Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 — Income Taxes

Cleco

For the year ended December 31, 2021, income tax expense was lower than the amount computed by applying the statutory federal rate. For the years ended December 31, 2020, and 2019, income tax expense was higher than the amount computed by applying the statutory federal rate. The differences are as follows:

				FOR THE YEAR ENDED DEC. 31,
(THOUSANDS, EXCEPT PERCENTAGES)	2021			2020			2019
Income before tax	$	208,077		$	158,018		$	195,830
Statutory rate	21.0		%	21.0		%	21.0		%
Tax expense at federal statutory rate	$	43,696		$	33,184		$	41,124
Increase (decrease)
Plant differences, including AFUDC flowthrough	(356)			5,100			(4,687)
State income taxes, net of federal benefit	9,619			7,190			9,565
Return to accrual adjustment	(3,862)			7,218			(3,963)
Amortization of excess ADIT	(37,254)			(16,667)			—
Other, net	1,268			(307)			1,126
Total tax expense	$	13,111		$	35,718		$	43,165
Effective rate	6.3		%	22.6		%	22.0		%

Information about current and deferred income tax expense is as follows:

			FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2021		2020		2019
Current federal income tax (benefit) expense	$	(2)	$	(2,634)	$	1,600
Deferred federal income tax (benefit) expense	(9,581)		21,865		37,963
Amortization of accumulated deferred investment tax credits	(142)		(159)		(191)
Total federal income tax (benefit) expense	$	(9,725)	$	19,072	$	39,372
Current state income tax (benefit) expense	(699)		2,636		1,675
Deferred state income tax expense	23,535		14,010		2,118
Total state income tax expense	$	22,836	$	16,646	$	3,793
Total federal and state income tax expense	$	13,111	$	35,718	$	43,165
Items charged or credited directly to member’s equity
Federal deferred	514		(2,202)		(5,130)
State deferred	(120)		(720)		(1,678)
Total tax expense (benefit) from items charged directly to member’s equity	$	394	$	(2,922)	$	(6,808)
Total federal and state income tax expense	$	13,505	$	32,796	$	36,357

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2021, and 2020 was comprised of the following:

	AT DEC. 31,
(THOUSANDS)	2021		2020
Depreciation and property basis differences	$	(885,747)	$	(865,807)
Net operating loss carryforward	195,488		109,819
NMTC	92,364		92,364
Fuel costs	(38,070)		(8,906)
Other comprehensive income	12,750		13,016
Regulated operations regulatory liability, net	(93,990)		47,060
Postretirement benefits	34,683		25,775
Merger fair value adjustments	(49,806)		(51,073)
Other	(23,436)		(23,624)
Accumulated deferred federal and state income taxes, net	$	(755,764)	$	(661,376)

Cleco Power

For the year ended December 31, 2021, income tax expense was lower than the amount computed by applying the statutory rate. For the years ended December 31, 2020, and 2019, income tax expense was higher than the amount computed by applying the statutory rate. The differences are as follows:

	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS, EXCEPT PERCENTAGES)	2021			2020			2019
Income before tax	$	124,735		$	123,454		$	193,714
Statutory rate	21.0		%	21.0		%	21.0		%
Tax expense at federal statutory rate	$	26,194		$	25,925		$	40,680
Increase (decrease)
Plant differences, including AFUDC flowthrough	(356)			5,100			(4,687)
State income taxes, net of federal benefit	6,343			6,303			11,683
Return to accrual adjustment	(3,831)			7,082			(2,008)
Amortization of excess ADIT	(37,254)			(16,667)			—
Other, net	(449)			(944)			(216)
Total taxes	$	(9,353)		$	26,799		$	45,452
Effective rate	(7.5)		%	21.7		%	23.5		%

Information about current and deferred income tax expense is as follows:

	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2021		2020		2019
Current federal income tax expense	$	—	$	15,724	$	14,781
Deferred federal income tax (benefit) expense	(23,071)		(5,033)		22,443
Amortization of accumulated deferred investment tax credits	(142)		(159)		(191)
Total federal income tax (benefit) expense	$	(23,213)	$	10,532	$	37,033
Current state income tax expense	—		5,069		9,063
Deferred state income tax expense (benefit)	13,860		11,198		(644)
Total state income tax expense	$	13,860	$	16,267	$	8,419
Total federal and state income tax (benefit) expense	$	(9,353)	$	26,799	$	45,452
Items charged or credited directly to members’ equity
Federal deferred	1,714		(576)		(2,500)
State deferred	338		(189)		(818)
Total tax expense (benefit) from items charged directly to member’s equity	$	2,052	$	(765)	$	(3,318)
Total federal and state income tax (benefit) expense	$	(7,301)	$	26,034	$	42,134

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2021, and 2020 was comprised of the following:

	AT DEC. 31,
(THOUSANDS)	2021		2020
Depreciation and property basis differences	$	(744,594)	$	(725,034)
Net operating loss carryforward	125,392		35,442
Fuel costs	(14,552)		(7,072)
Other comprehensive income	6,222		8,274
Regulated operations regulatory liability, net	(93,990)		47,060
Postretirement benefits	20,649		11,951
Other	(6,606)		(5,219)
Accumulated deferred federal and state income taxes, net	$	(707,479)	$	(634,598)

 

Tax Rate Changes

On November 13, 2021, the Louisiana state corporate income tax rate decreased from 8% to 7.5%, effective for the income tax periods beginning on or after January 1, 2022. In accordance with accounting guidance, the impact of the rate change was recorded on Cleco and Cleco Power’s consolidated financial statements at December 31, 2021. The impact was a $20.0 million increase to Accumulated deferred federal and state income taxes, net and a $20.0 million decrease to Regulatory liabilities - deferred taxes, net. There was no impact to income tax expense.

Valuation Allowance

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. At December 31, 2021, and 2020, Cleco had a deferred tax asset resulting from a NMTC carryforward of $92.4 million. If the NMTC carryforward is not utilized, it will begin to expire in 2030. Management considers it more likely than not that the deferred tax asset related to the NMTC carryforward will be realized; therefore, no valuation allowance has been recorded for Cleco and Cleco Power.

Net Operating Losses

For the 2020 tax year, Cleco created a federal net operating loss of approximately $550.0 million and a state net operating loss of approximately $186.1 million. For the 2021 tax year, Cleco expects to create an additional federal net operating loss of $218.4 million and a state net operating loss of $252.9 million.

For the 2020 tax year, Cleco Power created a federal net operating loss of approximately $187.8 million and a state operating loss of $186.1 million. For the 2021 tax year, Cleco Power expects to create an additional federal net operating loss and state net operating loss of $249.6 million and $252.9 million, respectively.

Both the federal and state net operating losses may be carried forward indefinitely. Cleco and Cleco Power consider it more likely than not that these income tax losses will be utilized to reduce future income tax payments, and the entire net operating loss carryforward will be utilized within the statutory deadlines.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At December 31, 2021, and 2020, Cleco and Cleco Power had no

interest payable related to uncertain tax positions. For the years ended December 31, 2021, 2020, and 2019, Cleco and Cleco Power had no interest expense related to uncertain tax positions. At December 31, 2021, and 2020, Cleco and Cleco Power had no liability for unrecognized tax positions.

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 subject to examination by the Louisiana Department of Revenue.

Cleco classifies income tax penalties as a component of other expenses. For the years ended December 31, 2021, 2020, and 2019, no penalties were recognized.

TCJA

On December 22, 2017, the TCJA was enacted into law. The TCJA includes significant changes to the IRC, as amended, including amendments which significantly change the taxation of business entities and includes specific provisions related to rate regulated activities, including Cleco Power. The most significant change that impacts Cleco is the reduction of the corporate federal income tax rate from 35% to 21%.

At December 31, 2021, and 2020, Cleco and Cleco Power had $302.0 million and $352.4 million, respectively, accrued for the excess ADIT. For more information on the regulatory treatment of the TCJA regulatory liability, see Note 6 — “Regulatory Assets and Liabilities — Deferred Taxes, Net” and Note 13 — “Regulation and Rates — TCJA.”

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 paid $3.0 million of the obligation in the fourth quarter of 2021, and will pay 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 paid $1.8 million of the obligation in the fourth quarter of 2021, and will pay the remaining $1.8 million by December 31, 2022.

The CARES Act also included modifications on the limitations of business interest for the 2020 and 2019 tax years. The modifications increased the allowable business interest deduction from 30% to 50% of adjusted taxable income. Cleco did not have any disallowed interest for the 2020 and 2019 tax years.

Consolidated Appropriations Act of 2021In 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.