ITEM 1. BUSINESS
GENERAL
Cleco was incorporated on October 30, 1998 under the laws of the State of Louisiana. In July 1999, Utility Group reorganized into a holding company structure. This reorganization resulted in Cleco becoming a holding company. Cleco holds investments in several subsidiaries, including Cleco Power (successor to Utility Group) and Midstream, which comprise separate operating business segments, and UTS formerly known as Utilitech, a discontinued business segment.
Effective December 31, 2000, Utility Group merged into Cleco Power, another wholly-owned subsidiary of Cleco. Immediately prior to the merger, Cleco Power had only nominal assets or liabilities. Pursuant to the merger, Cleco Power acquired all of the assets and assumed all of the liabilities and obligations of Utility Group.
Cleco Power's predecessor was incorporated on January 2, 1935 under the laws of the State of Louisiana. Cleco Power was organized on December 12, 2000 and contains the LPSC jurisdictional generation, transmission and distribution electric utility operations serving Utility Group's traditional retail and wholesale customers. Cleco Power succeeded to Utility Group's assets and liabilities pursuant to a merger of Utility Group into Cleco Power in December 2000. Cleco Power serves approximately 250,000 customers in 63 communities and rural areas in a 14,000-square-mile region in the State of Louisiana. Cleco Power's operations are described below in the consolidated description of Cleco's business segments.
Midstream, organized on September 4, 1998 under the laws of the State of Louisiana, owns and operates wholesale generation stations, invests in joint ventures that own and operate wholesale generation stations, owns and operates natural gas pipelines, and engages in energy marketing activities. Midstream operates primarily in Louisiana and Texas.
UTS is a discontinued business segment. UTS was a utility line construction business originally organized on October 30, 1997. In December 2000, Cleco decided to sell substantially all of the assets of UTS. Revenues and expenses associated with UTS are netted and shown on our Consolidated Statements of Income as loss from discontinued operations. For additional information on the sale of the assets, see the Notes to the Cleco Consolidated Financial Statements, Note 18 - "Discontinued Operations" on page 59 of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
At December 31, 2001, Cleco employed 1,392 persons. Cleco's mailing address is
P.O. Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is (318) 484-7400. Cleco's homepage on the Internet's World Wide Web is located at http://www.cleco.com. Cleco, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to Section 3(a)(1) of the 1935 Act.
At December 31, 2001, Cleco Power employed 1,004 persons. Cleco Power's mailing address is P.O. Box 5000, Pineville, Louisiana, 71361-5000, and its telephone number is (318) 484-7400.
RECENT DEVELOPMENTS
On March 22, 2002, Cleco entered into an Equity Purchase Agreement with Mirant to purchase Mirant's 50 percent ownership interest in PEP. Cleco will pay Mirant cash of approximately $48 million and assume Mirant's $19.8 million future equity commitment to PEP. The transaction is anticipated to close in the second quarter of 2002. After closing, Cleco will own 100 percent of PEP. Cleco currently expects to fund the purchase and future equity contribution by issuing either short- or medium-term debt and by issuing approximately one million shares of common stock. For more information about PEP, see "- Operations - Midstream" below.
Currently, Cleco accounts for the investment in PEP using the equity method of accounting. Under the equity method of accounting, Cleco's $3.4 million investment in PEP is reported on the consolidated balance sheet in one line item "Equity investment in investee" and Cleco's share of earnings from PEP are reported on the consolidated income statement under "Other income (expense), net". After the closing date, Cleco will discontinue the equity method of accounting and consolidate PEP. Under the consolidation method of accounting, all of PEP's approximately $286.8 million in assets and liabilities will be reported on the consolidated balance sheet on the appropriate lines and PEP's revenues and expenses will be reported on the respective lines of the consolidated income statement.
OPERATIONS
CLECO POWER
Certain Factors Affecting Cleco Power
As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors affecting the electric utility industry in general. These factors include, among others, increasingly competitive business conditions, the cost of compliance with environmental regulations and changes in the federal and state regulation of the generation, transmission and sale of electricity. For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see "Regulatory Matters, Industry Developments and Franchises - Industry Developments" below.
Power Generation
Cleco Power operates and either owns or has an ownership interest in three steam electric generating stations, and a gas turbine. At December 31, 2001, Cleco Power's aggregate electric generating capacity was 1,366,900 kW. The following table sets forth certain information with respect to Cleco Power's generating facilities:
Fuel and Purchased Power
Changes in fuel and purchased power expenses reflect fluctuations in generation fuel mix, fuel costs, availability of economic purchased power and deferral of expenses for recovery from customers through fuel adjustment clauses in subsequent months.
The following table sets forth, for the periods indicated, the percentages of power generated from various fuels at Cleco Power's electric generating plants, the cost of fuel used per kWh attributable to each such fuel and the weighted average fuel cost per kWh.
Power Purchases
If transmission capacity is available, Cleco Power purchases electric energy from neighboring utilities and energy marketing companies when the price of the energy purchased is less than Cleco Power's cost of generating such energy from its own facilities or when it needs power to supplement its own electric generation. Cleco Power has a long-term contract under which it purchases 20,000 kW of firm energy from the Sabine River Authority which operates a hydroelectric generating plant. In addition, Cleco Power has three contracts for firm electric
capacity and energy with Williams Energy and Dynegy for 705 MW of capacity in 2002 and 2003, increasing to 760 MW of capacity in 2004. These contracts were approved by the LPSC in March 2000 and expire in December 2004.
The following table sets forth the amounts of power purchased by Cleco Power on the wholesale market for the years indicated.
Period
Million
kWh
Percent of
total energy
requirements
3,738
3,255
2,359
2,117
1,924
In February 1999, the LPSC approved the transfer of the existing CPS assets out of our LPSC-regulated rate base into Evangeline, an indirect wholly-owned subsidiary of Cleco. The actual transfer occurred in November 1999. In return for the approval of the asset transfer, we agreed to extend the terms of our 1996 rate settlement with the LPSC for an additional three years to 2004. See "- Regulatory Matters, Industry Developments and Franchises - Rates" for more information about the LPSC settlement. The agreement also contains specific provisions designed to hold Cleco Power's ratepayers harmless from negative impacts that might result from the removal of the CPS generating assets from its rate base. In return, Cleco Power authorized the transfer of CPS generating and transmission assets to Evangeline at their net book value of approximately $9.8 million. This resulted in a reduction in Cleco Power's generating capability of 334,000 kW.
During 2001, 40% of Cleco Power's energy requirements were met with purchased power, up from 34% in 2000. The primary factor causing the increase in purchased power in 2001 as compared to 2000 was the price of natural gas. On average in 2001, the price of natural gas, on a cost basis of per MWh of generation, was $51.70 per MWh, while the price of power was $30.29 per MWh. For information with respect to Cleco Power's ability to currently pass through changes in costs of fuel to its customers, see "Regulatory Matters, Industry Developments and Franchises - Rates" below.
In future years, Cleco Power's generating facilities may not supply enough electric power to meet its customers' growing demand (native load demand) and Cleco Power may need to purchase additional generating capacity and/or purchase power to satisfy these needs. Management expects to meet substantially all of Cleco Power's native load demand through 2004 with Cleco Power's own generation resources and the power purchase agreements discussed above. Because of Cleco Power's location on the transmission grid, it relies on one main supplier of electric transmission and is sometimes constrained as to the amount of purchased power it can bring into its system. The three power supply contracts with Williams Energy and Dynegy discussed above are not expected to be affected by such transmission constraints.
Natural Gas Supply
During 2001, Cleco Power purchased a total of 27,818 MMBtu of natural gas for the generation of electricity. The annual and average per-day quantities of gas purchased by Cleco Power from each supplier are shown in the table below.
CLE Intrastate, a wholly-owned subsidiary of Midstream, owns a series of natural gas interconnections with Trunkline Gas Company, Columbia Gulf Transmission Co. and ANR Pipeline Company. The pipeline interconnections allow Cleco Power to access various additional natural gas supply markets, which helps to maintain the competitiveness of Cleco Power's generating units.
Natural gas was available without interruption throughout 2001. Cleco Power currently meets, and expects to continue to meet, its natural gas requirements with purchases on the spot market through daily, monthly and seasonal contracts with various natural gas suppliers. However, future supplies to Cleco Power remain vulnerable to disruptions due to weather events and transportation delays. The potential for disruptions to Cleco Power has been decreased by the addition of the CLE Intrastate interconnections. Nevertheless, large boiler fuel users of natural gas, including electric utilities, generally have low priority among gas users in the event pipeline suppliers are forced to curtail deliveries due to inadequate supplies. As a result, supplies of natural gas may become unavailable from time to time, or prices may increase rapidly in response to temporary supply interruptions. Such events, though rare, may require Cleco Power to shift its gas-fired generation to alternative fuel sources, such as fuel oil, to the extent it has the capability to burn those alternative fuels. Currently, Cleco Power anticipates that its alternative fuel capability, combined with its solid-fuel generation resources, are adequate to meet its fuel needs during any temporary interruption of natural gas supplies.
Coal and Lignite Supply
Cleco Power uses coal fuel for generation at Rodemacher Unit 2. The majority of the coal for Rodemacher Unit 2 is purchased from mines in Wyoming under a long-term contract expiring in June 2002 with Jacobs Ranch Coal Company. The contract has been modified under price
reopener procedures initiated in July 1997. The pricing structure under the modified contract has been defined through June 2002. The pricing structure is a set price per year based on Btu delivered. After purchasing a given annual quantity of base coal (approximately 500,000 tons in 2001), Cleco Power has the right to purchase coal from third parties in the spot market through competitive bidding. Provisions for pricing and terms are in the process of renegotiation under a contract reopener provision which expires on June 30, 2002. If negotiations are not complete by the expiration date, the contract terminates unless the parties have expressly agreed in writing to extend the negotiating period. Management currently expects to complete negotiations before the expiration date. If renegotiations are not successful, Cleco Power has the right under the contract to continue receiving coal from Jacobs Ranch Coal Company for a period of six months at the agreed upon price for 2002. During this period, Cleco Power can negotiate terms with other suppliers.
Cleco Power uses lignite fuel for generation at Dolet Hills Unit 1. Substantially all of the lignite used to fuel Dolet Hills Unit 1 is obtained under two long-term agreements. Cleco Power and SWEPCO, each a 50% owner of Dolet Hills Unit 1, have entered into agreements pursuant to which each acquired an undivided 50% interest in the other's leased and owned lignite reserves in northwestern Louisiana. In May 2001, Cleco Power and SWEPCO entered into a long-term agreement with automatic annual renewals through 2011 with DHLC for the mining and delivery of such lignite reserves. The agreement replaces a previous LMA that was terminated under a settlement agreement in connection with certain litigation relating to the previous LMA. These reserves are expected to provide a substantial portion of the fuel requirements for the projected operating life of Dolet Hills Unit 1. For more information about the litigation relating to the previous LMA and the agreement with DHLC, see Notes to Cleco Power's Financial Statements - Note 11 - Legal Proceeding: Fuel Supply - Lignite in Item 8 of Cleco Power's Report.
Additionally, Cleco Power and SWEPCO have entered into a long-term agreement expiring in 2011 with Red River Mining Co., a joint venture of the North American Coal Corporation and Phillips Coal Company, which provides for base contract purchases and spot purchases of lignite. Cleco Power's minimum annual purchase requirement is 550,000 tons. The base lignite price under the contract is a base price per MMBtu, subject to escalation, plus certain "pass-through" costs, while the spot lignite price is determined through competitive bidding.
The continuous supply of coal and lignite from the mining sources described above may be subject to interruption due to adverse weather conditions or other factors which may disrupt mining operations or transportation. At December 31, 2001, Cleco Power's coal inventory at Rodemacher Unit 2 was approximately 210,000 tons (about a 100-day supply), and Cleco Power's lignite inventory at Dolet Hills Unit 1 was approximately 116,000 tons (about a 20-day supply).
Oil Supply
Cleco Power stores fuel oil as an alternative fuel source. Rodemacher has storage capacity for an approximate 75-day supply, and other generating stations have storage capacity totaling
about a 20-day supply. However, in accordance with Cleco Power's current fuel oil inventory practices, at December 31, 2001, Cleco Power had between 6 to 12 days supply of fuel oil stored at its generating stations. During 2001, approximately 7.8 million gallons of fuel oil were burned. During January 2001, fuel oil was burned because the cost of using fuel oil to generate electricity was lower than the cost of using natural gas.
Sales
Cleco Power is a public utility engaged principally in the generation, transmission, distribution and sale of electricity within Louisiana. For further information regarding Cleco Power's generating stations and its transmission and distribution facilities, see "- Power Generation" above and "Properties - Cleco Power" in Item 2
ITEM 2. PROPERTIES
CLECO POWER
All of Cleco Power's electric generating stations and all other electric operating properties are located in the state of Louisiana. Cleco Power considers all of its properties to be well maintained, in good operating condition and suitable for their intended purposes.
Electric Generating Stations
As of December 31, 2001, Cleco Power either owned or had an ownership interest in three steam electric generating stations and a gas turbine with a combined electric generating capacity of 1,366,90 kW. For additional information regarding Cleco Power's generating facilities, see "Operations - Cleco Power - Power Generation" in Item 1 of this Report.
Electric Substations
As of December 31, 2001, Cleco Power owned 62 active transmission substations and 175 active distribution substations.
Electric Lines
As of December 31, 2001, Cleco Power's transmission system consisted of approximately 67 circuit miles of 500 kV lines; 462 circuit miles of 230 kV lines; 663 circuit miles of 138 kV lines; and 17 circuit miles of 69 kV lines. Cleco Power's distribution system consisted of approximately 3,375 circuit miles of 34.5 kV lines and 7,548 circuit miles of other lines.
General Properties
Cleco Power owns various properties, which include a seven-story headquarters office building, regional offices, service centers, telecommunications equipment and other facilities owned for general purposes.
Title
Cleco Power's electric generating plants and certain other principal properties are owned in fee. Electric transmission and distribution lines are located either on private rights-of-way or along streets or highways by public consent.
Substantially all of Cleco Power's property, plant and equipment is subject to a lien securing obligations of Cleco Power under an Indenture of Mortgage, which does not impair the use of such properties in the operation of its business.
MIDSTREAM
Midstream considers all of its properties to be well maintained, in good operating condition and suitable for their intended purposes.
Electric Generation
As of December 31, 2001, Midstream owned one steam electric generating station (Evangeline) with an electric generating capacity of 775,000 kW. In addition as of such date, Midstream had 864,000 kW of net generating capacity under construction and 78,500 kW of net generating capacity in operations through APP and PEP. For additional information regarding Midstream's generating facilities, see "Operations - Midstream" in Item 1 of this Report.
Oil and Gas Related
As of December 31, 2001, Midstream had an ownership interest in 415 miles of gas gathering and transmission pipeline in Texas and Louisiana as well as oil and gas producing properties in Texas.
Title
Midstream's assets are owned in fee. Evangeline is subject to a lien securing obligations under an Indenture of Mortgage, which does not impair the use of such properties in the operation of its business. Various other properties also are subject to mortgages associated with the debt used to acquire such properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
CLECO
For information on legal proceedings affecting Cleco, see Notes to Consolidated Financial Statements - Note 16 - Legal Proceeding: Fuel Supply - Lignite, - Note 17 -LDEQ Litigation on pages 57-58 and 58, respectively, of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
CLECO POWER
For information on legal proceedings affecting Cleco Power, see Notes to Cleco Power's Financial Statements - Note 11 - Legal Proceeding: Fuel Supply - Lignite in Item 8 of this Report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
CLECO
There were no matters submitted to a vote of security holders of Cleco during the fourth quarter of 2001.
CLECO POWER
The information called for by Item 4 with respect to Cleco Power is omitted pursuant to Instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
EXECUTIVE OFFICERS OF THE REGISTRANTS
The names of the executive officers of Cleco and certain subsidiaries, their positions held, five-year employment history, ages and years of service as of December 31, 2001, are presented below. Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed.
Name of Executive
Position and Five-Year
Employment History
David M. Eppler .........................
Cleco Corporation
Cleco Power LLC
President and Chief Executive Officer since May 2000; President and Chief Operating Officer from January 1999 to May 2000; Executive Vice President and Chief Operating Officer from July 1997 to January 1999; Executive Vice President from January 1997 to July 1997; Vice President - Power Supply and Energy Transmission from July 1995 to January 1997. (Age 51; 20 years of service)
Darrell J. Dubroc ........................
Cleco Corporation
Cleco Power LLC
Senior Vice President of Generation Services since December 1999; Vice President - Generation Services from July 1997 to December 1999; General Manager-Wholesale Merchant Operations from July 1996 to July 1997. (Age 40; 16 years of service)
Catherine C. Powell ....................
Cleco Corporation
Cleco Power LLC
Senior Vice President of Employee and Corporate Services since July 1997; Vice President - Employee and Corporate Services from July 1995 to July 1997. (Age 46; 10 years of service)
Dilek Samil .................................
Cleco Corporation
Cleco Power LLC
Senior Vice President of Finance and Chief Financial Officer since October 2001; Vice President of Special Projects FPL Group, Inc. from June 2000 to October 2001, Vice President of Finance, FPL Energy from September 1999 to June 2000, Treasurer FPL Group, Inc. from May 1991 to September 1999. (Age 46; 1 year of service)
Mark H. Segura .........................
Cleco Corporation
Cleco Power LLC
Senior Vice President of Utility Operations since April 1999; Vice President - Distribution Services from July 1997 to April 1999; General Manager - Distribution Services from July 1996 to July 1997. (Age 43; 17 years of service)
George W. Bausewine ...............
Cleco Corporation
Vice President of Strategic and Regulatory Affairs since July 2000; General Manager - Sales and Marketing from February 1998 to July 2000; Director - Strategic Planning from October 1993 to February 1998. (Age 46; 15 years of service)
R. Russell Davis ........................
Cleco Corporation
Cleco Power LLC
Vice President and Controller since June 2000. Controller of Central and South West Services, Inc. a subsidiary service company of Central & South West Corporation (CSW) and Controller of CSW's four U.S. electric utility operating companies from 1994 to June 2000. (Age 45; 2 years of service)
Jeffrey W. Hall .......................... 	
Cleco Corporation
Cleco Power LLC
Vice President of Retail Energy Services since July 1997; General Manager - Customer Revenue from July 1996 to July 1997. (Age 50; 20 years of service)
Larry R. Wells ...........................
Cleco Corporation
Cleco Power LLC
Vice President of Transmission Services since April 1999; General Manager - Transmission Services from July 1996 to April 1999. (Age 59; 35 years of service)
Kathleen F. Nolen ......................
Cleco Corporation
Cleco Power LLC
Treasurer since December 2000; Assistant Treasurer from April 1999 to December 2000; Manager - Purchasing from October 1993 to April 1999. (Age 41; 18 years of service)
Judy P. Miller ............................ 	
Cleco Corporation
Assistant Controller since July 2000; Acting Controller from February 2000 to July 2000; Manager - Internal Audit from May 1998 to February 2000; Assistant Corporate Secretary from April 1995 to May 1998. (Age 44; 17 years of service)
Kenneth D. Nolley, Sr. ..............
Cleco Corporation
Cleco Power LLC
Assistant Treasurer since December 2000; Financial Manager of Cleco ConnexUs LLC from March 2000 to December 2000; Counterparty Credit Manager with Cleco Support Group LLC from October 1998 to March 2000; Assistant Vice-President & Commercial Lender with Rapides Bank/Bank One from September 1995 to October 1998. (Age 33; 3 years of service)
Michael P. Prudhomme ..............
Cleco Corporation
Cleco Power LLC
Secretary since July 2000; Secretary - Treasurer from January 1994 to July 2000. (Age 58; 32 years of service)
Samuel H. Charlton III ..............
Cleco Corporation
Senior Vice President of Asset Management since November 2000; President and Chief Executive Officer of Cleco Energy LLC since September 1999; Executive Vice President of Cleco Energy LLC from November 1997 to September 1999. (Age 57; 4 years of service)
William G. Fontenot ...................
Cleco Corporation
Senior Vice President of Commercial Operations since February 2002; Vice President of Commercial Operations from February 2001 to February 2002; Vice President of Cleco Marketing & Trading LLC from December 1999 to February 2001; Manager of Cleco Power LLC from October 1996 to December 1999. (Age 39; 16 years of service)
PART II
ITEM 5.
ITEM 5. MARKET FOR CLECO'S AND CLECO POWER'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CLECO
Cleco's common stock is listed for trading on the NYSE and the Pacific Stock Exchange. For information concerning the high and low sales prices for Cleco's common stock as reported on the NYSE Composite Tape and dividends paid per share during each calendar quarter of 2001 and 2000, see the Notes to Consolidated Financial Statements - Note 22 - Miscellaneous Financial Information (Unaudited) on page 60 of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
Subject to the prior rights of the holders of the respective series of Cleco's preferred stock, such dividends as determined by the Board of Directors of Cleco may be declared and paid on the common stock from time to time out of funds legally available therefore. The provisions of Cleco's charter applicable to preferred stock and certain provisions contained in the debt instruments of Cleco under certain circumstances restrict the amount of retained earnings available for the payment of dividends by Cleco. The most restrictive covenant requires that common shareholders' equity be not less than 30% of total capitalization, including short-term debt. At December 31, 2001, approximately $68.7 million of retained earnings were not restricted. On January 25, 2002, Cleco's Board of Directors declared a quarterly dividend of $0.22 per share, which dividend was paid on February 15, 2002 to common shareholders of record on February 4, 2002.
As of March 1, 2002, there were 8,990 holders of record of Cleco's common stock, and the closing price of Cleco's common stock as reported on the NYSE Composite Tape was $21.69 per share.
CLECO POWER
There is no market for Cleco Power's common equity units. All of Cleco Power's outstanding common equity units are owned by its parent, Cleco. Distributions on Cleco Power's common equity units will be paid when and if declared by Cleco Power's Board of Managers. Cleco Power's current credit agreement contains some restrictions on its ability to pay cash distributions on its common equity units. Any future distributions also may be restricted by any credit or loan agreements that Cleco Power may enter into from time to time.
Certain provisions contained in the debt instruments under certain circumstances restrict the amount of equity available for the distribution to Cleco by Cleco Power. The most restrictive covenant requires that member's equity be not less than 30% of total capitalization, including short-term debt. At December 31, 2001, approximately $169.7 million of member's equity was not restricted.
The following table shows the distributions or dividends paid by Cleco Power, or its predecessor, Utility Group, to Cleco since July 1999
Distribution/Dividend Amount
Date Paid
$ 9.9 million
August 15, 1999
$ 29.9 million
November 15, 1999
$ 10.1 million
February 15, 2000
$ 12.7 million
May 15, 2000
$ 16.8 million
August 15, 2000
$ 19.8 million
November 15, 2000
Cleco Power's predecessor had common shares before December 31, 2000, the date of its merger with Cleco Power. After the merger, Cleco Power replaced common shares with common units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
CLECO
The information set forth in "Five-Year Selected Financial Data (Unaudited)" on page 62 of the 2001 Annual Report to Shareholders is incorporated herein by reference; such information is filed as Exhibit 13 to this Report. This information should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto set forth on pages 35-60 of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
CLECO POWER
The information called for by Item 6 with respect to Cleco Power is omitted pursuant to instruction in I(2)(a) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CLECO
The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 17-34 of the 2001 Annual Report to Shareholders is incorporated herein by reference; such information is filed as Exhibit 13 to this Report.
CLECO POWER
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
The following analysis should be read in combination with the financial statements and notes of Cleco Power contained in Item 8 of this Report. Cleco Power is providing the following narrative analysis of the results of its operations in lieu of management's discussion and analysis of financial condition and results of operations in accordance with Instruction I(2)(a) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
Revenues of Cleco Power are affected by the following factors:
Retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC. Retail rates consist of a base rate and a fuel rate. Base rates are designed to allow recovery of the cost of providing service and a return on utility assets. Fuel rates fluctuate while allowing recovery of, with no profit, the majority of costs of purchased power and fuel used to generate electricity. Rates for transmission service and wholesale power sales are regulated by the FERC. Energy marketing revenues are based on the electric and natural gas markets, which are affected by supply and demand of those commodities and marketing strategies.
Residential customers' demand for electricity is affected by weather. Weather is generally measured in cooling degree-days and heating degree-days. A cooling degree-day is an indication of the likelihood of a consumer utilizing air conditioning, while a heating degree-day is an indication of the likelihood of a consumer utilizing heating. An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days because customers can choose an alternative fuel source for heating, such as natural gas. Normal heating and cooling degree-days are calculated for a month by separately calculating the average actual heating and cooling degree-days for that month over a period of approximately 30 years.
Commercial and industrial customers' demand for electricity is less affected by the weather and is primarily dependent upon the strength of the economy in the service territory and the nation. Cleco Power's two largest customers manufacture wood products, so its sales to industrial customers are affected by the worldwide demand for those products.
Sales growth to retail electric customers has averaged 3.1% over the last five years, and we expect it to range from 2% to 3% per year during the next five years. The levels of future sales will depend upon factors such as weather conditions, customer conservation efforts, retail marketing and business development programs, and the economy of the service area. Some of the issues facing the electric utility industry that could affect sales include:
deregulation,
retail wheeling,
other legislative and regulatory changes,
retention of large industrial customers and municipal franchises,
changes in electric rates compared to customers' ability to pay, and
access to transmission systems.
Energy marketing sales primarily are affected by demand and supply of energy, market prices, and transmission constraints.
Fuel and power purchased are affected by the following factors:
Changes in fuel and purchased power expenses reflect fluctuations in fuel used for generation, fuel costs, availability of economic power, and deferral of expenses for recovery from customers through fuel adjustment clauses in subsequent months.
Historically, changes in the cost of generating fuel and purchased power have not affected net income because substantially all such costs are passed on to customers through fuel adjustment clauses. These adjustments are audited monthly and are regulated by the LPSC (representing about 93% of the total fuel cost adjustment) and the FERC. Until approval is received, the adjustments are subject to refund.
Coal and lignite are obtained both under long-term contracts and through the spot market. Natural gas is purchased under short-term contracts. Cleco Power has several power contracts with two power marketing companies for 705 MW of capacity in 2002 and 2003, increasing to 760 MW of capacity in 2004. Power is purchased from other utilities and other marketers to supplement Cleco Power's generation at times of relatively high demand when the purchase price of the power is less than Cleco Power's cost of production. However, transmission capacity must be available to transport the purchased power to Cleco Power's system in order for Cleco Power to be able to utilize the power. During 2001, 40% of Cleco Power's energy requirements were met with purchased power, up from 34% in 2000 and 27% in 1999.
In future years, Cleco Power's power plants may not supply enough power to meet its growing native load. Because of its location on the transmission grid, Cleco Power relies on one main supplier of electric transmission, and constraints sometimes limit the amount of purchased power it can bring into its system. The power contracts described above are not expected to be affected by such constraints.
An affiliate of Cleco owns and operates natural gas pipelines at two of Cleco Power's power plants where natural gas is used as a primary fuel. These pipelines increase access to natural gas markets and lower the cost of gas supplies.
Other expenses
Other operations expenses are affected, among other things, by the cost of employee benefits, such as health care, the number of employees, changes in actuarial assumptions, and
capacity charges. Maintenance expense generally is driven by the physical characteristics of the plant as well as planned preventive maintenance.
Results of Operations
Year ended December 31, 2001 compared to Year ended December 31, 2000
Cleco Power's net income for the year ended December 31, 2001 was $59.1 million compared to $59.9 million in 2000. The decrease largely was due to lower margins from marketing and trading operations as well as lower base revenues from retail customer sales, which were partially offset by higher transmission and wholesale revenues. There was a $22.1 million increase in operating expenses in 2001 compared to 2000 primarily because of higher operations expense and purchases for energy marketing.
Base revenues from energy sales during 2001 decreased $6.6 million compared to 2000 due to lower kilowatt hour sales. Offsetting this decrease was an increase of $1.8 million in transmission-related base revenues and a $0.8 million increase in miscellaneous base revenues, resulting in a net $4.0 million decrease in base revenues compared to 2000.
The following chart indicates the percentage variance from normal conditions and from the prior year for cooling/heating degree-days.
Short-term electric sales to other utilities increased significantly during 2001. The increase primarily was due to sales to the city of Lafayette under a one-year replacement energy contract that began in December 2000, and sales to the city of Ruston under a three-year contract to supply all of its power beginning June 1, 2001.
Fuel cost recovery revenues collected from customers increased primarily because the average per unit cost of fuel was $2.92 per MMBtu in 2001 versus $2.72 per MMBtu in 2000. The increase in the average per unit cost of fuel was primarily a result of a 7.3% increase in the per unit cost of natural gas for 2001 compared to 2000.
An earnings review settlement was reached with the LPSC in 1996 under which accruals for estimated customer credits are sometimes required. Cleco Power accrued $1.8 million during 2001 compared to $1.2 million in 2000. The amount of credit due customers, if any, is determined by the LPSC annually, based on results for the 12-month period ending September 30 of each year. For additional information, see the Notes to Cleco Power's Financial Statements - Note 9 - "Accrual of Estimated Customer Credits" in Item 8 of this Report.
Energy marketing revenues for 2001 increased $13.1 million compared to 2000. The increase in energy marketing revenues primarily is due to excess natural gas marketed and an increase in the price of natural gas in 2001 compared to 2000. Cleco Power's energy trading activity does not qualify for normal purchases/normal sales exemption as defined by SFAS No. 133. SFAS No. 133 requires those open positions to be reported at fair market value or "marked-to-market." The mark-to-market related to these open positions was a gain of less than $0.1 million for 2001 versus a gain of $0.6 million in 2000.
Operating expenses increased $22.1 million, or 4.2%, during 2001 compared to 2000. Energy marketing expenses increased $16.2 million for 2001 compared to 2000 largely because of the same factors that caused increases in energy marketing revenues. Fuel expense increased $2.5 million because of increased energy prices mainly driven by increases in the price of natural gas. This increase was offset by a one-time $6.6 million adjustment reflecting the recognition of the recovery of fuel-related costs that had not been previously collected from utility customers. The fuel cost recovery was approved by the LPSC to be collected from customers and was therefore recognized, along with associated interest, in the fourth quarter of 2001. Purchased power expense decreased $4.0 million during 2001 compared to 2000 principally as a result of a decrease in the price of power purchased. The increase in other operations expense for 2001 compared to 2000 primarily was due to a $6.3 million increase in capacity payments, a $3.8 million increase in vacation accrual, and an increase of $3.3 million in employee benefits.
Interest income increased $6.5 million for 2001 compared to 2000 largely because of the interest related to the recognition of the recovery of fuel-related costs that had not been previously collected from utility customers. Because the recovery of the fuel-related costs is a one-time adjustment, we do not expect the amount of interest income in future periods to be as much as experienced in 2001.
Interest expense decreased $1.9 million in 2001 compared to 2000 primarily due to a decrease in medium-term notes and a decrease in the interest rates paid on commercial paper.
AFUDC increased to $1.2 million in 2001 from $0.6 million because of an increase in average construction. Allowance for funds used during construction represents Cleco Power's estimated cost of financing LPSC and FERC rate-regulated construction and is not a current source of cash. Regulatory bodies allow for a return on and recovery of AFUDC when setting rates for utility services.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
CLECO CONSOLIDATED
For information concerning the quantitative and qualitative disclosures about market risk,
see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Financial Risk Management" on pages 32-33 of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
CLECO POWER
FINANCIAL RISK MANAGEMENT
The market risk inherent in Cleco Power's market risk-sensitive instruments and positions is the potential change arising from changes in the short-, medium- and long-term interest rates; the commodity price of electricity and the commodity price of natural gas. Generally, the market risk-sensitive instruments and positions are considered normal purchases/normal sales as defined by SFAS No. 133, as amended and clarified by the DIG and are excluded from mark-to-market accounting. However, Cleco Power does have positions that are required to be marked-to-market. Cleco Power's exposure to market risk, as discussed below, represents an estimate of possible changes in the fair value or future earnings that would occur, assuming possible future movements in the interest rates and the commodity price of electricity and natural gas. Management's views on market risk are not necessarily indicative of actual results, nor do they represent the maximum possible gains or losses. The views do represent, within the parameters disclosed, what management estimates may happen.
Interest
Cleco Power has entered into various fixed- and variable-rate debt obligations. See the Notes to Cleco Power's Financial Statements, Note 5 - "Debt" in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CLECO
The information set forth on pages 35-61 of the 2001 Annual Report to Shareholders is incorporated herein by reference; such information is filed as Exhibit 13 to this Report.
CLECO POWER
Report of Independent Accountants
To the Member and
Board of Managers of Cleco Power LLC:
In our opinion, the financial statements of Cleco Power LLC listed in the index appearing under Item 14(a)(1) in this Form 10-K present fairly, in all material respects, the financial position of Cleco Power LLC at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule of Cleco Power LLC listed in the index appearing under Item 14(a)(2) of this Form 10-K presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of Cleco Power LLC's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements of Cleco Power LLC, effective January 1, 2001, of Cleco Power LLC adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities."
New Orleans, Louisiana
January 29, 2002, except for Note 13
as to which the date is February 8, 2002
(Continued on next page)
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
CLECO POWER LLC
STATEMENT OF CHANGES IN
COMMON SHAREHOLDER'S EQUITY AND MEMBER'S EQUITY
For the Years Ended December 31, 1999, 2000 and 2001
The accompanying notes are an integral part of the financial statements.
NOTES TO CLECO POWER'S FINANCIAL STATEMENTS
Note 1 - Reorganization
Effective July 1, 1999, Cleco Power reorganized into a holding company structure. This reorganization resulted in the creation of a new holding company Cleco, which holds investments in several subsidiaries. There was no impact on Cleco's Consolidated Financial Statements because the reorganization was accounted for similarly to a pooling of interest. Shares of preferred stock in three series that did not approve the reorganization were redeemed for $5.7 million. As of July 1, 1999, Cleco Power's common stock was no longer listed for trading on an exchange.
On December 31, 2000, Utility Group merged into Cleco Power. Prior to the merger, Cleco Power had nominal assets and liabilities. As a result of the merger, Cleco Power acquired all of the assets and assumed all of the liabilities and obligations of Utility Group.
Note 2 - Summary of Significant Accounting Policies
GENERAL
Cleco Power is an electric utility regulated by the LPSC which determines the rates Cleco Power can charge its customers. Cleco Power serves approximately 250,000 customers, mainly in central Louisiana.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 2000 Cleco Power financial statements to conform to the presentation used in the 2001 Cleco Power financial statements. These reclassifications had no effect on net income or total member's equity.
REGULATION
Cleco Power maintains its accounts in accordance with the Uniform System of Accounts prescribed for electric utilities by the FERC, as adopted by the LPSC. Cleco Power's retail rates are regulated by the LPSC, and its rates for transmission services and wholesale power sales are regulated by the FERC. Cleco Power follows SFAS No. 71, which allows utilities to capitalize
or defer certain costs based on regulatory approval and management's ongoing assessment that it is probable these items will be recovered through the ratemaking process. During 2000 the LPSC staff developed a transition to competition plan that was presented to the LPSC. In November 2001 the LPSC directed its staff to organize a series of meetings to more fully explore the unresolved issues in the plan. The staff was also directed to report on the success or failure of the commencement of retail electric choice in surrounding states. Any future plan adopted by the LPSC may affect the regulatory assets and liabilities recorded by Cleco Power if the criteria for the application of SFAS No. 71 cannot continue to be met.
Pursuant to SFAS No. 71, Cleco Power has recorded regulatory assets and liabilities, primarily for the effects of income taxes, as a result of past rate actions of regulators. The effects of potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco Power could require discontinuance of the application of SFAS No. 71 in the future, pursuant to SFAS No. 101. At December 31, 2001, Cleco Power had recorded $58.6 million of regulatory assets, net of regulatory liabilities, because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would fund these amounts when Cleco Power pays the additional taxes. These differences occur over the lives of relatively long-lived assets, up to 30 years or more. Under the current regulatory and competitive environment, Cleco Power believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or increased competition, Cleco Power's ability to recover these regulatory assets would not be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco Power would be required to write-off or write-down such assets.
PROPERTY, PLANT AND EQUIPMENT
Regulated assets, utilized for retail operations and electric transmission and distribution properties, 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.
Cleco Power's costs of improvements to property, plant and equipment are capitalized. Expenditures for repairs are expensed. Upon retirement or disposition, the cost of depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation. Annual depreciation provisions expressed as a percentage of average depreciable property were 3.27% for 2001, 3.27% for 2000, and 3.28% for 1999.
Depreciation on property, plant and equipment is calculated primarily on a straight-line basis over the useful lives of the assets, as follows:
Years
Regulated Utility Plant ........................
32-49
Other ................................................
3-7
Property, plant and equipment consists of:
Plant acquisition adjustments are the difference between fair market value and historical cost of assets acquired from another utility. The table below discloses the amounts of plant acquisition adjustments reported in Cleco Power's property, plant and equipment and the associated accumulated amortization reported in accumulated depreciation. The plant acquisition adjustment primarily relates to the 1997 acquisition of Teche Electric Cooperative, Inc.
CASH EQUIVALENTS
Cleco Power considers highly liquid, marketable securities and other similar instruments with original maturity dates of three months or less at the time of purchase to be cash equivalents.
INCOME TAXES
Deferred income taxes are provided at the current enacted income tax rate on all temporary differences between tax and book bases of assets and liabilities. Cleco recognizes regulatory assets and liabilities incurred within Cleco Power for the tax effect of temporary differences, which, to the extent past ratemaking practices are continued by regulators, will be realized over the accounting lives of the related properties. Income taxes payable recorded on the balance sheet are due to Cleco. Although Cleco files a federal consolidated income tax return for all wholly-owned subsidiaries, Cleco Power calculates its taxes on a stand-alone basis.
INVESTMENT TAX CREDITS
Investment tax credits, which were deferred for financial statement purposes, are amortized to income over the estimated service life of the properties that gave rise to the credits.
DEBT EXPENSE, PREMIUM AND DISCOUNT
Expense, premium and discount applicable to debt securities are amortized to income ratably over the lives of the related issues. Expense and call premium related to refinanced Cleco Power debt are deferred and amortized over the remaining life of the original issue.
REVENUES AND FUEL COSTS
Utility Revenues. Revenues from sales of electricity are recognized based upon the amount of energy delivered. The cost of fuel and purchased power used for retail customers is currently recovered from customers through fuel adjustment clauses, based upon fuel costs incurred in prior months. These adjustments are subject to audit and final determination by regulators.
Unbilled Revenue. Cleco Power accrues estimated revenues for energy delivered since the latest billings on a monthly basis. The monthly estimated unbilled revenue amounts are recorded as revenue and a receivable and are reversed the following month. Effective December 31, 2001, Cleco Power no longer accrues fuel revenues as a component of unbilled revenues, which decreased the unbilled receivable and deferred fuel asset as of December 31, 2001.
Energy Marketing and Other Revenues. Revenues are recognized at the time products or services are provided to and accepted by customers.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The capitalization of AFUDC by Cleco Power is a utility accounting practice prescribed by the FERC and the LPSC. AFUDC represents the estimated cost of financing construction and is not a current source of cash. Under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. The composite AFUDC rate, including borrowed and other funds on a combined basis, for 2001 was 13.65% on a pretax basis (8.4% net of tax), for 2000 was 13.62% on a pretax basis (8.38% net of tax), and for 1999 was 13.75% on a pretax basis (8.46% net of tax).
RISK MANAGEMENT
The market risk inherent in Cleco Power's market risk-sensitive instruments and positions is the potential change arising from increases or decreases in the short-, medium- and long-term interest rates, the commodity price of electricity traded on the Into Entergy and the Cinergy markets and the commodity price of natural gas traded. Generally, Cleco Power's market risk-sensitive instruments and positions qualify for the normal purchases/normal sales exclusion as defined by SFAS No. 133, as amended, and clarified by the DIG. However, Cleco Power does have positions that do not qualify for normal purchases/normal sales exclusion and are marked-to-market at the end of each reporting period. The mark-to-market gains or losses are reflected in the income statement as energy marketing and tolling operations. The offsetting unrealized gain or loss is recorded on the balance sheet in other current assets or other current liabilities.
RECENT ACCOUNTING STANDARDS
Cleco Power accounts for derivative contracts in accordance with SFAS No. 133 as amended by SFAS No. 137 and SFAS No. 138. The body of pronouncements that determine the accounting for derivatives has been clarified by the DIG, which periodically issues conclusions on implementation. The DIG conclusions are not final until they are approved by the FASB.
Derivative transactions should be recorded on the balance sheet as either an asset or liability at their fair market value. Changes in the fair market value must be recognized in current earnings unless the derivative meets certain criteria for hedge treatment or one of the specified exceptions are met. The main exception applicable to Cleco Power's derivative contracts is the normal purchases/sales exception. If the contract is to meet customer demand and the contract is made in the normal course of business, then the changes in fair market value are not recorded in current earnings. Instead, the revenue or expense is recognized when fulfillment of the contract terms or transactions has been completed.
Cleco Power has entered into various contracts for the purchase or sale of electricity and the purchase of fuel used at its generating stations in order to meet customer demand. Certain of these contracts meet the normal purchases/sales exception. Cleco Power has also entered into contracts that are marked-to-market because they are not for customer demand and do not meet hedge accounting criteria.
In June 2001 the FASB issued SFAS No. 141, which established accounting and reporting standards for business combinations and supercedes APB Opinion No. 16. This new standard requires that all business combinations that fall within its scope be accounted for using the purchase method and gives guidance on applying the purchase method. The effective date of the statement is for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001 or later. The implementation of this standard had no impact on Cleco Power's financial statements.
In June 2001 FASB issued SFAS No. 142, which established accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination). This new standard requires that any acquired intangible asset that falls within its scope be amortized over its useful life if it has a finite useful life, or not amortized if the intangible asset has an indefinite life (such as goodwill). This statement also requires impairment tests for all intangible assets. The effective date of the statement is for fiscal years beginning after December 15, 2001. Cleco Power does not expect implementation of this pronouncement to have a material effect on its financial statements.
In July 2001 FASB issued SFAS No. 143, which requires the recognition of a liability for an asset's retirement obligation in the period in which the event which triggers the liability occurs. When the liability is initially recorded, the cost of the related asset is increased. The capitalized cost of the retirement liability is depreciated over the asset's useful life. The liability is adjusted to its present value each period with a corresponding charge to expense. The standard is effective for fiscal years beginning after June 15, 2002. Cleco Power has not yet determined the effect on its financial statements from adoption of this statement.
In October 2001 FASB issued SFAS No. 144, which established accounting and reporting standards for the impairment or disposal of long-lived assets and supercedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30. This new standard requires that
companies test certain long-lived assets for impairment and write down assets that are considered impaired. SFAS No. 144 differs from SFAS No. 121 by clarifying impairment testing and excluding goodwill. The effective date of the statement is for fiscal years beginning after December 15, 2001. Cleco Power has not yet determined the effect of adopting this statement on its financial statements.
Note 3 - Jointly Owned Generating Units
Two electric generating units operated by Cleco Power are jointly owned with other utilities. Cleco Power's proportionate share of operation and maintenance expenses associated with these two units is reflected in the financial statements.
Note 4 - Fair Value of Financial Instruments
The amounts reflected in the Balance Sheets at December 31, 2001, and 2000, for cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value because of their short-term nature. The fair value of Cleco Power's long-term debt is estimated based upon the quoted market price for the same or similar issues or by a discounted present value analysis of future cash flows using current rates obtained by Cleco Power for debt with similar maturities. The estimated fair value of energy market positions is based upon observed market prices when available. When such market prices are not available, management estimates market value at a discrete point in time based on market conditions and observed volatility. These estimates are subjective in nature and involve uncertainties. Therefore, actual results may differ from these estimates.
The financial instruments not marked-to-market are reported on Cleco Power's balance sheets at carrying value. The financial instruments marked-to-market represent off-balance sheet risk because, to the extent Cleco Power has an open position, it is exposed to the risk that fluctuating market prices may adversely impact its financial condition or results of operations upon settlement. Original value represents the fair value of the positions at the time of origination.
Note 5 - Debt
Cleco Power has one credit facility for $100 million. This facility provides for uncollateralized borrowings at prevailing interest rates and is scheduled to expire in June 2002. The facility provides support for the issuance of commercial paper. At December 31, 2001, there was approximately $63.7 million in commercial paper outstanding under the facility. Interest rates are established by competitive bid. Commitment fees are based upon Cleco Power's lowest secured debt rating and are currently 0.10%.
Cleco Power's total indebtedness as of December 31, 2001, and 2000, was as follows:
The amounts payable under long-term debt agreements for each year through 2006 and thereafter are listed below:
The weighted average interest rate on short-term debt at December 31, 2001, was 2.19% compared to 7.24% at December 31, 2000.
The first mortgage bonds are collateralized by the LPSC-jurisdictional property, plant and equipment owned by Cleco Power. In the various parishes that contain such property, a lien is filed with the clerk of court. Before Cleco Power can sell any of this property, it must obtain a release signed by the trustee.
Note 6 - Pension Plan and Employee Benefits
Cleco Power is the plan sponsor of a defined benefit pension plan that covers substantially all employees of Cleco and its affiliates. Benefits under the plan reflect an employee's years of service, age at retirement and highest total average compensation for any consecutive five calendar years during the last ten years of employment with Cleco and its affiliates. Cleco's policy is to fund contributions to the employee pension plan based upon actuarial computations utilizing the projected unit credit method, subject to the Internal Revenue Service's full funding limitation. No contributions to the pension plan were required during the three-year period ended December 31, 2001. The affiliate companies which adopt the pension plan accrue pension expense and record a pension liability using actuarially determined amounts without the benefit of pension assets presently in the plan. Cleco Power records a pension benefit based on its actuarially determined expense, offset by the earning of the assets presently in the plan. Affiliate companies transfer their pension liability and an equal amount of cash to Cleco Power monthly. If the plan required a contribution, it would be paid by Cleco Power since the affiliates have satisfied their liabilities by compensating Cleco Power to accept their liabilities.
Cleco Power is reimbursed by its affiliates for the service costs incurred by affiliate employees incurred while the employees are in the employ of the affiliates.
Cleco Power's retirees and their dependents are eligible to receive health, dental and life insurance benefits (other benefits). Cleco Power recognizes the expected cost of these benefits during the periods in which the benefits are earned.
The employee pension plan and other benefits obligation plan assets and funded status as determined by the actuary at December 31, 2001, and 2000, are presented in the following table.
Employee pension plan assets are invested in Cleco's common stock, other publicly traded domestic common stocks, U.S. government, federal agency and corporate obligations, an international equity fund, commercial real estate funds and pooled temporary investments.
The components of net periodic pension and other benefits cost (income) for 2001, 2000 and 1999 are as follows, along with assumptions used:
At December 31, 2001, and 2000, the pension plan held 28,292 shares of Cleco common stock, after adjustment for the two-for-one stock split, which occurred on May 21, 2001. None of the plan participants' future annual benefits are covered by insurance contracts.
The assumed health care cost trend rate used to measure the expected cost of other benefits was 9.0% in 2001, 8.0% in 2000, and 8.5% in 1999, declining to 4.4% by 2010 and remaining at 4.4% thereafter. The initial health care cost trend rate was reduced from 8.5% in 1999 to 8.0% in 2000, which resulted in an unrecognized gain. The increase to 9.0% in 2001 significantly reduced the gain. Assumed health care cost trend rates have a significant effect on the amount reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects on other benefits:
Substantially all employees are eligible to participate in a 401(k) Plan. Cleco makes matching contributions to 401(k) Plan participants by allocating shares of convertible preferred stock held by the ESOP. Compensation expense related to the 401(k) Plan is based upon the value of shares of preferred stock allocated to ESOP participants and the amount of interest incurred by the ESOP, less dividends on unallocated shares held by the ESOP. At December 31, 2001, and 2000, the ESOP had allocated to employees 163,487 and 152,189 shares, respectively.
The table below contains information about the 401(k) Plan and the ESOP:
Note 7 - Income Tax Expense
Federal income tax expense is less than the amount computed by applying the statutory federal rate to book income before tax as follows:
Information about current and deferred income tax expense is as follows:
The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2001, and 2000, was comprised of the tax effect of the following:
Management considers it more likely than not that all deferred tax assets net of deferred tax liabilities will be realized. Consequently, deferred tax assets have not been reduced by a valuation allowance.
Regulatory assets and liabilities, net recorded for deferred taxes at December 31, 2001, and 2000, were $58.5 million and $61.4 million, respectively. Regulatory assets and liabilities will be realized over the accounting lives of the related properties to the extent past ratemaking practices are continued by regulators.
Note 8 - Disclosures about Segments
Cleco Power changed the structure of its internal organization, which caused a change in the determination of reportable segments from the reportable segments disclosed in 1999. The reorganization into a holding company structure effective July 1, 1999 entailed the movement of all subsidiaries of Cleco Power to the new holding company, Cleco. Cleco Power is a vertically integrated, regulated electric utility operating within Louisiana and is viewed as one unit by management. Discrete financial reports are prepared only at the company level. This approach is consistent with the accounting standards applicable to segment reporting as defined by SFAS 131.
Note 9 - Accrual of Estimated Customer Credits
Cleco Power's reported earnings in the year ended December 31, 2001, reflect a $1.8 million accrual for estimated customer credits that may be required under terms of an earnings review settlement reached with the LPSC in 1996. The 1996 LPSC settlement, and a subsequent amendment, set Cleco Power's rates until the year 2004 and also provided for annual base rate tariff reductions of $3 million in 1997 and $2 million in 1998. As part of the settlement, Cleco Power is allowed to retain all regulated earnings up to a 12.25% return on equity, and to share equally with customers as credits on their bills all regulated earnings between 12.25% and 13% return on equity. All regulated earnings above a 13% return on equity are credited to customers. The amount of credits due customers, if any, is determined by the LPSC annually based on 12-month-ending results as of September 30 of each year. The settlement provides for such credits to be made on customers' bills the following summer.
Of the $1.8 million accrual at December 31, 2001, $1.0 million relates to the 12 months ended September 30, 2001 cycle and was recorded as a reduction in revenue due to the nature of the customer credits. The amount of the credit for the cycle ending September 30, 2001, if any, has not yet been determined by the LPSC. The remaining $0.8 million relates to other prior refund years and was based on a settlement of those years with the LPSC.
Note 10 - Affiliate Transactions
Effective July 1, 1999, Cleco Power entered into service agreements with affiliates, which provide Cleco Power access to professional services and goods. The services and goods are charged to Cleco Power at the lower of fair market value or fully loaded cost in order to comply with Cleco's inter-affiliate policy. A summary of charges from each affiliate included in the Statement of Income follows:
Prior to July 1, 1999, the affiliates were subsidiaries of Cleco Power and their operations were included with those of Cleco Power and reflected in other income/(expenses), net.
Cleco Power also entered into agreements to provide goods and services to affiliated companies. The goods and services are charged by Cleco Power at the higher of fully loaded cost
or fair market value in order to comply with Cleco's interaffiliate policy. Following is a reconciliation of Cleco Power's affiliate revenues:
Cleco Power had the following affiliate receivable and payable balances associated with the service agreements between Cleco Power and its affiliates:
For the years ended December 31, 2000 and 2001, Cleco Power paid cash dividends to Cleco of approximately $59.4 million and $59.8 million, respectively.
Affiliates that participate in the defined benefit pension plan sponsored by Cleco Power transfer their liability and an equal amount of cash monthly to Cleco Power. The table below shows the amount transferred by affiliate.
(Thousands)
Cleco Support Group LLC .....................................................
$ 2,514
Cleco Marketing & Trading LLC .........................................
Cleco Evangeline LLC ...........................................................
Cleco Generation Services LLC ...........................................
2,195
Cleco Midstream Resources LLC ........................................
Cleco ConnexUs LLC ............................................................
__
Total ...............................................................................
$ 5,285
========
Prior to 2001, amounts were not transferred to Cleco Power.
Note 11 - Legal Proceeding: Fuel Supply - Lignite
Cleco Power and SWEPCO, each a 50% owner of Dolet Hills Unit 1, jointly own lignite reserves in the Dolet Hills area of northwestern Louisiana. In 1982 Cleco Power and SWEPCO entered into a LMA with the DHMV, a partnership for the mining and delivery of lignite from a portion of the Dolet Hills Mine. The LMA was to expire in 2011.
In April 1997 Cleco Power and SWEPCO filed a Federal Court Suit against DHMV and its partners, seeking to enforce various obligations of DHMV to Cleco Power and SWEPCO under the LMA, including provisions relating to the quality of the delivered lignite, pricing, and mine reclamation practices. In June 1997 DHMV filed an answer denying the allegations in the Federal Court Suit and filed a counterclaim asserting various contract-related claims against Cleco Power and SWEPCO. Cleco Power and SWEPCO denied the allegations in the counterclaims.
As a result of the counterclaims filed by DHMV in the Federal Court Suit, in August 1997 Cleco Power and SWEPCO filed a State Court Suit against the parent companies of DHMV, namely Jones Capital Corporation and Philipp Holzmann USA, Inc.
In March 2000 the court in the Federal Court Suit ruled that DHMV was not in breach of certain financial covenants under the LMA and denied Cleco Power's and SWEPCO's claim to terminate the LMA on that basis. The ruling had no material adverse effect on the operations of Cleco Power and did not affect the other claims scheduled for trial. Cleco Power and SWEPCO appealed the federal court's ruling to the United States Court of Appeals for the Fifth Circuit.
On May 31, 2001, all parties to the litigation executed a definitive settlement agreement and agreed to dismiss the State Court Suit, the Federal Court Suit and the appeal pending before the Fifth Circuit. The LMA among Cleco Power, SWEPCO and DHMV was canceled as were all other operative contracts among the parties.
Contemporaneously with the execution of the settlement agreement on May 31, 2001, DHMV and DHLC, a subsidiary of SWEPCO, entered into an Asset Purchase Agreement under the terms of which DHLC purchased the assets necessary to operate the Dolet Hills Mine and assumed certain obligations of DHMV. Cleco Power, SWEPCO and DHLC entered into a new LMA on May 31, 2001, under the terms of which DHLC assumed operations of the Dolet Hills Mine.
The LPSC issued Order Nos. U-21453, U-20925(SC) and U-22029(SC) (Subdocket G) on May 31, 2001, formally approving Cleco Power's requested ratemaking effects of the settlement.
A stipulation of dismissal was filed by the parties to the Federal Court Suit on July 19, 2001, and the judge approved the dismissal on July 25, 2001. A motion to dismiss was filed by the parties to the State Court Suit on July 19, 2001, and the judge signed the order dismissing the State Court Suit on July 30, 2001. A motion to dismiss the appeal pending in the United States
Court of Appeals for the Fifth Circuit was filed on July 19, 2001, and on July 24, 2001, the Clerk of the Fifth Circuit advised that the appeal had been dismissed in light of the settlement.
Note 12 - Commitments and Contingencies
Construction expenditures for 2002 are estimated to be $66.2 million, excluding AFUDC, and for the five-year period ending 2006 are expected to total $368.8 million, excluding AFUDC. Scheduled maturities of debt will total approximately $25.0 million for 2002 and approximately $175.0 million for the five-year period ending 2006.
Cleco Power does not provide guarantees to affiliates or to its parent company, therefore Cleco Power does not have significant off-balance sheet commitments.
Cleco Power has accrued for liabilities to third parties, employee medical benefits, storm damages and deductibles under insurance policies that it maintains on major properties, primarily generating stations and transmission substations. Consistent with regulatory treatment, annual charges to operating expense to provide a reserve for future storm damages are based upon the average amount of noncapital, uninsured storm damages experienced by Cleco Power during the previous five years.
Note 13 - Subsequent Event - Insured Retail Notes
On February 8, 2002, Cleco Power issued $25.0 million aggregate principal amount of its 6.125% retail notes due March 1, 2017. The retail notes were registered under the Securities Act of 1933, as amended, pursuant to the shelf registration statement (Registration No. 333-52540) of Cleco Power. Payment of regularly scheduled principal and interest on the retail notes is insured by a financial guaranty insurance policy issued by Ambac Assurance Corporation. Cleco Power can redeem the retail notes at its option on or after March 1, 2005. Representatives of deceased beneficial owners of the retail notes have the option to redeem the retail notes, subject to certain limitations.
Note 14 - Miscellaneous Financial Information (Unaudited)
Quarterly information for Cleco Power for 2001 and 2000 is shown in the following table.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
CLECO
The information set forth, (I) under the caption "Proposal Number 1 - Election of Four Class II Directors" on pages 5-8 of, and (ii) under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 11 of the Company's definitive Proxy Statement dated March 19, 2002 relating to the Annual Meeting of Shareholders to be held on April 26, 2002, filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 (2002 Proxy Statement), is incorporated herein by reference. See also "Executive Officers of the Registrants" on pages 28-30 of this Report.
CLECO POWER
The information called for by Item 10 with respect to Cleco Power is omitted pursuant to instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
CLECO
The information set forth, (i) under the subcaptions "Organization of the Board of Directors" and "Compensation of the Board of Directors" under the caption "Proposal Number 1 - Election of Four Class II Directors" on pages 6-7 and 7-8, respectively, of, and (ii) under the caption "Executive Compensation" on pages 12-25 of the 2001 Proxy Statement (excluding the information required by paragraphs (k) and (l) of Item 402 of Regulation S-K) is incorporated herein by reference.
CLECO POWER
The information called for by Item 11 with respect to Cleco Power is omitted pursuant to instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
CLECO
The information set forth, (i) under the caption "Security Ownership of Directors and Management" on pages 9-10 of, and (ii) under the caption "Security Ownership of Certain Beneficial Owners" on pages 10-11 of the 2001 Proxy Statement is incorporated herein by reference.
CLECO POWER
The information called for by Item 12 with respect to Cleco Power is omitted pursuant to instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CLECO
The information set forth under the caption "Proposal Number 1 - Election of Four Class II Directors - Interests of the Board of Directors" on page 8 of the 2001 Proxy Statement is incorporated herein by reference.
CLECO POWER
The information called for by Item 13 with respect to Cleco Power is omitted pursuant to instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly-Owned Subsidiaries).
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Form 10-K
Annual Report
2001 Annual
Report to
Shareholders
14(a)(1)
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999
Consolidated Balance Sheets at December 31, 2001 and 2000
36 - 37
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Common Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
40 - 60
Report of Independent Accountants
14(a)(2)
Financial Statement Schedules
Report of Independent Accountants on Financial Statement
Schedules
Schedule I - Financial Statements of Cleco Corporation
Condensed Statement of Income
Condensed Balance Sheet
72 - 73
Condensed Statement of Cash Flows
Condensed Statement of Changes in Common
Shareholders' Equity
Notes to the Condensed Financial Statements
76 - 81
Schedule II - Valuation and Qualifying Accounts
Cleco Corporation
Cleco Power
Financial Statement Schedules other than those shown in the
above index are omitted because they are either not
required or are not applicable or the required information
is shown in the Consolidated Financial Statements and
Notes thereto.
14(a)(3)
List of Exhibits
66 - 69
The Exhibits designated by an asterisk are filed herewith. The Exhibits not so designated have been previously filed with the SEC and are incorporated herein by reference. The Exhibits designated by two asterisks are management contracts and compensatory plans and arrangements required to be filed as Exhibits to this Report.
14(b) Reports on Form 8-K
During the three-month period ended December 31, 2001, Cleco and Cleco Power have not filed any Current Reports on Form 8-K.
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Cleco Corporation:
Our audits of the consolidated financial statements referred to in our report dated January 29, 2002, except for Note 20 as to which the date is February 8, 2002, appearing in the 2001 Annual Report to Shareholders of Cleco Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 26, 2002
SCHEDULE I
The accompanying notes are an integral part of the condensed financial statements.
SCHEDULE I
The accompanying notes are an integral part of the condensed financial statements.
(Continued on next page)
SCHEDULE I
The accompanying notes are an integral part of the condensed financial statements.
SCHEDULE I
The accompanying notes are an integral part of the condensed financial statements.
SCHEDULE I
The accompanying notes are an integral part of the condensed financial statements.
CLECO CORPORATION
(PARENT COMPANY ONLY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Note 1 - Holding Company Structure
Cleco Holding Corporation was originally formed on October 29, 1999 with 1,000 shares of common stock, no par value. All of Cleco Holding Corporation common stock was held by the parent company, Cleco Corporation (formerly Central Louisiana Electric Company, Inc.). At the Annual Meeting of Shareholders held on April 9, 1999, a resolution was passed to reorganize the structure of Cleco Corporation and Cleco Holding Corporation. The effective date of the resolution was July 1, 1999.
Cleco Corporation was renamed Utility Group and was reorganized into a holding company structure. This reorganization resulted in the creation of a new holding company, Cleco Corporation (formerly Cleco Holding Corporation, Parent Company Only, and together with its subsidiaries, Cleco), which holds investments in several subsidiaries. There was no impact to Cleco Corporation's Consolidated Financial Statements because the reorganization was accounted for similarly to a pooling of interest.
Effective December 31, 2000, Utility Group merged into Cleco Power, a Louisiana limited liability company and wholly-owned subsidiary of the Parent Company Only, which became the successor issuer to Utility Group. Immediately prior to the merger, Cleco Power had only nominal assets or liabilities. Pursuant to the merger, Cleco Power acquired all of the assets and assumed all of the liabilities and obligations of Utility Group.
Note 2 - Summary Of Significant Accounting Policies
The Parent Company Only is an exempt holding company under the Public Utility Holding Company Act of 1935. Its major, first-tier subsidiaries consist of Cleco Power and Midstream.
Cleco Power contains the LPSC jurisdictional generation, transmission and distribution electric utility operations serving Cleco's traditional retail and wholesale customers. Another subsidiary, Midstream, operates wholesale electric generation, oil and natural gas production, energy marketing and natural gas pipeline businesses.
The accompanying financial statements have been prepared to present the financial position, results of operations and cash flows of Parent Company Only. Investments in subsidiaries and other investees are stated at cost plus equity in undistributed earnings from date of acquisition. These Parent Company Only financial statements should be read in conjunction with Cleco Corporation's consolidated financial statements.
Note 3 - Debt
The Parent Company Only has two credit facilities totaling $200 million. The first facility is a $120 million facility which provides for borrowings at interest rates based on either competitive bid, prime rate, or the London Interbank Offered Rate and will expire in June 2002. The commitment fees for this facility are based upon the Parent Company Only's lowest secured debt ratings and are currently 0.125%. The second facility is an $80 million, three-year facility that provides for borrowings at interest rates established by competitive bid and will expire in August 2002. The commitment fees for this facility are based upon the Parent Company Only's lowest secured debt ratings and are currently 0.15%. Both facilities provide support for the issuance of commercial paper. At December 31, 2001, there was $37.0 million in commercial paper outstanding under the facilities. Also, at December 31, 2001, there was an outstanding draw under the $120 million facility in the amount of $77 million. The two credit facilities are uncollateralized. Off-balance sheet commitments issued by the Parent Company Only to third parties for certain types of transactions between those parties and the Parent Company Only's affiliates, other than Cleco Power, reduce the amount of the facilities available to the Parent Company Only by an amount equal to the stated or determinable amount of the primary obligation. In addition, certain indebtedness incurred by the Parent Company Only outside of the facilities reduces the amount of the facilities available to the Parent Company Only. The amount of off-balance sheet commitments provided by the Parent Company Only and other indebtedness reducing the amount of the facilities available to be utilized was $70.1 million at December 31, 2001 and $60.9 million at December 31, 2000. For additional information on off-balance sheet commitments, refer to Note 9 - "Commitments and Contingencies".
Total indebtedness as of December 31, 2001 and 2000 was as follows:
Note 4 - Dividends Received
The Parent Company Only received $52.8 million and $59.4 million in cash dividends from Cleco Power during the years 2001 and 2000, respectively.
Note 5 - Restricted Cash
Restricted cash represents cash to be used for specific purposes. In 2001, $15.0 million in restricted cash was replaced with a letter of credit to be maintained as security for the performance of certain obligations by Evangeline in regard to the Evangeline Tolling Agreement.
Note 6 - Preferred Stock
In connection with the establishment of the Parent Company's ESOP, Utility Group, the predecessor of Cleco Power, sold 300,000 shares of 8.125% convertible preferred stock to the ESOP. As part of the holding company reorganization, each share of Utility Group 8.125% convertible preferred stock was exchanged for one share of Parent Company Only 8.125% convertible preferred stock. Each share of Parent Company Only 8.125% preferred stock is convertible into 9.6 shares of Parent Company Only common stock. The amount of total capitalization reflected in the consolidated financial statements has been reduced by an amount of deferred compensation expense related to the shares of convertible preferred stock which have not yet been allocated to ESOP participants. The amount shown in the consolidated financial statements for preferred dividend requirements in 2001, 2000 and 1999 has been reduced by $326,000, $391,000 and $435,000, respectively, to reflect the benefit of the income tax deduction for dividend requirements on unallocated shares held by the ESOP.
Upon involuntary liquidation, preferred shareholders are entitled to receive par value for shares held before any distribution is made to common shareholders. Upon voluntary liquidation, preferred shareholders are entitled to receive the redemption price per share applicable at the time such liquidation occurs, plus any accrued dividends.
Information about the components of preferred stock capitalization is as follows:
Preferred stock, other than the convertible preferred stock held by the ESOP, is redeemable at the Parent Company Only's option, subject to 30 days' prior written notice to holders. The convertible preferred stock is redeemable at any time at the Parent Company Only's option. If the Parent Company Only were to elect to redeem the convertible preferred stock, shareholders may elect to receive the optional redemption price or convert the preferred stock into common stock. The redemption provisions for the various series of preferred stock are shown in the following table.
Optional Redemption
Price per Share
Series
4.50% ..................................................................
$101
Convertible, Series of 1991 .............................
$100.8125 to $100
Note 7 - Extraordinary Gain
In March 2000 Four Square Gas, a wholly-owned subsidiary of Cleco Energy, which is wholly-owned by Midstream, paid a third party $2.1 million for a note with a face value of approximately $6 million issued by Four Square Production, another wholly-owned subsidiary of Cleco Energy. The note relates to the production assets held by Four Square Production. As part
of the transaction, the third-party debtholder sold the note, associated mortgage, deed of trust and pledge agreement and assigned a 5% overriding royalty interest in the production assets to Four Square Gas. Four Square Gas paid, in addition to the $2.1 million, a total of 4.5% in overriding royalty interest in the production assets. Four Square Gas borrowed the $2.1 million from the Parent Company Only. The gain of approximately $3.9 million was offset against the $1.4 million of income tax related to the gain to arrive at the extraordinary gain, net of income tax, of approximately $2.5 million.
Note 8 - Discontinued Operations
In December 2000 management decided to sell substantially all of UtiliTech's assets and discontinue UtiliTech's operations after the sale. On March 31, 2001, management signed an asset purchase agreement to sell UtiliTech to Quanta for approximately $3.1 million in cash and assumption of an operating lease for equipment of approximately $11.6 million. Quanta acquired the trade names under which UtiliTech operated, crew tools, equipment under the operating lease, contracts, inventory relating to certain contracts and work force in place. UtiliTech (now known as UTS) retained approximately $2.2 million in accounts receivable, net of allowance for uncollectibles, and equipment under the operating lease with an aggregate unamortized balance of approximately $2.8 million.
During 2001 the $2.0 million loss on disposal of a segment, net, resulted primarily from actual operating losses in 2001 in excess of estimated operating losses for 2001 that were included in the loss on disposal of a segment for the year ended December 31, 2000; the $1.3 million loss on the auction of equipment in June 2001 and subsequent extinguishment of the operating lease; and the final asset and receivable settlement agreement signed in November 2001.
The assets of UTS at December 31, 2001 consist of an intercompany receivable from the Parent Company Only of approximately $1.2 million. Liabilities of UTS at December 31, 2001 consist of an intercompany note payable to the Parent Company Only of approximately $7.0 million.
As of December 31, 2001, several contingent liabilities relating to UTS exist. Under the asset purchase agreement, UTS and its sole member, a wholly-owned subsidiary of Parent Company Only, have agreed to indemnify Quanta for losses resulting from certain breaches or failures by UTS and its sole member to fulfill their obligations under the asset purchase agreement, for taxes and other losses arising from events occurring prior to the sale. The indemnification amount is limited to approximately $5.0 million until April 1, 2003. The limitation does not apply to fraudulent misrepresentations. At December 31, 2001, no amounts have been recorded for the indemnifications because no claim has been asserted by Quanta, and Management has determined the possibility of a claim is not probable.
Additional information about UTS is as follows:
Note 9 - Commitments and Contingencies
For information regarding off-balance sheet commitments see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Cash Generation and Cash Requirements - Off-Balance Commitments" on pages 27-29 of the 2001 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.
SCHEDULE II
CLECO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2001, 2000 and 1999
(1) Deducted in the balance sheet
SCHEDULE II
CLECO POWER LLC
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2001, 2000 and 1999
(1) Deducted in the balance sheet
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLECO CORPORATION
(Registrant)
/s/ David M. Eppler
(David M. Eppler)
(President, Chief Executive Officer and
Director)
Date: March 27, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David M. Eppler
(David M. Eppler)
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 22, 2002
/s/ Dilek Samil
(Dilek Samil)
Senior Vice President - Financial Services and
Chief Financial Officer
(Principal Financial Officer)
March 22, 2002
/s/ R. Russell Davis
(R. Russell Davis)
Vice President and Controller
(Principal Accounting Officer)
March 22, 2002
DIRECTORS*
SHERIAN G. CADORIA
RICHARD B. CROWELL
J. PATRICK GARRETT
F. BEN JAMES, JR.
ELTON R. KING
WILLIAM L. MARKS
A. DELOACH MARTIN, JR.
RAY B. NESBITT
ROBERT T. RATCLIFF
WILLIAM H. WALKER, JR.
/s/ David M. Eppler
*By: DAVID M. EPPLER
(David M. Eppler, as Attorney-in-Fact) March 27, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLECO POWER LLC
(Registrant)
/s/ David M. Eppler
(David M. Eppler)
(President, Chief Executive Officer and
Manager)
Date: March 27, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David M. Eppler
(David M. Eppler)
President, Chief Executive Officer and Manager
(Principal Executive Officer)
March 22, 2002
/s/ Dilek Samil
(Dilek Samil)
Senior Vice President - Financial Services and
Chief Financial Officer
(Principal Financial Officer)
March 22, 2002
/s/ R. Russell Davis
(R. Russell Davis)
Vice President and Controller
(Principal Accounting Officer)
March 22, 2002
MANAGERS*
SHERIAN G. CADORIA
RICHARD B. CROWELL
J. PATRICK GARRETT
F. BEN JAMES, JR.
ELTON R. KING
WILLIAM L. MARKS
A. DELOACH MARTIN, JR.
RAY B. NESBITT
ROBERT T. RATCLIFF
WILLIAM H. WALKER, JR.
/s/ David M. Eppler
*By: DAVID M. EPPLER
(David M. Eppler, as Attorney-in-Fact) March 27, 2002