Leases

12 Months Ended

Dec. 31, 2020

Note 4 — Leases

Cleco maintains operating and finance leases in its ordinary course of business activities.

Operating Leases

Cleco Power leases utility systems from two municipalities and one non-municipal public body. On July 9, 2019, one municipal lease was renewed for an additional term of 10 years and expires on August 11, 2031. The second municipal lease has a term of 10 years and expires on May 13, 2028. The non-municipal lease has a term of 27 years and expires on July 31, 2039. Each utility system lease contains fixed and variable components, as well as provisions for extensions.

Cleco Power has a lease for 113 railcars for coal transportation which expires on March 31, 2021. Cleco Cajun has a lease for 135 railcars for coal transportation, which commenced in February 2019 and was a short-term lease with an initial term of 12 months. On January 27, 2020, this lease was renewed and expires on March 31, 2021. This lease renews for additional one-month terms unless Cleco Cajun chooses to terminate. Cleco reassesses its need for the railcars upon the expiration of each term. Cleco pays a monthly rental fee per car. The railcar leases do not contain contingent rent payments.

Cleco Power has leases for three towboats in order to transport petroleum coke to Madison Unit 3. Each of the towboat leases has a term of 10 years and expires on March 31, 2028. Under these agreements, the rates are adjusted annually per the Producer Price Index. Each lease contains provisions for a five-year extension.

Cleco and Cleco Power’s remaining operating leases provide for office and operating facilities, office equipment, and tower rentals.

The following is a schedule by year of future minimum lease payments due under Cleco and Cleco Power’s long-term operating leases together with the present value of the net minimum lease payments as of December 31, 2020:


(THOUSANDS)	CLECO POWER		CLECO
Years ending Dec. 31,
2021	$	3,543	$	3,682
2022	3,289		3,320
2023	3,234		3,262
2024	3,216		3,236
2025	3,216		3,216
Thereafter	15,401		15,401
Total minimum lease payments	31,899		32,117
Less: amount representing interest	5,932		5,982
Present value of net minimum operating lease payments	$	25,967	$	26,135
Current liabilities	$	2,672	$	2,802
Non-current liabilities	$	23,295	$	23,333

Finance Lease

In April 2018, Cleco Power entered into an agreement with Savage Inland Marine for continued use of 42 barges used to transport petroleum coke to Madison Unit 3 through March 2033. The agreement meets the accounting definition of a finance lease.

The barge lease rate contains both a fixed and variable component, of which the latter is adjusted every third anniversary of the agreement for estimated executory costs. If the barges are idle, the lessor is required to attempt to sublease the barges to third parties with the revenue reducing Cleco Power’s lease payment. This agreement contains a provision for early termination upon the occurrence of any one of four cancellation events.

For the years ended December 31, 2020, 2019, and 2018, Cleco Power paid $2.2 million, $2.2 million, and $2.0 million, respectively, in lease payments. For the years ended December 31, 2020, 2019, and 2018, Cleco Power received $0.8 million, $1.7 million, and $0.5 million, respectively, of revenue from subleases.

The following is an analysis of the leased property under the finance lease:


(THOUSANDS)	AT DEC. 31, 2020		AT DEC. 31, 2019
Barges	$	16,800	$	16,800
Accumulated amortization	(3,080)		(1,960)
Net finance lease asset	$	13,720	$	14,840

The following is a schedule by year of future minimum lease payments due under the finance lease together with the present value of the net minimum lease payments as of December 31, 2020:


(THOUSANDS)
Years ending Dec. 31,
2021	$	2,203
2022	2,203
2023	2,203
2024	2,203
2025	2,203
Thereafter	15,472
Total minimum lease payments	26,487
Less: amount representing interest	11,243
Present value of net minimum finance lease payments	$	15,244
Current liabilities	$	682
Non-current liabilities	$	14,562

Additional Lessee Disclosures

Cleco and Cleco Power’s total lease cost includes amounts on the income statement, as well as amounts capitalized as part of property, plant, or equipment or inventory. The following tables reflect total lease costs for Cleco and Cleco Power for the years ended December 31, 2020, and 2019:


Cleco
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2020		2019
Finance lease cost
Amortization of ROU assets	$	1,120	$	1,120
Interest on lease liabilities	1,587		1,646
Operating lease cost	4,576		4,528

Variable lease cost	301		515

Total lease cost	$	7,584	$	7,809


Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2020		2019
Finance lease cost
Amortization of ROU assets	$	1,120	$	1,120
Interest on lease liabilities	1,587		1,646
Operating lease cost	4,191		4,303

Variable lease cost	301		515

Total lease cost	$	7,199	$	7,584

The following tables present additional information related to Cleco and Cleco Power’s operating and finance leases as of and for the years ended December 31, 2020, and 2019:


Cleco
		AT DEC. 31,
(THOUSANDS)	BALANCE SHEET LINE ITEM	2020		2019
Supplemental balance sheet information
ROU assets
Operating	Operating lease right of use assets	$	26,172	$	28,791
Finance	Property, plant, and equipment	13,720		14,840
Total ROU assets		$	39,892	$	43,631
Current lease liabilities
Operating	Other current liabilities	$	2,802	$	2,978
Finance	Long-term debt and finance leases due within one year	682		617
Non-current lease liabilities
Operating	Operating lease liabilities	23,333		25,779
Finance	Long-term debt and finance leases, net	14,562		15,244
Total lease liabilities		$	41,379	$	44,618


Cleco Power
		AT DEC. 31,
(THOUSANDS)	BALANCE SHEET LINE ITEM	2020		2019
Supplemental balance sheet information
ROU assets
Operating	Operating lease right of use assets	$	26,006	$	28,633
Finance	Property, plant, and equipment	13,720		14,840
Total ROU assets		$	39,726	$	43,473
Current lease liabilities
Operating	Other current liabilities	$	2,672	$	2,935
Finance	Long-term debt and finance leases due within one year	682		617
Non-current lease liabilities
Operating	Operating lease liabilities	23,295		25,658
Finance	Long-term debt and finance leases, net	14,562		15,244
Total lease liabilities		$	41,211	$	44,454


Cleco
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2020		2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,504	$	4,452
Operating cash flows from finance leases	$	1,587	$	1,646
Financing cash flows from finance leases	$	617	$	557
ROU assets obtained in exchange for new lease liabilities	$	—	$	15,881


Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2020		2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,120	$	4,203
Operating cash flows from finance leases	$	1,587	$	1,646
Financing cash flows from finance leases	$	617	$	557
ROU assets obtained in exchange for new lease liabilities	$	—	$	15,749


Cleco
	AT DEC. 31,
(THOUSANDS)	2020		2019
Other supplemental information
Operating leases
Weighted-average remaining lease term	9.9 years		10.8 years
Weighted-average discount rate	4.31	%	4.31	%
Finance leases
Weighted-average remaining lease term	12.3 years		13.3 years
Weighted-average discount rate	10.18	%	10.18	%


Cleco Power
	AT DEC. 31, 2020
(THOUSANDS)	2020		2019
Other supplemental information
Operating leases
Weighted-average remaining lease term	10.0 years		10.8 years
Weighted-average discount rate	4.31	%	4.31	%
Finance leases
Weighted-average remaining lease term	12.3 years		13.3 years
Weighted-average discount rate	10.18	%	10.18	%

Cottonwood Sale Leaseback Agreement

Upon closing the Cleco Cajun Transaction, the Cottonwood Sale Leaseback was executed. Under the terms of the lease, NRG Energy will operate the Cottonwood Plant, incur all costs, and receive all revenues from the operations of the plant. Cottonwood Energy will receive fixed lease payments of $40.0 million per year and variable lease payments for LTSA costs and property taxes paid by NRG Energy on behalf of Cleco. Cleco may terminate the lease contract under specific circumstances stated in the lease contract. The residual value under the Cottonwood Sale Leaseback is expected to be recovered through sales of power generation from the plant. The residual value of the Cottonwood Plant has been determined using the plant’s estimated economic life.

Cleco Cajun is Cleco’s only entity with lessor arrangements. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback for the years ended December 31, 2020, and 2019 was as follows:


	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2020		2019
Fixed payments	$	40,000	$	36,667
Variable payments	20,883		20,415
Amortization of deferred lease liability(1)	9,205		8,438
Total lease income	$	70,088	$	65,520

(1)The deferred lease revenue resulting from the fair value of the lease between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy.

The remaining minimum lease payments to be received under the Cottonwood Sale Leaseback are as follows:


(THOUSANDS)
Years ending Dec. 31,
2021	$	40,000
2022	40,000
2023	40,000
2024	40,000
2025	16,667
Total payments	$	176,667

Depreciation expense associated with Cleco’s property under the Cottonwood Sale Leaseback for the year ended December 31, 2020, and 2019, was $29.3 million and $22.7 million, respectively. Cleco calculated depreciation on a straight-line basis over the useful life of the asset. Property associated with the Cottonwood Sale Leaseback was as follows:


			AT DEC. 31,
(THOUSANDS)	2020		2019
Property, plant, and equipment	$	552,659	$	540,409
Accumulated depreciation	(52,053)		(22,741)
Net property, plant, and equipment	$	500,606	$	517,668

Leases