Regulation and Rates

9 Months Ended

Sep. 30, 2021


Note 11 — Regulation and Rates

Provision for rate refund on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets consisted primarily of the following:


(THOUSANDS)	AT SEPT. 30, 2021		AT DEC. 31, 2020
Cleco Katrina/Rita storm recovery charges	$	1,610	$	1,617
FERC audit	$	—	$	1,912
FRP	$	1,236	$	1,786
Site-specific industrial customer	$	611	$	710
TCJA	$	2,057	$	2,057
Transmission ROE	$	—	$	595

Cleco Katrina/Rita Storm Recovery Charges

Prior to the repayment of the Cleco Katrina/Rita storm recovery bonds in March 2020, Cleco Katrina/Rita had the right to bill and collect storm restoration costs from Cleco Power’s customers to pay administrative fees, interest, and principal on the Cleco Katrina/Rita storm recovery bonds. In April 2021, after payments for all final administrative and winding up activities of Cleco Katrina/Rita were made, Cleco Katrina/Rita transferred its remaining restricted cash to Cleco Power. As a result, at September 30, 2021, Cleco Power had $1.6 million accrued for amounts to be used to benefit retail customers in a manner and timing as approved by the LPSC. For more information on Cleco Katrina/Rita’s storm recovery, see Note 1 — “Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”

FERC Audit

As of September 30, 2021, $4.4 million, including accrued interest, was fully refunded to Cleco Power’s wholesale transmission customers as a combination of refund payments related to the FERC audit findings and a reduction in Attachment O of the MISO tariff and grandfathered agreement rates over the preceding 12 months. For more information about the FERC audit, see Note 13 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — FERC Audit.”

FRP

Prior to July 1, 2021, Cleco Power’s annual retail earnings were subject to an FRP established by the LPSC in June 2014. The 2014 FRP allowed Cleco Power to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60.0% of retail earnings between 10.9% and 11.75%, and all retail earnings over 11.75%, were required to be refunded to customers. In June 2019, Cleco Power filed an application with the LPSC for a new FRP. On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan. Effective July 1, 2021, under the terms of the new FRP, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. Cleco Power’s next base rate case is required to be filed with the LPSC on or before March 31, 2023.

Cleco Power filed its monitoring report for the 12 months ended June 30, 2019, on October 31, 2019, indicating that no refund was due. On September 22, 2021, the LPSC approved

the 2019 monitoring report indicating no refund was due. Monitoring reports for the 12 months ended June 30, 2020, and 2021, were not required due to the expiration of the 2014 FRP. The next monitoring report will be filed on or before October 31, 2022, for the 12 months ending June 30, 2022.

Cleco Power continued to accrue the annual cost of service savings resulting from the 2016 Merger Commitments through June 30, 2021. Beginning July 1, 2021, the annual cost of service savings are included in Cleco Power’s new retail rate plan. In September 2021, Cleco Power refunded $1.2 million for the period of July 1, 2019, through June 30, 2020. At September 30, 2021, Cleco Power had $1.2 million accrued for the period July 1, 2020, through June 30, 2021, which is expected to be refunded to customers in September 2022.

TCJA

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. As a result of the tax rate reduction, on January 1, 2018, Cleco Power began accruing an estimated reserve for the reduction in the federal statutory corporate income tax rate. In February 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flow through to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. In July 2019, the LPSC approved Cleco Power’s rate refund of $79.2 million, plus interest, for the reduction in the statutory federal tax rate for the period from January 2018 to June 2020. The refund was credited to customers over 12 months beginning August 1, 2019.

In July 2019, the LPSC approved Cleco Power’s motion to address the rate redesign and the regulatory liability for excess ADIT, resulting from the enactment of the TCJA, in Cleco Power’s current base rate case.

As a result of the delay in the rate case, on July 15, 2020, the LPSC approved Cleco Power’s application to extend the TCJA bill credits at the same rate as determined in the initial TCJA refund of approximately $7.0 million per month. The extension was for the period of August 2020 through November 2020. On November 13, 2020, Cleco Power again received approval for its application to extend the TCJA bill credits from December 1, 2020, until such a time that the rate case was completed. The $7.0 million monthly refund consisted of approximately $4.4 million, which was to be funded by the unprotected excess ADIT, and approximately $2.6 million, which is the change in the federal statutory corporate income tax rate from 35% to 21%. At September 30, 2021, Cleco Power had $2.1 million accrued for the estimated federal tax-related benefits from the TCJA.

On June 16, 2021, the LPSC approved Cleco Power’s new retail rate plan which includes the settlement of the TCJA protected and unprotected excess ADIT. Effective July 1, 2021, all retail customers will continue receiving bill credits resulting from the TCJA. The target retail portion of the unprotected excess ADIT is approximately $2.5 million monthly and will be credited over a period of three years concluding on June 30, 2024. The retail portion of the protected excess ADIT will be credited until the full amount of the protected excess ADIT has been returned to Cleco Power’s customers through bill credits. At September 30, 2021, Cleco Power had $313.9 million accrued for the excess ADIT, of which $39.5 million is reflected in current regulatory liabilities.

Transmission ROE

Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco Power, may collect under the MISO tariff. The complaints covered the period December 2013 through May 2016. As of September 30, 2021, the overcollection due to the change in ROE was fully refunded. For more information on the ROE complaints, see Note 13 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

SSR

In September 2016, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3 effective April 1, 2017. MISO conducted a study which determined the proposed retirement of Teche Unit 3 would result in violations of specific applicable reliability standards for which no mitigation is available. As a result, MISO designated Teche Unit 3 as an SSR unit until such time that an appropriate alternative solution could be implemented to mitigate reliability issues. One mitigating factor identified was Cleco Power’s Terrebonne to Bayou Vista Transmission project, which was completed in April 2019. Cleco Power received a termination notice, effective April 30, 2019, and filed paperwork to withdraw the filed Attachment Y. While operating as an SSR unit, Cleco Power received monthly payments that included recovery of expenses, including capital expenditures, related to the operations of Teche Unit 3. Additionally, MISO allocated SSR costs to the load serving entities that required the operation of the SSR unit, including Cleco Power. These payments and cost allocations were finalized as part of a MISO SSR settlement approved in December 2018. Cleco Power operated Teche Unit 3 as an SSR unit from April 2017 until April 2019.

On September 7, 2021, Cleco Power made a filing with the LPSC giving notice of its intent to consider retiring Teche Unit 3, barring any violations of specific applicable reliability standards. Assuming no violations are found, Teche Unit 3 could be retired in 2022. At September 30, 2021, Cleco Power had $4.3 million accrued for the net capital refund for capital expenditures paid for by third parties while operating under the SSR agreement. The capital refund is expected to be paid in early 2022.