Fair Value Accounting and Financial Instruments

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Accounting and Financial Instruments

Note 6 — Fair Value Accounting and Financial Instruments

The amounts reflected on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2022, and December 31, 2021, for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, short-term debt, and accounts payable approximate fair value because of their short-term nature. Cleco applies the

provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations, as well as impairment related to goodwill and other long-lived assets.

The following tables summarize the carrying value and estimated market value of Cleco’s and Cleco Power’s financial instruments not measured at fair value on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets:

Cleco
	AT JUNE 30, 2022				AT DEC. 31, 2021
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	3,578,803	$	3,427,506	$	3,482,405	$	3,752,220

* The carrying value of long-term debt does not include deferred issuance costs of $17.5 million at
June 30, 2022, and $13.2 million at December 31, 2021.

Cleco Power
	AT JUNE 30, 2022				AT DEC. 31, 2021
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	1,920,354	$	1,944,134	$	1,820,254	$	2,085,944

* The carrying value of long-term debt does not include deferred issuance costs of $13.0 million at
June 30, 2022, and $7.9 million at December 31, 2021.

In order to fund capital requirements, Cleco issues fixed and variable rate long-term debt with various tenors. The fair value of this class fluctuates as the market interest rates for fixed and variable rate debt with similar tenors and credit ratings change. The fair value of the debt could also change from period to period due to changes in the credit rating of the Cleco entity by which the debt was issued. The fair value of long-term debt is classified as Level 2 in the fair value hierarchy.

Fair Value Measurements and Disclosures

Cleco utilizes a mark-to-market approach recognizing changes in the fair value of FTRs and commodity derivatives at Cleco Cajun in earnings and changes in the fair value of FTRs at Cleco Power as a component of deferred fuel assets and liabilities. Therefore, Cleco elects not to apply hedge accounting, as allowed by accounting guidance, to its commodity-related derivatives. Cleco classifies assets and liabilities that are measured at their fair value according to three different levels depending on the inputs used in determining fair value. Cleco utilizes different valuation techniques for fair value measurements under a fair value hierarchy. Assets and liabilities classified as Level 1 under the hierarchy utilize observable inputs that reflect quotable prices in active markets. Assets and liabilities classified as Level 2 are measured through proxy inputs of similar index or composite pricing. Assets and liabilities classified as Level 3 under the hierarchy are valued based on unobservable inputs, such as internally generated valuation models or valuations obtained in inactive markets where there is no readily available information. Cleco has consistently applied the Level 2 and Level 3 fair value techniques from fiscal period to fiscal period. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The assets and liabilities reported at fair value are grouped into classes based on the underlying nature and risks associated with the individual asset or liability. During the six months ended June 30, 2022, and the year ended December 31, 2021, Cleco did not experience any transfers into or out of Level 3 of the fair value hierarchy.

The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured on a recurring basis. These amounts are presented on a gross

basis before consideration of amounts netted under master netting agreements and the application of collateral received or paid:

Cleco
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT JUNE 30, 2022		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2021		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Money market funds	$	227,618	$	227,618	$	—	$	—	$	145,033	$	145,033	$	—	$	—
FTRs	11,863		—		—		11,863		6,977		—		—		6,977
Natural gas derivatives*	140,247		—		140,247		—		87,464		—		87,464		—
Total assets	$	379,728	$	227,618	$	140,247	$	11,863	$	239,474	$	145,033	$	87,464	$	6,977
Liability description
FTRs	$	7,181	$	—	$	—	$	7,181	$	834	$	—	$	—	$	834
Total liabilities	$	7,181	$	—	$	—	$	7,181	$	834	$	—	$	—	$	834

* Natural gas derivatives include fixed price physical forwards and swap transactions.

Cleco Power
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT JUNE 30, 2022		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2021		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Money market funds	$	149,897	$	149,897	$	—	$	—	$	82,411	$	82,411	$	—	$	—
FTRs	10,857		—		—		10,857		5,515		—		—		5,515
Total assets	$	160,754	$	149,897	$	—	$	10,857	$	87,926	$	82,411	$	—	$	5,515
Liability description
FTRs	$	719	$	—	$	—	$	719	$	597	$	—	$	—	$	597
Total liabilities	$	719	$	—	$	—	$	719	$	597	$	—	$	—	$	597

The following tables summarize the net changes in the net fair value of FTR assets and liabilities classified as Level 3 in the fair value hierarchy for Cleco and Cleco Power:

Cleco
	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2022		2021		2022		2021
Beginning balance	$	515	$	1,023	$	6,143	$	3,180
Unrealized (losses) gains*	(669)		(1,005)		(1,025)		15,155
Purchases	6,774		9,958		7,066		10,806
Settlements	(1,938)		(2,475)		(7,502)		(21,640)
Ending balance	$	4,682	$	7,501	$	4,682	$	7,501
* Cleco Power’s unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco’s Condensed Consolidated Balance Sheet. Cleco Cajun’s unrealized gains (losses) are reported through Purchased power on Cleco’s Condensed Consolidated Income Statement.

Cleco Power
	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2022		2021		2022		2021
Beginning balance	$	567	$	1,088	$	4,918	$	3,216
Unrealized gains (losses)*	4,267		(402)		4,267		(402)
Purchases	6,577		7,768		6,869		8,616
Settlements	(1,273)		(2,464)		(5,916)		(5,440)
Ending balance	$	10,138	$	5,990	$	10,138	$	5,990
* Unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheet.

Cleco Power and Cleco Cajun’s FTRs are valued using MISO’s monthly auction prices. Forward seasonal periods are not included in every monthly auction; therefore, the average of the most recent seasonal auction prices is used for monthly valuation. FTRs are categorized as Level 3 fair value measurements because the only relevant value available

comes from MISO auctions, which occur monthly in the Multi-Period Monthly Auction.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions for Cleco and Cleco Power as of June 30, 2022, and December 31, 2021:

Cleco
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at June 30, 2022	$	11,863	$	7,181	RTO auction pricing	FTR price - per MWh	$	(14.97)	$	19.75
FTRs at Dec. 31, 2021	$	6,977	$	834	RTO auction pricing	FTR price - per MWh	$	(3.94)	$	9.25

Cleco Power
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at June 30, 2022	$	10,857	$	719	RTO auction pricing	FTR price - per MWh	$	(6.61)	$	19.75
FTRs at Dec. 31, 2021	$	5,515	$	597	RTO auction pricing	FTR price - per MWh	$	(4.91)	$	9.25

Concentrations of Credit Risk

At June 30, 2022, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. The following tables present the money market funds in cash and cash equivalents and restricted cash and cash equivalents as recorded on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2022, and December 31, 2021:

Cleco
(THOUSANDS)	AT JUNE 30, 2022		AT DEC. 31, 2021
Cash and cash equivalents	$	125,311	$	145,011
Non-current restricted cash and cash equivalents	$	102,307	$	22

Cleco Power
(THOUSANDS)	AT JUNE 30, 2022		AT DEC. 31, 2021
Cash and cash equivalents	$	47,611	$	82,411
Non-current restricted cash and cash equivalents	$	102,286	$	—

Money market fund assets are discounted to the current period using a published U.S. Treasury interest rate as a proxy for a risk-free rate of return. If the money market funds failed to perform under the terms of the investments, Cleco and Cleco Power would be exposed to a loss of the invested amounts. Collateral on these types of investments is not required by either Cleco or Cleco Power. The Level 1 money market funds asset consists of a single class. In order to capture interest income and minimize risk, cash is invested in money market funds that invest primarily in short-term securities issued by the U.S. government to maintain liquidity and achieve the goal of a

net asset value of a dollar. The risks associated with this class are counterparty risk of the fund manager and risk of price volatility associated with the underlying securities of the fund.

When Cleco enters into commodity derivative or physical commodity transactions directly with market participants, Cleco may be exposed to counterparty credit risk. Cleco is exposed to counterparty credit risk when a counterparty fails to meet their financial obligations causing Cleco to incur replacement cost losses. Cleco enters into master agreements with counterparties that govern the risk of credit default and allow for collateralization above prenegotiated uncollateralized thresholds to help mitigate potential losses. Alternatively, Cleco may be required to provide credit support or pay liquidated damages with respect to any open trading contracts that Cleco has entered into or may enter into in the future. The amount of credit support that Cleco may be required to provide at any point in the future is dependent on the amount of the initial contract, changes in the market price, changes in open contracts, changes in the amounts counterparties owe to Cleco, and any prenegotiated unsecured thresholds agreed to in the master contract. Changes in any of these factors could cause the amount of requested credit support to increase or decrease.

Commodity Contracts

On Cleco’s Condensed Consolidated Balance Sheets, the fair value of amounts associated with Cleco Cajun’s derivative instruments are offset with related cash collateral balances with the same counterparty. The following tables present the fair values of derivative instruments and their respective line items as recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2022, and December 31, 2021:

Cleco
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
		AT JUNE 30, 2022
				GROSS AMOUNTS OFFSET ON THE BALANCE SHEET		GROSS AMOUNTS OFFSET ON THE BALANCE SHEET				GROSS AMOUNTS NOT OFFSET ON THE BALANCE SHEET (1)
(THOUSANDS)	BALANCE SHEET LINE ITEM	GROSS ASSET (LIABILITY)		CONTRACT NETTING		CASH COLLATERAL		NET ASSET (LIABILITY) ON THE BALANCE SHEET		COLLATERAL		NET AMOUNT
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	11,863	$	—	$	—	$	11,863	$	—	$	11,863
Current	Energy risk management liabilities	(7,181)		—		—		(7,181)		—		(7,181)
Natural gas derivatives
Current	Energy risk management assets	85,708		(2,497)		(23,524)		59,687		(62,184)		(2,497)
Non-current	Energy risk management assets	99,536		—		(18,976)		80,560		(44,308)		36,252
Current	Energy risk management liabilities	(2,497)		2,497		—		—		—		—
Commodity-related contracts, net		$	187,429	$	—	$	(42,500)	$	144,929	$	(106,492)	$	38,437

(1) Represents letters of credit by counterparties.

Cleco
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
		AT DEC. 31, 2021
				GROSS AMOUNTS OFFSET ON THE BALANCE SHEET				GROSS AMOUNTS NOT OFFSET ON THE BALANCE SHEET (1)
(THOUSANDS)	BALANCE SHEET LINE ITEM	GROSS ASSET (LIABILITY)		CONTRACT NETTING		NET ASSET (LIABILITY) ON THE BALANCE SHEET		COLLATERAL		NET AMOUNT
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	6,977	$	—	$	6,977	$	—	$	6,977
Current	Energy risk management liabilities	(834)		—		(834)		—		(834)
Natural gas derivatives
Current	Energy risk management assets	37,061		(559)		36,502		(15,000)		21,502
Non-current	Energy risk management assets	50,962		—		50,962		—		50,962
Current	Energy risk management liabilities	(559)		559		—		—		—
Commodity-related contracts, net		$	93,607	$	—	$	93,607	$	(15,000)	$	78,607

(1) Represents letters of credit by counterparties.

Cleco Power
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT JUNE 30, 2022		AT DEC. 31, 2021
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	10,857	$	5,515
Current	Energy risk management liabilities	(719)		(597)
Commodity-related contracts, net		$	10,138	$	4,918

At June 30, 2022, cash collateral received from counterparties and held by Cleco was $42.5 million, of which

$23.5 million was netted against the current portion of Energy risk management assets on Cleco’s Condensed Consolidated Balance Sheet and $19.0 million was netted against the non-current portion of Energy risk management assets on Cleco’s Condensed Consolidated Balance Sheet. At December 31, 2021, there was no cash collateral posted with or received from counterparties that was netted on Cleco’s Condensed Consolidated Balance Sheet.

The following tables present the effect of derivatives not designated as hedging instruments on Cleco’s and Cleco Power’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022, and 2021:

Cleco
	AMOUNT OF GAIN(LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
		FOR THE THREE MONTHS ENDED JUNE 30,					FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2022		2021			2022		2021
Commodity-related contracts
FTRs(1)	Electric operations	$	6,080	$	1,763		$	7,663	$	9,207
FTRs(1)	Purchased power	(11,689)		(3,168)		(2)	(9,966)		(8,972)		(2)
Natural gas derivatives	Fuel used for electric generation	37,416		51,683		(2)	165,888		57,897		(2)
Total		$	31,807	$	50,278		$	163,585	$	58,132

(1) For the three and six months ended June 30, 2022, unrealized gains associated with FTRs for Cleco Power of $4.3 million were reported through Accumulated deferred fuel on the balance sheet. For the three and six months ended June 30, 2021, unrealized losses associated with FTRs for Cleco Power of $0.4 million were reported through Accumulated deferred fuel on the balance sheet.

(2) Prior year balance has been revised to correct errors that were immaterial, both quantitatively and qualitatively, including incorrectly including parenthesis for natural gas derivatives for the three and six months ended June 30, 2021.

Cleco Power
	AMOUNT OF GAIN(LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
		FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2022		2021		2022		2021
Commodity-related contracts
FTRs(1)	Electric operations	$	6,080	$	1,763	$	7,663	$	9,208
FTRs(1)	Purchased power	(1,846)		(1,233)		(3,083)		(8,414)
Total		$	4,234	$	530	$	4,580	$	794

(1) For the three and six months ended June 30, 2022, unrealized gains associated with FTRs of $4.3 million were reported through Accumulated deferred fuel on the balance sheet. For the three and six months ended June 30, 2021, unrealized losses associated with FTRs of $0.4 million were reported through Accumulated deferred fuel on the balance sheet.

The following tables present the volume of commodity-related derivative contracts outstanding at June 30, 2022, and December 31, 2021, for Cleco and Cleco Power:

Cleco
		TOTAL VOLUME OUTSTANDING
(THOUSAND)	UNIT OF MEASURE	AT JUNE 30, 2022	AT DEC. 31, 2021
Commodity-related contracts
FTRs	MWh	32,409	14,055
Natural gas derivatives	MMBtus	96,010	109,306

Cleco Power
		TOTAL VOLUME OUTSTANDING
(THOUSAND)	UNIT OF MEASURE	AT JUNE 30, 2022	AT DEC. 31, 2021
Commodity-related contracts
FTRs	MWh	19,852	8,899