Note 10 — Regulation and Rates

Transmission ROE

Two complaints were filed with 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 June 30, 2018, Cleco Power had $2.1 million accrued for ROE reductions, including accrued interest.

For more information on the ROE complaints, see Note 12 — “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 will file an application with the LPSC for a new FRP by June 30, 2019, with anticipated new rates being effective July 1, 2020.

Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ended June 30. On October 31, 2017, Cleco Power filed its monitoring report for the 12-month period ended June 30, 2017, which indicated that no refund was due as a result of the FRP and $1.2 million was due as a result of the cost of service savings from the Merger Commitments. Cleco Power responded to three sets of data requests from the LPSC for the 2017 monitoring report. On June 5, 2018, the LPSC filed its review of the 2017 FRP monitoring report which identified two exceptions; however, it concurred that no earnings-related refunds were due. Cleco Power filed a response to the review report on July 6, 2018, and anticipates filing a joint report for LPSC approval in the third quarter 2018. As of June 30, 2018, Cleco Power had $1.2 million accrued for the cost of service savings refund for the June 30, 2017 FRP monitoring report. Cleco Power expects to file its monitoring report for the 12 months ended June 30, 2018, on or before October 31, 2018, which will indicate that $5.9 million of earnings-related refunds and $1.2 million of cost of service savings refunds are due to be returned to eligible customers. These amounts were accrued at June 30, 2018.

SSR

In September 2016, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3 effective April 1, 2017. MISO conducted a study which determined the proposed retirement of Teche Unit 3 would result in violations of specific applicable reliability standards for which no mitigation is available. As a result, MISO designated Teche Unit 3 as an SSR unit until such time that an appropriate alternative solution can be implemented to mitigate reliability issues. One mitigating factor that has been identified is Cleco Power’s Terrebonne to Bayou Vista Transmission project, which is expected to be complete in the third quarter of 2019. In the second quarter of 2017, MISO began allocating SSR costs to the load serving entities that require the operation of the SSR unit for reliability purposes, including Cleco Power. Cleco Power had a 12-month SSR agreement for the period April 1, 2017, to March 31, 2018. In January 2018, another study was performed by MISO, and it was determined that an SSR agreement was needed for the period April 1, 2018, until the sooner of the in-service date of the Terrebonne to Bayou Vista Transmission project or March 31, 2019. During this time, Cleco Power will continue to operate Teche Unit 3. Cleco Power filed with FERC for its approval to collect $20.3 million and $11.8 million annually in SSR payments from MISO for the first and second SSR agreements, respectively. The SSR payments include recovering operations and maintenance expenses, administrative and general expenses, taxes, depreciation, capital expenditures, and carrying charges, all of which are related to Teche Unit 3 for the period of the SSR agreements. At the end of the SSR period, when Teche Unit 3 is retired, any SSR payments received from MISO for capital expenditures paid by third parties will be credited to property, plant, and equipment. As of June 30, 2018, Cleco Power had $4.4 million accrued for SSR payments received for capital expenditures related to Teche Unit 3. In the second quarter of 2017, Cleco Power began receiving the monthly SSR payments from MISO, subject to refund pending review and approval by FERC. On July 20, 2017, Cleco Power, FERC staff, and intervenors met at the first settlement conference and set a procedural schedule for data requests between parties. On July 27, 2017, Cleco Power received five sets of informal data requests from FERC staff and intervenors. The second settlement conference was held on February 22, 2018; however, a settlement was not reached. On May 14, 2018, the settlement judge terminated the settlement proceedings. A hearing is scheduled for January 2019 with an initial decision from the ALJ expected in May 2019. At the end of the SSR agreement, Cleco Power will have the option to rescind the Attachment Y requesting retirement of Teche Unit 3. If this option is exercised, Cleco Power may be required to refund recoverable capital expenditures plus interest. Management does not expect to be required to refund any portion of these costs.

TCJA

On February 21, 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flowthrough to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. Cleco Power filed comments with the LPSC on March 12, 2018, which included among other things, a refund to customers for the differences in the cumulative federal and state income tax rate of 38% prior to the TCJA, versus the 26% cumulative federal and state income tax rate effective after the TCJA. As a result, Cleco Power began accruing an estimated reserve for the change in the tax rate beginning January 1, 2018. At June 30, 2018, Cleco Power had $14.7 million accrued for the estimated federal tax-related benefits from the TCJA. Cleco Power anticipates filing an application with the LPSC no later than August 31, 2018, for consideration of Cleco Power’s methodology for TCJA refunds and related items, including the allocation of such refunds among Cleco Power’s jurisdictional customers. Rates are anticipated to go into effect October 1, 2018. Cleco Power anticipates refunding the amount accrued for the change in the tax rate for the period January 2018 to September 2018 on customers’ September 2018 bills, based on July 2018 usage, pending LPSC review and approval. Cleco Power expects to address the regulatory liability for excess ADIT resulting from the enactment of the TCJA in Cleco Power’s application for its new FRP, which will be filed by June 30, 2019, with anticipated new rates being effective July 1, 2020.