Regulatory Assets and Liabilities

12 Months Ended

Dec. 31, 2023

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Assets and Liabilities

Note 6 — Regulatory Assets and Liabilities

Cleco Power recognizes an asset for certain costs capitalized or deferred for recovery from customers and recognizes a liability for amounts expected to be returned to customers or collected for future expected costs. Cleco Power records these assets and liabilities based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process.

Under the current regulatory environment, Cleco Power believes these regulatory assets will be fully recoverable. 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)	2023		2022
Regulatory assets
Acadia Unit 1 acquisition costs	$	1,701	$	1,807	16
Accumulated deferred fuel (1)	11,627		57,881		Various	(9)
Affordability study	10,337		11,715		7.5
AFUDC equity gross-up	60,381		63,477		Various	(2)
AMI deferred revenue requirement	954		1,499		2.25
AROs (8)	20,094		17,218
Bayou Vista to Segura transmission project deferred revenue requirement	—		2,510
Coughlin transaction costs	784		815		25.5
COVID-19 executive order (8)	3,039		2,953
Deferred lignite and mine closure costs (7)	136,076		133,587
Deferred storm restoration costs - Hurricane Delta (6)	88		109
Deferred storm restoration costs - Hurricane Ida	—		9,409
Deferred storm restoration costs - Hurricane Laura (6)	367		457
Deferred storm restoration costs - Hurricane Zeta (6)	7		9
Deferred taxes, net	43,866		8,803		Various	(9)
Dolet Hills Power Station closure costs (7)	147,323		147,082
Energy efficiency	—		235
Financing costs (1)	6,087		6,456		Various	(3)
Interest costs	2,961		3,210		Various	(2)
Madison Unit 3 property taxes	13,297		13,038		Various	(9)
Non-service cost of postretirement benefits	14,526		14,810		Various	(2)
Other	10,483		14,114		Various	(9)
Postretirement costs	64,399		47,317		Various	(4)
Production operations and maintenance expenses	7,002		10,443		Various	(5)
Rodemacher Unit 2 deferred costs (8)	19,282		12,645
St. Mary Clean Energy Center	3,705		4,350		1.5
Training costs	5,618		5,774		36
Tree trimming costs	3,657		6,377		1.25
Total regulatory assets	587,661		598,100
Regulatory liabilities
Deferred taxes, net	(21,939)		(42,890)		Various	(9)
Storm reserves	(111,509)		(118,762)
Total regulatory liabilities	(133,448)		(161,652)
Total regulatory assets, net	$	454,213	$	436,448
(1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2023, and 2022, 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. The storm recovery surcharge became effective on September 1, 2022. (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)	2023		2022
Total Cleco Power regulatory assets, net	$	454,213	$	436,448
2016 Merger adjustments (1)
Fair value of long-term debt	97,345		104,748
Postretirement costs	9,448		11,436
Financing costs	6,560		6,904
Debt issuance costs	4,254		4,587
Total Cleco regulatory assets, net	$	571,820	$	564,123

(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. In 2010, Cleco Power began recovering the Acadia Unit 1 acquisition costs over a 30-year period.

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. At December 31, 2023, Accumulated deferred fuel decreased $46.3 million as a result of lower fuel costs. For 2023, approximately 77% of Cleco Power’s total fuel cost was regulated by the LPSC.

Affordability Study

In July 2021, as approved by the LPSC in Cleco Power’s current retail rate plan, 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 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 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 2014, the LPSC approved Cleco Power’s recovery of the AMI regulatory asset over the average

life of the AMI meters, or 11 years, and 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 net changes of Cleco Power’s AROs, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments.”

Bayou Vista To Segura Transmission Project Deferred Revenue Requirement

In July, 2021, as approved by the LPSC in Cleco Power’s current retail rate plan, 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, 2023, the regulatory asset was fully amortized.

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. In 2014, Cleco Power began recovering the Coughlin transaction costs over a 35-year period.

COVID-19 Executive Order

In March 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. In April 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 in October 2020. In December 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 late March 2024.

Deferred Lignite and Mine Closure Costs

In October 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. In March 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. Management has estimated that a loss resulting from a potential disallowance ranging between $58.7 million and $228.0 million is probable. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on Cleco’s and Cleco Power’s Balance Sheets and Electric customer credits on Cleco’s and Cleco Power’s Statements of Income. For more information on the prudency review related to the deferred fuel and other mine-related closure costs, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”

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. On September 30, 2023, the LPSC approved a settlement allowing Cleco Power to withdraw the remaining unrecovered Hurricane Ida storm restoration costs, plus a carrying charge through September 2023, totaling $10.3 million from the Hurricane Ida storm reserve. The balances remaining at December 31, 2023, for Hurricanes Laura, Delta, and Zeta are for storm preparation costs and are expected to be funded by the storm reserve, pending approval by the LPSC.

Dolet Hills Power Station Closure Costs

In 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 the stranded costs, and these costs are currently under a prudency review by the LPSC. For more information on the prudency review, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Dolet Hills Prudency Review.”

Energy Efficiency

In 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. In October 2019, Cleco Power received notice of approval from the LPSC allowing recovery of the accumulated LCFC revenues. At December 31, 2023, the accumulated LCFC revenues were fully recovered.

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 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

Beginning in July 2021, as approved by the LPSC in Cleco Power’s current retail rate plan, 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

In 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 in 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, 2023, Cleco Power had a regulatory asset of $1.0 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, 2023, Cleco Power had a regulatory asset of $2.9 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, 2023, Cleco Power had a regulatory asset of $2.0 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 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 current rate case, which was filed on June 30, 2023, with anticipated new rates being effective July 1, 2024. At December 31, 2023, Cleco Power had a balance of $4.5 million related to this regulatory asset.

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, 2023, 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 11 — “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 no deferral in 2023 and a deferral of $2.4 million in 2022.

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.

In September 2022, the LPSC approved a settlement 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, which is expected to be on July 1, 2024, in its next FRP. 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 the costs disallowed for recovery, see Note 14 — “Regulation and Rates — Regulatory Disallowance.”

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 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, 2023, and 2022, Cleco and Cleco Power had $211.5 million and $257.4 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 14 — “Regulation and Rates — 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, 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 $15.5 million recorded for the Hurricane Ida storm reserve and a regulatory asset of $9.4 million for non-capital expenses associated with Hurricane Ida that were under a prudency review by the LPSC.

On September 20, 2023, the LPSC approved a settlement allowing Cleco Power to withdraw the remaining unrecovered Hurricane Ida storm restoration costs, plus a carrying charge through September 2023, totaling $10.3 million from the Hurricane Ida storm reserve. The settlement also approved the transfer of the remaining balance of the Hurricane Ida storm reserve to the restricted reserve for future storm restoration costs. At December 31, 2023, all amounts remaining in the storm reserve are for future storm restoration costs.