Note 10 — Income Taxes

Effective Tax Rates

The following tables summarize the effective income tax rates for Cleco and Cleco Power for the three and nine months ended September 30, 2019, and 2018:



Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2019		2018		2019		2018
Effective tax rate	20.2	%	19.4	%	21.1	%	20.7	%



Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2019		2018		2019		2018
Effective tax rate	19.4	%	22.1	%	21.2	%	23.1	%

For the three and nine months ended September 30, 2019, and 2018, the effective income tax rates for both Cleco and Cleco Power were different than the federal statutory rate primarily due to permanent tax differences; the flowthrough of tax benefits, including AFUDC equity; and state tax expense.

Net Operating Loss

For the 2019 tax year, Cleco is expected to create approximately $575.5 million and $121.8 million of federal and state net operating losses, respectively, primarily due to the Cleco Cajun Transaction.

The federal net operating loss may be carried forward indefinitely, and the state net operating loss carryforwards will begin to expire in 2039.

Cleco considers it more likely than not that these income tax losses will be utilized to reduce future income tax payments, and the entire net operating loss carryforward will be utilized within the statutory deadlines.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At September 30, 2019, and December 31, 2018, Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the three and nine months ended September 30, 2019, and 2018, Cleco and Cleco Power had no interest expense related to uncertain tax positions.

At September 30, 2019, Cleco had no liability for uncertain tax positions. Cleco estimates that it is reasonably possible that the balance of unrecognized tax benefits as of September 30, 2019, for Cleco and Cleco Power would be unchanged in the next 12 months. The settlement of open tax years could involve the payment of additional taxes, and/or the recognition of tax benefits, which may have an effect on Cleco’s effective tax rate.

Cleco participates in the Internal Revenue Service’s (IRS) Compliance Assurance Process in which financial results are examined and agreed upon prior to filing the federal consolidated tax return. The 2018 federal income tax year remains subject to examination by the IRS. While the statute of limitations remains open for tax years 2016 and 2017 until 2020 and 2021, respectively, management believes the likelihood of further exam by the IRS is remote.

The state income tax years that remain subject to examination by the Louisiana Department of Revenue are 2015, 2016, and 2017.

Cleco classifies income tax penalties as a component of other expense. For the three and nine months ended September 30, 2019, and 2018, no penalties were recognized.