UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15759

CLECO CORPORATE HOLDINGS LLC

(Exact name of registrant as specified in its charter)



Louisiana (State or other jurisdiction of incorporation or organization)	72-1445282 (I.R.S. Employer Identification No.)

2030 Donahue Ferry Road, Pineville, Louisiana (Address of principal executive offices)	71360-5226 (Zip Code)

Registrant’s telephone number, including area code: (318) 484-7400

Commission file number 1-05663

CLECO POWER LLC

(Exact name of registrant as specified in its charter)



Louisiana (State or other jurisdiction of incorporation or organization)	72-0244480 (I.R.S. Employer Identification No.)

2030 Donahue Ferry Road, Pineville, Louisiana (Address of principal executive offices)	71360-5226 (Zip Code)

Registrant’s telephone number, including area code: (318) 484-7400

Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes x No ¨

Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

As of August 11, 2016, Cleco Corporate Holdings LLC has no common stock outstanding. All of the outstanding interest of Cleco Corporate Holdings LLC is held by Cleco Group LLC, a wholly owned subsidiary of Cleco Partners L.P.

Cleco Power LLC, a wholly owned subsidiary of Cleco Corporate Holdings LLC, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

This Combined Quarterly Report on Form 10-Q is separately filed by Cleco Corporate Holdings LLC and Cleco Power LLC. Information in this filing relating to Cleco Power LLC is filed by Cleco Corporate Holdings LLC and separately by Cleco Power LLC on its own behalf. Cleco Power LLC makes no representation as to information relating to Cleco Corporate Holdings LLC (except as it may relate to Cleco Power LLC) or any other affiliate or subsidiary of Cleco Corporate Holdings LLC.

This report should be read in its entirety as it pertains to each respective Registrant. The Notes to the Unaudited Condensed Consolidated Financial Statements are combined.



TABLE OF CONTENTS
		PAGE
GLOSSARY OF TERMS		3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		5

PART I	Financial Information
ITEM 1.	Cleco Holdings — Condensed Consolidated Financial Statements (Unaudited)	7
	Cleco Power — Condensed Consolidated Financial Statements (Unaudited)	17
	Notes to the Unaudited Condensed Consolidated Financial Statements	26
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	62
ITEM 4.	Controls and Procedures	64

PART II	Other Information
ITEM 1.	Legal Proceedings	65
ITEM 1A.	Risk Factors	65
ITEM 4.	Mine Safety Disclosures	65
ITEM 6.	Exhibits	66
	Signatures	67



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

GLOSSARY OF TERMS

References in this filing, including all items in Parts I and II, to “Cleco” mean Cleco Corporate Holdings LLC (Cleco Holdings) and its subsidiaries, including Cleco Power, and references to “Cleco Power” mean Cleco Power LLC and its subsidiaries, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below.



ABBREVIATION OR ACRONYM	DEFINITION
401(k) Plan	Cleco Power 401(k) Savings and Investment Plan
ABR	Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or the LIBOR plus 1.0%
Acadia	Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1	Cleco Power’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2	Entergy Louisiana’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power
AFUDC	Allowance for Funds Used During Construction
ALJ	Administrative Law Judge
Amended Lignite Mining Agreement	Amended and restated lignite mining agreement effective December 29, 2009
AMI	Advanced Metering Infrastructure
AOCI	Accumulated Other Comprehensive Income (Loss)
ARO	Asset Retirement Obligation
ARRA	American Recovery and Reinvestment Act of 2009
Attala	Attala Transmission LLC, a wholly owned subsidiary of Cleco Holdings
CCR	Coal combustion by-products or residual
CERCLA	Comprehensive Environmental Response, Compensation, and Liability Act of 1980
CPP	Clean Power Plan
Cleco Group	Cleco Group LLC, a wholly owned subsidiary of Cleco Partners
Cleco Katrina/Rita	Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Cleco Partners	Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by Macquarie Infrastructure and Real Assets, British Columbia Investment Management Corporation, John Hancock Financial, and other infrastructure investors.
CO₂	Carbon dioxide
Coughlin	Cleco Power’s 775-MW, combined-cycle power plant located in St. Landry, Louisiana
CSAPR	Cross-State Air Pollution Rule
DHLC	Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands	Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Dolet Hills	A 650-MW generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of Dolet Hills.
EAC	Environmental Adjustment Clause
EGU	Electric Generating Unit
Entergy Gulf States	Entergy Gulf States Louisiana, L.L.C.
Entergy Louisiana	Entergy Louisiana, LLC
EPA	U.S. Environmental Protection Agency
ERO	Electric Reliability Organization
ESPP	Employee Stock Purchase Plan
Evangeline	Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC	Fuel Adjustment Clause
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FTR	Financial Transmission Right
FRP	Formula Rate Plan
GAAP	Generally Accepted Accounting Principles in the U.S.
IRP	Integrated Resource Plan
IRS	Internal Revenue Service
kWh	Kilowatt-hour(s)
LDEQ	Louisiana Department of Environmental Quality
LED	Louisiana Economic Development
LIBOR	London Interbank Offered Rate
LPSC	Louisiana Public Service Commission
LTIP	Long-Term Incentive Compensation Plan
Madison Unit 3	A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



ABBREVIATION OR ACRONYM	DEFINITION
MATS	Mercury and Air Toxics Standards
Merger	Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016
Merger Agreement	Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation
Merger Commitments	Cleco Partners’, Cleco Holdings’, and Cleco Power’s 77 commitments to the LPSC as defined in Docket No. U-33434 of which a performance report must be filed annually by October 31 for the 12 months ending June 30
Merger Sub	Cleco MergerSub Inc., previously an indirect wholly owned subsidiary of Cleco Partners that was merged with and into Cleco Corporation, with Cleco Corporation surviving the Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings
Midstream	Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Holdings
MISO	Midcontinent Independent System Operator, Inc.
Moody’s	Moody’s Investors Service, a credit rating agency
MW	Megawatt(s)
MWh	Megawatt-hour(s)
NAAQS	National Ambient Air Quality Standards
NERC	North American Electric Reliability Corporation
NMTC	New Markets Tax Credit
NMTC Fund	USB NMTC Fund 2008-1 LLC was formed to invest in projects qualifying for New Markets Tax Credits and Solar Projects
Not Meaningful	A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000%
NO_x	Nitrogen oxides
Oxbow	Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO
Perryville	Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings
PPA	Power purchase agreement
PRP	Potentially Responsible Party
Registrant(s)	Cleco Holdings and/or Cleco Power
Rodemacher Unit 2	A 523-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana. Cleco Power has a 30% ownership interest in the capacity of Rodemacher Unit 2.
ROE	Return on equity
RTO	Regional Transmission Organization
S&P	Standard & Poor’s Ratings Services, a credit rating agency
SEC	U.S. Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
SO₂	Sulfur dioxide
Support Group	Cleco Support Group LLC, a wholly owned subsidiary of Cleco Holdings
SWEPCO	Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc.
VaR	Value-at-Risk



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Combined Quarterly Report on Form 10-Q includes “forward-looking statements” about future events, circumstances, and results. All statements other than statements of historical fact included in this Combined Quarterly Report are forward-looking statements, including, without limitation, future capital expenditures; business strategies; goals, beliefs, plans and objectives; competitive strengths; market developments; development and operation of facilities; growth in sales volume; meeting capacity requirements; expansion of service to existing customers and service to new customers; future environmental regulations and remediation liabilities; electric customer credits; and the anticipated outcome of various regulatory and legal proceedings. Although the Registrants believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from the Registrants’ expectations. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements, the following list identifies some of the factors that could cause the Registrants’ actual results to differ materially from those contemplated in any of the Registrants’ forward-looking statements:


•	the effects of the Merger on Cleco Holdings’ and Cleco Power’s business relationships, operating results, and business generally,

•

regulatory factors such as changes in rate-setting practices or policies; the unpredictability in political actions of governmental regulatory bodies; adverse regulatory ratemaking actions; recovery of investments made under traditional regulation; recovery of storm restoration costs; the frequency, timing, and amount of rate increases or decreases; the impact that rate cases or requests for FRP extensions may have on operating decisions of Cleco Power; the results of periodic NERC and LPSC audits; participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to more suppliers; and compliance with the ERO reliability standards for bulk power systems by Cleco Power,


•	the ability to recover fuel costs through the FAC,

•

factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other storms or severe drought conditions; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs or fuel supply costs, fuel shortages, transportation problems, or other developments; fuel mix of Cleco’s generating facilities; decreased customer load; environmental incidents and compliance costs; and power transmission system constraints,


•	reliance on third parties for determination of Cleco Power’s commitments and obligations to markets for generation resources and reliance on third-party transmission services,


•	global and domestic economic conditions, including the ability of customers to continue paying utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates,


•	the ability of the lignite reserves at Dolet Hills to provide sufficient fuel to the Dolet Hills Power Station until at least 2036,


•	Cleco Power’s ability to maintain its right to sell wholesale power at market-based rates within its control area,


•	Cleco Power’s dependence on energy from sources other than its facilities and future sources of such additional energy,


•	reliability of Cleco Power’s generating facilities,


•	the imposition of energy efficiency requirements or increased conservation efforts of customers,


•	the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of certain generating units, increase costs, or reduce customer demand for electricity,


•	the ability to recover costs of compliance with environmental laws and regulations, including those through the EAC,


•	financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight,


•	changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,


•	legal, environmental, and regulatory delays and other obstacles associated with acquisitions, reorganizations, investments in joint ventures, or other capital projects,


•	costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,


•	the availability and use of alternative sources of energy and technologies, such as wind, solar, battery storage, and distributed generation,


•	changes in federal, state, or local laws (including tax laws), changes in tax rates, disallowances of tax positions, or changes in other regulating policies that may result in a change to tax benefits or expenses,


•	the restriction on the ability of Cleco Power to make distributions to Cleco Holdings in certain instances, as a result of the Merger Commitments,


•	Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations,



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q


•	acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters,


•	nonperformance by and creditworthiness of the guarantor counterparty of the NMTC Fund,


•	credit ratings of Cleco Holdings and Cleco Power,


•	ability to remain in compliance with debt covenants,


•	availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and


•	employee work force factors, including aging workforce and changes in management.

For more discussion of these factors and other factors that could cause actual results to differ materially from those contemplated in the Registrants’ forward-looking statements, please see “Risk Factors” in the Registrants’ Combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, and in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

All subsequent written and oral forward-looking statements attributable to the Registrants, or persons acting on their behalf, are expressly qualified in their entirety by the factors identified above.

The Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Holdings

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco Holdings’ Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2015. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Income (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			APR. 1, 2016 - APR. 12, 2016			FOR THE THREE MONTHS ENDED JUNE 30, 2015
Operating revenue
Electric operations	$	229,927		$	30,997		$	276,661
Other operations	14,133			1,949			15,803
Gross operating revenue	244,060			32,946			292,464
Electric customer credits	(558		)	(43		)	(3,390		)
Operating revenue, net	243,502			32,903			289,074
Operating expenses
Fuel used for electric generation	66,251			8,934			84,011
Power purchased for utility customers	24,382			4,144			34,132
Other operations	24,270			4,244			31,436
Maintenance	22,905			5,182			21,436
Depreciation and amortization	34,160			5,137			36,468
Taxes other than income taxes	10,379			1,704			12,117
Merger transaction and commitment costs	171,303			33,390			(410		)
Total operating expenses	353,650			62,735			219,190
Operating (loss) income	(110,148		)	(29,832		)	69,884
Interest income	197			41			90
Allowance for equity funds used during construction	749			72			460
Other income	1,738			364			764
Other expense	(187		)	(73		)	(695		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	26,693			2,592			20,040
Allowance for borrowed funds used during construction	(228		)	(23		)	(130		)
Total interest charges	26,465			2,569			19,910
(Loss) income before income taxes	(134,116		)	(31,997		)	50,593
Federal and state income tax (benefit) expense	(52,202		)	(8,669		)	20,359
Net (loss) income	$	(81,914	)	$	(23,328	)	$	30,234
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			APR. 1, 2016 - APR. 12, 2016			FOR THE THREE MONTHS ENDED JUNE 30, 2015
Net (loss) income	$	(81,914	)	$	(23,328	)	$	30,234
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $0, $37, and $411, respectively)	—			59			656
Net gain on cash flow hedges (net of tax expense of $0, $4, and $33, respectively)	—			7			53
Total other comprehensive income, net of tax	—			66			709
Comprehensive (loss) income, net of tax	$	(81,914	)	$	(23,262	)	$	30,943
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Income (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE SIX MONTHS ENDED JUNE 30, 2015
Operating revenue
Electric operations	$	229,927		$	281,154		$	554,175
Other operations	14,133			19,080			33,535
Gross operating revenue	244,060			300,234			587,710
Electric customer credits	(558		)	(364		)	(3,179		)
Operating revenue, net	243,502			299,870			584,531
Operating expenses
Fuel used for electric generation	66,251			96,378			172,136
Power purchased for utility customers	24,382			27,249			78,213
Other operations	24,270			33,563			59,995
Maintenance	22,905			29,813			40,518
Depreciation and amortization	34,160			44,076			73,746
Taxes other than income taxes	10,379			14,611			25,589
Merger transaction and commitment costs	171,303			34,912			1,730
Gain on sale of asset	—			(1,095		)	—
Total operating expenses	353,650			279,507			451,927
Operating (loss) income	(110,148		)	20,363			132,604
Interest income	197			265			388
Allowance for equity funds used during construction	749			723			1,537
Other income	1,738			870			1,409
Other expense	(187		)	(590		)	(1,063		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	26,693			22,330			40,483
Allowance for borrowed funds used during construction	(228		)	(207		)	(451		)
Total interest charges	26,465			22,123			40,032
(Loss) income before income taxes	(134,116		)	(492		)	94,843
Federal and state income tax (benefit) expense	(52,202		)	3,468			37,687
Net (loss) income	$	(81,914	)	$	(3,960	)	$	57,156
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE SIX MONTHS ENDED JUNE 30, 2015
Net (loss) income	$	(81,914	)	$	(3,960	)	$	57,156
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $0, $367, and $792, respectively)	—			587			1,265
Net gain on cash flow hedges (net of tax expense of $0, $37, and $66, respectively)	—			60			106
Total other comprehensive income, net of tax	—			647			1,371
Comprehensive (loss) income, net of tax	$	(81,914	)	$	(3,313	)	$	58,527
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Balance Sheets (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016			AT DEC. 31, 2015
Assets
Current assets
Cash and cash equivalents	$	16,912		$	68,246
Restricted cash and cash equivalents	144,150			9,263
Customer accounts receivable (less allowance for doubtful accounts of $3,957 in 2016 and $2,674 in 2015)	46,503			43,255
Accounts receivable - affiliate	3,786			—
Other accounts receivable	25,681			27,677
Unbilled revenue	46,419			33,995
Fuel inventory, at average cost	38,023			72,838
Material and supplies, at average cost	79,469			76,731
Energy risk management assets	13,989			7,673
Accumulated deferred fuel	19,543			12,910
Cash surrender value of company-/trust-owned life insurance policies	76,424			73,823
Prepayments	7,798			7,883
Regulatory assets	40,929			14,117
Other current assets	841			448
Total current assets	560,467			448,859
Property, plant, and equipment
Property, plant, and equipment	3,376,333			4,661,212
Accumulated depreciation	(20,990		)	(1,536,158		)
Net property, plant, and equipment	3,355,343			3,125,054
Construction work in progress	97,194			66,509
Total property, plant, and equipment, net	3,452,537			3,191,563
Equity investment in investee	19,272			16,822
Goodwill	1,490,402			—
Prepayments	4,656			4,542
Restricted cash and cash equivalents	24,291			16,195
Regulatory assets - deferred taxes, net	230,523			236,941
Regulatory assets	471,389			284,689
Net investment in direct financing lease	13,442			13,464
Intangible asset	157,731			74,963
Tax credit fund investment, net	12,072			13,741
Other deferred charges	17,072			22,299
Total assets	$	6,453,854		$	4,324,078
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.


(Continued on next page)



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Balance Sheets (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016			AT DEC. 31, 2015
Liabilities and member’s equity/shareholders’ equity
Liabilities
Current liabilities
Long-term debt due within one year	$	20,007		$	19,421
Accounts payable	100,802			93,822
Accounts payable, affiliate	146			—
Customer deposits	56,328			55,233
Provision for rate refund	3,618			2,696
Provision for merger commitments	142,003			—
Taxes payable	16,246			2,573
Interest accrued	14,041			7,814
Energy risk management liabilities	371			275
Regulatory liabilities - other	—			312
Deferred compensation	10,933			10,156
Other current liabilities	17,776			14,277
Total current liabilities	382,271			206,579
Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net	1,002,784			925,103
Accumulated deferred investment tax credits	2,998			3,245
Postretirement benefit obligations	213,638			205,036
Restricted storm reserve	16,775			16,177
Other deferred credits	27,935			24,670
Total long-term liabilities and deferred credits	1,264,130			1,174,231
Long-term debt, net	2,759,226			1,268,427
Total liabilities	4,405,627			2,649,237
Commitments and Contingencies (Note 12)
Member’s equity/Shareholders’ equity
Member’s equity/Common shareholders’ equity
Membership interest/Common stock ⁽¹⁾	2,130,141			456,412
(Accumulated deficit)/Retained earnings	(81,914		)	1,245,014
Accumulated other comprehensive loss	—			(26,585		)
Total member’s equity/common shareholders’ equity	2,048,227			1,674,841
Total liabilities and member’s equity/shareholders’ equity	$	6,453,854		$	4,324,078
⁽¹⁾At December 31, 2015, shareholders’ equity included $418.5 million of premium on common stock, $61.1 million of common stock, and $23.2 million of treasury stock. At December 31, 2015, Cleco Holdings had 100,000,000 shares of common stock authorized, 61,058,918 shares of common stock issued, and 60,482,468 shares of common stock outstanding, par value $1 per share. At December 31, 2015, Cleco Holdings had 576,450 shares of treasury stock.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Cash Flows (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE SIX MONTHS ENDED JUNE 30, 2015
Operating activities
Net (loss) income	$	(81,914	)	$	(3,960	)	$	57,156
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	57,718			45,869			76,951
Gain on sale of asset	—			(1,095		)	—
Unearned compensation expense	361			3,276			3,341
Allowance for equity funds used during construction	(748		)	(724		)	(1,537		)
Net deferred income taxes	(47,264		)	2,219			33,367
Deferred fuel costs	(7,717		)	977			7,251
Cash surrender value of company-/trust-owned life insurance	(1,761		)	(840		)	(366		)
Provision for merger commitments	150,840			—			—
Changes in assets and liabilities
Accounts receivable	(5,360		)	(1,865		)	(8,062		)
Accounts and notes receivable, affiliate	(3,786		)	—			—
Unbilled revenue	(12,988		)	563			(4,866		)
Fuel inventory and materials and supplies	12,765			19,312			4,973
Prepayments	(2,425		)	2,395			1,295
Accounts payable	(19,143		)	8,348			(27,652		)
Accounts and notes payable, affiliate	146			—			—
Customer deposits	2,787			3,342			6,104
Postretirement benefit obligations	936			9,746			6,878
Regulatory assets and liabilities, net	4,104			5,178			8,764
Other deferred accounts	(7,109		)	6,878			(7,872		)
Taxes accrued	(8,161		)	10,820			16,959
Interest accrued	(11,760		)	17,909			1,112
Deferred compensation	(1,436		)	(793		)	(908		)
Other operating	2,705			2,224			1,579
Net cash provided by operating activities	20,790			129,779			174,467
Investing activities
Additions to property, plant, and equipment	(43,623		)	(42,392		)	(78,180		)
Allowance for equity funds used during construction	748			724			1,537
Proceeds from sale of property	159			1,932			—
Premiums paid on trust-owned life insurance	—			—			(1,375		)
Contributions to equity investment in investee	—			(2,450		)	(840		)
Return of equity investment in tax credit fund	475			476			1,172
Contributions to tax credit fund	—			—			(923		)
Transfer of cash (to) from restricted accounts, net	(147,830		)	4,847			(41		)
Other investing	104			53			459
Net cash used in investing activities	(189,967		)	(36,810		)	(78,191		)



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Cash Flows (Unaudited)
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE SIX MONTHS ENDED JUNE 30, 2015
Financing activities
Draws on credit facilities	15,000			3,000			62,000
Payments on credit facilities	(15,000		)	(10,000		)	(87,000		)
Issuance of long-term debt	1,350,000			—			—
Repayment of long-term debt	(1,350,000		)	(8,546		)	(43,053		)
Payment of financing costs	(5,830		)	(43		)	(154		)
Dividends paid	(572		)	(24,579		)	(48,869		)
Contribution from member	100,720			—			—
Distribution to member	(28,000		)	—			—
Other financing	(559		)	(717		)	(1,194		)
Net cash provided by (used in) financing activities	65,759			(40,885		)	(118,270		)
Net (decrease) increase in cash and cash equivalents	(103,418		)	52,084			(21,994		)
Cash and cash equivalents at beginning of period	120,330			68,246			44,423
Cash and cash equivalents at end of period	$	16,912		$	120,330		$	22,429

Supplementary cash flow information
Interest paid, net of amount capitalized	$	37,466		$	2,478		$	36,751
Income taxes paid (refunded), net	$	256		$	(481	)	$	306
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	19,668		$	10,619		$	7,674
Additions to property, plant, and equipment - ARO	$	—		$	961		$	—
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO HOLDINGS

Condensed Consolidated Statements of Changes in Equity (Unaudited)
(THOUSANDS)	COMMON STOCK/MEMBERSHIP INTEREST⁽¹⁾			RETAINED EARNINGS/(ACCUMULATED DEFICIT)			AOCI			TOTAL SHAREHOLDERS’/ MEMBER’S EQUITY
PREDECESSOR
Balances, Dec. 31, 2015	$	456,412		$	1,245,014		$	(26,585	)	$	1,674,841
Common stock issued for compensatory plans	(1,277		)	—			—			(1,277		)
Dividends on common stock, $0.40 per share	—			(24,190		)	—			(24,190		)
Net loss	—			(3,960		)	—			(3,960		)
Other comprehensive income, net of tax	—			—			647			647
Balances, Apr. 12, 2016	$	455,135		$	1,216,864		$	(25,938	)	$	1,646,061
SUCCESSOR
Balances, Apr. 13, 2016 ⁽²⁾	$	2,158,141		$	—		$	—		$	2,158,141
Distribution to member	(28,000		)	—			—			(28,000		)
Net loss	—			(81,914		)	—			(81,914		)
Balances, June 30, 2016	$	2,130,141		$	(81,914	)	$	—		$	2,048,227
⁽¹⁾At April 12, 2016, and December 31, 2015, shareholders’ equity of the predecessor company included $61.1 million of common stock. At April 12, 2016, and December 31, 2015, shareholders’ equity of the predecessor company included $414.6 million and $418.5 million of premium on common stock, and $20.5 million and $23.2 million of treasury stock, respectively. ⁽²⁾The April 13, 2016, beginning balance of the successor company differs from the April 12, 2016, ending balances of the predecessor company due to acquisition accounting adjustments related to the Merger.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Power

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco Power’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2015. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)	2016			2015
Operating revenue
Electric operations	$	263,155		$	276,661
Other operations	15,564			15,283
Affiliate revenue	225			331
Gross operating revenue	278,944			292,275
Electric customer credits	(601		)	(3,390		)
Operating revenue, net	278,343			288,885
Operating expenses
Fuel used for electric generation	75,185			84,011
Power purchased for utility customers	28,526			34,132
Other operations	29,287			31,650
Maintenance	27,954			21,230
Depreciation and amortization	36,240			36,126
Taxes other than income taxes	11,491			11,493
Merger commitment costs	151,501			—
Total operating expenses	360,184			218,642
Operating (loss) income	(81,841		)	70,243
Interest income	146			48
Allowance for equity funds used during construction	821			460
Other income	204			846
Other expense	(272		)	(474		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	19,564			19,531
Allowance for borrowed funds used during construction	(251		)	(130		)
Total interest charges	19,313			19,401
(Loss) income before income taxes	(100,255		)	51,722
Federal and state income tax (benefit) expense	(39,026		)	19,909
Net (loss) income	$	(61,229	)	$	31,813
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)	2016			2015
Net (loss) income	$	(61,229	)	$	31,813
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $113 in 2016 and $180 in 2015)	181			288
Net gain on cash flow hedges (net of tax expense of $33 in 2016 and 2015)	53			53
Total other comprehensive income, net of tax	234			341
Comprehensive (loss) income, net of tax	$	(60,995	)	$	32,154
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2016			2015
Operating revenue
Electric operations	$	513,312		$	554,175
Other operations	32,178			32,495
Affiliate revenue	457			665
Gross operating revenue	545,947			587,335
Electric customer credits	(922		)	(3,179		)
Operating revenue, net	545,025			584,156
Operating expenses
Fuel used for electric generation	162,629			172,136
Power purchased for utility customers	51,631			78,213
Other operations	58,681			60,130
Maintenance	52,492			40,175
Depreciation and amortization	74,843			73,109
Taxes other than income taxes	23,916			24,479
Merger commitment costs	151,501			—
Gain on sale of asset	(1,095		)	—
Total operating expenses	574,598			448,242
Operating (loss) income	(29,573		)	135,914
Interest income	325			304
Allowance for equity funds used during construction	1,472			1,537
Other income	351			1,297
Other expense	(789		)	(1,062		)
Interest charges
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net	39,034			39,755
Allowance for borrowed funds used during construction	(435		)	(451		)
Total interest charges	38,599			39,304
(Loss) income before income taxes	(66,813		)	98,686
Federal and state income tax (benefit) expense	(26,463		)	38,268
Net (loss) income	$	(40,350	)	$	60,418
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2016			2015
Net (loss) income	$	(40,350	)	$	60,418
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $239 in 2016 and $126 in 2015)	381			201
Net gain on cash flow hedges (net of tax expense of $66 in 2016 and 2015)	106			106
Total other comprehensive income, net of tax	487			307
Comprehensive (loss) income, net of tax	$	(39,863	)	$	60,725
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT JUNE 30, 2016			AT DEC. 31, 2015
Assets
Utility plant and equipment
Property, plant, and equipment	$	4,694,517		$	4,645,698
Accumulated depreciation	(1,571,433		)	(1,525,298		)
Net property, plant, and equipment	3,123,084			3,120,400
Construction work in progress	96,725			66,069
Total utility plant, net	3,219,809			3,186,469
Current assets
Cash and cash equivalents	7,310			65,705
Restricted cash and cash equivalents	144,150			9,263
Customer accounts receivable (less allowance for doubtful accounts of $3,957 in 2016 and $2,674 in 2015)	46,503			43,255
Accounts receivable - affiliate	3,812			1,908
Other accounts receivable	25,245			27,553
Unbilled revenue	46,419			33,995
Fuel inventory, at average cost	38,023			72,838
Material and supplies, at average cost	79,469			76,731
Energy risk management assets	13,989			7,673
Accumulated deferred fuel	19,543			12,910
Cash surrender value of company-owned life insurance policies	20,155			20,003
Prepayments	6,707			6,309
Regulatory assets	19,362			14,117
Other current assets	—			337
Total current assets	470,687			392,597
Equity investment in investee	19,272			16,822
Prepayments	4,656			4,542
Restricted cash and cash equivalents	24,270			16,174
Regulatory assets - deferred taxes, net	230,523			236,941
Regulatory assets	269,397			284,689
Intangible asset	66,711			74,963
Other deferred charges	14,133			20,534
Total assets	$	4,319,458		$	4,233,731
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

(Continued on next page)



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT JUNE 30, 2016		AT DEC. 31, 2015
Liabilities and member’s equity
Member’s equity	$	1,527,541	$	1,552,404
Long-term debt, net	1,224,624		1,234,433
Total capitalization	2,752,165		2,786,837
Current liabilities
Long-term debt due within one year	20,007		19,421
Accounts payable	92,595		88,235
Accounts payable - affiliate	6,432		6,598
Customer deposits	56,328		55,233
Provision for rate refund	3,618		2,696
Provision for merger commitments	142,003		—
Taxes payable	5,916		17,045
Interest accrued	8,915		7,813
Energy risk management liabilities	371		275
Regulatory liabilities - other	—		312
Other current liabilities	12,159		10,078
Total current liabilities	348,344		207,706
Commitments and Contingencies (Note 12)
Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net	1,016,256		1,043,531
Accumulated deferred investment tax credits	2,998		3,245
Postretirement benefit obligations	154,985		152,152
Restricted storm reserve	16,775		16,177
Other deferred credits	27,935		24,083
Total long-term liabilities and deferred credits	1,218,949		1,239,188
Total liabilities and member’s equity	$	4,319,458	$	4,233,731
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Cash Flows (Unaudited)
	FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2016			2015
Operating activities
Net (loss) income	$	(40,350	)	$	60,418
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	79,059			75,591
Gain on sale of asset	(1,095		)	—
Allowance for equity funds used during construction	(1,472		)	(1,537		)
Net deferred income taxes	(22,438		)	34,583
Deferred fuel costs	(6,740		)	7,251
Provision for merger commitments	150,840			—
Changes in assets and liabilities
Accounts receivable	(6,914		)	(8,204		)
Accounts and notes receivable, affiliate	(680		)	5,857
Unbilled revenue	(12,425		)	(4,866		)
Fuel inventory and materials and supplies	32,077			4,973
Prepayments	(512		)	(867		)
Accounts payable	(13,238		)	(22,311		)
Accounts and notes payable, affiliate	(4,129		)	(2,619		)
Customer deposits	6,129			6,104
Postretirement benefit obligations	2,426			3,533
Regulatory assets and liabilities, net	8,854			8,764
Other deferred accounts	(231		)	(6,409		)
Taxes accrued	(11,129		)	18,949
Interest accrued	1,102			1,099
Other operating	5,056			1,888
Net cash provided by operating activities	164,190			182,197
Investing activities
Additions to property, plant, and equipment	(85,936		)	(78,010		)
Allowance for equity funds used during construction	1,472			1,537
Proceeds from sale of property	2,091			—
Contributions to equity investment in investee	(2,450		)	(840		)
Transfer of cash to restricted accounts, net	(142,983		)	(41		)
Other investing	157			459
Net cash used in investing activities	(227,649		)	(76,895		)
Financing activities
Draws on credit facility	15,000			20,000
Payments on credit facility	(15,000		)	(40,000		)
Repayment of long-term debt	(8,546		)	(43,053		)
Contributions from parent	50,000			—
Distributions to parent	(35,000		)	(60,000		)
Other financing	(1,390		)	(1,348		)
Net cash provided by (used in) financing activities	5,064			(124,401		)
Net decrease in cash and cash equivalents	(58,395		)	(19,099		)
Cash and cash equivalents at beginning of period	65,705			39,162
Cash and cash equivalents at end of period	$	7,310		$	20,063

Supplementary cash flow information
Interest paid, net of amount capitalized	$	35,746		$	36,394
Income taxes (refunded) paid, net	$	(485	)	$	565
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	19,571		$	7,639
Additions to property, plant, and equipment - ARO	$	961		$	—
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



CLECO POWER

Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)	MEMBER’S EQUITY			AOCI			TOTAL MEMBER’S EQUITY
Balances, Dec. 31, 2015	$	1,569,496		$	(17,092	)	$	1,552,404
Other comprehensive income, net of tax	—			487			487
Contributions from parent	50,000			—			50,000
Distributions to parent	(35,000		)	—			(35,000		)
Net loss	(40,350		)	—			(40,350		)
Balances, June 30, 2016	$	1,544,146		$	(16,605	)	$	1,527,541
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



Index to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements of Registrants

Note 1	Summary of Significant Accounting Policies	Cleco Holdings and Cleco Power
Note 2	Business Combinations	Cleco Holdings
Note 3	Recent Authoritative Guidance	Cleco Holdings and Cleco Power
Note 4	Regulatory Assets and Liabilities	Cleco Holdings and Cleco Power
Note 5	Fair Value Accounting	Cleco Holdings and Cleco Power
Note 6	Debt	Cleco Holdings and Cleco Power
Note 7	Pension Plan and Employee Benefits	Cleco Holdings and Cleco Power
Note 8	Income Taxes	Cleco Holdings and Cleco Power
Note 9	Disclosures about Segments	Cleco Holdings
Note 10	Regulation and Rates	Cleco Holdings and Cleco Power
Note 11	Variable Interest Entities	Cleco Holdings and Cleco Power
Note 12	Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees	Cleco Holdings and Cleco Power
Note 13	Affiliate Transactions	Cleco Holdings and Cleco Power
Note 14	Accumulated Other Comprehensive Loss	Cleco Holdings and Cleco Power
Note 15	Intangible Assets and Goodwill	Cleco Holdings and Cleco Power

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements of Cleco include the accounts of Cleco and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

Basis of Presentation

On April 13, 2016, Cleco Holdings completed its merger with Merger Sub whereby Merger Sub merged with and into Cleco Corporation, with Cleco Corporation surviving the Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings, as a direct, wholly owned subsidiary of Cleco Group and an indirect, wholly owned subsidiary of Cleco Partners. At the effective time of the Merger each outstanding share of Cleco Corporation common stock, par value $1.00 per share (other than shares that were owned by Cleco Corporation, Cleco Partners, Merger Sub, or any other direct or indirect wholly owned subsidiary of Cleco Partners or Cleco Corporation), were cancelled and were converted into the right to receive $55.37 per share in cash, without interest, with all dividends payable before the effective time of the Merger.

Cleco Holdings has accounted for the merger transaction by applying the acquisition method of accounting. The objective of the acquisition method is to establish a new accounting basis for the acquiree, Cleco Holdings and its subsidiaries, and requires the acquirer, Cleco Group, to recognize and measure the acquiree’s assets and liabilities at fair value as of the acquisition date. Cleco Power’s assets and liabilities were recorded at historical cost since Cleco did not elect pushdown accounting at the Cleco Power level. The financial statements and accompanying footnotes for Cleco have been segregated to present pre-merger activity as the “Predecessor” and post-merger activity as the “Successor.” The predecessor period is not comparable to the successor period.

The Condensed Consolidated Financial Statements of Cleco Holdings and Cleco Power have been prepared in accordance with GAAP for interim financial information and with the instructions to the Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP for annual financial statements. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements. Because the interim Condensed Consolidated Financial Statements and the accompanying notes do not include all of the information and notes required by GAAP for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and accompanying notes in the Registrants’ Combined Annual Report on Form 10-K for the year ended December 31, 2015.

These Condensed Consolidated Financial Statements, in the opinion of management, reflect all normal recurring adjustments that are necessary to fairly present the financial position and results of operations of Cleco. Amounts reported in Cleco’s interim financial statements are not necessarily indicative of amounts expected for the annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, effects of the completion of the Merger, discrete income tax items, and other factors.

In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. For information on recent authoritative guidance and its effect on financial results, see Note 3 — “Recent Authoritative Guidance.”



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

Reclassifications

Reclassifications have been made to the 2015 financial statements to conform them to the presentation used in the 2016 financial statements. Cleco and Cleco Power’s Condensed Consolidated Balance Sheets for the year ended December 31, 2015, have been adjusted to reflect credit facility debt issuance costs as Other deferred charges as compared to Long-term debt, net as presented in the prior year. The amount of the reclassification was $0.7 million and $0.4 million for Cleco and Cleco Power, respectively. These reclassifications had no effect on Cleco or Cleco Power’s net income or equity.

Goodwill

Goodwill is the excess of the purchase price (consideration transferred and liabilities assumed) over the estimated fair value of net assets of the acquired business and is not subject to amortization. Goodwill will be tested annually in the third quarter and whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired. If the fair value of Cleco is less than the carrying value, a full valuation of Cleco’s assets and liabilities, conducted as though Cleco were a newly acquired business, would occur. For more information on goodwill, see Note 15 — “Intangible Assets and Goodwill.”

Intangible assets

Intangible assets include Cleco Katrina/Rita’s right to bill and collect storm recovery charges, fair value adjustments on wholesale power supply agreements, and the Cleco trade name. The fair value of the assets are being amortized over their estimated useful lives in a manner that best reflects the economic benefits derived from such assets. The intangible assets related to the power supply agreements have definite lives ranging from 2 years to 19 years. Impairment will be tested if there are events or circumstances that indicate that an impairment analysis should be performed. If such an event or circumstance occurs, intangible impairment testing will be performed prior to goodwill impairment testing. Impairment is calculated as the excess of the asset’s carrying amount over its fair value. For more information on intangible assets, see Note 15 — “Intangible Assets and Goodwill.”

Property, Plant, and Equipment

Property, plant, and equipment consist primarily of regulated utility generation and energy transmission and distribution assets. Regulated assets, utilized primarily for retail operations and electric transmission and distribution, are stated at the cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. Jointly owned assets are reflected in property, plant, and equipment at Cleco Power’s share of the cost to construct or purchase the assets.

Most of the carrying value of Cleco’s assets were determined to be stated at fair value at the Merger date, considering that most of these assets are subject to regulation by the LPSC and FERC. A fair value adjustment was made to record the stepped-up basis for the Coughlin assets, since Cleco Power is able to earn a return on and recover these costs from customers. At the date of the Merger, the gross balance of fixed depreciable assets at Cleco was adjusted to be net of accumulated depreciation, as no accumulated depreciation existed on the date of the Merger. Since

pushdown accounting was not elected at the Cleco Power level, Cleco Power retained its accumulated depreciation. For more information about merger related adjustments to property, plant, and equipment, see Note 2 — “Business Combinations.”

Cleco and Cleco Power’s property, plant, and equipment consisted of:



Cleco
	SUCCESSOR			PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016			AT DEC. 31, 2015
Utility plants	$	3,371,948		$	4,645,698
Other	4,385			15,514
Total property, plant, and equipment	3,376,333			4,661,212
Accumulated depreciation	(20,990		)	(1,536,158		)
Net property, plant, and equipment	$	3,355,343		$	3,125,054



Cleco Power
(THOUSANDS)	AT JUNE 30, 2016			AT DEC. 31, 2015
Regulated utility plants	$	4,694,517		$	4,645,698
Accumulated depreciation	(1,571,433		)	(1,525,298		)
Net property, plant, and equipment	$	3,123,084		$	3,120,400

Restricted Cash and Cash Equivalents

Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes.

Cleco and Cleco Power’s restricted cash and cash equivalents consisted of:



Cleco
	SUCCESSOR		PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016		AT DEC. 31, 2015
Current
Cleco Katrina/Rita’s storm recovery bonds	$	8,348	$	9,263
Cleco Power’s sale of property	1,299		—
Cleco Power’s charitable contributions	1,200		—
Cleco Power’s rate credit escrow	133,303		—
Total current	144,150		9,263
Non-current
Diversified Lands’ mitigation escrow	21		21
Cleco Power’s future storm restoration costs	16,769		16,174
Cleco Power’s charitable contributions	4,803		—
Cleco Power’s rate credit escrow	2,698		—
Total non-current	24,291		16,195
Total restricted cash and cash equivalents	$	168,441	$	25,458



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q



Cleco Power
(THOUSANDS)	AT JUNE 30, 2016		AT DEC. 31, 2015
Current
Cleco Katrina/Rita’s storm recovery bonds	$	8,348	$	9,263
Sale of property	1,299		—
Charitable contributions	1,200		—
Rate credit escrow	133,303		—
Total current	144,150		9,263
Non-current
Future storm restoration costs	16,769		16,174
Charitable contributions	4,803		—
Rate credit escrow	2,698		—
Total non-current	24,270		16,174
Total restricted cash and cash equivalents	$	168,420	$	25,437

Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of administration fees, interest, and principal on storm recovery bonds. During the six months ended June 30, 2016, Cleco Katrina/Rita collected $9.9 million net of administration fees. In March 2016, Cleco Katrina/Rita used $8.5 million for a scheduled storm recovery bond principal payment and $2.3 million for a related interest payment.

On March 14, 2016, Cleco Power sold property for $1.3 million. Cleco Power used the proceeds from the sale to purchase like-kind property; therefore, was required to deposit the proceeds with a third party intermediary. On July 29, 2016, Cleco Power completed the purchase of the like-kind property, and the funds were released to purchase the property.

Included in the Merger Commitments were $6.0 million of charitable contributions to be disbursed over five years and $136.0 million of rate credits to eligible customers. On April 25, 2016, in accordance with the Merger Commitments, Cleco Power established the charitable contribution fund and also deposited the rate credit funds into an escrow account. On April 28, 2016, the LPSC voted to issue the rate credits equally to customers with service as of June 30, 2016, beginning in July 2016.

Fair Value Measurements and Disclosures

Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally on the date of acquisition or debt issuance. Cleco and Cleco Power disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes. For more information about fair value levels, see Note 5 — “Fair Value Accounting.”

Risk Management

Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes in value arising from changes in interest rates and the commodity market prices of power, FTRs, and natural gas in the industry on different energy exchanges. Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power, FTRs, and natural gas. Cleco evaluates derivatives and hedging

activities to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market.

Cleco Power may also enter into risk mitigating positions that would not meet the requirements of a normal-purchase, normal-sale transaction in order to attempt to mitigate the volatility in customer fuel costs. These positions would be marked-to-market with the resulting gain or loss recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets as a component of energy risk management assets or liabilities. Such gain or loss would be deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. When these positions close, actual gains or losses would be included in the FAC and reflected on customers’ bills as a component of the fuel cost adjustment. In June 2015, the LPSC approved a long-term natural gas hedging pilot program that requires Cleco Power to establish a proposal for a program that will be designed to provide gas price stability for a minimum of five years. This proposal is required to be submitted to the LPSC by June 30, 2018. There were no open natural gas positions at June 30, 2016, or December 31, 2015.

Cleco Power purchases the majority of its FTRs in annual auctions facilitated by MISO during the second quarter of each year and may also purchase additional FTRs in monthly auctions facilitated by MISO. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Cleco Power’s customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period based on the most recent MISO FTR auction prices. Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets. Realized gains or losses on settled FTRs are recorded in Electric operations or Power purchased for utility customers on Cleco and Cleco Power’s Condensed Consolidated Statements of Income. At June 30, 2016, Cleco and Cleco Power’s Condensed Consolidated Balance Sheets reflected the fair value of open FTR positions of $14.0 million in Energy risk management assets and $0.4 million in Energy risk management liabilities, compared to $7.7 million in Energy risk management assets and $0.3 million in Energy risk management liabilities at December 31, 2015. For more information on FTRs, see Note 5 — “Fair Value Accounting — Commodity Contracts.”

Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, aggregate counterparty credit exposure, and aggregate counterparty concentration levels. Cleco manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits, or letters of credit from counterparties or their affiliates, as deemed necessary. Cleco Power has agreements in place with various counterparties that authorize the netting of financial buys and sells and contract payments to mitigate credit risk for transactions entered into for risk management purposes.

Cleco may enter into contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks. For the six



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

months ended June 30, 2016, and the year ended December 31, 2015, Cleco did not enter into any contracts to mitigate the volatility in interest rate risk.

Accounting for MISO Transactions

Cleco Power participates in MISO’s Energy and Operating Reserve market where sales and purchases are netted hourly. If the hourly activity nets to sales, the result is reported in Electric operations on Cleco and Cleco Power’s Condensed Consolidated Statements of Income. If the hourly activity nets to purchases, the result is reported in Power purchased for utility customers on Cleco and Cleco Power’s Condensed Consolidated Statements of Income.

Stock-Based Compensation

Prior to the completion of the Merger, Cleco had two stock-based compensation plans: the ESPP and the LTIP. As a result of the completion of the Merger, the ESPP and the LTIP were terminated.

Pursuant to the terms of the LTIP, certain officers, key employees, and directors of Cleco were eligible to be granted

stock options, restricted stock, also known as non-vested stock, common stock equivalents, and stock appreciation rights. For the predecessor period January 1, 2016, through April 12, 2016, Cleco granted no shares of non-vested stock pursuant to the LTIP. As a result of the completion of the Merger, all unvested shares outstanding under the LTIP that were granted prior to January 1, 2015, vested at target and were paid out in cash to plan participants. Unvested shares that were granted during 2015 were prorated to the target amount and paid out in cash to plan participants in accordance with the terms of the Merger Agreement. In April 2016, Cleco incurred $2.3 million of merger expense due to the accelerated vesting of the LTIP shares for the predecessor period. For more information about the Merger, see Note 2 — “Business Combinations.”

Cleco and Cleco Power reported pretax compensation expense for their share-based compensation plans as shown in the following tables:



Cleco
	SUCCESSOR		PREDECESSOR				SUCCESSOR		PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - JUNE 30, 2016		APR. 1, 2016 - APR. 12, 2016		FOR THE THREE MONTHS ENDED JUNE 30, 2015		APR. 13, 2016 - JUNE 30, 2016		JAN. 1, 2016 - APR. 12, 2016		FOR THE SIX MONTHS ENDED JUNE 30, 2015
Equity classification
Non-vested stock	$	—	$	2,273	$	1,440	$	—	$	3,241	$	3,225
Tax benefit	$	—	$	874	$	554	$	—	$	1,247	$	1,241



Cleco Power
	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2016		2015		2016		2015
Equity classification
Non-vested stock	$	645	$	502	$	997	$	946
Tax benefit	$	248	$	193	$	384	$	364



Note 2 — Business Combinations

Regulatory Matters

On March 28, 2016, the LPSC approved the Merger. The LPSC’s written order approving the Merger was issued on April 7, 2016. Approval of the Merger was conditioned upon certain commitments, including $136.0 million of customer rate credits, a $7.0 million one-time contribution for economic development in Cleco Power’s service territory to be administered by LED or other state agency, $6.0 million of

charitable contributions to be disbursed over five years, and $2.5 million of contributions for economic development for Louisiana state and local organizations to be disbursed over five years. These commitments were accrued on April 13, 2016, and are included in Merger transaction and commitment costs and Merger commitment costs on Cleco and Cleco Power’s Condensed Consolidated Statements of Income, respectively. In addition, the Merger Commitments also included $1.2 million of annual refunds to customers representing cost savings due to the Merger. For more information on the cost savings refunds due to the Merger, see Note 10 — “Regulation and Rates.”

Accounting for the Merger Transaction

The total purchase price consideration was approximately $3.36 billion, which consisted of cash paid to Cleco Corporation shareholders of $3.35 billion and cash paid for Cleco LTIP equity awards of $9.5 million. There were no remaining LTIP equity awards as of the close of the Merger.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

Pushdown accounting was applied to Cleco Holdings, and accordingly, the Cleco Holdings consolidated assets acquired and liabilities assumed were recorded on April 13, 2016, at their estimated fair values as follows:



Preliminary Purchase Price Allocation
(THOUSANDS)	AT APR. 13, 2016
Current assets	$	455,016
Property, plant, and equipment, net	3,432,144
Goodwill	1,490,402
Other long-term assets	1,003,255
Less
Current liabilities	228,515
Net deferred income tax liabilities	1,060,487
Other liabilities	258,204
Long-term debt, net	1,470,126
Total purchase price	$	3,363,485

Cleco Power’s assets and liabilities were recorded at historical cost since Cleco did not elect pushdown accounting at the Cleco Power level.

The following tables present the preliminary fair value adjustments to Cleco Holdings’ balance sheet and recognition of goodwill:



(THOUSANDS)	AT APR. 13, 2016
Property, plant, and equipment	$	(1,334,932	)
Accumulated depreciation	1,565,776
Goodwill	1,490,402
Intangible assets	93,251
Regulatory assets	228,752
Deferred tax liabilities	127,401
Long-term debt	$	198,599

Most of the carrying values of Cleco’s assets and liabilities were determined to be stated at fair value at the Merger date, considering that most of these assets are subject to regulation by the LPSC and FERC. Under such regulation, rates charged to customers are established by a regulator to provide for recovery of costs and a fair return on rate base and are generally measured at historical cost. As such, a market participant would not expect to recover any more or less than the carrying value of the assets. Prior to the Merger, the Coughlin step-up was not recorded on Cleco’s Condensed Consolidated Balance Sheet due to the accounting treatment for the transfer of that asset in March 2014. However, the recovery of the step-up value of the Coughlin asset was approved by the LPSC for recovery in rate base, including a return on that rate base. On the date of the Merger, the step-up value for the Coughlin asset was recognized on Cleco’s Condensed Consolidated Balance Sheet since Cleco Power is able to earn a return on and recover these costs from its customers. The beginning balance of fixed depreciable assets was shown net at the date of the Merger, as no accumulated depreciation existed on the date of the Merger.

The excess of the purchase price over the estimated fair value of assets acquired and the liabilities assumed was $1.49 billion, which was recognized as goodwill by Cleco Holdings at the Merger date. The goodwill represents the potential long-term return of Cleco to its member.

On the date of the Merger, a fair value adjustment was recorded on Cleco’s Condensed Consolidated Balance Sheet to reflect the valuation of the Cleco trade name. This

adjustment is classified as an Intangible asset on Cleco’s Condensed Consolidated Balance Sheet. The valuation of the trade name was estimated by applying the relief-from-royalty method under the income approach. This valuation method is based on the premise that, in lieu of ownership of the asset, a company would be willing to pay a royalty to a third-party for the use of that asset. The owner of the asset is spared this cost, and the value of the asset is estimated by the cost savings. The projected revenue attributed to the trade name was based on projections of Cleco’s wholesale customers. Management is currently evaluating the economic useful life of the trade name. When determined, the trade name intangible asset will be amortized over the useful life. The amortization of the Cleco trade name will be included in Depreciation and amortization on Cleco’s Condensed Consolidated Statement of Income.

On the date of the Merger, fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the difference between the contract price and the market price of long-term wholesale power supply agreements. These adjustments are classified as Intangible assets on Cleco’s Condensed Consolidated Balance Sheet. The valuation of the power supply agreements was estimated using the income approach. The income approach is based upon discounted projected future cash flows associated with the underlying contracts. The intangible assets for the power supply agreements will be amortized over the remaining term of the applicable contract. The amortization of the power supply agreements is included in Electric operations on Cleco’s Condensed Consolidated Statement of Income.

The net increase in deferred tax liabilities on Cleco’s Condensed Consolidated Balance Sheet represents the differences between the assigned fair values of assets acquired and their related income tax basis, net of a deferred tax asset representing the net operating loss carryforward that will be utilized in future periods. As the underlying asset assigned fair values are amortized, the related deferred tax liabilities will be included in income tax expense. Goodwill is not deductible for income tax purposes; therefore, no deferred income tax assets or liabilities were recognized for goodwill.

On the date of the Merger, other fair value adjustments were recorded for long-term debt, SERP deferred losses, and interest rate derivative settlement gains/losses. These fair value adjustments are subject to rate regulation, but do not earn a return. In these instances, a corresponding regulatory asset was established, as the underlying utility asset or liability amounts are recoverable from or refundable to customers at historical cost through the rate setting process. These regulatory assets established to offset fair value adjustments are amortized in amounts and over time frames consistent with the realization or settlement of the fair value adjustments. For more information, see Note 4 — “Regulatory Assets and Liabilities.”

The valuations performed in the second quarter of 2016 to estimate the fair value of assets acquired and liabilities assumed are considered preliminary as a result of the short time period between the closing of the Merger and the end of the second quarter of 2016. Accounting guidance provides that the allocation of the purchase price may be modified up to one year from the date of the Merger, as more information is obtained about the fair value of assets acquired and liabilities assumed. The preliminary amounts recognized are subject to revision until the valuations are completed and to the extent that additional information is obtained about the facts and



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

circumstances that existed as of the date of the Merger. Cleco has not yet completed its evaluation and determination of the fair value of certain assets and liabilities acquired, primarily the final valuation and assessment of postretirement benefit plans as of April 13, 2016, and the economic useful life of the Cleco trade name. Cleco expects these final valuations and assessments will be completed by the end of 2016, which may affect the purchase price allocation and could affect goodwill.

Note 3 — Recent Authoritative Guidance

The Registrants adopted, or will adopt, the recent authoritative guidance listed below on their respective effective dates.

In May 2014, FASB amended the accounting guidance for revenue recognition. The amended guidance affects entities that enter into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity must identify the performance obligations in a contract and the transaction price, and allocate the price to specific performance obligations to recognize the revenue when the obligation is completed. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing, and uncertainty of revenue and cash flow arising from contracts. In August 2015, FASB amended the revenue recognition guidance to provide for a one-year deferral of the effective date. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Cleco does not plan to early adopt the amended guidance. Reporting entities have the option of using either a full retrospective or a modified retrospective approach. Management will evaluate the advantages and disadvantages of each transition method before selecting the method of adoption. Management is assessing the potential areas of impact, including the identification of specific contracts that would fall under the scope of this guidance. Management will continue to evaluate the impact of this guidance, but the amended guidance could have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

In July 2015, FASB issued the accounting guidance to simplify the measurement of inventory. This guidance requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The adoption of this guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. These amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. Management does not expect this guidance to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.

In September 2015, FASB amended the business combinations guidance to simplify the accounting for measurement-period adjustments. This guidance eliminates

the requirement to retrospectively account for these adjustments. The adoption of this guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This amendment should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted. Cleco was subject to this guidance starting January 1, 2016. As a result of the Merger on April 13, 2016, Cleco adopted this guidance and does not expect it to have a material impact on the results of operations, financial condition, or cash flows of the Registrants as a result of provisional merger adjustments in future periods.

In January 2016, FASB amended the guidance for recognition and measurement of financial assets and liabilities. These amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The adoption of this guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption of certain provisions of this guidance is permitted as of the beginning of the fiscal year of adoption. Entities should apply these amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair value should be applied prospectively to equity investments that exist as of the date of adoption. Management does not expect this guidance to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.

In February 2016, FASB amended the guidance to account for leases. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes practical expedients that may be elected by entities. Management will continue to evaluate the impact of this guidance, but the amended guidance could have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

In March 2016, FASB amended the derivatives and hedging accounting guidance to address the effect of derivative contract novations on existing hedge accounting relationships. The amended guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of the hedging relationship provided that all other hedge accounting criteria continue to be met. The adoption of this guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Entities have the option to apply these amendments on either a prospective basis or a modified retrospective basis. This guidance will not have an impact on the results of operations, financial condition, or cash flows of the Registrants.

In March 2016, FASB amended the derivatives and hedging accounting guidance related to contingent put and call options in debt instruments. This guidance clarifies the



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

requirements for assessing whether contingent put and call options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Entities performing the assessment will be required to assess the embedded put and call options solely in accordance with the four-step decision sequence clarified in the amended guidance. The adoption of this guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Entities should apply these amendments on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. Management is evaluating the impact that the adoption of this guidance will have on the results of operations, financial condition, or cash flows of the Registrants.

In March 2016, FASB amended the accounting guidance to simplify the transition to the equity method of accounting. This guidance impacts entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. This amended guidance eliminates the requirement to retroactively adopt the equity method of accounting. The adoption of this guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted. These amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that results in the adoption of the equity method. Management does not expect this guidance to have any impact on the results of operations, financial condition, or cash flows of the Registrants.

In March 2016, FASB amended the stock compensation guidance to provide for improvements to employee share-based payment accounting. The adoption of this guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those periods. Early adoption is permitted. On April 13, 2016, Cleco Holdings completed the Merger and no longer has common stock; as a result, this guidance will not have an impact on the results of operations, financial condition, or cash flows of the Registrants.

In June 2016, FASB amended the guidance for the measurement of credit losses on financial instruments. The guidance affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The adoption of this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. Management does not expect this guidance to have any impact on the results of operations, financial condition, or cash flows of the Registrants.

Note 4 — Regulatory Assets and Liabilities

Cleco capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers 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 believes these regulatory assets will be fully recoverable; however, if in

the future, as a result of regulatory changes or competition, Cleco’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 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 could require discontinuance of the application of these authoritative guidelines.

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



(THOUSANDS)	AT JUNE 30, 2016		AT DEC. 31, 2015
Regulatory assets – deferred taxes, net	$	230,523	$	236,941
Mining costs	7,647		8,921
Interest costs	5,041		5,221
AROs	1,789		2,462
Postretirement costs	145,667		150,274
Tree trimming costs	4,960		6,318
Training costs	6,785		6,863
Surcredits, net	7,878		9,661
Amended lignite mining agreement contingency	—		3,781
AMI deferred revenue requirement	5,045		5,318
Production operations and maintenance expenses	9,741		12,436
AFUDC equity gross-up	70,690		71,444
Acadia Unit 1 acquisition costs	2,495		2,548
Financing costs	8,847		9,032
Biomass costs	34		50
MISO integration costs	1,872		2,340
Coughlin transaction costs	1,014		1,030
Corporate franchise tax	2,616		373
Acadia FRP true-up	—		377
MATS costs	5,694		—
Other	944		357
Total regulatory assets	288,759		298,806
PPA true-up	—		(312		)
Fuel and purchased power	19,543		12,910
Total regulatory assets, net	$	538,825	$	548,345

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



	SUCCESSOR ⁽¹⁾		PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016		AT DEC. 31, 2015
Total Cleco Power regulatory assets, net	$	538,825	$	548,345
Cleco Holdings’ Merger adjustments
Fair value of long-term debt	185,113		—
Postretirement costs	20,513		—
Financing costs	9,138		—
Debt issuance costs	8,795		—
Total Cleco regulatory assets, net	$	762,384	$	548,345

⁽¹⁾Cleco Holdings’ regulatory assets include acquisition accounting adjustments as a result of the Merger.

Amended Lignite Mining Agreement Contingency

The provisions of the Amended Lignite Mining Agreement between Cleco Power, SWEPCO and DHLC include a requirement that if DHLC is unable to pay for loans and lease payments when due, Cleco Power and SWEPCO each will pay 50% of the amounts due. Any payments under this provision will be considered a prepayment of lignite to be delivered in the future and will be credited to future invoices from DHLC.



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

Previously, Cleco Power recorded a liability of $3.8 million related to the amended agreement with an offsetting regulatory asset due to Cleco Power’s ability to recover prudent fuel costs from customers through the FAC. Management determined that it does not expect to be required to pay DHLC under this guarantee. As a result of this determination, the liability and the offsetting regulatory asset were remeasured to zero.

Corporate Franchise Tax

As part of the FRP extension approved by the LPSC in June 2014, Cleco Power was authorized to recover through a rider the retail portion of state corporate franchise taxes paid. The retail portion of state corporate franchise taxes paid each year is recovered over a 12-month period beginning on July 1. Cleco Power’s retail portion of state corporate franchise taxes paid in April 2016 was $2.5 million. Additionally, Cleco Power had a regulatory asset of $0.3 million for amounts undercollected. The undercollection at June 30, 2016, and the 2016 retail portion of state corporate franchise taxes are being recovered from customers beginning July 1, 2016. These amounts were partially offset by $0.6 million of amortization for the 2015 corporate franchise taxes regulatory asset.

MATS Costs

On February 1, 2016, the LPSC approved Cleco Power’s request to recover the revenue requirements associated with the installation of MATS equipment. The MATS rule, finalized in February 2012, required affected EGUs to meet specific emission standards and work practice standards to address hazardous air pollutants by April 16, 2015. The LPSC approval also allowed Cleco Power to record a regulatory asset of $7.1 million representing the unrecovered revenue requirements of the MATS equipment placed into service in the years prior to the LPSC review and approval. This amount is being amortized over three years beginning on January 1, 2016.

Other

Cleco Power’s other regulatory assets increased during the six months ended June 30, 2016 as a result of the LPSC’s approval for Cleco Power to recover costs associated with its IRP report filing and its most recently completed fuel audit. Cleco Power incurred $0.6 million of costs related to the IRP report. In April 2016, the LPSC approved Cleco Power’s IRP report filed under the IRP Order No. R-30021, which fostered a collaborative working process for the development of Cleco Power’s long-term resource plan covering the planning period of 2015 through 2034. Cleco Power incurred $0.1 million of costs during the audit of fuel and purchased power expenses for the years 2009 through 2013. In October 2015, the LPSC approved the audit report. Cleco Power is recovering both of

these regulatory assets over a three-year period beginning on July 1, 2016.

Fuel and Purchased Power

The cost of fuel used for electric generation and power purchased for utility customers are recovered through the LPSC-established FAC or related wholesale contract provisions, which enable Cleco Power to pass on to its customers substantially all such charges. For the three and six months ended June 30, 2016, approximately 77% and 76%, respectively, of Cleco Power’s total fuel cost was regulated by the LPSC.

Fuel and purchased power increased $6.6 million during the six months ended June 30, 2016. Of this amount, $9.1 million was due to higher fuel costs and power purchases, the timing of collections, and customer usage, partially offset by a $2.5 million decrease in the mark-to-market value on FTRs.

Cleco Holdings’ Merger Adjustments

As a result of the Merger, Cleco implemented acquisition accounting, which eliminated AOCI at the Cleco Holdings consolidated level. Cleco will continue to recover expenses related to certain postretirement costs; therefore, Cleco recognized a regulatory asset based on its determination that these costs can 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 Merger, a regulatory asset was recorded for debt issuance costs that were eliminated at Cleco Holdings and a regulatory asset was recorded for the difference between the carrying value and the fair value of long-term debt. These regulatory assets will be amortized over the terms of the related debt issuances.

Note 5 — Fair Value Accounting

The amounts reflected on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at June 30, 2016, and December 31, 2015, for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, and accounts payable approximate fair value because of their short-term nature.

The following tables summarize the carrying value and estimated market value of Cleco and Cleco Power’s financial instruments not measured at fair value on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets:



Cleco
	SUCCESSOR				PREDECESSOR
	AT JUNE 30, 2016				AT DEC. 31, 2015
(THOUSANDS)	CARRYING VALUE		ESTIMATED FAIR VALUE		CARRYING VALUE		ESTIMATED FAIR VALUE
Long-term debt	$	2,785,416	$	2,853,296	$	1,299,529	$	1,463,989



Cleco Power
	AT JUNE 30, 2016				AT DEC. 31, 2015
(THOUSANDS)	CARRYING VALUE		ESTIMATED FAIR VALUE		CARRYING VALUE		ESTIMATED FAIR VALUE
Long-term debt	$	1,250,304	$	1,470,962	$	1,265,529	$	1,429,989



CLECO HOLDINGS
CLECO POWER		2016 2ND QUARTER FORM 10-Q

Fair Value Measurements and Disclosures

Cleco classifies assets and liabilities that are either measured or disclosed at their fair value according to three different levels depending on the inputs used in determining fair value.

The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured or disclosed on a recurring basis:



Cleco
	CLECO CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:
	SUCCESSOR								PREDECESSOR
(THOUSANDS)	AT JUNE 30, 2016		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2015		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Institutional money market funds	$	180,973	$	—	$	180,973	$	—	$	89,584	$	—	$	89,584	$	—
FTRs	13,989		—		—		13,989		7,673		—		—		7,673
Total assets	$	194,962	$	—	$	180,973	$	13,989	$	97,257	$	—	$	89,584	$	7,673
Liability description
Long-term debt	$	2,853,296	$	—	$	2,853,296	$	—	$	1,463,989	$	—	$	1,463,989	$	—
FTRs	371		—		—		371		275		—		—		275
Total liabilities	$	2,853,667	$	—	$	2,853,296	$	371	$	1,464,264	$	—	$	1,463,989	$	275

Cleco Power

CLECO POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:

(THOUSANDS)

AT JUNE 30, 2016

QUOTED PRICES IN

ACTIVE MARKETS

FOR IDENTICAL

ASSETS

(LEVEL 1)

SIGNIFICANT

OTHER

OBSERVABLE

INPUTS

(LEVEL 2)

SIGNIFICANT

UNOBSERVABLE

INPUTS

(LEVEL 3)

CLECO POWER LLC 10-Q