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Proc-Type: 2001,MIC-CLEAR
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Or Commission file
number 1-15759 CLECO CORPORATION Louisiana 72-1445282 2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226 Registrant's telephone number, including
area code: (318) 484-7400
CLECO POWER LLC Louisiana 72-0244480 2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226 Registrant's telephone number, including
area code: (318) 484-7400 Indicate by
check mark whether the Registrants: (1) have filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrants were
required to file such reports) and (2) have been subject to such filing
requirements for the past 90 days. Yes x No ____ Indicate by check mark whether Cleco Corporation is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No ____ Indicate by check mark whether Cleco Power LLC is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ____ No x Number of shares outstanding of each of Cleco Corporation's
classes of Common Stock, as of the latest practicable date.
Cleco Power LLC, a wholly owned subsidiary of Cleco Corporation, meets the
conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and
therefore is filing this Form 10-Q with the reduced disclosure format. This Combined Form 10-Q is
separately filed by Cleco Corporation and Cleco Power
LLC. Information contained herein relating to Cleco Power is filed
by Cleco Corporation and separately by Cleco Power on its own
behalf. Cleco Power makes no representation as to information
relating to Cleco Corporation (except as it may relate to Cleco Power) or any
other affiliate or subsidiary of Cleco Corporation. Page 2 4 PART I ITEM 1 6
CLECO CORPORATION - Consolidated Financial
Statements 7
CLECO
CORPORATION - Management's Discussion
and Analysis of 14
CLECO
POWER LLC - Financial Statements 30
CLECO
POWER LLC - Narrative Analysis of
Results of Operations. 36 37 ITEM 2
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 52 ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK OF CLECO CORPORATION 61 ITEM 4 64 PART II OTHER INFORMATION ITEM 1 65 ITEM 3 DEFAULTS UPON SENIOR
SECURITIES 65 ITEM 6 66 68 1 GLOSSARY OF TERMS References in this
filing to "Cleco" mean Cleco Corporation and its subsidiaries, including Cleco
Power LLC, and references to "Cleco Power" mean Cleco Power LLC, unless the
context clearly indicates otherwise. Additional abbreviations or
acronyms used in this filing are defined below: Abbreviation or Acronym Definition Acadia.......................................................
Acadia Power Partners LLC and its 1,160-MW combined-cycle, natural
gas-fired AFUDC......................................................
Allowance for Funds Used During Construction APB............................................................
Accounting Principles Board
APB No. 18...............................................
APB Opinion No. 18 - The Equity Method of Accounting for Investments
in APB No. 25...............................................
APB Opinion No. 25 - Accounting for Stock Issued to Employees APH...........................................................
Acadia Power Holdings
LLC, a wholly owned subsidiary of Midstream Aquila Energy..........................................
Aquila Energy Marketing Corporation Calpine.......................................................
Calpine Corporation CFTC..........................................................
Commodity Futures
Trading Commission Cleco..........................................................
Cleco Corporation and its subsidiaries, including Cleco Power LLC Cleco Energy............................................
Cleco Energy LLC, a wholly owned subsidiary of Midstream Cleco Power..............................................
Cleco Power LLC, a wholly owned subsidiary of Cleco Consent Agreement................................
Stipulation and Consent Agreement, dated as of July 25, 2003, between Cleco DIG.............................................................
Derivatives Implementation Group Dynegy......................................................
Dynegy Power Marketing, Inc. EITF...........................................................
Emerging Issues Task Force of the FASB EITF No. 02-3............................................
Accounting for Contracts Involved in Energy Trading and Risk Management EITF No. 98-10..........................................
Accounting for Contracts Involved in Energy Trading and Risk Management ESPP...........................................................
Employee Stock Purchase Plan Entergy......................................................
Entergy Corporation EPA............................................................
Environmental Protection Agency Evangeline................................................
Cleco Evangeline LLC, a wholly owned subsidiary of Midstream, and its 775-MW,
Evangeline Tolling Agreement..............
Capacity Sale and Tolling Agreement between
Evangeline and Williams FASB.........................................................
Financial Accounting Standards Board FERC..........................................................
Federal Energy Regulatory Commission FIN.............................................................
FASB Interpretation No. FIN 45........................................................
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including FIN 46........................................................
Consolidation of Variable Interest Entities an Interpretation of
Accounting Hudson......................................................
Hudson SVD LLC KBC............................................................
KBC Bank N.V. kW..............................................................
Kilowatt kWh...........................................................
Kilowatt-hour LIBOR........................................................
London Inter-Bank Offer Rate LPSC..........................................................
Louisiana Public Service Commission LTICP.........................................................
Long-Term Incentive Compensation Plan LTP Agreement........................................
Long-term program parts, shop repairs, and scheduled outage services contract MACT.......................................................
Maximum Achievable Control Technology Marketing & Trading..............................
Cleco Marketing & Trading LLC, a wholly owned subsidiary of
Midstream MAEM......................................................
Mirant Americas Energy Marketing, LP, a wholly owned subsidiary of Mirant MAI...........................................................
Mirant Americas, Inc., a wholly owned subsidiary of Mirant Midstream.................................................
Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco 2 Mirant........................................................
Mirant Corporation MMBtu......................................................
Million British thermal units MW............................................................
Megawatt MWh.........................................................
Megawatt-hour NOAA.......................................................
National Oceanic and Atmospheric Administration Not meaningful.........................................
A percentage comparison of these items is not statistically meaningful
either Operating
Agreement.............................. . Operating Agreement of Cleco Power LLC, dated December 13, 2000, amended PEH............................................................
Perryville Energy Holdings LLC, a wholly owned subsidiary of Midstream Perryville...................................................
Perryville Energy Partners, L.L.C., a wholly owned subsidiary of
Midstream, Perryville Tolling Agreement.................
Capacity Sale and Tolling Agreement between Perryville and MAEM PUHCA......................................................
Public Utility Holding
Company Act of 1935 Quanta.......................................................
Quanta Services, Inc. Registrant(s).............................................
Cleco and Cleco Power RFP.............................................................
Request for Proposal RTO............................................................
Regional Transmission Organization SEC.............................................................
Securities and Exchange
Commission Senior Loan Agreement..........................
Construction and Term Loan Agreement, dated as of June 7, 2001, between SERC..........................................................
Southeastern Electric Reliability Council SFAS..........................................................
Statement of Financial Accounting Standards SFAS No. 58.............................................
Capitalization of Interest Cost in Financial Statements That Include SFAS No. 71.............................................
Accounting for the Effects of Certain Types of Regulation SFAS No. 109...........................................
Accounting for Income Taxes SFAS No. 123...........................................
Accounting for Stock-Based Compensation SFAS No. 131...........................................
Disclosures about Segments of an Enterprise and Related Information SFAS No. 133...........................................
Accounting for Derivative Instruments and Hedging Activities SFAS No. 143...........................................
Accounting for Asset Retirement Obligations SFAS No. 144...........................................
Accounting for the Impairment or Disposal of Long-Lived Assets SFAS No. 149...........................................
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities SFAS No. 150...........................................
Accounting for Certain Financial Instruments with Characteristics of
both SMD...........................................................
Standard market design Subordinated Loan
Agreement............. Subordinated Loan
Agreement, dated as of August 23, 2002, between SWEPCO...................................................
Southwestern Electric Power Company TCEQ.........................................................
Texas Commission on Environmental
Quality Termination Agreement..........................
Termination Agreement, dated as of May 2, 2003, between
Perryville, PEH, Cleco, UtiliTech....................................................
Utility Construction & Technology Solutions LLC UTS............................................................
UTS, LLC (successor entity to UtiliTech) VAR...........................................................
Value-at-risk Westar.......................................................
Westar Energy, Inc., a Kansas Corporation Williams.....................................................
Williams Power Company, Inc. 3 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than statements of
historical fact included in this report are forward-looking
statements. Although the Registrants believe that the expectations
reflected in such forward-looking statements are reasonable, such
forward-looking statements are based on numerous assumptions (some of which may
prove to be incorrect) and are subject to risks and uncertainties that could
cause the actual results to differ materially from the Registrants'
expectations. In addition to any assumptions and other factors
referred to specifically in connection with these forward-looking statements, the
following list identifies some of the factors that could cause the Registrants'
actual results to differ materially from those contemplated in any of the
Registrants' forward-looking statements: Factors affecting utility operations such as unusual weather
conditions or other natural phenomena; catastrophic weather-related damage;
unscheduled generation outages; unusual maintenance or repairs; unanticipated
changes to fuel costs, reliance on natural gas as a component of Cleco's
generation fuel mix, gas supply costs or availability constraints due to
higher demand, shortages, transportation problems or other developments;
environmental incidents; or power transmission or gas pipeline system
constraints; Impact of the bankruptcy of Mirant on the possible sale or
restructuring of Perryville and on Perryville's debts and the impact of MAEM's
rejection of the Perryville Tolling Agreement on Perryville's debts; Nonperformance by and creditworthiness of counterparties
under tolling and power purchase agreements, and energy service arrangements,
or the restructuring of those agreements and arrangements, including possible
termination; Increased competition in the power environment, including
effects of industry restructuring or deregulation, transmission system
operation or administration, retail wheeling, wholesale competition, retail
competition, or cogeneration; Regulatory factors such as unanticipated changes in
rate-setting policies or procedures, recovery of investments made under
traditional regulation, the frequency and timing of rate increases, the
results of periodic fuel audits, the results of RFPs, and the formation of RTOs
and the implementation of SMD; Financial or regulatory accounting principles or policies
imposed by the FASB, the SEC, the Public Company Accounting Oversight Board,
the FERC, the LPSC or similar entities with regulatory or accounting
oversight; Economic conditions, including inflation rates and
monetary fluctuations; Credit ratings of Cleco
Corporation, Cleco Power and Evangeline; Changing market conditions and a variety of other factors
associated with physical energy, financial transactions, and energy service
activities, including, but not limited to, price, basis, credit, liquidity,
volatility, capacity, transmission, interest rate and warranty risks; Acts of terrorism; Availability or cost of capital resulting from changes in Cleco or Cleco Power, interest rates, and
securities ratings or market perceptions of the electric utility industry and
energy related industries; Employee work force factors, including changes in key
executives and work stoppages; Legal and regulatory delays and other obstacles associated
with mergers, acquisitions, capital projects, reorganizations, or investments
in joint ventures; 4 Costs and other effects of legal and administrative
proceedings, settlements, investigations, claims and other matters; and Changes in federal, state, or local legislative
requirements, such as changes in tax laws or rates, regulating policies or
environmental laws and regulations. 5 CLECO CORPORATION 6 CLECO CORPORATION 2003 2002 (Thousands, except
share and per share amounts) Operating revenue Electric operations $ 208,947 $ 172,680 Tolling operations 36,332 40,772 Energy trading, net (198) (2,789) Energy operations 15,594 5,163 Other operations 8,104 7,865 Gross operating revenue 268,779 223,691 Electric customer
credits 7,849 - Total operating revenue 276,628 223,691 Operating expenses Fuel used for electric
generation 51,616 49,237 Power purchased for
utility customers 82,007 45,091 Purchases for energy
operations 14,330 4,150 Other operations 30,824 22,528 Maintenance 21,992 8,339 Depreciation 17,602 17,757 Taxes other than income
taxes 10,073 10,199 Total operating
expenses 228,444 157,301 Operating income 48,184 66,390 Interest income 504 587 Allowance for other
funds used during construction 486 446 Equity income from
investees 8,318 6,780 Other expense, net (850) (773) Income before interest
charges 56,642 73,430 Interest charges Interest charges, including
amortization of debt expenses, premium and discount,
net of capitalized interest 17,962 16,749 Allowance for borrowed
funds used during construction (266) (248) Total interest charges 17,696 16,501 Net income before
income taxes and preferred dividends 38,946 56,929 Federal and state
income taxes 15,143 20,069 Net income before
preferred dividends 23,803 36,860 Preferred dividends
requirements, net 461 468 Net income
applicable to common stock $ 23,342 $ 36,392 The accompanying notes are an integral part of the
consolidated financial statements.
CLECO CORPORATION 2003 2002 (Thousands, except
share and per share amounts) Average shares of
common stock outstanding Basic 47,239,652 47,033,832 Diluted 49,579,857 49,498,965 Basic earnings per
share Net income applicable
to common stock $ 0.49 $ 0.77 Diluted earnings per
share Net income applicable
to common stock $ 0.48 $ 0.74 Cash dividends paid
per share of common stock $ 0.225 $ 0.225 The accompanying notes are an integral part of the
consolidated financial statements. CLECO CORPORATION 2003 2002 (Thousands) Net income applicable
to common stock $ 23,342 $ 36,392 Other comprehensive
income (expense), net of tax: Net unrealized gain
from limited partnership 12 8 Net unrealized gain
(loss) from available-for-sale securities 76 (155) Net comprehensive
income (expense) 88 (147) Comprehensive income $ 23,430 $ 36,245 The accompanying
notes are an integral part of the consolidated financial statements. 8 CLECO CORPORATION 2003 2002 (Thousands, except
share and per share amounts) Operating revenue Electric operations $ 519,080 $ 435,965 Tolling operations 88,140 66,266 Energy trading, net (470) 1,011 Energy operations 53,608 20,776 Other operations 23,317 25,067 Gross operating revenue 683,675 549,085 Electric customer
credits (1,562) (1,575) Total operating revenue 682,113 547,510 Operating expenses Fuel used for electric
generation 121,111 105,802 Power purchased for
utility customers 182,433 114,932 Purchases for energy
operations 50,223 17,374 Other operations 74,208 65,691 Maintenance 42,227 27,103 Depreciation 59,879 48,401 Impairment of
long-lived assets 134,772 - Taxes other than income
taxes 29,775 30,018 Total operating
expenses 694,628 409,321 Operating income
(loss) (12,515) 138,189 Interest income 1,903 1,114 Allowance for other
funds used during construction 2,113 1,368 Equity income from
investees 23,902 8,140 Other expense, net (3,995) (1,300) Income before interest
charges 11,408 147,511 Interest charges Interest charges,
including amortization of debt expenses, premium and discount,
net of capitalized interest 54,158 41,798 Allowance for borrowed
funds used during construction (623) (717) Total interest charges 53,535 41,081 Net income (loss)
before income taxes and preferred dividends (42,127) 106,430 Federal and state
income taxes (benefit) expense (17,342) 37,735 Net income (loss)
before preferred dividends (24,785) 68,695 Preferred dividends
requirements, net 1,395 1,405 Net income (loss)
applicable to common stock $ (26,180) $ 67,290 The accompanying notes are an integral part of the
consolidated financial statements. 9 CLECO CORPORATION 2003 2002 (Thousands, except
share and per share amounts) Average shares of
common stock outstanding Basic 47,169,527 46,008,615 Diluted 47,169,527 48,567,264 Basic earnings per
share Net income (loss)
applicable to common stock $ (0.56) $ 1.46 Diluted earnings per
share Net income (loss)
applicable to common stock $ (0.56) $ 1.41 Cash dividends paid
per share of common stock $ 0.675 $ 0.670 The accompanying notes are an integral part of the
consolidated financial statements. CLECO CORPORATION 2003 2002 (Thousands) Net income (loss)
applicable to common stock $ (26,180) $ 67,290 Other comprehensive
income (expense), net of tax: Net unrealized loss
from limited partnership (55) (205) Net unrealized gain
from available-for-sale securities 69 25 Net comprehensive
income (expense) 14 (180) Comprehensive income
(loss) $ (26,166) $ 67,110 The accompanying
notes are an integral part of the consolidated financial statements. 10 CLECO CORPORATION At At September 30, December 31, 2003 2002 (Thousands) Assets Current assets Cash and cash
equivalents $ 67,071 $ 114,331 Restricted cash,
current portion 7,215 7,762 Customer accounts
receivable (less allowance for doubtful accounts of $14,695 in
2003 and $1,071 in 2002) 48,495 32,599 Other accounts
receivable, net 35,105 45,264 Taxes receivable - 23,607 Unbilled revenue 22,420 20,171 Fuel inventory, at
average cost 16,248 13,309 Material and supplies
inventory, at average cost 17,672 14,416 Margin deposits 3,190 318 Risk management assets 857 285 Accumulated deferred
fuel 2,816 - Accumulated deferred
federal and state income taxes, net 4,755 3,829 Other current assets 12,602 8,940 Total current assets 238,446 284,831 Property, plant and
equipment Property, plant and
equipment 2,110,023 2,200,103 Accumulated
depreciation (763,940) (714,178) Net property, plant and
equipment 1,346,083 1,485,925 Construction
work-in-progress 80,816 80,230 Total property, plant
and equipment, net 1,426,899 1,566,155 Equity investment in
investees 269,387 273,688 Prepayments 24,230 32,865 Restricted cash, less
current portion 35,842 45,907 Regulatory assets and
liabilities - deferred taxes, net 91,340 65,268 Long-term receivable 12,519 10,370 Other deferred charges 70,403 65,472 Total assets $ 2,169,066 $ 2,344,556 The accompanying
notes are an integral part of the consolidated financial statements. (Continued on next
page) 11 CLECO CORPORATION At At September 30, December 31, 2003 2002 (Thousands) Liabilities and
shareholders' equity Liabilities Current liabilities Short-term debt $ 207,117 $ 315,300 Long-term debt due
within one year 8,503 45,401 Accounts payable 69,963 104,046 Retainage 6,394 6,278 Accrued payroll 3,213 2,180 Customer deposits 21,401 21,087 Taxes accrued 40,634 - Interest accrued 11,063 15,546 Accumulated deferred
fuel - 3,509 Risk management
liabilities - 2,310 Other current
liabilities 3,432 3,032 Total current
liabilities 371,720 518,689 Deferred credits Accumulated deferred
federal and state income taxes, net 292,562 299,019 Accumulated deferred
investment tax credits 19,448 20,744 Other deferred credits 56,787 57,443 Total deferred credits 368,797 377,206 Long-term debt, net 903,458 868,683 Total liabilities 1,643,975 1,764,578 Shareholders' equity Preferred stock Not subject to
mandatory redemption 25,354 26,578 Deferred compensation
related to preferred stock held by ESOP (6,827) (9,070) Total preferred stock
not subject to mandatory redemption 18,527 17,508 Common shareholders'
equity Common stock, $1 par
value, authorized 100,000,000 shares, issued 47,271,848 and
47,065,152 shares at September 30, 2003 and December 31, 2002, respectively 47,272 47,065 Premium on capital
stock 154,819 152,745 Retained earnings 307,772 366,073 Treasury stock, at
cost, 30,151 and 29,959 shares at September 30, 2003 and December 31, 2002, respectively (480) (579) Accumulated other
comprehensive loss (2,819) (2,834) Total common
shareholders' equity 506,564 562,470 Total shareholders'
equity 525,091 579,978 Total liabilities
and shareholders' equity $ 2,169,066 $ 2,344,556 The accompanying
notes are an integral part of the consolidated financial statements. 12 CLECO CORPORATION 2003 2002 (Thousands) Operating activities Net income (loss) before
preferred dividends $ (24,785) $ 68,695 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and
amortization 62,520 49,750 Provision for doubtful
accounts 14,850 688 Income from equity
investments (23,902) (8,140) Return on equity investment
in investee 23,938 - Allowance for other funds
used during construction (2,113) (1,368) Impairment of long-lived
assets 134,772 - Amortization of investment
tax credits (1,296) (1,307) Deferred income taxes (38,412) 39,109 Deferred fuel costs (7,185) 5,167 Changes in assets and
liabilities: Accounts receivable (13,988) (45,434) Unbilled revenue (2,249) (2,033) Fuel, materials and supplies
inventory (6,194) 1,748 Prepayments 1,716 (8,491) Accounts payable (34,082) 2,734 Customer deposits 313 357 Long-term receivable (2,149) (2,194) Other deferred accounts (1,849) (3,775) Taxes accrued 64,241 16,609 Interest accrued (4,483) (7,592) Margin deposits (2,865) (1,058) Risk management assets and
liabilities, net (2,022) 2,283 Other, net (1,149) 4,496 Net cash provided by
operating activities 133,627 110,244 Investing activities Additions to property, plant
and equipment (54,285) (52,477) Allowance for other funds
used during construction 2,113 1,368 Proceeds from sale of
property, plant and equipment 341 1,283 Return of (investment in)
equity investment in investees 4,265 (50,897) Acquisition of partnership
net of cash - (54,561) Net cash used in investing
activities (47,566) (155,284) Financing activities Cash transferred from (to)
restricted accounts, net 10,612 (13,412) Issuance of common stock 2,206 44,300 Repurchase of common stock (67) 25 Change in short-term debt,
net (243,880) 47,095 Retirement of long-term
obligations (41,470) (63,247) Issuance of long-term debt 175,000 75,000 Deferred financing costs (2,474) (3,775) Dividends paid on common and
preferred stock, net (33,248) (32,008) Net cash provided by (used
in) financing activities (133,321) 53,978 Net increase (decrease)
in cash and cash equivalents (47,260) 8,938 Cash and cash equivalents
at beginning of period 114,331 11,938 Cash and cash equivalents
at end of period $ 67,071 $ 20,876 Supplementary cash flow
information Interest paid (net of amount
capitalized) $ 56,175 $ 47,761 Income taxes paid (refunded) $ (36,827) $ 3,000 Supplementary noncash
financing activity Issuance of treasury stock $ 166 $ 1,481 The accompanying notes are an integral part of the
consolidated financial statements.
CLECO CORPORATION - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS For the three
months ended September 30, 2003 2002 Variance Change (Thousands) Operating revenue $ 276,628 $ 223,691 $ 52,937 23.7 % Operating expenses 228,444 157,301 71,143 45.2 % Operating income $ 48,184 $ 66,390 $ (18,206) (27.4)% Equity income from
investees $ 8,318 $ 6,780 $ 1,538 22.7 % Interest charges $ 17,696 $ 16,501 $ 1,195 7.2 % Net income applicable
to common stock $ 23,342 $ 36,392 $ (13,050) (35.9)% 14 Consolidated
net income applicable to common stock decreased $13.1 million, or 35.9% in the third
quarter of 2003 compared to the third quarter of 2002 primarily due to the decreased
earnings from Cleco Power and Midstream. Results of operations for
Cleco Power and Midstream, Cleco's two principal subsidiaries, are more fully
described below. higher capacity payments, higher maintenance expenses, and higher effective income tax rate. higher base revenue from retail and wholesale customer
sales and energy management services, lower losses from energy trading, and lower customer refund credits. As
reflected in the chart on the following page, the aggregation of fuel cost
recovery revenue, power purchased for utility customers, and fuel used for electric
generation significantly increased in the third quarter of 2003 compared to the
same period in 2002. However, changes in these items do not
significantly impact net income, since fluctuations in fuel-related costs generally
are recovered through fuel cost recovery revenue via Cleco Power's fuel cost
adjustment process. However, 15 Cleco's reliance on natural gas as a component of its fuel
mix could impact future earnings as a result of wholesale competition and if and when
retail competition emerges. For the three months ended September 30, 2003 2002 Variance Change (Thousands) Operating revenue Base $ 91,650 $ 90,655 $ 995 1.1 % Fuel cost recovery 117,297 82,025 35,272 43.0 % Electric customer credits 7,849 - 7,849 * Energy trading, net (4) (2,350) 2,346 99.8 % Other operations 7,695 7,641 54 0.7 % Intercompany revenue 558 381 177 46.5 % Total operating revenue 225,045 178,352 46,693 26.2 % Operating expenses Fuel used for electric generation 51,613 50,050 1,563 3.1 % Power purchased for utility customers 81,911 45,065 36,846 81.8 % Other operations 18,345 18,045 300 1.7 % Maintenance 20,432 6,687 13,745 205.5 % Depreciation 13,672 13,106 566 4.3 % Taxes other than income taxes 9,584 9,814 (230) (2.3)% Total operating expenses 195,557 142,767 52,790 37.0 % Operating income $ 29,488 $ 35,585 $ (6,097) (17.1)% Other income (expense), net $ (1,000) $ (131) $ (869) (663.4)% Federal and state income taxes $ 8,353 $ 9,547 $ (1,194) (12.5)% Net income $ 13,909 $ 19,719 $ (5,810) (29.5)% * Not meaningful For the three months ended September 30, 2003 2002 Change (Million kWh) Electric sales Residential 1,119 1,100 1.7 % Commercial 530 511 3.7 % Industrial 719 717 0.3 % Other retail 174 171 1.8 % Unbilled (58) (23) (152.2)% Total retail 2,484 2,476 0.3 % Sales for resale 248 231 7.4 % Total retail and wholesale customer sales 2,732 2,707 0.9 % Short-term sales to other utilities 28 30 (6.7)% Sales from trading activities 6 72 (91.7)% Total electric sales 2,766 2,809 (1.5)% 16 The
following chart shows how cooling degree-days varied from normal conditions and
from the prior period. In the fourth quarter of 2002, Cleco Power changed
the method of determining cooling-degree days and began to use temperature data
collected by the NOAA for this purpose. Cooling degree-days for each
period indicated have been adjusted to reflect the change in the temperature
data source. For the three months
ended September 30, 2003 2002 Cooling degree-days Increase (decrease) from normal (6.51) % (2.89) % Increase (decrease) from prior year (3.73) % (0.34) % 17 Electric Customer Credits
For the three
months ended September 30,
2003 2002 Variance Change
(Thousands)
Energy trading margins....................
$ (71)
$ (1,526) $ 1,455 95.3 %
Mark-to-market..................................
67
(824) 891 *
Energy trading, net............................
$ (4)
$ (2,350) $ 2,346 99.8 %
* Not meaningful 18 Income Taxes For the three months ended September 30, 2003 2002 Variance Change (Thousands) Operating revenue Tolling operations $ 36,332 $ 40,772 $ (4,440) (10.9)% Energy trading, net (194) (437) 243 55.6 % Energy operations 15,594 5,164 10,430 202.0 % Other operations 337 224 113 50.4 % Intercompany revenue 1 2,083 (2,082) (100.0)% Total operating revenue 52,070 47,806 4,264 8.9 % Operating expenses Purchases for energy operations 14,329 4,180 10,149 242.8 % Other operations 13,321 5,514 7,807 141.6 % Maintenance 1,425 1,849 (424) (22.9)% Depreciation 3,639 4,409 (770) (17.5)% Taxes other than income taxes 149 324 (175) (54.0)% Total operating expenses 32,863 16,276 16,587 101.9 % Operating income $ 19,207 $ 31,530 $ (12,323) (39.1)% Equity income from investees $ 8,318 $ 6,780 $ 1,538 22.7 % Interest charges $ 9,420 $ 9,958 $ (538) (5.4)% Federal and state income taxes $ 7,011 $ 11,009 $ (3,998) (36.3)% Net income applicable to member's equity $ 11,088 $ 17,481 $ (6,393) (36.6)% Midstream's
net income applicable to member's equity in the third quarter of 2003 decreased
$6.4 million, or 36.6%, compared to the third quarter of 2002. Contributing
factors include: lower tolling revenue and higher other operations expense. These were partially offset by: lower losses from energy trading, lower maintenance expense, lower depreciation expense, higher equity income from investees, and lower interest charges. 19 Tolling Operations For the three
months ended September 30,
2003 2002 Variance Change (Thousands)
Energy trading margins.................
$ (782) $ 3,362 $ (4,144) *
Mark-to-market...............................
588 (3,799) 4,387 *
Energy trading, net........................
$ (194) $ (437) $ 243 55.6 %
* Not meaningful For the three months ended September 30,
2003 2002 Variance Change (Thousands) Energy management services.........................
$ 33 $ 597 $ (564) (94.5)% Wholesale natural gas marketed....................
15,561 4,567 10,994 240.7 % Energy operations.......................................
$ 15,594
$ 5,164 $ 10,430 202.0 % 20 The
chart below presents a summary of energy management kWh and natural gas
marketed during the third quarter of 2003 and 2002. For the three
months ended September 30,
2003 2002 Change Energy management (million kWh)........................
- 191 (100.0)% Natural gas (MMBtu)..............................................
2,946,709 1,313,770 124.3 % 21 Comparison of the Nine Months Ended September 30, 2003 and 2002 For the nine months
ended September 30,
2003 2002 Variance Change (Thousands) Operating revenue $ 682,113 $ 547,510 $ 134,603 24.6 % Operating expenses 694,628 409,321 285,307 69.7 % Operating income (loss) $ (12,515) $ 138,189 $ (150,704) * Equity income from
investees $ 23,902 $ 8,140 $ 15,762 193.6 % Interest charges $ 53,535 $ 41,081 $ 12,454 30.3 % Net income (loss)
applicable to common stock $ (26,180) $ 67,290 $ (93,470) * * Not meaningful Consolidated
net income (loss) applicable to common stock decreased $93.5 million in the
first nine months of 2003 compared to the first nine months of 2002 primarily
due to the $134.8 million impairment charge at Perryville discussed above under
"- Perryville." Also contributing to the decrease were increased
losses at the holding company level. Losses at the holding company
level increased primarily due to higher interest expense and higher corporate
legal and consulting fees associated with the FERC and LPSC investigations of
certain trading activities. On July 25, 2003, the FERC approved a settlement resolving its non-public investigation of Cleco's energy
marketing and trading practices, a review of which was initially disclosed in
November 2002. The settlement included penalties and remedies that
resulted in a $0.9 million decrease in consolidated net income applicable to
common stock. For additional information on the FERC settlement, see
Note 16 - "FERC Settlement" in the Notes to the Unaudited Financial Statements
in this Report. higher capacity payments, higher maintenance expense, higher depreciation expense, and higher interest charges. 22 These were partially offset by: higher base revenue from retail and wholesale customer sales
and energy management services, higher margins from energy trading, higher transmission revenue, and lower other operations expense. For the nine months ended September 30, 2003 2002 Variance Change (Thousands) Operating revenue Base $ 241,128 $ 236,670 $ 4,458 1.9 % Fuel cost recovery 277,952 199,295 78,657 39.5 % Electric customer credits (1,562) (1,575) 13 0.8 % Energy trading, net 627 (1,442) 2,069 * Other operations 22,874 20,872 2,002 9.6 % Intercompany revenue 1,660 1,355 305 22.5 % Total operating revenue 542,679 455,175 87,504 19.2 % Operating expenses Fuel used for electric
generation 121,211 107,287 13,924 13.0 % Power purchased for utility customers 181,253 114,938 66,315 57.7 % Other operations 45,812 48,196 (2,384) (4.9)% Maintenance 35,928 22,299 13,629 61.1 % Depreciation 40,268 39,085 1,183 3.0 % Taxes other than income
taxes 28,123 28,432 (309) (1.1)% Total operating expenses 452,595 360,237 92,358 25.6 % Operating income $ 90,084 $ 94,938 $ (4,854) (5.1)% Other income (expense), net $ (2,437) $ (275) $ (2,162) (786.2)% Interest charges $ 21,396 $ 20,568 $ 828 4.0 % Federal and state income
taxes $ 24,262 $ 26,950 $ (2,688) (10.0)% Net income $ 45,100 $ 49,198 $ (4,098) (8.3)% * Not meaningful For the nine months ended September 30, 2003 2002 Change (Million kWh) Electric sales Residential 2,714 2,668 1.7 % Commercial 1,364 1,317 3.6 % Industrial 2,038 2,025 0.6 % Other retail 454 452 0.4 % Unbilled 30 87 (65.5)% Total retail 6,600 6,549 0.8 % Sales for resale 588 549 7.1 % Total retail and wholesale
customer sales 7,188 7,098 1.3 % Short-term sales to other
utilities 92 90 2.2 % Sales from trading
activities 20 194 (89.7)% Total electric sales 7,300 7,382 (1.1)%
The
following chart shows how cooling and heating degree-days varied from normal
conditions and from the prior period. In the fourth quarter of 2002,
Cleco Power changed the method of determining heating and cooling degree-days
and began to use temperature data collected by the NOAA for this
purpose. Cooling and heating degree-days for each period indicated
have been adjusted to reflect the change in the temperature data source. For the nine months
ended September 30, 2003 2002 Cooling degree-days Increase (decrease) from normal (2.73)% 3.39 % Increase (decrease) from prior year (5.92)% 2.88 % Heating degree-days Increase (decrease) from normal 9.26 % (0.48)% Increase from prior year 10.29 % 0.00 % For the nine months
ended September 30,
2003 2002 Variance Change (Thousands) Energy trading margins.................
$ 137 $ (557) $ 694 * Mark-to-market...............................
490 (885) 1,375 * Energy trading, net........................
$ 627 $ (1,442) $ 2,069 * * Not meaningful 24 Energy
trading, net increased $2.1 million in the first nine months of 2003 compared
to the same period in 2002. This increase was primarily a result of amounts
required to be paid to Cleco Power pursuant to the Consent Agreement and a negative
adjustment for premiums on certain gas put options recorded in the third
quarter of 2002. In addition, Cleco Power's efforts to mitigate most
of its exposure to the market following the discontinuation of speculative
trading activities in the fourth quarter of 2002 and volatility in power and
natural gas prices contributed to the fluctuations between each period. For
additional information on the Consent Agreement and FERC settlement, see Note 16
- - "FERC Settlement" in the Notes to the Unaudited Financial Statements in this
Report. 25 Midstream For the nine months ended September 30, 2003 2002 Variance Change (Thousands) Operating revenue Tolling operations $ 88,140 $ 66,266 $ 21,874 33.0 % Energy trading, net (2,380) 2,450 (4,830) * Energy operations 53,608 20,778 32,830 158.0 % Other operations 561 4,188 (3,627) (86.6)% Intercompany revenue 203 5,296 (5,093) (96.2)% Total operating revenue 140,132 98,978 41,154 41.6 % Operating expenses Purchases for energy operations 50,221 17,373 32,848 189.1 % Other operations 28,824 21,035 7,789 37.0 % Maintenance 6,157 5,843 314 5.4 % Depreciation 18,791 8,624 10,167 117.9 % Impairment of long-lived assets 134,772 - 134,772 * Taxes other than income taxes 362 1,220 (858) (70.3)% Total operating expenses 239,127 54,095 185,032 342.1 % Operating income (loss) $ (98,995) $ 44,883 $ (143,878) * Equity income from investees $ 23,902 $ 8,140 $ 15,762 193.6 % Other income (expense), net $ (905) $ (16) $ (889) * Interest charges $ 30,168 $ 0,458 $ 9,710 47.5 % Federal and state income taxes (benefit) expense $ (40,306) $ 12,282 $ (52,588) * Net income (loss) applicable to member's equity $ (65,316) $ 20,589 $ (85,905) * * Not meaningful Midstream's
net loss applicable to member's equity for the first nine months of 2003 was $65.3
million, significantly below the $20.6 million earned in the same period of 2002. Contributing
factors include: impairment of long-lived assets, lower margins from energy trading, higher other operations expense, higher depreciation expense, and higher interest charges. These were partially offset by: higher tolling revenue and higher equity income from investees. Tolling Operations
26 Generally,
Midstream's energy trading transactions are considered non-hedging derivatives
under SFAS No. 133, as amended, which requires that the transactions be
reported at fair market value or "marked-to-market." The chart below
presents the components of energy trading, net. For the nine months
ended September 30,
2003 2002 Variance Change (Thousands) Energy trading margins.....................
$ (2,753) $ 3,044 $ (5,797) * Mark-to-market...................................
373 (594) 967 * Energy trading, net............................
$ (2,380) $ 2,450 $ (4,830) * * Not meaningful For the nine months ended September 30,
2003 2002 Variance Change (Thousands)
Energy management services............ $ 639 $ 1,111 $ (472) (42.5) % Wholesale natural gas marketed......
52,969 19,667 33,302 169.3 % Energy operations.........................
$ 53,608
$ 20,778 $ 32,830 158.0 % The
chart below presents a summary of energy management kWh and natural gas marketed
during the first nine months of 2003 and 2002. For the nine months
ended September 30,
2003 2002 Change Energy management (million kWh)........................
162 364 (55.5)% Natural gas (MMBtu)..............................................
9,630,915 5,714,684 68.5 % 27 Intercompany Revenue 28 suspension of interest accruals and payments on Perryville's
subordinated debt to Mirant as a result of Mirant's bankruptcy and MAEM's subsequent failure to remit pre-petition amounts
under the Perryville Tolling Agreement. For additional information
on the rejection of the tolling agreement and its impact on the subordinated
debt, see Note 15 - "Perryville" in the Notes to the Unaudited Financial
Statements in this Report. 29 CLECO POWER LLC 30 CLECO POWER LLC 2003 2002 (Thousands) Operating revenue Electric operations $ 208,947 $ 172,680 Energy trading, net (4) (2,350) Other operations 7,695 7,641 Intercompany revenue 558 381 Gross operating revenue 217,196 178,352 Electric customer
credits 7,849 - Total operating revenue 225,045 178,352 Operating expenses Fuel used for electric
generation 51,613 50,050 Power purchased for
utility customers 81,911 45,065 Other operations 18,345 18,045 Maintenance 20,432 6,687 Depreciation 13,672 13,106 Taxes other than income
taxes 9,584 9,814 Total operating
expenses 195,557 142,767 Operating income 29,488 35,585 Interest income 363 396 Allowance for other
funds used during construction 486 446 Other expense, net (1,000) (131) Income before
interest charges 29,337 36,296 Interest charges Interest charges,
including amortization of debt expenses, premium and discount 7,341 7,278 Allowance for borrowed
funds used during construction (266) (248) Total interest charges 7,075 7,030 Net income before
income taxes 22,262 29,266 Federal and state
income taxes 8,353 9,547 Net income
applicable to member's equity $ 13,909 $ 19,719 The accompanying notes are an integral part of the
financial statements. 31 CLECO POWER LLC 2003 2002 (Thousands) Operating revenue Electric operations $ 519,080 $ 435,965 Energy trading, net 627 (1,442) Other operations 22,874 20,872 Intercompany revenue 1,660 1,355 Gross operating revenue 544,241 456,750 Electric customer
credits (1,562) (1,575) Total operating revenue 542,679 455,175 Operating expenses Fuel used for electric
generation 121,211 107,287 Power purchased for
utility customers 181,253 114,938 Other operations 45,812 48,196 Maintenance 35,928 22,299 Depreciation 40,268 39,085 Taxes other than income
taxes 28,123 28,432 Total operating
expenses 452,595 360,237 Operating income 90,084 94,938 Interest income 998 685 Allowance for other
funds used during construction 2,113 1,368 Other expense, net (2,437) (275) Income before
interest charges 90,758 96,716 Interest charges Interest charges,
including amortization of debt expenses, premium and discount 22,019 21,285 Allowance for borrowed
funds used during construction (623) (717) Total interest charges 21,396 20,568 Net income before
income taxes 69,362 76,148 Federal and state
income taxes 24,262 26,950 Net income
applicable to member's equity $ 45,100 $ 49,198 The accompanying notes are an integral part of the
financial statements. 32 CLECO POWER LLC At At September 30, December 31, 2003 2002 (Thousands) Assets Utility plant and
equipment Property, plant and
equipment $ 1,669,336 $ 1,617,254 Accumulated
depreciation (720,957) (680,305) Net property, plant and
equipment 948,379 936,949 Construction
work-in-progress 74,160 76,131 Total utility plant,
net 1,022,539 1,013,080 Current assets Cash and cash
equivalents 48,406 69,167 Customer accounts
receivable (less allowance for doubtful accounts of
$810 in 2003 and $846 in 2002) 41,427 25,467 Other accounts
receivable 23,559 23,553 Accounts receivable -
affiliates 11,281 9,296 Taxes receivable - 18,123 Unbilled revenue 17,008 15,996 Fuel inventory, at
average cost 16,248 13,309 Material and supplies
inventory, at average cost 13,622 12,333 Margin deposits 3,190 - Risk management assets 857 67 Accumulated deferred
fuel 2,816 - Accumulated deferred
federal and state income taxes, net 2,652 3,652 Other current assets 4,501 4,234 Total current assets 185,567 195,197 Prepayments 8,492 8,733 Regulatory assets and
liabilities - deferred taxes, net 91,340 65,268 Other deferred charges 57,832 56,167 Total assets $ 1,365,770 $ 1,338,445 The accompanying notes are an integral part of the
financial statements. (continued on next page) 33 CLECO POWER LLC At At September 30, December 31, 2003 2002 (Thousands) Liabilities and
capitalization Member's equity $ 449,330 $ 424,695 Other comprehensive
income (914) (914) Long-term debt 410,561 335,517 Total capitalization 858,977 759,298 Current liabilities Short-term debt - 107,000 Long-term debt due
within one year - 25,000 Accounts payable 57,578 63,154 Accounts payable -
affiliates 13,760 9,161 Customer deposits 21,381 21,069 Taxes accrued 42,703 - Interest accrued 3,490 7,725 Accumulated deferred
fuel - 3,509 Risk management
liabilities - 1,935 Other current
liabilities 3,310 2,733 Total current
liabilities 142,222 241,286 Deferred credits Accumulated deferred
federal and state income taxes, net 302,834 274,205 Accumulated deferred
investment tax credits 19,448 20,744 Other deferred credits 42,289 42,912 Total deferred credits 364,571 337,861 Total liabilities
and capitalization $ 1,365,770 $ 1,338,445 The accompanying notes are an integral part of the
financial statements. 34 CLECO POWER LLC
2003 2002 (Thousands) Operating activities Net income applicable
to member's equity $ 45,100 $ 49,198 Adjustments to reconcile
net income to net cash provided by operating
activities: Depreciation and
amortization 41,530 39,958 Provision for doubtful
accounts 965 688 Allowance for other
funds used during construction (2,113) (1,368) Amortization of
investment tax credits (1,296) (1,307) Deferred income taxes
1,934 19,711 Deferred fuel costs
(7,185) 5,167 Changes in assets and
liabilities: Accounts receivable (16,930) (18,730) Accounts and notes
receivable, affiliate (1,985) (2,736) Unbilled revenue (1,012) (3,445) Fuel, materials and
supplies inventory (4,227) 1,819 Prepayments 241 343 Accounts payable (5,693) (13,883) Accounts payable,
affiliate 4,635 6,586 Customer deposits 312 362 Other deferred accounts (2,463) (458) Taxes accrued 60,826 16,383 Interest accrued (4,235) (5,966) Margin deposits (3,190) (100) Risk management assets
and liabilities, net (1,865) 1,198 Other, net 430 1,781 Net cash provided by
operating activities 103,779 95,201 Investing activities Additions to property,
plant and equipment (48,865) (52,500) Allowance for other
funds used during construction 2,113 1,368 Proceeds from sale of
property, plant and equipment 269 1,283 Net cash used in
investing activities (46,483) (49,849) Financing activities Change in short-term
debt, net (107,000) (37,392) Retirement of long-term
obligations (25,000) (50,000) Issuance of long-term
debt 75,000 75,000 Deferred financing
costs (557) (3,776) Distribution to parent (30,500) (31,000) Contribution from
parent 10,000 3,000 Net cash used in
financing activities (78,057) (44,168) Net increase
(decrease) in cash and cash equivalents (20,761) 1,184 Cash and cash
equivalents at beginning of period 69,167 3,123 Cash and cash
equivalents at end of period $ 48,406 $ 4,307 Supplementary cash
flow information Interest paid (net of
amount capitalized) $ 25,168 $ 26,568 Income taxes paid
(refunded) $ (22,005) $ 2,906 The accompanying
notes are an integral part of the financial statements. 36 CLECO POWER LLC - NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS 36
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended September 30,
2003
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant
as specified in its charter)
(State or other
jurisdiction of incorporation or organization)
(I.R.S. Employer
Identification No.)
(Address of principal
executive offices)
(Zip Code)
Commission file number 1-05663
(Exact name of registrant
as specified in its charter)
(State or other
jurisdiction of incorporation or organization)
(I.R.S. Employer
Identification No.)
(Address of principal
executive offices)
(Zip Code)
Registrant
Description of Class
Shares Outstanding at October 31, 2003
Cleco Corporation
Common Stock, $1.00 Par Value
47,261,027
TABLE OF CONTENTS
Results of Operations.
power plant near Eunice, Louisiana, 50% owned by Midstream
and 50% owned
by Calpine
Common Stock
and the FERC Staff
Activities
Activities
natural gas-fired
power plant located in Evangeline Parish, Louisiana
Indirect Guarantees of Indebtedness to Others
Research Bulletin No. 51
between Evangeline and Siemens Westinghouse Power
Corporation
because the percentage difference is greater than
1,000% or the comparison
involves a positive and negative number.
October 24, 2003
and its 725-MW combined-cycle, natural gas-fired
power plant near
Perryville, Louisiana
Perryville and KBC, as Agent Bank
Investments Accounted for by the Equity Method
Liabilities and Equity
Perryville and MAI
MAEM, MAI, and Mirant
All subsequent
written and oral forward-looking statements attributable to the Registrants or persons acting on their behalf
are expressly qualified in their entirety by the factors identified above.
The Registrants undertake no obligation to update or
revise any forward-looking statements, whether as a result of changes in actual
results, changes in assumptions, or other factors affecting such statements.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL
STATEMENTS
The
consolidated financial statements of Cleco have been prepared pursuant to the
rules and regulations of the SEC. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations, although
Cleco believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements
should be read in conjunction with Cleco's Consolidated Financial Statements
and the Notes included in the Registrants' Combined Annual Report on Form 10-K
for the year ended December 31, 2002.
The unaudited
financial information included in the following financial statements reflects
all adjustments of a normal recurring nature which are, in the opinion of
management of Cleco, necessary for a fair presentation of the financial
position and the results of operations for the interim
periods. Information for interim periods is affected by seasonal
variations in sales, rate changes, timing of fuel expense recovery and other
factors, and is not necessarily indicative of the results that may be expected
for the full fiscal year.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30,
(UNAUDITED)
7
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the three months ended September 30,
(UNAUDITED)
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the three months ended September 30,
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30,
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the nine months ended September 30,
(UNAUDITED)
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the nine months ended September 30,
(UNAUDITED)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
CONSOLIDATED BALANCE SHEETS (Continued)
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(UNAUDITED)
13
OF
OPERATIONS
Set forth below is
information concerning the consolidated results of operations of Cleco for the
three months and nine months ended September 30, 2003, and September 30, 2002. The
following discussion should be read in combination with Cleco's Unaudited
Consolidated Financial Statements and the Notes contained in this Form 10-Q.
Perryville
In May 2003,
Perryville signed a letter of intent to sell the Perryville facility to an
Entergy subsidiary. The letter of intent expired on August 15, 2003; however, Entergy and Perryville
continue to discuss and negotiate the possible sale of these assets on mutually
acceptable terms.
Prior to the July
14, 2003, filing by Mirant and certain of its subsidiaries, including MAEM, for
voluntary protection under Chapter 11 of the U.S. Bankruptcy Code, the carrying
value of the Perryville facility was compared to its undiscounted,
probability-weighted, future cash flows, due to the occurrence of a triggering
event as required by SFAS No. 144. That calculation, pursuant to
SFAS No. 144, corresponded largely to the future cash flows expected to be
received under the Perryville Tolling Agreement. Due to Mirant's
bankruptcy filing and the subsequent events surrounding that bankruptcy, the
probability weighting of future cash flows under possible scenarios, as
required by SFAS No. 144, changed significantly. As a result of the
change in probability weighting of Perryville's undiscounted future cash flows,
management believed the carrying value of Perryville's long-lived assets was
impaired; therefore, the carrying value of these assets was reduced to fair
value. The difference between Perryville's carrying value and its
fair value resulted in an impairment charge of $134.8 million in the second
quarter of 2003. This charge is presented in a separate line item in
the operating expenses section of the Consolidated Statements of Income as
discussed below under " - Comparison of Nine Months Ended September 30, 2003
and 2002." At September 30, 2003, Perryville's undiscounted
probability-weighted, future cash flows exceeded its carrying value; therefore,
no additional impairment was recorded in the third quarter of 2003. However,
depending on the outcome of Perryville's efforts to sell the facility,
applicable accounting rules could require Perryville to reduce the carrying
value of the facility and recognize an additional impairment
charge. Also, future earnings could be realized if Perryville recovers
damages through the Mirant bankruptcy process arising from MAEM's rejection of
the Perryville Tolling Agreement.
On August 29, 2003,
MAEM and its related debtors (collectively, the "Debtors") filed and served
upon Perryville a motion pursuant to which the Debtors moved under Bankruptcy
Code Section 365 to reject the Perryville Tolling Agreement. MAEM
asserts that pursuant to their motion, the rejection of the Perryville Tolling
Agreement was effective on September 15, 2003. Upon the rejection of
the Perryville Tolling Agreement, MAEM relinquished the rights to exclusively
dispatch the facility's capacity and energy. Moreover, MAEM is no
longer financially responsible for the recurring payments pursuant to the
Perryville Tolling Agreement subsequent to September 15, 2003.
For
additional information on Perryville's impairment and the impact of the Mirant
bankruptcy, see Note 15 - "Perryville" in the Notes to the Unaudited Financial
Statements in this Report. For information on the assumptions and
estimates underlying Midstream's accounting for long-lived assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - Midstream" on pages 33 and 34 of
the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to the
Registrants' Form 10-K for the year ended December 31, 2002, and is
incorporated herein by reference.
Comparison of the Three Months Ended September 30, 2003 and 2002
Cleco Consolidated
Operating
revenue increased $52.9 million, or 23.7%, in the third quarter of 2003
compared to the same period of 2002 largely as a result of higher base and fuel
cost recovery revenue from utility customer sales, lower losses from energy
trading, and higher energy operations revenue due to increased fuel prices and
increased volumes of natural gas marketed. In addition, lower
estimated customer credits resulting from the revised estimate of the accruals
for the rate refund based on actual results for the third quarter increased operating revenue. Partially offsetting
these increases was lower tolling revenue at the Perryville and Evangeline facilities.
Operating
expenses increased $71.1 million, or 45.2%, in the third quarter of 2003
compared to the third quarter of 2002 primarily due to higher prices for
natural gas purchased for fuel generation and power purchased for Cleco Power
customers. Also contributing to this increase were higher other
operations and maintenance expenses. Other operations expense
increased largely as a result of reserves recorded at Perryville to reflect
potentially uncollectible receivables, while increased maintenance expenses were
primarily a result of Cleco Power's reliability enhancement initiative and its tropical
storm restoration efforts during the third quarter of 2003.
Equity
income from investees increased $1.5 million, or 22.7%, in the third quarter of
2003 compared to the same period of 2002 primarily as a result of the
commencement of full commercial operation of the Acadia facility in August 2002. Interest
charges increased $1.2 million, or 7.2%, compared to the third quarter of 2002
primarily due to the cessation of capitalizing interest-related expenses
associated with Acadia once this facility commenced commercial operation.
Cleco Power
Cleco Power's net
income applicable to member's equity in the third quarter of 2003 decreased $5.8
million, or 29.5%, compared to the third quarter of 2002. Contributing
factors include:
These were
partially offset by:
Cleco Power's residential customers' demand for electricity is largely
affected 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
customers can choose an alternative fuel source for heating, such as natural
gas. 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 about 30 years.
Base
Base revenue during
the third quarter of 2003 increased $1.0
million, or 1.1%, compared to the same period in 2002. The increase
was primarily due to increased energy management services revenue as a result
of new contracts which began in May 2003. In addition, slightly higher
volumes of retail and wholesale customer kWh sales, primarily in the residential
and commercial customer classes, resulted in higher base revenue.
On July 7, 2003, one of Cleco
Power's existing municipal customers entered into a three-year wholesale
contract with an energy marketing company. This new contract is scheduled
to begin once Cleco Power's contract expires on May 31, 2004. The expiration of
this contract is expected to reduce annual base revenue by approximately $4.8
million. Also anticipated with the non-renewal of this contract will
be a reduction of capacity expenses of approximately $2.0 million, resulting in
an expected net annual reduction of $2.8 million in pre-tax operating income.
On July 16, 2003, the LPSC
approved Cleco Power's new five-year contract with one of its existing
industrial customers. As a result of the terms in the new contract,
base revenue is expected to decrease by approximately $1.0 million in 2003, and
by almost $2.0 million annually over the remaining life of the new agreement.
During the second
quarter of 2004, Cleco Power is expected to begin serving a new industrial
customer and during the fourth quarter of 2004 is expected to begin providing
service to an expansion of a current customer's operation. The expected
new service and expected expansion of current service is projected to increase
2004 base revenue by approximately $0.6 million and annually increase revenue
by approximately $1.1 million beginning in 2005.
Fuel Cost Recovery
Fuel cost recovery
revenue collected from customers increased $35.3 million, or 43.0%, primarily
as a result of an increase of 49.8% in the average per unit cost of power
purchased from the energy market in the third quarter
of 2003 compared to the third quarter of 2002
and a 26.1% increase in the average per unit cost of fuel used for electric
operations. The increase in fuel used for electric generation is
primarily the result of higher natural gas prices. The increase in the
per unit cost of purchased power was influenced by higher natural gas prices,
as well as other market factors. Changes in fuel costs
historically have not significantly affected Cleco Power's net
income. Generally, all fuel and purchased power costs are recovered
through the LPSC-established Fuel Adjustment Clause that enables Cleco Power to
pass on to its customers substantially all such charges. Cleco Power's
Fuel Adjustment Clause filings are submitted monthly and are regulated by the
LPSC (representing about 93% of the total fuel costs) and the
FERC. All filings are subject to refund until final approval is
received from the LPSC upon completion of a periodic audit. In the
second half of 2002, the LPSC informed Cleco Power that it was planning to
conduct a periodic fuel audit. The audit commenced in March 2003 and
includes Fuel Adjustment Clause filings for January 2001 through December 2002,
although a portion of the data requested for the audit relates to periods prior
to the 2001 and 2002 filings. The audit, pursuant to the Fuel
Adjustment Clause General Order issued November 6, 1997, in Docket No. U-21497,
is required to be performed no less frequently than every other year; however,
this is the first LPSC Fuel Adjustment Clause audit of Cleco
Power. LPSC-jurisdictional revenue recovered by Cleco Power through
its Fuel Adjustment Clause for the audit period of January 2001 through
December 2002 was $567.1 million. Management is unable to predict
the results of the LPSC fuel audit, which could require Cleco Power to refund the
previously recovered revenue and could adversely impact the Registrants'
results of operations and financial condition. The LPSC Staff expects
to issue its findings and recommendations related to the fuel audit by the
first quarter of 2004.
The reserve for electric
customer credits during the third quarter of
2003 decreased $7.8 million compared to the same period in
2002. This decrease reflects the revised estimate of the accruals for
the rate refund based on actual results for the third quarter. The potential refunds are based on results for
each 12-month period ended September 30. For additional information
on the accrual for electric customer credits, see Note 8 - "Accrual for Electric
Customer Credits" in the Notes to the Unaudited Financial Statements in this
Report.
Energy Trading, Net
For the third
quarter of 2003 compared to the third quarter of 2002, decreases in power and
gas volumes were directly related to the discontinuation of speculative trading
activities in the fourth quarter of 2002. Most of Cleco Power's
exposure to the market was mitigated in the summer of 2002 by transactions that
were entered into to specifically offset open positions. Volumes and
associated revenue were affected by these positions during the third quarter of
2003.
Generally, Cleco
Power's energy trading transactions are considered non-hedging derivatives
under SFAS No. 133, as amended, which requires that the transactions be reported
at fair market value or "marked-to-market." The chart below presents
the components of energy trading, net.
Energy trading, net
increased $2.3 million, or 99.8%, in the third quarter of 2003 from the same
period in 2002. This increase was primarily due to a negative
adjustment for premiums on certain gas put options recorded in the third
quarter of 2002. In addition, Cleco Power's efforts to mitigate most
of its exposure to the market following the discontinuation of speculative
trading activities in the fourth quarter of 2002 and volatility in power and
natural gas prices contributed to the fluctuations between each period.
Operating Expenses
Operating expenses
increased $52.8 million, or 37.0%, in the third quarter of 2003 compared to the
same period of 2002. Fuel used for electric generation increased $1.6
million, or 3.1%, primarily due to an increase in the average per unit equivalent
cost of fuel from $25.71 per MWh in the third quarter of 2002 to $32.90 per MWh
in the same period of 2003. Power purchased for utility customers
increased $36.8 million, or 81.8%, largely due to an increase in volumes and an
increase in the average per unit cost of purchased power. In
addition, power purchased for utility customers increased as a result of higher
capacity payments made during the third quarter of 2003. Increases
in fuel used for electric generation and power purchased for utility customers both
were influenced significantly by higher natural gas prices. As a
result, total system cost increased from $26.29 per MWh in the third quarter of
2002 to $36.96 per MWh in the same period of 2003. Other operations
expense increased $0.3 million, or 1.7%, primarily due to higher property and
general liability insurance expense. This was partially offset by
lower distribution operation expenses in 2003 compared to 2002 as a result of Tropical
Storm Isidore right-of-way clearing expenses that were incurred in the third
quarter of 2002. Maintenance expenses during the third quarter of
2003 increased $13.7 million, or 205.5%, compared to the same period of
2002. The primary reasons for this increase were increased
maintenance expenses from Cleco Power's transmission and distribution
reliability initiative, production availability initiative, and restoration
efforts associated with Tropical Storm Bill. It is expected that
on-going maintenance expenses related to Cleco Power's reliability enhancement
initiative program will return to normal levels in subsequent
periods. Depreciation expense increased $0.6 million,
or 4.3%, largely as a result of normal recurring additions to fixed assets.
Other Income (Expense), Net
Other income (expense),
net increased $0.9 million, or 663.4%, during the third quarter of 2003
compared to the same period of 2002 primarily due to payments made to community
action agencies to assist low income customers.
Income tax
expense in the third quarter of 2003 decreased $1.2 million, or 12.5%, compared
to the third quarter of 2002. Cleco Power's effective income tax
rate for the third quarter of 2003 increased to 37.5% from 32.6% compared to
the third quarter of 2002. The increase was mainly due to an
adjustment related to an internal review of accumulated deferred income taxes. For
information about assumptions and estimates underlying Cleco Power's accounting
for the effect of income taxes, see "Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
- - Critical Accounting Policies" and Note 14 - "Income Taxes" in the Notes to
the Unaudited Financial Statements in this Report.
Midstream
Tolling operations
revenue decreased $4.4 million, or 10.9%, in the third quarter of 2003 compared
to the third quarter of 2002. The decrease was primarily due to
reduced tolling revenue at Perryville as a result of Mirant's bankruptcy and MAEM's
subsequent rejection of the Perryville Tolling Agreement. Tolling
revenue at Evangeline also was lower as a result of the facility being
dispatched less frequently in the third quarter of 2003 compared to the third
quarter of 2002. For additional information on Mirant's bankruptcy
and MAEM's rejection of the tolling agreement, see Note 15 - "Perryville" in
the Notes to the Unaudited Financial Statements in this Report.
Energy Trading, Net
For the third
quarter of 2003 compared to the same period of 2002,
decreases in power and gas volumes were directly related to the discontinuation
of Midstream's speculative trading activities in the fourth quarter of
2002. Most of Midstream's exposure to the market from positions
opened prior to the change in its speculative trading strategy was mitigated in
the fourth quarter of 2002 by transactions that were entered into to
specifically offset open positions. Volumes and associated revenue
were affected by these positions during the third quarter of 2003. As of September 30, 2003, Marketing &
Trading had closed all forward trading positions.
Generally,
Midstream's energy trading transactions are considered non-hedging derivatives
under SFAS No. 133, as amended, which requires that the transactions be
reported at fair market value or "marked-to-market." The chart below
presents the components of energy trading, net.
Energy trading, net
increased $0.2 million, or 55.6%, in the third quarter of 2003 compared to the
same period of 2002. The increase was primarily due to lower losses
recorded during the third quarter of 2003 as a result of the discontinuation of
Midstream's speculative trading activities in late 2002.
Energy Operations
The $10.4 million,
or 202.0%, increase in energy operations revenue during the third quarter of
2003 compared to the same period of 2002 was primarily due to increases in the
average per unit cost of natural gas and volumes of natural gas marketed by
Cleco Energy to third parties. In 2002, Cleco Energy sold gas
production to Marketing & Trading as a part of its speculative trading
portfolio, which included trading physical gas. These affiliate
transactions previously were eliminated from consolidated Midstream results and
are not reflected in the charts below. Cleco Energy has marketed
more physical gas to third parties in 2003 as a result of Marketing &
Trading's discontinuation of speculative trading. This increase in
revenue to third parties is reflected as wholesale natural gas marketed below. Energy
management services revenue decreased $0.6 million, or 94.5%, for the third quarter
of 2003 compared to the same period of 2002 primarily due to Marketing &
Trading's termination of all its energy management services contracts in May
2003. Intercompany volume and revenue within Midstream subsidiaries
have been eliminated and therefore are not reflected in the charts
below. The chart below presents the components of energy operations
revenue.
Intercompany Revenue
Intercompany
revenue decreased $2.1 million, or 100.0%, in the third quarter of 2003
compared to the same period of 2002 primarily due to lower volumes of affiliate
transactions.
Operating Expenses
Purchases for
energy operations increased $10.1 million, or 242.8%, in the third quarter of
2003 compared to the same period of 2002 primarily due to the same factors
affecting energy operations revenue. Other operations expense increased
$7.8 million, or 141.6%, during the third quarter of 2003 compared to the same
period of 2002. This increase was primarily due to $7.6 million of
reserves recorded at Perryville to reflect potentially uncollectible MAEM
receivables, as a result of Mirant and certain of its affiliates filing for protection
under Chapter 11 of the U.S. Bankruptcy Code on July 14, 2003, and the related rejection of the Perryville Tolling Agreement. For additional information
on Mirant's bankruptcy and the rejection of the tolling agreement, see Note 15
- - "Perryville" in the Notes to the Unaudited Financial Statements in this
Report. Partially offsetting these increases was a decrease in other
operations expense that resulted primarily from reduced Midstream participation
in unregulated energy markets, including wholesale generation asset
development, project analytics, energy marketing and trading activities, and
power plant engineering services. Maintenance expenses decreased $0.4
million, or 22.9%, in the third quarter of 2003 compared to the same period in
2002 primarily due to reduced Midstream power plant maintenance activities. Depreciation
expense decreased $0.8 million, or 17.5%, primarily due to the decline in Perryville's
asset base resulting from the $134.8 million asset impairment charge recorded
in the second quarter of 2003. For additional information on this
charge, see Note 15 - "Perryville" in the Notes to the Unaudited Financial
Statements in this Report.
Equity Income from Investees
Equity income from
investees increased $1.5 million, or 22.7%, for the third quarter of 2003
compared to the third quarter of 2002 primarily due to increased equity
earnings from Acadia as a result of the facility beginning full commercial
operation in August 2002. For additional information on Acadia, see Note
4 - "Equity Investment in Investees" in the Notes to the Unaudited Financial
Statements in this Report.
Interest Charges
Interest charges decreased
$0.5 million, or 5.4%, during the third quarter of 2003 compared to the third quarter
of 2002 primarily due to the suspension of interest accruals and payments on Perryville's
subordinated debt to Mirant during the third quarter of 2003 as a result of
Mirant's bankruptcy and MAEM's subsequent failure to remit pre-petition amounts
under the Perryville Tolling Agreement. For additional information
on the rejection of the tolling agreement and its impact on the subordinated
debt, see Note 15 -"Perryville" in the Notes to the Unaudited Financial
Statements in this Report. Partially offsetting this decrease was a change in the treatment of
interest-related expenses associated with Acadia. Prior to the August
2002 commencement of full commercial operation at Acadia, interest related to this
project was capitalized in accordance with SFAS No. 58.
Income Taxes
Income tax
expense in the third quarter of 2003 decreased $4.0 million, or 36.3%, compared
to the third quarter of 2002. The decrease was primarily due to
lower taxable income compared to the same period of 2002. For
information about assumptions and estimates underlying Midstream's accounting
for the effect of income taxes, see "Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
- - Critical Accounting Policies" and Note 14 - "Income Taxes" in the Notes to
the Unaudited Financial Statements in this Report.
Cleco Consolidated
Operating
revenue increased $134.6 million, or 24.6%, in the first nine months of 2003 compared
to the same period of 2002 largely as a result of higher base, fuel cost
recovery, and transmission revenues from utility customer sales, higher tolling
revenue from commencement of full commercial operation of the Perryville
facility in the third quarter of 2002, and higher energy operations revenue due
to increased fuel prices and increased volumes of natural gas
marketed. Partially offsetting these increases were lower trading
margins and lower other operations revenue.
Operating
expenses increased $285.3 million, or 69.7%, in the first nine months of 2003
compared to the first nine months of 2002 primarily due the $134.8 million impairment
of Perryville's long-lived assets. Also contributing to this
increase were higher prices for natural gas purchased for fuel generation and
marketing purposes, increased depreciation expense at Perryville and Evangeline,
and increased other operations and maintenance expenses at Perryville and Cleco
Power.
Equity
income from investees increased $15.8 million, or 193.6%, in the first nine
months of 2003 compared to the same period of 2002 primarily as a result of the
commencement of full commercial operation of the Acadia facility in August
2002. Interest charges increased $12.5 million, or 30.3%, compared
to the first nine months of 2002 primarily due to higher corporate debt and the
cessation of capitalizing interest-related expenses associated with Perryville
and Acadia once these facilities commenced commercial operation.
Results of
operations for Cleco Power and Midstream are more fully described below.
Cleco Power
Cleco Power's net
income applicable to member's equity in the first nine months of 2003 decreased
$4.1 million, or 8.3%, compared to the first nine months of
2002. Contributing factors include:
As reflected in the
chart on the following page, the aggregation of fuel cost recovery revenue, power
purchased for utility customers, and fuel used for electric generation
significantly increased in the first nine months of 2003 compared to the same
period in 2002. However, changes in these items do not significantly
impact net income, since fluctuations in fuel-related costs generally are
recovered through fuel cost recovery revenue via Cleco Power's fuel cost
adjustment process. However, Cleco's reliance on natural gas as a
component of its fuel mix could impact future earnings as a result of wholesale
competition and if and when retail
competition emerges.
23
Base
Base revenue during
the first nine months of 2003 increased $4.5 million, or 1.9%, compared to the
same period in 2002. The increase was primarily due to slightly higher
volumes of retail and wholesale customer kWh sales, primarily in the
residential and commercial customer classes. In addition to the 1.3%
increase in retail and wholesale customer sales, base revenue also increased
from energy management services revenue as a result of new contracts which
began in May 2003. For information on the anticipated effects of the
non-renewal of one of Cleco Power's wholesale contracts, its renewal of one of
its contracts with an industrial customer, and the additional revenue from
industrial customers, see "- Comparison of the Three Months Ended September 30,
2003 and 2002 - Cleco Power - Base."
Fuel Cost Recovery
Fuel cost recovery
revenue collected from customers increased $78.7 million, or 39.5%, primarily
as a result of an increase of 45.0% in the average per unit cost of power
purchased from the energy market in the first nine months of 2003 compared to
the first nine months of 2002 and a 32.2% increase in the average per unit cost
of fuel used for electric operations. The increase in fuel used for
electric generation is primarily the result of higher natural gas
prices. The increase in the per unit cost of purchased power was
influenced by higher natural gas prices, as well as other market
factors. For information on Cleco Power's ability to recover fuel
and purchase power costs, see "- Comparison of the Three Months Ended September 30, 2003 and 2002 -
Cleco Power - Fuel Cost Recovery."
Electric Customer Credits
Electric
customer credits during the first nine months of 2003 were slightly lower
compared to the same period in 2002. This decrease in electric customer
credits is a result of the revised estimate of the accruals for the rate refund
based on actual results for the first nine months of 2003. The potential
refunds are based on results for each 12-month period ended September
30. For additional information on the accrual for electric customer
credits, see Note 8 - "Accrual for Electric Customer Credits" in the Notes to
the Unaudited Financial Statements in this Report.
Energy Trading, Net
For
the first nine months of 2003 compared to the first nine months of 2002,
decreases in power and gas volumes were directly related to the discontinuation
of speculative trading activities in the fourth quarter of
2002. Most of Cleco Power's exposure to the market was mitigated in
the summer of 2002 by transactions that were entered into to specifically
offset open positions. Volumes and associated revenue were affected
by these positions during the first nine months of 2003.
Generally,
Cleco Power's energy trading transactions are considered non-hedging
derivatives under SFAS No. 133, as amended, which requires that the
transactions be reported at fair market value or "marked-to-market." The
chart below presents the components of energy trading, net.
Other Operations
Other operations
revenue increased $2.0 million, or 9.6%, in the first nine months of 2003
compared to the same period of 2002 primarily due to an increase in
transmission revenue. The increase in transmission revenue was
largely a result of additional transmission services being provided to the
tolling counterparties at Acadia, which commenced full commercial operation in August
2002. This transmission revenue was generated by a firm transmission
contract that expired in the summer of 2003.
Operating Expenses
Operating expenses
increased $92.4 million, or 25.6%, in the first nine months of 2003 compared to
the same period of 2002. Fuel used for electric generation increased
$14.0 million, or 13.0%, primarily due to an increase in the average per unit equivalent
cost of fuel from $24.68 per MWh in the first nine months of 2002 to $33.37 per
MWh in the same period of 2003. Power purchased for utility
customers increased $66.3 million, or 57.7%, largely due to an increase in the
average per unit cost of purchased power. In addition, power
purchased for utility customers increased as a result of higher capacity
payments made during the first nine months of 2003. The increase in
power purchased for utility customers was partially offset by a $1.1 million
decrease resulting from payments made under the Consent Agreement. For
additional information on the Consent Agreement and the FERC settlement, see Note
16 - "FERC Settlement" in the Notes to the Unaudited Financial Statements in
this Report. Increases in fuel used for electric generation and
power purchased for utility customers both were influenced significantly by
higher natural gas prices. As a result, total system cost increased from
$25.58 per MWh in the first nine months of 2002 to $36.04 MWh in the same
period of 2003. Other operations expense decreased $2.4 million, or 4.9%,
primarily due to reduced staff resulting from Cleco's 2002 organizational
restructuring. Maintenance expense during the first nine months of
2003 increased $13.6 million, or 61.1%, compared to the same period of
2002. The primary reasons for this increase were increased
maintenance expenses from Cleco Power's transmission and distribution reliability
initiative, production availability initiative, and restoration efforts
associated with Tropical Storm Bill. Partially offsetting this
increase were lower plant outage costs in the first nine months of
2003. Depreciation expense increased $1.2 million, or 3.0%, as a
result of normal recurring additions to fixed assets.
Other Income (Expense), Net
Other income (expense),
net increased $2.2 million, or 786.2%, during the first nine months of 2003
compared to the same period of 2002 primarily due to increased donations,
increased community project involvement, and payments made to community action
agencies to assist low income customers.
Interest Charges
Interest charges increased
$0.8 million, or 4.0%, during the first nine months of 2003 compared to the
same period of 2002 primarily due to interest accrued on new senior notes
issued in April 2003 and insured quarterly notes issued in May 2002.
Income Taxes
Income tax
expense in the first nine months of 2003 decreased $2.7 million, or 10.0%,
compared to the first nine months of 2002. The decrease was
primarily due to lower taxable income compared to the same period of 2002. For
information about assumptions and estimates underlying Cleco Power's accounting
for the effect of income taxes, see "Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
- - Critical Accounting Policies" and Note 14 - "Income Taxes" in the Notes to
the Unaudited Financial Statements in this Report.
Tolling operations
revenue increased $21.9 million, or 33.0%, in the first nine months of 2003
compared to the first nine months of 2002 primarily due to the Perryville facility
commencing full commercial operation in the third quarter of
2002. This increase was partially offset by decreased generation
from the Evangeline facility, which was dispatched less frequently in the first
nine months of 2003 compared to the first nine months of 2002.
Energy Trading, Net
For
the first nine months of 2003 compared to the same period of 2002, decreases in
power and gas volumes were directly related to the discontinuation of Midstream's
speculative trading activities in the fourth quarter of 2002. Most
of Midstream's exposure to the market from positions opened prior to the change
in its speculative trading strategy was mitigated in the fourth quarter of 2002
by transactions that were entered into to specifically offset open
positions. Volumes and associated revenue were affected by these
positions during the first nine months of 2003. As of September 30, 2003, Marketing & Trading had closed all forward trading positions.
Energy trading, net
decreased $4.8 million in the first nine months of 2003 compared to the same
period of 2002. The decrease was primarily due to the
discontinuation of Midstream's speculative trading activities in late 2002, as
well as amounts required to be paid to Cleco Power under the Consent
Agreement. For additional information on the Consent Agreement and
FERC settlement, see Note 16 - "FERC Settlement" in the Notes to the Unaudited
Financial Statements in this Report.
Energy Operations
The $32.8 million,
or 158.0%, increase in energy operations revenue during the first nine months
of 2003 compared to the same period of 2002 was primarily due to increases in
the average per unit cost of natural gas and volumes of natural gas marketed by
Cleco Energy to third parties. In 2002, Cleco Energy sold gas
production to Marketing & Trading as a part of its speculative trading
portfolio, which included trading physical gas. These affiliate
transactions were previously eliminated from consolidated Midstream results and
are not reflected in the charts below. Cleco Energy has marketed
more physical gas to third parties in 2003 as a result of Marketing &
Trading's discontinuation of speculative trading. This increase in
revenue to third parties is reflected as wholesale natural gas marketed below
and was somewhat offset by the loss of one producer. Energy
management services revenue decreased $0.5 million, or 42.5%, for the first nine
months of 2003 compared to the same period of 2002 primarily due to Marketing
& Trading's termination of all its energy management services contracts in
May 2003. Intercompany volumes and revenue within Midstream
subsidiaries have been eliminated and therefore are not reflected in the charts
below. The chart below presents the components of energy operations
revenue.
Other Operations
Other operations
revenue decreased $3.6 million, or 86.6%, in the first nine months of 2003
compared to the same period of 2002 primarily due to a change in the accounting
treatment of Midstream's power plant operations, maintenance, and engineering
services that were provided to Perryville. Prior to Midstream's
purchase of Mirant's 50% ownership interest in Perryville in June 2002, revenue
from these services was included in other operations revenue under the equity
method of accounting. Subsequent to the acquisition, Midstream
discontinued the equity method of accounting for Perryville and instead
consolidated Perryville's assets, liabilities, revenue and expenses under the
full consolidation method effective July 2002. As a result of this
change in accounting treatment, all revenue associated with Midstream's plant
operations for Perryville is included in intercompany revenue and has been
eliminated.
Intercompany
revenue decreased $5.1 million, or 96.2%, in the first nine months of 2003
compared to the same period of 2002. The decrease was primarily due
to lower volumes of affiliate transactions combined with a significantly
reduced gas transportation rate charged to an affiliate.
Operating Expenses
Purchases for
energy operations increased $32.8 million, or 189.1%, in the first nine months
of 2003 compared to the same period of 2002 primarily due to the same factors
affecting energy operations revenue. Other operations expense increased
$7.8 million, or 37.0%, during the first nine months of 2003 compared to the
same period in 2002 primarily due to increased expenses associated with the
commencement of the Perryville facility's full commercial operation in the
third quarter of 2002. Additionally, $13.9 million of reserves were recorded
at Perryville in the first nine months of 2003, to reflect potentially
uncollectible MAEM receivables, as a result of Mirant and certain of its
affiliates filing voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code on July 14, 2003, and the related rejection of the
Perryville Tolling Agreement. For additional information on Mirant's
bankruptcy and the rejection of the tolling agreement, see Note 15 - "Perryville"
in the Notes to the Unaudited Financial Statements in this
Report. Partially offsetting these increases were decreased other
operations expense that resulted primarily from reduced Midstream participation
in unregulated energy markets, including wholesale generation asset
development, project analytics, energy marketing and trading activities, and
power plant engineering services. Maintenance expenses increased $0.3
million, or 5.4%, in the first nine months of 2003 compared to the same period
in 2002 primarily due to the commencement of the Perryville facility's full
commercial operation in the third quarter of 2002 and increased expenses at
Evangeline due to earlier than planned replacement of combustion turbine parts
and certain repairs on the combustion turbines under the LTP
Agreement. The $10.2 million, or 117.9%, increase in depreciation
expense was largely due to a $4.5 million increase at Perryville following the
completion of construction of the Perryville facility in the third quarter of
2002, partially offset by lower depreciation expense as a result of the decline
in Perryville's asset base due to the asset impairment charge recorded during
the second quarter of 2003. Adding to the increase in depreciation
expense was a $5.9 million increase at Evangeline following design changes to
certain combustion turbine parts as provided under the LTP Agreement and
reassessment of the useful life of combustion turbine parts. Due to
the reassessment of the useful life of combustion turbine parts at Evangeline,
depreciation expense is expected to continue to reflect a slight increase when
compared to 2002. A $134.8 million charge for impairment of
long-lived assets at Perryville was the principal cause of the significant
increase in total operating expenses. This charge was incurred
during the first nine months of 2003, whereas no such charge was incurred
during the first nine months of 2002. For additional information on
this charge, see Note 15 - "Perryville" in the Notes to the Unaudited Financial
Statements in this Report. The $0.9 million, or 70.3%, decrease in
taxes other than income taxes during the first nine months of 2003 compared to
the same period of 2002 was primarily the result of state franchise tax
adjustments made during 2003 relating to 2002 and decreased payroll taxes as a
result of the transfer of employees to other affiliates.
Equity Income from Investees
Equity income from
investees increased $15.8 million, or 193.6%, for the first nine months of 2003
compared to the first nine months of 2002 primarily due to increased equity
earnings from Acadia as a result of the facility beginning full commercial
operation in August 2002. For additional information on Acadia, see Note
4 - "Equity Investment in Investees" in the Notes to the Unaudited Financial
Statements in this Report.
Other Income (Expense), Net
Other income (expense),
net increased $0.8 million during the first nine months of 2003 compared to the
same period of 2002 primarily due to the accrual and payment of a $0.8 million civil
penalty agreed to in the Consent Agreement. For additional
information on the Consent Agreement, see Note 16 - "FERC Settlement" in the
Notes to the Unaudited Financial Statements in this Report.
Interest Charges
Interest charges increased
$9.7 million, or 47.5%, during the first nine months of 2003 compared to the
first nine months of 2002 primarily due to a change in the treatment of
interest-related expenses associated with Midstream's asset development
activity. Prior to the third quarter of 2002 commencement of
commercial operation at Perryville and Acadia, interest related to these projects
was capitalized in accordance with SFAS No. 58. Partially offsetting
this increase in interest charges was the
Income Taxes
Income tax
expense for the first nine months of 2003 decreased $52.6 million, providing a
net tax benefit of $40.3 million, compared to the first nine months of
2002. The decrease was largely due to a loss recognized by
Perryville as a result of a $134.8 million impairment charge recorded in the
first nine months of 2003. For information on the impairment charge,
see Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements
in this Report. For information about the assumptions and estimates
underlying Midstream's accounting for the effect of income taxes, see "Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Critical Accounting Policies" in this
Report.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL
STATEMENTS
The financial
statements of Cleco Power have been prepared pursuant to the rules and
regulations of the SEC. Certain information and note disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations, although
Cleco Power believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read
in conjunction with Cleco Power's Financial Statements and the Notes included
in the Registrants' Combined Annual Report on Form 10-K for the year ended
December 31, 2002.
The unaudited
financial information included in the following financial statements reflects
all adjustments of a normal recurring nature which are, in the opinion of
management of Cleco Power, necessary for a fair presentation of the financial position and the results of operations for the
interim periods. Information for interim periods is affected by
seasonal variations in sales, rate changes, timing of fuel expense recovery and
other factors, and is not necessarily indicative of the results that may be
expected for the full fiscal year.
STATEMENTS OF INCOME
For the three months ended September 30,
(UNAUDITED)
STATEMENTS OF INCOME
For the nine months ended September 30,
(UNAUDITED)
BALANCE SHEETS
(UNAUDITED)
BALANCE SHEETS (Continued)
(UNAUDITED)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(UNAUDITED)
Set forth below is
information concerning the results of operations of Cleco Power for the three
months and nine months ended September 30,
2003, and September 30, 2002. The
following narrative analysis should be read in combination with Cleco Power LLC's
Unaudited Financial Statements and the Notes contained in this Form 10-Q.
Cleco Power meets
the conditions specified in General Instructions H(1)(a) and (b) to Form 10-Q
and therefore is permitted to use the reduced disclosure format for wholly
owned subsidiaries of reporting companies. Accordingly, Cleco Power
has omitted from this report the information called for by Item 2 (Management's
Discussion and Analysis of Financial Condition and Results of Operations) and
Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I
of Form 10-Q and the following Part II items of Form 10-Q: Item 2 (Changes in
Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities) and
Item 4 (Submission of Matters to a Vote of Security Holders). Pursuant
to the General Instructions, Cleco Power has included an explanation of the
reasons for material changes in the amount of revenue and expense items of
Cleco Power between the third quarter of 2003 and the third quarter of 2002 and
the first nine months of 2003 and 2002. Reference is made to
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of the Registrants' Combined Annual Report on Form 10-K
for the year ended December 31, 2002.
For an explanation of material changes in the
amount of revenue and expense items of Cleco Power between the third quarter of
2003 and the third quarter of 2002, see "Item
1 Financial Statements - Cleco Corporation - Management's Discussion and
Analysis of Results of Operations - Comparison of the Three Months Ended September
30, 2003 and 2002 - Cleco Power" of
this Report, which discussion is incorporated herein by reference.
For an explanation of material changes in the
amount of revenue and expense items of Cleco Power between the first nine
months of 2003 and the first nine months of 2002, see "Item 1 Financial
Statements - Cleco Corporation - Management's Discussion and Analysis of
Results of Operations - Comparison of the Nine Months Ended September 30, 2003
and 2002 - Cleco Power" of this Report, which discussion is incorporated herein
by reference.
INDEX TO
APPLICABLE NOTES TO THE FINANCIAL STATEMENTS OF REGISTRANTS
Note 1 |
Reclassifications |
Cleco Corporation and Cleco Power |
Note 2 |
Disclosures about Segments |
Cleco Corporation |
Note 3 |
Restricted Cash |
Cleco Corporation |
Note 4 |
Equity Investment in Investees |
Cleco Corporation |
Note 5 |
Review of Trading Activities |
Cleco Corporation and Cleco Power |
Note 6 |
Recent Accounting Standards |
Cleco Corporation and Cleco Power |
Note 7 |
Accounting for Asset Retirement Obligation |
Cleco Corporation and Cleco Power |
Note 8 |
Accrual for Electric Customer Credits |
Cleco Corporation and Cleco Power |
Note 9 |
Restructuring Charge |
Cleco Corporation and Cleco Power |
Note 10 |
Accounting for
Stock-Based Compensation - Transition and |
Cleco Corporation |
Note 11 |
Securities Litigation and Other Commitments and Contingencies |
Cleco Corporation and Cleco Power |
Note 12 |
Disclosures about Guarantees |
Cleco Corporation and Cleco Power |
Note 13 |
Debt |
Cleco Corporation and Cleco Power |
Note 14 |
Income Taxes |
Cleco Corporation and Cleco Power |
Note 15 |
Perryville |
Cleco Corporation |
Note 16 |
FERC Settlement |
Cleco Corporation and Cleco Power |
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 1 - Reclassifications
Certain financial
statement items from prior periods have been reclassified to conform to the
current year's presentation. These reclassifications had no effect
on net income or shareholders' (member's) equity.
Note 2 - Disclosures about Segments
Cleco has
determined that its reportable segments are based on Cleco's method of internal
reporting, which disaggregates its business units by second-tier
subsidiary. Reportable segments were determined by applying SFAS No.
131. Cleco's reportable segments are Cleco Power, Midstream, and Other. The Other segment consists of the parent company, a shared services
subsidiary, an investment subsidiary and the discontinued operations of
UTS. The Other segment subsidiaries operate within Louisiana and Delaware.
Each reportable segment engages in business activities from which it
earns revenue and incurs expenses. Segment managers report
periodically to Cleco's Chief Executive Officer (the chief decision-maker) with
discrete financial information and, at least quarterly, present discrete
financial information to Cleco's Board of Directors. Each reportable
segment prepared budgets for 2003 that were presented to and approved by Cleco's
Board of Directors. The reportable segments exceeded the quantitative thresholds as defined in SFAS No. 131.
The financial
results of Cleco's segments are presented on an accrual
basis. Management evaluates the performance of its segments and
allocates resources to them based on segment profit (loss) before preferred
stock dividends. Material intersegment transactions occur on a
regular basis.
37
The tables below present information about the reported operating results and net assets of Cleco's reportable segments.
Segment
Information |
||||||||||
(Thousands) |
||||||||||
2003 |
Cleco |
Midstream |
Other |
Unallocated |
Consolidated |
|||||
Revenue |
||||||||||
Electric operations |
$ |
208,947 |
$ |
- |
$ |
- |
$ |
- |
$ |
208,947 |
Tolling operations |
|
- |
|
36,332 |
|
- |
|
- |
|
36,332 |
Energy trading, net |
|
(4) |
|
(194) |
|
- |
|
- |
|
(198) |
Energy operations |
|
- |
|
15,594 |
|
- |
|
- |
|
15,594 |
Other operations |
|
7,695 |
|
337 |
|
87 |
|
(15) |
|
8,104 |
Electric customer credits |
|
7,849 |
|
- |
|
- |
|
- |
|
7,849 |
Intersegment revenue |
|
558 |
|
1 |
|
10,306 |
|
(10,865) |
|
- |
Total operating revenue |
$ |
225,045 |
$ |
52,070 |
$ |
10,393 |
$ |
(10,880) |
$ |
276,628 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
$ |
13,672 |
$ |
3,639 |
$ |
291 |
$ |
- |
$ |
17,602 |
Interest charges |
$ |
7,075 |
$ |
9,420 |
$ |
4,705 |
$ |
(3,504) |
$ |
17,696 |
Interest income |
$ |
363 |
$ |
83 |
$ |
3,565 |
$ |
(3,507) |
$ |
504 |
Equity investment from investees |
$ |
- |
$ |
8,318 |
$ |
- |
$ |
- |
$ |
8,318 |
Federal and state income taxes |
$ |
8,353 |
$ |
7,011 |
$ |
(177) |
$ |
(44) |
$ |
15,143 |
Segment profit (loss) (1) |
$ |
13,909 |
$ |
11,088 |
$ |
(1,194) |
$ |
- |
$ |
23,803 |
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
$ |
1,365,770 |
$ |
820,037 |
$ |
628,449 |
$ |
(645,190) |
$ |
2,169,066 |
(1) Reconciliation of segment profit (loss) to consolidated profit: |
|
|
|
|||||||
Segment profit |
$ |
23,803 |
||||||||
Unallocated items |
|
|
||||||||
Preferred dividends |
|
461 |
||||||||
Net income applicable |
|
|
||||||||
to common stock |
$ |
23,342 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
2002 |
Cleco |
Midstream |
Other |
Unallocated |
Consolidated |
|||||
Revenue |
||||||||||
Electric operations |
$ |
172,680 |
$ |
- |
$ |
- |
$ |
- |
$ |
172,680 |
Tolling operations |
- |
40,772 |
- |
- |
40,772 |
|||||
Energy trading, net |
(2,350) |
(437) |
- |
(2) |
(2,789) |
|||||
Energy operations |
- |
5,164 |
- |
(1) |
5,163 |
|||||
Other operations |
7,641 |
224 |
9 |
(9) |
7,865 |
|||||
Electric customer credits |
- |
- |
- |
- |
- |
|||||
Intersegment revenue |
381 |
2,083 |
8,285 |
(10,749) |
- |
|||||
Total operating revenue |
$ |
178,352 |
$ |
47,806 |
$ |
8,294 |
$ |
(10,761) |
$ |
223,691 |
Depreciation expense |
$ |
13,106 |
$ |
4,409 |
$ |
242 |
$ |
- |
$ |
17,757 |
Interest charges |
$ |
7,030 |
$ |
9,958 |
$ |
3,178 |
$ |
(3,665) |
$ |
16,501 |
Interest income |
$ |
396 |
$ |
132 |
$ |
3,686 |
$ |
(3,627) |
$ |
587 |
Equity investment from investees |
$ |
- |
$ |
6,780 |
$ |
- |
$ |
- |
$ |
6,780 |
Federal and state income taxes |
$ |
9,547 |
$ |
11,009 |
$ |
(487) |
$ |
- |
$ |
20,069 |
Segment profit (loss) (1) |
$ |
19,719 |
$ |
17,481 |
$ |
(340) |
$ |
- |
$ |
36,860 |
Segment assets |
$ |
1,227,008 |
$ |
1,061,774 |
$ |
669,015 |
$ |
(720,948) |
$ |
2,236,849 |
(1) Reconciliation of segment profit to consolidated profit: |
|
|
|
|||||||
Segment profit |
$ |
36,860 |
||||||||
Unallocated items |
||||||||||
Preferred dividends |
468 |
|||||||||
Net income applicable |
||||||||||
to common stock |
$ |
36,392 |
38
Segment
Information |
||||||||||
(Thousands) |
||||||||||
2003 |
|
Cleco |
|
Midstream |
|
Other |
|
Unallocated |
|
Consolidated |
Revenue |
||||||||||
Electric operations |
$ |
519,080 |
$ |
- |
$ |
- |
$ |
- |
$ |
519,080 |
Tolling operations |
|
- |
|
88,140 |
|
- |
|
- |
|
88,140 |
Energy trading, net |
|
627 |
|
(2,380) |
|
- |
|
1,283 |
|
(470) |
Energy operations |
|
- |
|
53,608 |
|
- |
|
- |
|
53,608 |
Other operations |
|
22,874 |
|
561 |
|
133 |
|
(251) |
|
23,317 |
Electric customer credits |
|
(1,562) |
|
- |
|
- |
|
- |
|
(1,562) |
Intersegment revenue |
|
1,660 |
|
203 |
|
30,744 |
|
(32,607) |
|
- |
Total operating revenue |
$ |
542,679 |
$ |
140,132 |
$ |
30,877 |
$ |
(31,575) |
$ |
682,113 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
$ |
40,268 |
$ |
18,791 |
$ |
820 |
$ |
- |
$ |
59,879 |
Impairment of long-lived assets |
$ |
- |
$ |
134,772 |
$ |
- |
$ |
- |
$ |
134,772 |
Interest charges |
$ |
21,396 |
$ |
30,168 |
$ |
12,804 |
$ |
(10,833) |
$ |
53,535 |
Interest income |
$ |
998 |
$ |
544 |
$ |
11,110 |
$ |
(10,749) |
$ |
1,903 |
Equity investment from investees |
$ |
- |
$ |
23,902 |
$ |
- |
$ |
- |
$ |
23,902 |
Federal and state income taxes |
$ |
24,262 |
$ |
(40,306) |
$ |
(1,138) |
$ |
(160) |
$ |
(17,342) |
Segment profit (loss) (1) |
$ |
45,100 |
$ |
(65,316) |
$ |
(4,569) |
$ |
- |
$ |
(24,785) |
|
|
|
|
|
|
|
|
|
||
Segment assets |
$ |
1,365,770 |
$ |
820,037 |
$ |
628,449 |
$ |
(645,190) |
$ |
2,169,066 |
(1) Reconciliation of segment profit (loss) to consolidated profit: |
|
|
|
|||||||
Segment loss |
$ |
(24,785) |
||||||||
Unallocated items |
|
|
||||||||
Preferred dividends |
|
1,395 |
||||||||
Net loss applicable |
|
|
||||||||
to common stock |
$ |
(26,180) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
||||||||
|
|
Items, |
||||||||
|
|
Cleco |
Reclassifications |
|||||||
2002 |
|
Power |
Midstream |
Other |
& Eliminations |
Consolidated |
||||
Revenue |
||||||||||
Electric operations |
$ |
435,965 |
$ |
- |
$ |
- |
$ |
- |
$ |
435,965 |
Tolling operations |
- |
66,266 |
- |
- |
66,266 |
|||||
Energy trading, net |
(1,442) |
2,450 |
- |
3 |
1,011 |
|||||
Energy operations |
- |
20,778 |
- |
(2) |
20,776 |
|||||
Other operations |
20,872 |
4,188 |
40 |
(33) |
25,067 |
|||||
Electric customer credits |
(1,575) |
- |
- |
- |
(1,575) |
|||||
Intersegment revenue |
1,355 |
5,296 |
23,142 |
(29,793) |
- |
|||||
Total operating revenue |
$ |
455,175 |
$ |
98,978 |
$ |
23,182 |
$ |
(29,825) |
$ |
547,510 |
Depreciation expense |
$ |
39,085 |
$ |
8,624 |
$ |
692 |
$ |
- |
$ |
48,401 |
Interest charges |
$ |
20,568 |
$ |
20,458 |
$ |
9,810 |
$ |
(9,755) |
$ |
41,081 |
Interest income |
$ |
685 |
$ |
322 |
$ |
9,754 |
$ |
(9,647) |
$ |
1,114 |
Equity investment from investees |
$ |
- |
$ |
8,140 |
$ |
- |
$ |
- |
$ |
8,140 |
Federal and state income taxes |
$ |
26,950 |
$ |
12,282 |
$ |
(1,497) |
$ |
- |
$ |
37,735 |
Segment profit (loss) (1) |
$ |
49,198 |
$ |
20,589 |
$ |
(1,092) |
$ |
- |
$ |
68,695 |
Segment assets |
$ |
1,227,008 |
$ |
1,061,774 |
$ |
669,015 |
$ |
(720,948) |
$ |
2,236,849 |
(1) Reconciliation of segment profit (loss) to consolidated profit: |
|
|
|
|||||||
Segment profit |
$ |
68,695 |
||||||||
Unallocated items |
||||||||||
Preferred dividends |
1,405 |
|||||||||
Net income applicable |
||||||||||
to common stock |
$ |
67,290 |
||||||||
39
Note 3 - Restricted Cash
Various
agreements to which Cleco is subject contain covenants that restrict its use of
cash. As certain provisions under these agreements are met, cash is
transferred out of related escrow accounts and becomes available for general
corporate purposes. At September 30, 2003, $30.9
million of cash was restricted under the Evangeline senior secured bond
indenture, $10.4 million of cash was restricted at Perryville under the terms
of the Senior Loan Agreement, and $1.8 million of APH's cash was
restricted under the terms of the Midstream credit facility.
Note 4 - Equity
Investment in Investees
Equity investment in investees represents Midstream's $268.7
million investment in Acadia and Cleco Energy's $0.7 million investment in Hudson. Midstream's
portion of earnings from Acadia for the third quarter of
2003, $8.3 million, is included in the $268.7 million equity investment in Acadia. For
the third quarter of 2003, no material
earnings or losses were recorded for Hudson.
Cleco reports its investment in Acadia on the equity
method of accounting as defined in APB No. 18.
The table below
presents the components of Midstream's equity investment in Acadia.
At September 30, 2003 |
|||
(Thousands) |
|||
Contributed assets (cash and land)................................................ |
$ 250,612 |
||
Net income (inception to date)........................................................ |
38,783 |
||
Capitalized interest and other.......................................................... |
19,504 |
||
Less: Cash distributions.............................................................. |
(40,172) |
||
Total equity investment in investee..................................... |
$ 268,727 |
|
Midstream's equity,
as reported in the balance sheet of Acadia at September 30, 2003, was $301.6 million. The difference of $32.9 million
between the equity in investee and Midstream's equity represents $19.5 million
of interest capitalized on funds contributed to Acadia and other miscellaneous
charges related to the construction of the Acadia facility, as indicated in the
table above, and $52.4 million as a result of different accounting treatment
used by the partnership entities for allocation of termination agreement income. The
cash distributions of $40.2 million were used to pay interest and repay
principal on debt at the parent company relating to this investment. In
May 2003, Acadia terminated its 580-MW, 20-year tolling agreement with Aquila Energy in
return for a cash payment of $105.5 million from Aquila Energy. Acadia made a $105.5
million distribution to Calpine. In exchange for this distribution,
Calpine entered into a new 580-MW tolling contract with Acadia and assumed the
original ending date of the Aquila Energy tolling agreement, which is June 30, 2022. Calpine
now markets all of the output from Acadia under the terms of this new contract and an existing
20-year tolling agreement. The Second Amended and Restated Limited
Liability Company Agreement of Acadia, dated as of May 9, 2003, provided for APH receiving
priority cash distributions and earnings as its consideration for the
restructuring. Also, Cleco will have more credit support available
in the event Calpine does not fulfill its obligations under either tolling
agreement. Calpine has posted letters of credit totaling $30.7
million as of September 30, 2003. An additional $9.3 million (of which $2.5
million was posted in October 2003) is required to be posted by the end of
2003, thereby increasing to $40.0 million the total letters of credit to be issued
by Calpine. These letters of credit have various expiration terms,
of which $13.0 million will expire on May 9, 2006, $12.0
million will expire on December 31, 2006, and $15.0 million will remain in effect for the duration
of the tolling agreement. The table below contains unaudited
summarized financial information for Acadia.
(Unaudited) |
At |
At |
||||
(Thousands) |
||||||
Current assets................................................... |
$ |
14,027 |
|
$ |
12,712 |
|
Property, plant & equipment, net.................. |
|
486,371 |
|
496,098 |
||
Other assets...................................................... |
|
3,436 |
|
2,468 |
||
Total assets.................................................. |
$ |
503,834 |
|
$ |
511,278 |
|
|
|
|
||||
Current liabilities.............................................. |
$ |
1,793 |
|
$ |
4,208 |
|
Partners' capital................................................ |
|
502,041 |
|
507,070 |
||
|
|
|
||||
Total liabilities and partners' capital........ |
$ |
503,834 |
|
$ |
511,278 |
40
For the three months ended |
|
For the nine months ended |
|||||||||||
2003 |
2002 |
|
2003 |
2002 |
|||||||||
(Thousands) |
|
(Thousands) |
|||||||||||
Total revenue....................... |
$ |
19,775 |
|
$ |
26,721 |
|
$ |
63,825 |
|
$ |
26,721 |
||
Termination agreement income... |
|
- |
|
- |
|
|
105,500 |
|
- |
||||
Total operating expense...... |
|
6,602 |
|
13,161 |
|
|
21,540 |
|
13,161 |
||||
|
|
|
|
|
|
|
|||||||
Net income........................ |
$ |
13,173 |
|
$ |
13,560 |
|
$ |
147,785 |
|
$ |
13,560 |
Cleco Energy owns 50% of Hudson, which indirectly owns and operates natural gas pipelines
in Louisiana. Hudson also owns
controlling interest in an entity that owns and operates a pipeline system in Texas. The
member's equity as reported in the balance sheet was $0.7 million, which equals
the equity investment at Cleco Energy.
Note 5 - Review of Trading Activities
In the third
quarter of 2002, Cleco reviewed certain energy trading activities, including
transactions between Cleco Power and certain Midstream companies. These
activities and transactions may have violated PUHCA, as well as various
statutes and regulations administered by the FERC and the LPSC.
Cleco has contacted
the appropriate regulatory authorities, including the staffs of the FERC and
the LPSC, and has held discussions with them concerning indirect sales of test
power by Evangeline to Cleco Power, a regulated affiliate utility, other
indirect acquisitions of purchased power by Cleco Power from Marketing &
Trading, Cleco Power's indirect sales of power to Marketing & Trading, and
other transactions between Cleco Power and Marketing &
Trading. These discussions have led to formal investigatory
proceedings by the FERC and the LPSC, with which Cleco has
cooperated. These proceedings have entailed discovery measures by
the agencies with jurisdiction over the referenced energy trading transactions
and energy trading transactions in general between Cleco's power marketer
subsidiaries. At the same time, Cleco conducted its own internal
investigations of Cleco's subsidiaries' energy trading activities for
regulatory compliance. On July 25, 2003, the FERC issued its order
approving the Consent Agreement between the FERC Staff and Cleco which settled
the FERC's non-public investigation into certain transactions. For
more information about the Consent Agreement and the FERC settlement, see Note 16
- - "FERC Settlement." The continuing LPSC investigation may result in
determinations of possible or apparent violations in addition to those
described in this Note and in Note 16.
The indirect sales
of test power by Evangeline occurred just prior to the commercial operation
date of that plant in 2000. More specifically, Evangeline sold test
power directly to a third party to be resold to Cleco Power. In addition,
Marketing & Trading purchased test power in 2002 from Acadia and sold
some of this power to a third party to be resold to Cleco
Power. Cleco Power's purchases from these third parties were at the
same volumes and same prices as the third parties' purchases from Evangeline or
Marketing & Trading and as Marketing & Trading's purchases from Acadia. It appears some of these
transactions may have potentially exceeded the pricing standards of the
LPSC. Management is unable to predict the remedial actions that may
be taken with respect to these transactions by the LPSC. For
information about the FERC settlement concerning these transactions, see Note 16
- - "FERC Settlement."
During the years
1999 through 2002, Marketing & Trading and Cleco Power engaged in
transactions in which power was sold indirectly between Marketing & Trading
and Cleco Power through the use of a third party. In these
transactions, Marketing & Trading would either indirectly buy power from,
or sell power to Cleco Power through the use of a third party. It
appears some of these transactions may have potentially exceeded the pricing
standards of the LPSC and its guidance concerning affiliate
relations. Management is unable to predict the remedial actions that
may be taken with respect to these transactions by the LPSC and cannot
reasonably estimate Cleco's minimum probable contingency for these
transactions. For information about the FERC settlement concerning
these transactions, see Note 16 - "FERC Settlement."
From 1999 through
mid-January 2002, the same personnel performed the trading operations of Cleco
Power and Marketing & Trading. Management believes this
relationship and certain transactions described in this Note may be reviewed in
Cleco Power's pending LPSC fuel audit. For additional information on
the fuel audit, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Regulatory Matters
- - Fuel Audit." For information about the FERC settlement concerning
this issue, see Note 16 - "FERC Settlement."
41
Cleco Power has recorded reserves which estimate the amount of potential refund to customers relating to credits received from Marketing & Trading and Evangeline, as required by the Consent Agreement. Reserves have not been established for any other item relating to the current LPSC fuel audit because management is unable to predict the actions that may be taken by the LPSC and cannot reasonably estimate Cleco's minimum probable contingency for the fuel audit. For information about the penalties and remedies contained in the Consent Agreement, see Note 16 - "FERC Settlement."
Note 6 - Recent Accounting Standards
In January
2003, FASB released FIN 46, which expands the requirements of consolidation by
including entities defined as "Variable Interest Entities" which depend on the
financial support of a parent in order to maintain
viability. Detailed tests prescribed in FIN 46 can be used to
determine the dependence of a Variable Interest Entity on a parent
company. Currently, Cleco does not have any interest in Variable
Interest Entities, but does have equity investments that do not qualify for
consolidation under FIN 46. For information about Cleco's equity
investments, see Note 4 - "Equity Investment in Investees." In
October 2003, the FASB deferred the effective date of FIN 46 until the first
fiscal period ending after December 15, 2003.
In April 2003, FASB
issued SFAS No. 149, which amends SFAS No. 133 by incorporating certain
decisions made by the FASB as a part of the DIG process. This
pronouncement also amends several FASB statements as they relate to FASB
Statement of Concepts 7 - Using Cash Flow Information and Present Value in
Accounting Measurement. All portions of this statement are currently
effective. The adoption of this standard did not have a material
effect on Cleco's financial statements. The FASB Staff has several
proposed positions which clarify the FASB position relating to specific
issues. The current proposed positions should not have a material
impact on Cleco's results of operations or financial condition.
In April 2003, FASB
issued SFAS No. 150, which established standards on how an entity classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. Generally, a financial instrument which
requires the entity to either repurchase the instrument in cash or other assets
or requires the entity to issue a variable number of shares in order to redeem
the financial instrument must be reported as a liability and any dividends must
be reported as interest costs. Obligations to repurchase or settle
the financial instrument upon the liquidation or termination of the entity are
not within the scope of SFAS No. 150. On October 29, 2003, the FASB Staff deferred portions of SFAS 150. The adoption of this
standard and the subsequent deferral of portions of SFAS 150 should not have a
material impact on Cleco's results of operations or financial condition.
Note 7 - Accounting for Asset Retirement Obligation
Cleco has recorded
an asset retirement obligation in accordance with SFAS No. 143 that became
effective on January 1, 2003. SFAS No. 143 requires an entity to
record an asset retirement obligation when a regulatory, contractual, or other
obligation exists which would require the entity to incur costs to retire the
asset. The asset retirement obligation for Cleco Power consists of
the estimated costs of closing the solid waste facilities associated with one
of its power plants that uses lignite for fuel. Due to an absence of
contractual, regulatory, or other legally enforceable requirements to incur
costs to retire assets, Midstream did not record an asset retirement
obligation.
Cleco Power
recognizes an offset to the accretion and depreciation expenses associated with
its asset retirement obligation in the form of a regulatory asset pursuant to
SFAS No. 71. Cleco Power recognizes a regulatory asset since
management believes it is probable that the costs of closing its solid waste
facilities will be collected from its customers through rates established by
the LPSC.
If SFAS No. 143 had
been in effect in 2002, there would have been no impact on earnings per share for
either the quarter ended September 30, 2002, or the nine months ended September 30, 2002, net of income tax effect. Since a change in earnings per
share would not have occurred, proforma earnings per share disclosures are not
presented.
42
The table below discloses the proforma asset retirement obligation during the nine months ended September 30, 2002, by segment, as if SFAS No. 143 had been effective in 2002.
Asset Retirement |
Obligation |
Obligation |
Accretion of |
Asset |
|
(Thousands) |
|||||
Cleco Power........... |
$ 286 |
$ - |
$ - |
$ 16 |
$ 302 |
Midstream.............. |
- |
- |
- |
- |
- |
Total................... |
$ 286 |
$ - |
$ - |
$ 16 |
$ 302 |
===== |
===== |
===== |
===== |
===== |
The table below discloses the changes to the asset retirement obligation, by segment, during the nine months ended September 30, 2003.
Asset |
Obligation |
Obligation |
Accretion of |
Asset |
|
(Thousands) |
|||||
Cleco Power............ |
$ - |
$ 301 |
$ - |
$ 17 |
$ 318 |
Midstream............... |
- |
- |
- |
- |
- |
Total.................... |
$ - |
$ 301 |
$ - |
$ 17 |
$ 318 |
===== |
===== |
===== |
===== |
===== |
Note 8 - Accrual for Electric
Customer Credits
Cleco's
reported earnings for the nine months ended September 30, 2003, reflect a $1.6 million accrual within Cleco Power for estimated electric customer credits
that are expected to be required under terms of an earnings review settlement
reached with the LPSC in 1996. The 1996 LPSC settlement, and a
subsequent amendment, set Cleco Power's rates until September 30, 2004. As part of the settlement, Cleco Power is allowed to retain all regulated
earnings up to a 12.25% return on equity and to share equally with customers as
credits on their bills all regulated earnings between 12.25% and 13.00% return
on equity. All regulated earnings above a 13.00% return on equity
are credited to customers. The amount of credits due customers, if
any, is determined by the LPSC annually based on results for each 12-month
period ended September 30. The settlement provides for such credits
to be made on customers' bills the following summer. The LPSC's
preliminary report for the cycle ended September 30, 2001, required a $0.6
million refund, which was credited to customers' bills in September
2002. Cleco anticipates receiving the final report for the cycle
ended September 30, 2001, in the first quarter of 2004. The LPSC has
not yet issued its preliminary report for the cycle ended September 30, 2002, and Cleco has not yet made its filing for the cycle ended September 30, 2003. Management is unable to predict what Cleco Power's allowed return on
equity will be after September 30, 2004.
Cleco
Power's Unaudited Balance Sheets, under the line item other deferred credits,
reflect a $5.0 million accrual for estimated electric customer credits related
to the 12-month cycles ended September 30, 2001, 2002, and
2003. These amounts were recorded as a reduction in revenue due to
the nature of the customer credits. The accrual is based upon the
original 1996 settlement, the resolution of annual issues as agreed between
Cleco and the LPSC, and Cleco's assessment of issues that remain outstanding.
Note 9 - Restructuring Charge
During
September 2002, Cleco announced a company-wide organizational
restructuring. During the fourth quarter of 2002, 123 employees
accepted severance, and 37 employees accepted an early retirement
package. The majority of these employees left during the fourth
quarter of 2002.
43
The following table shows the type of charges incurred, the amounts paid, the decrease in the amount originally recorded as a restructuring charge and the remaining balance in the associated liability accounts, where appropriate, that is still to be paid as of September 30, 2003, for Cleco Corporation.
Category of cost |
Originally |
Paid |
Change |
Liability |
(Thousands) |
||||
Cash items |
||||
Severance
and other employee payouts, |
$ 6,509 |
$ 5,788 |
$ (486) |
$ 235 |
Lease termination payments.................................... |
592 |
182 |
- |
410 |
Other............................................................................ |
43 |
43 |
- |
- |
Total cash items................................................... |
7,144 |
6,013 |
(486) |
645 |
Noncash items |
||||
Special termination benefits..................................... |
2,736 |
|||
Write-off of leasehold improvements..................... |
284 |
|
|
|
Total noncash items............................................ |
3,020 |
|
|
|
Total.................................................................... |
$ 10,164 |
$ 6,013 |
$ (486) |
$ 645 |
===== |
===== |
===== |
===== |
The following table shows the type of charges incurred, the amounts paid, the decrease in the amount originally recorded as a restructuring charge and the remaining balance in the associated liability accounts, where appropriate, that is still to be paid as of September 30, 2003, for Cleco Power.
Category of cost |
Originally |
Paid |
Change |
Liability |
(Thousands) |
||||
Cash items |
||||
Severance
and other employee payouts, |
$ 4,150 |
$ 3,930 |
$ (129) |
$ 91 |
Share of affiliate severance payouts...................... |
1,314 |
1,235 |
(79) |
- |
Total cash items.................................................. |
5,464 |
5,165 |
(208) |
91 |
Noncash items |
||||
Special termination benefits.................................... |
2,368 |
|||
Write-off of leasehold improvements.................... |
267 |
|
|
|
Total noncash items........................................... |
2,635 |
|
|
|
Total................................................................... |
$ 8,099 |
$ 5,165 |
$ (208) |
$ 91 |
===== |
===== |
===== |
===== |
The amount recorded
for the nine months ended September 30,
2003, relating to the restructuring
charge is relatively small and is included in other operations expense on the
Registrants' income statements. No business segment or component of
a business segment qualified as a discontinued operation as a result of this
restructuring.
Note 10 - Accounting for Stock-Based Compensation - Transition and
Disclosure
In
connection with incentive compensation plans in effect during the nine-month
period ended September 30, 2003, certain officers and key employees of Cleco
Corporation were awarded shares of restricted Cleco Corporation common
stock. The cost of the restricted stock awards, as measured by the
market value of the common stock at the time of the grant, is recorded as
compensation expense during the periods in which the restrictions lapse. As
of September 30, 2003, the number of shares of restricted stock previously
granted for which restrictions had not lapsed totaled 364,847 shares.
Cleco
Corporation records no charge to expense with respect to the granting of
options at fair market value or above to employees or
directors. Options may be granted to certain officers, key
employees, or directors of Cleco Corporation or its
subsidiaries. During 2003, Cleco Corporation granted options
exercisable for 41,250 shares of common stock to re-elected directors and granted
options exercisable for 13,550 shares of common stock to key
employees. The directors' options have an exercise price
approximately equal to the fair market value of the stock at grant date, are
immediately exercisable, and expire after ten years. The employees'
options have an exercise price approximately equal to the fair market value of
the stock at grant date, vest one-third each year, beginning on the third
anniversary of the grant date, and expire after ten years. In
accordance with APB No. 25, no compensation expense for stock options granted
has been recognized.
44
At September 30, 2003, Cleco Corporation had two stock-based compensation plans: the LTICP and the ESPP. APB No. 25 and related interpretations are applied in accounting for Cleco Corporation's plans. Accordingly, no compensation cost has been recognized for stock options issued pursuant to the LTICP and stock issued under the ESPP. Compensation cost has been recognized for restricted stock issued pursuant to Cleco Corporation's long-term incentive plan. For the three months ended September 30, 2003, $1.0 million in expense was recognized, while $1.7 million in expense was recognized during the same period in 2002. For the nine months ended September 30, 2003, $0.6 million in expense was recognized, while $4.2 million in expense was recognized during the same period in 2002. Had the compensation expense for Cleco Corporation's stock-based compensation plans been determined consistent with SFAS No. 123, net income and net income per common share would approximate the proforma amounts below:
For the three months ended September 30, |
||||
2003 |
2002 |
|||
(Thousands) |
||||
As |
Pro |
As |
Pro |
|
SFAS No. 123 expense.............................................. |
$ - |
$ 166 |
$ - |
$ 191 |
Estimated reduction in
income tax for |
- |
$ (65) |
- |
$ (67) |
Net income applicable to common stock................ |
$ 23,342 |
$ 23,241 |
$ 36,392 |
$ 36,268 |
Basic net income per common share....................... |
$ 0.49 |
$ 0.49 |
$ 0.77 |
$ 0.77 |
Diluted net income per common share.................... |
$ 0.48 |
$ 0.48 |
$ 0.74 |
$ 0.74 |
|
||||
2003 |
2002 |
|||
(Thousands) |
||||
As |
Pro |
As |
Pro |
|
SFAS No. 123 expense.............................................. |
$ - |
$ 434 |
$ - |
$ 575 |
Estimated reduction in
income tax for |
- |
$ (179) |
- |
$ (204) |
Net income (loss) applicable to common stock..... |
$ (26,180) |
$ (26,435) |
$ 67,290 |
$ 66,919 |
Basic net income (loss) per common share............ |
$ (0.56) |
$ (0.56) |
$ 1.46 |
$ 1.45 |
Diluted net income (loss) per common share......... |
$ (0.56) |
$ (0.56) |
$ 1.41 |
$ 1.41 |
The assumptions used to calculate the additional compensation expense are as
follows:
For the nine months ended September 30, |
|
|||
2003 |
2002 |
|||
Expected term (in years)................................................................ |
5.25 |
5.66 |
||
Volatility.......................................................................................... |
30.39 % |
28.00 % |
||
Expected dividend yield................................................................ |
5.54 % |
3.95 % |
||
Risk-free interest rate.................................................................... |
1.76 % |
3.71 % |
||
Weighted average fair value (Black-Scholes value)................. |
$ 1.81 |
$ 4.13 |
||
The
effects of applying SFAS No. 123 in this proforma disclosure are not
necessarily indicative of future amounts. SFAS No. 123 is not
applicable to awards prior to 1995. Cleco Corporation anticipates
making awards in the future under its stock-based compensation plans.
Note 11 - Securities Litigation and Other Commitments and Contingencies
On
November 22, 2002, a lawsuit was filed in the Ninth Judicial District Court,
Rapides Parish, State of Louisiana, on behalf of a class of
persons or entities who purchased Cleco Corporation's common stock during a
specified period of time, hereinafter referenced as the Class
Period. Cleco Corporation refers to
this lawsuit as the Securities Litigation. In the Securities
Litigation, the plaintiff alleges that Cleco Corporation issued a number of materially false and misleading
statements during the Class Period, among other purposes, in order to cause the
price of Cleco Corporation's stock to rise
artificially. The
45
plaintiff alleges that, during the Class Period, Cleco Corporation failed to disclose the existence of the round-trip trades that Cleco Corporation disclosed in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002. The plaintiff also alleges that Cleco Corporation's financial information was not prepared in conformity with accounting principles generally accepted in the United States of America during the Class Period. The defendants removed the lawsuit to the United States District Court for the Western District of Louisiana. In May 2003, the lawsuit was dismissed without prejudice, allowing the plaintiff to re-file the lawsuit subject to certain stipulations and restrictions. As of the date of this Report, the plaintiff has not re-filed the lawsuit. Based on information currently available to management, Cleco Corporation does not believe the Securities Litigation will have a material adverse effect on Cleco's financial condition or results of operations.
On April 18, 2003, a Shareholder's
Derivative Complaint was filed by a shareholder of Westar, in the United States
District Court for the District of Kansas. The defendants named in
the complaint are Westar, its Board of Directors, its former Chief Executive
Officer, President and Chairman, and Cleco Corporation. The
complaint alleges violations of Section 14(a) of the Securities Exchange Act of
1934 and Rule 14a-9 promulgated thereunder, and, in addition, breaches of
fiduciary duties owed to Westar and/or for aiding and abetting such
breaches. The complaint asserts that Cleco Corporation aided and
abetted the director defendants' breaches of fiduciary duties by engaging in
round-trip trades with Westar. The complaint seeks the award of
unspecified compensatory damages against the defendants and the plaintiff's
costs and disbursements of the lawsuit. The complaint has been
amended, but the claims against Cleco have not changed substantively. Management
is unable to estimate the impact on Cleco's financial condition or results of
operations.
On July 24, 2003, a petition was filed in the 27th Judicial District Court, Parish of St.
Landry, by several Cleco Power customers. The named defendants are
Cleco Corporation, Cleco Power, Midstream, Marketing & Trading, Evangeline,
Acadia, and Westar. The plaintiffs are seeking class action status
on behalf of all Cleco Power's retail customers, and their petition centers
around Cleco's trading activities first disclosed by Cleco in November
2002. The plaintiffs allege, among other things, that the
defendants' conduct was in violation of Louisiana antitrust
law. They seek treble damages, restitution, injunctive and other
relief. The suit, which is in its formative stages, has been stayed
by agreement of all parties until the time that any party requests the court to
take up and rule upon the motion filed by the LPSC staff to stay the case. Accordingly,
management is unable to estimate the impact on the Registrants' financial
condition or results of operations.
Cleco is involved
in regulatory, environmental, and legal proceedings before various courts,
regulatory commissions, and governmental agencies regarding matters arising in
the ordinary course of business, some of which involve substantial amounts. In
several lawsuits, Cleco has been named as a defendant by individuals who claim
injury due to exposure to asbestos while working at sites in central Louisiana. Most
of the claimants were workers who participated in the construction of various
industrial facilities, including power plants, and some of the claimants have
worked at locations owned by Cleco. Cleco's management regularly
analyzes current information and, as necessary, provides accruals for probable
liabilities on the eventual disposition of these matters. Cleco's
management believes that the disposition of these matters will not have a
material adverse effect on the Registrants' financial condition, results of
operations, or cash flow.
For
information regarding off-balance sheet commitments, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition - Off-Balance Sheet Commitments." For
information regarding an additional contingency, see Note 5 - "Review of
Trading Activities." For information on the fuel audit, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition -Regulatory Matters-Fuel Audit."
Cleco has accrued
for liabilities to third parties, employee medical benefits, storm damages, and
deductibles under insurance policies that it maintains on major properties,
primarily generation stations and transmission
substations. Consistent with regulatory treatment, annual charges to
operating expenses to provide a reserve for future storm damages are based upon
the average amount of noncapital, uninsured storm damages experienced by Cleco
Power during the previous six years.
Note 12 - Disclosures about Guarantees
Cleco Corporation and Cleco Power have agreed to contractual terms
that require them to pay amounts to third parties upon the occurrence of certain
triggering events. These contractual terms are generally defined as guarantees
in FIN 45. Guarantees issued or modified after December 31, 2002, that fall
within the initial recognition scope of FIN 45 are required to be recorded as a
liability. Outstanding guarantees that fall within the disclosure scope of FIN
45 are required to be disclosed for all accounting periods ending after December
15, 2002. Generally, Cleco's guarantees are not required to be recorded on the
balance sheet; however, Cleco Power does have one guarantee recorded on its
balance sheet, as described in the following paragraph
46.
Cleco Power entered into a new pension plan trustee agreement on June 30, 2003, in conjunction with a change of pension plan trustees. A provision of the new pension plan trustee agreement requires Cleco Power to indemnify the new trustee for any damages it has to pay due to past actions of prior trustees. The indemnification does not contain a specific maximum payment amount; however, management has estimated that the probable future payments under this guarantee are immaterial.
In its bylaws,
Cleco Corporation has agreed to indemnify directors, officers, and employees
who are made a party to a pending or completed suit, arbitration, investigation,
or other proceeding whether civil, criminal, or administrative if the basis of
inclusion arises as the result of acts conducted in the discharge of their
official capacity. Cleco Corporation has purchased various insurance
policies to reduce the risks associated with the indemnification. In
its Operating Agreement, Cleco Power provides for the same indemnifications as
described above.
As a part of the
sale of UTS, Cleco agreed to indemnify the purchaser for losses resulting from
certain breaches. The
indemnity expired on April 1,
2003.
Cleco
Corporation issued several guarantees on behalf of Acadia. One
guarantee was issued to Aquila Energy, one of Acadia's initial tolling counterparties. This
guarantee was extinguished in May 2003 when the tolling agreement with Aquila
Energy was terminated, and a subsidiary of Calpine entered into a new tolling
agreement without requiring a guarantee from Cleco. The other
guarantee was issued to Acadia's construction
contractor. If Acadia cannot pay the contractor who built its plant,
Cleco Corporation is obligated to pay 50% of the current contractor's amount
outstanding. At September 30, 2003, Cleco Corporation's 50% portion
of the current contractor's amount outstanding was approximately $0.4
million. Acadia began commercial operation during the third quarter
of 2002, and this guarantee will terminate upon full payment of the Acadia construction
contract.
Cleco Corporation
has issued guarantees and letters of credit to support the activities of Perryville, Midstream, Evangeline,
Cleco Energy and Marketing & Trading. These commitments
are not within the scope of FIN 45 since these are guarantees of performance by wholly owned subsidiaries. For
information regarding these commitments, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
- - Off-Balance Sheet Commitments."
As part of a
lignite mining agreement entered into in 2001, Cleco Power and SWEPCO have
agreed to pay the lignite miner's loan and lease principal obligations when due
if the lignite miner does not have sufficient funds or credit to
pay. Any amounts paid on behalf of the miner would be credited by
the lignite miner against the next invoice for lignite delivered. At
September 30, 2003, Cleco Power's 50% exposure was approximately $27.5
million. The lignite mining contract is in place until 2011.
Note 13 - Debt
Cleco
Corporation replaced its previous $225.0 million credit facility with a new
facility on May 7, 2003. The new facility is a $105.0 million,
364-day facility, which provides that borrowings outstanding on the maturity
date may be converted into a nine month term loan. This facility
provides support for the issuance of commercial paper and working capital and
other needs. The borrowing cost under the new facility is equal to
LIBOR plus 1.625% which includes facility fees. At September 30, 2003, $50.0 million was outstanding under the facility. If Cleco
Power or Midstream defaults under their respective facilities, then Cleco
Corporation would be considered in default under this
facility. Off-balance sheet commitments will reduce the amount of
credit available to Cleco Corporation under this facility by an amount equal to
the stated or determinable amount of the primary obligation of such
commitments. Perryville's default on the Senior Loan Agreement,
which is discussed further in Note 15 - "Perryville," is not considered a
default under this new credit facility.
Cleco Power
replaced its previous $107.0 million credit facility with a new facility on May 7, 2003. The new facility is an $80.0 million, 364-day facility, which
provides that borrowings outstanding on the maturity date may be converted into
a nine month term loan. This facility will
provide support for the issuance of commercial paper and working capital and
other needs. The borrowing cost under the new facility is equal to
LIBOR plus 1.25% which includes facility fees. At
September 30, 2003, there were no borrowings under the facility.
On April 28, 2003, Cleco
Corporation issued $100.0 million aggregate principal amount of its senior unsecured
notes at an interest rate of 7.0%. The notes mature on May 1, 2008. The net
proceeds from the notes offering were used to repay outstanding borrowings
under Cleco Corporation's revolving credit facility. The notes were
issued pursuant to Cleco Corporation's debt shelf registration statement
(Registration No. 333-33098). No additional debt securities may be
offered and sold under this shelf registration statement.
47
On
April 28, 2003,
Cleco Power issued $75.0 million aggregate principal amount of its senior
unsecured notes at an interest rate of 5.375%. The notes mature on May 1, 2013. The net
proceeds from the notes offering were used to repay outstanding borrowings
under Cleco Power's revolving credit facility. The notes were issued
pursuant to Cleco Power's debt shelf registration statement (Registration No.
333-52540). Cleco Power has issued a total of $150.0 million in
aggregate principal amount of debt securities pursuant to the shelf
registration statement, leaving $50.0 million available for future issuance.
On October
6, 2003, Cleco Corporation filed a shelf registration statement (Registration
No. 333-109506) providing for the issuance of up to $200.0 million of debt
securities, common stock, preferred stock, or any combination thereof. In
addition, on October 6, 2003, Cleco Power filed a shelf registration statement
(Registration No. 333-109507) providing for the issuance of up to $150.0
million of debt securities. These shelf registration statements have
not yet been declared effective by the SEC.
Note 14 - Income Taxes
Cleco and its
subsidiaries, other than Cleco Power, record current and deferred federal and
state income taxes at a composite rate of 38.5%. Cleco Power records
current and deferred federal income taxes at the statutory rate of 35.0% and
records current state income tax expense at 3.0%. Cleco Power
records temporary differences between book and tax income under the
flow-through method of accounting for state purposes as required by LPSC
guidelines.
Under normal
operations, Cleco reflects net income before taxes and related income tax
expense. In general, the effective income tax rate is lower than the
combined statutory rate because of favorable permanent differences between book
and tax income. Cleco generated a net loss in the current year with
favorable permanent differences between book and tax income. As a
result, Cleco has a favorable income tax benefit. Cleco's effective
income tax rate for the nine months ended September 30, increased
from 35.5% in 2002 to 41.2% in 2003,
providing a net tax benefit of $17.4 million. The net increase
in the effective income tax rate was attributable to several factors: (1)
a loss recognized by Perryville as a result of a $134.8 million impairment
charge recorded in the second quarter of 2003; (2) Cleco Power's state net
operating loss carryforward decreased state income tax expense by approximately
$1.9 million as computed using the flow-through method of accounting; and (3) a
favorable flow-through difference between book and tax income of approximately
$0.8 million was created by Cleco Power's AFUDC equity. For
information on the impairment charge, see Note 15 - "Perryville."
Note 15 - Perryville
Background
Perryville
owns and operates a 725-MW natural gas-fired power plant near Perryville, Louisiana. The
Perryville facility consists of approximately 565 MW of combined-cycle capacity
and approximately 160 MW of peaking capacity. In July 2001,
Perryville entered into the Perryville Tolling Agreement, a 20-year capacity
and energy agreement for Perryville's entire capacity with MAEM, a subsidiary
of Mirant. Under the terms of the Perryville Tolling Agreement, MAEM
had the rights to supply natural gas to fuel the Perryville facility and was exclusively
entitled to all the capacity and energy output from the facility. Perryville
was obligated to provide energy conversion services, within specified performance
parameters, when requested by MAEM. The agreement required MAEM to
pay Perryville various capacity reservation and fixed operations and
maintenance fees, the amounts of which depended upon the type of capacity and
ultimate performance achieved by the facility. In addition to the
capacity reservation and fixed operating and maintenance payments from MAEM,
Perryville was entitled to collect and MAEM was obligated to pay amounts
associated with variable operating and maintenance expenses based on MAEM's
dispatch of the facility. Mirant and MAI provided limited guarantees
which supported MAEM's obligations under the Perryville Tolling Agreement.
Mirant Bankruptcy
On
July 14, 2003, Mirant, MAEM, MAI and certain other Mirant subsidiaries filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas. Under
the terms of the Perryville Tolling Agreement, Perryville invoiced MAEM for
$4.5 million of tolling revenue and $1.8 million of long-term service agreement
reimbursement for June tolling services. Perryville recorded a
reserve for uncollectible accounts of $6.3 million at June 30, 2003 and a $2.3 million reserve at September 30, 2003, as a result of MAEM's failure to
remit pre-petition amounts that were due on July 21, 2003 and August 21, 2003, respectively. Perryville invoiced
MAEM for $5.0 and $2.0 million of tolling revenue for August and September post-petition
tolling services, respectively, prior to MAEM's rejection of
48
the Perryville Tolling Agreement as referred to below. Perryville recorded a reserve for uncollectible accounts of $5.3 million at September 30, 2003, for a portion of August and September activity. These charges, collectively $13.9 million, are included in the "Operating Expenses" section of the Unaudited Consolidated Statements of Income.
Rejection of the Perryville Tolling Agreement
On August 29, 2003, MAEM and its related debtors
(collectively, the "Debtors") filed and served upon Perryville a motion
pursuant to which the Debtors moved under Bankruptcy Code Section 365 to reject
the Perryville Tolling Agreement. MAEM asserts that pursuant to
their motion, the rejection of the Perryville Tolling Agreement was effective
on September 15, 2003. Upon the rejection of the Perryville Tolling
Agreement, MAEM relinquished the rights to exclusively dispatch the facility's
capacity and energy. Moreover, MAEM is no longer financially
responsible for the recurring payments pursuant to the Perryville Tolling
Agreement subsequent to September 15, 2003, although, as
discussed below, Perryville intends to assert damage claims in the bankruptcy
process against MAEM, Mirant and MAI as a result of the rejection of the
Perryville Tolling Agreement.
Perryville's Senior Loan Agreement
The
bankruptcy filing by Mirant and certain of its subsidiaries has resulted in an
event of default under Perryville's Senior Loan Agreement. This
event of default gives the lenders holding in aggregate at least 66-2/3% of the
outstanding senior loan the right, but not the obligation, to declare any
outstanding principal and interest immediately due and payable, which at September 30, 2003 was $134.4 million. Accordingly, Perryville's Senior Loan
Agreement debt is considered short-term and is classified in the current liabilities
section of the balance sheet. As required under the Senior Loan
Agreement, Perryville gave timely notice of the event of default to KBC, the
agent bank. Remedies available to the lenders during the existence
of an event of default include foreclosure on PEH's membership interest in Perryville
as well as on Perryville's assets, including without limitation, cash in any
restricted accounts related to the Senior Loan Agreement. If the
lenders foreclose they would own any rights to damages from MAEM for breach
of the Perryville Tolling Agreement. Foreclosure by the lenders may
result in an additional loss of PEH's equity in Perryville, which at September 30, 2003, was approximately $5.1 million. If the
lenders were to call this debt, Perryville might, among other things,
renegotiate the loan, refinance the loan, pay off the loan with other
borrowings or the proceeds of issuances of additional debt, or seek protection
under federal bankruptcy laws. While
management has been in discussions with KBC and the lenders to address the
consequences of such default, management is unable to predict any subsequent
action that KBC or the lenders may take under the Senior Loan
Agreement. However, since Perryville's Senior Loan Agreement is
nonrecourse to Cleco Corporation (other than (i) a guarantee of the current
year's debt service requirement, which at September 30, 2003 was $7.3 million
and (ii) a possible conditional guarantee described below in "- Perryville's Subordinated
Loan Agreement), this default should have no impact on any other credit
facility or financing arrangement of Cleco Corporation or its other
subsidiaries.
Perryville's Subordinated Loan Agreement
As
a result of Mirant's bankruptcy and MAEM's failure to make payments under the
Perryville Tolling Agreement, all obligations of Perryville to make principal
and interest payments under the Subordinated Loan
Agreement, as well as the accrual of additional interest, are
suspended. At September 30, 2003, the principal balance of the Subordinated Loan Agreement
was $98.7 million.
Perryville intends
to assert damage claims against MAEM due to the rejection of the Perryville
Tolling Agreement and against Mirant and MAI under their respective limited
guarantees. To the extent there are future obligations of Perryville
to MAI under the Subordinated Loan Agreement, Perryville may, but is not
required to, elect to exercise a right of set off of any amounts due under the
Subordinated Loan Agreement against Perryville's damage claims against
MAI. MAI has waived any such right of set off. If
obligations are owed under the Subordinated Loan Agreement, exercising a right
of set off could materially increase Perryville's net recovery against
MAI. Pursuant to the Senior Loan Agreement, in connection with
Perryville exercising a right of set off and receiving cash distributions,
Perryville would be obligated to prepay its obligations under the Senior Loan
Agreement in an amount equal to the present value of all recoveries
that otherwise would be payable to Perryville by Mirant with respect to the
amount of set off under any plans of bankruptcy proceedings for
Mirant or scheduled distributions to creditors involving Mirant were the right
of set off not invoked. In
such event and prior to receiving cash distributions, Perryville would also be required
to cause Cleco Corporation to provide credit support in the form of a guarantee of
Perryville's prepayment obligation in an amount equal to 50% of the amount to be set
off,
not to exceed $50.0 million. This credit support must be provided in
the form of a letter of credit if Cleco Corporation does not have or maintain
an investment
49
grade credit rating while the obligation is outstanding. Failure by Cleco Corporation to provide the credit support could trigger a power of attorney empowering the lenders to waive Perryville's right of set off. To the extent Perryville waives its right of set off and set off is nevertheless effectuated, despite Perryville's and MAI's waiver of their rights of set off, Perryville is required to prepay to its lenders under the Senior Loan Agreement an amount equal to 25% of any amount set off.
Possible Sale of Perryville
In May 2003,
Perryville signed a letter of intent to sell the Perryville assets to an
Entergy subsidiary. The letter of intent expired pursuant to its
terms on August 15, 2003. However, Entergy and Perryville continue
to discuss and negotiate the possible sale of these assets on mutually
acceptable terms.
Facility Operation Subsequent to the Rejection of the Perryville Tolling
Agreement
On September 23, 2003, Perryville signed an agreement with an energy management company to
deliver natural gas and market the power from the Perryville
facility into the wholesale market. This agreement was amended on October 23, 2003, to provide for a 30-day extension of energy management
services. Proceeds realized from these sales will be used to pay
operating expenses and pay debt service requirements associated with the Senior
Loan Agreement. There are no assurances that these proceeds would be
able to satisfy the operating expenses of Perryville or the debt service requirements
under the Senior Loan Agreement. Perryville also is pursuing other
power sale alternatives such as a short-term tolling agreement and is targeting
physical consumers such as electric cooperatives, utilities, and
municipalities.
Impairment of Long-Lived Assets
Prior to the July
14, 2003 filing by Mirant and certain of its subsidiaries, including MAEM, for voluntary
protection under Chapter 11 of the U.S. Bankruptcy Code, the carrying value of
the Perryville facility was compared to its undiscounted, probability-weighted,
future cash flows, due to the occurrence of a triggering event as required by
SFAS No. 144. That calculation, pursuant to SFAS No. 144,
corresponded largely to the future cash flows expected to be received under the
Perryville Tolling Agreement. Due to Mirant's bankruptcy filing and
the subsequent events surrounding that bankruptcy which are discussed above in
this note, the probability weighting of future cash flows under possible
scenarios, as required by SFAS No. 144, changed significantly. As a
result of the change in probability weighting of Perryville's undiscounted
future cash flows, management believed the carrying value of Perryville's long-lived
assets was impaired; therefore, the carrying value of these assets was reduced
to fair value. At June 30, 2003, the difference between Perryville's
carrying value and its fair value as determined by current market indicators of
transactions between willing buyers and sellers resulted in an impairment
charge of $134.8 million ($82.9 million after tax) in the second quarter of
2003. This charge is presented in a separate line item in the "Operating
Expenses" section of the Unaudited Consolidated Statements of Income. At
September 30, 2003, Perryville's undiscounted, probability-weighted future cash
flows exceeded its carrying value; therefore, no additional impairment was
recorded in the third quarter of 2003. However, depending on the
outcome of Perryville's
efforts to sell the facility, applicable accounting rules could require Perryville
to reduce the carrying value of the facility and recognize an additional
impairment charge. Also, future earnings could be realized if
Perryville recovers damages through the Mirant bankruptcy process arising from MAEM's
rejection of the Perryville Tolling Agreement.
Note 16 - FERC Settlement
On July 25, 2003, the FERC issued an order approving a Consent Agreement between the FERC
Staff and Cleco that settled the FERC's non-public investigation that commenced
after Cleco's disclosure in November 2002 of certain energy marketing and
trading practices. By its terms, the Consent Agreement was effective
on August 24, 2003 (the Effective Date). As a part of the
settlement, Cleco agreed to the following penalties and remedies.
|
Revocation of Marketing & Trading's market-based rate authority occurred as of the Effective Date, except for minimal market-based sales to meet existing contractual obligations which will expire or otherwise be terminated on or before December 31, 2003. Marketing & Trading may reapply to the FERC for market-based rate authority on the earlier of December 31, 2004, or one year from the cessation of market-based rate sales. |
|
Refunds of $2.0 million by Marketing & Trading and $0.1 million by Evangeline, for profits obtained through various affiliate energy marketing and trading transactions between 1999 and 2002, to Cleco Power within 30 days of the Effective Date. |
50
|
Payment of a $0.8 million civil penalty to the FERC within 30 days of the Effective Date. |
|
Agency agreements for wholesale power or transmission services between Cleco's public utility subsidiaries (Cleco Power, Marketing & Trading, Evangeline, Acadia, and Perryville) may not exist after the Effective Date without the FERC's prior authorization. |
|
A separation of Cleco Power's trading floors in order to separate employees engaged in native load sales functions from those engaged in wholesale energy management functions within 60 days of the Effective Date. |
|
A filing by Cleco's public utility subsidiaries to the FERC of revised codes of conduct, as contained in the Consent Agreement, within 30 days of the Effective Date. The codes of conduct impose more stringent control on affiliate transactions. |
|
Implementation of an internal control compliance plan for the FERC regulatory compliance for Cleco's public utility subsidiaries, as contained in the Consent Agreement, according to various time deadlines specified in the compliance plan will be required. The compliance plan has a three-year term, beginning with the Effective Date, and requires periodic reporting to the FERC Staff regarding the implementation of, and continued compliance with, the plan. |
Cleco has substantially completed the items that were stipulated in the FERC Consent Agreement and required to be complied with to date. On October 23, 2003, the FERC granted an extension of time to comply with paragraph 7 of the Consent Agreement regarding the separation of Cleco Power's trading floors, as referred to above. Additional requirements will be due on future dates and are expected to be satisfied based on the guidelines set forth in the Consent Agreement. On October 17, 2003, Marketing and Trading notified the FERC of its termination of all contractual obligations. In addition, the civil penalty required to be paid to FERC and refunds to Cleco Power were made during the third quarter of 2003. Cleco Power will refund approximately $1.2 million to customers through fuel cost adjustments over a 12-month period which began in August 2003. Cleco expects to work with the LPSC in the coming months to determine the appropriate regulatory treatment for any remaining funds.
51
ITEM 2 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The following
discussion and analysis should be read in combination with the Registrants'
Combined Annual Report on Form 10-K for the year ended December 31, 2002, and Cleco
Corporation's and Cleco Power's Unaudited Financial Statements contained in
this Report. The information included therein is essential to
understanding the following discussion and analysis.
RESULTS OF OPERATIONS
Please read "Item 1
Financial Statements - Cleco Corporation - Management's Discussion and Analysis
of Results of Operations" and "Item 1 Financial Statements - Cleco Power LLC -
Narrative Analysis of Results of Operations" of this Form 10-Q, which
discussions are incorporated herein by reference.
FINANCIAL CONDITION
Liquidity and Capital Resources
Credit Ratings and Counterparties
Financing for
operational needs and construction requirements is dependent upon the cost and
availability of external funds from capital markets and financial
institutions. Access to funds is dependent upon factors such as
general economic conditions, regulatory authorizations and policies, Cleco's credit rating, the credit rating of Cleco's subsidiaries, the operations of projects
funded and the credit ratings of project counterparties. On March 24, 2003, Moody's downgraded the senior unsecured debt ratings of Cleco Corporation
to Baa3 from Baa1, the senior secured debt ratings of Cleco Power to A3 from
A2, and the senior unsecured debt ratings of Cleco Power to Baa1 from
A3. Moody's noted that the ratings outlook for Cleco Corporation is
negative and the ratings outlook for Cleco Power is stable. In its
press release, Moody's stated that the downgrade reflected deterioration in the
credit quality of Cleco's unregulated power plants and the adverse underlying
market conditions for merchant generation in the SERC region. In
addition, Moody's stated that the stable outlook for Cleco Power reflected the
relative strength of the utility, constructive regulatory relations, reasonable
amounts of leverage and strong cash flows. On March 26, 2003, Standard & Poor's Ratings Services affirmed its senior unsecured debt ratings of
Cleco at BBB- and Cleco Power at BBB. Both Cleco's and Cleco Power's
senior unsecured debt ratings were taken off CreditWatch, but Standard &
Poor's stated that the outlook for the ratings is negative due to continued
uncertainties surrounding Cleco's unregulated merchant energy
activities. On June 23, 2003, Moody's revised its outlook for the
Evangeline senior secured bonds to positive from
negative. Currently, Moody's rates the Evangeline bonds B3. Moody's
stated that this action reflected improvement in the credit quality of
Evangeline's tolling party guarantor, The Williams Companies,
Inc. Cleco notes that these credit ratings are not recommendations
to buy, sell or hold securities. Each rating should be evaluated
independently of any other rating. If Cleco Corporation's or Cleco
Power's credit ratings continue to be downgraded, Cleco Corporation or Cleco
Power could be required to pay additional fees and higher interest rates under
its bank credit and other debt agreements.
The parent
companies of Cleco's tolling counterparties are The Williams Companies and
Calpine. Williams and Calpine have issued guarantees of the payment
obligations of the respective tolling counterparties under the tolling
agreements. The credit ratings of these parent companies have been
downgraded below investment grade, and in some cases, placed on negative credit
watch for possible further downgrade by one or more rating agencies. Failure
by Williams and Calpine to perform under their respective tolling agreements
could adversely impact the Registrants' results of operations and financial
condition.
Mirant and certain
of its affiliates filed a voluntary petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code on July 14, 2003. This
bankruptcy has significant financial, operational, and business impacts on
Cleco, the most significant of which are related to the Perryville Tolling
Agreement, the Senior Loan Agreement at Perryville for which KBC acts as agent,
and the Subordinated Loan Agreement. On August 29, 2003, MAEM and its related debtors
(collectively, the "Debtors") filed and served upon Perryville a motion pursuant
to which the Debtors moved under Bankruptcy Code Section 365 to reject the
Perryville Tolling Agreement. MAEM asserts that pursuant to their
motion, the rejection of the Perryville Tolling Agreement was effective on September 15, 2003. Upon the rejection of the
Perryville Tolling Agreement, MAEM relinquished the rights to the facility's
capacity and energy. Moreover, MAEM will no longer be financially
responsible for the recurring payments pursuant to the Perryville Tolling
Agreement subsequent to September
15, 2003. Perryville,
subsequent to the rejection of the Perryville Tolling Agreement, contracted
with an energy management company to deliver natural gas and market the power
from the Perryville facility into the wholesale market. Proceeds
from these sales will be used to pay
52
operating expenses and pay debt service requirements associated with the Senior Loan Agreement. There are no assurances that these proceeds would be able to satisfy the operating expenses of Perryville or the debt service requirements of the Senior Loan Agreement. For information regarding the effects of Mirant's bankruptcy, the rejection of the Perryville Tolling Agreement, and Perryville facility operation subsequent to the rejection of the Perryville Tolling Agreement, see Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements in this Report and "- Debt - Midstream" below.
Power and gas
trading agreements entered into by Marketing & Trading provide the
counterparties with the right to request Cleco Corporation to furnish credit
support if the counterparty assesses Cleco Corporation's creditworthiness as
unsatisfactory. Under these agreements, the counterparties can
request credit support, but Cleco may opt to liquidate the transactions and pay
liquidating damages to the counterparties as applicable in accordance with the
terms and conditions of the contracts. As of September 30, 2003, Marketing & Trading had closed all forward trading positions; therefore,
Cleco Corporation had no credit exposure to Marketing and Trading's power and
gas trading counterparties. With respect to any open power or gas
trading positions that Cleco may maintain in the future, the amount Cleco
Corporation is required to pay at any point in the future remains dependent on
changes in the market price of power and gas, the changes in the open power and
gas positions, and changes in the amount counterparties owe Cleco
Corporation. Changes in any of these factors could cause the amount
of requested credit support to increase or decrease.
Other
Various agreements
to which Cleco is subject contain covenants that restrict its use of
cash. As certain provisions under these agreements are met, cash is
transferred out of related escrow accounts and becomes available for general
corporate purposes. At September 30, 2003, $30.9 million of cash was
restricted under the Evangeline senior secured bond indenture, $10.4 million of
cash was restricted at Perryville under the terms of the Senior Loan Agreement,
and $1.8 million of APH's cash was restricted under the terms of the Midstream
credit facility.
Debt
At September 30, 2003 and December 31, 2002, $207.1 million and $315.3 million, respectively,
of short-term debt was outstanding in the form of bank loans. If
Cleco Corporation were to default under covenants in its various credit
facilities, Cleco Corporation would be unable to borrow additional funds from
the credit facilities. If Cleco Corporation's credit rating as
determined by outside rating agencies were to be downgraded, Cleco Corporation
could be required to pay additional fees and higher interest. As a
result of the downgrades described above in "- Liquidity and Capital
Resources," Cleco Corporation's interest rate increased by 0.20% and Cleco
Power's increased by 0.10%. At September 30, 2003, Cleco Corporation was in compliance with the covenants in its credit facilities.
The following table
shows short-term debt by subsidiary:
Subsidiary |
At |
At |
(Thousands) |
||
Cleco Corporation (Holding Company Level) |
|
|
Bank loans.............................................................................. |
$ 50,000 |
$ 171,550 |
Cleco Power |
|
|
Bank loans.............................................................................. |
- |
107,000 |
Midstream |
|
|
Bank loans.............................................................................. |
157,117 |
36,750 |
Total.................................................................................... |
$ 207,117 |
$ 315,300 |
======= |
======= |
Cleco Corporation (Holding Company Level)
Short-term
debt decreased at Cleco Corporation by $121.6 million at September 30, 2003, compared to December 31, 2002, primarily due to the issuance of $100.0 million
of long-term notes on April 28, 2003, as discussed below. A
revolving credit facility for Cleco Corporation in the amount of $225.0
million, which was scheduled to terminate on June 4, 2003, provided for an optional conversion to a one-year term loan. Cleco Corporation's
borrowing cost under this facility was equal to LIBOR plus 1.25%, including
facility fees. Cleco Corporation replaced this credit facility with
a new facility on May 7, 2003. The new facility is a $105.0 million,
364-day facility, which provides that borrowings outstanding on the maturity
date may be converted into a nine month term
loan. This facility provides support for the issuance of commercial
paper and working capital and other needs. At September 30, 2003, Cleco Corporation's borrowing cost under this facility was equal to
53
LIBOR plus 1.625%, including facility fees, and the weighted average cost of the borrowings was 2.94%. If Cleco Power or Midstream defaults under their respective facilities, Cleco Corporation would be considered in default under this facility. Perryville's default on the Senior Loan Agreement, as described below under "- Midstream" and in Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements in this Report, is not considered a default under Cleco's credit facility. Off-balance sheet commitments entered into by Cleco with third parties for certain types of transactions between those parties and Cleco's subsidiaries, other than Cleco Power, reduce the amount of credit available to Cleco Corporation under the facility by an amount equal to the stated or determinable amount of the primary obligation. At September 30, 2003, there was $50.0 million drawn on the facility, leaving $55.0 million available. The $55.0 million at September 30, 2003 was further reduced by off-balance sheet commitments of $22.7 million, leaving available capacity of $32.3 million. Cash and cash equivalents available at September 30, 2003 were $18.2 million combined with $32.3 million facility capacity for total liquidity of $50.5 million. Cash and cash equivalents decreased $47.3 million, when compared to December 31, 2002, largely due to paydown of short-term bank loans, payoff of medium-term note maturities, and payment of dividends. These expeditures were offset by the issuance of long-term debt and from adjusted net income. For more information about these commitments see "- Off-Balance Sheet Commitments." The amount of off-balance sheet commitments and other indebtedness incurred by Cleco Corporation and reduction of the available amount of the facility was $49.2 million at December 31, 2002. An uncommitted line of credit with a bank in an amount up to $5.0 million also is available to support Cleco Corporation's working capital needs.
Cleco Corporation
provides a guarantee to pay interest and principal under the Senior Loan
Agreement and its interest in Perryville is collateral for the debt under the
Senior Loan Agreement and the Subordinated Loan Agreement. For more
information on these agreements, see "- Midstream" below and Note 15 -
"Perryville" in the Notes to the Unaudited Financial Statements in this Report.
On April 28, 2003, Cleco
Corporation issued $100.0 million aggregate principal amount of its senior
unsecured notes at an interest rate of 7.0%. The notes mature on May 1, 2008. The net
proceeds from the notes offering were used to repay outstanding borrowings
under its revolving credit facility. The notes were issued pursuant
to Cleco Corporation's debt shelf registration statement (Registration No. 333-33098). No
additional debt securities may be offered and sold under this shelf
registration statement.
On October
6, 2003, Cleco Corporation filed a shelf registration statement (Registration
No. 333-109506) providing for the issuance of up to $200.0 million of debt
securities, common stock, preferred stock, or any combination thereof. This
shelf registration statement has not yet been declared effective by the SEC.
Cleco Power
Short-term
debt decreased at Cleco Power by $107.0 million at September 30, 2003, compared to December 31, 2002, primarily due to the issuance of $75.0 million of long-term
senior unsecured notes on April 28, 2003. A revolving credit
facility for Cleco Power in the amount of $107.0 million, which was scheduled to
terminate on June 4, 2003, provided for an optional conversion to a one-year
term loan. Cleco Power's borrowing cost under this facility was
equal to LIBOR plus 1.00%, including facility fees. Cleco Power
replaced this credit facility with a new facility on May 7, 2003. The new facility is an $80.0 million, 364-day facility, which provides that
borrowings outstanding on the maturity date may be converted into a nine month
term loan. This facility provides support for the issuance of
commercial paper and working capital and other needs. At September 30, 2003, no amounts were outstanding under this facility and Cleco Power's
borrowing cost under this facility was equal to LIBOR plus 1.25%, including
facility fees. An uncommitted line of credit with a bank in an
amount up to $5.0 million also is available to support Cleco Power's working
capital needs. Cash and cash equivalents available at September 30, 2003 were $48.4 million combined with $80.0 million facility capacity for a
total of $128.4 million. Cash and cash equivalents decreased $20.8
million, when compared to December 31, 2002, largely due to paydown of
short-term bank loans, payoff of medium-term note maturities, and payment of dividends. These expeditures were offset by the issuance of long-term debt and from adjusted net
income.
On
April 28, 2003,
Cleco Power issued $75.0 million aggregate principal amount of its senior
unsecured notes at an interest rate of 5.375%. The notes mature on May 1, 2013. The net
proceeds from the notes offering were used to repay outstanding borrowings
under its revolving credit facility. The notes were issued pursuant
to Cleco Power's debt shelf registration statement (Registration No.
333-52540). Cleco Power has issued a total of $150.0 million in
aggregate principal amount of debt securities pursuant to the shelf
registration statement, leaving $50.0 million of availability for future
issuance.
October 6, 2003, Cleco Power filed a shelf registration statement (Registration No.
333-109507) providing for the issuance of up to $150.0 million of debt
securities. This shelf registration statement has not yet been declared
effective by the SEC.
54
Midstream
Short-term debt
increased at Midstream by $120.4 million at September 30, 2003, compared to December 31, 2002, primarily due to the reclassification of the Perryville
debt to short-term debt. This increase was partially offset by
quarterly paydown of debt on the Midstream credit facility. Midstream
has a $36.8 million credit facility that expires in March 2004. The
facility is used to support Midstream's generation activities, and outstanding
balances are guaranteed by Cleco Corporation on a subordinated
basis. Midstream's cost of borrowings under this facility is equal
to LIBOR plus 3.00%, including commitment fees, and was 4.125% at September 30, 2003. At September 30, 2003, the balance due on this credit
facility was $22.8 million. This facility requires that net proceeds
from any sale of the Perryville assets first must be applied to any outstanding
borrowings under this credit facility.
In
August 2002, a portion of the Perryville Senior Loan Agreement was converted to
the Subordinated Loan Agreement in the amount of $100.0 million. In
October 2002, the remainder of the $151.9 million senior loan was terminated
and replaced with a five-year $145.8 million loan with a group of lenders led
by KBC acting as agent. The interest rate on both loans resets
quarterly. It is based on LIBOR plus a spread, and the rate at September 30, 2003, was 2.60%. The
spread is 1.50% for the first two years and 1.65% for the following three
years. The loans provide for quarterly principal and interest
payments. Cleco provides a guarantee to pay interest and principal
under the Senior Loan Agreement should Perryville be unable to pay its debt
service. At September 30, 2003, the amount guaranteed was $7.3 million. However,
if Cleco Corporation's long-term senior unsecured debt is rated below "BBB-" by
Standard & Poor's or "Baa3" by Moody's, Cleco Corporation will be required
to post a letter of credit in the amount of $7.4 million. In addition,
Cleco Corporation may be required to provide additional credit support under
the Senior Loan Agreement under specified circumstances in connection with
Perryville's exercise of certain set off rights as described in Note 15 -
"Perryville" in the Notes to the Unaudited Financial Statements in this
Report. Also,
under the terms of the Senior Loan Agreement, specified amounts are required to
be maintained in restricted cash accounts for debt service payments, major
maintenance, and operating needs. At September 30, 2003, there was $10.3 million
in these restricted cash accounts. The Senior Loan Agreement is
collateralized by PEH's membership interest in Perryville. The
Subordinated Loan Agreement also is collateralized by PEH's membership interest
in Perryville, subordinate to claims under the Senior Loan
Agreement. The Senior Loan Agreement is scheduled to mature on October 1, 2007, and the
Subordinated Loan Agreement is scheduled to mature on December 31, 2007.
The
bankruptcy filing by Mirant and certain of its subsidiaries was an event of
default under Perryville's Senior Loan Agreement which gives the lenders
holding in aggregate at least 66-2/3% of the outstanding senior loan the right,
but not the obligation, to declare any outstanding principal and interest
immediately due and payable. As of September 30, 2003, the outstanding principal was $134.4 million. Perryville's
Senior Loan Agreement is nonrecourse to Cleco Corporation (other than to the
extent of the guarantee discussed above). This default is not an
event of default under any other credit facility or financing arrangement of
Cleco Corporation or its other subsidiaries. Remedies available to the lenders
during the existence of an event
of default include foreclosure on the Perryville assets, PEH's membership
interest
in Perryville which was pledged as
collateral against the Senior Loan Agreement and/or cash in the restricted accounts
relating to the Senior Loan Agreement. Foreclosure by
the lenders may result in an additional loss of Cleco's equity in Perryville,
which at September 30, 2003, was approximately $5.1 million. If the lenders were
to call this debt, Perryville might, among other things, renegotiate the loan,
refinance the loan, pay off the loan with other borrowings or the proceeds of
issuances of additional debt, or seek protection under
federal bankruptcy laws.
As
a result of Mirant's bankruptcy and MAEM's failure to make pre-petition payments
under the Perryville Tolling Agreement, all obligations of Perryville to make
principal and interest payments, under the Subordinated Loan Agreement, as well
as the accrual of additional interest, are suspended. At September 30, 2003, the
principal balance of the Subordinated Loan Agreement was $98.7 million.
Management
is unable to predict subsequent action by KBC or the lenders under the Senior
Loan Agreement. For additional information on Perryville's Senior
Loan Agreement, the Subordinated Loan Agreement, and effects of Mirant's
bankruptcy filing, see Note 15 - "Perryville" in the Notes to the Unaudited
Financial Statements in this Report."
On August 29, 2003, MAEM and its affiliated debtors
(collectively, the "Debtors") filed and served upon Perryville a motion
pursuant to which the Debtors moved under Bankruptcy Code Section 365 to reject
the Perryville Tolling Agreement. MAEM asserts that pursuant to
their motion, the rejection of the Perryville Tolling Agreement was effective on
September 15, 2003. For more information on the rejection of the tolling
agreement, see Note 15 - "Perryville" in the Notes to the Unaudited Financial
Statements in this Report.
55
Off-Balance Sheet Commitments
Cleco has entered
into various off-balance sheet commitments, in the form of guarantees and a
standby letter of credit, in order to facilitate the activities of its
subsidiaries and equity investees (affiliates). Cleco entered into
these off-balance sheet commitments in order to entice desired counterparties
to contract with its affiliates by providing some measure of compensation to
the counterparty if its affiliates do not fulfill certain contractual
obligations. If Cleco had not provided the off-balance sheet
commitments, the desired counterparties may not have contracted with its
affiliates, or may have contracted with them at terms less favorable to its
affiliates.
The off-balance
sheet commitments are not recognized on Cleco Corporation's Consolidated
Balance Sheets, because it has been determined that Cleco Corporation's
affiliates are able to perform these obligations under their contracts and that
it is not probable that payments by Cleco Corporation will be
required. Some of these commitments reduce the amount of the credit
facility available to Cleco Corporation by an amount defined by the credit
facility. The following table has a schedule of off-balance sheet
commitments grouped by subsidiary or affiliate on whose behalf each commitment
was made. The schedule shows the face amount of the commitment, any
reductions, the net amount, and reductions in Cleco Corporation's ability to
draw on its credit facility at September 30, 2003. Changes occurring
subsequent to September 30, 2003, and a discussion of the off-balance sheet
commitments are detailed in the explanations following the
table. The discussion should be read in conjunction with the table
to convey the impact of the off-balance sheet commitments on Cleco Corporation's
financial condition.
|
At September 30, 2003 |
|||
Subsidiaries/Affiliates |
Face amount |
Reductions |
Net amount |
Reductions to the amount |
(Thousands) |
||||
Guarantees issued to: |
||||
Acadia Power Holdings LLC plant construction contractor |
$ 375 |
$ - |
$ 375 |
$ 375 |
Perryville Energy Holdings LLC debt service reserve |
7,331 |
- |
7,331 |
7,331 |
Midstream Subordinated guarantee issued to bank |
22,750 |
- |
22,750 |
- |
Marketing & Trading and Cleco Energy |
||||
Guarantees issued to various energy counterparties |
210,750 |
99,000 |
111,750 |
- |
Standby letter of credit issued to: |
||||
Evangeline Tolling Agreement counterparty |
15,000 |
- |
15,000 |
15,000 |
$ 256,206 |
$ 99,000 |
$ 157,206 |
$ 22,706 |
If Evangeline fails to perform certain obligations under its tolling agreement, Cleco Corporation will be required to make payments to Evangeline's tolling agreement counterparty under the commitments listed in the above table. Cleco Corporation's obligation under the Evangeline commitment is in the form of a standby letter of credit from investment grade banks and is limited to $15.0 million. Ratings triggers do not exist in the Evangeline Tolling Agreement. Cleco expects Evangeline to be able to meet its obligations under the tolling agreement and does not expect Cleco Corporation to be required to make payments to the counterparty. However, under the covenants associated with Cleco Corporation's credit facility, the entire net amount of the Evangeline commitment reduces the amount that can be borrowed under the credit facility. The letter of credit for Evangeline is expected to be renewed annually until 2020. The guarantee for Perryville is no longer in effect since the tolling agreement has been terminated in connection with the Mirant bankruptcy. This guarantee previously obligated Cleco Corporation to make payments of up to $13.5 million if Perryville failed to perform certain obligations under its tolling agreement. For additional information on the Mirant bankruptcy, see Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements in this Report. Cleco Corporation was previously obligated under a guarantee to make payments of up to $12.5 million to Aquila Energy if Acadia failed to perform certain obligations under the corresponding tolling agreement. This guarantee was extinguished in May 2003 when the tolling agreement with Aquila Energy was terminated and a subsidiary of Calpine entered into a new tolling agreement without a guarantee from Cleco.
If Acadia cannot
pay the contractor who built its plant, Cleco Corporation will be required to
pay the current amount outstanding. Cleco Corporation's obligation
under the Acadia arrangement is in the form of a guarantee and is limited to
50% of the total for the contractor's current amount outstanding. At
September 30, 2003, Cleco Corporation's 50% portion of the contractor's
current amount outstanding was approximately $0.4 million. The
guarantee on the Acadia construction contracts will cease upon full payment of
those contracts. Management expects Acadia to have the ability to
pay its contractor as scheduled and does not expect Cleco Corporation to pay on
behalf of Acadia. However, under the covenants associated with Cleco
Corporation's credit facility, the current monthly amount due to the Acadia
contractor reduces the amount Cleco Corporation can borrow under the credit
facility.
56
If Perryville is unable to make principal and interest payments to its lenders under its Senior Loan Agreement, Cleco Corporation will be required to pay up to $7.3 million on behalf of Perryville under a guarantee issued in connection with the replacement of Perryville's construction loan in the fourth quarter of 2002. However, if Cleco Corporation's long-term senior unsecured debt is rated below "BBB-" by Standard & Poor's or "Baa3" by Moody's, Cleco Corporation will be required to post a letter of credit in the amount of $7.4 million. For information on Mirant's bankruptcy impact on the Senior Loan Agreement, see Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements in this Report.
When Midstream
entered into a $36.8 million credit facility, Cleco Corporation entered into a
subordinated guarantee with the lender. Under the terms of the
guarantee, Cleco Corporation will pay principal and interest if Midstream is
unable to pay. At September 30, 2003, there was $22.8 million
outstanding under the facility. The subordinated guarantee does not
reduce the amount Cleco can borrow under its credit facility, because it is
subordinate to Cleco Corporation's other liabilities.
Cleco Corporation has issued guarantees to Marketing &
Trading's counterparties in order to facilitate energy trading and to Cleco
Energy's counterparties in order to facilitate energy operations. In
conjunction with the guarantees issued, Marketing & Trading has received
guarantees from certain counterparties and has entered into netting agreements
whereby Marketing & Trading is only exposed to the net open position with
each trading counterparty. The guarantees issued and received expire
at various times. The balances of net guarantees for Marketing &
Trading and Cleco Energy do not affect the amount Cleco Corporation can borrow
under its credit facility. The total amount of guaranteed net open
positions with all of Marketing & Trading's and Cleco Energy's
counterparties over $20.0 million reduces the amount Cleco Corporation can
borrow under its credit facility. At September 30, 2003, the total guaranteed
net open positions were $0.7 million, so the borrowing restriction in Cleco's
credit facility was not affected. As counterparties and amounts
traded change, corresponding changes will be made in the level of guarantees
issued by Cleco Corporation. All of Marketing & Trading's
forward positions have been closed; therefore, Cleco Corporation's level of
guarantees will decrease as these guarantees are terminated. For
information regarding Marketing & Trading's counterparties' right to
request Cleco Corporation to provide credit support in certain instances, see
"- Financial Condition - Liquidity and Capital Resources."
The following table
summarizes the expected termination date of the guarantees and standby letter
of credit for Cleco:
Amount of Commitment Expiration Per Period |
|||||
Commercial commitments |
Net amount |
Less than |
1-3 years |
4-5 years |
Over |
(Thousands) |
|||||
Guarantees................................................. |
$ 142,206 |
$ 134,875 |
$ - |
$ 7,331 |
$ - |
Standby letter of credit............................ |
15,000 |
- |
- |
- |
15,000 |
Total commercial commitments........... |
$ 157,206 |
$ 134,875 |
$ - |
$ 7,331 |
$ 15,000 |
====== |
====== |
===== |
===== |
===== |
The capacity
and energy contracts between Cleco Power and Williams Energy stipulate that
Cleco Power must provide additional security in the event of certain ratings
triggers. These triggers include: ratings downgrade below investment
grade, negative credit watch for possible downgrade below investment grade,
failure to make required payments, and failure to maintain a certain
debt-to-equity ratio. The amount of the additional security required
to be provided by Cleco Power to Williams Energy in the event of a ratings
trigger is $20.0 million under these contracts. The contract between
Cleco Power and Dynegy stipulates that Cleco Corporation may be required to
provide additional security in the event of a ratings downgrade below
investment grade. The amount of the additional security that Cleco
Corporation could be required to provide to Dynegy is for the full amount of
Cleco Power's obligations with respect to the capacity payments for the
remainder of the contract. At September 30, 2003, this amount was $7.8 million. This obligation, however, may be affected or
revoked by virtue of the fact that Dynegy currently may be in default of its
contract obligation to provide additional security in the event of certain
credit ratings downgrades of Dynegy.
Generation RFP
Cleco Power issued
a RFP in May 2003 for up to 750 MWs of generation supply to replace existing
purchase power agreements that expire in 2004 and 2005. Cleco Power
received facility specific asset sale and long-term purchase power proposals,
from which a short-list of respondents was established in September
2003. Binding proposals were received October 15, 2003. At the same
time, Cleco Power modified its existing RFP to request a shorter-term RFP for
terms of two to four years. These proposals were also received October 15, 2003. Cleco
Power is evaluating the binding proposals and anticipates the selection of the
winning bids by December 2003 or the first quarter of 2004. The cost
of capacity and energy could increase or decrease
from current levels based on the outcome of the RFP process. Depending
on due diligence and contract negotiations, certificate applications with the
LPSC could be filed during the first quarter of 2004. The LPSC has
up to ninety days to act on the certificate applications. Cleco
Power cannot predict the outcome of any certificate filing nor whether approval
of such a filing would be opposed by potential intervening parties.
57
Environmental Matters
Cleco is subject to
federal, state and local laws and regulations governing the protection of the
environment. Violations of these laws and regulations may result in
substantial fines and penalties. Cleco has obtained all material
environmental permits necessary for its operations and believes it is in
substantial compliance with these permits, as well as all applicable environmental
laws and regulations. Cleco anticipates that existing environmental
rules will not affect operations significantly, but some capital improvements
may be required in response to new environmental programs expected in the near
future.
Under Section 316
(b) of the Clean Water Act, EPA is in the process of developing regulations to
govern cooling water intake structures at existing power generation facilities. These
new regulations are expected to be published by February 2004 and may require
some capital improvement to several of Cleco's generation facilities. Under
Section 112 of the Clean Air Act, EPA is required to develop the Mercury MACT
regulations, which are expected to be proposed by December 31, 2003, and finalized by December 31, 2004. The regulations may require new controls on
mercury emissions and may require capital investments at two of Cleco's
generation facilities. Cleco also continues to monitor potential
multi-pollutant legislation including the President's Clear Skies Initiative
which is pending in Congress. The President's Clear Skies Initiative
proposes to cut power plant emissions of three air pollutants - nitrogen
oxides, sulfur dioxide, and mercury - by 70% and improve air quality using a
proven market-based approach. The mercury control provisions in the
multi-pollutant legislation may replace the Mercury MACT regulations under
development by EPA.
While it is unknown
at this time what the final outcome of these new regulations and the proposed legislation
will be, any capital and operating costs of additional pollution control
equipment that may be required could materially adversely affect future results
of operations, cash flows, and possibly financial condition unless such costs
could be recovered through regulated rates.
On October 14, 2003, Cleco was notified by the TCEQ of its identification of the San Angelo
Electric Service Company facility which may constitute endangerment to public
health and safety of the environment. Based on the TCEQ's
preliminary investigation of this facility's historical records, Cleco has been
identified as being associated with the site operations and as such is being
requested to provide information concerning its relationship with this
facility. A written response to the TCEQ is due by November 14, 2003. Since this investigation is in the preliminary stages,
management is unable to determine what amount, if any, should be accrued for
possible remediation of the facility site.
Regulatory Matters
Fuel Audit
In the second half
of 2002, the LPSC informed Cleco Power that it was planning to conduct a
periodic fuel audit. The audit commenced in March 2003 and includes
Fuel Adjustment Clause filings for January 2001 through December 2002, although
a portion of the data requested for the audit relates to periods prior to the
2001 and 2002 filings. The audit, pursuant to the Fuel Adjustment
Clause General Order issued November 6, 1997, in Docket No. U-21497, is
required to be performed no less frequently than every other year; however,
this is the first LPSC Fuel Adjustment Clause audit of Cleco
Power. LPSC-jurisdictional revenue recovered by Cleco Power through
its Fuel Adjustment Clause for the audit period of January 2001 through December
2002 was $567.1 million. Management is unable to predict the results
of the LPSC fuel audit, which could require Cleco Power to refund the
previously recovered revenue and could adversely impact the Registrants'
results of operations and financial condition. The LPSC Staff expects
to issue its findings and recommendations related to the fuel audit by the
first quarter of 2004.
Review of Trading Activities
During a review of
trading activities in the second half of 2002, Cleco identified simultaneous
buy and sell trades with the same counterparty for the same volumes at the same
price, referred to as "round-trip trades," for both Cleco Power and Marketing
& Trading. The majority of Cleco Power's round-trip trades
involved service to a retail industrial customer. Cleco Power would
sell power to a third party, which then immediately would sell the same volume
of power at the same price as the purchase price back to Cleco Power which in
turn would sell the power to its industrial customer or to others. A
few of the trades classified as round-trip trades in 1999 included a small
price difference between the buy and the sell. Cleco Power has
contacted the FERC and the LPSC and discussed these and other transactions with
both agencies. These discussions led to formal investigatory
proceedings with dockets being opened by the FERC and the LPSC, with which
Cleco has cooperated. These proceedings have entailed discovery
measures by the agencies with jurisdiction over the referenced energy
58
trading transactions and energy trading transactions in general between Cleco's power marketer subsidiaries. On July 25, 2003, the FERC issued its order approving a Consent Agreement between Cleco and the FERC Staff which settled the FERC's non-public investigation into certain transactions. Management is unable to predict the remedial actions that may be taken with respect to these transactions by the LPSC and cannot reasonably estimate Cleco's minimum probable contingency for these transactions. For information about the FERC settlement concerning these transactions, see Note 16 - "FERC Settlement" in the Notes to the Unaudited Financial Statements in this Report.
Marketing & Trading
participated in round-trip trades whereby Marketing & Trading would buy power
from a third party, and sell the same volume at the same price as the purchase
price back to the third party. Additionally, Marketing & Trading
had round-trip trades whereby Marketing & Trading would sell power to a
third party, which then would sell the same volume at the same price as the
purchase price back to Marketing & Trading. Marketing &
Trading contacted the FERC regarding its round-trip trades and other
transactions. These discussions led to the same investigatory
proceeding with the FERC as referenced above, which has been settled as
discussed above and in Note 16 - "FERC Settlement" in the Notes to the
Unaudited Financial Statements in this Report. Cleco received
requests for information from the CFTC related to Cleco Power's and Marketing
& Trading's round-trip trades and the reporting of trading activities to
trade publications. Cleco provided the requested information to the
CFTC. From 1999 through mid-January, 2002, the same personnel
performed the trading operations of Cleco Power and Marketing &
Trading. Management believes these trading activities may be
reviewed in Cleco Power's pending LPSC fuel audit. For additional
information regarding the review of trading activities, see Note 5 - "Review of
Trading Activities," in the Notes to the Unaudited Financial Statements in this
Report. For additional information on the fuel audit, see "-
Financial Condition - Regulatory Matters - Fuel Audit." For
information about the FERC settlement concerning this issue, see Note 16 - "FERC
Settlement" in the Notes to the Unaudited Financial Statements in this Report.
During 2002,
certain fourth quarter 2001 natural gas purchase transactions were identified
that were accounted for inconsistently with Cleco Power's fuel adjustment clause. For
additional information about Cleco Power's natural gas purchase transactions,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Regulatory Matters - Gas Put Options," on
pages 43 and 44 of the 2002 Annual Report to Shareholders, which is filed as
Exhibit 13 to the Registrants' Form 10-K for the year ended December 31, 2002
and incorporated herein by reference.
During a 2002
review of an affiliate transportation contract, Cleco determined that certain
gas transportation charges may have exceeded the unregulated subsidiary's cost,
plus a reasonable rate of return. For additional information about
Cleco's gas transportation charges, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition - Regulatory
Matters - Gas Transportation Charges," on page 44 of the 2002 Annual Report to
Shareholders, which is filed as Exhibit 13 to the Registrants' Form 10-K for
the year ended December 31, 2002 and incorporated herein by reference.
Cleco has
implemented Issue 1 of EITF No. 02-3, as of July 15, 2002, which requires all
gains and losses (both realized and unrealized) from energy trading contracts
to be reported retroactively on the income statement on a net basis,
aggregating revenues and expenses and reporting the number in one line
item. Therefore, the effect on its revenues and expenses related to
the round-trip trades has been eliminated through the implementation of Issue 1
of EITF No. 02-3.
Lignite Deferral
In May 2001, Cleco
Power signed a lignite contract with a miner at the Dolet Hills
mine. As defined in LPSC Orders No. U-21453, U-20925(SC) and
U-22092(SC) (Subdocket G), retail ratepayers are receiving fuel cost savings
equal to 2% of the projected costs under the previous mining contract through
2011. Costs above 98% of the previous contract's projected costs are
deferred. Deferred costs will be recovered from retail customers
through the fuel adjustment clause when the actual costs of the new contract
are below 98% of the projected costs of the previous contract. As of
September 30, 2003, Cleco Power had deferred $10.2 million in costs and
interest relating to the new mining contract. If the miner's
cumulative costs do not fall below the 98% threshold, Cleco Power may be
required to write off some or all of the deferred amount. Cleco
Power will continue to monitor and assess the recoverability of these amounts
on a periodic basis; however, management expects the miner's cumulative costs
to fall below the 98% threshold, and therefore, expects Cleco Power to recover
the amounts deferred.
59
Franchises
Cleco Power
operates under nonexclusive franchise rights granted by governmental units, such
as municipalities and parishes (counties), and enforced by state
regulation. These franchises are for fixed terms, which may vary
from 10 years to 50 years or more. In the past, Cleco Power has been
substantially successful in the timely renewal of franchises as each reached
the end of its term.
Cleco Power's
franchise with the town of Franklinton, and its approximately 1,850 customers,
was up for renewal in April 2003. Cleco made an offer to renew the
franchise in October 2002. Due to ongoing negotiations, awarding of
any new contract was extended for 210 days beyond the original deadline to November
2003.
Other
On July 23, 2003, the FERC issued a final ruling regarding standard procedures and a standard
agreement for the interconnection of generators larger than 20 MWs. The
FERC also proposed rules regarding expedited procedures for small generators
under 20 MWs. The original date of October 20, 2003, for compliance with the large generators was extended to January 20, 2004. The FERC has not yet set a date for compliance with the small generator
standards.
Recent Accounting Standards
For discussion of
recent accounting standards, see Note 6 - "Recent Accounting Standards" in the
Notes to the Unaudited Financial Statements in this Report.
Critical Accounting Policies
Cleco's critical
accounting policies are those accounting policies that are both important to
the portrayal of 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 Corporation's segments or to Cleco Corporation as a
consolidated entity. The financial statements contained in this
report are prepared in accordance with accounting principles generally accepted
in the United States of America, which require Cleco to make estimates and
assumptions. Estimates and assumptions about future events and their
effects cannot be made with certainty. Management bases its current
estimates and assumptions on historical experience and on various other factors
that are believed to be reasonable under the circumstances. On an
ongoing basis, these estimates and assumptions are evaluated and, if necessary,
adjustments are made when warranted by new or updated information or a change
in circumstances or environment. Actual results may differ
significantly from these estimates under different assumptions or
conditions. In addition to the critical accounting policy discussed
below, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies" on pages 32-34 of the
2002 Annual Report to Shareholders, which is filed as Exhibit 13 to the
Registrants' Form 10-K for the year ended December 31, 2002, for a discussion
of other significant critical accounting policies.
Cleco accounts for
income taxes under SFAS No. 109. Under this method, income tax
expense and related balance sheet amounts are comprised of a "current" portion
and a "deferred" portion. The current portion represents Cleco's
estimate of the income taxes payable or receivable for the current
year. The deferred portion represents Cleco's estimate of the future
income tax effects of events that have been recognized in the financial
statements or income tax returns in the current or prior
years. Cleco makes assumptions and estimates when it records income
taxes such as its ability to deduct items on its tax returns, the timing of the
deduction and the effect of regulation by the LPSC on income
taxes. Cleco's income tax expense and related assets and liabilities
could be affected by its assumptions and estimates, changes in such assumptions
and estimates, and by ultimate resolution of assumptions and estimates with
taxing authorities. The actual results may be different from the
estimated results based on these assumptions and may have a material effect on
Cleco's results of operations. For additional information about
Cleco Corporation's income taxes, see "Notes to the Consolidated Financial
Statements - Note 10 - Income Tax Expense" on pages 71 and 72 of the 2002
Annual Report to Shareholders, which is filed as Exhibit 13 to the Registrants'
Form 10-K for the year ended December 31, 2002.
60
ITEM
3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET
RISK OF CLECO CORPORATION
The
market risk inherent in Cleco's market risk-sensitive instruments and positions
includes the potential change arising from changes in interest rates, the
commodity price of power traded on the different power exchanges and the
commodity price of natural gas traded. Prior to the third quarter of
2002, Cleco Power and Marketing & Trading used EITF No. 98-10 to determine
whether the market risk-sensitive instruments and positions were required to be
marked-to-market. In October 2002, the EITF rescinded EITF No. 98-10
effective the second fiscal period beginning after December 15, 2002. Cleco Power and Marketing & Trading
currently use SFAS No. 133 in order to determine whether the market
risk-sensitive instruments and positions are required to be
marked-to-market. Generally, Cleco Power's market risk-sensitive
instruments and positions qualify for the normal-purchase, normal-sale
exception to mark-to-market accounting of SFAS No. 133, as modified by SFAS No.
149, since Cleco Power generally takes physical delivery and the instruments
and positions are used to satisfy customer requirements. Cleco Power
does have some positions that are required to be marked-to-market, because they
do not meet the exception of SFAS No. 133 and do not qualify for hedge
accounting treatment. The positions for marketing and trading
purposes do not meet the exemptions of SFAS No. 133 and the net mark-to-market
of those positions is recorded in income. Cleco Power has entered
into other positions to mitigate some of the volatility in fuel costs passed on
to customers. These positions are marked-to-market, with the
resulting gain or loss recorded on the balance sheet as a component of the
accumulated deferred fuel asset or liability. When these positions
close, actual gains or losses will be included in the Fuel Adjustment
Clause and reflected on
customers' bills. Cleco Energy's positions do not qualify for the
exceptions on hedge accounting under SFAS No. 133 and are therefore
marked-to-market.
Cleco also is subject to market risk
associated with its tolling agreement counterparties. For additional
information concerning Cleco's market risk associated with its counterparties,
see "Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Liquidity and Capital Resources"
and Note 15 - "Perryville" in the Notes to the Unaudited Financial Statements
in this Report.
Cleco's exposure to
market risk, as discussed below, represents an estimate of possible changes in
the fair value or future earnings that would occur, assuming possible future
movements in the interest rates and commodity prices of power and natural
gas. Management's views on market risk are not necessarily
indicative of actual results, nor do they represent the maximum possible gains
or losses. The views do represent, within the parameters disclosed,
what management estimates may happen.
Interest Rate Risks
Cleco has entered
into various fixed- and variable-rate debt obligations. The
calculations of the changes in fair market value and interest expense of the
debt securities are made over a one-year period.
Sensitivity to
changes in interest rates for fixed-rate obligations is computed by calculating
the current fair market value using a net present value model based upon a 1%
change in the average interest rate applicable to such
debt. Sensitivity to changes in interest rates for variable-rate
obligations is computed by assuming a 1% change in the current interest rate
applicable to such debt.
As of September 30, 2003, the
carrying value of Cleco's short-term, variable-rate debt was approximately $207.1
million, which approximates the fair market value. Each 1.0% change
in the average interest rates applicable to such debt would result in a change
of approximately $2.1 million in Cleco's pretax earnings.
At September 30, 2003, Cleco Power
had no short-term, variable-rate debt.
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 by, for example,
refinancing balances outstanding under its variable-rate credit facility with
fixed-rate debt.
61
Commodity Price Risks
During the fourth
quarter of 2002, Marketing & Trading and Cleco Power discontinued
speculative trading activities. As of September 30, 2003, all of Marketing
& Trading's remaining trades were closed; therefore no mark-to-market
amount was recorded on the balance sheet. The change in the
mark-to-market amount between December 31,
2002, and September 30, 2003, was a
gain of $0.4 million and was recorded in the income statement. Due
to the change in trading strategy, commodity price risks have been
substantially mitigated when compared to previous periods.
Management believes
Cleco has controls in place to minimize the remaining risks involved in
trading. Controls over trading consist of a back office (accounting)
and middle office (risk management) independent of the trading operations,
oversight by a risk management committee comprised of officers, and a daily
risk report which shows VAR and current market conditions. Cleco's
Board of Directors appoints the members of the Risk Management
Committee. VAR limits are set and monitored by the Risk Management
Committee.
Cleco Power's
financial positions that are not used to meet the power demands of customers
are marked-to-market as required by SFAS No. 133. Based on market
prices at September 30, 2003, the net mark-to-market amount for those positions also was
zero and was not recorded on the balance sheet. The change in the
mark-to-market amount between December 31,
2002, and September 30, 2003, was a
gain of $0.5 million and was recorded in the income statement.
Cleco Power
provides fuel for generation and purchases power to meet the power demands of
customers. Cleco Power has entered into positions to mitigate some
of the volatility in fuel costs passed on to customers, as encouraged by an
LPSC order. These positions are marked-to-market, with the resulting
gain or loss recorded on the balance sheet as a component of the accumulated
deferred fuel asset or liability and a component of the risk management asset
or liability. Based on market prices at September 30, 2003, the net
mark-to-market impact was a loss of $0.9 million.
Cleco Energy provides natural gas to wholesale customers, such as
municipalities, and enters into transactions in order to provide fixed gas
prices to some of its customers. All of Cleco Energy's trades are
marked-to-market as required by SFAS No. 133. Due to market price
volatility, mark-to-market reporting may introduce volatility to carrying
values and hence to Cleco Energy's financial statements. At September 30, 2003, the net
mark-to-market impact had an immaterial effect on the financial statements.
Marketing &
Trading, Cleco Power, and Cleco Energy utilize a VAR model to assess the market
risk of their trading portfolios, including derivative financial
instruments. VAR represents the potential loss in fair values for an
instrument from adverse changes in market factors for a specified period of
time and confidence level. The VAR is estimated using a historical
simulation calculated daily assuming a holding period of one day, with a 95%
confidence level for natural gas and power positions. Total
volatility is based on historical cash volatility, implied market volatility,
current cash volatility, and option pricing.
Based on these
assumptions, the high, low and average VAR during the three months and nine
months ended September 30, 2003, is summarized below:
|
For the three months ended September 30, 2003 |
|||||
|
High |
Low |
Average |
|||
|
(Thousands) |
|||||
Marketing & Trading |
$ |
- |
$ |
- |
$ |
- |
Cleco Power |
$ |
- |
$ |
- |
$ |
- |
Cleco Energy |
$ |
301.6 |
$ |
195.3 |
$ |
237.4 |
Consolidated |
$ |
301.6 |
$ |
195.3 |
$ |
237.4 |
|
|
|||||
|
High |
Low |
Average |
|||
|
(Thousands) |
|||||
Marketing & Trading |
$ |
14.6 |
$ |
- |
$ |
1.7 |
Cleco Power |
$ |
7.3 |
$ |
- |
$ |
0.2 |
Cleco Energy |
$ |
301.6 |
$ |
6.7 |
$ |
122.6 |
Consolidated |
$ |
323.5 |
$ |
6.7 |
$ |
124.5 |
62
The increase in VAR at September 30, 2003, compared to December 31, 2002, as shown below, was primarily due to financial positions entered into in the second and third quarter of 2003 to offset future physical gas sales. These gas sales are to customers with contract entitlement to hedge their future gas cost by locking in specific forward monthly prices based on perceived market conditions.
|
At |
At |
||
|
(Thousands) |
|||
Marketing & Trading |
$ |
- |
$ |
5.7 |
Cleco Power |
$ |
- |
$ |
- |
Cleco Energy |
$ |
299.5 |
$ |
29.3 |
Consolidated |
$ |
299.5 |
$ |
35.0 |
63
Quarterly Evaluation of Disclosure
Controls and Procedures
In accordance with
Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, the Registrants' management has evaluated, as
of the end of the period covered by this
Report, with the participation of the Registrants' chief executive officer and chief
financial officer, the effectiveness of the Registrants' disclosure controls
and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (Disclosure
Controls). Based on that evaluation, such officers concluded that
the Registrants' Disclosure Controls were effective as of the date of that evaluation.
During the
period covered by this Report, there have been no changes to the Registrants'
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect the Registrant's internal control over
financial reporting.
Disclosure
Controls are controls and procedures that are designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms. Disclosure Controls include, without limitation, controls
and procedures designed to ensure that such information is accumulated and
communicated to the Registrants' management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
The
Registrants' management, including the chief executive officer and chief
financial officer, does not expect that their Disclosure Controls will prevent
all errors and all fraud. A control system, including the Registrants'
Disclosure Controls, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Over time, some controls may become inadequate because
of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.
64
ITEM 1 LEGAL PROCEEDINGS
Cleco
For
information on legal proceedings affecting Cleco, see Note 5 - "Review of Trading Activities" and Note 11 - "Securities
Litigation and Other Commitments and Contingencies" in the Notes to the
Unaudited Financial Statements, and see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition - Regulatory Matters - Fuel Audit" and "- Review of Trading
Activities" and the
fourth paragraph under the caption "-
Environmental Matters," in this Report, which are
incorporated herein by reference.
Cleco Power
For
information on legal proceedings affecting Cleco Power, see Note 5 - "Review of Trading Activities" and to the extent that
the lawsuits and proceedings involve Cleco Power, Note 11 - "Securities
Litigation and Other Commitments and Contingencies," in the Notes to the
Unaudited Financial Statements, and see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition - Regulatory Matters - "Fuel Audit," and "- Review of
Trading Activities" and the
fourth paragraph under the caption "- Environmental Matters," in
this Report, which are incorporated herein by reference.
ITEM 3 DEFAULTS
UPON SENIOR SECURITIES
Cleco
The bankruptcy
filing by Mirant and certain of its subsidiaries on July 14, 2003, was an event of default under Perryville's Senior Loan Agreement. This event
of default gives the lenders holding in aggregate at least 66-2/3% of the
outstanding senior loan the right, but not the obligation, to declare any
outstanding principal and interest immediately due and payable, which as of September 30, 2003, was $134.4 million. For additional information regarding
the default, see Note 15 - "Perryville - Perryville's Senior Loan Agreement" in
the Notes to the Unaudited Financial Statements in this Report, which is
incorporated herein by reference.
65
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) |
Exhibits |
|
Cleco Corporation: |
||
3(a) |
Bylaws of Cleco Corporation (revised effective October 24, 2003) |
|
11 |
Computation of Net Income Per Common Share for the three months and nine months ended September 30, 2003 and 2002 |
|
12(a) |
Computation of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends for the three-, nine- and twelve-month periods ended September 30, 2003, for Cleco Corporation |
|
31(a) |
CEO Certification in accordance with section 302 of the Sarbanes-Oxley Act of 2002 |
|
CFO Certification in accordance with section 302 of the Sarbanes-Oxley Act of 2002 |
||
32(a) |
CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
|
CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
||
99(a) |
Items incorporated by reference from the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 2002: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters - Gas Put Options," "- Gas Transportation Charges." |
|
99(c) |
Items incorporated by reference from the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 2002: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Midstream." |
|
Cleco Power: |
||
3(b) |
Operating Agreement of Cleco Power LLC (revised effective October 24, 2003) |
|
12(b) |
Computation of Earnings to Fixed Charges for the three-, nine- and twelve-month periods ended September 30, 2003, for Cleco Power |
|
31(b) |
CEO Certification in accordance with section 302 of the Sarbanes-Oxley Act of 2002 |
|
CFO Certification in accordance with section 302 of the Sarbanes-Oxley Act of 2002 |
||
32(b) |
CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
|
CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
||
99(b) |
Items incorporated by reference from the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 2002: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters - Gas Put Options," "- Gas Transportation Charges." |
|
66
(b) |
Reports on Form 8-K |
Cleco Corporation: |
|
On August 11, 2003, Cleco Corporation furnished a Form 8-K dated as of August 11, 2003 (as amended by the Form 8-K/A relating thereto furnished on August 12, 2003), concerning the issuance of a press release regarding earnings for the quarter and six-month period ended June 30, 2003, and including as an exhibit such press release.
|
|
|
|
Cleco Power: |
|
None |
|
67
SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CLECO CORPORATION |
|
(Registrant) |
|
By: /s/ R. Russell Davis |
|
R. Russell Davis |
|
Vice President and Controller |
|
(Principal Accounting Officer) |
Date: November 6, 2003
68
SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CLECO POWER LLC |
|
(Registrant) |
|
By: /s/ R. Russell Davis |
|
R. Russell Davis |
|
Vice President and Controller |
|
(Principal Accounting Officer) |
Date: November 6, 2003
69
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