Variable Interest Entities

6 Months Ended

Jun. 30, 2011

Variable Interest Entities [Abstract]

Note 10 — Variable Interest Entities

Cleco reports its investments in VIEs in accordance with the authoritative guidance. Cleco and Cleco Power report the investment in Oxbow on the equity method of accounting. Under the equity method, the assets and liabilities of this entity are reported as equity investment in investees on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets. The revenue and expenses of this entity are netted and reported as equity income or loss from investees on Cleco and Cleco Power’s Condensed Consolidated Statements of Income.

Prior to April 30, 2011, Cleco Corporation also reported its investment in Cajun on the equity method of accounting. In conjunction with the disposition of Acadia Unit 2, APH received 100% ownership in Acadia in exchange for its 50% interest in Cajun, and Acadia became a consolidated subsidiary of APH.

Consolidated VIEs

Acadia

In February 2009, Cleco Power announced that it had chosen the acquisition of Acadia Unit 1 as the lowest bid in its 2007 long-term RFP for capacity beginning in 2010. Beginning in January 2010, Acadia operated the plant and served Cleco Power under a short-term tolling agreement covering Acadia Unit 1. In February 2010, Cleco Power acquired Acadia Unit 1 and half of Acadia Power Station’s related common facilities and the tolling agreement was terminated. In conjunction with this transaction, Acadia became 100% owned by Cajun, which prior to April 29, 2011, was 50% owned by APH and 50% owned by third parties. For additional information regarding the Acadia Unit 1 transaction, see Note 15 — “Acadia Transactions — Acadia Unit 1.”

In October 2009, Acadia and Entergy Louisiana announced that definitive agreements had been executed whereby Entergy Louisiana would acquire Acadia Unit 2. On April 29, 2011, Acadia completed its disposition of Acadia Unit 2 to Entergy Louisiana for $298.8 million. Following the disposition, Acadia no longer owns any materials and supply inventory, property, plant and equipment, or land. Acadia has minimal ongoing operations relating only to settling accounts receivable and accounts payable resulting from operations prior to the closing of the transaction and servicing indemnifications which Cleco assumed in the transaction. In conjunction with the transaction, APH received 100% ownership in Acadia in exchange for its 50% interest in Cajun, and Acadia became a consolidated subsidiary of APH. Cleco Power continues to operate both units at the Acadia Power Station. For additional information on the Acadia Unit 2 transaction, see Note 15 — “Acadia Transactions — Acadia Unit 2.”

The following tables contain summarized financial information for Cajun prior to the disposition of Acadia Unit 2.

(THOUSANDS)	AT DECEMBER 31, 2010
Current assets	$	7,133
Property, plant and equipment, net		203,793
Total assets	$	210,926
Current liabilities	$	1,950
Other liabilities		9,429
Partners’ (deficit) capital		199,547
Total liabilities and partners’ capital	$	210,926

	FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)		2011	*		2010
Operating revenue	$	50		$	10,861
Operating expenses		1,133			13,291
Gain on sale of assets		71,465			-
Other income		57			172
Income (loss) before taxes	$	70,439		$	(2,258	)
* The 2011 income statement includes activity prior to the April 29, 2011, reconsolidation.

	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)		2011	*		2010
Operating revenue	$	5,227		$	14,625
Operating expenses		5,914			23,454
Gain on sale of assets		71,422			82,033
Other income		929			229
Income (loss) before taxes	$	71,664		$	73,433
* The 2011 income statement includes activity prior to the April 29, 2011, reconsolidation.

Other liabilities at December 31, 2010, represented an indemnification liability related to the Cleco Power transaction. For additional information on Acadia’s indemnification liability, see Note 11 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Disclosures about Guarantees.”

Prior to the reconsolidation, income tax expenses related to Cajun were recorded on APH’s financial statements. For the month of April 2011, income taxes related to Cajun on APH’s financial statements were $23.7 million, compared to a tax benefit of $0.5 million for the three months ended June 30, 2010. For the four months ended April 30, 2011, income taxes related to Cajun on APH’s financial statements were $24.0 million, compared to $13.8 million for the six months ended June 30, 2010.

In connection with the Entergy Louisiana transaction, APH has agreed to indemnify the third party owners of Cajun and their affiliates against their share of Acadia’s contingent obligations related to the transaction. For additional information on the Entergy Louisiana indemnification, see Note 11 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Disclosures about Guarantees.”

Equity Method VIEs

Equity investment in investees at June 30, 2011, primarily represented Cleco Power’s $13.1 million investment in Oxbow. Equity investments which are less than 100% owned by Cleco Innovations LLC represented less than $0.1 million of the total balance.

The following table presents the equity income (loss) from each investment accounted for using the equity method.

	FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)	2011		2010
Cajun	$	61,440	$	(1,129	)
Subsidiaries less than 100% owned by Cleco Innovations		-		-
Total equity income	$	61,440	$	(1,129	)

	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2011			2010
Cajun	$	62,053		$	36,717
Subsidiaries less than 100% owned by Cleco Innovations		(1	)		1
Total equity income	$	62,052		$	36,718

As a result of the disposition of Acadia Unit 2, Cleco’s 50% share of income from Cajun included $26.2 million of equity income that represents the 2007 investment impairment charge of $45.9 million, partially offset by $19.7 million of capitalized interest during the construction of Acadia. For additional information on the Acadia Unit 2 transaction, see Note 15 — “Acadia Transactions — Acadia Unit 2.”

Oxbow

Oxbow is owned 50% by Cleco Power and 50% by SWEPCO and is accounted for as an equity method investment. Cleco Power is not the primary beneficiary because it shares the power to control Oxbow’s significant activities with SWEPCO. Cleco’s current assessment of its maximum exposure to loss related to Oxbow at June 30, 2011, consisted of its equity investment of $13.1 million. The table below presents the components of Cleco Power’s equity investment in Oxbow.

INCEPTION TO DATE (THOUSANDS)	AT JUNE 30, 2011		AT DECEMBER 31, 2010
Purchase price	$	12,873	$	12,873
Cash contributions		200		200
Total equity investment in investee	$	13,073	$	13,073

The following table compares the carrying amount of Oxbow’s assets and liabilities with Cleco’s maximum exposure to loss related to its investment in Oxbow.

(THOUSANDS)	AT JUNE 30, 2011		AT DECEMBER 31, 2010
Oxbow’s net assets/liabilities	$	26,146	$	26,146
Cleco Power’s 50% equity	$	13,073	$	13,073
Cleco’s maximum exposure to loss	$	13,073	$	13,073

The following tables contain summarized financial information for Oxbow.

(THOUSANDS)	AT JUNE 30, 2011		AT DECEMBER 31, 2010
Current assets	$	521	$	583
Property, plant and equipment, net		23,498		23,597
Other assets		2,152		2,141
Total assets	$	26,171	$	26,321
Current liabilities	$	25	$	175
Partners’ capital		26,146		26,146
Total liabilities and partners’ capital	$	26,171	$	26,321

	FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)	2011		2010
Operating revenue	$	293	$	225
Operating expenses		293		225
Income before taxes	$	-	$	-

	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2011		2010
Operating revenue	$	498	$	319
Operating expenses		498		319
Income before taxes	$	-	$	-

Oxbow’s property, plant and equipment, net consists of land and lignite reserves. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station. DHLC mines the lignite reserves at Oxbow through the Amended Lignite Mining Agreement.

Oxbow has no third-party agreements, guarantees, or other third-party commitments that contain obligations affecting Cleco Power’s investment in Oxbow.