Fair Value Accounting

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Accounting

Note 6 — Fair Value Accounting

The amounts reflected on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2021, and December 31, 2020, for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, short-term debt, and accounts payable approximate fair value because of their short-term nature. Cleco applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations, as well as impairment related to goodwill and other long-lived assets.

The following tables summarize the carrying value and estimated market value of Cleco and Cleco Power’s financial instruments not measured at fair value on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets:

Cleco
	AT JUNE 30, 2021				AT DEC. 31, 2020
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	3,226,952	$	3,509,555	$	3,230,500	$	3,541,349

* The carrying value of long-term debt does not include deferred issuance costs of $12.8 million at
June 30, 2021, and $13.4 million at December 31, 2020.

Cleco Power
	AT JUNE 30, 2021				AT DEC. 31, 2020
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	1,495,101	$	1,772,243	$	1,494,947	$	1,794,799

* The carrying value of long-term debt does not include deferred issuance costs of $6.9 million at
June 30, 2021, and $7.0 million at December 31, 2020.

In order to fund capital requirements, Cleco issues fixed and variable rate long-term debt with various tenors. The fair value of this class fluctuates as the market interest rates for fixed and variable rate debt with similar tenors and credit ratings change. The fair value of the debt could also change from period to period due to changes in the credit rating of the Cleco entity by which the debt was issued. The fair value of long-term debt is classified as Level 2 in the fair value hierarchy.

Fair Value Measurements and Disclosures

Cleco classifies assets and liabilities that are measured at their fair value according to three different levels depending on the inputs used in determining fair value. Cleco elects not to designate derivatives as cash flow or fair value hedges, as allowed by accounting guidance. Cleco utilizes a mark-to-market approach recognizing changes in the fair value of FTRs and other commodity derivatives at Cleco Cajun in earnings and changes in the fair value of FTRs at Cleco Power as a component of deferred fuel assets and liabilities. Cleco utilizes different valuation techniques for fair value measurements under a fair value hierarchy. Assets and liabilities classified as Level 1 under the hierarchy utilize observable inputs that reflect quotable prices in active markets. Assets and liabilities classified as Level 2 are measured through proxy inputs of similar index or composite pricing. Assets and liabilities classified as Level 3 under the hierarchy are valued based on unobservable inputs, such as internally generated valuation models or valuations obtained in inactive markets where there is no readily available information. Cleco has consistently applied the Level 2 and Level 3 fair value techniques from fiscal period to fiscal period. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The assets and liabilities reported at fair value are grouped into classes based on the underlying nature and risks associated with the individual asset or liability.

The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured on a recurring basis:

Cleco
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT JUNE 30, 2021		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2020		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Institutional money market funds	$	77,105	$	—	$	77,105	$	—	$	86,001	$	—	$	86,001	$	—
FTRs	8,662		—		—		8,662		4,805		—		—		4,805
Other commodity derivatives*	55,834		—		55,834		—		8,599		—		8,599		—
Total assets	$	141,601	$	—	$	132,939	$	8,662	$	99,405	$	—	$	94,600	$	4,805
Liability description
FTRs	$	1,161	$	—	$	—	$	1,161	$	1,625	$	—	$	—	$	1,625
Other commodity derivatives*	—		—		—		—		1,612		—		1,612		—
Total liabilities	$	1,161	$	—	$	—	$	1,161	$	3,237	$	—	$	1,612	$	1,625

* Other commodity derivatives include fixed price physical forwards and swap transactions.

Cleco Power
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT JUNE 30, 2021		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2020		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Institutional money market funds	$	19,061	$	—	$	19,061	$	—	$	25,357	$	—	$	25,357	$	—
FTRs	6,867		—		—		6,867		4,337		—		—		4,337
Total assets	$	25,928	$	—	$	19,061	$	6,867	$	29,694	$	—	$	25,357	$	4,337
Liability description
FTRs	$	877	$	—	$	—	$	877	$	1,121	$	—	$	—	$	1,121
Total liabilities	$	877	$	—	$	—	$	877	$	1,121	$	—	$	—	$	1,121

The following tables summarize the net changes in the net fair value of FTR assets and liabilities classified as Level 3 in the fair value hierarchy for Cleco and Cleco Power:

Cleco
	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2021		2020		2021		2020
Beginning balance	$	1,023	$	1,096	$	3,180	$	5,778
Unrealized (losses) gains*	(1,005)		(284)		15,155		(371)
Purchases	9,958		9,267		10,806		9,732
Settlements	(2,475)		(2,039)		(21,640)		(7,099)
Ending balance	$	7,501	$	8,040	$	7,501	$	8,040
* Cleco Power’s unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco’s Condensed Consolidated Balance Sheet. Cleco Cajun’s unrealized (losses) gains are reported through Purchased power on Cleco’s Condensed Consolidated Income Statement.

Cleco Power
	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2021		2020		2021		2020
Beginning balance	$	1,088	$	1,149	$	3,216	$	5,725
Unrealized (losses)gains*	(402)		1,298		(402)		1,298
Purchases	7,768		7,311		8,616		7,776
Settlements	(2,464)		(2,247)		(5,440)		(7,288)
Ending balance	$	5,990	$	7,511	$	5,990	$	7,511
* Unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheet.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions for Cleco and Cleco Power as of June 30, 2021, and December 31, 2020:

Cleco
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at June 30, 2021	$	8,662	$	1,161	RTO auction pricing	FTR price - per MWh	$	(5.73)	$	7.28
FTRs at Dec. 31, 2020	$	4,805	$	1,625	RTO auction pricing	FTR price - per MWh	$	(3.49)	$	4.36

Cleco Power
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at June 30, 2021	$	6,867	$	877	RTO auction pricing	FTR price - per MWh	$	(2.03)	$	7.28
FTRs at Dec. 31, 2020	$	4,337	$	1,121	RTO auction pricing	FTR price - per MWh	$	(3.34)	$	4.36

At June 30, 2021, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. The following tables present the institutional money market funds in cash and cash equivalents and restricted cash and cash equivalents as recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2021, and December 31, 2020:

Cleco
(THOUSANDS)	AT JUNE 30, 2021		AT DEC. 31, 2020
Cash and cash equivalents	$	73,412	$	80,712
Current restricted cash and cash equivalents	$	2,949	$	4,545
Non-current restricted cash and cash equivalents	$	744	$	744

Cleco Power
(THOUSANDS)	AT JUNE 30, 2021		AT DEC. 31, 2020
Cash and cash equivalents	$	16,112	$	20,812
Current restricted cash and cash equivalents	$	2,949	$	4,545

Institutional money market fund assets are discounted to the current period using a published U.S. Treasury interest rate as a proxy for a risk-free rate of return. If the money market funds failed to perform under the terms of the investments, Cleco and Cleco Power would be exposed to a loss of the invested amounts. Collateral on these types of investments is not required by either Cleco or Cleco Power. The Level 2 institutional money market funds asset consists of a single class. In order to capture interest income and minimize risk, cash is invested in money market funds that invest primarily in

short-term securities issued by the U.S. Treasury to maintain liquidity and achieve the goal of a net asset value of a dollar. The risks associated with this class are counterparty risk of the fund manager and risk of price volatility associated with the underlying securities of the fund.

Derivatives and other commodity contracts that do not qualify for derivative accounting treatment transacted directly with a counterparty and are not cleared on an exchange contain counterparty credit risk. Cleco may be required to provide credit support or pay liquidated damages with respect to any open trading contracts that Cleco has entered into or may enter into in the future. The amount of credit support that Cleco may be required to provide at any point in the future is dependent on the amount of the initial contract, changes in the market price, changes in open contracts, and changes in the amounts counterparties owe to Cleco. Changes in any of these factors could cause the amount of requested credit support to increase or decrease.

Cleco Power and Cleco Cajun’s FTRs are valued using MISO’s monthly auction prices. Forward seasonal periods are not included in every monthly auction; therefore, the average of the most recent seasonal auction prices is used for monthly valuation. FTRs are categorized as Level 3 fair value measurements because the only relevant value available comes from MISO auctions, which occur monthly in the Multi-Period Monthly Auction.

During the six months ended June 30, 2021, and the year ended December 31, 2020, Cleco did not experience any transfers between levels within the fair value hierarchy.

Commodity Contracts

The following tables present the fair values of derivative instruments and their respective line items as recorded on

Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2021, and December 31, 2020:

Cleco
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT JUNE 30, 2021		AT DEC. 31, 2020
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	8,662	$	4,805
Current	Energy risk management liabilities	(1,161)		(1,625)
Other commodity derivatives
Current	Energy risk management assets	30,063		8,276
Non-current	Other deferred charges	25,771		323
Current	Energy risk management liabilities	—		(828)
Non-current	Other deferred credits	—		(784)
Commodity-related contracts, net		$	63,335	$	10,167

Cleco Power
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT JUNE 30, 2021		AT DEC. 31, 2020
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	6,867	$	4,337
Current	Energy risk management liabilities	(877)		(1,121)
Commodity-related contracts, net		$	5,990	$	3,216

The following tables present the effect of derivatives not designated as hedging instruments on Cleco and Cleco Power’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2021, and 2020:

Cleco
	AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
		FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2021		2020		2021		2020
Commodity-related contracts
FTRs(1)	Electric operations	$	1,763	$	1,852	$	9,207	$	3,248
FTRs(1)	Purchased power	702		92		(7,858)		(289)
Other commodity derivatives	Fuel used for electric generation	(51,683)		9,316		(57,897)		2,208
Total		$	(49,218)	$	11,260	$	(56,548)	$	5,167

(1) For the three and six months ended June 30, 2021, unrealized losses associated with FTRs for Cleco Power of $0.4 million were reported through Accumulated deferred fuel on the balance sheet. For the three and six months ended June 30, 2020, unrealized losses associated with FTRs for Cleco Power of $1.3 million were reported through Accumulated deferred fuel on the balance sheet.

Cleco Power
	AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
		FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2021		2020		2021		2020
Commodity-related contracts
FTRs(1)	Electric operations	$	1,763	$	1,852	$	9,208	$	3,249
FTRs(1)	Purchased power	(1,233)		(1,319)		(8,414)		(2,070)
Total		$	530	$	533	$	794	$	1,179

(1) For the three and six months ended June 30, 2021, unrealized losses associated with FTRs of $0.4 million were reported through Accumulated deferred fuel on the balance sheet. For the three and six months ended June 30, 2020, unrealized losses associated with FTRs of $1.3 million were reported through Accumulated deferred fuel on the balance sheet.

The total volume of FTRs that Cleco Power had outstanding at June 30, 2021, and December 31, 2020, was 19.8 million MWh and 9.5 million MWh, respectively. The total volume of FTRs that Cleco had outstanding at June 30, 2021, and December 31, 2020, was 30.9 million MWh and 15.3 million MWh, respectively. The total volume of other commodity derivatives Cleco had outstanding at June 30, 2021, and December 31, 2020, was 127.9 million MMBtus and 73.0 million MMBtus, respectively.