Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Note 16 — Intangible Assets and Goodwill

Securitized Intangible Asset

On June 22, 2022, Cleco Securitization I acquired the Storm Recovery Property from Cleco Power for a purchase price of $415.9 million. The Storm Recovery Property is classified as a securitized intangible asset on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets. This securitized intangible asset is being amortized ratably each period consistent with actual collections of the asset’s portion of the

revenue requirement billed to Cleco Power’s customers. Amortization is included in Depreciation and amortization on Cleco’s and Cleco Power’s Condensed Consolidated Statements of Income. During the three and nine months ended September 30, 2023, amortization expense of $5.1 million and $10.7 million, respectively, was recognized. At the end of its life, this securitized intangible asset will have no residual value.

The following table summarizes the balance of the securitized intangible asset subject to amortization included on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets:

(THOUSANDS)	AT SEPT. 30, 2023		AT DEC. 31, 2022
Storm Recovery Property intangible asset	$	415,946	$	415,946
Accumulated amortization	(13,502)		(2,823)
Net intangible asset subject to amortization	$	402,444	$	413,123

Other Intangible Assets

As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the valuation of finite intangible assets relating to 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 8 and 19 years, and the amortization is included in Electric operations on Cleco’s Condensed Consolidated Statements of Income.

The following table presents the amortization expense recognized during the three and nine months ended September 30, 2023, and 2022:

Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2023		2022		2023		2022
Amortization expense
Power supply agreements	$	2,323	$	2,420	$	7,131	$	7,260

The following table summarizes the balance of other intangible assets subject to amortization included in Cleco’s Condensed Consolidated Balance Sheets:

Cleco
(THOUSANDS)	AT SEPT. 30, 2023		AT DEC. 31, 2022
Power supply agreements	$	85,104	$	85,104
Accumulated amortization	(72,148)		(65,018)
Net intangible assets subject to amortization	$	12,956	$	20,086

Goodwill

On April 13, 2016, 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 or whenever events or circumstances indicate that the value of goodwill may be impaired.

In performing the impairment test, Cleco compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value including goodwill were to exceed the fair value of a reporting unit, an impairment loss

would be recognized. A goodwill impairment loss is measured as the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill.

Cleco estimates the reporting unit's fair value 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. The income approach cash flow valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future performance, including estimation of future cash flows related to capital expenditures, the weighted average cost of capital or discount rate and the assumed long-term growth rate approach, which incorporates management's assumptions regarding sustainable long-term growth. The market approach includes significant assumptions around the implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of the test date.

Cleco performs an annual impairment test each August. In between annual tests, Cleco monitors its estimates and assumptions regarding estimated future cash flows, including the impact of movements in market indicators in future quarters, and will update the impairment analyses if a triggering event occurs. While Cleco believes the assumptions are reasonable, actual results may differ from projections. To the extent cash flows, long-term growth rates, U.S. Treasury rates, or other factors outside of Cleco’s control may impact Cleco’s projected results, Cleco may be required to reduce all or a portion of the carrying value of goodwill.

Cleco conducted its 2023 annual impairment test using an August 1, 2023, measurement date and determined that the estimated fair value of the reporting unit exceeded its carrying value, and no impairment existed.