Note 9 — Regulation and Rates

At March 31, 2016, Cleco Power’s provision for rate refund consisted of $2.8 million for a proposed ROE reduction of transmission rates that Cleco Power was allowed to collect under the MISO tariff and $0.2 million related to Cleco Power’s monitoring report for the 12-month period ended June 30, 2015.

On April 7, 2016, the LPSC issued an order approving the Merger. Included in the commitments of the order were $136.0 million of rate credits to eligible customers. On April 25, 2016, in accordance with the LPSC commitments, Cleco Power deposited these funds into an escrow account. On April 28, 2016, the LPSC voted to issue credits equally among customers with service on June 30, 2016. Also included in the commitments of the order were $1.2 million of annual estimated cost of service savings expected as a result of the Merger. This amount will be refunded to customers annually until Cleco Power’s next FRP becomes effective. The annual cost savings will be included in the monitoring report, but will not be subject to any sharing mechanism in the current FRP.

Transmission ROE

In November 2013, a group of industrial customers from the northern region of MISO and other stakeholders filed a complaint at FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. As of March 31, 2016, Cleco Power had $2.8 million accrued for proposed ROE reductions for the period December 2013 through March 2016. For more information on the ROE complaint, see Note 11 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

FRP

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of the FRP, Cleco Power is allowed to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60.0% of retail earnings between 10.9% and 11.75% and all retail earnings over 11.75% are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds is ultimately subject to LPSC approval. Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ended June 30. Cleco Power was scheduled to file an application with the LPSC to extend its FRP by June 30, 2017. However, as part of the Merger approval process Cleco Power agreed not to file an application for a new FRP or request an increase in base rates until June 30, 2019.

On October 31, 2015, Cleco Power filed its monitoring report for the 12-month period ended June 30, 2015, which indicated that $0.2 million is due to be returned to eligible customers. A review of this report by the LPSC has not been completed.