Intangible Assets, Intangible Liabilities, and Goodwill

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets, Intangible Liabilities and Goodwill

Note 17 — Intangible Assets, Intangible Liabilities, and Goodwill

During 2008, Cleco Katrina/Rita acquired a $177.5 million intangible asset which included $176.0 million for the right to bill and collect storm recovery charges from customers of Cleco Power and $1.5 million of financing costs. This intangible asset was fully amortized in March 2020 and had no residual value at the end of its life.

As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the valuation of finite intangible assets relating to the Cleco Power trade name and long-term wholesale power supply agreements. At the end of their lives, these power supply agreement intangible assets will have no residual value. The intangible assets related to the power supply agreements are amortized over the estimated life of each applicable contract ranging between 7 and 19 years, and the amortization is included in Electric operations on Cleco’s Consolidated Statements of Income.

During the third quarter of 2021, Cleco determined that the fair value of the Cleco Power trade name was less than its carrying value and an impairment of $3.8 million was recognized reducing the carrying value to zero. The impairment resulted in an increase in amortization expense and was reflected in Depreciation and amortization on Cleco’s Consolidated Statement of Income at December 31, 2021. For more information on the trade name intangible asset impairment, see Note 8 — “Fair Value Accounting and Financial Instruments.”

As a result of the Cleco Cajun Transaction, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the difference between the contract and market price of acquired long-term wholesale power agreements. At the end of their lives, these intangible assets and liabilities will have no residual value. These intangibles are amortized over the estimated life of each applicable contract ranging between 6 and 8 years. The amortization is included in Electric operations on Cleco’s Consolidated Statements of Income.

As part of the Cleco Cajun Transaction, Cleco assumed an LTSA for maintenance services related to the Cottonwood Plant. The intangible liability is being amortized using the straight-line method over the estimated life of the LTSA of seven years. The amortization is included as a reduction to the LTSA prepayments on Cleco’s Consolidated Balance Sheet. For more information on the fair value adjustments of intangible assets and liabilities related to the Cleco Cajun Transaction, see Note 3 — “Business Combinations.”

The following tables present Cleco and Cleco Power’s amortization of intangible assets and liabilities:

Cleco
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2021		2020		2019
Intangible assets
Cleco Katrina/Rita right to bill and collect storm recover charges	$	—	$	517	$	20,576
Trade name	$	3,897	$	255	$	255
Power supply agreements	$	25,600	$	25,600	$	24,273
Intangible liabilities
LTSA	$	3,484	$	3,484	$	3,234
Power supply agreements	$	2,378	$	3,528	$	3,194
An impairment on the Trade name intangible asset was recognized in 2021. No impairments for intangibles in the table above were recognized for 2020 and 2019.

Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2021		2020		2019
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	—	$	517	$	20,576

The following tables summarize the balances for intangible assets and liabilities subject to amortization for Cleco:

Cleco
	AT DEC. 31,
(THOUSANDS)	2021		2020
Intangible assets
Trade name	$	—	$	5,100
Power supply agreements	184,004		184,004
Total intangible assets carrying amount	184,004		189,104
Intangible liabilities
LTSA	24,100		24,100
Power supply agreements	14,200		14,200
Total intangible liabilities carrying amount	38,300		38,300
Net intangible assets carrying amount	145,704		150,804
Accumulated amortization	(82,466)		(63,932)
Net intangible assets subject to amortization	$	63,238	$	86,872

The following table summarizes the amortization expense related to intangible assets and liabilities expected to be recognized in Cleco’s Consolidated Statements of Income:

Cleco
(THOUSANDS)	INTANGIBLE ASSETS		INTANGIBLE LIABILITIES
For the year ending Dec. 31,
2022	$	25,600	$	(5,041)
2023	$	25,373	$	(5,041)
2024	$	18,801	$	(5,041)
2025	$	5,037	$	(3,874)
2026	$	744	$	—
Thereafter	$	6,680	$	—

Goodwill

In connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion. Management assigned the recognized goodwill to the Cleco Power reporting unit. Goodwill is required to be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires significant judgments, including the identification of reporting units, assignments of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of the reporting units.

Cleco conducted its 2021 annual impairment test using an August 1, 2021, measurement date. The fair value of the Cleco Power reporting unit was estimated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Significant assumptions used in these fair value estimates include estimation of future cash flows related to capital expenditures, long-term rate of growth, and weighted-average cost of capital or discount rate. Changes in these assumptions could materially affect the determination of fair value and goodwill impairment at Cleco Power. Based on the tests performed, management has determined that the fair value of the Cleco Power reporting unit exceeds the carrying value resulting in no impairment of Cleco Power’s goodwill for 2021.

Management estimated the fair value of Cleco Power’s equity to be $3.82 billion at the August 1, 2021, measurement date. The carrying value of Cleco Power’s equity was approximately $3.55 billion with the excess of the fair value over the carrying value representing 7.6% or $270.1 million. There were no accumulated impairment charges.