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.



(THOUSANDS)	AT SEPT. 30, 2014		AT DEC. 31, 2013
Regulatory assets – deferred taxes, net	$	236,622	$	229,173
Mining costs	$	12,108	$	14,019
Interest costs	5,672		5,943
Asset removal costs	991		936
Postretirement plan costs	88,329		93,333
Tree trimming costs	7,271		4,840
Training costs	7,058		7,175
Surcredits, net	14,493		16,738
Amended lignite mining agreement contingency	3,781		3,781
Power purchase agreement capacity costs	—		9,749
AMI deferred revenue requirement	5,999		4,682
Production O&M expenses	7,755		8,459
AFUDC equity gross-up	73,063		73,306
Rate case costs	—		45
Acadia Unit 1 acquisition costs	2,680		2,760
Financing costs	9,495		9,772
Biomass costs	90		114
MISO integration costs	3,509		—
Coughlin transaction costs	1,068		—
Corporate franchise tax	2,274		—
Acadia FRP true-up	754		—
Other	654		—
Total regulatory assets	$	247,044	$	255,652
Fuel and purchased power	40,217		(3,869		)
Total regulatory assets, net	$	523,883	$	480,956

Surcredits, Net

Cleco Power has recorded surcredits as the result of a settlement with the LPSC that addressed, among other things, the recovery of the storm damages related to hurricanes and uncertain tax positions. In the settlement, Cleco Power was required to implement surcredits to provide ratepayers with the economic benefit of the carrying charges of certain accumulated deferred income tax liabilities at a rate of return which was set by the LPSC. The settlement, through a true-up mechanism, allows the surcredits to be adjusted to reflect the actual tax deductions allowed by the IRS.

Cleco Power also was allowed to record a corresponding regulatory asset in an amount representing the flow back of the carrying charges to ratepayers. This amount is being amortized over various terms of the established surcredits.

As a result of a settlement with the LPSC, Cleco Power is required to implement a surcredit when funds are withdrawn from the restricted storm reserve. In March 2014, Cleco Power withdrew $4.0 million from the restricted storm reserve to pay for storm damages, resulting in the establishment of a new surcredit. This surcredit will be utilized to partially replenish the storm reserve.

In the third quarter of 2013 and the first quarter of 2014, Cleco Power recorded true-ups to the surcredits to reflect the actual tax deductions allowed by the IRS for storm damages and uncertain tax positions. As a result of the true-ups, Cleco Power has recorded a regulatory asset that represents the amounts that will be collected from ratepayers in future periods.

On June 18, 2014, the LPSC approved Cleco Power’s FRP extension. A provision of the FRP extension was to reduce base rates by the amount of the surcredits, beginning July 1, 2014. These amounts are being collected and amortized over a four-year period. For more information on the FRP extension, see Note 9 — “Electric Customer Credits.”

Power Purchase Agreement Capacity Costs

In March 2012, Cleco Power received approval from the LPSC for a three-year power purchase agreement with Evangeline providing 730 MW of capacity and energy beginning May 1, 2012 and ending April 30, 2015. The LPSC order allowed Cleco Power to defer and recover a portion of capacity costs associated with the power purchase agreement. On March 15, 2014, Coughlin was transferred to Cleco Power, and the power purchase agreement was terminated. At June 30, 2014, the regulatory asset was fully amortized.

AMI Deferred Revenue Requirement

In February 2011, the LPSC approved Cleco Power’s stipulated settlement in Docket No. U-31393 allowing Cleco Power to defer, as a regulatory asset, the estimated revenue requirements for the AMI project. The amount of the regulatory asset, including carrying charges, was capped by the LPSC at $20.0 million. On June 18, 2014, the LPSC approved Cleco Power’s FRP extension, and the AMI regulatory asset and project capital costs were included in rate base. The AMI deferred revenue requirement is being recovered over the remaining economic life of the meters, or approximately 11 years, beginning July 1, 2014.

Production O&M Expenses

In September 2009, the LPSC authorized Cleco Power to defer, as a regulatory asset, production O&M expenses, net of fuel and payroll, above the retail jurisdictional portion of $25.6 million annually (deferral threshold). On June 18, 2014, the LPSC approved Cleco Power’s FRP extension, which increased the O&M deferral threshold to $45.0 million annually. The amount of the regulatory asset is capped at $23.0 million. Also, as part of the FRP extension, the LPSC allowed Cleco Power to recover collection of the amount deferred in each calendar year, if any, over the following three-year regulatory period, beginning July 1. In December 2013, Cleco Power deferred $8.5 million as a regulatory asset and began recovering this amount on July 1, 2014.

MISO Integration Costs

On June 18, 2014, the LPSC approved Cleco Power’s request to recover the integration costs associated with Cleco Power joining MISO. The MISO integration costs are being recovered over a four-year period, beginning July 1, 2014.

Coughlin Transaction Costs

On January 15, 2014, the LPSC authorized Cleco Power to create a regulatory asset for the Coughlin transfer transaction costs. The Coughlin transaction costs are being recovered over the 35-year life of the plant, beginning July 1, 2014.

Corporate Franchise Tax

As part of the FRP extension approved by the LPSC on June 18, 2014, Cleco Power was authorized to recover the retail portion of state corporate franchise taxes paid, including $3.7 million remitted to the State of Louisiana on April 15, 2014. The deferred corporate franchise taxes are being recovered over 12 months, beginning July 1, 2014.

Acadia FRP True-up

For the FRP period July 1, 2013 through June 30, 2014, Cleco Power was authorized by the LPSC to recover the estimated revenue requirement of $58.3 million related to Acadia Unit 1. In June 2014, Cleco Power determined that it had under-recovered $0.8 million in revenue during the period from customers based on the actual revenue requirement for Acadia Unit 1. The amount representing the under-collection was deferred and is expected to be recovered from customers over 12 months, beginning July 1, 2015.

Other

On June 18, 2014, the LPSC approved Cleco Power’s FRP extension which authorized the recovery of previously deferred costs incurred as a result of Cleco Power’s FRP extension filing, the 2003 through 2008 fuel audit, and a biomass study. These costs are being recovered over a three-year period, beginning July 1, 2014.

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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. For the three months ended September 30, 2014, approximately 76% of Cleco Power’s total fuel cost was regulated by the LPSC, while the remainder was regulated by FERC.

The $44.1 million increase in the under/over recovered costs was primarily due to $25.9 million of higher than normal fuel costs during plant outages, the addition of a new wholesale customer, and the timing of collections of fuel expenses. Also contributing was an $18.2 million increase due to the settlement of previously open FTR positions and a mark-to-market loss on current open FTR positions.