Summary of Significant Accounting Policies

9 Months Ended

Sep. 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 SEPT. 30, 2012			AT DEC. 31, 2011
Regulated utility plants	$	3,815,608		$	3,759,541
Other	267,028			264,114
Total property, plant, and equipment	4,082,636			4,023,655
Accumulated depreciation	(1,291,862		)	(1,230,783		)
Net property, plant, and equipment	$	2,790,774		$	2,792,872

Restricted Cash and Cash Equivalents

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 and cash equivalents consisted of:  

(THOUSANDS)	AT SEPT. 30, 2012		AT DEC. 31, 2011
Diversified Lands’ mitigation escrow	$	97	$	97
Cleco Katrina/Rita’s storm recovery bonds	3,406		8,761
Cleco Power’s future storm restoration costs	11,510		24,876
Cleco Power’s renewable energy grant	—		381
Cleco Power’s NOx allowance escrow	1,713		1,713
Total restricted cash and cash equivalents	$	16,726	$	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 nine months ended September 30, 2012, Cleco Katrina/Rita collected $14.7 million net of operating expenses. In March and September 2012, Cleco Katrina/Rita used $6.7 million and $6.4 million, respectively for scheduled storm recovery bond principal payments and $3.6 million and $3.4 million, respectively for related interest. Cleco Power's restricted cash and cash equivalents held for future storm restoration costs decreased $13.4 million from December 31, 2011, primarily due to the transfer of $4.5 million to restricted investments and the transfer of $10.0 million to cover expenses associated with Hurricane Isaac. These amounts were partially offset by $1.1 million of storm surcredits. For more information about these restricted investments, see Note 4 — "Fair Value Accounting — Restricted Investments" and for more information about Hurricane Isaac, see Note 14 — "Storm Restoration."

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 such costs 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 presenting 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 presented 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 $2.1 million for the three and nine months ended September 30, 2011, respectively.

Also during the second quarter of 2012, the Registrants determined that an error existed in the statement of cash flows 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.

Cleco and Cleco Power’s Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011, have been adjusted 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’ Condensed Consolidated Statements of Cash Flows. The corrections to the September 30, 2011 Condensed Consolidated Statements of Cash Flows are presented in the following table:

				CLECO						CLECO POWER
	FOR THE NINE MONTHS ENDED SEPT. 30, 2011
(THOUSANDS)	AS REPORTED			AS ADJUSTED			AS REPORTED			AS ADJUSTED
Accounts receivable	$	(18,274	)	$	(21,691	)	$	(20,442	)	$	(23,859	)
Other deferred accounts	$	(2,184	)	$	2,181		$	(6,361	)	$	(1,996	)
Net cash provided by operating activities	$	262,642		$	263,590		$	184,688		$	185,636
Additions to property, plant, and equipment	$	(145,669	)	$	(146,617	)	$	(131,014	)	$	(131,962	)
Net cash used in investing activities	$	(54,097	)	$	(55,045	)	$	(112,856	)	$	(113,804	)
Net decrease in cash and cash equivalents	$	(32,896	)	$	(32,896	)	$	(41,897	)	$	(41,897	)
Cash and cash equivalents at the beginning of the period	$	191,128		$	191,128		$	184,912		$	184,912
Cash and cash equivalents at the end of the period	$	158,232		$	158,232		$	143,015		$	143,015

Earnings per Average Common Share

The following tables show the calculation of basic and diluted earnings per share:

						FOR THE THREE MONTHS ENDED SEPT. 30,
				2012					2011
(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)	INCOME		SHARES	PER SHARE AMOUNT		INCOME		SHARES	PER SHARE AMOUNT
Basic net income applicable to common stock	$	63,818	60,346,476	$	1.06	$	65,842	60,467,595	$	1.09
Effect of dilutive securities
Add:  stock option grants			1,536					20,441
Add:  restricted stock (LTICP)			251,191					385,275
Diluted net income applicable to common stock	$	63,818	60,599,203	$	1.05	$	65,842	60,873,311	$	1.08

						FOR THE NINE MONTHS ENDED SEPT. 30,
				2012					2011
(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)	INCOME		SHARES	PER SHARE AMOUNT		INCOME		SHARES	PER SHARE AMOUNT
Net income	$	140,536				$	165,205
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	$	140,536	60,375,538	$	2.33	$	165,067	60,549,860	$	2.73
Effect of dilutive securities
Add:  stock option grants			4,518					20,965
Add:  restricted stock (LTICP)			246,415					259,426
Diluted net income applicable to common stock	$	140,536	60,626,471	$	2.32	$	165,067	60,830,251	$	2.71

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, 2012 and 2011, due to the average market price being higher than the exercise prices of the stock options.

Stock-Based Compensation

At September 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 SEPT. 30,								FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2012		2011		2012		2011		2012		2011		2012		2011
Equity classification
Non-vested stock	$	1,139	$	1,095	$	301	$	225	$	3,271	$	3,042	$	792	$	748
Stock options	2		69		—		—		11		105		—		—
Total equity classification	$	1,141	$	1,164	$	301	$	225	$	3,282	$	3,147	$	792	$	748
Liability classification
Common stock equivalent units	$	847	$	1,024	$	338	$	435	$	1,552	$	2,583	$	631	$	1,020
Total pre-tax compensation expense	$	1,988	$	2,188	$	639	$	660	$	4,834	$	5,730	$	1,423	$	1,768
Tax benefit	$	765	$	842	$	246	$	254	$	1,860	$	2,205	$	548	$	680