Variable Interest Entities

9 Months Ended

Sep. 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’ capital		199,547
Total liabilities and partners’ capital	$	210,926

(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Operating revenue		$	31,883
Operating expenses			30,566
Other income			3,671
Income before taxes		$	4,988

	FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS)		2011	*		2010
Operating revenue	$	5,227		$	46,508
Operating expenses		5,914			54,011
Gain on sale of assets		71,422			82,023
Other income		929			3,902
Income before taxes	$	71,664		$	78,422
* The 2011 income statement includes only 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 four months ended April 30, 2011, income taxes related to Cajun on APH’s financial statements were $24.0 million. For the three and nine months ended September 30, 2010, tax expenses recorded on APH’s financial statements were $1.0 million and $14.8 million, respectively.

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 September 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 SEPTEMBER 30,
(THOUSANDS)	2011			2010
Cajun	$	-		$	2,494
Subsidiaries less than 100% owned by Cleco Innovations		(1	)		-
Total equity (loss) income	$	(1	)	$	2,494

	FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS)	2011			2010
Cajun	$	62,053		$	39,211
Subsidiaries less than 100% owned by Cleco Innovations		(2	)		1
Total equity income	$	62,051		$	39,212

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 interest capitalized 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 September 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 SEPTEMBER 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 SEPTEMBER 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 SEPTEMBER 30, 2011		AT DECEMBER 31, 2010
Current assets	$	685	$	583
Property, plant and equipment, net		23,422		23,597
Other assets		2,148		2,141
Total assets	$	26,255	$	26,321
Current liabilities	$	36	$	175
Other liabilities		73		-
Partners’ capital		26,146		26,146
Total liabilities and partners’ capital	$	26,255	$	26,321

	FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS)	2011		2010
Operating revenue	$	382	$	245
Operating expenses		382		245
Income before taxes	$	-	$	-

	FOR THE NINE MONTHS ENDED SEPTEMBBER 30,
(THOUSANDS)	2011		2010
Operating revenue	$	880	$	564
Operating expenses		880		564
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.