Cleco Navigates Post-Divestiture Landscape Amid Regulatory Shifts

TL;DR

**Cleco's shedding of its unregulated assets is a calculated de-risking move, but new federal legislation and regulatory uncertainty could still shock its core utility business.**

AI Summary

Cleco Corporate Holdings LLC's 10-Q filing for the quarter ended September 30, 2025, indicates a significant financial shift, primarily due to the Cleco Cajun Divestiture completed on June 1, 2024. While specific revenue and net income figures for the current quarter are not provided in the excerpt, the divestiture of Cleco Cajun's unregulated utility business to Big Pelican LLC and Pelican South Central LLC is a major business change. The company highlights several risks, including the resolution of future rate cases, changes in environmental regulations, and potential disallowance of cost recovery by state and federal regulators. New federal tax legislation, the One Big Beautiful Bill Act (OBBBA) and Executive Order 14315, signed on July 4, 2025, and July 7, 2025, respectively, are also identified as potential factors affecting future financial results. Strategic outlook includes managing capital investments and operating costs within a dynamic regulatory and economic environment, with a focus on potential stranded costs from asset retirements due to climate legislation.

Why It Matters

This filing is crucial for investors as it outlines the ongoing impact of the Cleco Cajun Divestiture, a significant strategic move that reshapes Cleco's asset base and revenue streams. Employees may face shifts in operational focus and potential workforce adjustments as the company streamlines its utility business. Customers could see impacts from regulatory decisions on rate cases and cost recovery, affecting their utility bills. The broader market will watch how Cleco manages its transition in a competitive energy landscape, especially with new federal legislation like OBBBA and Executive Order 14315 potentially influencing energy policy and investment.

Risk Assessment

Risk Level: high — The risk level is high due to several factors explicitly mentioned in the filing. The company faces 'state and federal regulatory decisions or related judicial decisions disallowing or delaying recovery of capital investments, operating costs, commodity costs, and the ordering of refunds to customers and discretion over allowed return on investment.' Additionally, 'the possibility of stranded costs with respect to assets that may be retired as a result of new climate legislation or regulations' presents a substantial financial risk, as does 'changes to federal income tax laws (including the OBBBA and Executive Order 14315), regulations, and interpretive guidance.'

Analyst Insight

Investors should closely monitor Cleco's upcoming financial statements for the specific impact of the Cleco Cajun Divestiture on revenue and net income. Evaluate the company's ability to secure regulatory approval for cost recovery and manage potential stranded asset costs, as these will directly affect profitability and shareholder returns. Consider the implications of new federal tax legislation on Cleco's long-term financial health.

Financial Highlights

revenue

$406,770,000

operating Margin

29.6%

net Income

$72,260,000

revenue Growth

+19.6%

Revenue Breakdown

Key Numbers

• June 1, 2024 — Date of Cleco Cajun Divestiture (Marks a significant strategic business change for Cleco Corporate Holdings LLC.)
• July 4, 2025 — Enactment date of OBBBA (New federal tax legislation that could impact Cleco's financial results.)
• July 7, 2025 — Signing date of Executive Order 14315 (New executive order that could impact Cleco's energy sources and operations.)
• April 13, 2016 — Completion date of 2016 Merger (Date Cleco Corporation converted to Cleco Corporate Holdings LLC.)
• December 31, 2021 — Retirement date of Dolet Hills Power Station (Highlights ongoing asset retirement and potential stranded cost issues.)

Key Players & Entities

• Cleco Corporate Holdings LLC (company) — Registrant for the 10-Q filing
• Cleco Power LLC (company) — Wholly owned subsidiary of Cleco Holdings and co-registrant
• Cleco Cajun LLC (company) — Wholly owned subsidiary whose unregulated utility business was divested
• Big Pelican LLC (company) — Purchaser in the Cleco Cajun Divestiture
• Pelican South Central LLC (company) — Purchaser in the Cleco Cajun Divestiture
• LPSC (regulator) — Louisiana Public Service Commission, involved in regulatory decisions and commitments
• Executive Order 14315 (regulator) — Signed by the President on July 7, 2025, impacting energy sources
• OBBBA (regulator) — Federal tax legislation enacted on July 4, 2025, affecting tax laws
• Macquarie Asset Management (company) — Manager of funds or investment vehicles owning Cleco Partners
• British Columbia Investment Management Corporation (company) — Investor in Cleco Partners

FAQ

Risk Factors

• Future Rate Case Outcomes [high — regulatory]: The company faces uncertainty regarding the resolution of future rate cases. Adverse decisions could impact the ability to recover costs and achieve authorized rates of return, affecting profitability.
• Environmental Regulation Changes [high — regulatory]: Evolving environmental regulations, particularly those related to climate change, pose a risk. Potential disallowance of cost recovery for certain assets or increased compliance costs could negatively impact financial performance.
• Impact of New Federal Tax Legislation [medium — financial]: The 'One Big Beautiful Bill Act' (OBBBA) enacted on July 4, 2025, and Executive Order 14315 signed on July 7, 2025, introduce potential changes to the tax landscape and energy policies that could affect Cleco's future financial results.
• Asset Retirement and Stranded Costs [medium — operational]: The retirement of assets, such as the Dolet Hills Power Station (retired December 31, 2021), can lead to stranded costs. Managing these costs and their recovery through regulatory mechanisms is a key operational challenge.
• Divestiture of Cleco Cajun [medium — legal]: The divestiture of Cleco Cajun's unregulated utility business to Big Pelican LLC and Pelican South Central LLC on June 1, 2024, represents a significant strategic shift. While intended to streamline operations, it introduces new complexities and potential integration or performance risks.

Industry Context

Cleco operates in the regulated utility sector, characterized by significant capital investment requirements and a highly regulated environment. The industry is facing increasing pressure to transition to cleaner energy sources, manage aging infrastructure, and adapt to evolving environmental regulations. Competition primarily comes from other regulated utilities within their service territories, with limited direct competition for core electricity delivery services.

Regulatory Implications

Cleco is subject to extensive regulation by state and federal bodies, including the Louisiana Public Service Commission. Key regulatory risks involve the recovery of costs through rate cases, potential disallowances of expenditures by regulators, and compliance with new environmental mandates. The company's ability to secure timely and adequate rate increases is critical for its financial health.

What Investors Should Do

1. Monitor regulatory filings and rate case outcomes.
2. Assess the impact of new federal legislation (OBBBA) and executive orders.
3. Evaluate the company's strategy for managing asset retirements and stranded costs.

Key Dates

• 2024-06-01: Cleco Cajun Divestiture Completed — Marks a significant strategic shift, divesting the unregulated utility business. This impacts the company's revenue streams and operational focus.
• 2025-07-04: One Big Beautiful Bill Act (OBBBA) Enacted — New federal tax legislation that could materially affect Cleco's future financial performance and tax liabilities.
• 2025-07-07: Executive Order 14315 Signed — This executive order may influence energy policies and Cleco's operational strategies related to energy sources and environmental compliance.
• 2021-12-31: Dolet Hills Power Station Retired — Highlights the company's ongoing asset management and the potential for stranded costs associated with retired generation assets.
• 2016-04-13: 2016 Merger Completion — Date Cleco Corporation converted to Cleco Corporate Holdings LLC, establishing the current corporate structure.

Glossary

Allowance for equity funds used during construction

A regulatory accounting practice that allows utilities to include the cost of equity capital used for construction work in progress in their rate base. (Indicates the company is actively engaged in construction projects and is allowed to capitalize certain financing costs.)

Allowance for borrowed funds used during construction

A regulatory accounting practice that allows utilities to include the cost of debt capital used for construction work in progress in their rate base. (Similar to the equity allowance, this shows capitalization of interest costs on debt used for construction.)

Discontinued operations

Financial results from business activities that have been or will be disposed of and do not represent the ongoing operations of the company. (The filing shows a small amount of income from discontinued operations in the prior year, likely related to the Cleco Cajun divestiture.)

Stranded costs

Costs incurred by a utility for assets that can no longer be recovered through rates due to market changes, deregulation, or regulatory decisions. (A significant risk factor for Cleco, especially with asset retirements driven by climate legislation.)

Year-Over-Year Comparison

For the three months ended September 30, 2025, Cleco reported operating revenue of $406,770,000, a significant increase of 19.6% compared to $340,135,000 in the same period of 2024. This growth is primarily driven by higher revenue from electric operations. Net income, however, decreased to $72,260,000 in 2025 from $94,592,000 in 2024, a decline of 23.6%. The company also experienced a substantial increase in federal and state income tax expense in 2025, shifting from a benefit of ($6,643,000) in 2024 to an expense of $17,789,000, which contributed to the lower net income despite higher revenue. New risks related to federal tax legislation and executive orders have emerged since the prior filing.

Filing Documents

• cnl-20250930.htm (10-Q) — 3425KB
• cnl-9302025xq3ex311.htm (EX-31.1) — 9KB
• cnl-9302025xq3ex312.htm (EX-31.2) — 9KB
• cnl-9302025xq3ex313.htm (EX-31.3) — 9KB
• cnl-9302025xq3ex314.htm (EX-31.4) — 9KB
• cnl-9302025xq3ex321.htm (EX-32.1) — 5KB
• cnl-9302025xq3ex322.htm (EX-32.2) — 5KB
• cnl-9302025xq3ex323.htm (EX-32.3) — 5KB
• cnl-9302025xq3ex324.htm (EX-32.4) — 5KB
• 0001089819-25-000022.txt ( ) — 18174KB
• cnl-20250930.xsd (EX-101.SCH) — 86KB
• cnl-20250930_cal.xml (EX-101.CAL) — 135KB
• cnl-20250930_def.xml (EX-101.DEF) — 760KB
• cnl-20250930_lab.xml (EX-101.LAB) — 926KB
• cnl-20250930_pre.xml (EX-101.PRE) — 908KB
• cnl-20250930_htm.xml (XML) — 3988KB

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 52 ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 65 ITEM 4.

Controls and Procedures

Controls and Procedures 67 PART II Other Information ITEM 1.

Legal Proceedings

Legal Proceedings 68 ITEM 1A.

Other Information

ITEM 5. Other Information 68 ITEM 6. Exhibits 68

Signatures

Signatures 69 2 CLECO CLECO POWER 2025 3RD QUARTER FORM 10-Q GLOSSARY OF TERMS Abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below. ABBREVIATION OR ACRONYM DEFINITION 2016 Merger Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016 2016 Merger Commitments Cleco Partners', Cleco Group's, Cleco Holdings', and Cleco Power's 77 commitments to the LPSC as defined in Docket No. U-33434 401(k) Plan Cleco Power 401(k) Savings and Investment Plan ABR Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or SOFR plus 1.0% Acadia Acadia Power Partners, LLC, previously a wholly owned subsidiary of Cleco Midstream Resources LLC (a wholly owned subsidiary of Cleco Holdings). Acadia Power Partners, LLC was dissolved effective August 29, 2014 Acadia Unit 1 Cleco Power's 580-MW, natural gas-fired, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana Acadia Unit 2 Entergy Louisiana's 580-MW, natural gas-fired, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power ADIT Accumulated Deferred Income Tax AFUDC Allowance for Funds Used During Construction Amended Lignite Mining Agreement Amended and restated lignite mining agreement effective December 29, 2009 AOCI Accumulated Other Comprehensive Income (Loss) ARO Asset Retirement Obligation CCR Coal combustion by-products or residual CEO Chief Executive Officer CFO Chief Financial Officer Cleco Cleco Holdings and its subsidiaries Cleco Cajun Cleco Cajun LLC, a wholly owned subsidiary of Cleco Holdings, and its subsidiaries Cleco Cajun Acquisition The transaction between Cleco Cajun and NRG Energy, Inc. in which Cleco Cajun acquired all the membership interest in South Central Generating, which closed on February 4,

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Cleco These unaudited condensed consolidated financial statements should be read in conjunction with Cleco's Consolidated Financial Statements and Notes included in the Registrants' Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2024. For more information on the basis of presentation, see "Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation." 8 CLECO CLECO POWER 2025 3RD QUARTER FORM 10-Q CLECO Condensed Consolidated Statements of Income (Unaudited) FOR THE THREE MONTHS ENDED SEPT. 30, (THOUSANDS) 2025 2024 Operating revenue Electric operations $ 371,356 $ 312,397 Other operations 35,414 28,784 Gross operating revenue 406,770 341,181 Electric customer credits — ( 1,046 ) Operating revenue, net 406,770 340,135 Operating expenses Fuel used for electric generation 119,113 69,792 Purchased power 28,574 28,083 Other operations and maintenance 67,572 60,365 Depreciation and amortization 54,466 50,293 Taxes other than income taxes 16,838 15,633 Total operating expenses 286,563 224,166 Operating income 120,207 115,969 Interest income 4,062 6,366 Allowance for equity funds used during construction 780 977 Other income, net 3,034 1,331 Interest charges Interest charges, net 38,732 37,941 Allowance for borrowed funds used during construction ( 698 ) ( 505 ) Total interest charges 38,034 37,436 Income from continuing operations before income taxes 90,049 87,207 Federal and state income tax expense (benefit) 17,789 ( 6,643 ) Income from continuing operations, net of income taxes 72,260 93,850 Income from discontinued operations, net of income taxes — 742 Net income $ 72,260 $ 94,592 The accompanying notes are an integral part of the condensed consolidated financial statements. 9 CLECO CLECO POWER 2025 3RD QUARTER FORM 10-Q CLECO Condensed Cons

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