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Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2012
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Note 1 — Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements of Cleco include the accounts of Cleco and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.
Basis of Presentation
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 more information on recent authoritative guidance and its effect on financial results, see Note 2 — “Recent Authoritative Guidance.”
Property, Plant, and Equipment
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. Property, plant, and equipment consisted of:
(THOUSANDS)
AT JUNE 30, 2012

 
AT DECEMBER 31, 2011

Regulated utility plants
$
3,792,113

 
$
3,759,541

Other
267,342

 
264,114

Total property, plant, and equipment
4,059,455

 
4,023,655

Accumulated depreciation
(1,273,802
)
 
(1,230,783
)
Net property, plant, and equipment
$
2,785,653

 
$
2,792,872

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 its intended purposes and/or general corporate purposes. Cleco’s restricted cash consisted of:  
(THOUSANDS)
AT JUNE 30, 2012

 
AT DECEMBER 31, 2011

Diversified Lands’ mitigation escrow
$
97

 
$
97

Cleco Katrina/Rita’s storm recovery bonds
8,091

 
8,761

Cleco Power’s future storm restoration costs
25,734

 
24,876

Cleco Power’s renewable energy grant
—

 
381

Cleco Power’s NOx allowance escrow
1,713

 
1,713

Total restricted cash
$
35,635

 
$
35,828


 
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 the six months ended June 30, 2012, Cleco Katrina/Rita had collected $9.6 million net of operating expenses. In March 2012, Cleco Katrina/Rita used $6.7 million for scheduled storm recovery bond principal payments and $3.6 million for related interest.
Fair Value Measurements and Disclosures
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 as of the balance sheet date disclosed within the three levels. For more information about fair value levels, see Note 4 — “Fair Value Accounting.”
Risk Management
Market risk inherent in Cleco Power’s market risk-sensitive instruments and positions includes potential changes arising from changes in interest rates and the commodity market prices of power and natural gas on different energy exchanges. 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 may enter into 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.
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. 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.
Cleco has entered into various contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks. For these contracts in which Cleco is hedging the variability of cash flows related to forecasted transactions that qualify as cash flow hedges, the changes in the fair value of such derivative instruments are reported in other comprehensive income. To qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy, and, at inception and on an ongoing basis, the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other comprehensive income are reclassified as earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The ineffective portions of hedges will be recognized in current-period earnings unless management determines that it is probable that the costs will be recovered through the rate-making process. If management determines that it is probable that the costs will be recovered, then they will be recognized as a regulatory asset or liability and amortized to earnings over the life of the related debt. For those contracts in which Cleco is hedging the variability of cash flows related to forecasted transactions that do not qualify as cash flow hedges, the changes in the fair value of such derivative instruments will be recognized in current period earnings unless management determines that it is probable that the costs will be recovered through the rate-making process. If management determines that it is probable that the costs will be recovered, then they will be recognized as a regulatory asset or liability and amortized to earnings over the life of the related debt. For more information on the interest rate risk contracts, see Note 4 — “Fair Value Accounting — Interest Rate Derivatives.”
Reclassifications
Certain reclassifications have been made to the 2011 financial statements to conform them to the presentation used in the 2012 financial statements. These reclassifications had no effect on Cleco Corporation’s net income applicable to common stock or total common shareholders’ equity or Cleco Power’s net income or total member’s equity.
During the second quarter of 2012, the Registrants began recording the LPSC allowable portion of the amortization of the plant acquisition adjustment related to Acadia Unit 1 as depreciation expense on the Registrants’ Condensed Consolidated Statements of Income. Previously, this amortization was recorded as other expense. The Registrants have reclassified prior year amounts to conform to this presentation. This change increased depreciation and decreased other expenses by $0.7 million and $1.4 million for the three and six months ended June 30, 2012, respectively. The change for the same periods in 2011 was also $0.7 million and $1.4 million, respectively.
The Registrants determined that an error existed in the statement of cash flow presentation of contributions received in aid of construction, specifically the impact that the accounting for these contributions had on the presentation of cash flows related to the additions of property, plant, and equipment. This caused errors between the operating activities section and investing activities section for prior periods, including 2010, 2011, and the first quarter of 2012.
Cleco and Cleco Power’s Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Cash Flows have been adjusted for each of the reporting periods shown below to correct the presentation of cash flows related to additions to property, plant and equipment. These corrections had no impact on the Registrants’ cash and cash equivalents, financial condition, or results of operations. Management believes that these corrections did not have a material effect on the Registrants’ Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Cash flows for each of the reporting periods. The correction to the Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Cash Flows for each of the reporting periods is presented in the following tables.
Cleco
 
 
 
 
 
 
 
 
 
 
 
 
FOR THE YEAR ENDED
 
 
 
 
2010

 
 
 
2011

(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

Accounts receivable
$
(16,156
)
 
$
(12,503
)
 
$
(15,798
)
 
$
(19,146
)
Other deferred accounts
$
1,813

 
$
(114
)
 
$
(1,084
)
 
$
4,305

Net cash provided by operating activities
$
215,173
*
 
$
216,899

 
$
308,020

 
$
310,061

Additions to property, plant, and equipment
$
(305,157
)*
 
$
(306,883
)
 
$
(195,882
)
 
$
(197,923
)
Net cash used in investing activities
$
(306,905
)*
 
$
(308,631
)
 
$
(101,675
)
 
$
(103,716
)
Net increase (decrease) in cash and cash equivalents
$
45,935

 
$
45,935

 
$
(97,552
)
 
$
(97,552
)
Cash and cash equivalents at the beginning of the period
$
145,193

 
$
145,193

 
$
191,128

 
$
191,128

Cash and cash equivalents at the end of the period
$
191,128

 
$
191,128

 
$
93,576

 
$
93,576


 
FOR THE THREE MONTHS ENDED
 
 
FOR THE SIX MONTHS ENDED
 
 
FOR THE NINE MONTHS ENDED
 
 
FOR THE THREE MONTHS ENDED
 
 
 
MARCH 31, 2011
 
 
 
 
JUNE 30, 2011

 
SEPTEMBER 30, 2011
 
 
 
MARCH 31, 2012
 
(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

Accounts receivable
$
(13,958
)
 
$
(17,458
)
 
$
(19,923
)
 
$
(19,685
)
 
$
(18,274
)
 
$
(21,691
)
 
$
6,253

 
$
6,408

Other deferred accounts
$
2,313

 
$
2,999

 
$
(729
)
 
$
2

 
$
(2,184
)
 
$
2,181

 
$
(5,835
)
 
$
(2,263
)
Net cash provided by (used in) operating activities
$
2,302
*
 
$
(512
)
 
$
147,830

 
$
148,799

 
$
262,642

 
$
263,590

 
$
41,373

 
$
45,100

Additions to property, plant, and equipment
$
(21,883
)*
 
$
(19,069
)
 
$
(66,081
)
 
$
(67,050
)
 
$
(145,669
)
 
$
(146,617
)
 
$
(39,380
)
 
$
(43,107
)
Net cash (used in) provided by investing activities
$
(19,537
)*
 
$
(16,723
)
 
$
18,249

 
$
17,280

 
$
(54,097
)
 
$
(55,045
)
 
$
(40,825
)
 
$
(44,552
)
Net decrease in cash and cash equivalents
$
(53,937
)
 
$
(53,937
)
 
$
(29,002
)
 
$
(29,002
)
 
$
(32,896
)
 
$
(32,896
)
 
$
(46,327
)
 
$
(46,327
)
Cash and cash equivalents at the beginning of the period
$
191,128

 
$
191,128

 
$
191,128

 
$
191,128

 
$
191,128

 
$
191,128

 
$
93,576

 
$
93,576

Cash and cash equivalents at the end of the period
$
137,191

 
$
137,191

 
$
162,126

 
$
162,126

 
$
158,232

 
$
158,232

 
$
47,249

 
$
47,249

*These amounts were previously revised in the Registrants’ Combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011.
 
 

Cleco Power
 
 
 
 
 
 
 
 
 
 
 
 
FOR THE YEAR ENDED
 
 
 
 
2010

 
 
 
2011

(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

Accounts receivable
$
(16,261
)
 
$
(12,608
)
 
$
(14,858
)
 
$
(18,206
)
Other deferred accounts
$
(8,082
)
 
$
(10,009
)
 
$
(7,788
)
 
$
(2,399
)
Net cash provided by operating activities
$
170,759
*
 
$
172,485

 
$
249,717

 
$
251,758

Additions to property, plant, and equipment
$
(149,211
)*
 
$
(150,937
)
 
$
(182,574
)
 
$
(184,615
)
Net cash used in investing activities
$
(134,672
)*
 
$
(136,398
)
 
$
(170,193
)
 
$
(172,234
)
Net increase (decrease) in cash and cash equivalents
$
46,799

 
$
46,799

 
$
(117,454
)
 
$
(117,454
)
Cash and cash equivalents at the beginning of the period
$
138,113

 
$
138,113

 
$
184,912

 
$
184,912

Cash and cash equivalents at the end of the period
$
184,912

 
$
184,912

 
$
67,458

 
$
67,458


 
FOR THE THREE MONTHS ENDED
 
 
FOR THE SIX MONTHS ENDED
 
 
FOR THE NINE MONTHS ENDED
 
 
FOR THE THREE MONTHS ENDED
 
 
 
MARCH 31, 2011
 
 
 
JUNE 30, 2011
 
 
SEPTEMBER 30, 2011
 
 
 
MARCH 31, 2012
 
(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

 
AS REPORTED

 
AS ADJUSTED

Accounts receivable
$
(10,720
)
 
$
(14,220
)
 
$
(20,779
)
 
$
(20,541
)
 
$
(20,442
)
 
$
(23,859
)
 
$
5,767

 
$
5,922

Other deferred accounts
$
1,379

 
$
(2,065
)
 
$
(2,230
)
 
$
(1,499
)
 
$
(6,361
)
 
$
(1,996
)
 
$
(8,747
)
 
$
(5,175
)
Net cash provided by operating activities
$
5,299
*
 
$
2,485

 
$
70,788

 
$
71,757

 
$
184,688

 
$
185,636

 
$
47,513

 
$
51,240

Additions to property, plant, and equipment
$
(20,720
)*
 
$
(17,906
)
 
$
(58,453
)
 
$
(59,422
)
 
$
(131,014
)
 
$
(131,962
)
 
$
(38,507
)
 
$
(42,234
)
Net cash used in investing activities
$
(8,955
)*
 
$
(6,141
)
 
$
(48,590
)
 
$
(49,559
)
 
$
(112,856
)
 
$
(113,804
)
 
$
(30,759
)
 
$
(34,486
)
Net decrease in cash and cash equivalents
$
(60,472
)
 
$
(60,472
)
 
$
(35,071
)
 
$
(35,071
)
 
$
(41,897
)
 
$
(41,897
)
 
$
(31,573
)
 
$
(31,573
)
Cash and cash equivalents at the beginning of the period
$
184,912

 
$
184,912

 
$
184,912

 
$
184,912

 
$
184,912

 
$
184,912

 
$
67,458

 
$
67,458

Cash and cash equivalents at the end of the period
$
124,440

 
$
124,440

 
$
149,841

 
$
149,841

 
$
143,015

 
$
143,015

 
$
35,885

 
$
35,885

*These amounts were previously revised in the Registrants’ Combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011.
 
 
Earnings per Average Common Share
The following tables show the calculation of basic and diluted earnings per share:


 
 
 
 
 
 

 
FOR THE THREE MONTHS ENDED JUNE 30,
 
 
 

 
 

 
2012

 
 

 
 

 
2011

(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
INCOME

 
SHARES

 
PER SHARE
AMOUNT

 
INCOME

 
SHARES

 
PER SHARE
AMOUNT

Income from continuing operations
$
46,686

 
 
 
 
 
$
70,348

 
 
 
 
Deduct:  non-participating stock dividends (4.5% preferred stock)
—

 
 
 
 
 
15

 
 
 
 
Deduct:  non-participating stock redemption costs (4.5% preferred stock)
—

 
 
 
 
 
112

 
 
 
 
Basic net income applicable to common stock
$
46,686

 
60,421,028

 
$
0.77

 
$
70,221

 
60,655,538

 
$
1.16

Effect of dilutive securities
 

 
 

 
 

 
 

 
 

 
 

Add:  stock option grants
 

 
1,504

 
 

 
 

 
21,634

 
 

Add:  restricted stock (LTICP)
 

 
238,170

 
 

 
 

 
346,267

 
 

Diluted net income applicable to common stock
$
46,686

 
60,660,702

 
$
0.77

 
$
70,221

 
61,023,439

 
$
1.15


 
 
 
 

 
 

 
FOR THE SIX MONTHS ENDED JUNE 30,
 
 
 

 
 

 
2012

 
 

 
 

 
2011

(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
INCOME

 
SHARES

 
PER SHARE
AMOUNT

 
INCOME

 
SHARES

 
PER SHARE
AMOUNT

Income from continuing operations
$
76,718

 
 
 
 
 
$
99,363

 
 
 
 
Deduct:  non-participating stock dividends (4.5% preferred stock)
—

 
 
 
 
 
26

 
 
 
 
Deduct:  non-participating stock redemption costs (4.5% preferred stock)
—

 
 
 
 
 
112

 
 
 
 
Basic net income applicable to common stock
$
76,718

 
60,387,388

 
$
1.27

 
$
99,225

 
60,613,371

 
$
1.64

Effect of dilutive securities
 

 
 

 
 

 
 

 
 

 
 

Add:  stock option grants
 

 
4,455

 
 

 
 

 
21,067

 
 

Add:  restricted stock (LTICP)
 

 
233,534

 
 

 
 

 
163,107

 
 

Diluted net income applicable to common stock
$
76,718

 
60,625,377

 
$
1.27

 
$
99,225

 
60,797,545

 
$
1.63


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 six months ended June 30, 2012, and 2011, due to the average market price being higher than the exercise prices of the stock options.
Stock-Based Compensation
At June 30, 2012, 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.
During the first quarter of 2012, Cleco granted 140,186 shares of non-vested stock to certain officers, key employees, and directors of Cleco Corporation and its subsidiaries pursuant to the LTICP.
Cleco and Cleco Power reported pre-tax compensation expense for their share-based compensation plans as shown in the following table.
 
CLECO CORPORATION
 
 
CLECO POWER
 
 
CLECO CORPORATION
 
 
CLECO POWER
 
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2012

 
2011

 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Equity classification
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-vested stock
$
1,076

 
$
796

 
$
277

 
$
201

 
$
2,132

 
$
1,947

 
$
491

 
$
522

Stock options
5

 
23

 
—

 
—

 
9

 
36

 
—

 
—

Total equity classification
$
1,081

 
$
819

 
$
277

 
$
201

 
$
2,141

 
$
1,983

 
$
491

 
$
522

Liability classification
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Common stock equivalent units
$
518

 
$
364

 
$
210

 
$
154

 
$
706

 
$
1,559

 
$
294

 
$
586

Total pre-tax compensation expense
$
1,599

 
$
1,183

 
$
487

 
$
355

 
$
2,847

 
$
3,542

 
$
785

 
$
1,108

Tax benefit (excluding income tax gross-up)
$
615

 
$
455

 
$
187

 
$
137

 
$
1,095

 
$
1,363

 
$
302

 
$
426