August 2018, FASB issued guidance updating the disclosure framework for Defined Benefit Plans. Under the new guidance, entities will no longer be required to disclose the amount in other comprehensive income expected to be recognized as a component of net periodic benefit cost of the next fiscal year or the impact of a one-percentage point increase and a one-percentage point decrease in the assumed health care cost trend. The new framework will require additional disclosure including a narrative description of the reasons for significant gains/losses affecting the benefit obligation. The adoption of this guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management does not expect this guidance to have a significant impact on the result of operations, financial condition, or cash flows of Registrants.

In August 2018, FASB issued guidance updating the disclosure framework for Fair Value Measurement. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between level 1 and level 2 of the fair value hierarchy, the policy of timing of transfers between levels, or the valuation policies and procedures for level 3 fair value measurements. The new framework will require additional disclosures around level 3 fair value measurements, including the range, weighted average, and time period used to develop significant unobservable inputs. The adoption of this guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. Management does not expect this guidance to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.

In October 2018, FASB issued guidance that requires indirect interest held through related parties under common control to be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interest. The adoption of this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. Management does not expect this guidance to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.

In November 2018, FASB issued amendments clarifying that transactions in a collaborative arrangement should be accounted for using the Revenue Recognition standards when the counterparty is a customer for a direct good or service. The guidance precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The adoption of this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. Management does not expect this guidance to have a significant impact on the results of operations, financials condition, or cash flows of the registrants.



Note 3 — Revenue Recognition

Cleco adopted the accounting guidance for revenue recognition and all related amendments on January 1, 2018, using the modified retrospective method. The guidance affects entities that enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new standard is not material to the results of operations, financial condition, or cash flows of the Registrants.

Revenue from Contracts with Customers

Retail Revenue

Cleco’s revenue from contracts with customers is generated primarily from Cleco Power’s regulated revenue to retail residential, commercial, and industrial customers. Cleco recognizes retail revenue from these contracts as a series, and progress towards satisfaction of the performance obligation is measured using an output method based on kWh delivered. Accordingly, revenue from electricity sales is recognized as energy is delivered to the customer. Cleco bills retail customers, based on rates regulated by the LPSC, on a monthly basis with payments generally due within 20 days of the invoice date. Cleco records retail revenue under the invoice practical expedient, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount that the entity has a right to invoice.

Included in Cleco’s retail revenue is unbilled electric revenue, which represents the amount customers will be billed for services rendered from the last meter reading to the end of the respective accounting period. Cleco uses actual customer energy consumption data available from AMI to calculate unbilled revenue. Also included in Cleco’s retail revenue is electric customer credits, which primarily represents the accrued estimated refunds for the tax-related benefits of the TCJA.

Wholesale Revenue

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

Transmission Revenue

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

Other Revenue

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

Revenue Unrelated to Contracts with Customers

Cleco Power’s energy-related transactions with the following characteristics, qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance: a) their value is based on the notional amount or payment provisions of an underlying asset; b) they require no or a diminutive initial net investment; and c) their terms require or permit net settlement.

Pursuant to the rules of the Energy Efficiency General Order issued by the LPSC, Cleco Power intends to recover from customers the accumulated decrease in revenues associated with energy efficiency programs, also known as the Lost Contribution to Fixed Cost (LCFC). This revenue is

Transaction Price Allocated to Remaining Performance Obligations

For contracts that are greater than one year, the following table discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2018, and (2) when Cleco expects to recognize this revenue:



REMAINING PERFORMANCE OBLIGATIONS	(THOUSANDS)
Years ending Dec. 31,
2019	$	35,970
2020	7,068
2021	7,068
2022	6,468
2023	5,268
Thereafter	4,942
Total remaining performance obligations	$	66,784

Unsatisfied performance obligations primarily relate to stand-ready obligations as part of fixed capacity minimums.



Note 4 — Business Combinations

On April 13, 2016, Cleco Holdings completed its merger with Merger Sub whereby Merger Sub merged with and into Cleco Corporation, with Cleco Corporation surviving the 2016 Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings, as a direct, wholly owned subsidiary of Cleco Group and an indirect, wholly owned subsidiary of Cleco Partners. At the effective time of the 2016 Merger, each outstanding share of Cleco Corporation common stock, par value $1.00 per share (other than shares that were owned by Cleco Corporation, Cleco Partners, Merger Sub, or any other direct or indirect wholly owned subsidiary of Cleco Partners or Cleco Corporation), were cancelled and converted into the right to receive $55.37 per share in cash,

without interest, with all dividends payable before the effective time of the 2016 Merger.

Regulatory Matters

On March 28, 2016, the LPSC approved the 2016 Merger. The LPSC’s written order approving the 2016 Merger was issued on April 7, 2016. Approval of the 2016 Merger was conditioned upon certain commitments, including $136.0 million of customer rate credits, a $7.0 million one-time contribution for economic development in Cleco Power’s service territory to be administered by the LED, $6.0 million of charitable contributions to be disbursed over five years, and $2.5 million of contributions for economic development for Louisiana state and local organizations to be disbursed over five years. These commitment costs were accrued on April 13, 2016, and are included in Merger transaction and commitment costs and Merger commitment costs on Cleco and Cleco Power’s Consolidated Statements of Income, respectively. In addition, the 2016 Merger Commitments also included $1.2 million of annual refunds to customers representing cost savings due to the 2016 Merger. For more information, see Note 13 — “Regulation and Rates.”

Accounting for the 2016 Merger Transaction

The total purchase price consideration was approximately $3.36 billion, which consisted of cash paid to Cleco Corporation shareholders of $3.35 billion and cash paid for Cleco LTIP equity awards of $9.5 million. There were no remaining LTIP equity awards as of the close of the 2016 Merger.

Pushdown accounting was applied to Cleco, and accordingly, the Cleco consolidated assets acquired and liabilities assumed were recorded on April 13, 2016, at their fair values as follows:



Purchase Price Allocation
(THOUSANDS)	AT APR. 13, 2016
Current assets	$	455,016
Property, plant, and equipment, net	3,432,144
Goodwill	1,490,797
Other long-term assets	1,023,487
Less
Current liabilities	228,515
Net deferred income tax liabilities	1,059,939
Other deferred credits	279,379
Long-term debt, net	1,470,126
Total purchase price	$	3,363,485

Cleco Power’s assets and liabilities were recorded at historical cost since Cleco did not elect pushdown accounting at the Cleco Power level.

The following tables present the fair value adjustments to Cleco’s balance sheet and recognition of goodwill:



(THOUSANDS)	AT APR. 13, 2016
Property, plant, and equipment	$	(1,334,932	)
Accumulated depreciation	$	(1,565,776	)
Goodwill	$	1,490,797
Intangible assets	$	91,826
Regulatory assets	$	250,409
Deferred income tax liabilities	$	126,853
Other deferred credits	$	21,175
Long-term debt	$	198,599

Most of the carrying values of Cleco’s assets and liabilities were determined to be stated at fair value at the 2016 Merger date, considering that most of these assets are subject to regulation by the LPSC and FERC. Under such regulation, rates charged to customers are established by a regulator to provide for recovery of costs and a fair return on rate base and are generally measured at historical cost. As such, a market participant would not expect to recover any more or less than the carrying value of the assets. Prior to the 2016 Merger, the Coughlin step-up value was not recorded on Cleco’s Consolidated Balance Sheet due to the accounting treatment for the transfer of that asset in March 2014. However, the recovery of the step-up value of the Coughlin asset was approved by the LPSC for recovery in base rates, including a return on rate base. On the date of the 2016 Merger, the step-up value for the Coughlin asset was recognized on Cleco’s Consolidated Balance Sheet since Cleco Power is able to earn a return on and recover these costs from its customers. The beginning balance of fixed depreciable assets was shown net at the date of the 2016 Merger, as no accumulated depreciation existed on the date of the 2016 Merger.

The excess of the purchase price over the estimated fair value of assets acquired and the liabilities assumed was $1.49 billion, which was recognized as goodwill by Cleco at the 2016 Merger date. The goodwill represents the potential long-term return of Cleco to its member. Management has assigned goodwill to Cleco’s reportable segment, Cleco Power.

A fair value adjustment was recorded on Cleco’s Consolidated Balance Sheet to reflect the valuation of the Cleco trade name. This adjustment is included in Intangible assets on Cleco’s Consolidated Balance Sheet. The valuation of the trade name was estimated by applying the relief-from-royalty method under the income approach. This valuation method is based on the premise that, in lieu of ownership of

the asset, a company would be willing to pay a royalty to a third-party for the use of that asset. The owner of the asset is spared this cost, and the value of the asset is estimated by the cost savings. The projected revenue attributed to the trade name was based on projections of the value of Cleco’s wholesale contracts. The trade name is being amortized over 20 years. The amortization of the Cleco trade name is included in Depreciation and amortization on Cleco’s Consolidated Statement of Income.

On the date of the 2016 Merger, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the difference between the contract price and the market price of long-term wholesale power supply agreements. These adjustments are classified as Intangible assets on Cleco’s Consolidated Balance Sheet. The valuation of the power supply agreements was estimated using the income approach. The income approach is based upon discounted projected future cash flows associated with the underlying contracts. The intangible assets for the power supply agreements will be amortized over the remaining term of the applicable contract. The amortization of the power supply agreements is included in Electric operations on Cleco’s Consolidated Statement of Income.

The net increase in deferred tax liabilities on Cleco’s Consolidated Balance Sheet represents the differences between the assigned fair values of assets acquired and their related income tax basis, net of a deferred tax asset representing the net operating loss carryforward that will be utilized in future periods. As the underlying asset assigned fair values are amortized, the related deferred tax liabilities will be included in income tax expense. Goodwill is not deductible for income tax purposes; therefore, no deferred income tax assets or liabilities were recognized for goodwill.

Other fair value adjustments were recorded for long-term debt, postretirement benefit remeasurements and deferred losses, and interest rate derivative settlement gains and losses. These fair value adjustments are subject to rate regulation, but do not earn a return. In these instances, a corresponding regulatory asset was established, as the underlying utility asset or liability amounts are recoverable from or refundable to customers at historical cost through the rate setting process. These regulatory assets established to offset fair value adjustments are amortized in amounts and over time frames consistent with the realization or settlement of the fair value adjustments.

The valuations performed in the second quarter of 2016 to estimate the fair value of assets acquired and liabilities assumed were considered preliminary as a result of the short time period between the closing of the 2016 Merger and the end of the second quarter of 2016. During the third quarter of 2016, valuations were performed for the valuation and assessment of the postretirement benefit plans as of April 13, 2016, and the economic useful life of the Cleco trade name. Cleco completed its evaluation and determination of the fair value of certain assets and liabilities acquired as of December 31, 2016. There were no adjustments to those amounts during the year ended December 31, 2017. While management believes the positions reflected on the income tax returns are reasonable, see Note 11 — “Income Taxes — Uncertain Tax Positions” for a discussion on the status of tax audits.



Note 5 — Regulatory Assets and Liabilities

Cleco capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to

be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process.

Under the current regulatory environment, Cleco believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or competition, Cleco’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco would be required to write-down such assets. In addition, potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco could require discontinuance of the application of the authoritative guidance of regulated operations.

The following table summarizes Cleco Power’s regulatory assets and liabilities:



Cleco Power
	AT DEC. 31,						REMAINING RECOVERY PERIOD (YRS.)
(THOUSANDS)	2018			2017			REMAINING RECOVERY PERIOD (YRS.)
Regulatory (liabilities) assets - deferred taxes, net
Total federal regulatory liability — income taxes	$	(55,922	)	$	(64,205	)
Total state regulatory asset — income taxes	141,136			142,788
TCJA	(374,961		)	(348,590		)
AFUDC	134,369			129,953
Total investment tax credit	(159		)	(372		)
Total regulatory (liabilities) assets — deferred taxes, net	$	(155,537	)	$	(140,426	)	*
Regulatory liabilities - other	(4,992		)	—			*
Regulatory Assets
Mining costs	1,274			3,823			0.5
Interest costs	4,208			4,499			*
AROs ⁽¹⁾	3,099			2,762			*
Postretirement costs ⁽¹⁾	140,245			142,764			*
Tree trimming costs	9,069			7,193			*
Training costs	6,396			6,552			41
Surcredits, net ⁽²⁾	289			2,173			*
AMI deferred revenue requirement	3,681			4,227			7
Emergency declarations	2,980			4,131			1.5
Production operations and maintenance expenses	12,245			8,625			*
AFUDC equity gross-up ⁽²⁾	71,952			71,205			*
Acadia Unit 1 acquisition costs	2,230			2,336			21
Financing costs	7,923			8,293			*
MISO integration costs	—			468			—
Coughlin transaction costs	938			968			30.5
Corporate franchise tax, net	1,416			153			*
MATS Costs	—			2,564			—
Non-service cost of postretirement benefits	4,629			—			*
Energy Efficiency	2,585			—			*
Other	13			484			*
Total regulatory assets	275,172			273,220
Accumulated deferred fuel	20,112			13,980			*
Total regulatory assets, net	$	134,755		$	146,774
⁽¹⁾Represents regulatory assets in which cash has not yet been expended and the assets are offset by liabilities that do not incur a carrying cost. ⁽²⁾Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2018, and 2017, respectively. All other assets are earning a return on investment. * For information related to the remaining recovery periods, refer to the following disclosures for each specific regulatory asset.

The following table summarizes Cleco’s net regulatory assets and liabilities:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018		2017
Total Cleco Power regulatory assets, net	$	134,755	$	146,774
Cleco 2016 Merger adjustments ⁽¹⁾
Fair value of long-term debt	138,701		147,145
Postretirement costs	19,387		21,375
Financing costs	8,279		8,623
Debt issuance costs	6,252		6,665
Total Cleco regulatory assets, net	$	307,374	$	330,582

⁽¹⁾Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.

Income Taxes

The regulatory assets and liabilities recorded for deferred income taxes represent the effect of tax benefits or detriments that must be flowed through to customers as they are received or paid. The amounts deferred are attributable to differences between book and tax recovery periods. On December 22, 2017, the President signed the TCJA. Changes in the IRC, as amended, from the TCJA, had a material impact on the Registrants’ financial statements in 2017. Tax effects of changes in tax laws must be recognized in the period in which the law is enacted. Also, deferred tax assets and liabilities must be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. At December 31, 2017, Cleco and Cleco Power made an estimate for the remeasurement of ADIT based upon the new tax rate, which resulted in a provisional regulatory liability of $348.6 million. During the fourth quarter of 2018, Cleco Power recorded the final remeasurements, which resulted in an additional regulatory liability of $26.4 million. At December 31, 2018, the final regulatory liability for the remeasurement of accumulated deferred income taxes was $375.0 million. For more information on the TCJA, see Note 11 — “Income Taxes.”

Regulatory Liabilities - Other

On July 1, 2018, Cleco Power began collecting the revenue requirement related to the St. Mary Clean Energy Center project based on an expected commercial operation date in the third quarter of 2018. The project is now expected to be commercially operational in the second quarter of 2019. Cleco Power recorded a regulatory liability for the over collections and will continue to increase the regulatory liability until the project is in service. Cleco Power expects to return the total over collection as part of the July 1, 2019, FRP rate adjustment.

Mining Costs

Cleco Power operates a generating unit jointly owned with SWEPCO that uses lignite as its primary fuel source.

In 2006, Cleco Power recognized that there was a possibility it may not recover all or part of the lignite mining

costs it had deferred and sought relief from the LPSC. In December 2007, the LPSC approved a settlement agreement between Cleco Power, SWEPCO, and the LPSC Staff authorizing Cleco Power to recover the existing deferred mining cost balance, including interest, over 11.5 years. In connection with its 2009 approval of the Oxbow Lignite Mine acquisition, the LPSC agreed to discontinue benchmarking and the corresponding potential to defer future lignite mining costs while preserving the previously authorized recovery of the legacy deferred fuel balance.

Interest Costs

Cleco Power’s deferred interest costs include additional deferred capital construction financing costs authorized by the LPSC. These costs are being amortized over the estimated lives of the respective assets.

AROs

Cleco Power recorded an ARO liability for the retirement of certain ash disposal facilities. The ARO regulatory asset represents the accretion of the ARO liability and the depreciation of the related assets. For more information on the accounting treatment of Cleco Power’s AROs, see Note 2 — “Summary of Significant Accounting Policies — AROs.”

Postretirement Costs

Cleco Power recognizes the funded status of its postretirement benefit plans as a net liability or asset. The net liability or asset is defined as the difference between the benefit obligation and the fair market value of plan assets. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. Historically, the LPSC has allowed Cleco Power to recover pension plan expense. Cleco Power, therefore, recognizes a regulatory asset based on its determination that these costs can be collected from customers. These costs are amortized to pension expense over the average service life of the remaining plan participants (approximately nine years as of December 31, 2018, for Cleco’s plan) when it exceeds certain thresholds. The amount and timing of the recovery will be based on the changing funded status of the pension plan in future periods. For more information on Cleco’s pension plan and adoption of these authoritative guidelines, see Note 10 — “Pension Plan and Employee Benefits.”

Tree Trimming Costs

In April 2013, the LPSC approved Cleco Power’s request to expend and defer up to $8.0 million in tree management costs. Cleco Power requested authorization to defer actual expenditures as a regulatory asset through the completion date of the tree extraction effort. In February 2015, Cleco Power completed the tree extraction and began amortizing the additional charges over a 3.5-year period. As of April 30, 2018, these costs were fully amortized.

As a result of increased vegetation growth and to remain in compliance with regulatory requirements, Cleco Power anticipates the need to spend $20.8 million through December 2020 in tree and vegetation management costs. In September 2016, Cleco Power requested approval from the LPSC to defer a portion of these costs utilizing the same accounting treatment of similar costs approved in previous dockets. In October 2016, the LPSC approved Cleco Power to defer an additional amount up to $10.9 million. Of the remaining costs, $4.0 million will be expensed to Operations and maintenance on Cleco Power’s Consolidated Statements of Income, and

$5.9 million will be deferred and recovered in current base rates through June 2020.

Training Costs

In 2008, the LPSC approved Cleco Power’s request to establish a regulatory asset for training costs associated with existing processes and technology for new employees at Madison Unit 3. Recovery of these expenditures was approved by the LPSC in 2009. In 2010, Cleco Power began amortizing the regulatory asset over a 50-year period.

Surcredits, Net

Cleco Power has recorded surcredits as the result of a settlement with the LPSC that addressed, among other things, the recovery of the storm damages related to hurricanes and uncertain tax positions. In the settlement, Cleco Power was required to implement surcredits to provide ratepayers with the economic benefit of the carrying charges of certain accumulated deferred income tax liabilities at a rate of return which was set by the LPSC. The settlement, through a true-up mechanism, allows the surcredits to be adjusted to reflect the actual tax deductions allowed by the IRS.

Cleco Power recorded a true-up to the surcredits to reflect the actual tax deductions allowed by the IRS for storm damages and uncertain tax positions. As a result of the true-ups, Cleco Power recorded a regulatory asset that represents excess surcredits refunded to customers that were collected from ratepayers and amortized over a four-year period, through June 2018. Cleco Power expects to collect the balance as part of the July 1, 2019, FRP rate adjustment.

AMI Deferred Revenue Requirement

In February 2011, the LPSC approved Cleco Power’s stipulated settlement in Docket No. U-31393 allowing Cleco Power to defer, as a regulatory asset, the estimated revenue requirements for the AMI project. The amount of the regulatory asset, including carrying charges, is capped by the LPSC at $20.0 million. In June 2014, the LPSC approved Cleco Power’s FRP extension and the AMI regulatory asset and project capital costs were included in rate base. Cleco Power is recovering the AMI deferred revenue requirement over 11 years beginning July 2014.

Emergency Declarations

In August 2016, the LPSC issued emergency declaration executive orders following flooding events in south Louisiana which prohibited public utilities from disconnecting or charging late fees to customers for non-payment in affected parishes. In January 2017, the LPSC issued an order terminating those executive orders effective March 1, 2017. The January 2017 order also provided that public utilities were entitled to formally petition the LPSC to recover lost revenues as a result of the executive orders issued in August 2016. Beginning in July 2017, Cleco Power’s lost revenues are being recovered and amortized over a three-year period.

Production Operations and Maintenance Expenses

Annually, Cleco Power is allowed to defer, as a regulatory asset, production operations and maintenance expenses, net of fuel and payroll, above the retail jurisdictional portion of $45.0 million, adjusted annually for a growth factor (deferral threshold). The amount of the regulatory asset is capped at $23.0 million. The LPSC allows Cleco Power to recover the amount deferred in any calendar year over the following three

year regulatory period, beginning on July 1, when the annual rates are set. In December 2018 and 2017, Cleco Power deferred $8.0 million and $0.4 million, respectively, as a regulatory asset.

AFUDC Equity Gross-Up

Cleco Power capitalizes equity AFUDC as a cost component of construction projects. Cleco Power has recorded a regulatory asset to recover the tax gross-up related to the equity component of AFUDC. These costs are being amortized over the estimated lives of the respective assets constructed.

Acadia Unit 1 Acquisition Costs

In 2009, the LPSC approved Cleco Power’s request to establish a regulatory asset for costs incurred as a result of the acquisition by Cleco Power of Acadia Unit 1 and half of Acadia Power Station’s related common facilities. The Acadia Unit 1 acquisition costs are being recovered over a 30-year period beginning February 2010.

Financing Costs

In 2011, Cleco Power entered into and settled two treasury rate locks. Of the $26.8 million in settlements, $7.4 million was deferred as a regulatory asset relating to ineffectiveness of the hedge relationships. Also in 2011, Cleco Power entered into a forward starting swap contract. These derivatives were entered into in order to mitigate the interest rate exposure on coupon payments related to forecasted debt issuances. In May 2013, the forward starting interest rate swap was settled at a loss of $3.3 million. Cleco Power deferred $2.9 million of the losses as a regulatory asset, which is being amortized over the terms of the related debt issuances.

MISO Integration Costs

In June 2014, the LPSC approved Cleco Power’s request to recover the non-capital integration costs associated with Cleco Power joining MISO. In July 2014, Cleco Power began recovering these MISO integration costs over a four-year period. As of June 30, 2018, these costs were fully recovered.

Coughlin Transaction Costs

In January 2014, the LPSC authorized Cleco Power to create a regulatory asset for the transaction costs related to the transfer of Coughlin from Evangeline to Cleco Power. The Coughlin transaction costs are being recovered over a 35-year period beginning July 2014.

Corporate Franchise Tax, Net

As part of the FRP extension approved by the LPSC in June 2014, Cleco Power was authorized to recover through a rider the retail portion of state corporate franchise taxes paid. The retail portion of state corporate franchise taxes paid each year will be recovered over 12 months beginning July 1 of the following year.

MATS Costs

In February 2016, the LPSC approved Cleco Power’s request to recover the revenue requirements associated with the installation of MATS equipment. The MATS rule required affected EGUs to meet specific emission standards and work practice standards to address hazardous air pollutants by April 2015. The LPSC approval also allowed Cleco Power to record a regulatory asset of $7.1 million representing the unrecovered revenue requirements of MATS equipment placed in service in

the years prior to the LPSC review and approval. As of June 30, 2018, these costs were fully amortized.

Non-service Cost of Postretirement Benefits

On January 1, 2018, FASB’s amended guidance related to defined benefit pension and other postretirement plans became effective. The amendment allows only the service cost component of net benefit cost to be eligible for capitalization within property, plant, and equipment. Beginning January 1, 2018, the non-service cost previously eligible for capitalization into property, plant, and equipment are being deferred to a regulatory asset and will be amortized over the estimated lives of the respective assets. For more information on FASB’s guidance related to defined benefit pension and other postretirement plans, see Note 2 — “Summary of Significant Accounting Policies — Recent Authoritative Guidance.”

Energy Efficiency

In 2013, the LPSC issued a General Order adopting rules promoting energy efficiency programs. Cleco Power participated in the Phase I program beginning in November 2014. Pursuant to the rules of the Energy Efficiency General Order, utility companies are allowed to recover from customers the accumulated decrease in revenues associated with the energy efficiency programs. In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the accumulated decrease in revenues, also known as the Lost Contribution to Fixed Cost (LCFC). Beginning March 1, 2019, this amount will be recovered over approximately four years, subject to LPSC review and approval.

Other

In 2015, the LPSC approved the recovery of costs incurred as a result of Cleco Power’s 2009 through 2013 fuel audit. The 2009 through 2013 fuel audit costs and the IRP costs are being recovered over a three-year period beginning July 2016.

In March 2016, flooding occurred at the Toledo Bend Dam where Cleco Power receives capacity from the hydroelectric generators through a long-term contract. As part of the contract, Cleco Power is responsible for its allocated portion of the insurance deductible for flood damages. In July 2017, Cleco Power began amortizing the retail portion of $0.9 million over a 12-month period. As of June 30, 2018, these costs were fully amortized.

Accumulated Deferred Fuel

The cost of fuel used for electric generation and power purchased for utility customers are recovered through the LPSC-established FAC or related wholesale contract provisions, which enable Cleco Power to pass on to its customers substantially all such charges. For 2018, approximately 76% of Cleco Power’s total fuel cost was regulated by the LPSC.

Accumulated deferred fuel increased $6.1 million from December 31, 2017. This increase was primarily due to $22.4 million for fuel surcharges, partially offset by $13.3 million for the mark-to-market value on FTRs and $4.3 million due to the timing of collections.

Cleco Holdings’ 2016 Merger Adjustments

As a result of the 2016 Merger, Cleco implemented acquisition accounting, which eliminated AOCI at the Cleco consolidated level on the date of the 2016 Merger. Cleco will continue to recover expenses related to certain postretirement costs;

therefore, Cleco recognized a regulatory asset based on its determination that these costs can continue to be collected from customers. These costs will be amortized to Other operations expense over the average remaining service period of participating employees. Cleco will also continue to recover financing costs associated with the settlement of two treasury rate locks and a forward starting swap contract that were previously recognized in AOCI. Additionally, as a result of the 2016 Merger, a regulatory asset was recorded for debt issuance costs that were eliminated at Cleco and a regulatory asset was recorded for the difference between the carrying value and the fair value of long-term debt. These regulatory assets are being amortized over the terms of the related debt issuances, unless the debt is redeemed prior to maturity, at which time any unamortized related regulatory asset will be derecognized.



Note 6 — Jointly Owned Generation Units

Cleco Power operates electric generation units that are jointly owned with other utilities. The joint-owners are responsible for their own share of the capital and the operating and maintenance costs of the respective units. Cleco Power’s share of the direct expenses of the jointly owned generation units is included in the operating expenses of the consolidated statements of income.

At the date of the 2016 Merger, the gross balance of jointly owned generation units at Cleco was adjusted to be net of accumulated depreciation, as no accumulated depreciation existed on the date of the 2016 Merger. Since pushdown accounting was not elected at the Cleco Power level, Cleco Power retained its accumulated depreciation. For more information about merger related adjustments, see Note 4 — “Business Combinations.”

At December 31, 2018, the investment in and accumulated depreciation for each generating unit on Cleco and Cleco Power’s Consolidated Balance Sheets were as follows:



Cleco
				AT DEC. 31, 2018
(THOUSANDS, EXCEPT PERCENTAGES AND MW)	RODEMACHER UNIT 2			DOLET HILLS			TOTAL
Utility plant in service	$	71,962		$	176,935		$	248,897
Accumulated depreciation	$	5,309		$	12,385		$	17,694
Construction work in progress	$	317		$	5,463		$	5,780
Ownership interest percentage	30		%	50		%
Nameplate capacity (MW)	523			650
Ownership interest (MW)	157			325



Cleco Power
				AT DEC. 31, 2018
(THOUSANDS, EXCEPT PERCENTAGES AND MW)	RODEMACHER UNIT 2			DOLET HILLS			TOTAL
Utility plant in service	$	146,142		$	394,431		$	540,573
Accumulated depreciation	$	79,489		$	229,882		$	309,371
Construction work in progress	$	317		$	5,463		$	5,780
Ownership interest percentage	30		%	50		%
Nameplate capacity (MW)	523			650
Ownership interest (MW)	157			325



Note 7 — Fair Value Accounting

The amounts reflected in Cleco and Cleco Power’s Consolidated Balance Sheets at December 31, 2018, and 2017, for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, short-term debt, and accounts payable approximate fair value because of their short-term nature. Cleco applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations as well as impairment related to goodwill and other long-lived assets.

The following tables summarize the carrying value and estimated market value of Cleco and Cleco Power’s financial instruments not measured at fair value on Cleco and Cleco Power’s Consolidated Balance Sheets:



Cleco
	AT DEC. 31,
	2018				2017
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	2,889,631	$	2,859,924	$	2,866,955	$	2,921,325

* The carrying value of long-term debt does not include deferred issuance costs of $10.3 million in 2018 and $11.6 million in 2017.



Cleco Power
	AT DEC. 31,
	2018				2017
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	1,400,930	$	1,517,152	$	1,369,810	$	1,535,234

* The carrying value of long-term debt does not include deferred issuance costs of $8.3 million in 2018 and $9.1 million in 2017.

Long-term debt liability consists of a single class. In order to fund capital requirements, Cleco issues fixed and variable rate long-term debt with various tenors. The fair value of this class fluctuates as the market interest rates for fixed and variable rate debt with similar tenors and credit ratings change. The fair value of the debt could also change from period to period due to changes in credit rating of the Cleco entity by which the debt was issued. The fair value of long-term debt is classified as Level 2 in the fair value hierarchy.

Fair Value Measurements and Disclosures

Cleco classifies assets and liabilities that are measured at their fair value according to three different levels depending on the inputs used in determining fair value.

The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured on a recurring basis:

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 this price by the appropriate number of instruments held. Level 2 fair values are determined by obtaining the closing price of similar assets and liabilities from published indices in active markets and then discounting the price to the current period using a U.S. Treasury published interest rate as a proxy for a risk-free rate of return. Level 3 fair values occur in situations in which there is little, if any, market activity for the asset or liability at the measurement date. Cleco’s Level 3 assets and liabilities are valued using RTO auction prices. Cleco has consistently applied the Level 2 and Level 3 fair value techniques from fiscal period to fiscal period. Significant increases or decreases in any of those inputs in

isolation would result in a significantly different fair value measurement.

The assets and liabilities reported at fair value are grouped into classes based on the underlying nature and risks associated with the individual asset or liability.

At December 31, 2018, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. The institutional money market funds were reported on Cleco’s Consolidated Balance Sheets in cash and cash equivalents, current restricted cash and cash equivalents, and non-current restricted cash and cash equivalents of $103.8 million, $11.2 million, and $18.7 million, respectively, at December 31, 2018, and $111.1 million, $13.1 million, and $20.1 million, respectively, at December 31, 2017. At Cleco Power, the institutional money market funds were

reported on Cleco Power’s Consolidated Balance Sheets in cash and cash equivalents, current restricted cash and cash equivalents, and non-current restricted cash and cash equivalents of $26.1 million, $11.2 million, and $18.6 million, respectively, at December 31, 2018, and $62.5 million, $13.1 million, and $20.1 million, respectively, at December 31, 2017. If the money market funds failed to perform under the terms of the investments, Cleco and Cleco Power would be exposed to a loss of the invested amounts. Collateral on these types of investments is not required by either Cleco or Cleco Power. The Level 2 institutional money market funds asset consists of a single class. In order to capture interest income and minimize risk, cash is invested in money market funds that invest primarily in short-term securities issued by the U. S. Treasury to maintain liquidity and achieve the goal of a net asset value of a dollar. The risks associated with this class are counterparty risk of the fund manager and risk of price volatility associated with the underlying securities of the fund.

Cleco Power’s FTRs were priced using MISO’s monthly auction prices. Forward seasonal periods are not included in every monthly auction; therefore, the average of the most recent seasonal auction prices is used for monthly valuation. FTRs are categorized as Level 3 fair value measurements because the only relevant pricing available comes from MISO auctions, which occur monthly in the Multi-Period Monthly Auction.

During the years ended December 31, 2018, and 2017, Cleco did not experience any transfers between levels within the fair value hierarchy.

Commodity Contracts

The following table presents the fair values of derivative instruments and their respective line items as recorded on Cleco and Cleco Power’s Consolidated Balance Sheets at December 31, 2018, and 2017:



	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT DEC. 31, 2018		AT DEC. 31, 2017
Commodity-related contracts
FTRs:
Current	Energy risk management assets	$	23,355	$	7,396
Current	Energy risk management liabilities	468		352
Commodity-related contracts, net		$	22,887	$	7,044

The following table presents the effect of derivatives not designated as hedging instruments on Cleco and Cleco Power’s Consolidated Statements of Income for the years December 31, 2018, 2017, and 2016:



Note 8 — Debt

Cleco Power’s total indebtedness as of December 31, 2018, and 2017 was as follows:



Cleco Power
	AT DEC. 31,
(THOUSANDS)	2018			2017
Bonds
Senior notes, 2.94%, due 2022	$	25,000		$	25,000
Senior notes, 3.08%, due 2023	100,000			100,000
Senior notes, 3.17%, due 2024	50,000			—
Senior notes, 3.68%, due 2025	75,000			75,000
Senior notes, 3.47%, due 2026	130,000			130,000
Senior notes, 4.33%, due 2027	50,000			50,000
Senior notes, 3.57%, due 2028	200,000			200,000
Senior notes, 6.50%, due 2035	295,000			295,000
Senior notes, 6.00%, due 2040	250,000			250,000
Senior notes, 5.12%, due 2041	100,000			100,000
Series A GO Zone bonds, 2.00%, due 2038, mandatory tender in 2020	50,000			50,000
Series B GO Zone bonds, 4.25%, due 2038	50,000			50,000
Cleco Katrina/Rita’s storm recovery bonds, 5.61%, due 2023	31,625			50,819
Total bonds	1,406,625			1,375,819
Other long-term debt
Barge lease obligations	16,418			—
Gross amount of long-term debt	1,423,043			1,375,819
Less: long-term debt due within one year	20,571			19,193
Less: capital lease obligations classified as long-term debt due within one year	557			—
Unamortized debt discount	(5,695		)	(6,010		)
Unamortized debt issuance costs	(8,446		)	(9,141		)
Total long-term debt and capital leases, net	$	1,387,774		$	1,341,475

Cleco’s total indebtedness as of December 31, 2018, and 2017 was as follows:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018			2017
Total Cleco Power long-term debt and capital leases, net	$	1,387,774		$	1,341,475
Cleco Holdings’ long-term debt, net
Senior notes, 3.250%, due 2023	165,000			165,000
Senior notes, 3.743%, due 2026	535,000			535,000
Senior notes, 4.973%, due 2046	350,000			350,000
Bank term loan, variable rate, due 2021	300,000			300,000
Unamortized debt issuance costs⁽¹⁾	(1,989		)	(2,516		)
Fair value adjustment	138,700			147,146
Total Cleco long-term debt and capital leases, net	$	2,874,485		$	2,836,105

⁽¹⁾For December 31, 2018, and 2017, this amount includes unamortized debt issuance costs for Cleco Holdings of $8.2 million and $9.2 million, respectively, partially offset by deferred debt issuance costs eliminated as a result of the 2016 Merger of $6.3 million and $6.7 million, respectively. For more information, see Note 5 — “Regulatory Assets and Liabilities — Cleco Holdings’ 2016 Merger Adjustments.”

The principal amounts payable under long-term debt agreements for each year through 2023 and thereafter are as follows:



(THOUSANDS)	CLECO		CLECO POWER
For the year ending Dec. 31,
2019	$	20,571	$	20,571
2020	$	11,054	$	11,054
2021	$	300,000	$	—
2022	$	25,000	$	25,000
2023	$	265,000	$	100,000
Thereafter	$	2,135,000	$	1,250,000

The amounts payable under the capital lease agreements for each year through 2023 and thereafter are as follows:



(THOUSANDS)	CLECO		CLECO POWER
For the year ending Dec. 31,
2019	$	557	$	557
2020	$	617	$	617
2021	$	682	$	682
2022	$	755	$	755
2023	$	836	$	836
Thereafter	$	12,971	$	12,971

Cleco Power Debt

Cleco Power had no short-term debt outstanding at December 31, 2018, and 2017.

On April 2, 2018, Cleco Power entered into a capital lease agreement for use of 42 dedicated barges to transport petroleum coke and limestone to Madison Unit 3. For more information on the capital lease agreement, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments — Fuel Transportation Agreement.”

Cleco Debt

Cleco had no short-term debt outstanding at December 31, 2018, and 2017.

On July 31, 2018, Cleco Holdings amended its $300.0 million bank term loan agreement and its $100.0 million revolving credit facility agreement to release any and all collateral from all of its debt obligations under those agreements. As a result of the release of collateral, Moody’s and Fitch replaced Cleco Holdings’ senior secured debt rating with a senior unsecured debt rating. For more information on Cleco’s credit ratings and their impacts, see Note 16 — “Litigation, Other Commitment and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”

Credit Facilities

At December 31, 2018, Cleco Holdings had a $100.0 million credit facility. The credit facility includes restrictive financial covenants and expires in 2021. The borrowing costs under Cleco Holdings’ credit facility are equal to LIBOR plus 1.75% or ABR plus 0.75%, plus commitment fees of 0.275%. If Cleco Holding’s credit ratings were to be downgraded one level, Cleco Holdings could be required to pay higher fees and additional interest of 0.075% and 0.50%, respectively, under the pricing levels of its credit facility. Under covenants contained in Cleco Holdings’ credit facility, Cleco is required to maintain total indebtedness less than or equal to 65% of total capitalization. At December 31, 2018, $655.0 million of Cleco’s member’s equity was unrestricted. At December 31, 2018, Cleco Holdings was in compliance with the covenants of its credit facility. In connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million, for a total credit facility of $175.0 million. All other terms remained the same. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.

At December 31, 2018, Cleco Power had a $300.0 million credit facility. The credit facility includes restrictive financial covenants and expires in 2021. The borrowing costs under Cleco Power’s credit facility are equal to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees of 0.125%. If Cleco Power’s credit ratings were to be downgraded one level, Cleco Power could be required to pay higher fees and additional interest of 0.05% and 0.125%, respectively, under the pricing levels of its credit facility. Under covenants contained in Cleco Power’s credit facility, Cleco Power is required to maintain total indebtedness less than or equal to 65% of total capitalization. At December 31, 2018, $831.9 million of Cleco Power’s

member’s equity was unrestricted. If Cleco Power were to default under its credit facility or any other debt agreements, Cleco Holdings would be considered to be in default under its facility. At December 31, 2018, Cleco Power was in compliance with the covenants in its credit facility.



Note 9 — Common Stock

Stock-Based Plan Descriptions and Share Information

Prior to the completion of the 2016 Merger, Cleco had two stock-based compensation plans: the ESPP and the LTIP. As a result of the completion of the 2016 Merger, the ESPP and the LTIP were terminated. For more information about the 2016 Merger, see Note 4 — “Business Combinations.”

LTIP

Prior to the completion of the 2016 Merger, stock options, restricted stock, also known as non-vested stock, common stock equivalent units, and stock appreciation rights were available to be granted or awarded to certain officers, key employees, or directors of Cleco Corporation and its affiliates under the LTIP. Because it was only to be settled in shares of Cleco Corporation common stock, non-vested stock was classified as equity. Recipients of non-vested stock had full voting rights of a stockholder. At the time restrictions lapsed, the accrued dividend equivalent units were paid to the recipient only to the extent that target shares vested.

In order to vest, the non-vested stock required the satisfaction of a service requirement and a market-based requirement. Recipients of non-vested stock were eligible to receive opportunity instruments if certain market-based measures were exceeded. Cleco also awarded non-vested stock with only a service period requirement to certain employees and directors. These awards required the satisfaction of a predetermined service period in order for the shares to vest.

During the predecessor period January 1, 2016, through April 12, 2016, Cleco granted no shares of non-vested stock pursuant to the LTIP. As a result of the 2016 Merger on April 13, 2016, all unvested shares outstanding under the LTIP that were granted prior to January 1, 2015, vested at target and were paid out in cash to plan participants. Unvested shares that were granted during 2015 were prorated to the target amount and paid out in cash to plan participants in accordance with the terms of the Merger Agreement.

The fair value of shares of non-vested stock that vested during the predecessor period January 1, 2016, through April 12, 2016, was $10.1 million.

Stock-Based Compensation

During 2016, Cleco did not modify any of the terms of outstanding awards. Cleco recognized stock-based compensation expense for these provisions in accordance with the non-substantive vesting period approach.

Prior to the completion of the 2016 Merger, Cleco recorded compensation expense for all non-vested stock. Assuming achievement of vesting requirements was probable, stock-based compensation expense of non-vested stock was recorded during the service periods, which were generally three years. All stock-based compensation cost was measured at the grant date based on the fair value of the award and was recognized as an expense in the income statement over the requisite service period of the award. Awards that vest pro rata during the requisite service period that contain only a service

condition were defined as having a graded vesting schedule and could have been treated as multiple awards with separate vesting schedules. However, Cleco elected to treat grants with graded vesting schedules as one award and recognized the related compensation expense on a straight-line basis over the requisite service period.

During the predecessor period January 1, 2016, through April 12, 2016, Cleco reported pretax compensation expense of $3.2 million on non-vested stock with a related tax benefit of $1.2 million. In April 2016, Cleco incurred $2.3 million of merger expense due to accelerated vesting of the LTIP shares.

For the predecessor period January 1, 2016, through April 12, 2016, compensation expense included in Cleco’s Consolidated Statements of Income related to non-forfeitable dividends paid on non-vested stock that was not expected to vest was less than $0.1 million.

During the year ended December 31, 2016, Cleco Power reported pretax compensation expense of $1.0 million on non-vested stock with a related tax benefit of $0.4 million.

The amount of stock-based compensation capitalized in property, plant, and equipment on Cleco’s Consolidated Balance Sheets for the predecessor period January 1, 2016, through April 12, 2016, was $0.6 million. The amount of stock-based compensation capitalized in property, plant, and equipment on Cleco Power’s Consolidated Balance Sheets for the year ended December 31, 2016, was $0.6 million.

The ESPP did not contain optionality features beyond those listed by the authoritative guidance on stock-based compensation. Therefore, Cleco was not required to recognize a fair-value expense related to the ESPP.



Note 10 — Pension Plan and Employee Benefits

Pension Plan and Other Benefits Plan

Employees hired before August 1, 2007, are covered by a non-contributory, 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 ten years of employment with Cleco. Cleco’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. Cleco did not make any required or discretionary contributions to the pension plan in 2018 and 2017, nor does it expect to make any in 2019. 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. Based on funding assumptions at December 31, 2018, management estimates that $95.5 million in pension contributions will be required through 2023. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions. The ultimate amount and timing of the contributions may be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Cleco Power is the plan sponsor and Support Group is the plan administrator.

Cleco’s retirees may be eligible to receive Other Benefits. Dependents of Cleco’s retirees may also be eligible to receive Other Benefits with the exception of life insurance benefits. Cleco recognizes the expected cost of Other Benefits during the periods in which the benefits are earned.

The employee pension plan and other benefits plan obligation, plan assets, and funded status at December 31, 2018, and 2017 are presented in the following table:

During the third quarter of 2016, management finalized its remeasurement of the pension plan as of April 13, 2016, associated with the 2016 Merger. On the date of the remeasurement, the discount rate decreased from 4.62% to 4.21%. Prior to the remeasurement, Cleco’s 2016 net periodic benefit cost for the pension plan was expected to be $15.9 million. Due to the remeasurement of the pension plan, Cleco’s 2016 net periodic benefit cost increased to $17.5 million.

Because Cleco Power is the pension plan sponsor and the related trust holds the assets, the net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco’s other subsidiaries is transferred with a like amount of assets to Cleco Power monthly. The expense of the pension plan related to Cleco’s other subsidiaries for the years ended December 31, 2018, and 2017 was $2.0 million and $1.8 million, respectively. The expense of the pension plan related to Cleco’s other subsidiaries for the predecessor period January 1, 2016, through April 12, 2016, was $0.5 million. The expense of the pension plan related to Cleco’s other subsidiaries for the

successor period April 13, 2016, through December 31, 2016, was $1.3 million.

Cleco Holdings 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 Consolidated Statements of Income for the years ended December 31, 2018, 2017, and 2016 was $3.3 million, $3.3 million, and $3.5 million, respectively. The current and non-current portions of the other benefits liability for Cleco and Cleco Power at December 31, 2018, and 2017 are as follows:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018		2017
Current	$	4,130	$	4,061
Non-current	$	36,325	$	39,142

The expected return on plan assets was determined by examining the risk profile of each target category as compared to the expected return on that risk, within the parameters determined by the retirement committee. The result was also compared to the expected rate of return of other comparable plans. In assessing the risk as compared to return profile, historical returns as compared to risk were considered. The historical risk compared to returns was adjusted for the expected future long-term relationship between risk and return. The adjustment for the future risk compared to returns was, in part, subjective and not based on any measurable or observable events. For the calculation of the 2019 periodic expense, Cleco increased the expected long-term return on plan assets to 6.55%. Cleco expects pension expense to decrease in 2019 by approximately $7.2 million due to an increase in the discount rate and an increase in expected return on plan assets.

Employee pension plan assets are invested in accordance with the Pension Plan’s Investment Policy Statement. At December 31, 2018, allowable investments included U.S. Equity Portfolios, International Equity - Developed Markets Portfolios, Emerging Markets Equity Portfolios, Multi-Asset Credits, Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS), Fixed Income Portfolios, Fixed Income Portfolios - Long Credit, and Real Estate Portfolios.

Real estate funds and the pooled separate accounts are stated at estimated market value based on appraisal reports

prepared annually by independent real estate appraisers (members of the American Institute of Real Estate Appraisers). The estimated market value of recently acquired properties is assumed to approximate cost.

Fair Value Disclosures

Cleco classifies 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, and


•	Level 3 – unobservable inputs based upon the entities’ own assumptions.

There have been no changes in the methodologies for determining fair value at December 31, 2018, and 2017. The following tables disclose the pension plan’s fair value of financial assets measured on a recurring basis:

Level 3 valuations are derived from other valuation methodologies including pricing models, discounted cash flow models, and similar techniques. Level 3 valuations incorporate subjective judgments and consider assumptions including capitalization rates, discount rates, cash flows, and other factors that are not observable in the market. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

The following is a reconciliation of the beginning and ending balances of the pension plan’s real estate funds measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2018, and 2017:



(THOUSANDS)
Balance, Dec. 31, 2016	$	18,668
Realized losses	(2,365		)
Unrealized gains	2,674
Purchases	649
Sales	(431		)
Balance, Dec. 31, 2017	$	19,195
Realized gains	29
Unrealized gains	391
Purchases	710
Sales	(27		)
Balance, Dec. 31, 2018	$	20,298

The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. For 2018, the return on plan assets was (7.31)% compared to an expected long-term return of 5.86%. The 2017 return on pension plan assets was 16.32% compared to an expected long-term return of 6.08%. As of

December 31, 2018, none of the pension plan participants’ future annual benefits are covered by insurance contracts.

Pension Plan Investment Objectives

Cleco’s retirement committee has established investment performance objectives of the pension plan assets. Over a three- to five-year period, the objectives are for the pension plan’s annualized total return to:


•	Exceed the (FAS) actuarial assumed rate of return on plan assets, and

•

Exceed the annualized total return of the following customized index (based on the target allocation in the glide path) consisting of a mixture of S&P 500 Index, Russell 2500 Index, Morgan Stanley Capital International All Country World ex U.S. Index, Morgan Stanley Capital International Emerging Markets Index, Customer Index related to Multi-Asset Credit asset class, Bloomberg Barclays Capital Long Credit Index, Bloomberg Barclays 15+ Year Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS), and National Council of Real Estate Investment Fiduciaries Index.

Risk characteristics of the portfolio (annualized standard deviation of returns) should be similar to or less than the custom index.

In order to meet the objectives and to control risk, the retirement committee has established the following guidelines that the investment managers must follow:

U.S. Domestic Equity Portfolios


•	Equity holdings of a single company (including common stock and convertible securities) must not exceed 10% of the manager’s portfolio measured at market value.


•	A minimum of 25 stocks should be owned in the portfolio.


•	Equity holdings in a single sector should not exceed the lesser of three times the sector’s weighting in the S&P 500 Index or 35% of the portfolio.


•	Equity holdings should represent at least 90% of the portfolio.


•	Marketable common stocks, preferred stocks convertible into common stocks, and fixed income securities convertible into common stocks are the only permissible equity investments.


•	Securities in foreign entities denominated in U.S. dollars are limited to 10%. Securities denominated in currencies other than U.S. dollars are not permitted.


•	The purchase of securities on margin and short sales is prohibited.

International Equity - Developed Markets Portfolio


•	Equity holdings of a single company (including common stock and convertible securities) should not exceed 5% of the manager’s portfolio measured at market value.


•	A minimum of 30 stocks should be owned.


•	Equity holdings in a single sector should not exceed 35%.


•	A minimum of 50% of the countries within the Morgan Stanley Capital International All Country World ex U.S. Index should be represented within the portfolio. The allocation to an individual country should not exceed the lesser of 30% or 5 times the country’s weighting within the Morgan Stanley Capital International All Country World ex U.S. Index.


•	Currency hedging decisions are at the discretion of the investment manager.

Emerging Markets Portfolio


•	Equity holdings in any single company should not exceed 10% of the manager’s portfolio.


•	A minimum of 30 individual stocks should be owned.


•	Equity holdings of a single industry should not exceed 25%.


•	Equity investments must represent at least 75% of the manager’s portfolio.


•	A minimum of three countries should be represented within the manager’s portfolio.


•	Illiquid securities which are not readily marketable may represent no more than 10% of the manager’s portfolio.


•	Currency hedging decisions are at the discretion of the investment manager.

Multi-Asset Credit


•	Assets can include, but would not be limited to, high yield debt, emerging market debt, global investment grade credit and bank loans, as well as fixed income strategies.


•	Currency hedging decisions are the discretion of the investment manager.

Treasury STRIPS


•	The STRIPS are synthetic zero-coupon bonds that are created by separating each coupon and principal payment of a treasury bond into a separate security. STRIPS take the form of a zero-coupon bond which is sold at a discount to face value and mature at par. They are backed by US Treasury securities.


•	Implementation of the portfolio is either through Treasury Futures or purchase of Treasury STRIPS through an investment manager.


•	The benchmark would be Bloomberg Barclays 15+ Year Treasury STRIPS.

Fixed Income Portfolio - Long Credit


•	Permitted assets include U.S. government and agency securities, corporate securities, mortgage-backed securities, investment-grade private placements, surplus notes, trust preferred, e-caps and hybrids, money-market securities, and senior and subordinated debt.


•	At least 90% of securities must be U.S. dollar denominated.


•	At least 70% of the securities must be investment-grade credit.


•	Securities must have a maximum position size of 5% for A rated securities and 3% for BBB rated securities.


•	The duration of the portfolio must be within +/- 1 year of benchmark.


•	Treasury STRIPS managers will have the discretion to utilize U.S. treasury futures and STRIPS as needed to adjust the portfolio duration.

Real Estate Portfolios


•	Real estate funds should be invested primarily in direct equity positions, with debt and other investments representing less than 25% of the fund.


•	Leverage should be no more than 70% of the market value of the fund.


•	Investments should be focused on existing income-producing properties, with land and development properties representing less than 40% of the fund.

The use of futures and options positions which leverage portfolio positions through borrowing, short sales, or other encumbrances of the Plan’s assets is prohibited. The Long

Duration fixed income managers and Treasury STRIPS manger(s) are exempt from the prohibition on derivatives use, due to the nature of long duration fixed income management. Currency hedging is permitted for international investing.

The investment manager of affiliated securities shall not purchase any securities of its organization or affiliated entities.

The following chart shows the dynamic asset allocation based on the funded ratio at December 31, 2018:



	PERCENT OF TOTAL PLAN ASSETS
			AT DEC. 31, 2018
	MINIMUM		TARGET		MAXIMUM
Return-seeking
Domestic equity			20	%
International equity			20	%
Multi-asset credit			6	%
Real estate			4	%
Total return-seeking	45	%	50	%	55	%
Liability hedging*	45	%	50	%	55	%
*Liability hedging has no target subcategories.

The assumed health care cost trend rates used to measure the expected cost of other benefits is 5.0% for 2019 and remains at 5.0% thereafter. The rate used for 2018 was also 5.0%. Assumed health care cost trend rates have a limited effect on the amount reported for Cleco’s health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects on other benefits:



	ONE-PERCENTAGE POINT
(THOUSANDS)	INCREASE		DECREASE
Effect on total of service and interest cost components	$	13	$	(15	)
Effect on postretirement benefit obligation	$	194	$	(215	)

The projected benefit payments for the employee pension plan and other benefits obligation plan for each year through 2023 and the next five years thereafter are listed in the following table:



(THOUSANDS)	PENSION BENEFITS		OTHER BENEFITS, GROSS
For the year ending Dec. 31,
2019	$	22,868	$	4,215
2020	$	24,042	$	4,071
2021	$	25,180	$	3,936
2022	$	26,373	$	3,856
2023	$	27,512	$	3,716
Next five years	$	154,047	$	16,615

SERP

Certain Cleco officers are covered by SERP. In 2014, SERP was closed to new participants; however, with regard to current SERP participants, including former employees or their beneficiaries, all terms of SERP will continue, other than as described below. SERP is a non-qualified, non-contributory, defined benefit pension plan. Generally, benefits under the plan reflect an employee’s years of service, age at retirement, and the sum of (a) the highest base salary paid out over the last five calendar years and (b) the average of the five highest cash bonuses paid during the 60 months prior to retirement. SERP benefits are reduced by retirement benefits received from any other defined benefit pension plan, supplemental executive retirement plan, or Cleco contributions under the enhanced 401(k) Plan to the extent such contributions exceed

the amount the employee would have received under the terms of the original 401(k) Plan. In accordance with the SERP plan document and the Merger Agreement, four executive officers received enhanced benefits, and upon termination of employment, two of these executive officers received accelerated vesting. Another executive officer received enhanced SERP benefits, net of other postretirement benefits, as part of a separation agreement. Two executive officers’ SERP benefits were capped as of December 31, 2017, with regard to final compensation; however, adjustments will continue with regard to age and tenure with Cleco. Additionally, these executive officers had their annual bonuses set at target rather than actual awards for years 2016 and 2017 for the average incentive award portion of their SERP benefit calculation. A third executive officer’s SERP benefit amount will be set at a specified amount based upon the year of separation. Management reviews current market trends as it evaluates Cleco’s future compensation strategy.

Cleco 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. The life insurance policies issued on SERP participants designate the rabbi trust as the beneficiary. Market conditions could have a significant impact on the cash surrender value of the life insurance policies. Proceeds from the life insurance policies are expected to be used to pay the SERP participants’ death benefits, as well as future SERP payments. However, because SERP 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 that employed the officer. Cleco Power is the plan sponsor and Support Group is the plan administrator.

SERP’s funded status at December 31, 2018, and 2017 is presented in the following table:



				SERP BENEFITS
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018			2017
Change in benefit obligation
Benefit obligation at beginning of period	$	84,339		$	78,045
Service cost	542			494
Interest cost	3,077			3,239
Actuarial (gain) loss	(5,163		)	6,442
Benefits paid	(4,381		)	(4,376		)
Plan amendments	—			180
Special/contractual termination benefits	—			315
Benefit obligation at end of period	$	78,414		$	84,339

SERP’s accumulated benefit obligation at December 31, 2018, and 2017 is presented in the following table:



	SERP BENEFITS
	AT DEC. 31,
(THOUSANDS)	2018		2017
Accumulated benefit obligation	$	78,414	$	84,339

The following table presents net actuarial gains/losses and prior service costs/credits included in other comprehensive income or regulatory assets related to current year gains and losses as a result of being amortized as a component of net periodic benefit costs for SERP for December 31, 2018, and 2017:

There was a remeasurement of SERP at April 13, 2016, to reflect change in control benefits as a result of the 2016 Merger. On the date of the remeasurement, the discount rate decreased from 4.60% to 4.15%. This remeasurement resulted in a $3.6 million curtailment charge and $3.2 million of special/contractual termination benefits. The curtailments and special/contractual termination benefits are included in 2016 Merger transaction and commitment costs on Cleco’s Consolidated Statements of Income. There was an additional remeasurement of SERP at August 31, 2016, to reflect changes to the plan relating to three executive officers’ SERP benefits being capped as of December 31, 2017, with regard to final compensation. On the date of the remeasurement, the discount rate decreased from 4.15% to 3.47%.

There was a remeasurement of SERP at March 30, 2017, to reflect a special termination benefit resulting from an

executive officer’s separation agreement. On the date of the remeasurement, the discount rate decreased from 4.22% to 4.08%. This remeasurement resulted in a special termination benefit for the executive officer of $0.3 million.

The measurement date used to determine the SERP benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows:



	SERP BENEFITS
	AT DEC. 31,
	2018		2017
Weighted-average assumptions used to determine the benefit obligation
Discount rate	4.34	%	3.70	%
Rate of compensation increase	5.00	%	5.00	%



Cleco Power
	AT DEC. 31,
(THOUSANDS)	2018		2017
Current	$	930	$	929
Non-current	$	12,025	$	16,589

The projected benefit payments for SERP for each year through 2023 and the next five years thereafter are shown in the following table:



(THOUSANDS)	2019		2020		2021		2022		2023		NEXT FIVE YEARS
SERP	$	4,574	$	4,670	$	4,755	$	4,754	$	4,755	$	24,717

401(k)

Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The 401(k) Plan is a defined contribution plan and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974. In accordance with the 401(k) Plan, employer contributions are made in the form of cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Participation in the Plan is voluntary and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the years ended December 31, 2018, 2017, and 2016 was as follows:



	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018		FOR THE YEAR ENDED DEC. 31, 2017		APR. 13, 2016 - DEC. 31, 2016		JAN. 1, 2016 - APR. 12, 2016
401(k) Plan expense	$	5,884	$	5,386	$	3,554	$	1,593

Cleco Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan related to Cleco’s other subsidiaries for the years ended December 31, 2018, 2017, and 2016 was as follows:



	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018		FOR THE YEAR ENDED DEC. 31, 2017		APR. 13, 2016 - DEC. 31, 2016		JAN. 1, 2016 - APR. 12, 2016
401(k) Plan expense	$	1,066	$	888	$	554	$	319



Note 11 — Income Taxes

Cleco

For the year ended December 31, 2018 and for the predecessor period January 1, 2016, through April 12, 2016, income tax expense was higher than the amount computed by applying the statutory federal rate. For the year ended December 31, 2017, and for the successor period April 13, 2016, through December 31, 2016, income tax expense was lower than the amount computed by applying the statutory federal rate. The differences are as follows:

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2018, and 2017 was comprised of the following:



	AT DEC. 31,
(THOUSANDS)	2018			2017
Depreciation and property basis differences	$	(664,996	)	$	(596,824	)
Net operating loss carryforward	—			12,873
NMTC	86,673			96,917
Fuel costs	(8,339		)	(3,283		)
Other comprehensive income	640			(490		)
Regulated operations regulatory liability, net	39,808			(54,471		)
Postretirement benefits	19,580			23,642
Merger fair value adjustments	(56,725		)	(58,251		)
Other	(24,671		)	(34,925		)
Accumulated deferred federal and state income taxes, net	$	(608,030	)	$	(614,812	)

Valuation Allowance

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. As of December 31, 2018, and 2017, Cleco had a deferred tax asset resulting from NMTC carryforwards of $86.9 million and $97.5 million, respectively. If the NMTC carryforwards are not utilized, they will begin to expire in 2029. Management considers it more likely than not that all deferred tax assets related to NMTC carryforwards will be realized; therefore, no valuation allowance has been recorded.

Net Operating Losses

As of December 31, 2018, Cleco had no federal net operating loss carryforward and no state net operating loss carryforward.

Cleco Power

For the year ended December 31, 2018, income tax expense was higher than the amount computed by applying the statutory rate. For the years ended December 31, 2017 and 2016, income tax expense was lower than the amount computed by applying the statutory federal rate to income before tax. The differences are as follows:



	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS, EXCEPT PERCENTAGES)	2018			2017			2016
Income before tax	$	218,181		$	218,069		$	57,497
Statutory rate	21.0		%	35.0		%	35.0		%
Tax expense at federal statutory rate	$	45,818		$	76,324		$	20,124
Increase (decrease)
Plant differences, including AFUDC flowthrough	(401		)	743			(58		)
Amortization of investment tax credits	(236		)	(662		)	(494		)
State income taxes, net of federal benefit	11,080			7,583			1,999
Return to accrual adjustment	483			(284		)	(2,646		)
TCJA	(19		)	(14,292		)	—
Other	(801		)	(2,081		)	(556		)
Total taxes	$	55,924		$	67,331		$	18,369
Effective rate	25.6		%	30.9		%	31.9		%

Information about current and deferred income tax expense is as follows:



	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018			2017			2016
Current federal income tax expense (benefit)	$	44,411		$	87,433		$	(1,211	)
Deferred federal income tax (benefit) expense	(9,033		)	(29,190		)	22,647
Amortization of accumulated deferred investment tax credits	(236		)	(662		)	(494		)
Total federal income tax expense	$	35,142		$	57,581		$	20,942
Current state income tax expense (benefit)	23,293			14,751			(418		)
Deferred state income tax benefit	(2,511		)	(5,001		)	(2,155		)
Total state income tax expense (benefit)	$	20,782		$	9,750		$	(2,573	)
Total federal and state income taxes	$	55,924		$	67,331		$	18,369
Items charged or credited directly to members’ equity
Federal deferred	797			(141		)	1,976
State deferred	261			(23		)	319
Total tax expense (benefit) from items charged directly to member’s equity	$	1,058		$	(164	)	$	2,295
Total federal and state income tax expense	$	56,982		$	67,167		$	20,664

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2018, and 2017 was comprised of the following:



	AT DEC. 31,
(THOUSANDS)	2018			2017
Depreciation and property basis differences	$	(666,224	)	$	(597,838	)
Net operating loss carryforward	—			470
Fuel costs	(8,339		)	(3,282		)
Other comprehensive income	4,192			5,250
Regulated operations regulatory liability, net	39,808			(54,471		)
Postretirement benefits	11,081			6,266
Other	(11,283		)	(12,757		)
Accumulated deferred federal and state income taxes, net	$	(630,765	)	$	(656,362	)

Valuation Allowance

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Management considers it more likely than not that all deferred tax assets will be realized; therefore, no valuation allowance has been recorded.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At December 31, 2018, and 2017, Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the years ended December 31, 2018, 2017, and 2016, Cleco and Cleco Power had no interest expense related to uncertain tax positions.

At December 31, 2018, and 2017, Cleco and Cleco Power had no liability for unrecognized tax positions. Cleco and Cleco Power estimate that it is reasonably possible that there will be no liability for unrecognized tax positions in the next 12 months. The settlement of open tax years could involve the payment of additional taxes, and/or the recognition of tax

benefits, which may have an effect on Cleco’s effective income tax rate.

The federal income tax years that remain subject to examination by the IRS are 2015, 2016, and 2017.

Beginning with the 2013 tax year, Cleco entered into the IRS’s Compliance Assurance Process which allows taxpayers to work collaboratively with an IRS team to identify and resolve potential tax issues before the federal tax return is filed each year. Cleco must apply for admission to the program each year. Cleco has been approved for the Compliance Assurance Process through the 2019 tax year.

The state income tax years that remain subject to examination by the Louisiana Department of Revenue are 2015, 2016, and 2017.

Cleco classifies income tax penalties as a component of other expenses. For the years ended December 31, 2018, 2017, and 2016, no penalties were recognized.

TCJA

On December 22, 2017, the President signed into law the TCJA. The TCJA includes significant changes to the IRC, as amended, including amendments which significantly change the taxation of business entities and includes specific provisions related to rate regulated activities, including Cleco Power. The most significant change that impacts Cleco is the reduction of the corporate federal income tax rate from 35% to 21%.

The SEC Staff recognized the complexity of reflecting the impacts of the TCJA and issued guidance which clarified accounting for income taxes and allowed for up to one year to complete the required analysis and accounting (the measurement period). During the fourth quarter of 2018, Cleco finalized the remeasurement of and accounting for the effects of the TCJA.

For the year ended December 31, 2017, the Registrants recorded provisional estimates for the effects of the TCJA that decreased deferred income tax expense for Cleco and Cleco Power by $46.3 million and $14.3 million, respectively. At December 31, 2017, the provisional impacts of the TCJA decreased the ADIT liability for Cleco and Cleco Power by $394.9 million and $362.9 million, respectively.

During the fourth quarter of 2018, Cleco and Cleco Power increased the ADIT liability by $26.4 million for the final remeasurement. For more information on the regulatory treatment, see Note 13 — “Regulation and Rates — TCJA.”

Additionally, as a result of the TCJA, effective for tax years beginning after December 31, 2017, corporations are no longer subject to the alternative minimum tax (AMT). For companies with unused AMT credits, the credits may be carried forward and used as refundable credits for tax years beginning after 2017, but before 2022. Cleco expects its unused AMT credits will be fully utilized by December 31, 2021. During 2018, Cleco’s $7.6 million of unused tax credits were reclassed from Accumulated deferred federal and state income taxes, net to Taxes payable, net and Other deferred charges on Cleco’s Consolidated Balance Sheet. Of this amount, the $3.8 million of AMT credits expected to be utilized in 2019 were reported in Taxes payable, net on Cleco’s Consolidated Balance Sheet, and the remaining $3.8 million are classified as Other deferred charges on Cleco’s Consolidated Balance Sheet.



Note 12 — Disclosures about Segments

Cleco

Cleco’s reportable segment is based on its method of internal reporting, which disaggregates business units by its first-tier subsidiary.

Cleco Power, the reportable segment, engages in business activities from which it earns revenue and incurs expenses. Segment managers report periodically to Cleco’s CEO with discrete financial information and, at least quarterly, present discrete financial information to Cleco and Cleco Power’s Boards of Managers. The reportable segment prepares budgets that are presented to and approved by Cleco and Cleco Power’s Boards of Managers. The column shown as Other in the chart below includes the holding company, a shared services subsidiary, two transmission interconnection facility subsidiaries, an investment subsidiary, and a subsidiary formed to facilitate the Cleco Cajun

Transaction. On December 29, 2017, Cleco sold the transmission assets owned by Attala and Perryville, the two subsidiaries that owned and operated the transmission interconnection facilities. After December 29, 2017, the remaining operations of Attala and Perryville were minimal. On February 4, 2019, the Cleco Cajun Transaction was closed. For the Registrants’ Combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, Cleco Cajun is expected to become a new reportable segment. For more information on the transaction, see Note 21 — “Cleco Cajun Transaction”.

The financial results of Cleco’s segment are presented on an accrual basis. Management evaluates the performance of its segment and allocates resources to it 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.



	SUCCESSOR APR. 13, 2016 - DEC. 31, 2016												PREDECESSOR JAN. 1, 2016 - APR. 12, 2016
(THOUSANDS)	CLECO POWER			OTHER			ELIMINATIONS			TOTAL			CLECO POWER			OTHER			ELIMINATIONS			TOTAL
Revenue
Electric operations	$	810,075		$	(7,482	)	$	(1	)	$	802,592		$	281,154		$	—		$	—		$	281,154
Other operations	50,080			1,482			—			51,562			18,493			587			—			19,080
Affiliate revenue	621			35,602			(36,223		)	—			263			15,024			(15,287		)	—
Electric customer credits	(1,149		)	—			—			(1,149		)	(364		)	—			—			(364		)
Operating revenue, net	$	859,627		$	29,602		$	(36,224	)	$	853,005		$	299,546		$	15,611		$	(15,287	)	$	299,870
Depreciation and amortization	$	109,695		$	7,296		$	(1	)	$	116,990		$	43,698		$	377		$	1		$	44,076
Merger transaction and commitment costs	$	151,501		$	23,285		$	—		$	174,786		$	—		$	34,928		$	(16	)	$	34,912
Interest income	$	652		$	275		$	(87	)	$	840		$	208		$	69		$	(12	)	$	265
Interest charges	$	54,606		$	35,246		$	(86	)	$	89,766		$	21,840		$	295		$	(12	)	$	22,123
Federal and state income tax expense (benefit)	$	5,376		$	(28,198	)	$	—		$	(22,822	)	$	12,993		$	(9,525	)	$	—		$	3,468
Net income (loss)	$	17,580		$	(41,692	)	$	(1	)	$	(24,113	)	$	21,548		$	(25,508	)	$	—		$	(3,960	)
Additions to property, plant, and equipment	$	143,790		$	654		$	—		$	144,444		$	42,353		$	39		$	—		$	42,392
Equity investment in investee	$	18,672		$	—		$	—		$	18,672
Goodwill	$	1,490,797		$	—		$	—		$	1,490,797
Total segment assets	$	5,758,245		$	614,959		$	(30,060	)	$	6,343,144

Cleco Power

Cleco Power is a vertically integrated, regulated electric utility operating within Louisiana and Mississippi and is viewed as one unit by management. Discrete financial reports are prepared only at the company level.



Note 13 — Regulation and Rates

At December 31, 2018, Provision for rate refund on Cleco and Cleco Power’s Consolidated Balance Sheets consisted primarily of $31.6 million for the estimated refund for the tax-related benefits from the TCJA, $1.9 million for potential reductions to the transmission ROE, and $1.8 million for the cost of service savings refunds.

Transmission ROE

Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. As of December 31, 2018, Cleco Power had $1.9 million accrued for potential reductions to the ROE. For more information on the ROE complaint, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

FRP

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of the FRP, Cleco Power is allowed to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60% of retail earnings between 10.9% and 11.75%, and all retail earnings over 11.75% are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds are ultimately subject to LPSC approval. Cleco Power will file an application with the LPSC for a new FRP by July 1, 2019, with anticipated new rates being effective July 1, 2020.

Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ending June 30. On October 31, 2017, Cleco Power filed its monitoring report for

the 12-month period ended June 30, 2017, which indicated that no refund was due as a result of the FRP, and $1.2 million was due as a result of the cost of service savings from the 2016 Merger Commitments. Cleco Power expects the LPSC to approve the 2017 FRP monitoring report in the first half of 2019. The $1.2 million cost of service savings from the 2016 Merger Commitments were refunded in September 2018.

On October 31, 2018, Cleco Power filed its monitoring report for the 12-month period ended June 30, 2018, which indicated that no refund was due as a result of the FRP and $1.2 million of cost of service savings refunds are due to be returned to eligible customers. On December 21, 2018, Cleco Power responded to the first set of data requests for the 2018 monitoring report. At December 31, 2018, Cleco Power had $1.8 million accrued for the cost of service savings refund.

TCJA

On February 21, 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flowthrough to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. As a result of the tax rate reduction, Cleco Power began accruing an estimated reserve on January 1, 2018. At December 31, 2018, Cleco Power had $31.6 million accrued for the estimated tax-related benefits from the TCJA.

On October 26, 2018, the LPSC Staff approved a final rule that would require utilities to adjust formula rates the earlier of January 31, 2019, or the next date required for implementation of compliance rate changes under the normal operation of the FRP. Cleco Power filed its report with the LPSC on December 3, 2018, describing its methodology for TCJA refunds and related items, including the allocation of such refunds among jurisdictional customers. On January 31, 2019, Cleco Power filed an application with the LPSC requesting the implementation of rate reductions and modifications of certain tariffs resulting from TCJA to be effective July 1, 2019. Cleco Power also requested to reduce the annual FRP rate, effective July 1, 2019, by the amount accrued for the change in tax rates at June 30, 2019. Cleco Power recommended a rate redesign, allowing the change in the statutory corporate tax rate to be applied only to residential customers in order to

reduce customer bills. Cleco Power also requested to address the regulatory liability for excess ADIT resulting from the enactment of the TCJA in Cleco Power’s application for its next FRP, which will be filed by July 1, 2019, with anticipated new rates being effective July 1, 2020. All items requested in the January 31, 2019, application are subject to LPSC review and approval.

2016 Merger Commitments

On March 28, 2016, the LPSC approved the 2016 Merger. The LPSC’s written order approving the 2016 Merger was issued on April 7, 2016. Approval of the 2016 Merger was conditioned upon certain commitments, including $136.0 million of customer rate credits. On April 28, 2016, the LPSC voted to issue credits equally to eligible customers with service as of June 30, 2016, beginning in July 2016. As of December 31, 2018, Cleco Power had issued $135.1 million of customer rate credits. Also included in the 2016 Merger Commitments were $2.5 million of contributions for economic development for Louisiana state and local organizations to be disbursed over five years, an additional $7.0 million one-time contribution in 2016 for economic development in Cleco Power’s service territory to be administered by the LED, and $6.0 million of charitable contributions to be disbursed over five years.

In addition, the 2016 Merger Commitments included $1.2 million of annual estimated cost of service savings expected as a result of the 2016 Merger. The cost of service savings are not subject to the target ROE or any sharing mechanism in the current FRP and will continue until Cleco Power’s anticipated new rates begin on July 1, 2020. The cost of service savings are included in the annual monitoring reports and are refunded to customers annually. A report on the status of the 2016 Merger Commitments must be filed annually by October 31 for the 12-month period ended June 30. On October 31, 2018, Cleco Power filed the annual 2016 Merger Commitment status report for the period ended June 30, 2018. For more information on the cost of service savings, see “— FRP.”

SSR

In September 2016, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3 effective April 1, 2017. MISO conducted a study which determined the proposed retirement of Teche Unit 3 would result in violations of specific applicable reliability standards for which no mitigation is available. As a result, MISO designated Teche Unit 3 as an SSR unit until such time that an appropriate alternative solution can be implemented to mitigate reliability issues. One mitigating factor that has been identified is Cleco Power’s Terrebonne to Bayou Vista Transmission project. The Terrebonne to Bayou Vista project is expected to be completed in the second quarter of 2019. Cleco Power has operated Teche Unit 3 as an SSR unit since April 2017. The first SSR agreement was for the period April 2017 to March 2018, and the second SSR agreement is for the period April 2018 until March 2019; and in January 2019, MISO approved the SSR designation for the third SSR period April 2019, until the sooner of the in-service date of the Terrebonne to Bayou Vista Transmission project or July 2019.

In the second quarter of 2017, Cleco Power began receiving the monthly SSR payments from MISO, subject to refund, and MISO began allocating SSR costs to the load serving entities that require the operation of the SSR unit for reliability purposes, including Cleco Power. The SSR payments include recovering operations and maintenance expenses,

administrative and general expenses, taxes, depreciation, capital expenditures, and carrying charges, all of which are related to Teche Unit 3 for the period of the SSR agreements. If Teche Unit 3 is not retired, at the end of the final SSR Cleco Power must refund any SSR payments received from MISO for capital expenditures paid by third parties.

Cleco Power filed with FERC for its approval to collect $20.3 million and $11.8 million annually in SSR payments from MISO for the first and second SSR agreements, respectively. On December 31, 2018, FERC issued an Order certifying the settlement of Cleco Power’s first two SSR agreements. The MISO settlement included a reduction to the expenses and capital Cleco Power was allowed to recover. For the year ended December 31, 2018, Cleco Power recorded a $1.6 million decrease in Other operations revenue for expected refunds to MISO for a reduction in SSR payments related to the operating costs and a $0.9 million decrease in Power purchased for utility customers for Cleco Power’s portion of allocated SSR operating costs.

At the end of the third SSR agreement, Cleco Power expects Teche Unit 3 to be available to run until the estimated 2021 in-service date of Bayou Vista to Segura Transmission project; at which time, Cleco Power does not expect to offer the unit into MISO, barring any grid or customer reliability issues or other similar reasons. At December 31, 2018, Cleco Power had $5.9 million accrued for the net capital refund. As part of the settlement, one of the load serving entities agreed to reimburse Cleco Power for their portion of the capital refund.



Note 14 — Variable Interest Entities

Cleco and Cleco Power apply the equity method of accounting to report the investment in Oxbow in the consolidated financial statements. Under the equity method, the assets and liabilities of this entity are reported as Equity investment in investee on Cleco and Cleco Power’s Consolidated Balance Sheets. The revenue and expenses (excluding income taxes) of this entity are netted and reported as equity income or loss from investees on Cleco and Cleco Power’s Consolidated Statements of Income.

Oxbow is owned 50% by Cleco Power and 50% by SWEPCO. Cleco Power is not the primary beneficiary because it shares the power to control Oxbow’s significant activities with SWEPCO. Cleco Power’s current assessment of its maximum exposure to loss related to Oxbow at December 31, 2018, consisted of its equity investment of $18.2 million.

The following table presents the components of Cleco Power’s equity investment in Oxbow:



	AT DEC. 31,
INCEPTION TO DATE (THOUSANDS)	2018			2017
Purchase price	$	12,873		$	12,873
Cash contributions	6,399			6,399
Dividend received	(1,100		)	(1,100		)
Total equity investment in investee	$	18,172		$	18,172

The following table compares the carrying amount of Oxbow’s assets and liabilities with Cleco Power’s maximum exposure to loss related to its investment in Oxbow:



	AT DEC. 31,
(THOUSANDS)	2018		2017
Oxbow’s net assets/liabilities	$	36,345	$	36,345
Cleco Power’s 50% equity	$	18,172	$	18,172
Cleco Power’s maximum exposure to loss	$	18,172	$	18,172

The following tables contain summarized financial information for Oxbow:



	AT DEC. 31,
(THOUSANDS)	2018		2017
Current assets	$	4,128	$	2,318
Property, plant, and equipment, net	25,186		25,656
Other assets	9,405		10,186
Total assets	$	38,719	$	38,160
Current liabilities	$	2,374	$	1,815
Partners’ capital	36,345		36,345
Total liabilities and partners’ capital	$	38,719	$	38,160



	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017		2016
Operating revenue	$	6,992	$	4,189	$	5,459
Operating expenses	6,992		4,189		5,459
Income before taxes	$	—	$	—	$	—

DHLC mines lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station.

Oxbow has no third-party agreements, guarantees, or other third-party commitments that contain obligations affecting Cleco Power’s investment in Oxbow.



Note 15 — Operating Leases

Cleco maintains operating leases in its ordinary course of business activities. For the years ended December 31, 2018, 2017, and 2016, operating lease expense of $6.6 million, $9.9 million, and $9.0 million, respectively, was recognized. The following table is a summary of expected operating lease payments for Cleco and Cleco Power:



(THOUSANDS)	CLECO HOLDINGS		CLECO POWER		TOTAL
Year ending Dec. 31,
2019	$	120	$	4,030	$	4,150
2020	—		3,890		3,890
2021	—		2,789		2,789
2022	—		1,239		1,239
2023	—		1,214		1,214
Thereafter	—		7,235		7,235
Total operating lease payments	$	120	$	20,397	$	20,517

Cleco Power leases utility systems from two municipalities and one non-municipal public body. The first municipal lease has a term of 10 years and expires on August 11, 2021. The second municipal lease has a term of 10 years and expires on May 13, 2028. The non-municipal lease has a term of 27 years and expires on July 31, 2039. Each utility system lease contains provisions for extensions.

Cleco Power has leases for 200 railcars for coal transportation. One lease for 115 railcars expires on March 31, 2021. One lease for 85 railcars expires on March 31, 2020. Cleco Power pays a monthly rental fee per car. The railcar leases do not contain contingent rent payments.

From September 2017 until April 2, 2018, Cleco Power had an operating lease that automatically renewed on a month-to-month basis for use of 42 barges and three towboats to transport petroleum coke and limestone to Madison Unit 3. On April 2, 2018, Cleco Power entered into new agreements for the use of the barges and towboats that expire in March 2033. The new agreement for the barges meets the accounting definition of a capital lease and the new agreement for the towboats meets the accounting definition of an operating lease. Cleco Power pays a fixed amount for the towboats that is adjusted annually. For more information about the capital lease, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments — Fuel Transportation Agreement.”

Cleco and Cleco Power’s remaining leases provide for office and operating facilities, office equipment, and tower rentals.



Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

Litigation

2016 Merger

In connection with the 2016 Merger,four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. The petitions in each action generally alleged, among other things, that the members of the Cleco Corporation’s Board of Directors breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process, agreeing to the 2016 Merger at a price that allegedly undervalued Cleco, and failing to disclose material information about the 2016 Merger. The petitions also alleged that Cleco Partners, Cleco Corporation, Merger Sub, and in some cases, certain of the investors in Cleco Partners, either aided and abetted or entered into a civil conspiracy to advance those supposed breaches of duty. The petitions seek various remedies, including monetary damages, which includes attorneys’ fees and expenses.

The four actions filed in the Ninth Judicial District Court for Rapides Parish are captioned as follows:


•	Braunstein v. Cleco Corporation, No. 251,383B (filed October 27, 2014),


•	Moore v. Macquarie Infrastructure and Real Assets, No. 251,417C (filed October 30, 2014),


•	Trahan v. Williamson, No. 251,456C (filed November 5, 2014), and


•	L’Herisson v. Macquarie Infrastructure and Real Assets, No. 251,515F (filed November 14, 2014).

In November 2014, the plaintiff in the Braunstein action moved for a dismissal of the action without prejudice, and that motion was granted in November 2014. In December 2014, the Court consolidated the remaining three actions and appointed interim co-lead counsel. In December 2014, the plaintiffs in the consolidated action filed a Consolidated Amended Verified Derivative and Class Action Petition for Damages and

Preliminary and Permanent Injunction (the Consolidated Amended Petition). The consolidated action names Cleco Corporation, its directors, Cleco Partners, and Merger Sub as defendants. The Consolidated Amended Petition alleges, among other things, that Cleco Corporation’s directors breached their fiduciary duties to Cleco’s shareholders and grossly mismanaged Cleco by approving the 2016 Merger Agreement because it allegedly did not value Cleco adequately, failing to structure a process through which shareholder value would be maximized, engaging in self-dealing by ignoring conflicts of interest, and failing to disclose material information about the 2016 Merger. The Consolidated Amended Petition further alleges that all defendants conspired to commit the breaches of fiduciary duty. Cleco believes that the allegations of the Consolidated Amended Petition are without merit and that it has substantial meritorious defenses to the claims set forth in the Consolidated Amended Petition.

The three actions filed in the Civil District Court for Orleans Parish are captioned as follows:


•	Butler v. Cleco Corporation, No. 2014-10776 (filed November 7, 2014),


•	Creative Life Services, Inc. v. Cleco Corporation, No. 2014-11098 (filed November 19, 2014), and


•	Cashen v. Cleco Corporation, No. 2014-11236 (filed November 21, 2014).

Both the Butler and Cashen actions name Cleco Corporation, its directors, Cleco Partners, Merger Sub, MIRA, BCI, and John Hancock Financial as defendants. The Creative Life Services action names Cleco Corporation, its directors, Cleco Partners, Merger Sub, MIRA, and Macquarie Infrastructure Partners III, L.P., as defendants. In December 2014, the plaintiff in the Butler action filed an Amended Class Action Petition for Damages. Each petition alleges, among other things, that members of Cleco Corporation’s Board of Directors breached their fiduciary duties to Cleco’s shareholders by approving the Merger Agreement because it allegedly does not value Cleco adequately, failing to structure a process through which shareholder value would be maximized and engaging in self-dealing by ignoring conflicts of interest. The Butler and Creative Life Services petitions also allege that the directors breached their fiduciary duties by failing to disclose material information about the 2016 Merger. Each petition further alleged that Cleco, Cleco Partners, Merger Sub, and certain of the investors in Cleco Partners aided and abetted the directors’ breaches of fiduciary duty. In December 2014, the directors and Cleco filed declinatory exceptions in each action on the basis that each action was improperly brought in Orleans Parish and should either be transferred to the Ninth Judicial District Court for Rapides Parish or dismissed. In December 2014, the plaintiffs in each action jointly filed a motion to consolidate the three actions pending in Orleans Parish and to appoint interim co-lead plaintiffs and co-lead counsel. In January 2015, the Court in the Creative Life Services case sustained the defendants’ declinatory exceptions and dismissed the case so that it could be transferred to the Ninth Judicial District Court for Rapides Parish. In February 2015, the plaintiffs in Butler and Cashen also consented to the dismissal of their cases from Orleans Parish so they could be transferred to the Ninth Judicial District Court for Rapides Parish.

In February 2015, the Ninth Judicial District Court for Rapides Parish held a hearing on a motion for preliminary

injunction filed by plaintiffs Moore, L’Herisson, and Trahan seeking to enjoin the shareholder vote at the Special Meeting of Shareholders held in February 2015, for approval of the Merger Agreement. Following the hearing, the Court denied the plaintiffs’ motion. In June 2015, three of the plaintiffs filed their Second Consolidated Amended Verified Derivative and Class Action Petition. This will be considered according to a schedule established by the Ninth Judicial District Court for Rapides Parish. Cleco filed exceptions seeking dismissal of the amended petition in July 2015.

In March 2016, the plaintiffs filed their Third Consolidated Amended Verified Derivative Petition for Damages and Preliminary and Permanent Injunction. In May 2016, the plaintiffs filed their Fourth Verified Consolidated Amended Class Action Petition. This petition eliminated the request for preliminary and permanent injunction and also named an additional executive officer as a defendant. Cleco filed exceptions seeking dismissal of the amended Petition. A hearing was held in September 2016. In September 2016, the District Court granted the exceptions filed by Cleco and dismissed all claims asserted by the former shareholders. The plaintiffs appealed the District Court’s ruling to the Louisiana Third Circuit Court of Appeal. The Third Circuit Court of Appeal heard oral arguments in the case in September 2017. On December 13, 2017, the Third Circuit Court of Appeal issued an order reversing and remanding the case to the District Court for further proceedings. In January 2018, Cleco filed a writ with the Louisiana Supreme Court seeking review of the Third Circuit Court of Appeal’s decision. The writ was denied in March 2018 and the parties are engaged in discovery in the District Court. Cleco believes that the allegations of the petitions in each action are without merit and that it has substantial meritorious defenses to the claims set forth in each of the petitions. On November 2, 2018, Cleco filed exceptions of no cause of action and res judicata, seeking to dismiss all claims. The District Court denied the exceptions on January 14, 2019.

Gulf Coast Spinning

In September 2015, a potential customer sued Cleco for failure to fully perform an alleged verbal agreement to lend or otherwise fund its startup costs to the extent of $6.5 million. Gulf Coast Spinning Company, LLC (Gulf Coast), the primary plaintiff, alleges that Cleco promised to assist it in raising approximately $60.0 million, which Gulf Coast needed to construct a cotton spinning facility near Bunkie, Louisiana. According to the petition filed by Gulf Coast in the 12^th Judicial District Court for Avoyelles Parish, Louisiana (the “District Court”), Cleco made such promises of funding assistance in order to cultivate a new industrial electric customer which would increase its revenues under a power supply agreement that it executed with Gulf Coast. Gulf Coast seeks unspecified damages arising from its inability to raise sufficient funds to complete the project, including lost profits.

Cleco filed an Exception of No Cause of Action arguing that the case should be dismissed. The District Court denied Cleco’s exception in December 2015, after considering briefs and arguments. In January 2016, Cleco appealed the District Court’s denial of its exception by filing with the Third Circuit Court of Appeal. In June 2016, the Third Circuit Court of Appeal denied the request to have the case dismissed. In July 2016, Cleco filed a writ to the Louisiana Supreme Court seeking a review of the District Court’s denial of Cleco’s

exception. In November 2016, the Louisiana Supreme Court denied Cleco’s writ application.

In February 2016, the parties agreed to a stay of all proceedings pending discussions concerning settlement. In May 2016, the District Court lifted the stay at the request of Gulf Coast. The parties are currently participating in discovery. Cleco believes the allegations of the petition are contradicted by the written documents executed by Gulf Coast and are otherwise without merit and that it has substantial meritorious defenses to the claims alleged by Gulf Coast.

Sabine River Flood

In March 2017, Cleco was served with a summons in Perry Bonin, Ace Chandler, and Michael Manuel, et al v. Sabine River Authority of Texas and Sabine River Authority of Louisiana, No. B-160173-C. The action was filed in the 163rd Judicial District Court for Orange County, Texas, and relates to flooding that occurred in Texas and Louisiana in March 2016. The plaintiffs have alleged that the flooding was the result of the release of water from the Toledo Bend spillway gates into the Sabine River. While the plaintiffs have made numerous allegations, they have specifically alleged that Cleco Power, included as one of several companies and governmental bodies, failed to repair one of the two hydroelectric generators at the Toledo Bend Dam, which in turn contributed to the flooding. Cleco Power does not operate the hydroelectric generator.

The suit has been removed to federal court in Texas. The new federal case is Perry Bonin, et al. v. Sabine River Authority of Texas et al., No. 17-cv-134, U.S. District Court for the Eastern District of Texas (Bonin Case). The plaintiffs moved to remand the case to state court, but the district court found that the case raises a substantial federal question and denied the motion to remand. Cleco Power, along with its co-defendants, filed a motion to dismiss on various grounds, primarily arguing that the plaintiffs’ claims are preempted because they infringe on FERC’s exclusive control of dam operations. The district court granted the motion to dismiss in part, declining to rule on some of the arguments raised by the defendants, and granted the plaintiffs leave to amend their complaint. The plaintiffs filed a Fifth Amended Complaint in March 2018. Cleco Power filed a new motion to dismiss the plaintiffs’ claims. The briefing on Cleco Power’s motion is now complete, but the district court has not ruled on the motion or set a hearing date.

On March 7, 2018, approximately 26 other individual plaintiffs filed a petition against Cleco Power and other defendants in Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. D180096-C. The action was filed in the 260th Judicial District Court for Orange County, Texas. The defendants removed the case to federal court on April 6, 2018. The new federal case is Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. 18-cv-153, U.S. District Court for the Eastern District of Texas. The allegations are essentially identical to those in the Bonin Case. On April 13, 2018, Cleco Power filed a motion to dismiss on the same grounds that previously were successful in the Bonin Case. The briefing on Cleco Power’s motion is complete, but the district court has not ruled on the motion or set a hearing date. On July 20, 2018, the district court entered an order consolidating the Addison Case with the Bonin Case. Management believes that both cases, as they relate to Cleco Power, have no merit. On August 28, 2018, the Judge entered an order requiring the Plaintiffs to file a more definitive statement to clarify the Plaintiffs’ claims. In response thereto, the Plaintiffs filed a Sixth Amended Petition on September 11, 2018. Cleco Power filed a response on

October 3, 2018. The Judge has not yet ruled on Cleco’s Motion to Dismiss.

Dispute with Saulsbury Industries

In October 2018, Cleco Power sued Saulsbury Industries, Inc., the former general contractor for the St. Mary Clean Energy Center project, seeking damages for Saulsbury Industries, Inc.’s failure to complete the St. Mary Clean Energy Center project on time and for costs incurred by Cleco Power in hiring a replacement general contractor. The action was filed in the 9th Judicial District Court for Rapides Parish, No. 263339. Saulsbury Industries, Inc. has not filed responsive pleadings in the case.

In January 2019, Cleco Power was served with a summons in Saulsbury Industries, Inc. v. Cabot Corporation and Cleco Power LLC, No. 6:19-CV-00007, U.S. District Court for the Western District of Louisiana. Saulsbury Industries, Inc. alleges that Cleco Power and Cabot Corporation caused the delays in the St. Mary Clean Energy Center project, resulting in significant impact to Saulsbury Industries, Inc.’s direct and indirect costs. Cleco Power has not filed responsive pleadings in the case.

LPSC Audits

Fuel Audit

Generally, the cost of fuel used for electric generation and the cost of power purchased for utility customers are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. The LPSC FAC General Order issued in November 1997 in Docket No. U-21497 provides that an audit of FAC filings will be performed at least every other year. On March 13, 2018, Cleco Power received notice of an FAC audit from the LPSC for the period of January 1, 2016, to December 31, 2017. The total amount of fuel expense subject to audit is $536.2 million. On August 31, 2018, the LPSC Staff issued its audit report which recommended no disallowance of fuel costs. The report is expected to be approved by the LPSC in the first quarter of 2019. Cleco Power currently has FAC filings for January 2018 and thereafter that remain subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of fuel cost is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition or cash flow of the Registrants.

Environmental Audit

several sets of data requests. The total amount of environmental expense included in this audit was $30.7 million. Periods subsequent to December 31, 2017, are also subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowance cost is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the result of operations, financial condition, or cash flows of the Registrants.

Cleco Power incurs environmental compliance expenses for reagents associated with the compliance standards of MATS. In June 2015, the U.S. Supreme Court remanded the MATS rule to the D.C. Circuit Court of Appeals. In December 2015, the D.C. Circuit Court of Appeals remanded the rule to the EPA; however, the D.C. Circuit Court of Appeals did not vacate this rule. In April 2016, the EPA released a final supplemental finding that, even considering costs, it is appropriate and necessary to regulate hazardous air pollutants. By the June 2016 deadline, six petitions were filed with the U.S. Court of Appeals for the D.C. Circuit Court of Appeals for review of the EPA’s findings. At the request of the EPA, in April 2017, the court issued an order holding the cases in abeyance pending the EPA’s review of its supplemental finding. These expenses are also eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC.

FERC Audit

Generally, Cleco Power records wholesale transmission revenue through Attachment O of the MISO tariff and certain grandfathered agreements. These rates are subject to periodic audits by FERC. On March 13, 2018, the Division of Audits and Accounting, within the Office of Enforcement of FERC, initiated an audit of Cleco Power for the period of January 1, 2014, to the present. Cleco Power has responded to several sets of data requests. Management is unable to determine the outcome or timing of the audit.

Transmission ROE

Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. The complaints sought to reduce the 12.38% ROE used in MISO’s transmission rates to a proposed 6.68%. The first complaint, filed in November 2013, was for the period November 2013 through February 2015. In September 2016, FERC issued a Final Order in response to the first complaint establishing a 10.32% ROE. In February 2017, $1.2 million of refunds relating to the first complaint were submitted to MISO.

The second complaint, filed February 2015, was for the period February 2015 through May 2016. In June 2016, an ALJ issued an initial decision in the second rate case docket recommending a 9.70% base ROE. On November 15, 2018, the ALJ ordered supplemental briefs and additional written evidence due to new ROE calculation methodologies pursuant to Emera Maine v. FERC. Cleco Power is unable to determine when a binding FERC order will be issued on the second ROE complaint.

In November 2014, the MISO transmission owners committee, in which Cleco is a member, filed a request with FERC for an incentive to increase the new ROE by 50 basis points for RTO participation as allowed by the MISO tariff. In January 2015, FERC granted the request. The collection of the

adder is delayed until the resolution of the ROE complaint proceedings.

As of December 31, 2018, Cleco Power had $1.9 million accrued for potential reductions to the ROE. Management believes a reduction in the ROE, as well as any additional refund, will not have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Other

Cleco is involved in various litigation matters, including regulatory, environmental, and administrative proceedings before various courts, regulatory commissions, arbitrators, and governmental agencies regarding matters arising in the ordinary course of business. The liability Cleco may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued. Management regularly analyzes current information and, as of December 31, 2018, believes the probable and reasonably estimable liabilities based on the eventual disposition of these matters is $4.8 million and has accrued this amount.

Off-Balance Sheet Commitments and Guarantees

Cleco Holdings 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 Holdings’ subsidiaries and equity investees (affiliates). Cleco Holdings and Cleco Power have also agreed to contractual terms that require the Registrants to pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees.

Cleco Holdings 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 Holdings 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 and Cleco Power’s Consolidated Balance Sheets because management has determined that Cleco and Cleco Power’s affiliates are able to perform these obligations under their contracts and that it is not probable that payments by Cleco or Cleco Power will be required.

Cleco Holdings provided guarantees and indemnities to Entergy Louisiana and Entergy Gulf States as a result of the sale of the Perryville facility in 2005. The remaining indemnifications relate to environmental matters that may have been present prior to closing. These remaining indemnifications have no limitations to time. The maximum amount of the potential payment to Entergy Louisiana and Entergy Gulf States is $42.4 million. Management does not expect to be required to pay Entergy Louisiana and Entergy Gulf States under these guarantees.

On behalf of Acadia, Cleco Holdings provided guarantees and indemnifications as a result of the sales of Acadia Unit 1 to Cleco Power and Acadia Unit 2 to Entergy Louisiana in 2010 and 2011, respectively. The remaining indemnifications relate to the fundamental organizational structure of Acadia. These remaining indemnifications have no limitations as to time or maximum potential future payments. Management does not

expect to be required to pay Cleco Power or Entergy Louisiana under these guarantees.

Cleco Holdings provided indemnifications to Cleco Power as a result of the transfer of Coughlin to Cleco Power in March 2014. Cleco Power also provided indemnifications to Cleco Holdings and Evangeline as a result of the transfer of Coughlin to Cleco Power. The maximum amount of the potential payment to Cleco Power, Cleco Holdings, and Evangeline for their respective indemnifications is $40.0 million, except for indemnifications relating to the fundamental organizational structure of each respective entity, of which the maximum amount is $400.0 million. Management does not expect to be required to make any payments under these indemnifications.

As part of the Amended Lignite Mining Agreement, Cleco Power and SWEPCO, joint owners of Dolet Hills Power Station, have agreed to pay the loan and lease principal obligations of the lignite miner, DHLC, when due if DHLC 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 future invoices for lignite delivered. The maximum projected payment by Cleco Power under this guarantee is estimated to be $91.4 million; however, the Amended Lignite Mining Agreement does not contain a cap. The projection is based on the forecasted loan and lease obligations to be incurred by DHLC, primarily for purchases of equipment. Cleco Power has the right to dispute the incurrence of loan and lease obligations through the review of the mining plan before the incurrence of such loan and lease obligations. The Amended Lignite Mining Agreement is not expected to terminate pursuant to its terms until 2036 and does not affect the amount the Registrants can borrow under their credit facilities. Currently, management does not expect to be required to pay DHLC under this guarantee.

Generally, neither Cleco Holdings nor Cleco Power has recourse that would enable them to recover amounts paid under their guarantee or indemnification obligations. There are no assets held as collateral for third parties that either Cleco Holdings or Cleco Power could obtain and liquidate to recover amounts paid pursuant to the guarantees or indemnification obligations.

Long-Term Purchase Obligations

Cleco Holdings had no unconditional long-term purchase obligations at December 31, 2018. Cleco Power has several unconditional long-term purchase obligations primarily related to the purchase of petroleum coke, limestone, energy delivery facilities, information technology outsourcing, natural gas storage, network monitoring, and software maintenance. The aggregate amount of payments required under such obligations at December 31, 2018, is as follows:



FUTURE PAYMENTS UNDER LONG-TERM PURCHASE OBLIGATIONS	(THOUSANDS)
For the year ending Dec. 31,
2019	$	40,980
2020	24,092
2021	17,695
2022	4,620
2023	4,646
Thereafter	16,442
Total long-term purchase obligations	$	108,475

Payments under these agreements for the years ended December 31, 2018, 2017, and 2016 were $70.5 million, $47.0 million, and $72.9 million, respectively.

Other Commitments

NMTC Fund

In 2008, Cleco Holdings and the USBCDC formed the NMTC Fund. Cleco Holdings has a 99.9% membership interest in the NMTC Fund and USBCDC has a 0.1% interest. The purpose of the NMTC Fund was to invest in projects located in qualified active low-income communities that are underserved by typical debt capital markets. These investments were designed to generate NMTCs and Historical Rehabilitation tax credits. The NMTC Fund was later amended to include renewable energy investments. The majority of the energy investments qualified for grants under Section 1603 of the ARRA. The tax benefits received from the NMTC Fund reduced the federal income tax obligations of Cleco Holdings. In total, Cleco Holdings contributed $285.5 million of equity contributions to the NMTC Fund and received $303.8 million in the form of tax credits, tax losses, capital gains/losses, earnings, and cash over the 10-year life of the investment. The difference between equity contributions and total benefits received were recognized over the life of the NMTC Fund as net tax benefits were delivered. As of December 31, 2018, the NMTC Fund filed its final income tax return and in January 2019, Cleco Holdings received the final $1.6 million of cash receipts from the NMTC Fund. Effective January 25, 2019, the NMTC Fund was dissolved.

Fuel Transportation Agreement

In 2012, Cleco Power entered into an amended agreement with Savage Services for 42 dedicated barges used to transport petroleum met the accounting definition of a capital lease until its expiration on August 31, 2017. From September 2017 until April 2, 2018, Cleco Power had an operating lease that automatically renewed on a month-to-month basis for use of the 42 barges. On April 2, 2018, Cleco Power loaned Savage Inland Marine $16.8 million to purchase the barges. Also on April 2, 2018, Cleco Power entered into a new agreement with Savage Inland Marine for continued use of the 42 barges through March 2033. The new agreement meets the accounting definition of a capital lease.

Under the 2018 agreement, the barge lease rate contains both fixed and variable components, of which the latter was adjusted every third anniversary of the new agreement for estimated 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 year ended December 31, 2018, Cleco Power paid $2.0 million in capital lease payments and received $0.5 million in revenue from subleases. During the years ended December 31, 2017, and 2016, Cleco Power paid $2.5 million and $3.7 million, respectively, in capital lease payments and received $0.3 million and less than $0.1 million, respectively, in revenue from subleases.

This agreement contains a provision for early termination upon the occurrence of any one of four cancellation events.

The following is an analysis of leased property under capital leases by major classes:



	AT DEC. 31,
CLASSES OF PROPERTY (THOUSANDS)	2018		2017
Barges	$	16,800	$	—
Less: accumulated amortization	840		—
Capital lease assets, net	$	15,960	$	—

The following is a schedule by years of future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of December 31, 2018:



	(THOUSANDS)
Years ending Dec. 31,
2019	$	2,611
2020	2,611
2021	2,611
2022	2,611
2023	2,611
Thereafter	23,655
Total minimum lease payments	36,710
Less: executory costs	5,817
Net minimum lease payments	30,893
Less: amount representing interest	14,475
Present value of net minimum lease payments	$	16,418
Current liabilities	$	557
Non-current liabilities	$	15,861

Other

Cleco has accrued for liabilities related to third parties, employee medical benefits, and AROs. For more information on AROs, see Note 2 — “Summary of Significant Accounting Policies — AROs” and Note 5 — “Regulatory Assets and Liabilities — AROs.”

Risks and Uncertainties

Cleco could be subject to possible adverse consequences if Cleco’s counterparties fail to perform their obligations or if Cleco or its affiliates are not in compliance with loan agreements or bond indentures.

Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows.

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 and Cleco’s financial condition could be materially adversely affected.

Cleco Power is a participant in the MISO market. Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have higher LMPs. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power’s pricing zones. Cleco Power uses FTRs to mitigate transmission congestion price risks. Changes to anticipated transmission paths may result in an unexpected increase in energy costs to Cleco Power.



Note 17 — Affiliate Transactions

Cleco

Cleco has entered into service agreements with affiliates to receive and to provide goods and professional services. Goods and services received by Cleco primarily involve services provided by Support Group. Support Group provides joint and common administrative support services in the areas of information technology; finance, cash management, accounting, tax, and auditing; human resources; public relations; project consulting; risk management; strategic and

corporate development; legal, ethics, and regulatory compliance; facilities management; supply chain and inventory management; and other administrative services.

Cleco is charged the higher of management’s estimated fair market value or fully loaded costs for goods and services provided by Cleco Power. Cleco, with the exception of Support Group, charges Cleco Power the lower of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements. Support Group charges only fully loaded costs.

All charges and revenues from consolidated affiliates were eliminated in Cleco’s Consolidated Statements of Income for the years ending December 31, 2018, 2017, and 2016.

At December 31, 2018, Cleco Holdings had no accounts receivable due from Cleco Group. At December 31, 2017, Cleco Holdings had accounts receivable of $0.6 million due from Cleco Group in relation to merger costs paid on behalf of Cleco Group. At December 31, 2018, and 2017, Cleco Holdings had no accounts payable due to Cleco Group.

During the years ended December 31, 2018, and 2017, Cleco Holdings made $71.4 million, and $84.1 million, respectively, of distribution payments to Cleco Group.

During the successor period April 13, 2016, through December 31, 2016, Cleco Holdings received $100.7 million of equity contributions from Cleco Group and made $88.8 million of distribution payments to Cleco Group.

Cleco Power

Cleco Power has entered into service agreements with affiliates to receive and to provide goods and professional services. Charges from affiliates included in Cleco Power’s Consolidated Statements of Income primarily involve services provided by Support Group in accordance with service agreements. Support Group provides joint and common administrative support services in the areas of information technology; finance, cash management, accounting, tax, and auditing; human resources; public relations; project consulting; risk management; strategic and corporate development; legal, ethics, and regulatory compliance; facilities management; supply chain and inventory management; and other administrative services.

With the exception of Support Group, affiliates charge Cleco Power the lower of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements. Support Group charges only fully loaded costs. The following table is a summary of charges from each affiliate included in Cleco Power’s Consolidated Statements of Income:



	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017			2016
Support Group
Other operations and maintenance	$	56,669	$	50,572		$	48,371
Taxes other than income taxes	$	6	$	(13	)	$	10
Other expense	$	290	$	255		$	106
Cleco Holdings
Other expense	$	1,007	$	361		$	—

The majority of the services provided by Cleco Power relates to the lease of office space to Support Group. Cleco Power charges affiliates the higher of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements.

The following table is a summary of revenue received from affiliates included in Cleco Power’s Consolidated Statements of Income:



	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017		2016
Affiliate revenue
Support Group	$	874	$	851	$	884
Total affiliate revenue	$	874	$	851	$	884
Other income
Cleco Holdings	$	1,092	$	494	$	19
Other⁽¹⁾	$	—	$	—	$	12
Total other income	$	1,092	$	494	$	31
Total	$	1,966	$	1,345	$	915
⁽¹⁾ Represents Attala and Perryville in 2016.

Cleco Power had the following affiliate receivable and payable balances associated with the service agreements:



	AT DEC. 31,
	2018				2017
(THOUSANDS)	ACCOUNTS RECEIVABLE		ACCOUNTS PAYABLE		ACCOUNTS RECEIVABLE		ACCOUNTS PAYABLE
Cleco Holdings	$	699	$	88	$	743	$	113
Support Group	2,619		7,755		608		8,582
Other⁽¹⁾	—		—		4		2
Total	$	3,318	$	7,843	$	1,355	$	8,697
⁽¹⁾ Represents Attala and Perryville.

During 2018, 2017, and 2016, Cleco Power made $121.4 million, $135.0 million, and $110.0 million of distribution payments to Cleco Holdings, respectively. Cleco Power received no equity contributions from Cleco Holdings in 2018 and 2017. During 2016, Cleco Power received equity contributions from Cleco Holdings of $50.0 million cash.

Cleco Power is the pension plan sponsor and the related trust holds the assets. The net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco Power’s affiliates is transferred with a like amount of assets to Cleco Power monthly. The following table shows the expense of the pension plan related to Cleco Power’s affiliates for the years ended 2018 and 2017:



Note 18 — Intangible Assets and Goodwill

During 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’s expected amortization expense is based on the estimated collections from Cleco Power’s customers. At the end of its life, the asset will have no residual value. At the date of the 2016 Merger, the gross balance of the Cleco Katrina/Rita intangible asset for Cleco was adjusted to be net of accumulated amortization, as no accumulated amortization existed on the date of the 2016 Merger.

As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the valuation of the Cleco trade name and long-term wholesale power supply agreements. At the end of their life, these intangible assets will have no residual value. The trade name intangible asset is being amortized over its estimated economic useful life of 20 years. The intangible assets related to the power supply agreements are amortized over the remaining life of each applicable contract ranging between 4 years and 16 years.

The following tables present Cleco and Cleco Power’s

amortization of intangible assets:



Cleco
	FOR THE YEAR ENDED DEC. 31,
	SUCCESSOR						PREDECESSOR
(THOUSANDS)	2018		2017		2016		Jan. 1, 2016 - Apr. 12, 2016
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	20,608	$	16,772	$	12,121	$	4,369
Trade name	255		255		183		—
Power supply agreements	9,680		10,757		7,482		—
Total amortization of intangible assets	$	30,543	$	27,784	$	19,786	$	4,369
No impairments for intangibles in the table above for 2018, 2017, and 2016.



Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017		2016
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	20,608	$	16,772	$	16,490

The following tables summarize the balances for intangible assets subject to amortization for Cleco and Cleco Power as of December 31, 2018, and 2017:



Cleco
	AT DEC. 31,
(THOUSANDS)	2018			2017
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	70,594		$	70,594
Power supply agreements	85,104			85,104
Trade name	5,100			5,100
Gross carrying amount	160,798			160,798
Accumulated amortization	(76,491		)	(45,948		)
Net intangible assets subject to amortization	$	84,307		$	114,850



Cleco Power
	AT DEC. 31,
(THOUSANDS)	2018			2017
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	177,537		$	177,537
Accumulated amortization	(156,444		)	(135,836		)
Net intangible assets subject to amortization	$	21,093		$	41,701

The following table summarizes the amortization expense related to intangible assets expected to be recognized in Cleco’s Consolidated Statements of Income:



Cleco
EXPECTED AMORTIZATION EXPENSE	(THOUSANDS)
For the year ending Dec. 31,
2019	$	29,414
2020	$	11,549
2021	$	9,935
2022	$	9,935
2023	$	9,935
Thereafter	$	13,539

Cleco Power expects to recognize $19.5 million and $1.6 million of amortization expense related to intangible assets on its Consolidated Statement of Income in the years 2019 and 2020, respectively.

Goodwill

On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion. Management assigned goodwill to Cleco’s reportable segment, Cleco Power. Goodwill is required to be tested for impairment at the reporting segment level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting segment below its carrying value. Application of the goodwill impairment test requires significant judgments, including the identification of reporting segments, assignments of assets and liabilities to reporting segments, assignment of goodwill to reporting segments, and the determination of the fair value of the reporting segments. Management has determined that Cleco Power is Cleco’s only reporting segment.

Cleco conducted its 2018 annual impairment test using an August 1, 2018, measurement date. The fair value of Cleco’s reporting segment, Cleco Power, was estimated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Significant assumptions used in these fair value estimates include estimation of future cash flows, long-term rate of growth, the

selection of comparable companies, and weighted-average cost of capital (WACC) or discount rate. Changes in these assumptions could materially affect the determination of fair value and goodwill impairment at Cleco Power. Based on the tests performed, management has determined that there was no impairment of Cleco Power’s goodwill for 2018.

Management estimated the fair value of Cleco Power’s equity to be $3.55 billion at the August 1, 2018, measurement date. The carrying value of Cleco Power’s equity was approximately $3.30 billion with the excess of the fair value over the carrying value representing 7.5% or $247.4 million. There were no accumulated impairment charges.

The fair value estimate is particularly sensitive to WACC. WACC takes into account both the after-tax cost of debt and the cost of equity. WACC used for calculating the fair values as of August 1, 2018, was 5.7%. A downgrade in Cleco Power’s debt ratings could increase Cleco Power’s after-tax cost of debt. In addition, an increase in interest rates or return required by investors in equity markets could increase Cleco Power’s cost of equity. Any increase in the cost of equity or the cost of debt could materially impact Cleco Power’s fair value estimate. A WACC of 5.6% or 5.8% would have resulted in fair value calculations of $3.63 billion and $3.47 billion, respectively.

The fair value estimate is also sensitive to long-term cash flow growth rates applicable to periods beyond management’s five-year business plan. Management assumed a long-term cash flow growth rate of 2.5% based on historical and projected consumer price inflation, economic indicators, and projected industry growth. Any change in the expected terminal cash flow growth rate could materially impact Cleco Power’s fair value estimate. A terminal cash flow growth rate of 2.4% or 2.6% would have resulted in a fair value calculation of $3.48 billion and $3.62 billion, respectively.

For more information about the 2016 Merger related adjustments, see Note 4 — “Business Combinations.”



Note 19 — Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are summarized in the following tables for Cleco and Cleco Power. All amounts are reported net of income taxes. Amounts in parentheses indicate debits.



Cleco
(THOUSANDS)	POSTRETIREMENT BENEFIT NET (LOSS) GAIN			NET (LOSS) GAIN ON CASH FLOW HEDGES			TOTAL AOCI
PREDECESSOR
Balances, Dec. 31, 2015	$	(20,857	)	$	(5,728	)	$	(26,585	)
Amounts reclassified from accumulated other comprehensive loss
Amortization of postretirement benefit net loss	587			—			587
Reclassification of net loss to interest charges	—			60			60
Balances, Apr. 12, 2016	$	(20,270	)	$	(5,668	)	$	(25,938	)
SUCCESSOR⁽¹⁾
Balances, Apr. 13, 2016	$	—		$	—		$	—
Other comprehensive income before reclassifications
Postretirement benefit adjustments incurred during the year	2,304						2,304
Amounts reclassified from accumulated other comprehensive income
Amortization of postretirement benefit net gain	(804		)	—			(804		)
Balances, Dec. 31, 2016	$	1,500		$	—		$	1,500
Other comprehensive income before reclassifications
Postretirement benefit adjustments incurred during the year	(3,898		)	—			(3,898		)
Amounts reclassified from accumulated other comprehensive income
Amortization of postretirement benefit net gain	(523		)	—			(523		)
Balances, Dec. 31, 2017	$	(2,921	)	$	—		$	(2,921	)
Other comprehensive income before reclassifications
Postretirement benefit adjustments incurred during the year	3,681			—			3,681
Amounts reclassified from accumulated other comprehensive income
Amortization of postretirement benefit net loss	1,615			—			1,615
Reclassification of effect of tax rate change	(589		)	—			(589		)
Balances, Dec. 31, 2018	$	1,786		$	—		$	1,786
⁽¹⁾As a result of the 2016 Merger, AOCI was reduced to zero on April 13, 2016, as required by acquisition accounting.



Note 20 — Miscellaneous Financial Information (Unaudited)

Cleco

Quarterly information for Cleco for 2018 and 2017 is shown in the following tables:



							2018
(THOUSANDS)	1ST QUARTER		2ND QUARTER		3RD QUARTER		4TH QUARTER
Operating revenue, net	$	276,760	$	299,261	$	358,256	$	296,767
Operating income	$	44,734	$	63,709	$	86,110	$	50,004
Net income	$	10,861	$	25,839	$	47,360	$	10,377
Distributions to member	$	19,500	$	20,400	$	20,600	$	10,850



							2017
(THOUSANDS)	1ST QUARTER		2ND QUARTER		3RD QUARTER		4TH QUARTER
Operating revenue, net	$	250,501	$	308,661	$	338,499	$	277,985
Operating income	$	41,462	$	73,270	$	97,790	$	52,702
Net income	$	6,292	$	25,444	$	45,304	$	61,040
Distributions to member	$	28,955	$	26,700	$	28,300	$	110

Cleco Power

Quarterly information for Cleco Power for 2018 and 2017 is shown in the following tables:



							2018
(THOUSANDS)	1ST QUARTER		2ND QUARTER		3RD QUARTER		4TH QUARTER
Operating revenue, net	$	279,387	$	301,901	$	360,899	$	299,409
Operating income	$	50,521	$	72,602	$	96,063	$	59,786
Net income	$	26,004	$	43,020	$	63,336	$	29,897
Distributions to member	$	28,000	$	43,000	$	50,400	$	—



							2017
(THOUSANDS)	1ST QUARTER		2ND QUARTER		3RD QUARTER		4TH QUARTER
Operating revenue, net	$	253,703	$	310,787	$	340,614	$	280,093
Operating income	$	46,424	$	76,667	$	101,357	$	60,798
Net income	$	17,854	$	35,733	$	54,852	$	42,299
Distributions to member	$	35,000	$	25,000	$	15,000	$	60,000



Note 21 — Cleco Cajun Transaction

On February 4, 2019, Cleco Cajun acquired from NRG Energy all of the outstanding membership interests in NRG South Central, which indirectly owns:


i.	a 176-MW natural-gas-fired generating station located in Sterlington, Louisiana,


ii.	a 220-MW natural-gas-fired facility and a 210-MW natural-gas-fired peaking facility both located in Jarreau, Louisiana,


iii.	a 580-MW coal-fired generating facility, a 540-MW natural-gas-fired generating station, and 58% of a 588-MW coal-fired generating station all located in New Roads, Louisiana,


iv.	225-MW of a 300-MW natural-gas-fired peaking facility located in Jennings, Louisiana,


v.	a 1,263-MW natural-gas-fired generating station located in Deweyville, Texas (the Cottonwood Plant),


vi.	wholesale contracts to provide electricity and capacity to nine Louisiana cooperatives, five municipalities across Arkansas, Louisiana, and Texas, and one investor-owned utility,


vii.	transmission assets, which consist of equipment and land required to connect the generation stations and the wholesale customers to the transmission grid, and


viii.	current assets consisting of cash, inventory, receivables, and other miscellaneous assets.

Cleco Cajun, NRG Energy, and NRG South Central have each made customary representations, warranties and covenants in the Cleco Cajun Transaction, which includes customary indemnification provisions. Cleco Holdings has agreed to guarantee the obligations of Cleco Cajun, subject to certain limitations. In addition, upon closing, a lease agreement was executed and delivered between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy pursuant to which NRG Energy will lease back the Cottonwood Plant and will operate it no later than May 2025. Upon closing, Cottonwood Energy became a subsidiary of Cleco Cajun.

As consideration for all of the outstanding membership interest in NRG South Central, Cleco paid cash of approximately $962.2 million, which represents the $1.0 billion acquisition price net of working capital adjustments of $37.8 million. In addition, Cleco assumed liabilities consisting of asset retirement obligations connected with the coal fueled generation stations and current liabilities, such as accounts payable.

In connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings issued $300.0 million under a new bridge loan agreement and $100.0 million under a new term loan agreement. Both loan agreements are variable rate debt and have a three-year term. Both loan agreements contain certain financial covenants, including requiring Cleco Holdings to maintain (i) a debt to capital ratio (as defined in the applicable agreement) below 65% and (ii) a rating applicable to the Company’s senior debt rating (as defined in the applicable agreement). Cleco Holdings anticipates that some or all of the variable rate debt may be replaced or repaid with long-term financing, markets permitting, within 12 months of the closing of the Cleco Cajun Transaction. Also in connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million, for a total credit facility of $175.0 million. All other terms remained the same. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.

The remaining cash required to finance the transaction consisted of an equity contribution from Cleco Group of $384.9 million and $102.3 million from cash on hand at Cleco Holdings.

In connection with the Cleco Cajun Transaction, Cleco Holdings, on behalf of Cleco Cajun, issued three letters of credit totaling $1.1 million to a capacity agreement customer and a gas transport company. These letters of credit automatically renew each year and have no impact on the Cleco Holdings’ credit facility.

Because the initial accounting for the transaction is not complete, Cleco is unable to disclose the valuation and determination of the fair value of assets and liabilities acquired. Cleco expects the final valuation and purchase price allocation, including finalization of acquired liabilities, to be completed within one year of the date of acquisition as required by accounting guidance.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of Cleco Holdings and Cleco Power (individually, “Registrant” and collectively, the “Registrants”) management, including the CEO and CFO, the Registrants have evaluated the effectiveness of their disclosure controls and procedures as of December 31, 2018. Based on the evaluations, the CEO and CFO have concluded that the Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and that the Registrants’ disclosure controls and procedures are also effective in ensuring that such information is accumulated and communicated to the Registrants’ management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Registrants’ internal control over financial reporting that occurred during the quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Registrants’ internal control over financial reporting. In fiscal year 2019, the Registrants plan to implement a new enterprise business application. Implementation of this system is expected to necessitate changes in policies and procedures and the related internal controls and the Registrants’ method of application.

Management’s Reports on Internal Control Over Financial Reporting

The management of Cleco Holdings and Cleco Power is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Cleco Holdings and Cleco Power’s internal control over financial reporting is a process designed by, or under the supervision of, each of Cleco Holdings and Cleco Power’s principal executive and financial officers and effected by Cleco Holdings and Cleco Power’s board of managers, management, and other personnel, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Management has designed its internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Management’s assessments included review and testing of both the design effectiveness and operating effectiveness of controls over relevant assertions related to significant accounts and disclosures in the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The management of Cleco Holdings and Cleco Power, under the supervision of each of the Registrants’ principal executive officer and principal financial officer, conducted an assessment of the effectiveness of Cleco Holdings and Cleco Power’s respective internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria in Internal Control—Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, the management of Cleco Holdings and Cleco Power concluded that, as of December 31, 2018, the Registrants’ internal control over financial reporting was effective.

Certifications

The certifications of the Registrants’ CEO and CFO required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1, 31.2, 31.3, and 31.4 to this Annual Report on Form 10-K.

Boards of Managers of Cleco

As of February 26, 2019, the Board of Managers of Cleco Holdings is comprised of 12 managers, as set forth below. Cleco Power’s Board of Managers is comprised of 13 managers, including the same 12 managers that comprise the Board of Managers of Cleco Holdings, plus one additional manager, Melissa Stark. The Board of Managers of Cleco Holdings and the Board of Managers of Cleco Power are collectively referred to below as “the Boards.” The managers’ ages, dates of election, employment history, and committee assignments as of February 26, 2019, are also set forth below. Each of Ms. Scott and Messrs. Gallot, Gilchrist, and Wainer serve pursuant to one-year agreements which are considered for renewal annually by the Boards. Mr. Fontenot serves by virtue of his position as the CEO, and the other managers are designated for membership by BCI, John Hancock, or MIRA.

Andrew Chapman joined MIRA in 2006 and currently acts as Head of Asset Management for Macquarie Infrastructure Partners I, II and III and Asset Director for utility company Puget Energy (Puget). Mr. Chapman is 63 years old and became a member of the Boards in 2016. He is the chair of the Business Planning and Budget Review Committee and a member of the Leadership Development and Compensation Committee, the Governance and Public Affairs Committee and the Audit Committee. Mr. Chapman serves on the board of Puget.

Mr. Chapman held executive positions with Elizabethtown Water Company, E-town Corporation, American Water Works and the State of New Jersey prior to joining MIRA in 2006.

Mr. Chapman earned his Masters of Business Administration from the Yale School of Management.

Richard Dinneny is the Senior Portfolio Manager, Infrastructure and Renewable Resources for BCI, where he has responsibility for all aspects of investing in infrastructure transactions. He is 56 years old and became a member of the Boards in 2016. Mr. Dinneny is the chair of the Audit Committee and a member of the Business Planning and Budget Review Committee. Mr. Dinneny has reviewed and completed a number of infrastructure and utility investments. He currently serves as a director of Vier Gas Services GmbH & Co. KG, Essen, the owner of Open Grid Europe (GmbH), and an alternate director on the board of Puget.

Mr. Dinneny earned his Masters of Business Administration from York University in Toronto and was awarded the Chartered Financial Analyst designation in 1998.

William “Bill” Fontenot serves as CEO of Cleco Holdings and Cleco Power. Mr. Fontenot is 56 years old and was appointed to the Boards in 2018. He is a member of the Asset Management Committee, the Business Planning and Budget Review Committee, and the Governance and Public Affairs

Committee. During Mr. Fontenot’s 30 years of service, he managed the development and restructuring efforts of generation projects valued at over $900.0 million, as well as led the development and construction of the $1.0 billion power plant, Madison Unit 3. His previous background was in marketing and the development of merchant power businesses.

Mr. Fontenot serves on the boards of the Council for a Better Louisiana, Association of Edison Illuminating Companies, Southeastern Electric Exchange, and the Central Louisiana Community Foundation. He is a member of the Association of Edison Illuminating Companies Power Generation Committee, Central Louisiana Manufacturing Managers Council, St. Rita Catholic Church, and the Knights of Columbus.

Mr. Fontenot holds a B.S. degree in electrical engineering from Louisiana State University.

Richard “Rick” Gallot, Jr. is the President of Grambling State University. He is 52 years old and became a member of the Boards in 2016. Mr. Gallot is a member of the Leadership Development and Compensation Committee and the Governance and Public Affairs Committee.

Mr. Gallot recently served as a Louisiana state senator for District 29, where he held the position of Vice-chair of the Commerce Committee and was a member of the Agriculture, Forestry, Aquaculture, and Rural Development Committee and the Revenue and Fiscal Affairs Committee. He previously served as a member of the Louisiana House of Representatives for District 11, where he served as Chair of the House and Governmental Affairs Committee and was a member of the Executive Committee.

Mr. Gallot obtained his Juris Doctorate from Southern University School of Law.

David Randall “Randy” Gilchrist is the President and CEO of Gilchrist Construction Company (GCC), a central Louisiana-based infrastructure contractor specializing in road and bridge construction. He is 59 years old and became a member of the Boards in 2016. Mr. Gilchrist is a member of the Asset Management Committee and the Audit Committee.

Under Mr. Gilchrist’s leadership, GCC has grown since 1985 from a small site work contractor to one of Louisiana’s leading highway contractors. Mr. Gilchrist has served as President of Associated General Contractors, Chair of Driving Louisiana Forward, Chair of the Central Louisiana Chamber of Commerce, and Vice Chair of Central Louisiana Economic Development Alliance. He has also served on the boards of The Rapides Foundation and Rapides Healthcare System.

Gerald Hanrahan is a Senior Industry Advisor to the Power and Infrastructure Team at John Hancock. The Power and Infrastructure Team is responsible for transactions in public

utility, independent power project and infrastructure financing areas for John Hancock and manages a portfolio of over $21 billion in assets spanning over 300 individual investments. He is 59 years old and became a member of the Boards in 2018. Mr. Hanrahan is the Chair of the Asset Management Committee.

Mr. Hanrahan joined John Hancock as a director in 2001, served as managing director from 2003 to 2011, and served as Team Leader - Vice President from 2011 until 2016. He has worked in the financing area of the power industry since 1990. Before joining John Hancock, Mr. Hanrahan worked for four years in the Boston and London offices of InterGen, where he coordinated all financing activities on $2.7 billion in power projects in Turkey, Colombia and Egypt. Before that, he spent nine years in the structured finance and financial advisory divisions of Bank of Tokyo Capital Corporation in Boston.

Mr. Hanrahan holds an MBA from Babson College and a B.S. from Northeastern University.

Christopher Leslie is Executive Chairman of MIRA Americas. Prior to taking that role in July 2016, Mr. Leslie was the CEO of Macquarie Infrastructure Partners Inc., the manager of MIRA’s U.S.-based private infrastructure funds, Macquarie Infrastructure Partners I, II and III, which collectively manage more than $7 billion in U.S. and Canadian infrastructure investments. Mr. Leslie is 54 years old and became a member of the Boards in 2016. He is the Chair of the Leadership Development and Compensation Committee.

Mr. Leslie joined Macquarie in 1992 in Australia. He has been instrumental in expanding Macquarie’s infrastructure business globally, having launched Macquarie offices in Southeast Asia, India and North America.

Mr. Leslie holds a Bachelor of Commerce degree from the University of Melbourne.

Jon Perry is a Senior Principal within the Infrastructure & Renewable Resources Department at BCI, where he is responsible for sourcing, executing and managing infrastructure investments. He is 42 years old and became a member of the Boards in 2018. Mr. Perry is a member of the Asset Management Committee.

Mr. Perry serves on the board of Noverco Inc., an investment holding company, which through its subsidiaries, distributes natural gas. Noverco also offers power generation, gas storage, and marketing services. He has over 10 years of experience in the utility and energy sectors. Prior to working with BCI, he held positions as Manager, Mergers and Acquisitions at TransAlta, a leading Canadian independent power producer and Manager, Regulatory and Financial Reporting at FortisAlberta, a regulated distribution utility. Before then, Mr. Perry held financial and investor relations positions in Canadian junior and mid-cap oil and gas companies.

Mr. Perry holds a Bachelor of Medical Laboratory Sciences from University of British Columbia. He is also a Chartered Accountant in the Province of Alberta and is a Chartered Financial Analyst charter holder.

Aaron Rubin is a Managing Director at MIRA, where he is responsible for MIRA’s North American power and utilities investment team. He is 41 years old and became a member of the Boards in 2018. Mr. Rubin is a member of the Business Planning and Budget Review Committee.

Since joining MIRA in 2008, Mr. Rubin has had extensive responsibility for investment origination and execution as well as for management of portfolio investments. He has also served as the CEO of the Moscow-based Macquarie Russia & CIS Infrastructure Fund, and has been a director of a number of MIRA portfolio companies in the energy, transportation, and communications sectors. Mr. Rubin is currently a director of Lordstown Energy Center, a 940 MW gas-fired power plant construction project in Ohio. Prior to joining MIRA, Mr. Rubin was a Vice President in JPMorgan’s North American mergers and acquisitions team.

Mr. Rubin holds a Bachelor of Commerce and a Bachelor of Laws degree from the University of Queensland.

Peggy Scott currently serves as the Chair of the Boards. She served as Chairperson and Interim CEO of Cleco Holdings from February 9, 2017, through December 31, 2017. She also serves on Cleco’s Audit Committee and Governance and Public Affairs Committee. Presently, Ms. Scott advises diverse industries, including healthcare and technology. She is 67 years old and became a member of the Boards in 2016.

Previously, Ms. Scott served as the Executive Vice President, Chief Operating Officer and Chief Financial Officer of Blue Cross Blue Shield of Louisiana (BCBS) and as Chief Strategy Officer. Prior to BCBS, Ms. Scott was an office Managing Partner with Deloitte and held executive positions in U.S. and International companies where she led transformations, growth strategies, and operations in eight foreign countries.

Ms. Scott was named one of the ten Outstanding Young Women of America, featured in the Wall Street Journal as National Financial Executive of the year, and inducted into the American Institute of CPAs’ Hall of Fame. She is in the Louisiana State University’s Alumni Hall of Distinction, named a Tulane Outstanding Alumnus and holds a Ronald Reagan presidential citation.

Ms. Scott is a CPA and certified in Valuations/Forensics. She holds an MBA from Tulane University and a B.S. in accounting from Louisiana State University.

Melissa Stark currently serves as the managing principal and owner of Co Issuer Corporate Staffing, LLC, which she established in 2003 to provide independent directors and officers for special purpose entities. She is 56 years old and was appointed in 2016 as a special independent manager of Cleco Power, whose sole purpose is to vote on any bankruptcy-related matters, as specified in Cleco Power’s Second Amended and Restated Operating Agreement. From 2001 to 2017, Ms. Stark concurrently served as a principal and co-founder of Water Tower Capital, LLC, a Chicago based investment advisory firm. From 1994 to 1996 she was Vice President - Fixed Income Research at Duff & Phelps (now known as Fitch) where she covered high yield bonds in the retail industry. She served as Vice President - Special Investments at PPM America, Inc. from 1991 to 1994.

Ms. Stark holds a Masters of Business Administration in Finance from New York University Stern School of Business.

Steven Turner is a Portfolio Manager within the Infrastructure & Renewable Resources Department at BCI, where he is responsible for sourcing, executing, and managing infrastructure investments. He is 46 years old and became a member of the Boards in 2016. Mr. Turner is the Chair of the Governance and Public Affairs Committee and a member of

the Business Planning and Budget Review Committee and the Leadership Development and Compensation Committee.

Mr. Turner serves on the board of Corix Infrastructure Inc., a privately-held waste/wastewater and utility holding company based in Vancouver, British Columbia. He is also a past director of Macquarie Utilities Inc. and Aquarion Water Company (Aquarion), the parent companies to a suite of New England-based water utilities.

Mr. Turner has over 11 years of experience in equity capital markets. Prior to joining BCI, he held positions as an Associate with Ventures West Management, a leading Canadian venture capital firm and as an Associate Equity Analyst with Raymond James Ltd., a full service brokerage firm.

Mr. Turner has a B.S. in Environmental Engineering from Montana Tech of the University of Montana and holds a Masters of Business Administration from the University of Victoria. He is also a registered Professional Engineer in the Province of British Columbia, a Chartered Financial Analyst charter holder and holds the ICD.D designation.

Bruce Wainer is the CEO of Wainer Enterprises, a family-owned commercial development company on Louisiana’s Northshore

and in New Orleans. He is 59 years old and became a member of the Boards in 2016. Mr. Wainer is a member of the Business Planning and Budget Review Committee, the Asset Management Committee, and the Governance and Public Affairs Committee. He is the developer of some of the most successful commercial developments in the New Orleans area and past chairman of the Northshore Business Council. His business affiliations include partner at Wainer Brothers, All State Financial Company and Circle West Trailer Park Company; president of Quality Properties, Inc., Regent Lands, Inc., Flowers, Inc., Upside Down Cajun Brands, Inc., Louisiana Properties, Inc., Tamco, Inc., Riverhill, Inc., Metro Credit Services, Inc. and Pan American Investors, Inc., and manager of Advance Mortgage Company, LLC.

Executive Officers of Cleco

The names of the executive officers of Cleco and certain subsidiaries, their positions held, five-year employment history, ages, and years of service as of February 26, 2019, are as follows. Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed.



NAME OF EXECUTIVE	POSITION AND FIVE-YEAR EMPLOYMENT HISTORY
William G. Fontenot Cleco Holdings Cleco Power	President and Chief Executive Officer since January 2018. Chief Executive Officer since February 2019; President and Chief Executive Officer from January 2018 to February 2019; Interim Chief Executive Officer from February 2017 to December 2017; Chief Operating Officer from April 2016 to February 2017; Senior Vice President - Utility Operations from March 2012 to April 2016. (Age 56; 32 years of service)
Kazi K. Hasan Cleco Holdings Cleco Power	Chief Financial Officer since October 2018; Chief Risk Officer, AES Corporation from late 2014 to May 2018; Chief Financial Officer, AES Corporation Asia from late 2012 to late 2014. (Age 48; <1 year of service)
Julia E. Callis Cleco Holdings Cleco Power	Chief Compliance Officer and General Counsel since April 2016; Associate General Counsel and Corporate Secretary from November 2011 to April 2016. (Age 50; 11 years of service)
Anthony L. Bunting Cleco Holdings Cleco Power	Chief Transformation Officer since February 2019; Chief Administrative Officer from April 2016 to February 2019; Vice President - Transmission & Distribution Operations from March 2012 to April 2016. (Age 59; 27 years of service)
F. Tonita Laprarie Cleco Holdings Cleco Power	Controller & Chief Accounting Officer since July 2016; General Manager Audit & Risk from March 2014 to July 2016; Manager Accounting Services from December 2007 to March 2014. (Age 54; 18 years of service)
Robert R. LaBorde, Jr. Cleco Holdings Cleco Power	Chief Operations Officer since February 2019; Vice President Generation Operations & Environmental Services from April 2016 to February 2019. Vice President - Generation Operations from November 2012 to April 2016. (Age 51; 27 years of service)
Kristin L. Guillory Cleco Holdings Cleco Power	Treasurer since February 2018; General Manager Finance and Assistant Treasurer from May 2016 to February 2018; Manager Finance, Risk and Analytics & Assistant Treasurer from December 2013 to May 2016. (Age 36; 14 years of service)
Normanique G. Preston Cleco Holdings Cleco Power	Vice President - Human Resources since September 2018; Vice President - Human Resources, Dynegy, Inc. from November 2015 to June 2018; Managing Director, Human Resources, Consulting, Services, and Labor Relations, Dynegy, Inc. from March 2013 to November 2015. (Age 52; <1 year of service)
Dean C. Sikes Cleco Holdings Cleco Power	Vice President Engineering, Construction & Project Management since April 2016; General Manager Generation Engineering & Construction from March 2013 to April 2016. (Age 55; 31 years of service)



NAME OF EXECUTIVE	POSITION AND FIVE-YEAR EMPLOYMENT HISTORY
Gregory A. Coco Cleco Holdings Cleco Power	Vice President Transmission & Distribution Operations since April 2016; General Manager Brame Energy Center from March 2013 to April 2016. (Age 59; 37 years of service)
Joel M. Prevost Cleco Holdings Cleco Power	Vice President Asset Management since April 2016; General Manager T&D Engineering & Construction from March 2012 to April 2016. (Age 58; 37 years of service)
J. Robert Cleghorn Cleco Holdings Cleco Power	Vice President Regulatory Strategy since April 2016; General Manager Regulatory Strategy & Planning from March 2012 to April 2016. (Age 60; 31 years of service)
Justin S. Hilton Cleco Power Cleco Holdings Cleco Power	President since February 2019. Vice President MISO Operations from April 2016 to February 2019; General Manager Transmission Strategy from March 2012 to April 2016. (Age 49; 29 years of service)
Shirley J. Turner Cleco Holdings Cleco Power	Vice President Customer Experience since April 2016; General Manager Customer Experience Management from March 2012 to April 2016. (Age 65; 43 years of service)
Marty A. Smith Cleco Holdings Cleco Power	Vice President - Marketing North since January 2017; General Manager Corporate Safety from April 2016 to January 2017; General Manager Distribution Engineering & Real Estate from February 2013 to April 2016. (Age 57; 27 years of service)
Eric A. Schouest Cleco Cajun Cleco Holdings Cleco Power	President since February 2019; Interim President from May 2018 to February 2019. Vice President - Governmental Affairs from March 2018 to May 2018; Vice President - Marketing South from August 2016 to March 2018; General Manager Governmental Affairs/Regulatory Sales from February 2013 to August 2016. (Age 53; 17 years of service)
Robert E. Adrian Cleco Cajun	Chief Operating Officer since November 2018; CEO, eServices, LLC from January 2012 to November 2018. (Age 59; <1 year of service)

Audit Committee

Cleco has a separately-designated standing audit committee. The members of Cleco’s Audit Committee are Andrew Chapman, Richard Dinneny (who serves as Chair of the committee), Randy Gilchrist, and Peggy Scott. The Boards have determined that Andrew Chapman is the Audit Committee financial expert.

Code of Business Conduct & Ethics and Related Party Transactions

Cleco has adopted a Code of Conduct that applies to its principal executive officer, principal financial officer, principal accounting officer, and treasurer. Cleco also has adopted Ethics & Business Standards applicable to all employees and the Boards. In addition, the Boards have adopted Conflicts of Interest and Related Policies to prohibit certain conduct and to reflect the expectation of the Boards that their members engage in and promote honest and ethical conduct in carrying out their duties and responsibilities, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships and corporate opportunities. Under the Conflicts of Interest and Related Policies, Cleco considers transactions that are reportable under the SEC’s rules for transactions with related parties to be conflicts of interest and prohibits them. Any request, waiver, interpretation or other administration of the policy shall be referred to the Governance and Public Affairs Committee. Any recommendations by the Governance and Public Affairs Committee to implement a waiver shall be referred to the full Boards for a final determination. The Code of Conduct for Financial Managers, Ethics & Business Standards, and

Conflicts of Interest and Related Policies are posted on Cleco’s website at https://cleco.com; About Us-Leadership-Codes of Conduct. Each of these documents is also available free of charge by request sent to: Public Relations, Cleco, P.O. Box 5000, Pineville, LA 71361-5000.

Communications with the Boards

The Corporate Governance Guidelines provide for communications with the Boards by interested persons. In order for employees and other interested persons to make their concerns known to the Boards, Cleco has established a procedure for communications with the Boards through the Board’s Chair. The procedure is intended to provide a method for confidential communication, while at the same time protecting the privacy of the members of the Boards. Any interested person wishing to communicate with the Boards, or the non-management members of the Boards, may do so by addressing such communication as follows:

Chair of the Boards of Managers

c/o Corporate Secretary

Cleco Holdings

P. O. Box 5000

Pineville, LA 71361-5000

Upon receipt, Cleco’s Corporate Secretary will forward the communication, unopened, directly to the Chair of the Boards. The Chair will, upon review of the communication, make a determination as to whether it should be brought to the attention of the other non-management members and/or the management member of the Boards and whether any

Leadership Development and Compensation Committee Interlocks and Insider Participation

The members of the Leadership Development and Compensation Committee (Committee) of the Boards who served during 2018 are named in the Report of the Leadership Development and Compensation Committee. No members of the Committee were officers or employees of the Company or any of its subsidiaries during 2018, were formerly Company officers or had any relationship otherwise requiring disclosure.

Compensation Discussion and Analysis (CD&A)

This section provides information about the compensation program in place for the Company’s named executive officers who are included in the Summary Compensation Table. It includes a discussion and analysis of the overall objectives of our compensation program and each element of compensation the Company provides.

Executive Summary

2018 Business Highlights

In 2018, the Company performed well operationally and financially and initiated transformational strategic projects. Below are some of our accomplishments for the year:


•	Key Strategic Initiatives


◦	Entered into the Purchase and Sale Agreement with NRG Energy and NRG South Central in which Cleco Cajun agreed to acquire from NRG Energy all of the outstanding membership interest in NRG South Central


◦	Continued the $147.5 million START project which includes replacement of and improvement to Cleco’s enterprise business applications


◦	Implemented several key elements of the safety strategy focused on improving employee and contractor safety to build a stronger safety culture


◦	Continued capture of potential cost savings identified in the 2017 benchmarking opportunity assessment


•	Effective Utility Operations


◦	Effectively restored power following four storms with a total cost of $9.3 million


•	Key Capital Investments and Regulatory Outcomes


◦	Continuing construction on the St. Mary Clean Energy Center project, the Terrebonne to Bayou Vista Transmission project, and the Bayou Vista to Segura Transmission project


◦	Initiated construction on the Coughlin Pipeline project


◦	Initiated the DSMART project

Compensation Philosophy

The compensation principles and philosophy of the Committee are:


•	Executives should be rewarded on performance, and incentives should align interests between management and the Company;


•	Total remuneration (the sum of base salary, annual incentives, long-term incentives, and retirement benefits) should be aligned with the market median;


◦	Newly hired and/or promoted executives should be transitioned to median over time as they become more proficient in their roles;


•	The mix of fixed compensation (base salary and retirement benefits) and variable/at-risk compensation (annual incentive and long-term incentive) should align with market by emphasizing variable/at-risk compensation; and


•	The competitive market for an executive’s compensation will be based on comparable utilities and will not be adjusted for Cleco’s privately held status or location.

Compensation Program Elements

The Committee targets total compensation (made up of the elements described below) to be competitive with the median of the Comparator Group, but individual positioning may vary above or below the median depending on each executive’s experience, performance, and contribution to the Company. For 2018, we believe that we accomplished our philosophy through the following compensation and benefit components:

Roles and Responsibilities

Leadership Development and Compensation Committee

The Committee, which consists of one independent Board Manager and three investor Board Managers, is responsible for developing and overseeing the Company’s executive compensation program. The Committee met five times during 2018, including three telephone meetings. Either the Chief Administrative Officer or the General Counsel and Chief Compliance Officer attended the Committee meetings on behalf of management but did not participate in the Committee’s executive sessions.

The Committee’s responsibilities, which are more fully described in its charter, include:


•	establishing and overseeing the Company’s executive compensation philosophy and goals and the programs which align with those;


•	engaging and evaluating an independent compensation consultant;


•	determining if the Company’s executive compensation and benefit programs are achieving their intended purpose, being properly administered and creating proper incentives in light of the Company’s risk factors;


•	analyzing the executive compensation and benefits practices of peer companies and annually reporting to the Board or recommending for approval by the Board the overall design of the Company’s executive compensation and benefit programs;


•	annually evaluating the performance of the CEO and recommending to the Board adjustments in the CEO’s compensation and benefits;


•	annually reporting and recommending to the Board pay adjustments for the non-CEO executive officers (including new hires), which includes base salary and incentive plan targets;


•	overseeing the administrative committees and periodically reviewing the Company’s benefit plans, including retirement plans;


•	annually reviewing the Committee’s charter and revising as necessary; and


•	annually ensuring there is a process for talent and succession management for executives.

The Compensation Consultant

The Committee engaged Pay Governance to consult on matters concerning executive officers’ compensation and benefits. All executive compensation adjustments and award calculations for 2018 were reviewed by Pay Governance on behalf of the Committee. Pay Governance acted at the direction of the Committee and was independent of management. Pay Governance was responsible for:


•	recommending a group of peer companies to use for market comparisons;


•	reviewing the Company’s executive compensation program, including compensation levels in relation to Company performance, pay opportunities relative to those at comparable companies, short- and long-term incentive

targets and metrics, executive retirement benefits, and other executive benefits;


•	reviewing the Company’s Board of Manager compensation program;


•	reporting on emerging trends and best practices in the area of executive and Board of Manager compensation; and


•	attending the Committee meetings.

The Committee reviewed the firm’s qualifications as well as its independence and the potential for conflicts of interest. The Committee concluded that Pay Governance is independent, and its services to the Committee do not create any conflicts of interest. The Committee has the sole authority to approve Pay Governance’s compensation and determine the nature and scope of its services. Pay Governance does not perform any other services for or receive any other fees from the Company.

CEO

The CEO makes recommendations to the Committee regarding base salary adjustments, cash incentives, and long-term incentive awards for executives other than himself. The CEO participates in meetings of the Committee to discuss executive compensation, including measures and performance targets but is subsequently excused to allow the independent members of the Committee to meet in executive session.

Evaluation and Design of the Compensation and Benefit Programs

The Committee believes that compensation and benefits for our executive officers who successfully enhance investors’ value should be competitive with the compensation and benefits offered by similar companies in our industry to attract and retain the high quality executive talent required by the Company. The Committee examines executive officers’ compensation against comparable positions using publicly available proxy data for a group of 14 industry peers (Peer Group) and utility industry survey data to help design and benchmark our executive officer compensation. This evaluation includes base salary, annual and long-term incentive plan targets, other potential awards, retirement benefits, and target total compensation. The Peer Group is used to track comparable performance of the long-term incentive plan. The combination of the Peer Group and the utility industry survey data is referred to as the “Comparator Group.”

Three companies were removed from the Peer Group in 2018: MGE Energy, Great Plains Energy Incorporated, and Westar Energy. Four companies were added to the Peer Group in 2018: Pinnacle West Capital Corporation, Alliant Energy Corporation, Vectren Corporation, and Hawaiian Electric Industries, Inc. The Committee will continue to evaluate the Peer Group annually as companies are often acquired, taken private, or grow at a rate that renders them inappropriate for comparison purposes. The Committee evaluates the Peer Group to ensure that peer companies are of similar scope in relation to revenues, assets, and employee count and have a good operational fit.

In setting executive compensation levels in 2018, the Committee also used utility industry survey data from the most recent Willis Towers Watson Energy Services Executive Compensation Database. Survey data provides a broader energy industry perspective. This survey data is used in conjunction with the Peer Group data as a competitive market reference point for the Committee to consider in determining pay levels.

Decisions Made in 2018 with Regard to Each Compensation and Benefit Component

Base Salary

The Committee strives to set base salary levels for the executive officers as a group, including the named executive officers, at a level approximating +/-10% of the Comparator Group market median for total remuneration.

Base salaries for the named executive officers in 2018 are shown in the table below:



Name	2018 Base Salary		2018 % Change
Mr. Fontenot⁽¹⁾	$	575,000	34.8	%
Mr. Hasan	$	400,000	N/A
Ms. Callis	$	270,000	5.6	%
Mr. Bunting	$	246,000	3.2	%
Mr. LaBorde	$	240,000	4.2	%
Ms. Taylor	$	257,500	2.9	%

⁽¹⁾ Mr. Fontenot was promoted to CEO in January 2018.

Annual Cash Incentive

The Company maintains the STIP, an annual, performance-based cash incentive plan. The STIP applies to all regular, full-time employees, and it includes weighting for corporate and individual performance goals. The Committee targets STIP award opportunities for executive officers to approximate the median of the annual cash incentive target award of the Comparator Group. Payouts are capped at 200% of target.

The table below presents the target STIP opportunities for the named executive officers in 2018:



Name	Target as % of Base Salary
Mr. Fontenot	80%
Mr. Hasan⁽¹⁾	50%
Ms. Callis	50%
Mr. Bunting	50%
Mr. LaBorde	50%
Ms. Taylor	50%

⁽¹⁾ Mr. Hasan will begin participation in the STIP in 2019.

The 2018 STIP award for the named executive officers was based on the corporate and individual performance measures described below. The 2018 corporate performance measures consisted of the six elements listed below (weighting):


•	Safety (10%)


•	Customer Satisfaction (10%)


•	System Average Interruption Duration Index or SAIDI (10%)


•	Equivalent Forced Outage Rate (demand) or EFORd (10%)


•	EBITDA (35%)


•	Milestone Measures (25%)

The Committee included Milestone Measures (Measures) in the 2018 STIP corporate metrics for the Executive Management Team (EMT) and other corporate officers weighted at 25%. These Measures were associated with progress milestones on key strategic corporate projects related to safety, the START project, and the Cleco Cajun Transaction. The Committee put the greatest emphasis on financial performance with EBITDA at 35%. In addition, to continually focus the executives and the entire organization on the importance of safety, customer satisfaction, system reliability, and generation fleet availability, 40% of the bonus opportunity was attributable to these operational measures.

Management recommended the STIP financial performance and other measures to the Committee. Based on the historical performance relative to target and the relative historical performance versus the Peer Group, the Committee reviews, revises as appropriate, and approves the STIP measures for the upcoming year.

Details Related to Corporate Performance Metrics Established to Determine 2018 STIP Award Levels

Metric # 1: Safety — For 2018, the Company included both the frequency of incidents represented by the Total Recordable Incident Rate (TRIR) and the severity of incidents represented by the Days Away, Restricted or Transferred (DART) rate for its safety measure. Each of these measures represents 5% of the overall STIP award for the corporate measures. The targets for both safety measures were based on the average rates of the companies in the Southeastern Electric Exchange, of which Cleco is a member, over the period 2016-2017.



SAFETY - TRIR MATRIX (5%)
Performance Level	% of TRIR Target Award Paid
At or below 0.655	0%
0.586 - 0.655	50%
0.515 - 0.585	100%
0.444 - 0.514	150%
Above 0.443	200%
2018 Result (0.941)	0%



SAFETY - DART MATRIX (5%)
Performance Level	% of DART Target Award Paid
Below 0.359	0%
0.301 - 0.359	50%
0.242 - 0.300	100%
0.183 - 0.241	150%
Above 0.182	200%
2018 Result (0.342)	50%

Metric # 2: Customer Satisfaction — The Company included Customer Satisfaction in its performance measures in 2018 using the JD Power South Midsize segment (JD Power study) for comparison. For the STIP metric, the Company used the 2017 performance of the JD Power study to set the target. In addition, the Company compared its overall performance against the other companies in the JD Power study and allowed a payout only if the Company’s performance improved more than that of the other companies in the JD Power study. This metric represents 10% of the overall STIP award for the corporate measures.



CUSTOMER SATISFACTION MATRIX (10%)
Performance Level	% of Customer Satisfaction Target Award Paid
Below 687	0%
687 - 705	50%
706 - 723	100%
724 - 735	150%
Above 736	200%
2018 Result (722)	100%

Metric # 3: SAIDI — SAIDI measures the average amount of time a customer’s service is interrupted during the year and is measured in hours per customer per year. The 2018 SAIDI goal was based on the Company’s long-term goal of consistent performance improvement. This metric represents 10% of the overall STIP award for the corporate measures.



SAIDI MATRIX (10%)
Performance Level	% of SAIDI Target Award Paid
Above 2.55	0%
2.45 to 2.55	50%
2.34 to 2.44	100%
2.23 to 2.33	150%
Below 2.22	200%
2018 Result (2.87)	0%

Metric # 4: EFORd — This metric represents the probability a generator will fail either completely or in part when its operation is required and is 10% of the overall STIP award for the corporate measures. The 2018 target was based on the Company’s weighted average performance over the three-year period 2015-2017.



EFORd MATRIX (10%)
Performance Level	% of EFORd Target Award Paid
Above 5.71%	0%
5.48% - 5.71%	50%
5.23% - 5.47%	100%
4.98% - 5.22%	150%
Below 4.97%	200%
2018 Result (7.58%)	0%

Metric # 5: EBITDA — The following EBITDA matrix was developed to determine performance and payout ranges related to EBITDA performance in 2018. This measure represents 60% of the overall STIP award for the corporate measures for non-EMT and 35% of the overall STIP award for the corporate measures for EMT. The final percentage of the financial target award is interpolated based on the performance level.



EBITDA MATRIX (35%)
Performance Level	% of Financial Target Award Paid
At or below $418.7 million	0	%
$452.7 million	100	%
At or above $486.7 million	200	%
2018 Result - $458.0 million	115.6	%

Metric # 6: Milestone Measures — EMT had an additional STIP metric for 2018. This metric represents 25% of the overall STIP award for the corporate measures for EMT and measures progress on certain strategic initiatives. The three broad initiatives included safety (5%), the business application strategy (10%), and the Cleco Cajun Transaction (10%). The Committee evaluated the performance of each initiative and determined the 2018 result for the Milestone Measures to be 100%.



MILESTONE MEASURES (25%)
	% of Milestone Target Award Paid
2018 Result	100%

Total Payout for EMT: The calculated STIP payout for EMT was 78.0% of target. However, the Committee used discretion to increase the payouts to 83.5% of target based on its review of the Company’s performance in 2018. The resulting total STIP corporate payout for 2018 was calculated as follows:



	% of Target		x	Award Level		=	% of Payout
Safety	10	%		25.0	%		2.5	%
Customer Satisfaction	10	%		100.0	%		10.0	%
SAIDI	10	%		0.0	%		0.0	%
EFORd	10	%		0.0	%		0.0	%
EBITDA	35	%		115.6	%		40.5	%
Milestone Measures	25	%		100	%		25.0	%
Total	100	%					78.0	%
Committee Discretion							5.5	%
Resulting Total Payout							83.5	%

The Committee also has the authority to adjust the amount of any individual STIP award upon recommendation by the CEO. Adjustments for the STIP participants, except for the

named executive officers and other members of EMT, may be made by the CEO at his discretion. Adjustments are based on the annual performance review process.

Long-Term Compensation

In 2018, the Committee continued a cash-based LTIP and issued grants for the three-year cycle for the performance period ending December 31, 2020. The metrics for the LTIP are weighted 50% on the three-year average ROE and 50% on the three-year cumulative EBITDA.

Each executive officer’s target LTIP award level is set, so in combination with other pay elements, it will deliver a total compensation opportunity comparable to that of our Peer Group. The chart below details the targeted opportunity for each of the named executives expressed as a percentage of base salary:



Name	Target as % of Base Salary
Mr. Fontenot	217	%
Mr. Hasan⁽¹⁾	110	%
Ms. Callis	110	%
Mr. Bunting	110	%
Mr. LaBorde	80	%
Ms. Taylor	110	%

⁽¹⁾ Mr. Hasan will begin participation in the LTIP in 2019.

2017-2018 LTIP Award

The Leadership Development & Compensation Committee approved an overall award level of 133.5% of target for the LTIP two-year performance cycle that ended on December 31, 2018. This award level represents an average ROE of 9.804% and a cumulative EBITDA of $935.2 million over the two-year performance period. This award will be paid in cash and is included in column G of the Summary Compensation Table for 2018.

Retirement Plans - Nonqualified Deferred Compensation Plan

The Company maintains a Deferred Compensation Plan so that members of the Boards, executive officers, and certain key employees may defer receipt and taxation of certain forms of compensation. Members of the Boards may defer up to 100% of their compensation; executive officers and other key employees may defer up to 50% of their base salary and up to 100% of their annual cash incentive. The use of deferred compensation plans is prevalent within our industry and within the companies in the Peer Group. The Company does not match deferrals or contribute to the plan. Actual participation in the plan is voluntary. The notional investment options made available to participants are selected by the CFO. The allocation of deferrals among investment options is made by individual participants. The notional investment options include money market, fixed income, and equity funds. No changes were made to the plan during 2018.

Retirement Plans - SERP

The Company maintains a SERP for the benefit of the executive officers who are designated as participants by the Committee. SERP was designed to attract and retain executive officers who have contributed and will continue to contribute to our overall success by ensuring that adequate compensation will be provided or replaced during retirement.

Benefits under SERP vest after ten years of service or upon death or disability while a participant is employed by the Company. The Committee may reduce the vesting period,

which typically would occur in association with recruiting efforts. Benefits, whether or not vested, are forfeited in the event a participant is terminated for cause.

Generally, benefits are based upon a participant’s attained age at the time of separation from service. The maximum benefit is payable at age 65 and is 65% of final compensation. Payments from the Company’s defined benefit pension plan (Pension Plan), certain employer contributions to the 401(k) Plan and payments paid or payable from prior and subsequent employers’ defined benefit retirement or similar supplemental plans reduce or offset SERP benefits. If a participant has not attained age 55 at the time of separation and receives SERP benefits before attaining age 65, SERP benefits are actuarially reduced to reflect early payment. The “Pension Benefits” table lists the present value of accumulated SERP benefits for the named executive officers as of December 31, 2018.

In 2011, the Committee amended SERP to eliminate the business transaction benefit previously included in SERP, as well as the requirement that a SERP participant be a party to an employment agreement to receive change in control benefits.

In July 2014, the Cleco Corporation Board of Directors voted to close SERP to new participants. With regard to current SERP participants, two participants have agreed to fix the base compensation portion of their SERP calculation as of December 31, 2018. Additionally, they have agreed to use target rather than actual awards under the annual incentive plan for years 2016 and 2018 for the average incentive award portion of the SERP calculation. A third participant’s SERP benefit will be set at a specified amount based upon the year of separation.

In the event a SERP participant’s employment is involuntarily terminated by the Company without cause, or the participant terminates his or her employment on account of good reason, occurring within the 36-month period following a change in control event for all participants who commenced participation in SERP prior to October 28, 2011, or the 24-month period following a change in control event for all participants who commenced participation in SERP on or after October 28, 2011, such participant’s benefit shall: (i) become fully vested; (ii) be increased by adding three years to an affected participant’s age, subject to a minimum benefit of 50% of final compensation; and (iii) be subject to a modified reduction determined by increasing the executive’s age by three years.

Change in Employment Status and Change in Control Events

During 2018, the Company had no employment agreements with named executives other than the agreement with Mr. Fontenot as President & Chief Executive Officer. The Company may enter into employment agreements with its executives generally in connection with recruiting efforts. The standard agreement provides for a non-renewing term, generally two years, and does not contain a change in control tax gross-up provision.

The Cleco Corporation Executive Severance Plan

In recognition of the non-renewal of executive employment contracts, the Cleco Corporation Board of Directors adopted the Cleco Corporation Executive Severance Plan (the Executive Severance Plan) on October 28, 2011. The Executive Severance Plan provides the executive officers and other key employees with cash severance benefits in the event

of a termination of employment, including involuntary termination in connection with a change in control.

Perquisites and Other Benefits

The Company may make available the following perquisites to its executive officers:


•	Executive officer physicals - as a condition of receiving their STIP award, we require and pay for an annual physical for the executive officers and their spouses;


•	Spousal/companion travel - in connection with the various industry, governmental, civic, and entertainment activities of the executive officers, we pay for spousal/companion travel associated with such events;

•

Relocation program - in addition to the standard relocation policy available to all employees, we maintain a policy whereby the executive officers and other key employees may request that the Company pay real estate agent and certain other closing fees should the officer or key employee sell his/her primary residence or that the Company purchase the executive officer’s or key employee’s primary residence at the greater of its documented cost (not to exceed 120% of the original purchase price) or average appraised value. Typically, this occurs when an executive officer or key employee relocates at the Company’s request; and

•

Purchase program - under the Executive Severance Plan, a covered executive officer may request the Company to purchase his/her primary residence in the event he or she is involuntarily terminated without cause or separates for good reason, either in connection with a change in control and further provided the executive officer relocates more than 100 miles from the residence to be purchased. Limits on the purchase amount are the same as the relocation program described above.

The Committee approves the perquisites based on what it believes is prevailing market practice, as well as specific Company needs. The Company believes the relocation program is an important element in attracting executive talent. Perquisite expenses related to business and spousal/companion travel for the executive officers are reviewed by internal audit and any exceptions are reported to the Audit Committee.

See the section titled “All Other Compensation” for details of these perquisites and their value for the named executive officers.

The executive officers, including the named executive officers, participate in the other benefit plans on the same terms as other employees. These plans include paid time off for vacation, sick leave, and bereavement; group medical, dental, vision, and prescription drug coverage (including the annual wellness program); basic life insurance; supplemental life insurance; dependent life insurance; accidental death and dismemberment insurance; defined benefit pension plan (for those hired prior to August 1, 2007); and the 401(k) Plan with a Company match for those employees hired before August 1, 2007, as well as a 401(k) Plan with an enhanced benefit for those employees hired on or after August 1, 2007.

Board Compensation

The Governance and Public Affairs Committee may engage the Committee’s independent consultant from time to time to conduct market competitive reviews of the Board

compensation program. Details of the Boards’ compensation are shown in the “Board of Manager Compensation” table.

Other Tools and Analyses to Support Compensation Decisions

Tally Sheets

At least annually, the Committee reviews tally sheets that set forth the items listed below. This review is conducted as part of the comparison of the compensation and benefit components that are prevalent within the Comparator Group. The comparison facilitates discussion with the Committee’s outside independent consultant as to the use and amount of each compensation and benefit component versus the applicable Peer Group.


•	Annual compensation expense for each named executive officer - this includes the rate of change in total cash compensation from year-to-year; the annual periodic cost of providing retirement benefits; and the annual cost of providing other benefits such as health insurance, as well as the status of any deferred compensation.


•	Reportable compensation - to further evaluate total compensation; to evaluate total compensation of the CEO compared to the other executive officers; and to otherwise evaluate internal equity among the named officers.


•	Post-employment payments - reviewed pursuant to the potential separation events discussed in “Potential Payments at Termination or Change in Control.”

Trends and Regulatory Updates

As needed, and generally at least annually, the Committee reviews reports related to industry trends, legislative and regulatory developments, and compliance requirements based on management’s analysis and guidance provided by Pay Governance, as applicable. Plan revisions and compensation program design changes are implemented as needed.

Risk Assessment

The Committee also seeks to structure compensation that will provide sufficient incentives for the executive officers to drive results while avoiding unnecessary or excessive risk taking that could harm the long-term value of the Company. The Committee believes that the following actions and/or measures help achieve this goal:


•	the Committee reviews the design of the executive compensation program to ensure an appropriate balance between business risk and resulting compensation;


•	the Committee allocates pay mix between base salary and performance-based pay to provide a balance of incentives;


•	the design of the incentive measures is structured to align management’s actions with the interests of the investors;


•	incentive payments are dependent on the Company’s performance measured against pre-established targets and goals and/or compared to the performance of companies in the Peer Group;


•	the range and sensitivity of potential payouts relative to target performance are reasonable;


•	the Committee imposes checks and balances on the payment of compensation discussed herein;


•	detailed processes establish the Company’s financial performance measures under its incentive plans; and


•	incentive targets are designed to be challenging, yet achievable, to mitigate the potential for excessive risk-taking behaviors.

IRC Section 409A

IRC Section 409A generally was effective as of January 1, 2005. The section substantially modified the rules governing the taxation of nonqualified deferred compensation. The consequences of a violation of IRC Section 409A, unless corrected, are the immediate taxation of amounts deferred, the imposition of an excise tax and the assessment of interest on the amount of the income inclusion, each of which is imposed upon the recipient of the compensation. The plans, agreements and incentives subject to IRC Section 409A have been operated pursuant to and are in compliance with IRC Section 409A.

IRC Section 162(m)

IRC Section 162(m) limits to $1,000,000 the amount Cleco may deduct in a tax year for compensation paid to the CEO and each of the three other most highly compensated executive officers (other than the CFO).

The Committee took actions considered appropriate to preserve the deductibility of compensation paid to executive officers, but the Committee did not adopt a formal policy that required all compensation to be fully deductible. As a result, the Committee may have paid or awarded compensation that it deemed necessary or appropriate to achieve our business goals and to align the interests of our executives with those of Cleco’s investors, whether or not the compensation was performance-based within the meaning of IRC Section 162(m) or otherwise fully deductible.

are due in part to the actuarial impact from an increase in the discount rate used to calculate future benefits under the Pension Plan and SERP. Negative changes, if any, are reported as zero. Mr. Bunting’s and Ms. Taylor’s increases were due to the significant increase in the final average earnings portion of their benefit calculation as the result of the 2017 bonus paid in 2018, as neither of their final average earnings calculations was frozen. This compensation will be payable to the named executive in future years, generally as post-employment retirement payments.

Salary

Data in Column C includes pay for time worked, as well as pay for time not worked, such as vacation, sick leave, jury duty, bereavement, and holidays. The salary level of each of the named executives is determined by a review of market data for companies comparable in size and scope to Cleco, as discussed under “— Compensation Discussion and Analysis — Decisions Made in 2018 with Regard to Each Compensation and Benefit Component — Base Salary.” In some instances, merit lump sum payments are used to recognize positive performance when base pay has reached or exceeded the Company’s base pay policy target, and are included in the salary column. Deferral of 2018, 2017, and 2016 base pay made by Mr. LaBorde pursuant to the Deferred Compensation Plan also is included in the salary column and is further detailed in the “Nonqualified Deferred Compensation” table. Adjustments to base pay are recommended to the Committee typically on an annual basis, and if approved, usually are implemented in January. Base salary changes made in 2018 for our named executives and the reasons for those changes are discussed in “— Compensation Discussion and Analysis — Decisions Made in 2018 with Regard to Each Compensation and Benefit Component — Base Salary.”

Bonus

Column D, “Bonus” includes non-plan-based, discretionary incentives earned during 2018, 2017, or 2016. No such awards were earned in 2018, 2017, or 2016 by the named executive officers.

Non-Equity Incentive Plan Compensation

Column E, “Non-Equity Incentive Plan Compensation” contains cash awards earned during 2018 that will be paid in March 2019 under the STIP; earned during 2017 and paid in March 2018 under the STIP; and earned during 2016 and paid in December 2016 and/or March 2017 under the Pay for Performance Plan (PFP). Deferral of annual cash incentive payments made by Mr. Fontenot and Mr. LaBorde pursuant to the Deferred Compensation Plan also is included in Column E and is further detailed in the “Nonqualified Deferred Compensation” table. Column E also includes cash awards earned during 2018 that will be paid in February 2019 for the LTIP performance period ended December 31, 2018.

Change in Pension Value and Nonqualified Deferred Compensation Earnings

The values in Column F represent the aggregate increase in the actuarial present value of benefits earned by each named executive officer during 2018, 2017, and 2016 under the Pension Plan and SERP, including SERP’s supplemental death benefit provision. These values do not represent cash received by the named executives in 2018, 2017, and 2016; rather, these amounts represent the present value of future retirement payments we project will be made to each named executive.

Changes in the present value of the Pension Plan and SERP benefits from December 31, 2017 to December 31, 2018; from December 31, 2016 to December 31, 2017; and from December 31, 2015 to December 31, 2016 result from an additional year of earned service, compensation changes and the increase (or decrease) in value caused by the change in the discount rate used to compute present value. (Generally, a decrease in the discount rate will increase the present value of benefits and an increase in the discount rate will decrease the present value.) If the discount rate increases by a large enough amount, it can cause the accrued pension and SERP liability to decline versus the prior year. When this occurs, the values reported for Column F are zero.

The present value of the accumulated benefit obligation for each named executive officer is included in the table, “Pension Benefits.” These values are reviewed by the Committee in conjunction with its annual tally sheet analysis. An explanation of why the Company uses SERP and its relationship to other compensation elements can be found in “Decisions Made in 2018 With Regard to Each Compensation and Benefit Component.”

Column F also would include any above-market or preferential earnings on deferred compensation paid by the Company. There were no such preferential earnings paid by the Company in 2018, 2017, and 2016.

All Other Compensation

Payments made to or on behalf of our named executive officers in Column G, “All Other Compensation,” include the following:


•	Contributions by Cleco under the 401(k) Plan on behalf of the named executive officers;


•	Term life insurance premiums paid for the benefit of the named executive officers;


•	For 2016, the cash payout of restricted shares settled at the closing in accordance with the terms of the Merger Agreement;


•	Spousal travel;


•	For 2016, accumulated dividends paid for the LTIP three-year performance cycle ended December 31, 2015, as well as dividends paid on restricted shares settled at the closing of the 2016 Merger;


•	For 2018, for Ms. Taylor, a cash retention payment for completing the transition of a new CFO prior to her retirement and a retirement incentive payment received under a plan for all employees who give a six-month retirement notice; and


•	Federal Insurance Contributions Act (FICA) tax due currently and paid by the Company on the annual increase in the named executive officers’ future SERP benefits.

enhanced 401(k) Plan for those employees hired (or rehired) on or after August 1, 2007.

Vesting in SERP requires ten years of service. Under the terms of SERP, automatic vesting occurs upon a Change in Control if a participating executive is involuntarily terminated from the Company. Mr. Fontenot, Ms. Callis, Mr. Bunting, Mr. Laborde, and Ms. Taylor are all fully vested in the SERP based on years of service. Mr. Hasan is not a participant in the SERP.

The present value of each of the named executive officer’s accumulated benefit values was actuarially calculated and represents the values as of December 31, 2018. These calculations were made using the projected unit credit method for valuation purposes and a discount rate of 4.35%. Other material assumptions relating to the valuation include use of the RP-2006 Employee and Healthy Annuitant gender distinct mortality tables projected generationally using Scale MP-2018, assumed retirement at age 65 and retirement payments in the form of joint and 100% survivor with 10 years certain payment, with the exception of Ms. Callis whose benefit is payable as a 10-year certain and life annuity.

The sum of the change in actuarial value of the Pension Plan during 2018 and the change in value of SERP is included in Column F, “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” in the Summary Compensation Table. Negative changes, if any, are reported as zero.

Pension Plan

The Cleco Corporate Holdings LLC Pension Plan, restated effective August 1, 2015, is a defined benefit plan funded entirely by employer contributions. Effective August 1, 2007, the Pension Plan was closed to new participants. Employees hired or rehired on or after August 1, 2007 are eligible to participate in an enhanced 401(k) Plan. Mr. Fontenot, Mr. Bunting, and Ms. Taylor were hired or rehired prior to August 1, 2007.

Benefits under the Pension Plan are determined by years of service, age at retirement, and highest total average compensation for any consecutive five calendar years during the last ten years of employment. Earnings include base pay, cash incentives, merit lump sums, imputed income with respect to life insurance premiums paid by the Company, pre-tax contributions to the 401(k) Plan, salary and bonus deferrals to the Deferred Compensation Plan, and any other form of payment taxable under IRC Section 3401(a). Earnings exclude reimbursement of expenses, gifts, severance pay, moving expenses, outplacement assistance, relocation allowances, welfare benefits, benefits accrued (other than salary and bonus deferrals) or paid pursuant to the Deferred Compensation Plan, the value of benefits accrued or paid (including dividends) under the LTIP, income from the exercise of stock options and income from disqualifying stock dispositions. For 2018, the amount of earnings was further limited to $275,000 as prescribed by the IRS.

The formula for calculating the defined benefit under the Pension Plan is as follows:

1. Defined Benefit = Annual Benefit + Supplement Benefit

2. Annual Benefit = Final Average Earnings × Years of Service × Pension Factor

3. Supplement Benefit = (Final Average Earnings - Social Security Covered Compensation) × Years of Service × .0065

The pension factor varies with the retirement year. For 2018, the applicable factor was 1.25%. Social Security-covered income is prescribed by the IRS based on the year of birth.

Benefits from the Pension Plan are generally paid at normal, late or early retirement dates and are subject to a limit prescribed by the IRS, generally $220,000 in 2018. Normal retirement at age 65 entitles the participant to a full pension. A participant may elect to delay retirement past age 65 as long as he/she is actively employed. Years of service continue to accumulate (up to a maximum of 35) and earnings continue to count toward the final earnings calculation. If a participant chooses to retire after age 55 but before normal retirement age, the amount of the annual pension benefit is reduced by 3% per year between ages 55 and 62. For example, the normal pension benefit at age 55 is reduced by 21%.

SERP

SERP is designed to provide retirement income of 65% of an executive officer’s final compensation at normal retirement, age 65. Final compensation under SERP is based on the sum of the highest annual salary paid during the five years prior to termination of employment and the average of the three highest PFP Plan or STIP awards paid to the participant during the preceding 60 months. Final compensation also is determined without regard to the IRS limit on compensation. SERP benefit rate at normal retirement is reduced by 2% per year for each year a participant retires prior to age 65, with a minimum benefit rate of 45% at age 55. The final benefit rate also may be reduced further if a participant separates from service prior to age 55. This actuarially determined reduction factor is equivalent to that used in our Pension Plan, which is 3% for each year from age 55 to 62. For example, if a SERP participant were to terminate service at age 50 and start receiving his or her SERP benefit at age 55, his or her SERP benefit rate would be 35.6%. This is the product of the minimum SERP benefit of 45% reduced by another 21% for early commencement. The actual SERP benefit payments are reduced if a participant is to receive benefit payments from our Pension Plan, has received certain employer contributions related to our 401(k) Plan and/or is eligible to receive retirement-type payments from former employers and subsequent employers, if applicable. Mr. Olagues will receive reduced payments from SERP because of retirement-type payments received or to be received from a former employer.

SERP provides survivor benefits, which are payable to a participant’s surviving spouse or other beneficiary. SERP also contains a supplemental death benefit that was added in 1999 to reflect market practice. If a SERP participant dies while actively employed, the amount of the supplemental death benefit is equal to the sum of two times the participant’s annual base salary as of the date of death and the participant’s target bonus payable under the annual incentive plan for the year in which death occurs. If a participant dies after termination of employment, the supplemental benefit is equal to the sum of the participant’s final annual base salary and target bonus payable under the annual incentive plan for the year in which the participant retired or otherwise terminated employment. The supplemental death benefit is not dependent on years of service.

In July 2014, Cleco Corporation’s Board of Directors closed SERP to new participants. In August 2016, the Company’s Board of Managers voted to freeze salary and bonus components used in the final compensation calculation

Deferred Compensation

Named executives and other key employees are eligible to participate in the Company’s Deferred Compensation Plan. Participants are allowed to defer up to 50% of their base salary and up to 100% of their annual cash incentive, as reported in Columns C and G in the Summary Compensation Table. Consequently, the executive officer contributions listed in Column B above are made by the participant and not by Cleco. Mr. Fontenot and Mr. LaBorde elected to participate in the Deferred Compensation Plan during 2018. All deferral elections for 2018 were made prior to the beginning of 2018 as required by the regulations under IRC Section 409A. There are no matching contributions made by the Company.

Deferrals become general funds for use by the Company to be repaid to the participant at a pre-specified date. Short-term deferrals may be paid out as early as five years following the end of the plan year (i.e., the year in which compensation was earned). Retirement deferrals are paid at the later of termination of service or the attainment of an age specified by the participant. A bookkeeping account is maintained for each participant that records deferred salary and/or bonus, as well as earnings on deferred amounts. Earnings are determined by the performance of notional investment alternatives, which are similar to the investments available under the 401(k) Plan. Participants select which of these alternatives will be used to determine the earnings on their own accounts. The Deferred Compensation Plan is not intended to provide for the payment of above-market or preferential earnings (as these terms are defined under the SEC regulations) on compensation deferred under the plan. As such, the Deferred Compensation Plan does not provide a guaranteed rate of return.

Potential Payments at Termination or Change in Control

The following tables “Potential Payments at Termination or Change in Control” detail the estimated value of payments and benefits provided to each of our named executive officers assuming the following separation events occurred as of December 31, 2018: termination by the executive; disability; death; retirement; constructive termination; termination by the Company for cause; and termination in connection with a change in control. The Company has selected these events based on long-standing provisions in our employee benefit plans such as the Pension Plan and 401(k) Plan, or because their use is common within the industry and Comparator Group. Some of the potential severance payments are governed by the separate documents establishing the STIP, LTIP, and SERP.

At its October 2011 meeting, Cleco Corporation’s Compensation Committee approved the Executive Severance Plan to provide severance benefits to executive officers. In October and December 2014 and July 2015, the Cleco Corporation’s Compensation Committee approved amendments to the Executive Severance Plan. At December 31, 2018, all of the named executive officers, other than the former executive officers, were covered by the Executive Severance Plan.

The following narrative describes the type and form of payments and benefits for each separation event. The tables under “Potential Payments at Termination or Change in Control” provide an estimate of potential payments and benefits to each named executive officer under each separation event. Throughout this section, reference to “executive officers” is inclusive of named executive officers.

Termination by the Executive

If an executive officer resigns voluntarily, no payments are made or benefits provided other than those required by law.

Disability

Annual disability benefits are payable when a total and permanent disability occurs and are paid until the executive officer’s normal retirement age, which is age 65. This benefit is provided under SERP and is paid regardless of whether the executive was vested in SERP at the time of disability. At age 65, a disabled executive is eligible to receive annual retirement benefits under the Pension Plan, for those who are participants, and SERP as outlined under the headings “Pension Plan” and “SERP,” respectively. The executive officer also is eligible to receive a one-time, prorated share of the current year’s STIP award and a prorated award for each LTIP performance cycle in which he/she participates to the extent those performance cycles award at their completion.

Death

A prorated share of the current year’s STIP award and a supplemental death benefit provided from SERP are paid to an executive officer’s designated beneficiary in the event of death in service. Both are one-time payments. The executive officer’s designated beneficiary also is eligible to receive a prorated award for each LTIP performance cycle in which the executive officer participates to the extent those performance cycles award at their completion.

Annual survivor benefits are payable to an executive officer’s surviving spouse for his/her life, or if there is no surviving spouse, to the executive officer’s designated beneficiary for a period of ten years or, if no designated beneficiary is named, to the executive officer’s estate for a period of ten years. Amounts are calculated under the provisions of the Pension Plan and SERP. Please see the discussion under the headings “Pension Plan” and “SERP,” respectively, as well as SERP provisions relating to death while in service. Survivor benefits are paid from SERP regardless of vested status in SERP at the time of death. The SERP supplemental death benefit is paid only to executives who were employed by the Company on or after December 17, 1999. All of our named executives are eligible for the death benefit.

Retirement

In the event of early or normal retirement, the executive officer is eligible to receive a prorated share of the current year’s STIP award and at least a prorated award for each LTIP performance cycle in which he/she participates to the extent those performance cycles award at their completion. Retirement benefits are provided pursuant to the Pension Plan and SERP. Payments are made monthly and are calculated using the assumptions described in the discussion following the “Pension Benefits” table.

Constructive Termination

Payments made and benefits provided upon a constructive termination are ordinarily greater than payments made on account of an executive officer’s retirement, death or disability because separation effectively is initiated by the Company. Certain payments are made contingent upon the execution of a waiver, release and covenants agreement in favor of the Company. Constructive termination also may be initiated by an executive officer if there has been (i) a material reduction in

his/her base compensation, other than a reduction uniformly applicable to all executive officers; and (ii) a contemporaneous, material reduction in his/her authority, job duties, or responsibilities.

Under the terms of the Executive Severance Plan, an executive would receive constructive termination payments including up to 52 weeks of base compensation, up to $50,000 in lieu of outplacement services and reimbursement of premiums paid to maintain coverage under our medical plan for up to 18 months. The executive also would be eligible for a prorated portion of the current year’s payout under the STIP and a prorated award for the LTIP performance cycles in which he/she participates to the extent those performance cycles award at their completion.

If the executive officer has vested retirement benefits and has attained eligible retirement age, he/she would receive retirement benefits as described under “Pension Benefits.”

Termination for Cause

“Cause” is defined as an executive’s (i) intentional act of fraud, embezzlement or theft in the course of employment or other intentional misconduct that is materially injurious to the Company’s financial condition or business reputation; (ii) intentional damage to Company property, including the wrongful disclosure of its confidential information; (iii) willful and intentional refusal to perform the essential duties of his/her position; (iv) failure to fully cooperate with government or independent agency investigations; (v) conviction of a felony or crime involving moral turpitude; (vi) willful, reckless, or negligent violation of the material provisions of Cleco’s Code of Conduct; or (vii) intentional, reckless, or intentional acts or failures to act in a manner which materially compromises his/her ability to perform the essential duties of his/her position; or (viii) willful, reckless, or negligent violation of rules related to the Sarbanes-Oxley Act or rules adopted by the SEC. No payments, other than those required by law, are made or benefits provided under the Executive Severance Plan if an executive officer is terminated for cause. If an executive officer is vested in SERP, that benefit is forfeited. The value of that forfeiture is shown as a negative number in the separation payments tables.

Change in Control

The term “Change in Control” is defined in the LTIP. One or more of the following triggering events constitute a Change in Control:

•

Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or an Affiliate or any “person” who on the effective date of this Plan is a director, officer, or is the “beneficial owner” (as determined in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of outstanding securities of the Company or an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)) sponsored by the Company or an Affiliate, is or becomes the “beneficial owner” (as determined in Rule 13d-3 promulgated under the Exchange Act) of 80% or more of the combined voting power of the outstanding securities of the Company;


•	The Company is party to a merger or consolidation with another entity and, as a result of such transaction, 80% or more of the combined voting power of outstanding securities of the Company or its successor in the merger (or a direct or

indirect parent company of the Company or its successor in the merger) is owned in the aggregate by persons who were not “beneficial owners” (as determined in Rule 13d-3 promulgated under the Exchange Act) of securities of the Company immediately before such transaction;


•	The Company sells, leases, or otherwise disposes of, in one transaction or in a series of related transactions, all or substantially all of its assets;


•	The owners of the Company approve a plan of dissolution or liquidation; or


•	All or substantially all of the assets or the issued and outstanding membership interests of Cleco Power LLC is sold, leased or otherwise disposed of in one or a series of related transactions to a person, other than the Company or an Affiliate.

Except as described below, payments are made and benefits provided only if an executive’s employment is terminated during the 60-day period preceding or the 24-month period following the Change in Control.

Termination must be involuntary and by the Company without cause or initiated by the executive on account of “Good Reason.” Good reason means that (i) a Participant’s base compensation in effect immediately before the commencement of a Change in Control Period is materially reduced, or there is a material reduction or termination of such Participant’s rights to any employee benefit in effect immediately prior to such period; (ii) a Participant’s authority, duties or responsibilities are materially reduced from those in effect immediately before the commencement of a Change in Control Period, or such Participant has reasonably determined that, as a result of a change in circumstances that materially affects his or her employment with the Company, he or she is unable to exercise the authority, power, duties and responsibilities assigned to him or her immediately before the commencement of such period; or (iii) a Participant is required to transfer to an office or business location that is more than 60 miles from the primary location to which he or she was assigned prior to the commencement of a Change in Control Period. No event or condition shall constitute Good Reason hereunder unless (a) a Participant provides to the Committee written notice of his or her objection to such event not later than 60 days after such Participant first learns, or should have learned, of such event; (b) such event is not corrected by the Company promptly after receipt of such notice, but in no event more than 30 days after receipt thereof; and (c) such

Participant Separates from Service not more than 15 days following the expiration of the 30-day period described in clause (b) hereof. The executive also must satisfy the conditions included in the waiver, release and covenants agreement defined in the Executive Severance Plan.

Under the Executive Severance Plan, an executive would receive an amount up to two times the sum of annualized base salary and the average non-equity incentive plan bonus over the last three fiscal years and reimbursement of COBRA premiums for up to 24 months. Payments may also include the purchase of the executive officer’s primary residence and reimbursement of relocation expenses, but only if the executive relocates his/her primary residence more than 100 miles. No excise tax payments or gross-ups are made; instead, benefits will be reduced to avoid the imposition of the tax. The numbers shown below do not give effect to this reduction.

Subject to the conditions described above, upon a Change in Control, SERP benefits are: (i) fully vested; (ii) increased by adding three years to an affected executive’s age, subject to a minimum benefit of 50% of compensation; and (iii) subject to a modified actuarial reduction determined by increasing the executive’s age by three years.

If an executive officer is vested and of eligible retirement age, he or she may become eligible to begin to receive the annual retirement benefit described above upon a Change in Control.

The following tables set forth the value of post-employment payments and benefits that are not generally made available to all employees. Each separation event is assumed to occur on December 31, 2018. Retirement is assumed to occur at age 55 or the named executive officer’s actual attained age if greater than 55. Estimated payments under our STIP and LTIP for disability, death, retirement and constructive termination are uncertain until the completion of the performance period/cycle. In the case of the STIP, the performance period is the current fiscal year. The estimated payment for the home purchase and relocation is a projection of the expense to the Company to sell the named executive officer’s principal residence including any loss avoided by the named executive officer by having the right to sell the residence to the Company, plus the projected cost to the Company to relocate the named executive officer.

Pursuant to Item 401(j) of Regulation S-K, the separation events disclosed in this Annual Report on Form 10-K are assumed to occur in the past, as of December 31, 2018.

BOARD OF MANAGERS COMPENSATION

2018 Board of Managers Compensation



Name⁽¹⁾	Fees Earned or Paid in Cash and/ or Stock ($)		Total ($)
A	B		C
Rick Gallot	$	136,676	$	136,676
Randy Gilchrist	$	136,676	$	136,676
Peggy Scott	$	203,365	$	203,365
Melissa Stark	$	3,750	$	3,750
Bruce Wainer	$	136,676	$	136,676

⁽¹⁾Messrs. Chapman, Dinneny, Leslie, Perry, Rubin, and Turner were appointed to the Boards by the Owner Group and do not receive additional compensation for their service on the Boards.

General

Column B, “Fees Earned or Paid in Cash and/or Stock” represents cash compensation earned and/or received in 2018.

A non-management Board Manager may elect to participate in the Company’s Deferred Compensation Plan and defer the receipt of all or part of his or her fees. Benefits are equal to the amount credited to each Board Manager’s individual account based on compensation deferred plus applicable investment returns as specified by the director upon election to participate in the plan. Investment options are similar to those provided to participants in the 401(k) Plan. Funds may be reallocated between investments at the discretion of the Board Manager. Accounts, which may be designated separately by deferral year, are payable in the form of a single-sum payment or in the form of substantially equal annual installments, not to exceed 15, when a Board Manager ceases to serve on the Board or attains a specified age.

Fees Earned or Paid in Cash and/or Stock

Between January 1 and May 1, 2018, each Board Manager who is not a Cleco employee or appointed by the Owner Group, except Ms. Stark, received an annual cash retainer of $130,000. Beginning May 1, 2018, each such Manager was compensated at an annual rate of $140,000. Ms. Stark received an annual cash retainer of $3,750. Each committee chair who is not a Cleco employee or appointed by the Owner Group received an additional annual retainer of $20,000. Between January 1 and May 1, the non-management Chair of the Boards received an additional annual retainer of $50,000. Beginning May 1, 2018, the non-management Chair was compensated with an additional retainer of $75,000.

Board Managers are permitted to defer receipt of their fees under the Company’s Deferred Compensation Plan. Messrs. Gallot and Gilchrist elected to defer all or a portion of their fees in 2018.

Cleco reimburses Board Managers for travel and related expenses incurred for attending meetings of Cleco’s Boards and Board committees, including travel costs for spouses/companions. No expenses for spousal/companion travel were incurred during 2018.

Cleco also provides its Board Managers who are not employed by Cleco or appointed by the Owner Group with $200,000 of life insurance and permanent total disability coverage under a group accidental death and dismemberment plan maintained by Cleco Power. The total 2018 premium for all coverage (exempt employees, officers and Board Managers) under this plan was $6,450.

Interests of the Board of Managers

In 2018, no non-management member of Cleco’s Boards performed services for or received compensation from Cleco or its affiliates except for those services relating to his or her duty as a member of Cleco’s Boards.

REPORT OF THE LEADERSHIP DEVELOPMENT AND COMPENSATION COMMITTEE

The Leadership Development and Compensation Committee of the Boards (see “Boards of Managers of Cleco” above and “Director Independence and Related Party Transactions” below), includes four managers, one of whom meets the additional requirements for independence which were adopted by the Board. The Leadership Development and Compensation Committee operates under a written charter last revised in February 2018, a copy of which is posted on Cleco’s web site at www.cleco.com; About Us; Leadership; Board Committees. A copy of this charter also is available free of charge by request sent to: Public Relations, Cleco, P.O. Box 5000, Pineville, LA 71361-5000.

The Leadership Development and Compensation Committee was constituted in April 2016.

Based on the review and discussions referred to above, the Leadership Development and Compensation Committee recommended to the Company’s Boards that the CD&A and related required compensation disclosure tables be included in the this Annual Report on Form 10-K and filed with the SEC.

The Leadership Development and Compensation Committee of the Boards of Managers of Cleco Holdings and Cleco Power

Christopher Leslie, Chair

Andrew Chapman

Rick Gallot

Steven Turner

Compensation Committee Interlocks and Insider Participation

The members of the Leadership Development and Compensation Committee are set forth above. There are no matters relating to interlocks or insider participation of the Leadership Development and Compensation Committee members that Cleco is required to report.

CEO Pay Ratio

The aggregate compensation of the executive who served in the CEO role in 2018 (Mr. Fontenot) was $1,409,794. This amount differs from the aggregate amount reflected in the Summary Compensation Table included in this Annual Report on Form 10-K because of the inclusion of the value of the Company’s contribution to health and welfare benefits. The median employee’s annual total compensation for 2018 was $107,854, calculated including the same components of total pay as was used for Mr. Fontenot. As a result, we estimate that the CEO’s 2018 annual total compensation was 13.1 times that of the median employee’s annual total compensation. The median employee was determined based on employees of the Company on December 31, 2018, using the consistently applied compensation measure of target total cash compensation (including base salary and target bonus). Target total cash compensation was annualized for those employees that were not employed for the full year of 2018.

We believe that the above pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. In addition, because the SEC rules for identifying the median employee allow companies to adopt a

Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP (PwC) for the years ended December 31, 2018, and 2017, respectively, were as follows:



	2018		2017
Audit fees	$	1,801,292	$	1,595,605
Audit related fees	1,376,880		132,000
Tax fees	383,112		219,564
Other fees	4,725		41,212
Total	$	3,566,009	$	1,988,381

The Audit fees include professional fees rendered by PwC for financial statement audits and reviews under statutory or regulatory requirements and services that generally only the auditor reasonably can provide, including issuance of comfort letter and consents for debt and equity issuances and other asset services required by statute or regulation.

The Audit related fees consist of assurance and related services that are traditionally performed by the auditor such as accounting assistance and due diligence in connection with proposed acquisitions or sales, consulting concerning financial accounting and reporting standards and audits of stand-alone financial statements or other assurance services not required by statute or regulation.

The Tax fees consist of professional services rendered by PwC for tax compliance, tax planning and tax advice, and consulting services, including assistance and representation in connection with tax audits and appeals, tax advice related to proposed acquisitions or sales, employee benefit plans and requests for rulings or technical advice from taxing authorities.

The Other fees primarily reflect costs for consulting services and an accounting research software license.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has established a policy requiring its pre-approval of all audit and non-audit services provided by the independent registered public accounting firm. The policy requires the general pre-approval of annual audit services and specific pre-approval of all other permitted services. In determining whether to pre-approve permitted services, the Audit Committee considers whether such services are consistent with SEC rules and regulations. Furthermore, requests for pre-approval for services that are eligible for general pre-approval must be detailed as to the services to be provided. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date. During 2018 and 2017, all audit and non-audit fees were pre-approved by the Audit Committee in accordance with the policy described above and pursuant to applicable rules of the SEC.

For the fiscal years ended December 31, 2018, and 2017, professional services provided for Cleco Power that were directly billed to Cleco Holdings, were allocated to Cleco Power though not billed directly to Cleco Power. The following is Cleco Power’s allocation of professional services provided by PwC:



	2018		2017
Audit fees	$	1,800,442	$	1,589,633
Audit related fees	1,376,597		131,657
Tax fees	382,927		218,727
Other fees	4,723		41,055
Total	$	3,564,689	$	1,981,072



CLECO HOLDINGS (Parent Company Only)	SCHEDULE I



Condensed Balance Sheets
	AT DEC. 31,
(THOUSANDS)	2018		2017
Assets
Current assets
Cash and cash equivalents	$	76,938	$	48,732
Accounts receivable - affiliate	8,374		6,880
Other accounts receivable	2,755		209
Taxes receivable, net	7,046		15,172
Cash surrender value of trust-owned life insurance policies	59,894		62,839
Total current assets	155,007		133,832
Equity investment in subsidiaries	3,247,809		3,226,780
Tax credit fund investment, net	—		4,355
Accumulated deferred federal and state income taxes, net	101,015		105,575
Other deferred charges	4,532		1,037
Total assets	$	3,508,363	$	3,471,579

Liabilities and member's equity
Liabilities
Current liabilities
Accounts payable	$	1,322	$	4,354
Accounts payable - affiliate	18,047		5,621
Interest accrued	7,576		7,621
Deferred compensation	10,753		12,132
Other current liabilities	273		272
Total current liabilities	37,971		30,000
Postretirement benefit obligations	3,894		4,404
Long-term debt, net	1,341,758		1,340,818
Total liabilities	1,383,623		1,375,222
Commitments and contingencies (Note 6)
Member's equity
Membership interest	2,069,376		2,069,376
Retained earnings	53,578		29,902
Accumulated other comprehensive loss	1,786		(2,921		)
Total member's equity	2,124,740		2,096,357
Total liabilities and member's equity	$	3,508,363	$	3,471,579
The accompanying notes are an integral part of the Condensed Financial Statements.



CLECO HOLDINGS (Parent Company Only)	SCHEDULE I



Condensed Statements of Cash Flows
	SUCCESSOR									PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Operating activities
Net cash provided by operating activities	$	97,614		$	124,817		$	36,811		$	34,904
Investing activities
Contributions to tax credit fund	—			(630		)	—			—
Return of equity investment in tax credit fund	2,775			7,502			901			476
Contribution to subsidiary	(1,250		)	—			(50,000		)	—
Other investing	442			—			—			—
Net cash provided by (used in) investing activities	1,967			6,872			(49,099		)	476
Financing activities
Draws on credit facility	—			73,000			—			3,000
Payments on credit facility	—			(73,000		)	—			(10,000		)
Issuance of long-term debt	—			—			1,350,000			—
Repayment of long-term debt	—			—			(1,350,000		)	—
Payment of financing costs	(25		)	(269		)	(3,755		)	—
Dividends paid on common stock	—			—			(572		)	(24,579		)
Contribution from member	—			—			100,720			—
Distributions to member	(71,350		)	(84,065		)	(88,765		)	—
Net cash (used in) provided by financing activities	(71,375		)	(84,334		)	7,628			(31,579		)
Net increase (decrease) in cash and cash equivalents	28,206			47,355			(4,660		)	3,801
Cash and cash equivalents at beginning of period	48,732			1,377			6,037			2,236
Cash and cash equivalents at end of period	$	76,938		$	48,732		$	1,377		$	6,037

Supplementary cash flow information
Interest paid, net of amount capitalized	$	53,798		$	52,026		$	26,264		$	126
Income taxes paid (refunded), net	$	2		$	(6	)	$	4,263		$	1
Supplementary non-cash investing and financing activity
Non-cash contribution to subsidiary, net of tax	$	3,865		$	—		$	—		$	—
The accompanying notes are an integral part of the Condensed Financial Statements.



Note 1 — Summary of Significant Accounting Policies

The condensed financial statements represent the financial information required by SEC Regulation S-X 5-04 for Cleco Holdings, which requires the inclusion of parent company only financial statements if the restricted net assets of consolidated subsidiaries exceed 25% of total consolidated net assets as of the last day of its most recent fiscal year. As of December 31, 2018, Cleco Holdings’ restricted net assets of consolidated subsidiaries were $1.25 billion and exceeded 25% of its total consolidated net assets.

Cleco Holdings’ only major, first-tier subsidiary is Cleco Power. Cleco Power contains the LPSC-jurisdictional generation, transmission, and distribution electric utility operations serving Cleco’s traditional retail and wholesale customers.

The accompanying financial statements have been prepared to present the results of operations, financial condition, and cash flows of Cleco Holdings on a stand-alone basis as a holding company. Investments in subsidiaries and other investees are presented using the equity method. These financial statements should be read in conjunction with Cleco’s consolidated financial statements.



Note 2 — Business Combinations



Note 3 — Debt

At December 31, 2018, and 2017, Cleco Holdings had no short-term debt outstanding.

At December 31, 2018, Cleco Holding’s long-term debt outstanding was $1.34 billion, of which none was due within one year.

On July 31, 2018, Cleco Holdings amended its $300.0 million bank term loan agreement and its $100.0 million revolving credit facility agreement to release any and all collateral from all of its debt obligations under those agreements. As a result of the release of collateral, Moody’s and Fitch replaced Cleco Holdings’ senior secured debt rating with a senior unsecured debt rating. For more information on Cleco’s credit ratings and their impacts, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — “Litigation, Other

Commitment and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”

In connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million, for a total credit facility of $175.0 million. All other terms remained the same. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.

The principal amounts payable under long-term debt agreements for each year through 2023 and thereafter are as follows:



AMOUNTS PAYABLE UNDER LONG-TERM DEBT ARRANGEMENTS	(THOUSANDS)
For the year ending Dec. 31,
2019	$	—
2020	$	—
2021	$	300,000
2022	$	—
2023	$	165,000
Thereafter	$	885,000



Note 4 — Cash Distributions and Equity Contributions

The following table summarizes the cash distributions Cleco Holdings received from affiliates during 2018, 2017, and 2016:



	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018		FOR THE YEAR ENDED DEC. 31, 2017		APR. 13, 2016 - DEC. 31, 2016		JAN. 1, 2016 - APR. 12, 2016
Cleco Power	$	121,400	$	135,000	$	85,000	$	25,000
Perryville	225		6,850		150		200
Attala	217		7,160		100		$	125
Total	$	121,842	$	149,010	$	85,250	$	25,325

During the year ended December 31, 2018, Cleco Holdings made $1.8 million and $2.1 million in non-cash equity contributions to Perryville and Attala, respectively. During the year ended December 31, 2017, Cleco Holdings made no non-cash equity contributions to affiliates. During the

successor period April 13, 2016, through December 31, 2016, Cleco Holdings made no non-cash equity contributions to affiliates.

During the year ended December 31, 2018, Cleco Holdings made $1.3 million of contributions to Cleco Cajun. During the year ended December 31, 2017, Cleco Holdings made no contributions to affiliates. During the successor period April 13, 2016, through December 31, 2016, Cleco Holdings made a contribution of $50.0 million to Cleco Power. During the predecessor period January 1, 2016, through April 12, 2016, Cleco Holdings made no contributions to affiliates.

During both years ended December 31, 2018, and 2017, Cleco Holdings received no equity contributions from Cleco Group. During the successor period April 13, 2016, through December 31, 2016, Cleco Holdings received $100.7 million of equity contributions from Cleco Group.

During the years ended December 31, 2018, and 2017, Cleco Holdings made $71.4 million and $84.1 million, respectively, of distribution payments to Cleco Group. During the successor period April 13, 2016, through December 31, 2016, Cleco Holdings made $88.8 million of distribution payments to Cleco Group.



Note 5 — Income Taxes

Cleco Holdings’ (Parent Company Only) Condensed Statements of Income reflect income tax expense (benefit) for the following line items:



	SUCCESSOR									PREDECESSOR
(THOUSANDS)	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Federal and state income tax expense (benefit)	$	(22,317	)	$	(23,094	)	$	(22,937	)	$	(9,690	)
Equity income from subsidiaries - Federal and state income tax expense	$	51,699		$	30,173		$	115		$	13,158

For information regarding the TCJA, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA.”



Note 6 — Commitments and Contingencies

For information regarding commitments and contingencies related to Cleco Holdings, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees.”



TABLE OF CONTENTS
		PAGE
GLOSSARY OF TERMS		3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		6

PART I
ITEM 1.	Business
	General	8
	Operations	8
	Regulatory Matters, Industry Developments, and Franchises	11
	Environmental Matters	12
ITEM 1A.	Risk Factors	16
ITEM 1B.	Unresolved Staff Comments	25
ITEM 2.	Properties	25
ITEM 3.	Legal Proceedings	25
ITEM 4.	Mine Safety Disclosures	25

PART II
ITEM 5.	Market for Registrants’ Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	26
ITEM 6.	Selected Financial Data	26
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
ITEM 8.	Financial Statements and Supplementary Data	49
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	107
ITEM 9A.	Controls and Procedures	107
ITEM 9B.	Other Information	107

PART III
ITEM 10.	Directors, Executive Officers, and Corporate Governance of the Registrants	108
ITEM 11.	Executive Compensation	112
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	127
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	127
ITEM 14.	Principal Accountant Fees and Services	127

PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	128
ITEM 16.	Form 10-K Summary	132
	Signatures	140



Five-Year Selected Financial Data
	SUCCESSOR									PREDECESSOR
(THOUSANDS, EXCEPT PER SHARE AND PERCENTAGES)	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE YEAR ENDED DEC. 31, 2015			FOR THE YEAR ENDED DEC. 31, 2014
Operating revenue, net (excluding intercompany revenue)
Cleco Power	$	1,240,722		$	1,184,345		$	859,006		$	299,283		$	1,207,325		$	1,267,323
Midstream ⁽¹⁾	—			—			—			—			—			5,467
Other	(9,678		)	(8,699		)	(6,001		)	587			2,077			(3,305		)
Total	$	1,231,044		$	1,175,646		$	853,005		$	299,870		$	1,209,402		$	1,269,485
Income (loss) before income taxes	$	123,819		$	145,159		$	(46,935	)	$	(492	)	$	211,373		$	221,855
Net income (loss)	$	94,437		$	138,080		$	(24,113	)	$	(3,960	)	$	133,669		$	154,739
Capitalization
Member’s equity/Common shareholders’ equity	42.50		%	42.50		%	42.77		%				56.92		%	54.86		%
Long-term debt and capital leases ⁽²⁾	57.50		%	57.50		%	57.23		%				43.08		%	45.14		%
Member’s equity/Common shareholders’ equity	$	2,124,740		$	2,096,357		$	2,046,764					$	1,674,841		$	1,627,270
Long-term debt and capital leases ⁽²⁾	$	2,874,485		$	2,836,105		$	2,738,571					$	1,267,703		$	1,338,998
Total assets	$	6,436,814		$	6,278,382		$	6,343,144					$	4,323,354		$	4,368,418
Cash dividends declared per common share	N/A			N/A			N/A			$	0.40		$	1.60		$	1.5625



							PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS (THOUSANDS)	TOTAL		LESS THAN ONE YEAR		1-3 YEARS		3-5 YEARS		MORE THAN 5 YEARS
Cleco
Long-term debt obligations ⁽¹⁾	$	4,497,965	$	142,937	$	547,327	$	506,722	$	3,300,979
Capital lease obligations ⁽²⁾	36,710		2,611		5,222		5,222		23,655
Operating lease obligations ⁽³⁾	20,517		4,150		6,679		2,453		7,235
Purchase obligations ⁽⁴⁾	215,712		148,229		41,787		9,254		16,442
Other long-term liabilities ⁽⁵⁾	17,128		5,321		4,778		1,694		5,335
Postretirement benefits obligations ⁽⁶⁾	368,559		8,863		52,888		77,012		229,796
Total Cleco	$	5,156,591	$	312,111	$	658,681	$	602,357	$	3,583,442
Cleco Power
Long-term debt obligations ⁽¹⁾	$	2,443,296	$	87,964	$	143,619	$	256,136	$	1,955,577
Capital lease obligations ⁽²⁾	36,710		2,611		5,222		5,222		23,655
Operating lease obligations ⁽³⁾	20,397		4,030		6,679		2,453		7,235
Purchase obligations ⁽⁴⁾	182,789		126,846		33,013		8,159		14,771
Other long-term liabilities ⁽⁵⁾	3,600		1,800		1,800		—		—
Postretirement benefits obligations ⁽⁶⁾	167,501		—		35,393		60,093		72,015
Total Cleco Power	$	2,854,293	$	223,251	$	225,726	$	332,063	$	2,073,253



CLECO POWER

Consolidated Statements of Comprehensive Income
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2018		2017			2016
Net income	$	162,257	$	150,738		$	39,128
Other comprehensive (loss) income, net of tax:
Postretirement benefits gain (loss) (net of tax expense of $968, tax benefit of $296, and tax expense of $2,163, respectively)	2,743		(472		)	3,459
Amortization of interest rate derivatives to earnings (net of tax expense of $90, $132, and $132, respectively)	254		211			211
Total other comprehensive (loss) income, net of tax	2,997		(261		)	3,670
Comprehensive income, net of tax	$	165,254	$	150,477		$	42,798
The accompanying notes are an integral part of the Consolidated Financial Statements.



Louisiana (State or other jurisdiction of incorporation or organization)		72-1445282 (I.R.S. Employer Identification No.)

2030 Donahue Ferry Road, Pineville, Louisiana (Address of principal executive offices)		71360-5226 (Zip Code)

Registrant’s telephone number, including area code: (318) 484-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None



ABBREVIATION OR ACRONYM	DEFINITION
S&P	Standard & Poor’s Ratings Services, a credit rating agency
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SERP	Supplemental Executive Retirement Plan
SO₂	Sulfur dioxide
SPP	Southwest Power Pool
SPP RE	Southwest Power Pool Regional Entity
SSR	System Support Resource
START	Strategic Alignment and Real-Time Transformation
STIP	Short-Term Incentive Plan
Successor	Post-merger activity of Cleco. Cleco has accounted for the 2016 Merger transaction by applying the acquisition method of accounting. The successor period is not comparable to the predecessor period.
Support Group	Cleco Support Group LLC, a wholly owned subsidiary of Cleco Holdings
SWEPCO	Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc.
TCJA	Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
Teche Unit 3	A 359-MW generating unit at Cleco Power’s plant site in Baldwin, Louisiana
USBCDC	US Bancorp Community Development Corporation
VaR	Value-at-Risk



GENERATING STATION	YEAR OF INITIAL OPERATION	NAMEPLATE CAPACITY (MW)	⁽¹⁾	NET CAPACITY (MW)	⁽²⁾	PRIMARY FUEL USED FOR GENERATION	GENERATION TYPE
Brame Energy Center
Nesbitt Unit 1	1975	440		416		natural gas	steam
Rodemacher Unit 2	1982	157	⁽³⁾	148	⁽³⁾	coal	steam
Madison Unit 3	2010	641		627		petroleum coke/coal	steam
Acadia Unit 1	2002	580		555		natural gas	combined cycle
Coughlin Unit 6	2000	264		246		natural gas	combined cycle
Coughlin Unit 7	2000	511		484		natural gas	combined cycle
Teche Unit 3	1971	359		331		natural gas	steam
Teche Unit 4	2011	33		34		natural gas	combustion
Dolet Hills Power Station	1986	325	⁽⁴⁾	321	⁽⁴⁾	lignite	steam
Total generating capability		3,310		3,162



ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



CLECO POWER

Consolidated Statements of Changes in Member’s Equity
(THOUSANDS)	MEMBER’S EQUITY			AOCI			TOTAL MEMBER’S EQUITY
Balances, Dec. 31, 2015	$	1,569,496		$	(17,092	)	$	1,552,404
Contribution from member	50,000			—			50,000
Distributions to member	(110,000		)	—			(110,000		)
Net income	39,128			—			39,128
Other comprehensive income, net of tax	—			3,670			3,670
Balances, Dec. 31, 2016	$	1,548,624		$	(13,422	)	$	1,535,202
Distributions to member	(135,000		)	—			(135,000		)
Net income	150,738			—			150,738
Other comprehensive loss, net of tax	—			(261		)	(261		)
Balances, Dec. 31, 2017	$	1,564,362		$	(13,683	)	$	1,550,679
Distributions to member	(121,400		)	—			(121,400		)
Net income	162,257			—			162,257
Other comprehensive income, net of tax	—			2,997			2,997
Reclassification of effect of tax rate change	2,496			(2,496		)	—
Balances, Dec. 31, 2018	$	1,607,715		$	(13,182	)	$	1,594,533
The accompanying notes are an integral part of the Consolidated Financial Statements.



Index to Applicable Notes to the Financial Statements of Registrants



Note 1	The Company	Cleco and Cleco Power
Note 2	Summary of Significant Accounting Policies	Cleco and Cleco Power
Note 3	Revenue Recognition	Cleco and Cleco Power
Note 4	Business Combinations	Cleco
Note 5	Regulatory Assets and Liabilities	Cleco and Cleco Power
Note 6	Jointly Owned Generation Units	Cleco and Cleco Power
Note 7	Fair Value Accounting	Cleco and Cleco Power
Note 8	Debt	Cleco and Cleco Power
Note 9	Common Stock	Cleco and Cleco Power
Note 10	Pension Plan and Employee Benefits	Cleco and Cleco Power
Note 11	Income Taxes	Cleco and Cleco Power
Note 12	Disclosures about Segments	Cleco
Note 13	Regulation and Rates	Cleco and Cleco Power
Note 14	Variable Interest Entities	Cleco and Cleco Power
Note 15	Operating Leases	Cleco and Cleco Power
Note 16	Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees	Cleco and Cleco Power
Note 17	Affiliate Transactions	Cleco and Cleco Power
Note 18	Intangible Assets and Goodwill	Cleco and Cleco Power
Note 19	Accumulated Other Comprehensive Loss	Cleco and Cleco Power
Note 20	Miscellaneous Financial Information (Unaudited)	Cleco and Cleco Power
Note 21	Cleco Cajun Transaction	Cleco



	FOR THE TWELVE MONTHS ENDED DEC. 31, 2018
(THOUSANDS)	CLECO POWER			OTHER				ELIMINATIONS			TOTAL
Revenue from contracts with customers
Retail revenue
Residential ⁽¹⁾	$	435,610		$	—			$	—		$	435,610
Commercial ⁽¹⁾	288,791			—				—			288,791
Industrial ⁽¹⁾	167,001			—				—			167,001
Other retail ⁽¹⁾	15,582			—				—			15,582
Surcharge	23,138			—				—			23,138
Electric customer credits	(33,195		)	—				—			(33,195		)
Total retail revenue	896,927			—				—			896,927
Wholesale, net ⁽¹⁾	219,598			(9,680		)	⁽²⁾	—			209,918
Transmission	54,531			—				—			54,531
Other ⁽³⁾	27,800			2				—			27,802
Affiliate ⁽⁴⁾	874			74,591				(75,465		)	—
Total revenue from contracts with customers	1,199,730			64,913				(75,465		)	1,189,178
Revenue unrelated to contracts with customers
Other ⁽⁵⁾	41,866			—				—			41,866
Total revenue unrelated to contracts with customers	41,866			—				—			41,866
Operating revenue, net	$	1,241,596		$	64,913			$	(75,465	)	$	1,231,044



Cleco
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT DEC. 31, 2018		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2017		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset Description
Institutional money market funds	$	133,722	$	—	$	133,722	$	—	$	144,302	$	—	$	144,302	$	—
FTRs	23,355		—		—		23,355		7,396		—		—		7,396
Total assets	$	157,077	$	—	$	133,722	$	23,355	$	151,698	$	—	$	144,302	$	7,396
Liability Description
FTRs	$	468	$	—	$	—	$	468	$	352	$	—	$	—	$	352
Total liabilities	$	468	$	—	$	—	$	468	$	352	$	—	$	—	$	352



	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT DOLLAR PER MWh)	Assets		Liabilities				Low			High
FTRs at December 31, 2018	$	23,355	$	468	RTO auction pricing	FTR price - per MWh	$	(4.40	)	$	15.10
FTRs at December 31, 2017	$	7,396	$	352	RTO auction pricing	FTR price - per MWh	$	(2.95	)	$	6.33



Cleco
	AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
		SUCCESSOR									PREDECESSOR
(THOUSANDS)	DERIVATIVES LINE ITEM	FOR THE YEAR ENDED DEC. 31, 2018			FOR THE YEAR ENDED DEC. 31, 2017			APR. 13, 2016 - DEC. 31, 2016			JAN. 1, 2016 - APR. 12, 2016
Commodity contracts
FTRs⁽¹⁾	Electric operations	$	39,659		$	23,826		$	17,506		$	3,012
FTRs⁽¹⁾	Power purchased for utility customers	(4,566		)	(5,509		)	(2,112		)	(582		)
Total		$	35,093		$	18,317		$	15,394		$	2,430



(THOUSANDS)		AT DEC. 31, 2018		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset Description
Cash equivalents		$	2,471	$	—	$	2,471	$	—
Common stock		13,111		13,111		—		—
Obligations of Government, Government Agencies, and state and local governments		19,831		—		19,831		—
Mutual funds
Domestic		79,210		79,210		—		—
International		43,418		43,418		—		—
Real estate funds		20,298		—		—		20,298
Corporate debt		138,391		—		138,391		—
Total		$	316,730	$	135,739	$	160,693	$	20,298

	Investments measured at net asset value*	73,100
	Interest accrual	2,103
	Total net assets	$	391,933
	*Investments measured at net asset value consist of Common/collective trust.



SEGMENT INFORMATION
	SUCCESSOR FOR THE YEAR ENDED DEC. 31, 2018
(THOUSANDS)	CLECO POWER			OTHER			ELIMINATIONS			TOTAL
Revenue
Electric operations	$	1,191,587		$	(9,680	)	$	—		$	1,181,907
Other operations	82,330			2			—			82,332
Affiliate revenue	874			74,591			(75,465		)	—
Electric customer credits	(33,195		)	—			—			(33,195		)
Operating revenue, net	$	1,241,596		$	64,913		$	(75,465	)	$	1,231,044
Depreciation and amortization	$	162,069		$	8,344		$	1		$	170,414
Merger transaction and commitment costs	$	—		$	19,514		$	—		$	19,514
Interest income	$	5,052		$	1,338		$	(317	)	$	6,073
Interest charges	$	71,303		$	55,659		$	(320	)	$	126,642
Federal and state income tax expense (benefit)	$	55,924		$	(26,541	)	$	(1	)	$	29,382
Net income (loss)	$	162,257		$	(67,819	)	$	(1	)	$	94,437
Additions to property, plant, and equipment	$	289,153		$	1,908		$	—		$	291,061
Equity investment in investee	$	18,172		$	—		$	—		$	18,172
Goodwill	$	1,490,797		$	—		$	—		$	1,490,797
Total segment assets	$	5,839,853		$	633,756		$	(36,795	)	$	6,436,814



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE OF THE REGISTRANTS



2018 Pay Element	Description
Base Salary	• Fixed pay element • Delivered in cash
Annual Cash Incentive (STIP)	• Performance-based annual incentive plan that pays out in cash • EBITDA is primary measure for the named executive officers • Additional metrics include safety, system reliability, customer service, generation fleet availability, and milestone measures
Long-Term Incentives	• Performance-based incentive paid in cash currently with a three-year cycle • Payout is contingent on ROE and EBITDA, each weighted at 50%
Benefits	• Broad-based benefits such as group medical, dental, vision, and prescription drug coverage; basic life insurance; supplemental life insurance; dependent life insurance; accidental death and dismemberment insurance; a defined benefit pension plan (for those employees hired prior to August 1, 2007); and a 401(k) Plan with a Company match for those employees hired before August 1, 2007, as well as a 401(k) Plan with an enhanced benefit for those employees hired on or after August 1, 2007; same as those provided to all employees
Executive Benefits	• Supplemental Executive Retirement Plan (closed to new participants in 2014) • Nonqualified Deferred Compensation Plan
Perquisites	• Limited to executive physicals, spousal/companion travel, and relocation assistance



2018 Peer Group Companies
ALLETE, Inc.	Hawaiian Electric Industries, Inc.	Pinnacle West Capital Corporation
Alliant Energy Corporation	IDACORP, Inc.	PNM Resources, Inc.
Avista Corporation	NorthWestern Corporation	Portland General Electric Company
Black Hills Corporation	OGE Energy Corp.	Vectren Corporation
El Paso Electric Company	Otter Tail Corporation



Name and Principal Position	Year	Salary($)		Bonus($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)⁽³⁾		All Other Compensation ($)		Total ($)
A	B	C		D		E		F		G		H
William G. Fontenot,	2018	$	552,885	$	0	$	819,412	$	0	$	12,921	$	1,385,218
President & CEO	2017	$	362,904	$	0	$	475,460	$	2,552,193	$	13,681	$	3,404,238
	2016	$	279,625	$	0	$	186,907	$	308,118	$	351,738	$	1,126,388

Kazi K. Hasan,⁽¹⁾	2018	$	46,155	$	0	$	0	$	0	$	942	$	47,097
CFO

Julia E. Callis,	2018	$	268,846	$	0	$	486,712	$	0	$	13,616	$	769,174
Chief Compliance Officer & General Counsel	2017	$	253,462	$	0	$	285,550	$	439,225	$	20,292	$	998,529

Anthony L. Bunting,	2018	$	245,389	$	0	$	452,027	$	886,982	$	18,806	$	1,603,204
Chief Administrative Officer	2017	$	237,431	$	0	$	293,520	$	562,686	$	11,712	$	1,105,349
	2016	$	225,627	$	0	$	137,127	$	698,496	$	240,627	$	1,301,877

Robert R. LaBorde, Jr.,	2018	$	239,231	$	0	$	356,506	$	0	$	28,490	$	624,227
Vice President - Generation Operations & Environmental Services	2017	$	229,385	$	0	$	197,844	$	374,676	$	13,705	$	815,610


FORMER EXECUTIVE OFFICER:
Terry L. Taylor,⁽²⁾	2018	$	256,923	$	0	$	474,391	$	375,791	$	271,666	$	1,378,771
Former CFO	2017	$	248,462	$	0	$	280,452	$	770,627	$	17,057	$	1,316,598
	2016	$	219,051	$	0	$	129,353	$	202,970	$	219,872	$	771,246


⁽²⁾	Ms. Taylor served as CFO until November 5, 2018 at which time she became Sr. Vice President - Special Projects. Ms. Taylor retired from the Company on December 31, 2018.


⁽³⁾	Amounts in this column include the change in pension value year over year. For 2018, this amount includes the change in pension value from 2017 to 2018. Negative changes in the pension value year over year are reported as $0.


•	Column C, “Salary;” Column D, “Bonus;” Column E, “Non-Equity Incentive Plan Compensation;” and Column G, “All Other Compensation” represent cash compensation earned by the named executive in 2018, 2017, or 2016.



Name	Grant Date	Estimated Future Payments Under Non-Equity Incentive Plan Awards (STIP)⁽¹⁾						Estimated Future Payments Under Non-Equity Incentive Plan Awards (2018-2020 LTIP Grant)
Name	Grant Date	Threshold ($)		Target ($)		Maximum ($)		Threshold ($)		Target ($)		Maximum ($)
A	B	C		D		E		F		G		H
Mr. Fontenot	01/01/18	$	0	$	460,000	$	920,000	$	0	$	1,250,000	$	2,500,000
Mr. Hasan ⁽¹⁾		$	0	$	0	$	0	$	0	$	0	$	0
Ms. Callis	01/01/18	$	0	$	135,000	$	270,000	$	0	$	297,000	$	594,000
Mr. Bunting	01/01/18	$	0	$	123,000	$	246,000	$	0	$	270,600	$	541,200
Mr. LaBorde	01/01/18	$	0	$	120,000	$	240,000	$	0	$	192,000	$	384,000
Ms. Taylor	01/01/17	$	0	$	128,750	$	257,500	$	0	$	283,250	$	566,500



Name	Plan Name(s)	Number of Years of Credited Service (#)	Present Value of Accumulated Benefit ($)		Payments During Last Fiscal Year ($)
Mr. Fontenot	Cleco Corporate Holdings LLC Pension Plan	32	$	1,572,077	$	0
	Cleco Corporation SERP	32	$	3,605,079	$	0
Mr. Hasan⁽¹⁾	Cleco Corporate Holdings LLC Pension Plan	0	$	0	$	0
	Cleco Corporation SERP	0	$	0	$	0
Ms. Callis	Cleco Corporate Holdings LLC Pension Plan	0	$	0	$	0
	Cleco Corporation SERP	11	$	1,685,374	$	0
Mr. Bunting	Cleco Corporate Holdings LLC Pension Plan	26	$	1,501,655	$	0
	Cleco Corporation SERP	26	$	3,093,942	$	0
Mr. LaBorde⁽²⁾	Cleco Corporate Holdings LLC Pension Plan	16	$	478,852	$	0
	Cleco Corporation SERP	10	$	1,369,911	$	0
Ms. Taylor	Cleco Corporate Holdings LLC Pension Plan	18	$	1,053,492	$	0
	Cleco Corporation SERP	18	$	2,838,284	$	0



	Estimated Payments at Age 55 (or actual attained age if greater than 55)
	Pension		SERP		Total
Mr. Fontenot	$	102,081	$	97,359	$	199,440
Mr. Hasan	$	0	$	0	$	0
Ms. Callis	$	0	$	110,967	$	110,967
Mr. Bunting	$	90,244	$	117,516	$	207,760
Mr. LaBorde	$	40,020	$	64,566	$	104,586
Ms. Taylor⁽¹⁾	$	66,664	$	169,543	$	236,207



Name	Executive officer contributions in 2018 ($)⁽¹⁾		Company contributions in 2018 ($)		Aggregate earnings in 2018 ($) ⁽²⁾		Aggregate withdrawals/ distributions in 2018 ($)		Aggregate balance at December 31, 2018 ($)⁽³⁾
A	B		C		D		E		F
Mr. Fontenot	$	223,142	$	0	$	0	$	0	$	1,134,574
Mr. Hasan	$	0	$	0	$	0	$	0	$	0
Ms. Callis	$	0	$	0	$	0	$	0	$	0
Mr. Bunting	$	0	$	0	$	0	$	0	$	0
Mr. LaBorde	$	34,303	$	0	$	0	$	0	$	401,571
Ms. Taylor	$	0	$	0	$	0	$	0	$	0



Mr. Fontenot
Value of Payment/Benefit	Termination by Executive		Disability		Death		Retirement⁽¹⁾		Constructive Termination		Termination for Cause			Change in Control
Cash Severance	$	0	$	0	$	0	$	0	$	575,000	$	0		$	1,515,931
Annual Cash Bonus	0		378,962		378,962		378,962		378,962		0			0
Long-Term Incentive	0		1,077,217		1,077,217		1,077,217		1,077,217		0			1,910,000
Cash Payment in Lieu of Outplacement Services	0		0		0		0		50,000		0			0
Present Value of Incremental SERP Payments⁽¹⁾	0		770,973		2,644,133		0		0		(1,764,990		)	1,472,858
SERP Supplemental Death Benefit	0		0		1,418,270		0		0		0			0
Purchase of Principal Residence/Relocation	0		0		0		0		0		0			83,500
COBRA Medical Coverage	0		0		0		0		32,787		0			43,716
Total Incremental Value	$	0	$	2,227,152	$	5,518,582	$	1,456,179	$	2,113,966	$	(1,764,990	)	$	5,026,005



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE