Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 — Income Taxes

Cleco

For the year ended December 31, 2022, and 2021, income tax expense was lower than the amount computed by applying the statutory federal rate. For the year ended December 31, 2020, 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)	2022			2021			2020
Income before tax	$	189,728		$	208,077		$	158,018
Statutory rate	21.0		%	21.0		%	21.0		%
Tax expense at federal statutory rate	$	39,843		$	43,696		$	33,184
Increase (decrease)
Flowthrough of tax benefits	(12,272)			(356)			5,100
State income taxes, net of federal benefit	12,177			9,619			7,190
Return to accrual adjustment	128			(3,862)			7,218
Permanent adjustments	(6,578)			(91)			(33)
Amortization of excess ADIT	(32,639)			(37,254)			(16,667)
Other, net	258			1,359			(274)
Total tax expense	$	917		$	13,111		$	35,718
Effective rate	0.5		%	6.3		%	22.6		%

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

			FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021		2020
Current federal income tax expense (benefit)	$	1,351	$	(2)	$	(2,634)
Deferred federal income tax expense (benefit)	2,546		(9,581)		21,865
Amortization of accumulated deferred investment tax credits	(134)		(142)		(159)
Total federal income tax (benefit) expense	$	3,763	$	(9,725)	$	19,072
Current state income tax expense (benefit)	7,611		(699)		2,636
Deferred state income tax (benefit) expense	(10,457)		23,535		14,010
Total state income tax expense	$	(2,846)	$	22,836	$	16,646
Total federal and state income tax expense	$	917	$	13,111	$	35,718
Items charged or credited directly to member’s equity
Federal deferred	6,297		514		(2,202)
State deferred	2,431		(120)		(720)
Total tax expense (benefit) from items charged directly to member’s equity	$	8,728	$	394	$	(2,922)
Total federal and state income tax expense	$	9,645	$	13,505	$	32,796

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2022, and 2021 was comprised of the following:

	AT DEC. 31,
(THOUSANDS)	2022		2021
Depreciation and property basis differences	$	(869,796)	$	(885,747)
Net operating loss carryforward	135,914		195,488
NMTC	88,245		92,364
Fuel costs	(41,233)		(38,070)
Other comprehensive income	4,022		12,750
Regulated operations regulatory liability, net	(114,711)		(93,990)
Postretirement benefits	38,418		34,683
Merger fair value adjustments	(47,929)		(49,806)
Other	(13,230)		(23,436)
Accumulated deferred federal and state income taxes, net	$	(820,300)	$	(755,764)

Cleco Power

For the year ended December 31, 2022, and 2021, income tax expense was lower than the amount computed by applying the statutory rate. For the year ended 2020, 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)	2022			2021			2020
Income before tax	$	172,560		$	124,735		$	123,454
Statutory rate	21.0		%	21.0		%	21.0		%
Tax expense at federal statutory rate	$	36,238		$	26,194		$	25,925
Increase (decrease)
Flowthrough of tax benefits	(12,272)			(356)			5,100
State income taxes, net of federal benefit	12,109			6,343			6,303
Return to accrual adjustment	14			(3,831)			7,082
Amortization of excess ADIT	(32,639)			(37,254)			(16,667)
Other, net	(947)			(449)			(944)
Total taxes	$	2,503		$	(9,353)		$	26,799
Effective rate	1.5		%	(7.5)		%	21.7		%

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

	FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2022		2021		2020
Current federal income tax expense	$	4,921	$	—	$	15,724
Deferred federal income tax benefit	(1,926)		(23,071)		(5,033)
Amortization of accumulated deferred investment tax credits	(134)		(142)		(159)
Total federal income tax expense (benefit)	$	2,861	$	(23,213)	$	10,532
Current state income tax expense	2,406		—		5,069
Deferred state income tax (benefit) expense	(2,764)		13,860		11,198
Total state income tax expense	$	(358)	$	13,860	$	16,267
Total federal and state income tax expense (benefit)	$	2,503	$	(9,353)	$	26,799
Items charged or credited directly to members’ equity
Federal deferred	2,610		1,714		(576)
State deferred	1,008		338		(189)
Total tax expense (benefit) from items charged directly to member’s equity	$	3,618	$	2,052	$	(765)
Total federal and state income tax expense (benefit)	$	6,121	$	(7,301)	$	26,034

The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2022, and 2021 was comprised of the following:

	AT DEC. 31,
(THOUSANDS)	2022		2021
Depreciation and property basis differences	$	(754,200)	$	(744,594)
Net operating loss carryforward	94,555		125,392
Fuel costs	(13,594)		(14,552)
Other comprehensive income	2,604		6,222
Regulated operations regulatory liability, net	(114,711)		(93,990)
Postretirement benefits	24,946		20,649
Other	(9,727)		(6,606)
Accumulated deferred federal and state income taxes, net	$	(770,127)	$	(707,479)

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, 2022, and 2021, Cleco had a deferred tax asset resulting from a NMTC carryforward of $88.2 million and $92.4 million, respectively. 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 2021 tax year, Cleco created a federal net operating loss of approximately $718.3 million and a state net operating loss of approximately $423.7 million. For the 2022 tax year, Cleco expects to utilize a federal net operating loss of $192.9 million and a state net operating loss of $82.5 million.

For the 2021 tax year, Cleco Power created a federal net operating loss of approximately $422.1 million and a state operating loss of $423.7 million. For the 2022 tax year, Cleco Power expects to utilize a federal net operating loss and state net operating loss of $93.7 million and $82.5 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, 2022, and 2021, Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the years ended December 31, 2022, 2021, and 2020, Cleco and Cleco Power had no interest expense related to uncertain tax positions. At December 31, 2022, and 2021, 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 2019, 2020, and 2021, the IRS has completed its review of years 2019 and 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 2021 tax year. 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 and the Compliance Assurance Maintenance phase for the 2023 tax year.

The state income tax years 2019, 2020, and 2021 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, 2022, 2021, and 2020, 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, 2022, and 2021, Cleco and Cleco Power had $257.4 million and $302.0 million, respectively, accrued for the excess ADIT. For more information on the regulatory treatment of the TCJA regulatory liability, see Note 5 — “Regulatory Assets and Liabilities — Deferred Taxes, Net” and Note 13 — “Regulation and Rates — Regulatory Refunds — 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.

During December 2022, Cleco and Cleco Power paid the remaining $3.0 million and $1.8 million, respectively, deferred in employer payroll tax payments for the period of March 27, 2020, through December 31, 2020.