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)	2022		2021







Regulatory assets
Acadia Unit 1 acquisition costs	$	1,807	$	1,913	17
Accumulated deferred fuel (1)	57,881		56,826		Various	(9)
Affordability study	11,715		13,094		8.5
AFUDC equity gross-up	63,477		66,574		Various	(2)
AMI deferred revenue requirement	1,499		2,045		3.25
AROs (1)(8)	17,218		15,141
Bayou Vista to Segura transmission project deferred revenue requirement	2,510		1,392		0.5
Coughlin transaction costs	815		845		26.5
COVID-19 executive order (8)	2,953		2,953
Deferred lignite and mine closure costs (8)	133,587		136,980
Deferred storm restoration costs - Hurricane Delta (6)	109		17,113
Deferred storm restoration costs - Hurricane Ida (7)	9,409		37,617
Deferred storm restoration costs - Hurricane Laura (6)	457		54,282
Deferred storm restoration costs - Hurricane Zeta (6)	9		3,296
Deferred storm restoration costs - Winter Storms Uri & Viola	—		1,912
Dolet Hills Power Station closure costs (8)	147,082		145,844

Energy efficiency	235		1,645		0.25
Financing costs (1)	6,456		6,826		Various	(3)
Interest costs	3,210		3,459		Various	(2)
Madison Unit 3 property taxes	13,038		8,362		Various	(9)

Non-service cost of postretirement benefits	14,810		12,950		Various	(2)
Other	14,114		11,224		Various	(9)
Postretirement costs	47,317		117,773		Various	(4)
Production operations and maintenance expenses	10,443		11,058		Various	(5)
Rodemacher Unit 2 deferred costs (8)	12,645		6,931
St. Mary Clean Energy Center	4,350		6,089		2.5

Training costs	5,774		5,929		37
Tree trimming costs	6,377		9,092		2.25
Total regulatory assets	589,297		759,165
Regulatory liabilities

Deferred taxes, net	(34,087)		(95,544)		Various	(9)
Storm reserves	(118,762)		—		Various	(9)
Total regulatory liabilities	(152,849)		(95,544)
Total regulatory assets, net	$	436,448	$	663,621
(1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2022, and 2021, respectively. All other assets are earning a return on investment. (2) Amortized over the estimated lives of the respective assets. (3) Amortized over the terms of the related debt issuances. (4) Amortized over the average service life of the remaining plan participants. (5) Deferral is recovered over the following three-year regulatory period. (6) From June 1, 2021, through August 31, 2022, these were being recovered through the interim storm recovery rate. For more information, see Note 19 — “Securitization.” (7) Currently not in a recovery period. The balance remaining represents amounts under prudency review by the LPSC. (8) Currently not in a recovery period. (9) For more information on the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability.

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


Cleco
	AT DEC. 31,
(THOUSANDS)	2022		2021
Total Cleco Power regulatory assets, net	$	436,448	$	663,621
2016 Merger adjustments (1)
Fair value of long-term debt	104,748		112,150
Postretirement costs	11,436		13,424
Financing costs	6,904		7,248
Debt issuance costs	4,587		4,920
Total Cleco regulatory assets, net	$	564,123	$	801,363

(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 2022, approximately 78% of Cleco Power’s total fuel cost was regulated by the LPSC.

Affordability Study

On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan. As a result, Cleco Power was allowed to establish a regulatory asset 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. In July 2021, the regulatory asset began being amortized over 10 years.

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 — Other Commitments.”

Bayou Vista To Segura Transmission Project Deferred Revenue Requirement

On June 16, 2021, the LPSC approved Cleco Power’s current 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, 2022, Cleco Power had a regulatory asset for the deferred revenue associated with the Bayou Vista to Segura Transmission project. The regulatory asset is being 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. Cleco Power has a regulatory asset for expenses incurred related to the executive order and anticipates approval by the LPSC for recovery of these expenses in the second quarter of 2023.

Deferred Lignite and 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. Cleco Power has a regulatory asset for deferred

fuel and mine-related incurred costs, which were included in the application filed with the LPSC on January 31, 2022. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. For more information on the Oxbow mine, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.” For more information on the prudency review related to the deferred fuel and other mine-related closure costs, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Prudency Reviews — Deferred Lignite and Mine Closure Costs.”

Deferred Storm Restoration Costs

In 2020 and 2021, Cleco Power’s distribution and transmission systems sustained substantial damage from four separate hurricanes, Hurricanes Laura, Delta, Zeta, and Ida, and two severe winter storms, Winter Storms Uri and Viola. Cleco Power established a separate regulatory asset to track and defer non-capital expenses associated with each corresponding storm, as approved by the LPSC.

On June 22, 2022, through Cleco Securitization I, Cleco Power completed a securitized financing of Storm Recovery Property, which included the previously mentioned storm restoration costs that were deferred as regulatory assets. In connection with that securitization financing, Cleco Securitization I used the net proceeds from its issuance of storm recovery bonds to purchase the Storm Recovery Property from Cleco Power. Prior to September 1, 2022, certain costs for Hurricanes Laura, Delta, and Zeta were recovered through the interim storm recovery rate. The balances remaining at December 30, 2022, for Hurricanes Laura, Delta, and Zeta are due to the timing of collections of the interim storm rate and are expected to be funded by the storm reserve, pending approval by the LPSC. The costs remaining at December 31, 2022, for Hurricane Ida are currently under a prudency review by the LPSC. Cleco Power is unable to determine the outcome or timing of such review. For more information on the storm recovery securitization financing, see Note 19 — “Securitization.”

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. Cleco Power has a regulatory asset for stranded costs. These costs are currently under a prudency review by the LPSC. For more information on the Dolet Hills Power Station, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.” For more information on the prudency review for these costs see, “— Risks and Uncertainties.”

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.

Madison Unit 3 Property Taxes

On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan. As a result, beginning July 1, 2022, Cleco Power is 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. 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 current retail rate plan resulting in Cleco Power establishing several regulatory assets. Annually, Cleco Power is allowed to defer, as a regulatory asset, the undercollection of revenues related to the Northlake Transmission Agreement. The amount recorded in the regulatory asset will be amortized over the following regulatory period, beginning on July 1. At December 31, 2022, 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 current retail rate plan, which began being amortized over four

years on July 1, 2021. At December 31, 2022, Cleco Power had a regulatory asset of $7.3 million for these deferred costs.

In June 2017, 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 current retail rate plan was approved. As approved by the LPSC in Cleco Power’s current retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021. At December 31, 2022, Cleco Power had a regulatory asset of $3.4 million related to the deferred revenue associated with the Coughlin Pipeline project.

Effective for income tax periods beginning on or after January 1, 2022, the Louisiana state corporate income tax rate was decreased from 8% to 7.5% and the state deduction for federal income taxes paid was eliminated. These changes resulted in an increase in income tax expense. Therefore, Cleco Power established a regulatory asset of $2.3 million for the increased revenue requirements associated with the income tax expense in excess of the amount previously approved by the LPSC. Cleco Power plans to seek recovery of this regulatory asset in its next rate case, which is required to be filed by March 31, 2023.

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 five years as of December 31, 2022, 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 $2.4 million in 2022 and a deferral of $9.7 million in 2021.

Rodemacher Unit 2 Deferred Costs

As a result of environmental regulations enacted during 2020, 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.

St. Mary Clean Energy Center

Cleco Power has a regulatory asset for the revenue requirements related to the planning and construction costs incurred for the St. Mary Clean Energy Center. As approved by the LPSC in Cleco Power’s current retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021.

On September 21, 2022, the LPSC approved a settlement disallowing recovery of $15.0 million, which resulted in a $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value. The approved settlement also included refunding $10.4 million to Cleco Power’s retail customers. As a result, a regulatory asset of $3.8 million was recognized for the incurred refund liability for retail revenues that will continue to be collected until Cleco Power’s current base rates are reset in its next rate case, which is expected on July 1, 2024. On October 1, 2022, Cleco Power began amortizing the $3.8 million regulatory asset to Electric customer credits on its Consolidated Statement of Income as amounts are collected from customers. For more information on the settlement and disallowance, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Prudency Reviews — St. Mary Clean Energy Center.”

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.

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 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, 2022, and 2021, Cleco and Cleco Power had $257.4 million and $302.0 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 — Regulatory Refunds — TCJA.”

Storm Reserves

On June 22, 2022, in conjunction with the storm recovery securitization financing and pursuant to the financing order issued by the LPSC on April 1, 2022, newly funded storm reserves for future storm restoration costs and Hurricane Ida storm restoration costs were established. Upon the closing of the securitization financing, Cleco Power withdrew $79.6 million from the LPSC approved Hurricane Ida storm reserve. At December 31, 2022, Cleco Power had total storm

reserves of $118.8 million, comprised of $103.3 million for future storm restoration costs and $15.5 million related to the Hurricane Ida storm reserve. The current portion of $9.4 million for the Hurricane Ida storm reserve is recorded in Other current liabilities on Cleco’s and Cleco Power’s Consolidated Balance Sheets. The current portion represents those deferred storm costs recorded in the related Hurricane Ida regulatory asset that are currently under a prudency review by the LPSC.