

Note 3 — Revenue Recognition

Cleco adopted the accounting guidance for revenue recognition and all related amendments on January 1, 2018, using the modified retrospective method. The guidance affects entities that enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new standard is not material to the results of operations, financial condition, or cash flows of the Registrants.

Revenue from Contracts with Customers

Retail Revenue

Cleco’s revenue from contracts with customers is generated primarily from Cleco Power’s regulated revenue to retail residential, commercial, and industrial customers. Cleco recognizes retail revenue from these contracts as a series, and progress towards satisfaction of the performance obligation is measured using an output method based on kWh delivered. Accordingly, revenue from electricity sales is recognized as energy is delivered to the customer. Cleco bills retail customers, based on rates regulated by the LPSC, on a monthly basis with payments generally due within 20 days of the invoice date. Cleco records retail revenue under the invoice practical expedient, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount that the entity has a right to invoice.

Included in Cleco’s retail revenue is unbilled electric revenue, which represents the amount customers will be billed for services rendered from the last meter reading to the end of the respective accounting period. Cleco uses actual customer energy consumption data available from AMI to calculate unbilled revenue. Also included in Cleco’s retail revenue is electric customer credits, which primarily represents the accrued estimated refunds for the tax-related benefits of the TCJA.

Wholesale Revenue

Wholesale revenue is generated primarily through the sale of energy and capacity to cooperatives, municipalities, and the MISO transmission provider. Cleco also enters into transactions through MISO for spot energy sales which are transacted in the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. The electricity revenue performance obligations, representing both energy and capacity, are satisfied as a series of performance obligations, and progress towards satisfaction of the performance obligations are measured using an output method. The energy performance obligation measure of progress is based on kWh delivered. The capacity performance obligation measure of progress is based on time elapsed and will be recognized each month as Cleco’s generating units stand ready to deliver electricity to the customer. Cleco charges its wholesale customers market based rates that are subject to FERC’s triennial market power analysis. Cleco recognizes wholesale revenue, inclusive of both performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice.

Transmission Revenue

Transmission revenue is earned under a tariff with MISO. The performance obligation of transmission service is satisfied as service is provided. Revenue is recognized upon delivery of the transmission service. Cleco’s revenue from the transmission of electricity is recorded based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of revenue requirements with rates effective June 1 of each year.

Other Revenue

Other revenue from contracts with customers, which is not a significant source of Cleco’s revenue, includes Teche Unit 3 SSR revenue and connection or other fees. The performance obligation under these contracts is satisfied and revenue is recognized as control of the products is delivered or services are rendered.

Revenue Unrelated to Contracts with Customers

Cleco Power’s energy-related transactions with the following characteristics, qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance: a) their value is based on the notional amount or payment provisions of an underlying asset; b) they require no or a diminutive initial net investment; and c) their terms require or permit net settlement.

Pursuant to the rules of the Energy Efficiency General Order issued by the LPSC, Cleco Power intends to recover from customers the accumulated decrease in revenues associated with energy efficiency programs, also known as the Lost Contribution to Fixed Cost (LCFC). This revenue is recorded in accordance with accounting guidance for alternative revenue programs.

Disaggregated Revenue

Operating revenue, net for the year ended December 31, 2018, was as follows:



	FOR THE TWELVE MONTHS ENDED DEC. 31, 2018
(THOUSANDS)	CLECO POWER			OTHER				ELIMINATIONS			TOTAL
Revenue from contracts with customers
Retail revenue
Residential ⁽¹⁾	$	435,610		$	—			$	—		$	435,610
Commercial ⁽¹⁾	288,791			—				—			288,791
Industrial ⁽¹⁾	167,001			—				—			167,001
Other retail ⁽¹⁾	15,582			—				—			15,582
Surcharge	23,138			—				—			23,138
Electric customer credits	(33,195		)	—				—			(33,195		)
Total retail revenue	896,927			—				—			896,927
Wholesale, net ⁽¹⁾	219,598			(9,680		)	⁽²⁾	—			209,918
Transmission	54,531			—				—			54,531
Other ⁽³⁾	27,800			2				—			27,802
Affiliate ⁽⁴⁾	874			74,591				(75,465		)	—
Total revenue from contracts with customers	1,199,730			64,913				(75,465		)	1,189,178
Revenue unrelated to contracts with customers
Other ⁽⁵⁾	41,866			—				—			41,866
Total revenue unrelated to contracts with customers	41,866			—				—			41,866
Operating revenue, net	$	1,241,596		$	64,913			$	(75,465	)	$	1,231,044

⁽¹⁾Includes fuel recovery revenue.

⁽²⁾ Amortization of intangible assets related to wholesale power supply agreements.

⁽³⁾ Other revenue from contracts with customers includes $18.2 million of other miscellaneous fee revenue and $9.6 million of Teche Unit 3 SSR revenue.

⁽⁴⁾Affiliate revenue from contracts with customers includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.

⁽⁵⁾Includes realized gains associated with FTRs of $39.3 million and LCFC of $2.6 million.

Transaction Price Allocated to Remaining Performance Obligations

For contracts that are greater than one year, the following table discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2018, and (2) when Cleco expects to recognize this revenue:



REMAINING PERFORMANCE OBLIGATIONS	(THOUSANDS)
Years ending Dec. 31,
2019	$	35,970
2020	7,068
2021	7,068
2022	6,468
2023	5,268
Thereafter	4,942
Total remaining performance obligations	$	66,784

Unsatisfied performance obligations primarily relate to stand-ready obligations as part of fixed capacity minimums.