
Note 5 — Regulatory Assets and Liabilities

Cleco Power capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process.

Under the current regulatory environment, Cleco Power believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or

competition, Cleco Power’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco Power would be required to write-down such assets. In addition, potential deregulation of the industry, or possible future changes in the method of rate regulation of Cleco Power, could require discontinuance of the application of the authoritative guidance on regulated operations.

The following table summarizes Cleco Power’s regulatory assets and liabilities:


Cleco Power
					REMAINING RECOVERY PERIOD (YRS.)
(THOUSANDS)	AT SEPT. 30, 2021		AT DEC. 31, 2020
Regulatory assets
Acadia Unit 1 acquisition costs	$	1,939	$	2,019	18.5
Accumulated deferred fuel (1)	78,847		28,194		Various	(2)
AFUDC equity gross-up	67,348		69,670		Various	(3)
Affordability study	13,438		—		10
AMI deferred revenue requirement	2,181		2,591		4
AROs (1)(7)	8,060		5,488
Bayou Vista to Segura deferred revenue requirement (7)	287		—
Coughlin transaction costs	853		876		28
COVID-19 executive order (7)	2,953		2,953
Deferred storm restoration costs - Hurricane Delta (7)	17,866		17,051
Deferred storm restoration costs - Hurricane Ida (7)	36,836		—
Deferred storm restoration costs - Hurricane Laura (7)	56,815		54,406
Deferred storm restoration costs - Hurricane Zeta (7)	3,496		3,493
Deferred storm restoration costs - Winter Storms Uri & Viola (7)	1,974		—
Dolet Hills Power Station closure costs (7)	112,158		48,982
Emergency declarations	—		270		—
Energy efficiency	1,998		2,820		1.5
Financing costs (1)	6,919		7,184		Various	(4)
Interest costs	3,521		3,708		Various	(3)
Lignite Mine closure costs (7)	93,093		—
Madison Unit 3 property taxes (7)	6,272		—
Non-service cost of postretirement benefits	11,662		9,901		Various	(3)
Other	13,247		4,229		Various	(2)
Postretirement costs	149,883		165,437		Various	(5)
Production operations and maintenance expenses	1,998		4,058		Various	(6)
Rodemacher Unit 2 deferred costs (7)	5,519		1,333
St. Mary Clean Energy Center	6,524		3,479		4

Training costs	5,968		6,085		38.5
Tree trimming costs	9,771		11,807		3.5
Total regulatory assets	721,426		456,034
Regulatory liabilities
AFUDC (7)	(6,500)		(4,218)
Corporate franchise tax, net	—		(763)		—
Deferred taxes, net	(138,864)		(175,584)		Various
Total regulatory liabilities	(145,364)		(180,565)
Total regulatory assets, net	$	576,062	$	275,469
(1) Represents regulatory assets for past expenditures that were not earning a return on investment at September 30, 2021, and December 31, 2020, respectively. All other assets are earning a return on investment. (2) For more information related to the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability. (3) Amortized over the estimated lives of the respective assets. (4) Amortized over the terms of the related debt issuances. (5) Amortized over the average service life of the remaining plan participants. (6) Deferral is recovered over the following three year regulatory period. (7) Currently not in a recovery period.

The following table summarizes Cleco’s net regulatory assets and liabilities:


Cleco
(THOUSANDS)	AT SEPT. 30, 2021		AT DEC. 31, 2020
Total Cleco Power regulatory assets, net	$	576,062	$	275,469
2016 Merger adjustments *
Fair value of long-term debt	114,001		119,553
Postretirement costs	13,921		15,411
Financing costs	7,334		7,592
Debt issuance costs	5,004		5,254
Total Cleco regulatory assets, net	$	716,322	$	423,279

* Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.

Accumulated Deferred Fuel

In February 2021, Winter Storms Uri and Viola moved through Louisiana causing substantial damage to Cleco’s distribution assets, electricity generation supply shortages, natural gas supply shortages, and increases in wholesale prices of natural gas in the U.S., primarily due to prolonged freezing temperatures. Incremental fuel and purchased power costs were incurred as a result of the winter storms. On March 29, 2021, Cleco Power received approval from the LPSC to defer $50.0 million of these costs and recover them over 12 months through Cleco Power’s FAC beginning in May 2021. For more information about the incremental fuel and purchased power costs related to Winter Storms Uri and Viola, see Note 17 — “Storm Restoration — Winter Storms Uri and Viola.”

Higher lignite and natural gas costs also contributed to the increase in Cleco Power’s accumulated deferred fuel.

Affordability Study

On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan. As a result, Cleco Power was allowed to establish a regulatory asset of $13.6 million related to outside consulting fees for the assessment of Cleco Power’s practices and assistance in the identification of potential cost savings opportunities, while maintaining superior levels of employee safety, reliability, customer service, environmental stewardship, community involvement, and regulatory transparency. The regulatory asset is being amortized over 10 years beginning July 1, 2021.

Bayou Vista To Segura Deferred Revenue Requirement

On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan. As a result, Cleco Power was allowed to establish a regulatory asset and recover the revenue requirements, including interest at Cleco Power’s weighted average cost of capital, upon the completion of each phase of the Bayou Vista to Segura Transmission project. The northern phase of the project was completed in August 2021. At September 30, 2021, Cleco Power had a regulatory asset of $0.3 million related to deferred revenue associated with the northern phase of the Bayou Vista to Segura Transmission project. The regulatory asset will be amortized over 12 months beginning July 1, 2022.

Deferred Storm Restoration Costs — Hurricane Ida

On August 29, 2021, Hurricane Ida made landfall in southeast Louisiana as a Category 4 storm, causing power outages for approximately 100,000 of Cleco Power’s electric customers located primarily in southeastern Louisiana.

On September 22, 2021, the LPSC approved Cleco Power’s establishment of a regulatory asset to track and defer non-capital expenses associated with the hurricane. For more information about Hurricane Ida, see Note 17 — “Storm Restoration — Hurricane Ida.”

Deferred Storm Restoration Costs — Winter Storms

In February 2021, Cleco Power’s service territory experienced extreme and unprecedented winter weather.

On February 14, 2021, Winter Storm Uri reached Louisiana resulting in power outages for approximately 11,000 of Cleco Power’s electric customers located primarily in south Louisiana.

On February 17, 2021, Winter Storm Viola reached Louisiana resulting in power outages for approximately 43,000 of Cleco Power’s electric customers located primarily in central and south Louisiana.

On March 17, 2021, the LPSC approved utilities establishing a regulatory asset to track and defer non-capital expenses associated with these winter storms. For more information about Winter Storms Uri and Viola, see Note 17 — “Storm Restoration — Winter Storms Uri and Viola.”

Lignite Mine Closure Cost

On October 6, 2020, Cleco Power and SWEPCO made a joint filing with the LPSC seeking authorization to close the Oxbow mine and to include and defer certain accelerated mine closing costs in fuel and related ratemaking treatment. On March 17, 2021, the LPSC approved the establishment of a regulatory asset for certain lignite costs that would otherwise be billed through Cleco Power’s FAC and any reasonable incremental third-party professional costs related to the closure of the mine. At September 30, 2021, Cleco Power had a regulatory asset of $93.1 million for these mine-related incurred costs. For more information on the Oxbow mine, see Note 13 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”

Madison Unit 3 Property Taxes

On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan. As a result, beginning July 1, 2022, Cleco Power will be allowed to recover property taxes paid for Madison Unit 3, including a carrying charge at Cleco Power’s weighted average cost of capital, grossed up for income taxes. At September 30, 2021, Cleco Power had a regulatory asset of $6.3 million for the accrued 2021 Madison Unit 3 property taxes. The amount included in the cost recovery mechanism each year will amortize over 12 months.

Other

On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan resulting in Cleco Power establishing several regulatory assets. Cleco Power was allowed to establish a regulatory asset to recover the undercollection of revenues related to the Northlake Transmission Agreement capped at $5.7 million. The amount recorded in the regulatory asset at June 30, 2021, began being amortized over 12 months on July 1, 2021. Amounts recorded in the regulatory asset after June 30, 2021, are being amortized over the remaining regulatory period ending June 30, 2022. At September 30, 2021, Cleco Power had a regulatory asset of $4.2 million relating to the Northlake Transmission Agreement.

In addition, the LPSC approved recovery of other previously deferred costs associated with Cleco Power’s

recently approved retail rate plan, which began being amortized over four years on July 1, 2021. At September 30, 2021, Cleco Power had a regulatory asset of $3.9 million for deferred costs.

In June 2017, and prior to the approval of Cleco Power’s new retail rate plan, the LPSC approved the establishment of a regulatory asset upon the completion of the Coughlin Pipeline project, for the revenue requirement associated with the project, until Cleco Power’s new retail rate plan was approved. As approved by the LPSC in Cleco Power’s new retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021. At September 30, 2021, Cleco Power had a regulatory asset of $5.1 million related to the deferred revenue associated with the Coughlin Pipeline project.

St. Mary Clean Energy Center

Cleco Power had a regulatory asset for revenue requirements related to the St. Mary Clean Energy Center project. As approved by the LPSC in Cleco Power’s new retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021.