Leases

12 Months Ended

Dec. 31, 2022

Note 3 — Leases

Cleco maintains operating and finance leases in its ordinary course of business activities.

Operating Leases

Cleco Power leases utility systems from two municipalities and one non-municipal public body. One municipal lease has a term of 10 years and expires on August 11, 2031. The second municipal lease has a term of 10 years and expires on May 13, 2028. The non-municipal lease has a term of 27 years and expires on July 31, 2039. Each utility system lease contains fixed and variable components, as well as provisions for extensions.

During 2021, Cleco Power renewed its lease for 113 railcars for coal transportation, which expires on March 31, 2024. Cleco Power reassesses its need for the railcars upon the expiration of each term. Cleco Power pays a monthly rental fee per car. The railcar lease does not contain contingent rent payments.

Cleco Power has leases for three towboats in order to transport petroleum coke to Madison Unit 3. Each of the towboat leases has a term of 10 years and expires on March 31, 2028. Under these agreements, the rates are adjusted annually per the Producer Price Index. Each lease contains provisions for a five-year extension.

Cleco’s and Cleco Power’s remaining operating leases provide for office and operating facilities, office equipment, and tower rentals.

The following is a schedule by year of future minimum lease payments due under Cleco’s and Cleco Power’s long-term operating leases together with the present value of the net minimum lease payments as of December 31, 2022:


(THOUSANDS)	CLECO POWER		CLECO
Years ending Dec. 31,
2023	$	3,534	$	3,565
2024	3,398		3,422
2025	3,275		3,278
2026	3,241		3,244
2027	3,221		3,221
Thereafter	10,026		10,026
Total minimum lease payments	26,695		26,756
Less: amount representing interest	4,002		4,011
Present value of net minimum operating lease payments	$	22,693	$	22,745
Current liabilities	$	2,903	$	2,926
Non-current liabilities	$	19,790	$	19,819

Finance Lease

In April 2018, Cleco Power entered into an agreement with Savage Inland Marine for continued use of 42 barges used to transport petroleum coke to Madison Unit 3 through March 2033. The agreement meets the accounting definition of a finance lease.

The barge lease rate contains both a fixed and variable component, of which the latter is adjusted every third anniversary of the agreement for estimated executory costs. If the barges are idle, the lessor is required to attempt to sublease the barges to third parties with the revenue reducing Cleco Power’s lease payment. This agreement contains a provision for early termination upon the occurrence of any one of four cancellation events.

For each of the years ended December 31, 2022, 2021, and 2020, Cleco Power paid $2.2 million in lease payments. For the years ended December 31, 2022, 2021, and 2020, Cleco Power received $0.6 million, $0.2 million, and $0.8 million, respectively, of revenue from subleases.

The following is an analysis of the leased property under the finance lease:


(THOUSANDS)	AT DEC. 31, 2022		AT DEC. 31, 2021
Barges	$	16,800	$	16,800
Accumulated amortization	(5,320)		(4,200)
Net finance lease asset	$	11,480	$	12,600

The following is a schedule by year of future minimum lease payments due under the finance lease together with the present value of the net minimum lease payments as of December 31, 2022:


(THOUSANDS)
Years ending Dec. 31,
2023	$	2,203
2024	2,203
2025	2,203
2026	2,203
2027	2,203
Thereafter	11,066
Total minimum lease payments	22,081
Less: amount representing interest	8,274
Present value of net minimum finance lease payments	$	13,807
Current liabilities	$	836
Non-current liabilities	$	12,971

Additional Lessee Disclosures

Cleco’s and Cleco Power’s total lease cost includes amounts on the income statement, as well as amounts capitalized as part of property, plant, or equipment or inventory. The following tables reflect total lease costs for Cleco and Cleco Power for the years ended December 31, 2022, and 2021:


Cleco
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021
Finance lease cost
Amortization of ROU assets	$	1,120	$	1,120
Interest on lease liabilities	1,448		1,521
Operating lease cost	3,710		3,985

Variable lease cost	508		385

Total lease cost	$	6,786	$	7,011


Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021
Finance lease cost
Amortization of ROU assets	$	1,120	$	1,120
Interest on lease liabilities	1,448		1,521
Operating lease cost	3,675		3,845

Variable lease cost	508		385

Total lease cost	$	6,751	$	6,871

The following tables present additional information related to Cleco’s and Cleco Power’s operating and finance leases as of and for the years ended December 31, 2022, and 2021:


Cleco
		AT DEC. 31,
(THOUSANDS)	BALANCE SHEET LINE ITEM	2022		2021
Supplemental balance sheet information
ROU assets
Operating	Operating lease right of use assets	$	22,673	$	24,014
Finance	Property, plant, and equipment	11,480		12,600
Total ROU assets		$	34,153	$	36,614
Current lease liabilities
Operating	Other current liabilities	$	2,926	$	2,854
Finance	Long-term debt and finance leases due within one year	836		755
Non-current lease liabilities
Operating	Operating lease liabilities	19,819		21,128
Finance	Long-term debt and finance leases, net	12,971		13,807
Total lease liabilities		$	36,552	$	38,544


Cleco Power
		AT DEC. 31,
(THOUSANDS)	BALANCE SHEET LINE ITEM	2022		2021
Supplemental balance sheet information
ROU assets
Operating	Operating lease right of use assets	$	22,628	$	23,970
Finance	Property, plant, and equipment	11,480		12,600
Total ROU assets		$	34,108	$	36,570
Current lease liabilities
Operating	Other current liabilities	$	2,903	$	2,832
Finance	Long-term debt and finance leases due within one year	836		755
Non-current lease liabilities
Operating	Operating lease liabilities	19,790		21,100
Finance	Long-term debt and finance leases, net	12,971		13,807
Total lease liabilities		$	36,500	$	38,494


Cleco
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,720	$	3,938
Operating cash flows from finance leases	$	1,448	$	1,521
Financing cash flows from finance leases	$	755	$	682


Cleco Power
	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,685	$	3,800
Operating cash flows from finance leases	$	1,448	$	1,521
Financing cash flows from finance leases	$	755	$	682


Cleco
	AT DEC. 31,
(THOUSANDS)	2022		2021
Other supplemental information
Operating leases
Weighted-average remaining lease term	12.5 years		9.0 years
Weighted-average discount rate	4.36	%	4.30	%
Finance leases
Weighted-average remaining lease term	10.3 years		11.3 years
Weighted-average discount rate	10.18	%	10.18	%


Cleco Power
	AT DEC. 31, 2022
(THOUSANDS)	2022		2021
Other supplemental information
Operating leases
Weighted-average remaining lease term	11.4 years		9.0 years
Weighted-average discount rate	4.35	%	4.30	%
Finance leases
Weighted-average remaining lease term	10.3 years		11.3 years
Weighted-average discount rate	10.18	%	10.18	%

Cottonwood Sale Leaseback Agreement

Upon closing the Cleco Cajun Transaction, the Cottonwood Sale Leaseback was executed. Under the terms of the lease, NRG Energy will operate the Cottonwood Plant, incur all costs, and receive all revenues from the operations of the plant. Cottonwood Energy will receive fixed lease payments of $40.0 million per year and variable lease payments for LTSA costs and property taxes paid by NRG Energy on behalf of Cleco. Cleco may terminate the lease contract under specific circumstances stated in the lease contract. The residual value under the Cottonwood Sale Leaseback is expected to be recovered through sales of power generation from the plant. The residual value of the Cottonwood Plant has been determined using the plant’s estimated economic life.

Cleco Cajun is Cleco’s only subsidiary with lessor arrangements. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback is included in Other operations within Cleco’s Consolidated Statement of Income. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback for the years ended December 31, 2022, and 2021 was as follows:


	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021
Fixed payments	$	40,000	$	40,000
Variable payments	22,359		18,226
Amortization of deferred lease liability (1)	9,205		9,205
Total lease income	$	71,564	$	67,431

(1) Consists of amortization of the deferred lease revenue resulting from the fair value of the lease between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy.

The remaining minimum lease payments to be received under the Cottonwood Sale Leaseback are as follows:


(THOUSANDS)
Years ending Dec. 31,
2023	$	40,000
2024	40,000
2025	16,667
Total payments	$	96,667

Depreciation expense associated with Cleco’s property under the Cottonwood Sale Leaseback for the years ended December 31, 2022, 2021, and 2020, was $33.9 million, $32.0 million, and $29.3 million, respectively. Cleco calculated depreciation on a straight-line basis over the useful life of the asset. Property associated with the Cottonwood Sale Leaseback was as follows:


			AT DEC. 31,
(THOUSANDS)	2022		2021
Property, plant, and equipment	$	572,044	$	552,659
Accumulated depreciation	(117,981)		(84,065)
Net property, plant, and equipment	$	454,063	$	468,594

Leases