Prior to April 30, 2011, Cleco reported its investment in Cajun on the equity method of accounting. In conjunction with the disposition of Acadia Unit 2 to Entergy Louisiana, APH received 100% ownership in Acadia in exchange for its 50% ownership interest in Cajun, and Acadia became a consolidated subsidiary of APH. Following the disposition, Acadia’s assets, liabilities, revenues, expenses, and cash flows are presented on the corresponding line items of Cleco’s Condensed Consolidated Financial Statements, prospectively. For additional information on the Acadia Unit 2 transaction, see Note 15 — “Acadia Transactions — Acadia Unit 2.”

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. For additional information on the operations of these entities, see Note 10 — “Variable Interest Entities.”

The condensed consolidated financial statements of Cleco Corporation and Cleco Power have been prepared pursuant to the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, Cleco believes that the disclosures are adequate to make the information presented not misleading.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The unaudited financial information included in the condensed consolidated financial statements of Cleco Corporation and Cleco Power reflects all adjustments of a normal recurring nature which are, in the opinion of the management of Cleco Corporation and Cleco Power, necessary for a fair statement of the financial position and the results of operations for the interim periods. Information for interim periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery, and other factors, and is not indicative necessarily of the results that may be expected for the full fiscal year. For additional information on recent authoritative guidance and its effect on financial results, see Note 2 — “Recent Authoritative Guidance.”

Property, plant and equipment consist primarily of regulated utility generation and energy transmission assets. Regulated assets, utilized primarily for retail operations and electric transmission and distribution, are stated at the cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. Jointly owned assets are reflected in property, plant and equipment at Cleco Power’s share of the cost to construct or purchase the assets.

Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes. Cleco’s restricted cash consisted of:

(THOUSANDS)	AT SEPTEMBER 30, 2011		AT DECEMBER 31, 2010
Diversified Lands’ mitigation escrow	$	97	$	97
Cleco Power’s future storm restoration costs		24,652		25,992
Cleco Power’s renewable energy grant		600		-
Cleco Katrina/Rita’s storm recovery bonds		3,554		8,822
Cleco Power’s GO Zone bonds		-		6,137
Total restricted cash	$	28,903	$	41,048

Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of operating expenses, interest, and principal on storm recovery bonds. During 2011, Cleco Katrina/Rita has collected $14.5 million net of operating expenses. In March and September 2011, Cleco Katrina/Rita used $6.3 million and $6.0 million, respectively for scheduled storm recovery bond principal payments and $3.8 million and $3.7 million, respectively for related interest. In 2011, Cleco Power received a renewable energy grant from the Louisiana Department of Natural Resources.

Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power are required to disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes under GAAP. Other financial assets and liabilities, such as long-term debt, are reported at their carrying values at their date of issuance on the condensed consolidated balance sheets with their fair values disclosed without regard to the three levels. For additional information about fair value levels, see Note 4 — “Fair Value Accounting.”

Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power and natural gas. Cleco applies the authoritative guidance as it relates to derivatives and hedging 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 because Cleco Power takes physical delivery and the instruments and positions are used to satisfy customer requirements. Cleco Power entered into certain financial transactions it considered economic hedges to mitigate the risk associated with a contract for fixed-price power provided to a wholesale customer through December 2010. These transactions were marked-to-market with the resulting gain or loss recorded on the income statement as a component of operating revenue. The contract expired on December 31, 2010 along with the economic hedges; therefore, no gain or loss related to the economic hedges was recorded during the three and nine months ended September 30, 2011. For the three and nine months ended September 30, 2010, Cleco Power had realized losses of $0.3 million and $0.8 million and mark-to-market gains of $0.2 million for both periods recorded in other operations revenue.

Cleco Power has entered into other positions to mitigate the volatility in customer fuel costs. These positions are marked-to-market with the resulting gain or loss recorded on the balance sheet as a component of energy risk management assets or liabilities. Such gain or loss is deferred as a component of deferred fuel assets or liabilities. When these positions close, actual gains or losses will be included in the fuel adjustment clause and reflected on customers’ bills as a component of the fuel cost adjustment. Based on market prices at September 30, 2011, and December 31, 2010, the net mark-to-market impact relating to these positions were losses of $5.7 million and $15.1 million, respectively. Deferred losses relating to closed natural gas positions totaled $1.3 million and $1.6 million at September 30, 2011, and December 31, 2010, respectively.

Cleco Power maintains margin accounts with commodity brokers used to partially fund the acquisition of natural gas futures, options, and swap contracts. These contracts/positions are used to mitigate the risks associated with the volatility in customer fuel costs noted above. At September 30, 2011, and December 31, 2010, Cleco Power had deposited net collateral of $0.5 million and $4.3 million, respectively, to cover requirements relating to open natural gas futures, options, and swap positions. The current and long-term portions of collateral are reported as a component of energy risk management assets or liabilities and other deferred credits, respectively.

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

In August 2011, Cleco Power entered into a treasury rate lock contract in order to mitigate the interest rate exposure on coupon payments related to a forecasted debt issuance. The notional amount of the treasury rate lock is $150.0 million, with a pricing date of November 14, 2011 or the date of issuance of the debt, whichever is earlier. The treasury rate lock meets the criteria of a cash flow hedge under the authoritative guidance as it relates to derivatives and hedging. The 3.77% rate lock was based on the 30-year treasury note yield as of August 12, 2011. At September 30, 2011, the 30-year treasury note yield was 2.89%, which resulted in Cleco Power recognizing a $30.0 million unrealized mark-to-market loss in other comprehensive income for the three and nine months ended September 30, 2011. The offsetting liability was recorded on Cleco Corporation and Cleco Power’s Condensed Consolidated Balance Sheets as an interest rate risk management liability. There was no impact to earnings due to ineffectiveness for the three and nine months ended September 30, 2011. Management determined that the forecasted debt issuance is probable of occurring before or on November 14, 2011, and in an amount at least equal to the treasury rate lock contract’s notional amount. When the forecasted debt issuance occurs and the treasury rate lock contract is settled, the effective portion of the settlement will be recognized in accumulated other comprehensive income and any ineffective portion will be reclassified into the income statement.

Certain reclassifications have been made to the 2010 financial statements to conform them to the presentation used in the 2011 financial statements. These reclassifications had no effect on Cleco Corporation’s net income applicable to common stock or total common shareholder’s equity or Cleco Power’s net income or total member’s equity.

The Registrants determined that an error existed in the statement of cash flow methodology for determining non-cash transactions related to property, plant and equipment, specifically the dollar amount of property, plant and equipment acquisitions included in accounts payable. This caused errors between the operating activities section and investing activities section for prior periods, including 2008, 2009, and 2010.

Cleco and Cleco Power’s Condensed Consolidated Statements of Cash Flows for the period ended September 30, 2010, have been adjusted to correct the presentation of cash flows related to accruals for property, plant and equipment. These corrections had no impact on the Registrants’ financial condition or results of operations. Management believes that these corrections did not have a material effect on the Registrants’ Condensed Consolidated Statements of Cash Flows. The corrections to the September 30, 2010 Condensed Consolidated Statements of Cash Flows are presented in the following table.

	CLECO						CLECO POWER
	FOR THE NINE MONTHS ENDED						FOR THE NINE MONTHS ENDED
	SEPTEMBER 30, 2010						SEPTEMBER 30, 2010
(THOUSANDS)	AS REPORTED			AS ADJUSTED			AS REPORTED			AS ADJUSTED
Accounts receivable	$	(49,329	)	$	(30,329	)	$	(50,579	)	$	(31,579	)
Accounts payable	$	(17,248	)	$	(13,277	)	$	(16,621	)	$	(12,137	)
Retainage payable	$	745		$	-		$	745		$	-
Net cash provided by operating activities	$	170,141		$	192,368		$	76,949		$	99,688
Additions to property, plant and equipment	$	(230,485	)	$	(252,711	)	$	(75,660	)	$	(98,399	)
Net cash used in investing activities	$	(212,592	)	$	(234,819	)	$	(49,780	)	$	(72,519	)
Net decrease in cash and cash equivalents	$	(77,357	)	$	(77,357	)	$	(110,729	)	$	(110,729	)
Cash and cash equivalents at the beginning of the period	$	145,193		$	145,193		$	138,113		$	138,113
Cash and cash equivalents at the end of the period	$	67,836		$	67,836		$	27,384		$	27,384
Accrued additions to property, plant and equipment	$	17,506		$	5,314		$	17,506		$	4,757

							FOR THE THREE MONTHS ENDED SEPTEMBER 30,
					2011						2010
(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)	INCOME		SHARES		PER SHARE AMOUNT		INCOME		SHARES		PER SHARE AMOUNT
Income from continuing operations	$	65,842					$	49,612
Deduct: non-participating stock dividends (4.5% preferred stock)		-						12
Basic net income applicable to common stock	$	65,842		60,467,595	$	1.09	$	49,600		60,471,183	$	0.82
Effect of dilutive securities
Add: stock option grants				20,441						26,680
Add: restricted stock (LTICP)				385,275						327,435
Diluted net income applicable to common stock	$	65,842		60,873,311	$	1.08	$	49,600		60,825,298	$	0.82

							FOR THE NINE MONTHS ENDED SEPTEMBER 30,
					2011						2010
(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)	INCOME		SHARES		PER SHARE AMOUNT		INCOME		SHARES		PER SHARE AMOUNT
Income from continuing operations	$	165,205					$	234,768
Deduct: non-participating stock dividends (4.5% preferred stock)		26						35
Deduct: non-participating stock redemption costs (4.5% preferred stock)		112						-
Basic net income applicable to common stock	$	165,067		60,549,860	$	2.73	$	234,733		60,405,388	$	3.89
Effect of dilutive securities
Add: stock option grants				20,965						29,771
Add: restricted stock (LTICP)				259,426						196,979
Diluted net income applicable to common stock	$	165,067		60,830,251	$	2.71	$	234,733		60,632,138	$	3.87

Stock option grants are excluded from the computation of diluted earnings per share if the exercise price is higher than the average market price. There were no stock option grants excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2011 and 2010, due to the average market price being higher than the exercise prices of the stock options.

On June 24, 2011, Cleco Corporation redeemed all 10,288 outstanding shares of its 4.5% preferred stock. The redemption price was $101 per share plus accrued and unpaid dividends to the redemption date, or $101.296 per share. As of the redemption date, no shares of 4.5% preferred stock were outstanding. Holders are no longer entitled to dividends and all rights of such holders as shareholders of Cleco Corporation by reason of their ownership of such 4.5% preferred stock have ceased.

At September 30, 2011, Cleco had two stock-based compensation plans: the ESPP and the LTICP. Substantially all employees, excluding officers and general managers, may choose to participate in the ESPP and purchase a limited amount of common stock at a discount through a stock option agreement. Options or restricted shares of stock, known as non-vested stock as defined by the authoritative guidance on stock-based compensation, common stock equivalents, and stock appreciation rights may be granted to certain officers, key employees, or directors of Cleco Corporation and its subsidiaries pursuant to the LTICP.

On January 28, 2011, Cleco granted 145,002 shares of non-vested stock to certain officers, key employees, and directors of Cleco Corporation and its subsidiaries pursuant to the LTICP. On July 5, 2011, Cleco granted an additional 40,000 shares of non-vested stock to certain officers of Cleco Corporation and its subsidiaries pursuant to the LTICP.

	CLECO CORPORATION				CLECO POWER				CLECO CORPORATION				CLECO POWER
			FOR THE THREE MONTHS ENDED SEPTEMBER 30,								FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS)	2011		2010		2011		2010		2011		2010		2011		2010
Equity classification
Non-vested stock	$	1,095	$	573	$	225	$	150	$	3,042	$	1,703	$	748	$	418
Stock options		69		13		-		-		105		38		-		-
Total equity classification	$	1,164	$	586	$	225	$	150	$	3,147	$	1,741	$	748	$	418
Liability classification
Common stock equivalent units	$	1,024	$	1,237	$	435	$	537	$	2,583	$	1,867	$	1,020	$	885
Total pre-tax compensation expense	$	2,188	$	1,823	$	660	$	687	$	5,730	$	3,608	$	1,768	$	1,303
Tax benefit (excluding income tax gross-up)	$	842	$	702	$	254	$	264	$	2,205	$	1,388	$	680	$	501