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| CNL > SEC Filings for CNL > Form 10-Q on 2-Nov-2011 | All Recent SEC Filings |
2-Nov-2011
Quarterly Report
RESULTS OF OPERATIONS
††† Cleco Power, a regulated electric utility company, which owns 10 generating units with a total nameplate capacity of 2,572 MWs and serves approximately 279,000 customers in Louisiana through its retail business and 10 communities across Louisiana and Mississippi through wholesale power contracts; and
††† Midstream, a wholesale energy business, which owns Evangeline (which operates Coughlin).
Cleco Power
Many factors affect Cleco Power's primary business of selling electricity. These
factors include the presence of a stable regulatory environment, which can
impact cost recovery and return on equity, as well as the recovery of costs
related to growing energy demand and rising fuel prices; the ability to increase
energy sales while containing costs; and the ability to meet increasingly
stringent regulatory and environmental standards. Key initiatives that Cleco
Power is currently working on include the Acadiana Load Pocket project, the AMI
project and power supply options for 2012 and beyond. These initiatives are
discussed below.
Acadiana Load Pocket Project
In September 2008, Cleco Power entered into an agreement with two other
utilities to upgrade and expand interconnected transmission systems in south
central Louisiana in an area known as the Acadiana Load Pocket. The project
received LPSC and SPP approval in February 2009. Cleco Power's initial portion
of the estimated cost was approximately $150.0 million, including AFUDC. Due to
lower material and labor costs than initially expected, Cleco Power's estimated
costs for its portion of the project were reduced to $125.0 million, including
AFUDC. At September 30, 2011, Cleco Power had spent $86.3 million on the project
and expects to incur an additional $9.6 million during 2011, including AFUDC. A
return on and recovery of the costs associated with the completed portions of
the Acadiana Load Pocket project are included in base revenue. The project is
estimated to be 81% complete with the final completion date expected in
2012. For additional information, please read "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
- Liquidity and Capital Resources - Regulatory Matters - Acadiana Load Pocket
Project" in the Registrants' Combined Annual Report on Form 10-K for the fiscal
year ended December 31, 2010. For information on the impact the Acadiana Load
Pocket project is expected to have on base revenue, see "- Comparison of the
Three Months Ended September 30, 2011, and 2010 - Cleco Power - Base."
AMI Project
In May 2010, Cleco Power accepted the terms of a $20.0 million grant from the
DOE under the DOE's small-grant process to implement smart-grid technology for
all of Cleco Power's retail customers. Cleco Power estimates the project will
cost $73.0 million, with the DOE grant providing $20.0 million toward the
project and Cleco Power providing the remaining $53.0 million. The grant program
is a part of the American Recovery and Reinvestment Act of 2009, an economic
stimulus package passed by Congress in February 2009. Smart-grid technology
includes the installation of electric meters that enable two-way communication
capabilities between a home or business and a utility company. At September 30,
2011, Cleco Power had incurred $6.9 million in project costs, of which $3.0
million has been submitted to the DOE for reimbursement. As of September 30,
2011, Cleco Power had received $2.8 million in payments from the DOE. The
project is expected to be completed in the third quarter of 2013. For additional
information, please read "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Liquidity and
Capital Resources - Other Matters - AMI Project" in the Registrants' Combined
Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Power Supply Options
Cleco Power is evaluating a range of power supply options for 2012 and
beyond. Cleco Power is continuing to update its IRP to look at future sources of
supply to meet its capacity and energy requirements and to comply with new
environmental standards, primarily the Cross-State Air Pollution Rule. In August
2011, Cleco Power issued one RFP for resources to enhance reliability for
January through April 2012. In October 2011, a second RFP, seeking up to
approximately 750 MWs of capacity and energy, for a three- or five-year period
was issued for supply starting May 1, 2012 to meet the Cross-State Air Pollution
Rule. Cleco Power also plans to release an additional RFP in 2012 seeking
long-term resources.
Cleco Midstream
Evangeline
In March 2010, Evangeline restructured its tolling agreement with JPMVEC and
shortened the expiration of the prior long-term agreement from 2020 to December
31, 2011 (with a JPMVEC option to extend one year). JPMVEC did not exercise the
option to extend the tolling agreement and as a result, Coughlin's capacity and
energy will be available to Midstream beginning January 1, 2012. Currently,
Midstream is marketing Coughlin's capacity for periods beginning on or after
January 1, 2012, and is evaluating various options to optimize Coughlin's
value. Evangeline was one of the successful bidders in Cleco Power's RFP for
short-term 2012 resources. Cleco Power has filed with the LPSC an application
for a certificate of public convenience and necessity for this agreement. For
additional information, see "- Financial Condition - Liquidity and Capital
Resources - Regulatory Matters - Generation RFP."
Acadia
In October 2009, Acadia and Entergy Louisiana executed definitive agreements
whereby Entergy Louisiana would purchase Acadia Unit 2. On April 29, 2011,
Acadia completed its disposition of Acadia Unit 2 to Entergy Louisiana for
$298.8 million. APH's portion of the proceeds from the sale were used to repay
Cleco Corporation's $150.0 million bank term loan. For additional information on
the Acadia Unit 2 transaction, see Item 1, "Notes to the Unaudited Condensed
Consolidated Financial Statements - Note 15 - Acadia Transactions - Acadia Unit
2."
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