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 of regulated operations.

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


Cleco Power
	AT DEC. 31,				REMAINING RECOVERY PERIOD (YRS.)
(THOUSANDS)	2021		2020







Regulatory assets
Acadia Unit 1 acquisition costs	$	1,913	$	2,019	18
Accumulated deferred fuel (1)	56,826		28,194		Various	(2)
Affordability study	13,094		—		9.5	(3)
AFUDC equity gross-up	66,574		69,670		Various
AMI deferred revenue requirement	2,045		2,591		4
AROs (1)(7)	15,141		5,488
Bayou Vista to Segura transmission project deferred revenue requirement (7)	1,392		—
Coughlin transaction costs	845		876		27.5
COVID-19 executive order	2,953		2,953
Deferred storm restoration costs - Hurricane Delta (7)	17,113		17,051
Deferred storm restoration costs - Hurricane Ida (7)	37,617		—
Deferred storm restoration costs - Hurricane Laura (7)	54,282		54,406
Deferred storm restoration costs - Hurricane Zeta (7)	3,296		3,493
Deferred storm restoration costs - Winter Storms Uri & Viola (7)	1,912		—
Dolet Hills Power Station closure costs (7)	145,844		48,982
Emergency declarations	—		270
Energy efficiency	1,645		2,820		1
Financing costs (1)	6,826		7,184		Various	(4)
Interest costs	3,459		3,708		Various	(3)
Lignite Mine closure costs (7)	136,980		—
Madison Unit 3 property taxes (7)	8,362		—

Non-service cost of postretirement benefits	12,950		9,901		Various	(3)
Other	11,224		4,229		Various	(2)
Postretirement costs	117,773		165,437		Various	(5)
Production operations and maintenance expenses	11,058		4,058		Various	(6)
Rodemacher Unit 2 deferred costs (7)	6,931		1,333
St. Mary Clean Energy Center	6,089		3,479		3.5

Training costs	5,929		6,085		38
Tree trimming costs	9,092		11,807		3.5
Total regulatory assets	759,165		456,034
Regulatory liabilities
AFUDC (7)	—		(4,218)
Corporate franchise tax, net	—		(763)
Deferred taxes, net	(95,544)		(175,584)		Various	(2)


Total regulatory liabilities	(95,544)		(180,565)



Total regulatory assets, net	$	663,621	$	275,469
(1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2021, and 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
	AT DEC. 31,
(THOUSANDS)	2021		2020
Total Cleco Power regulatory assets, net	$	663,621	$	275,469
2016 Merger adjustments (1)
Fair value of long-term debt	112,150		119,553
Postretirement costs	13,424		15,411
Financing costs	7,248		7,592
Debt issuance costs	4,920		5,254
Total Cleco regulatory assets, net	$	801,363	$	423,279

(1) Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.

Acadia Unit 1 Acquisition Costs

In 2009, the LPSC approved Cleco Power’s request to establish a regulatory asset for costs incurred as a result of the acquisition by Cleco Power of Acadia Unit 1 and half of Acadia Power Station’s related common facilities. The Acadia Unit 1 acquisition costs are being recovered over a 30-year period beginning February 2010.

Accumulated Deferred Fuel

Cleco Power is allowed to recover the cost of fuel used for electric generation and power purchased for utility customers through the LPSC-established FAC or related wholesale contract provisions, which enable Cleco Power to pass on to its customers substantially all such charges. The difference between fuel and purchased power revenues collected from retail and wholesale customers and the current fuel and purchased power costs is generally recorded as Accumulated deferred fuel on Cleco Power’s Consolidated Balance Sheet. For 2021, approximately 76% of Cleco Power’s total fuel cost was regulated by the LPSC.

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 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 19 — “Storm Restoration, Securitization, and Cost Recovery — 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.

AFUDC Equity Gross-Up

Cleco Power capitalizes equity AFUDC as a cost component of construction projects. Cleco Power has recorded a regulatory asset to recover the tax gross-up related to the equity component of AFUDC. These costs are being amortized over the estimated lives of the respective assets constructed.

AMI Deferred Revenue Requirement

In February 2011, the LPSC approved Cleco Power’s stipulated settlement in Docket No. U-31393 allowing Cleco Power to defer the estimated revenue requirements for the AMI project as a regulatory asset. In June 2014, the LPSC approved Cleco Power’s recovery of the AMI regulatory asset over the average life of the AMI meters, or 11 years. In July 2014, Cleco Power began recovering the AMI deferred revenue requirement.

AROs

Cleco Power recorded an ARO liability for the retirement of certain ash disposal facilities. The ARO regulatory asset represents the accretion of the ARO liability and the depreciation of the related assets. For more information on the accounting treatment and net changes of Cleco Power’s AROs, see Note 2 — “Summary of Significant Accounting Policies — AROs”, and Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Long-Term Purchase Obligations — Other Commitments.”

Bayou Vista To Segura Transmission Project 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, starting in the month after completion of each phase of the Bayou Vista to Segura Transmission project. The northern phase of the project was completed in August 2021, and the southern phase was completed in December 2021. At December 31, 2021, Cleco Power had a regulatory asset of $1.4 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.

Coughlin Transaction Costs

In January 2014, the LPSC authorized Cleco Power to create a regulatory asset for the transaction costs related to the transfer of Coughlin from Evangeline to Cleco Power. The Coughlin transaction costs are being recovered over a 35-year period beginning July 2014.

COVID-19 Executive Order

On March 13, 2020, the LPSC issued an executive order prohibiting the disconnection of utilities for nonpayment. This order resulted in an increase of expenses and a loss of revenue for Cleco Power. On April 29, 2020, the LPSC issued an order allowing utilities to establish a regulatory asset for expenses incurred from the suspension of disconnections and collection of late fees imposed by the LPSC executive order. On July 1, 2020, the LPSC issued an order terminating the moratorium on disconnections effective July 16, 2020. Cleco began resuming disconnections and late fees and utilizing collection agencies on October 1, 2020. On December 4,

2020, Cleco Power made a filing with the LPSC requesting the recovery of the regulatory asset as well as the lost revenue associated with the disconnection fees and incremental costs over a four-year period. At December 31, 2021, Cleco Power had a regulatory asset of $3.0 million for expenses incurred.

Deferred Storm Restoration Costs

In 2020 and 2021, Cleco Power’s distribution and transmission systems sustained substantial damage for four seperate hurricanes and two severe winter storms resulting in significant outages for its customers during each storm. Cleco Power established a separate regulatory asset to track and defer non-capital expenses associated with each corresponding storm, as approved by the LPSC. For more information about the storm restoration and cost recovery, see Note 19 — “Storm Restoration, Securitization, and Cost Recovery.”

Dolet Hills Power Station Closure Costs

In June 2020, Cleco Power revised depreciation rates for the Dolet Hills Power Station to utilize the December 31, 2021, expected end-of-life and early retirement of the Dolet Hills Power Station and defer depreciation expense to a regulatory asset for the amount in excess of the previously LPSC-approved depreciation rates.

The Dolet Hills Power Station was retired on December 31, 2021. On January 31, 2022, Cleco Power filed an application with the LPSC requesting approval of the regulatory treatment and recovery of stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station over 20 years. At December 31, 2021, Cleco Power had $145.8 million deferred as a regulatory asset for stranded costs. For more information on the Dolet Hills Power Station, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Risks and Uncertainties.”

Emergency Declarations

In August 2016, the LPSC issued emergency declaration executive orders following flooding events in south Louisiana which prohibited public utilities from disconnecting or charging late fees to customers for non-payment in affected parishes. In January 2017, the LPSC issued an order that terminated the executive orders effective March 1, 2017, and allowed public utilities to formally petition the LPSC to recover lost revenues as a result of the executive orders. In July 2017, Cleco Power began recovering lost revenues associated with the flooding events. This regulatory asset was fully amortized in June 2021.

Energy Efficiency

In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the under recovery of the accumulated decrease in revenues, also known as the LCFC, associated with the energy efficiency program for years 2014 through 2018 to be recovered over a four-year period. Cleco Power began collecting the accumulated LCFC revenues in Cleco Power’s energy efficiency rates effective March 1, 2019. On October 21, 2019, Cleco Power received notice of approval from the LPSC allowing recovery of the accumulated LCFC revenues.

Financing Costs

In 2011, Cleco Power entered into and settled two treasury rate locks. Of the $26.8 million in settlements, $7.4 million was deferred as a regulatory asset relating to ineffectiveness of the

hedge relationships. Also in 2011, Cleco Power entered into a forward starting swap contract. These derivatives were entered into in order to mitigate the interest rate exposure on coupon payments related to forecasted debt issuances. In May 2013, the forward starting interest rate swap was settled at a loss of $3.3 million. Cleco Power deferred $2.9 million of the losses as a regulatory asset, which is being amortized over the terms of the related debt issuances.

Interest Costs

Cleco Power’s deferred interest costs include additional deferred capital construction financing costs authorized by the LPSC. These costs are being amortized over the estimated lives of the respective assets.

Lignite Mine Closure Costs

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 December 31, 2021, Cleco Power had a regulatory asset of $137.0 million for deferred fuel and mine-related incurred costs, which were included in the application filed with the LPSC on January 31, 2022. For more information on the Oxbow mine, see Note 15 — “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 December 31, 2021, Cleco Power had a regulatory asset of $8.4 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.

Non-Service Cost of Postretirement Benefits

On January 1, 2018, FASB’s amended guidance related to defined benefit pension and other postretirement plans became effective. The amendment allows only the service cost component of net benefit cost to be eligible for capitalization within property, plant, and equipment. Beginning January 1, 2018, Cleco Power’s non-service cost previously eligible for capitalization into property, plant, and equipment are being deferred to a regulatory asset and will be amortized over the estimated lives of the respective assets.

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 December 31, 2021, Cleco Power had a regulatory asset of $2.9 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 December 31, 2021, Cleco Power had a regulatory asset of $3.6 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 December 31, 2021, Cleco Power had a regulatory asset of $4.7 million related to the deferred revenue associated with the Coughlin Pipeline project.

Postretirement Costs

Cleco Power recognizes the funded status of its postretirement benefit plans as a net liability or asset. The net liability or asset is defined as the difference between the benefit obligation and the fair market value of plan assets. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. Historically, the LPSC has allowed Cleco Power to recover pension plan expense. Cleco Power, therefore, recognizes a regulatory asset based on its determination that these costs can be collected from customers. These costs are amortized to pension expense over the average service life of the remaining plan participants (approximately six years as of December 31, 2021, for Cleco’s plan) when it exceeds certain thresholds. The amount and timing of the recovery will be based on the changing funded status of the pension plan in future periods. For more information on Cleco’s pension plan and adoption of these authoritative guidelines, see Note 10 — “Pension Plan and Employee Benefits.”

Production Operations and Maintenance Expenses

Annually, Cleco Power is allowed to defer, as a regulatory asset, production operations and maintenance expenses, net of fuel and payroll, above the retail jurisdictional portion of $34.9 million, adjusted annually for a growth factor (deferral threshold). The amount of the regulatory asset is capped at $25.0 million. The LPSC allows Cleco Power to recover the amount deferred in any calendar year over the following three-year regulatory period, beginning on July 1, when the annual rates are set. Cleco Power had a deferral of $9.7 million in 2021 and no deferral in 2020.

Rodemacher Unit 2 Deferred Costs

As a result of environmental regulations, Cleco Power revised Rodemacher Unit 2’s expected end-of-life to coincide with its application to the EPA for an alternative closure date of October 17, 2028. Rodemacher Unit 2’s depreciation expense in excess of the previously LPSC-approved depreciation rates are deferred to a regulatory asset. At December 31, 2021, Cleco Power had $6.9 million deferred as a regulatory asset for accelerated depreciation.

St. Mary Clean Energy Center

Cleco Power has 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.

Training Costs

In 2008, the LPSC approved Cleco Power’s request to establish a regulatory asset for training costs associated with existing processes and technology for new employees at Madison Unit 3. Recovery of these expenditures was approved by the LPSC in 2009. In 2010, Cleco Power began amortizing the regulatory asset over a 50-year period.

Tree Trimming Costs

In October 2016, the LPSC approved Cleco Power to defer and recover through its base rates tree trimming costs. The LPSC authorized a deferral up to $10.9 million, excluding debt carrying costs. Cleco Power is currently collecting deferred tree trimming costs through its base rates and expects them to be fully amortized by 2026.

Cleco Holdings’ 2016 Merger Adjustments

As a result of the 2016 Merger, Cleco implemented acquisition accounting, which eliminated AOCI at the Cleco consolidated level on the date of the 2016 Merger. Cleco will continue to recover expenses related to certain postretirement costs; therefore, Cleco recognized a regulatory asset based on its determination that these costs that are probable of recovery continue to be collected from customers. These costs will be amortized to Other operations expense over the average remaining service period of participating employees. Cleco will also continue to recover financing costs associated with the settlement of two treasury rate locks and a forward starting swap contract that were previously recognized in AOCI. Additionally, as a result of the 2016 Merger, a regulatory asset was recorded for debt issuance costs that were eliminated at Cleco and a regulatory asset was recorded for the difference between the carrying value and the fair value of long-term debt. These regulatory assets are being amortized over the terms of the related debt issuances, unless the debt is redeemed prior to maturity, at which time any unamortized related regulatory asset will be derecognized.

AFUDC

The capitalization of AFUDC by Cleco Power is a utility accounting practice prescribed by FERC and the LPSC. AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance construction of new and existing facilities. While cash is not realized currently from such allowance, AFUDC increases the revenue requirement over the same life of the plant through a higher rate base and higher depreciation. Under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. For 2020, Cleco Power’s average short-term debt balance exceeded its average construction work-in-progress balance; however, Cleco Power elected the FERC capital structure waiver contained in FERC Docket Number AC20-127-000. In December 2021, Cleco Power received approval from the LPSC for recovery of the retail portion of AFUDC under the FERC waiver.

Corporate Franchise Tax, Net

As part of the FRP extension approved by the LPSC in June 2014, Cleco Power was authorized to recover through a rider the retail portion of state corporate franchise taxes paid. The

retail portion of state corporate franchise taxes paid each year will be recovered over 12 months beginning July 1 of the following year.

Deferred Taxes, Net

The regulatory assets and liabilities recorded for deferred income taxes represent the effect of tax benefits or detriments that must be flowed through to customers as they are received or paid. The amounts deferred are attributable to differences between book and tax recovery periods. In 2017, the TCJA was enacted. Changes in the IRC, as amended, from the TCJA had a material impact on the Registrants’ financial statements in 2017. Tax effects of changes in tax laws must be recognized in the period in which the law is enacted. Also, deferred tax assets and liabilities must be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. At December 31, 2021, and 2020, Cleco and Cleco Power had $302.0 million and $352.4 million, respectively, accrued for the excess ADIT as a result of the TCJA. For more information on the status of the TCJA

regulatory liability, see Note 13 — “Regulation and Rates — TCJA.”