Note 3 — Regulatory Assets and Liabilities

Cleco Power follows the authoritative guidance on regulated operations, which allows utilities to capitalize or defer certain costs based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered through the ratemaking process. The following table summarizes Cleco Power’s regulatory assets and liabilities at March 31, 2012, and December 31, 2011:



	AT MARCH 31,			AT DECEMBER 31,
(THOUSANDS)	2012			2011
Regulatory assets – deferred taxes, net	$	215,793		$	214,421
Mining costs	$	18,480		$	19,117
Interest costs	6,575			6,667
Asset removal costs	818			829
Postretirement plan costs	130,790			132,556
Tree trimming costs	7,693			8,371
Training costs	7,447			7,486
Storm surcredits, net	6,481			9,254
Construction carrying costs	9,395			10,883
Lignite mining agreement contingency	3,781			3,781
AFUDC equity gross-up	74,125			74,346
Rate case costs	983			1,117
Acadia Unit 1 acquisition costs	2,945			2,971
IRP/RFP costs	391			508
AMI pilot costs	120			153
Financing costs	6,944			4,433
Biomass costs	151			—
Total regulatory assets – other	$	277,119		$	282,472
Construction carrying costs	(31,552		)	(40,322		)
Fuel and purchased power	(6,198		)	2,136
Total regulatory assets, net	$	455,162		$	458,707

Construction Carrying Costs

In February 2006, the LPSC approved Cleco Power’s plans to build Madison Unit 3. Terms of the approval included authorization for Cleco Power to collect from customers an amount equal to 75% of the LPSC-jurisdictional portion of the carrying costs of capital during the construction phase of the unit. Cleco Power’s retail rate plan, which was approved in October 2009, established that Cleco Power return carrying costs to customers and record a regulatory asset for all carrying costs incurred by Cleco Power above the actual amount collected from customers. On February 12, 2010, Madison Unit 3 commenced commercial operations and Cleco Power began returning the construction carrying costs to customers. These costs are being amortized over a four-year period. As of March 31, 2012, Cleco Power had returned $134.9 million to customers. At March 31, 2012, $28.5 million was due to be returned to customers within one year.

Fuel and Purchased Power Costs

The cost of fuel used for electric generation and the cost of power purchased for utility customers are recovered through the LPSC-established fuel adjustment clause, which enables Cleco Power to pass on to its customers substantially all such charges. For the three months ended March 31, 2012, approximately 90% of Cleco Power’s total fuel cost was regulated by the LPSC, while the remainder was regulated by FERC.

The $8.3 million decrease was primarily due to $6.8 million of lower per unit costs of fuel and purchased power and a $2.0 million decrease in mark-to-market losses on natural gas positions, which was primarily due to the contractual expiration of certain positions.

Financing Costs

In 2011, Cleco Power entered into and settled two treasury rate locks. Of the $26.8 million in settlements, $7.0 million was recorded as a regulatory asset relating to ineffectiveness of the hedge relationship. As a result of management’s assessment that it is probable that the ineffectiveness will be recovered through the rate-making process, Cleco Power will amortize the regulatory asset over the 30-year term of the related debt issuance.

Biomass Test Burn Costs

In November 2011, the LPSC approved Cleco Power’s request to establish a regulatory asset for the non-fuel, non-capital portion of costs incurred to conduct a test burn of biomass fuel at Madison Unit 3. These costs will be amortized over a five-year period.