Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 — 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, 2021, and 2020:

Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2021		2020		2021		2020
Effective tax rate	20.3	%	29.4	%	12.4	%	26.8	%

Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2021		2020		2021		2020
Effective tax rate	1.0	%	33.4	%	(0.2)	%	28.8	%

For Cleco, the effective income tax rate for the three and nine months ended September 30, 2021, and 2020, were different than the federal statutory rate primarily due to the flow through of tax benefits, including AFUDC; the amortization of excess ADIT; adjustment to record tax expense at the projected annual effective tax rate; adjustments for tax returns as filed; and state tax expense.

For Cleco Power, the effective income tax rate for the three and nine months ended September 30, 2021, and 2020, were different than the federal statutory rate primarily due to the flow through of tax benefits, including AFUDC equity; amortization of excess ADIT; adjustment to record tax expense at the projected annual effective tax rate; adjustments for tax returns as filed; and state tax expense.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At September 30, 2021, and December 31, 2020, 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 September 30, 2021, 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 tax positions are examined and agreed upon prior to filing the federal tax return. While the statute of limitations remains open for tax years 2018, 2019, and 2020, the IRS has completed its review of years 2018 through 2020, and these tax returns were filed consistent with the IRS’s review. The IRS has placed Cleco in the Bridge phase of the Compliance Assurance Process for the 2020 and 2021 tax years. In this phase, the IRS will not accept any disclosures, conduct any reviews, or provide any assurances. The IRS has accepted Cleco’s application for the Compliance Assurance Process for the 2022 tax year.

The state income tax years 2018, 2019, and 2020 remain open to examination by the Louisiana Department of Revenue.

Cleco classifies income tax penalties as a component of other expense. For the three and nine months ended September 30, 2021, and 2020, no penalties were recognized.

CARES Act

In March 2020, the CARES Act was signed into law. The CARES Act includes tax relief provisions such as an alternative minimum tax credit refund, a five-year net operating loss carryback from years 2018 through 2020, and deferred payments of employer payroll taxes.

Cleco deferred $6.0 million in employer payroll tax payments for the period March 27, 2020, through December 31, 2020. Cleco will pay $3.0 million of the obligation by December 31, 2021, and the remaining $3.0 million by December 31, 2022.

Cleco Power deferred $3.6 million in employer payroll tax payments for the period March 27, 2020, through December 31, 2020. Cleco Power will pay $1.8 million of the obligation by December 31, 2021, and the remaining $1.8 million by December 31, 2022.

The CARES Act also 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. Cleco does not have any disallowed interest for the 2020 tax year.

Consolidated Appropriations Act of 2021

In December 2020, the Consolidated Appropriations Act of 2021 (CAA) was signed into law. The CAA includes COVID-19 tax relief and tax extender provisions. These include extensions of time to begin construction on certain solar assets eligible for the Investment Tax Credit (ITC), 100% deductibility of business meals in 2021 and 2022, and an extension of the work opportunity tax credit. The ITC percentage has been increased for projects starting construction through 2023 and placed in service by the end of 2025. Management does not expect the CAA to have a material impact on the Registrants.

Future Tax Reform

Cleco is monitoring the President’s current tax reform proposals, as well as the current proposed infrastructure bill. The proposals have the potential to increase the federal statutory corporate income tax rate from the current rate of 21%. Currently, management is unable to predict the impact of the proposals on the Registrants.

Cleco is also monitoring possible updates related to a decreased Louisiana state corporate income tax rate proposal and a Louisiana state sales tax proposal to be voted on in November 2021.