Income Taxes

3 Months Ended

Mar. 31, 2020

Note 10 — Income Taxes

Effective Tax Rates

The following tables summarize the effective income tax rates for Cleco and Cleco Power for the three months ended March 31, 2020, and 2019:



Cleco
	FOR THE THREE MONTHS ENDED MAR. 31,
	2020		2019
Effective tax rate	19.8	%	22.6	%



Cleco Power
	FOR THE THREE MONTHS ENDED MAR. 31,
	2020		2019
Effective tax rate	22.0	%	23.0	%

For the three months ended March 31, 2020, and 2019, 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 created approximately $551.4 million and $82.6 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 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 utilize the entire net operating loss carryforward 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 March 31, 2020, and December 31, 2019, Cleco and Cleco Power had no liability for uncertain tax positions or interest payable related to uncertain tax positions. Cleco estimates that it is reasonably possible that the balance of unrecognized tax benefits as of March 31, 2020, 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.

Income Tax Audits

Cleco participates in the IRS’s Compliance Assurance Process in which financial results are examined and agreed upon prior to filing the federal consolidated tax return. While the statute of limitations remains open for tax years 2016, 2017, and 2018, management believes the likelihood of further examination by the IRS is remote.

The state income tax years 2016, 2017, and 2018 remain subject to examination by the Louisiana Department of Revenue.

Cleco classifies income tax penalties as a component of other expense. For the three months ended March 31, 2020, and 2019, no penalties were recognized.

Coronavirus Aid, Relief and Economic Security (CARES Act)

On March 27, 2020, the CARES Act was enacted and signed into law in response to the COVID-19 pandemic. Among other provisions, the CARES Act includes modifications on the limitations of business interest for the 2019 and 2020 tax years. The modifications increase the allowable business interest deduction from 30% to 50% of adjusted taxable income. The modification increased Cleco’s allowable interest expense deduction and, as a result, decreased taxable income, creating larger net operating loss carryforwards for the tax year ended December 31, 2019. As a result of the CARES Act, Cleco does not expect any disallowed interest for the 2019 and 2020 tax years.