**UNITED
          STATES SECURITIES AND EXCHANGE COMMISSION**
  **Washington,
          D.C.  20549**
 __________________
 
 **FORM
        10-Q**
 
  [X]  QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
  **For
        the quarterly period ended June 30, 2007**
  **Or**
  [  ]  TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 __________________
 
 **Commission
        file number 1-15759**
 **CLECO
        CORPORATION**
 *(Exact
        name of registrant as specified in its charter)*
 **Louisiana**
                *(State
                  or other jurisdiction of incorporation or organization)*
              **72-1445282**
                *(I.R.S.
                  Employer Identification No.)***2030
                  Donahue Ferry Road, Pineville, Louisiana**
                *(Address
                  of principal executive offices)*
              **71360-5226**
                *(Zip
                  Code)***Registrant’s
                  telephone number, including area code:  (318)
                  484-7400**
 __________________
 
 **Commission
        file number 1-05663**
 **CLECO
        POWER LLC**
 *(Exact
        name of registrant as specified in its charter)*
 **Louisiana**
                *(State
                  or other jurisdiction of incorporation or organization)*
              **72-0244480**
                *(I.R.S.
                  Employer Identification No.)***2030
                  Donahue Ferry Road, Pineville, Louisiana**
                *(Address
                  of principal executive offices)*
              **71360-5226**
                *(Zip
                  Code)***Registrant’s
                  telephone number, including area code:  (318)
                  484-7400**Indicate
                  by check mark whether the Registrants: (1) have filed all reports
                  required
                  to be filed by Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
                  during the preceding 12 months (or for such shorter period that
                  the
                  Registrants were required to file such reports) and (2) have been
                  subject
                  to such filing requirements for the past 90 days.
                Yes
                    x      No
                  __Indicate
                  by check mark whether Cleco Corporation is a large accelerated
                  filer, an
                  accelerated filer, or a non-accelerated filer.  See definition
                  of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                  Exchange Act.  (Check one):
                Large
                  accelerated filer
                  x                         Accelerated
                  filer
                                                        Non-accelerated
                  filerIndicate
                  by check mark whether Cleco Power LLC is a large accelerated filer,
                  an
                  accelerated filer, or a non-accelerated filer.  See definition
                  of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                  Exchange Act.  (Check one):
                Large
                  accelerated filer
                                        Accelerated
                  filer
                                                        Non-accelerated
                  filer
                  xIndicate
                  by check mark whether the Registrants are shell companies (as defined
                  in
                  Rule 12b-2 of the Exchange
                  Act)  Yes    No
                    x  
 
 Number
        of
        shares outstanding of each of Cleco Corporation’s classes of Common Stock, as of
        the latest practicable date.
 
 Registrant
              Description
                  of Class
              Shares
                  Outstanding at July 31, 2007Cleco
                  Corporation
              Common
                  Stock, $1.00 Par Value
              59,918,136
 
 **Cleco
        Power LLC, a wholly owned subsidiary of Cleco Corporation, meets the conditions
        set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
        filing this Form 10-Q with the reduced disclosure
        format.**
 
  CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER 10-Q
  This
        combined Form 10-Q is separately filed by Cleco Corporation and Cleco
        Power.  Information in this filing relating to Cleco Power is filed by
        Cleco Corporation and separately by Cleco Power on its own
        behalf.  Cleco Power makes no representation as to information
        relating to Cleco Corporation (except as it may relate to Cleco Power) or
        any
        other affiliate or subsidiary of Cleco Corporation.
 This
        report should be read in its entirety as it pertains to each respective
        Registrant.  The Notes to the Unaudited Condensed Financial Statements
        are combined.
  TABLE
                  OF CONTENTSPAGEGLOSSARY OF
                    TERMS
                3DISCLOSURE
                    REGARDING FORWARD-LOOKING STATEMENTS
                5**PART
                    I**
                **Financial
                    Information**ITEM
                    1.
                Cleco
                    Corporation — Condensed Consolidated Financial Statements
                7Cleco
                    Power — Condensed Financial Statements
                15Notes
                    to the Unaudited Condensed Financial Statements
                20ITEM
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                39ITEM
                    3.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                54ITEM
                    4.
                Controls
                    and Procedures
                55**PART
                    II**
                **Other
                    Information**ITEM
                    1.
                Legal
                    Proceedings
                56ITEM
                    1A.
                Risk
                    Factors
                56ITEM
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                56ITEM
                    6.
                Exhibits
                57Signatures
                58
  2
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  GLOSSARY
        OF TERMS
 References
        in this filing, including all items in Parts I and II, to “Cleco” mean Cleco
        Corporation and its subsidiaries, including Cleco Power, and references to
        “Cleco Power” mean Cleco Power LLC, unless the context clearly indicates
        otherwise. Additional abbreviations or acronyms used in this filing,
        including all items in Parts I and II are defined below:
 
 ABBREVIATION
                  OR ACRONYM
              DEFINITION401(k)
                  Plan
              Cleco
                  Power 401(k) Savings and Investment PlanAcadia
              Acadia
                  Power Partners, LLC and its 1,160-MW combined-cycle, natural gas-fired
                  power plant near Eunice, Louisiana, 50% owned by APH and 50% owned
                  by a
                  subsidiary of CalpineAFUDC
              Allowance
                  for Funds Used During ConstructionAmended
                  EPC Contract
              Amended
                  and Restated EPC Contract between Cleco Power and Shaw, executed
                  on May
                  12, 2006, to engineer, design, and construct Rodemacher Unit
                  3APB
              Accounting
                  Principles BoardAPB
                  Opinion No. 10
              Consolidated
                  Financial Statements, Poolings of Interest, Convertible Debt and
                  Debt
                  Issued with Stock Warrants Installment Method of
                  AccountingAPH
              Acadia
                  Power Holdings LLC, a wholly owned subsidiary of
                  MidstreamAttala
              Attala
                  Transmission LLC, a wholly owned subsidiary of Cleco
                  Corporation.  Prior to February 1, 2007, Attala was a wholly
                  owned subsidiary of MidstreamBear
                  Energy LP
              A
                  wholly owned subsidiary of Bear Stearns Companies, Inc.Bear
                  Stearns Companies, Inc.
              The
                  parent company of Bear, Stearns & Co. Inc.Bidding
                  Procedures Order
              Bidding
                  Procedures Order, in connection with the sale of CAH’s interest in Acadia,
                  approved by the Calpine Debtors Bankruptcy Court by order dated
                  May 9,
                  2007CAH
              Calpine
                  Acadia HoldingsCalpine
              Calpine
                  CorporationCalpine
                  Debtors
              Calpine,
                  CES, and certain other Calpine subsidiariesCalpine
                  Debtors Bankruptcy Court
              U.S.
                  Bankruptcy Court for the Southern District of New YorkCalpine
                  Tolling Agreements
              Capacity
                  Sale and Tolling Agreements between Acadia and CES which were suspended
                  in
                  March 2006CCN
              Certificate
                  of Public Convenience and NecessityCES
              Calpine
                  Energy Services, L.P.Claims
                  Settlement Agreement
              Claims
                  Settlement Agreement, dated April 23, 2007, by and among Calpine,
                  CAH,
                  CES, Acadia, and APHCleco
                  Energy
              Cleco
                  Energy LLC, a wholly owned subsidiary of MidstreamCleco
                  Innovations LLC
              A
                  wholly owned subsidiary of Cleco CorporationCompliance
                  Plan
              The
                  three-year plan included in the Consent Agreement in FERC Docket
                  IN03-1-000Consent
                  Agreement
              Stipulation
                  and Consent Agreement, dated as of July 25, 2003, between Cleco
                  and the
                  FERC StaffDiversified
                  Lands
              Diversified
                  Lands LLC, a wholly owned subsidiary of Cleco Innovations LLC,
                  a wholly
                  owned subsidiary of Cleco CorporationEITF
              Emerging
                  Issues Task Force of the FASBEITF
                  No. 06-11
              Accounting
                  for Income Tax Benefits of Dividends on Share-Based Payment
                  AwardsEITF
                  No. 07-3
              Accounting
                  for Nonrefundable Advance Payments for Goods or Services to Be
                  Used in
                  Future Research and Development ActivitiesEntergy
              Entergy
                  CorporationEntergy
                  Gulf States
              Entergy
                  Gulf States, Inc.Entergy
                  Louisiana
              Entergy
                  Louisiana, Inc.Entergy
                  Mississippi
              Entergy
                  Mississippi, Inc.Entergy
                  Services
              Entergy
                  Services, Inc., as agent for Entergy Louisiana and Entergy Gulf
                  StatesEPA
              United
                  States Environmental Protection AgencyEPC
              Engineering,
                  Procurement, and ConstructionERO
              Electric
                  Reliability OrganizationESOP
              Cleco
                  Corporation Employee Stock Ownership PlanESPP
              Cleco
                  Corporation Employee Stock Purchase PlanEvangeline
              Cleco
                  Evangeline LLC, a wholly owned subsidiary of Midstream, and its
                  775-MW
                  combined-cycle, natural gas-fired power plant located in Evangeline
                  Parish, LouisianaEvangeline
                  Tolling Agreement
              Capacity
                  Sale and Tolling Agreement between Evangeline and Williams which
                  expires
                  in 2020FASB
              Financial
                  Accounting Standards BoardFERC
              Federal
                  Energy Regulatory CommissionFIN
              FASB
                  Interpretation No.FIN
                  39
              Offsetting
                  of Amounts Related to Certain Contracts – an interpretation of APB Opinion
                  No. 10 and FASB Statement No. 105FIN
                  45
              Guarantor’s
                  Accounting and Disclosure Requirements for Guarantees, Including
                  Indirect
                  Guarantees of Indebtedness to OthersFIN
                  46R
              Consolidation
                  of Variable Interest Entities – an Interpretation of Accounting Research
                  Bulletin No. 51 (revised December 2003)FIN
                  48
              Accounting
                  for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.
                  109FSP
              FASB
                  Staff Position
  3
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  ABBREVIATION
                    OR ACRONYM
                DEFINITIONFSP
                    FIN 48-1
                Definition
                    of *Settlement* in FASB Interpretation No. 48FSP
                    No. FIN 39-1
                Amendment
                    of FASB Interpretation No. 39ICT
                Independent
                    Coordinator of TransmissionInterconnection
                    Agreement
                Interconnection
                    Agreement and Real Estate Agreement between Attala and Entergy
                    MississippiIRS
                Internal
                    Revenue ServiceIRP
                Integrated
                    Resource PlanningkWh
                Kilowatt-hour(s)
                    as applicableLIBOR
                London
                    Inter-Bank Offer RateLignite
                    Mining Agreement
                Dolet
                    Hills Mine Lignite Mining Agreement, dated as of May 31,
                    2001LPSC
                Louisiana
                    Public Service CommissionLTICP
                Cleco
                    Corporation Long-Term Incentive Compensation PlanMAI
                Mirant
                    Americas, Inc., a wholly owned subsidiary of Mirant
                    CorporationMidstream
                Cleco
                    Midstream Resources LLC, a wholly owned subsidiary of Cleco
                    CorporationMoody’s
                Moody’s
                    Investors ServiceMW
                Megawatt(s)
                    as applicableNOPR
                Notice
                    of Proposed RulemakingNot
                    meaningful
                A
                    percentage comparison of these items is not statistically meaningful
                    because the percentage difference is greater than
                    1,000%PEH
                Perryville
                    Energy Holdings LLC, a wholly owned subsidiary of
                    MidstreamPerryville
                Perryville
                    Energy Partners, L.L.C., a wholly owned subsidiary of Cleco
                    Corporation.  Prior to February 1, 2007, Perryville was a wholly
                    owned subsidiary of PEHPower
                    Purchase Agreement
                Power
                    Purchase Agreement, dated as of January 28, 2004, between Perryville
                    and
                    Entergy ServicesRegistrant(s)
                Cleco
                    Corporation and Cleco PowerRFP
                Request
                    for ProposalRodemacher
                    Unit 3
                A
                    600-MW solid fuel generating unit under construction by Cleco
                    Power at its
                    existing Rodemacher plant site in Boyce, LouisianaRSP
                Rate
                    Stabilization PlanRTO
                Regional
                    Transmission OrganizationSale
                    Agreement
                Purchase
                    and Sale Agreement, dated as of January 28, 2004, between Perryville
                    and
                    Entergy LouisianaSEC
                Securities
                    and Exchange CommissionSenior
                    Loan Agreement
                Construction
                    and Term Loan Agreement, dated as of June 7, 2001, between Perryville
                    and
                    KBC Bank N.V., as Agent BankSERP
                Cleco
                    Corporation Supplemental Executive Retirement PlanSFAS
                Statement
                    of Financial Accounting StandardsSFAS
                    No. 71
                Accounting
                    for the Effects of Certain Types of RegulationSFAS
                    No. 109
                Accounting
                    for Income TaxesSFAS
                    No. 123(R)
                Share-Based
                    PaymentSFAS
                    No. 131
                Disclosures
                    about Segments of an Enterprise and Related InformationSFAS
                    No. 133
                Accounting
                    for Derivative Instruments and Hedging ActivitiesSFAS
                    No. 140
                Accounting
                    for Transfers and Servicing of Financial Assets and Extinguishments
                    of
                    LiabilitiesSFAS
                    No. 149
                Amendment
                    of Statement 133 on Derivative Instruments and Hedging
                    ActivitiesSFAS
                    No. 155
                Accounting
                    for Certain Hybrid Financial Instruments - an amendment of FASB
                    Statements
                    No. 133 and 140SFAS
                    No. 156
                Accounting
                    for Servicing of Financial Assets - an amendment of FASB Statement
                    No.
                    140SFAS
                    No. 157
                Fair
                    Value MeasurementsSFAS
                    No. 159
                The
                    Fair Value Option For Financial Assets and Financial Liabilities
–
                    Including an amendment of FASB Statement No. 115Shaw
                Shaw
                    Constructors, Inc., a subsidiary of The Shaw Group Inc.Subordinated
                    Loan Agreement
                Subordinated
                    Loan Agreement, dated as of August 23, 2002, between Perryville
                    and
                    MAISupport
                    Group
                Cleco
                    Support Group LLC, a wholly owned subsidiary of Cleco
                    CorporationSWEPCO
                Southwestern
                    Electric Power CompanyTenaska
                Tenaska
                    Power Services CompanyVaR
                Value-at-riskWilliams
                Williams
                    Power Company, Inc.
 
 4
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  DISCLOSURE
        REGARDING
        FORWARD-LOOKING STATEMENTS
 This
          Quarterly Report on Form 10-Q includes “forward-looking statements” about future
          events, circumstances, and results.  All statements other than
          statements of historical fact included in this Quarterly Report are
          forward-looking statements, including, without limitation, statements regarding
          the construction, timing and cost of Rodemacher Unit 3; Acadia settlement
          agreement between Cleco and Calpine; future capital expenditures; and future
          environmental regulations.  Although the Registrants believe that the
          expectations reflected in such forward-looking statements are reasonable,
          such
          forward-looking statements are based on numerous assumptions (some of which
          may
          prove to be incorrect) and are subject to risks and uncertainties that
          could
          cause the actual results to differ materially from the Registrants’
expectations.  In addition to any assumptions and other factors
          referred to specifically in connection with these forward-looking statements,
          the following list identifies some of the factors that could cause the
          Registrants’ actual results to differ materially from those contemplated in any
          of the Registrants’ forward-looking statements:
 §
              Factors
                  affecting utility operations, such as unusual weather conditions
                  or other
                  natural phenomena; catastrophic weather-related damage (such as
                  hurricanes
                  and other storms); unscheduled generation outages; unanticipated
                  maintenance or repairs; unanticipated changes to fuel costs, cost
                  of and
                  reliance on natural gas as a component of Cleco’s generation fuel mix and
                  their impact on competition and franchises, fuel supply costs or
                  availability constraints due to higher demand, shortages, transportation
                  problems or other developments; environmental incidents; or power
                  transmission system constraints;
 §
              Cleco
                  Corporation’s holding company structure and its dependence on the
                  earnings, dividends, or distributions from its subsidiaries to
                  meet its
                  debt obligations and pay dividends on its common stock;
 §
              Cleco
                  Power’s ability to construct, operate, and maintain, within its projected
                  costs (including financing) and timeframe, Rodemacher Unit 3, in
                  addition
                  to any other self-build projects identified in future IRP and RFP
                  processes;
 §
              Dependence
                  of Cleco Power for energy from sources other than its facilities
                  and the
                  uncertainty of future long-term sources of such additional
                  energy;
 §
              Nonperformance
                  by and creditworthiness of counterparties under tolling, power
                  purchase,
                  and energy service agreements, or the restructuring of those agreements,
                  including possible termination;
 §
              Ultimate
                  outcome of the sale of the CAH Assets, and the ability of Cleco
                  and the
                  ultimate purchaser of the CAH Assets to work together to bring
                  maximum
                  value to Acadia;
 §
              The
                  final amount of storm restoration costs and storm reserve, if any,
                  approved by the LPSC and the method through which such amounts
                  can be
                  recovered from Cleco Power’s customers;
 §
              The
                  final amount of recoverable lignite costs, as approved by the LPSC,
                  that
                  are currently deferred by Cleco Power;
 §
              Regulatory
                  factors such as changes in rate-setting policies, recovery of investments
                  made under traditional regulation, the frequency and timing of
                  rate
                  increases or decreases, the results of periodic fuel audits, the
                  results
                  of IRP and RFP processes, the formation of RTOs and ICTs, and the
                  establishment by an ERO of reliability standards for bulk power
                  systems
                  and compliance with these standards by Cleco Power, Acadia, Attala,
                  Evangeline, and Perryville;
 §
              Financial
                  or regulatory accounting principles or policies imposed by the
                  FASB, the
                  SEC, the Public Company Accounting Oversight Board, the FERC, the
                  LPSC or
                  similar entities with regulatory or accounting oversight;
 §
              Economic
                  conditions, including the ability of customers to continue paying
                  for high
                  energy costs, related growth and/or down-sizing of businesses in
                  Cleco’s
                  service area, monetary fluctuations, changes in commodity prices,
                  and
                  inflation rates;
 §
              Credit
                  ratings of Cleco Corporation, Cleco Power, and Evangeline;
 §
              Changing
                  market conditions and a variety of other factors associated with
                  physical
                  energy, financial transactions, and energy service activities,
                  including,
                  but not limited to, price, basis, credit, liquidity, volatility,
                  capacity,
                  transmission, interest rates, and warranty risks;
 §
              Acts
                  of terrorism;
 §
              Availability
                  or cost of capital resulting from changes in Cleco’s business or financial
                  condition, interest rates or market perceptions of the electric
                  utility
                  industry and energy-related industries;
 §
              Employee
                  work force factors, including work stoppages and changes in key
                  executives;
 §
              Legal,
                  environmental, and regulatory delays and other obstacles associated
                  with
                  mergers, acquisitions, capital projects, reorganizations, or investments
                  in joint ventures;
 §
              Costs
                  and other effects of legal and administrative proceedings, settlements,
                  investigations, claims and other matters;
 §
              Changes
                  in federal, state, or local legislative requirements, tax laws
                  or rates,
                  regulating policies or environmental laws and regulations;
                  and
 §
              Ability
                  of Cleco Power to recover, from its retail customers, the costs
                  of
                  compliance with environmental laws and
                  regulations.
  For
        additional discussion of these factors and other factors that could cause
        actual
        results to differ materially from those contemplated in the Registrants’
forward-looking statements, please read “Risk Factors” in this report, as well
        as the Registrants’ Combined Annual Report on Form 10-K for the fiscal year
        ended December 31, 2006.
  5
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  All
        subsequent written and oral forward-looking statements attributable to the
        Registrants or persons acting on their behalf are expressly qualified in
        their entirety by the factors identified above.
 The
        Registrants undertake no obligation to update any forward-looking statements,
        whether as a result of changes in actual results, changes in assumptions,
        or
        other factors affecting such statements.
  6
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  PART
        I — FINANCIAL INFORMATION
 
 **ITEM
          1.**CONDENSED CONSOLIDATED FINANCIAL
          STATEMENTS
 **Cleco
          Corporation**
 These
        unaudited condensed consolidated financial statements should be read in
        conjunction with Cleco Corporation’s Consolidated Financial Statements and Notes
        included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal
        year ended December 31, 2006.  For more information on the basis of
        presentation, see “Notes to the Unaudited Condensed Financial Statements — Note
        1 — Summary of Significant Accounting Policies — Basis of
        Presentation.”
 
 7
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER 10-Q
  CLECO
        CORPORATION
 Condensed Consolidated
                Statements of Income (Unaudited)FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS,
                  EXCEPT SHARE AND PER SHARE AMOUNTS)
              
              **2007**
              
              
              2006**Operating
                  revenue**Electric
                  operations
              
              **$**
              **251,909**
              
              
              $
              241,286Other
                  operations
              
              ****
              **7,971**
              
              
              
              7,929Affiliate
                  revenue
              
              ****
              **1,621**
              
              
              
              1,737Operating
                  revenue
              
              ****
              **261,501**
              
              
              
              250,952**Operating
                  expenses**Fuel
                  used for electric
                  generation
              
              ****
              **51,312**
              
              
              
              57,990Power
                  purchased for utility
                  customers
              
              ****
              **115,592**
              
              
              
              97,696Other
                  operations
              
              ****
              **24,722**
              
              
              
              25,765Maintenance
              
              ****
              **14,939**
              
              
              
              14,221Depreciation
              
              ****
              **19,990**
              
              
              
              15,714Taxes
                  other than income
                  taxes
              
              ****
              **9,867**
              
              
              
              10,150Total
                  operating
                  expenses
              
              ****
              **236,422**
              
              
              
              221,536**Operating
                  income**
              
              ****
              **25,079**
              
              
              
              29,416Interest
                  income
              
              ****
              **2,589**
              
              
              
              1,943Allowance
                  for other funds used during construction
              
              ****
              **7,032**
              
              
              
              1,372Equity
                  income from investees
              
              ****
              **71,282**
              
              
              
              15,233Other
                  income
              
              ****
              **582**
              
              
              
              148Other
                  expense
              
              ****
              **(416**
              **)**
              
              
              (414
              )**Interest
                  charges**Interest
                  charges, including
                  amortization of debt expenses, premium and discount, net of capitalized
                  interest
              
              ****
              **14,377**
              
              
              
              11,403Allowance
                  for borrowed funds
                  used during construction
              
              ****
              **(2,388**
              **)**
              
              
              (493
              )Total
                  interest
                  charges
              
              ****
              **11,989**
              
              
              
              10,910**Income
                  from continuing operations before income taxes**
              
              ****
              **94,159**
              
              
              
              36,788Federal
                  and state income tax expense
              
              ****
              **30,968**
              
              
              
              13,459**Income
                  from continuing operations**
              
              ****
              **63,191**
              
              
              
              23,329**Discontinued
                  operations**Loss
                  from discontinued
                  operations, net of tax
              
              ****
              **-**
              
              
              
              (103
              )**Net
                  income**
              
              ****
              **63,191**
              
              
              
              23,226Preferred
                  dividends requirements, net of tax
              
              ****
              **12**
              
              
              
              427**Net
                  income applicable to common stock**
              
              **$**
              **63,179**
              
              
              $
              22,799**Average
                  shares of common stock outstanding**Basic
              
              ****
              **59,489,725**
              
              
              
              50,053,685Diluted
              
              ****
              **59,798,877**
              
              
              
              52,297,838**Basic
                  earnings per share**From
                  continuing
                  operations
              
              **$**
              **1.06**
              
              
              $
              0.45Net
                  income applicable to common
                  stock
              
              **$**
              **1.06**
              
              
              $
              0.45**Diluted
                  earnings per share**From
                  continuing
                  operations
              
              **$**
              **1.05**
              
              
              $
              0.44Net
                  income applicable to common
                  stock
              
              **$**
              **1.05**
              
              
              $
              0.44**Cash
                  dividends paid per share of common stock**
              
              **$**
              **0.225**
              
              
              $
              0.225The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
 8
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 CLECO
        CORPORATION
 Condensed
                Consolidated Statements of Comprehensive Income (Unaudited)FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006Net
                  income
              
              **$**
              **63,191**
              
              
              $
              23,226Other
                  comprehensive loss, net of tax:Net
                  unrealized loss from
                  available-for-sale securities (net of tax benefit of $4 in 2007
                  and $42 in
                  2006)
              
              ****
              **(7**
              **)**
              
              
              (67
              )Postretirement
                  expense component
                  (net of tax benefit of $3 in 2007)
              
              ****
              **(2**
              **)**
              
              
              -Other
                  comprehensive loss
              
              ****
              **(9**
              **)**
              
              
              (67
              )**Comprehensive
                  income, net of tax**
              
              **$**
              **63,182**
              
              
              $
              23,159The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
 9
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        CORPORATION
 Condensed Consolidated
                Statements of Income (Unaudited)FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS,
                  EXCEPT SHARE AND PER SHARE AMOUNTS)
              
              **2007**
              
              
              2006**Operating
                  revenue**Electric
                  operations
              
              **$**
              **464,929**
              
              
              $
              452,275Other
                  operations
              
              ****
              **17,240**
              
              
              
              14,525Affiliate
                  revenue
              
              ****
              **3,082**
              
              
              
              3,188Gross
                  operating
                  revenue
              
              ****
              **485,251**
              
              
              
              469,988Electric
                  customer
                  credits
              
              ****
              **-**
              
              
              
              4,382Operating
                  revenue,
                  net
              
              ****
              **485,251**
              
              
              
              474,370**Operating
                  expenses**Fuel
                  used for electric
                  generation
              
              ****
              **106,808**
              
              
              
              106,353Power
                  purchased for utility
                  customers
              
              ****
              **199,739**
              
              
              
              197,527Other
                  operations
              
              ****
              **51,038**
              
              
              
              43,854Maintenance
              
              ****
              **25,181**
              
              
              
              20,153Depreciation
              
              ****
              **40,088**
              
              
              
              31,358Taxes
                  other than income
                  taxes
              
              ****
              **19,667**
              
              
              
              19,734Total
                  operating
                  expenses
              
              ****
              **442,521**
              
              
              
              418,979**Operating
                  income**
              
              ****
              **42,730**
              
              
              
              55,391Interest
                  income
              
              ****
              **5,157**
              
              
              
              4,435Allowance
                  for other funds used during construction
              
              ****
              **12,163**
              
              
              
              2,041Equity
                  income from investees
              
              ****
              **69,883**
              
              
              
              15,606Other
                  income
              
              ****
              **872**
              
              
              
              373Other
                  expense
              
              ****
              **(1,882**
              **)**
              
              
              (859
              )**Interest
                  charges**Interest
                  charges, including
                  amortization of debt expenses, premium and discount, net of capitalized
                  interest
              
              ****
              **28,034**
              
              
              
              22,579Allowance
                  for borrowed funds
                  used during construction
              
              ****
              **(4,059**
              **)**
              
              
              (719
              )Total
                  interest
                  charges
              
              ****
              **23,975**
              
              
              
              21,860**Income
                  from continuing operations before income taxes**
              
              ****
              **104,948**
              
              
              
              55,127Federal
                  and state income tax expense
              
              ****
              **33,111**
              
              
              
              19,573**Income
                  from continuing operations**
              
              ****
              **71,837**
              
              
              
              35,554**Discontinued
                  operations**Loss
                  from discontinued
                  operations, net of tax
              
              ****
              **-**
              
              
              
              (190
              )**Net
                  income**
              
              ****
              **71,837**
              
              
              
              35,364Preferred
                  dividends requirements, net of tax
              
              ****
              **435**
              
              
              
              886**Net
                  income applicable to common stock**
              
              **$**
              **71,402**
              
              
              $
              34,478**Average
                  shares of common stock outstanding**Basic
              
              ****
              **58,585,451**
              
              
              
              49,956,429Diluted
              
              ****
              **59,586,444**
              
              
              
              52,095,625**Basic
                  earnings per share**From
                  continuing
                  operations
              
              **$**
              **1.21**
              
              
              $
              0.68Net
                  income applicable to common
                  stock
              
              **$**
              **1.21**
              
              
              $
              0.68**Diluted
                  earnings per share**From
                  continuing
                  operations
              
              **$**
              **1.20**
              
              
              $
              0.68Net
                  income applicable to common
                  stock
              
              **$**
              **1.20**
              
              
              $
              0.68**Cash
                  dividends paid per share of common stock**
              
              **$**
              **0.450**
              
              
              $
              0.450The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
  10
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        CORPORATION
 Condensed
                Consolidated Statements of Comprehensive Income (Unaudited)FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006Net
                  income
              
              **$**
              **71,837**
              
              
              $
              35,364Other
                  comprehensive loss, net of tax:Net
                  unrealized loss from
                  available-for-sale securities (net of tax benefit of $22 in 2007
                  and $12
                  in 2006)
              
              ****
              **(35**
              **)**
              
              
              (19
              )Postretirement
                  expense component
                  (net of tax benefit of $6 in 2007)
              
              ****
              **(4**
              **)**
              
              
              -Other
                  comprehensive loss
              
              ****
              **(39**
              **)**
              
              
              (19
              )**Comprehensive
                  income, net of tax**
              
              **$**
              **71,798**
              
              
              $
              35,345The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
 11
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        CORPORATION
 Condensed
                Consolidated Balance Sheets (Unaudited)(THOUSANDS)
              
              **AT
                  JUNE 30, 2007**
              
              AT
                  DECEMBER 31, 2006**Assets**Current
                  assetsCash
                  and cash
                  equivalents
              
              **$**
              **178,807**
              
              
              $
              192,471Restricted
                  cash
              
              ****
              **-**
              
              
              
              24,361Customer
                  accounts receivable
                  (less allowance for doubtful accounts of $702 in 2007 and $789
                  in
                  2006)
              
              ****
              **54,322**
              
              
              
              38,889Accounts
                  receivable –
                  affiliate
              
              ****
              **17,035**
              
              
              
              11,451Other
                  accounts
                  receivable
              
              ****
              **34,173**
              
              
              
              28,708Unbilled
                  revenue
              
              ****
              **22,184**
              
              
              
              18,382Fuel
                  inventory, at average
                  cost
              
              ****
              **43,062**
              
              
              
              43,236Material
                  and supplies
                  inventory, at average cost
              
              ****
              **40,059**
              
              
              
              34,755Risk
                  management
                  assets
              
              ****
              **3,518**
              
              
              
              39Accumulated
                  deferred
                  fuel
              
              ****
              **52,988**
              
              
              
              77,435Cash
                  surrender value of
                  company-/trust-owned life insurance policies
              
              ****
              **27,860**
              
              
              
              26,275Margin
                  deposits
              
              ****
              **6,346**
              
              
              
              18,638Prepayments
              
              ****
              **8,188**
              
              
              
              4,570Regulatory
                  assets -
                  other
              
              ****
              **18,905**
              
              
              
              17,453Other
                  current
                  assets
              
              ****
              **356**
              
              
              
              645Total
                  current
                  assets
              
              ****
              **507,803**
              
              
              
              537,308Property,
                  plant and
                  equipmentProperty,
                  plant and
                  equipment
              
              ****
              **1,898,696**
              
              
              
              1,892,533Accumulated
                  depreciation
              
              ****
              **(902,500**
              **)**
              
              
              (876,747
              )Net
                  property, plant and
                  equipment
              
              ****
              **996,196**
              
              
              
              1,015,786Construction
                  work in
                  progress
              
              ****
              **497,343**
              
              
              
              289,101Total
                  property, plant and
                  equipment, net
              
              ****
              **1,493,539**
              
              
              
              1,304,887Equity
                  investment in
                  investees
              
              ****
              **311,127**
              
              
              
              307,136Prepayments
              
              ****
              **6,984**
              
              
              
              6,515Restricted
                  cash
              
              ****
              **92**
              
              
              
              90Regulatory
                  assets and
                  liabilities – deferred taxes, net
              
              ****
              **107,274**
              
              
              
              94,653Regulatory
                  assets –
                  other
              
              ****
              **186,070**
              
              
              
              192,061Other
                  deferred
                  charges
              
              ****
              **24,598**
              
              
              
              18,454**Total
                  assets**
              
              **$**
              **2,637,487**
              
              
              $
              2,461,104The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
 (Continued
                  on next page)
 
 12
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        CORPORATION
 Condensed
                Consolidated Balance Sheets (Unaudited) (Continued)(THOUSANDS)
              
              **AT
                  JUNE 30, 2007**
              
              
              AT
                  DECEMBER 31, 2006**Liabilities
                  and shareholders’ equity****Liabilities**Current
                  liabilitiesLong-term
                  debt due within one
                  year
              
              **$**
              **125,000**
              
              
              $
              50,000Accounts
                  payable
              
              ****
              **138,866**
              
              
              
              134,172Retainage
              
              ****
              **1,419**
              
              
              
              12,409Accounts
                  payable –
                  affiliate
              
              ****
              **17,254**
              
              
              
              5,072Customer
                  deposits
              
              ****
              **26,063**
              
              
              
              25,312Provision
                  for rate
                  refund
              
              ****
              **2**
              
              
              
              3,174Taxes
                  accrued
              
              ****
              **63,459**
              
              
              
              49,002Interest
                  accrued
              
              ****
              **25,569**
              
              
              
              8,874Accumulated
                  current deferred
                  taxes, net
              
              ****
              **19,855**
              
              
              
              23,233Risk
                  management
                  liability
              
              ****
              **25,339**
              
              
              
              55,931Regulatory
                  liabilities -
                  other
              
              ****
              **574**
              
              
              
              636Deferred
                  compensation
              
              ****
              **6,058**
              
              
              
              5,350Other
                  current
                  liabilities
              
              ****
              **12,262**
              
              
              
              11,535Total
                  current
                  liabilities
              
              ****
              **461,720**
              
              
              
              384,700Deferred
                  creditsAccumulated
                  deferred federal
                  and state income taxes, net
              
              ****
              **355,707**
              
              
              
              436,775Accumulated
                  deferred investment
                  tax credits
              
              ****
              **13,383**
              
              
              
              14,100Regulatory
                  liabilities -
                  other
              
              ****
              **16,306**
              
              
              
              5,827Other
                  deferred
                  credits
              
              ****
              **193,808**
              
              
              
              104,140Total
                  deferred
                  credits
              
              ****
              **579,204**
              
              
              
              560,842Long-term
                  debt,
                  net
              
              ****
              **644,257**
              
              
              
              619,341Total
                  liabilities
              
              ****
              **1,685,181**
              
              
              
              1,564,883Commitments
                  and Contingencies (Note 8)**Shareholders’
                  equity**Preferred
                  stockNot
                  subject to mandatory
                  redemption, $100 par value, authorized 1,491,900 shares, issued
                  10,288 and
                  200,922 shares atJune
                  30, 2007,and December 31, 2006, respectively
              
              ****
              **1,029**
              
              
              
              20,092Common
                  shareholders’
                  equityCommon
                  stock, $1 par value,
                  authorized 100,000,000 shares, issued 59,953,898 and 57,605,695
                  shares and
                  outstanding 59,808,222and57,524,498
                  shares at June 30, 2007, and December 31, 2006,
                  respectively
              
              ****
              **59,808**
              
              
              
              57,524Premium
                  on common
                  stock
              
              ****
              **386,607**
              
              
              
              358,707Retained
                  earnings
              
              ****
              **514,785**
              
              
              
              469,824Treasury
                  stock, at
                  cost, 29,975 and 31,957 shares at June 30, 2007, and December
                  31, 2006, respectively
              
              ****
              **(574**
              **)**
              
              
              (616
              )Accumulated
                  other comprehensive
                  loss
              
              ****
              **(9,349**
              **)**
              
              
              (9,310
              )Total
                  common shareholders’
                  equity
              
              ****
              **951,277**
              
              
              
              876,129Total
                  shareholders’
                  equity
              
              ****
              **952,306**
              
              
              
              896,221**Total
                  liabilities and shareholders’ equity**
              
              **$**
              **2,637,487**
              
              
              $
              2,461,104The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
 
 13
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  CLECO
        CORPORATION
 Condensed
                Consolidated Statements of Cash Flows (Unaudited)FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006**Operating
                  activities**Net
                  income
              
              **$**
              **71,837**
              
              
              $
              35,364Adjustments
                  to reconcile net
                  income to net cash provided by (used in) operating
                  activities:Depreciation
                  and
                  amortization
              
              ****
              **41,893**
              
              
              
              36,117Gain
                  on sale of property, plant
                  and equipment
              
              ****
              **-**
              
              
              
              (68
              )Provision
                  for doubtful
                  accounts
              
              ****
              **816**
              
              
              
              1,546Proceeds
                  from sale of
                  bankruptcy settlement claims
              
              ****
              **78,200**
              
              
              
              -Return
                  on equity investment in
                  investee
              
              ****
              **1**
              
              
              
              4,578Income from
                  equity
                  investments
              
              ****
              **(69,883**
              **)**
              
              
              (15,606
              )Unearned/deferred
                  compensation
                  expense
              
              ****
              **5,027**
              
              
              
              1,981ESOP
                  expense
              
              ****
              **1,481**
              
              
              
              656Allowance
                  for other funds used
                  during construction
              
              ****
              **(12,163**
              **)**
              
              
              (2,041
              )Amortization
                  of investment tax
                  credits
              
              ****
              **(717**
              **)**
              
              
              (766
              )Net
                  deferred income
                  taxes
              
              ****
              **(3,018**
              **)**
              
              
              (148
              )Deferred
                  fuel
                  costs
              
              ****
              **(16,111**
              **)**
              
              
              11,090(Gain)
                  loss on economic
                  hedges
              
              ****
              **(1,229**
              **)**
              
              
              2,390Cash
                  surrender value of
                  company-/trust-owned life insurance
              
              ****
              **(1,015**
              **)**
              
              
              (399
              )Changes
                  in assets and
                  liabilities:Accounts
                  receivable,
                  net
              
              ****
              **(27,194**
              **)**
              
              
              3,793Accounts
                  and notes receivable,
                  affiliate
              
              ****
              **(4,083**
              **)**
              
              
              (7,179
              )Unbilled
                  revenue
              
              ****
              **(3,802**
              **)**
              
              
              (5,089
              )Fuel,
                  materials and supplies
                  inventory
              
              ****
              **(3,999**
              **)**
              
              
              (29,347
              )Accounts
                  payable
              
              ****
              **410**
              
              
              
              (43,147
              )Prepayments
              
              ****
              **1,382**
              
              
              
              (505
              )Accounts
                  and notes payable,
                  affiliate
              
              ****
              **(3,390**
              **)**
              
              
              7,538Retainage
                  payable
              
              ****
              **(10,990**
              **)**
              
              
              2,257Customer
                  deposits
              
              ****
              **3,063**
              
              
              
              3,464Regulatory
                  assets and
                  liabilities, net
              
              ****
              **10,431**
              
              
              
              (46,083
              )Other
                  deferred
                  accounts
              
              ****
              **(7,434**
              **)**
              
              
              3,277Taxes
                  accrued
              
              ****
              **24,448**
              
              
              
              21,968Interest
                  accrued
              
              ****
              **4,590**
              
              
              
              413Margin
                  deposits
              
              ****
              **12,292**
              
              
              
              (20,510
              )Other,
                  net
              
              ****
              **1,664**
              
              
              
              4,309Net
                  cash provided by (used
                  in) operating activities
              
              ****
              **92,507**
              
              
              
              (30,147
              )**Investing
                  activities**Additions
                  to property, plant and
                  equipment
              
              ****
              **(220,062**
              **)**
              
              
              (72,362
              )Allowance
                  for other funds used
                  during construction
              
              ****
              **12,163**
              
              
              
              2,041Proceeds
                  from sale of property,
                  plant and equipment
              
              ****
              **250**
              
              
              
              429Return
                  of equity investment in
                  investee
              
              ****
              **95**
              
              
              
              1,925Equity
                  investment in
                  investee
              
              ****
              **(2,220**
              **)**
              
              
              (7,026
              )Premiums
                  paid on
                  company-/trust-owned life insurance
              
              ****
              **(1,263**
              **)**
              
              
              (1,815
              )Transfer
                  of cash from restricted
                  accounts
              
              ****
              **24,359**
              
              
              
              -Net
                  cash used in investing
                  activities
              
              ****
              **(186,678**
              **)**
              
              
              (76,808
              )**Financing
                  activities**Stock
                  issuance
                  costs
              
              ****
              **(93**
              **)**
              
              
              -Conversion
                  of options to common
                  stock
              
              ****
              **7,092**
              
              
              
              2,010Issuance
                  of common stock under
                  the ESOP
              
              ****
              **424**
              
              
              
              814Stock
                  based compensation tax
                  benefit
              
              ****
              **950**
              
              
              
              154Retirement
                  of long-term
                  obligations
              
              ****
              **(25,163**
              **)**
              
              
              (10,162
              )Issuance
                  of long-term
                  debt
              
              ****
              **125,000**
              
              
              
              -Deferred
                  financing
                  costs
              
              ****
              **(917**
              **)**
              
              
              (787
              )Change
                  in ESOP
                  trust
              
              ****
              **-**
              
              
              
              1,668Dividends
                  paid on preferred
                  stock
              
              ****
              **(435**
              **)**
              
              
              (1,336
              )Dividends
                  paid on common
                  stock
              
              ****
              **(26,351**
              **)**
              
              
              (22,597
              )Net
                  cash provided by (used in)
                  financing activities
              
              ****
              **80,507**
              
              
              
              (30,236
              )**Net
                  decrease in cash and cash equivalents**
              
              ****
              **(13,664**
              **)**
              
              
              (137,191
              )**Cash
                  and cash equivalents at beginning of period**
              
              ****
              **192,471**
              
              
              
              219,153**Cash
                  and cash equivalents at end of period**
              
              **$**
              **178,807**
              
              
              $
              81,962**Supplementary
                  cash flow information**Interest
                  paid
              
              **$**
              **22,800**
              
              
              $
              21,526Income
                  taxes
                  paid
              
              **$**
              **15,000**
              
              
              $
              212**Supplementary
                  non-cash investing and financing activities**Issuance
                  of treasury stock –
                  LTICP and ESOP plans
              
              **$**
              **42**
              
              
              $
              52Issuance
                  of common stock –
                  LTICP/ESOP/ESPP(1)
              
              **$**
              **20,699**
              
              
              $
              3,032Return
                  of equity investment in
                  investee
              
              **$**
              **78,200**
              
              
              $
              -Accrued
                  additions to property,
                  plant and equipment not reported above
              
              **$**
              **53,098**
              
              
              $
              39,976(1)Includes
                  conversion of preferred stock to common stock ($19,063/2007,
                  $1,640/2006)The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.
  14
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  PART
        I —
FINANCIAL INFORMATION
 
 **ITEM
        1.**CONDENSED FINANCIAL STATEMENTS
 **Cleco
          Power**
 These
        unaudited condensed financial statements should be read in conjunction with
        Cleco Power’s Financial Statements and Notes included in the Registrants’
Combined Annual Report on Form 10-K for the fiscal year ended December 31,
        2006.  For more information on the basis of presentation, see “Notes
        to the Unaudited Condensed Financial Statements — Note 1 — Summary of
        Significant Accounting Policies — Basis of Presentation.”
 
 15
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        POWER
 Condensed
                Statements of Income (Unaudited)FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006**Operating
                  revenue**Electric
                  operations
              
              **$**
              **251,909**
              
              
              $
              241,286Other
                  operations
              
              ****
              **7,922**
              
              
              
              7,883Affiliate
                  revenue
              
              ****
              **515**
              
              
              
              512Operating
                  revenue
              
              ****
              **260,346**
              
              
              
              249,681**Operating
                  expenses**Fuel
                  used for electric
                  generation
              
              ****
              **51,312**
              
              
              
              57,990Power
                  purchased for utility
                  customers
              
              ****
              **115,592**
              
              
              
              97,696Other
                  operations
              
              ****
              **22,965**
              
              
              
              24,432Maintenance
              
              ****
              **14,270**
              
              
              
              13,591Depreciation
              
              ****
              **19,622**
              
              
              
              15,301Taxes
                  other than income
                  taxes
              
              ****
              **9,584**
              
              
              
              9,887Total
                  operating
                  expenses
              
              ****
              **233,345**
              
              
              
              218,897**Operating
                  income**
              
              ****
              **27,001**
              
              
              
              30,784Interest
                  income
              
              ****
              **1,060**
              
              
              
              1,793Allowance
                  for other funds used during construction
              
              ****
              **7,032**
              
              
              
              1,372Other
                  income
              
              ****
              **190**
              
              
              
              124Other
                  expense
              
              ****
              **(454**
              **)**
              
              
              (300
              )**Interest
                  charges**Interest
                  charges, including
                  amortization of debt expenses, premium and discount
              
              ****
              **12,014**
              
              
              
              9,417Allowance
                  for borrowed funds
                  used during construction
              
              ****
              **(2,388**
              **)**
              
              
              (493
              )Total
                  interest
                  charges
              
              ****
              **9,626**
              
              
              
              8,924**Income
                  before income taxes**
              
              ****
              **25,203**
              
              
              
              24,849Federal
                  and state income taxes
              
              ****
              **6,531**
              
              
              
              7,802**Net
                  income**
              
              **$**
              **18,672**
              
              
              $
              17,047The
                  accompanying notes are an integral part of the condensed financial
                  statements.
 
 16
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        POWER
 Condensed
                Statements of Income (Unaudited)FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006**Operating
                  revenue**Electric
                  operations
              
              **$**
              **464,929**
              
              
              $
              452,275Other
                  operations
              
              ****
              **17,182**
              
              
              
              14,432Affiliate
                  revenue
              
              ****
              **1,028**
              
              
              
              1,024Gross
                  operating
                  revenue
              
              ****
              **483,139**
              
              
              
              467,731Electric
                  customer
                  credits
              
              ****
              **-**
              
              
              
              4,382Operating
                  revenue,
                  net
              
              ****
              **483,139**
              
              
              
              472,113**Operating
                  expenses**Fuel
                  used for electric
                  generation
              
              ****
              **106,808**
              
              
              
              106,353Power
                  purchased for utility
                  customers
              
              ****
              **199,739**
              
              
              
              197,527Other
                  operations
              
              ****
              **48,576**
              
              
              
              42,052Maintenance
              
              ****
              **23,997**
              
              
              
              18,938Depreciation
              
              ****
              **39,383**
              
              
              
              30,526Taxes
                  other than income
                  taxes
              
              ****
              **18,487**
              
              
              
              18,768Total
                  operating
                  expenses
              
              ****
              **436,990**
              
              
              
              414,164**Operating
                  income**
              
              ****
              **46,149**
              
              
              
              57,949Interest
                  income
              
              ****
              **2,466**
              
              
              
              4,129Allowance
                  for other funds used during construction
              
              ****
              **12,163**
              
              
              
              2,041Other
                  income
              
              ****
              **284**
              
              
              
              190Other
                  expense
              
              ****
              **(797**
              **)**
              
              
              (625
              )**Interest
                  charges**Interest
                  charges, including
                  amortization of debt expenses, premium and discount
              
              ****
              **23,729**
              
              
              
              18,623Allowance
                  for borrowed funds
                  used during construction
              
              ****
              **(4,059**
              **)**
              
              
              (719
              )Total
                  interest
                  charges
              
              ****
              **19,670**
              
              
              
              17,904**Income
                  before income taxes**
              
              ****
              **40,595**
              
              
              
              45,780Federal
                  and state income taxes
              
              ****
              **9,647**
              
              
              
              14,859**Net
                  income**
              
              **$**
              **30,948**
              
              
              $
              30,921The
                  accompanying notes are an integral part of the condensed financial
                  statements.
 
 17
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  CLECO
        POWER
 Condensed
                Balance Sheets (Unaudited)(THOUSANDS)
              
              **AT
                  JUNE 30, 2007**
              
              
              AT
                  DECEMBER 31, 2006**Assets**Utility
                  plant and
                  equipmentProperty,
                  plant and
                  equipment
              
              **$**
              **1,883,499**
              
              
              $
              1,877,850Accumulated
                  depreciation
              
              ****
              **(893,585**
              **)**
              
              
              (868,516
              )Net
                  property, plant and
                  equipment
              
              ****
              **989,914**
              
              
              
              1,009,334Construction
                  work in
                  progress
              
              ****
              **496,812**
              
              
              
              288,455Total
                  utility plant,
                  net
              
              ****
              **1,486,726**
              
              
              
              1,297,789Current
                  assetsCash
                  and cash
                  equivalents
              
              ****
              **12,680**
              
              
              
              101,878Restricted
                  cash
              
              ****
              **-**
              
              
              
              24,361Customer
                  accounts receivable
                  (less allowance for doubtful accounts of $702 in 2007 and $789
                  in
                  2006)
              
              ****
              **54,322**
              
              
              
              38,889Other
                  accounts
                  receivable
              
              ****
              **33,687**
              
              
              
              28,399Accounts
                  receivable –
                  affiliate
              
              ****
              **1,832**
              
              
              
              2,860Unbilled
                  revenue
              
              ****
              **22,184**
              
              
              
              18,382Fuel
                  inventory, at average
                  cost
              
              ****
              **43,062**
              
              
              
              43,236Material
                  and supplies
                  inventory, at average cost
              
              ****
              **40,059**
              
              
              
              34,755Margin
                  deposits
              
              ****
              **6,346**
              
              
              
              18,638Risk
                  management
                  assets
              
              ****
              **3,518**
              
              
              
              39Prepayments
              
              ****
              **2,874**
              
              
              
              3,713Regulatory
                  assets -
                  other
              
              ****
              **18,905**
              
              
              
              17,453Accumulated
                  deferred
                  fuel
              
              ****
              **52,988**
              
              
              
              77,435Cash
                  surrender value of life
                  insurance policies
              
              ****
              **5,117**
              
              
              
              5,265Other
                  current
                  assets
              
              ****
              **199**
              
              
              
              439Total
                  current
                  assets
              
              ****
              **297,773**
              
              
              
              415,742Prepayments
              
              ****
              **6,984**
              
              
              
              6,515Regulatory
                  assets and
                  liabilities – deferred taxes, net
              
              ****
              **107,274**
              
              
              
              94,653Regulatory
                  assets –
                  other
              
              ****
              **186,070**
              
              
              
              192,061Other
                  deferred
                  charges
              
              ****
              **23,525**
              
              
              
              17,092**Total
                  assets**
              
              **$**
              **2,108,352**
              
              
              $
              2,023,852**Liabilities
                  and member’s equity**Member’s
                  equity
              
              **$**
              **677,169**
              
              
              $
              646,404Long-term
                  debt,
                  net
              
              ****
              **644,257**
              
              
              
              519,341Total
                  capitalization
              
              ****
              **1,321,426**
              
              
              
              1,165,745Current
                  liabilitiesLong-term
                  debt due within one
                  year
              
              ****
              **25,000**
              
              
              
              50,000Accounts
                  payable
              
              ****
              **134,865**
              
              
              
              128,411Accounts
                  payable –
                  affiliate
              
              ****
              **10,016**
              
              
              
              35,469Retainage
              
              ****
              **1,419**
              
              
              
              12,409Customer
                  deposits
              
              ****
              **26,063**
              
              
              
              25,312Provision
                  for rate
                  refund
              
              ****
              **2**
              
              
              
              3,174Taxes
                  accrued
              
              ****
              **18,437**
              
              
              
              19,889Interest
                  accrued
              
              ****
              **21,368**
              
              
              
              7,707Accumulated
                  deferred taxes,
                  net
              
              ****
              **19,772**
              
              
              
              22,582Risk
                  management
                  liability
              
              ****
              **25,339**
              
              
              
              55,931Regulatory
                  liabilities -
                  other
              
              ****
              **574**
              
              
              
              636Other
                  current
                  liabilities
              
              ****
              **9,046**
              
              
              
              7,965Total
                  current
                  liabilities
              
              ****
              **291,901**
              
              
              
              369,485Deferred
                  creditsAccumulated
                  deferred federal and
                  state income taxes, net
              
              ****
              **321,014**
              
              
              
              388,570Accumulated
                  deferred investment
                  tax credits
              
              ****
              **13,383**
              
              
              
              14,100Regulatory
                  liabilities -
                  other
              
              ****
              **16,306**
              
              
              
              5,827Other
                  deferred
                  credits
              
              ****
              **144,322**
              
              
              
              80,125Total
                  deferred
                  credits
              
              ****
              **495,025**
              
              
              
              488,622**Total
                  liabilities and member’s equity**
              
              **$**
              **2,108,352**
              
              
              $
              2,023,852The
                  accompanying notes are an integral part of the condensed financial
                  statements.
  18
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  CLECO
        POWER
 Statements
                of Cash Flows (Unaudited)FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006**Operating
                  activities**Net
                  income
              
              **$**
              **30,948**
              
              
              $
              30,921Adjustments
                  to reconcile net
                  income to net cash used in operating activities:Depreciation
                  and
                  amortization
              
              ****
              **40,901**
              
              
              
              35,010Gain
                  on sale of property, plant
                  and equipment
              
              ****
              **-**
              
              
              
              (68
              )Provision
                  for doubtful
                  accounts
              
              ****
              **816**
              
              
              
              1,546Unearned/deferred
                  compensation
                  expense
              
              ****
              **2,412**
              
              
              
              978Allowance
                  for other funds used
                  during construction
              
              ****
              **(12,163**
              **)**
              
              
              (2,041
              )Amortization
                  of investment tax
                  credits
              
              ****
              **(717**
              **)**
              
              
              (766
              )Net
                  deferred income
                  taxes
              
              ****
              **(16,589**
              **)**
              
              
              (4,903
              )Deferred
                  fuel
                  costs
              
              ****
              **(16,111**
              **)**
              
              
              11,090(Gain)
                  loss on economic
                  hedges
              
              ****
              **(1,229**
              **)**
              
              
              2,390Cash
                  surrender value of
                  company-owned life insurance
              
              ****
              **(75**
              **)**
              
              
              (215
              )Changes
                  in assets and
                  liabilities:Accounts
                  receivable,
                  net
              
              ****
              **(27,016**
              **)**
              
              
              2,167Accounts
                  and notes receivable,
                  affiliate
              
              ****
              **1,105**
              
              
              
              (13,178
              )Unbilled
                  revenue
              
              ****
              **(3,802**
              **)**
              
              
              (5,089
              )Fuel,
                  materials and supplies
                  inventory
              
              ****
              **(3,999**
              **)**
              
              
              (29,347
              )Prepayments
              
              ****
              **840**
              
              
              
              (976
              )Accounts
                  payable
              
              ****
              **2,025**
              
              
              
              (38,798
              )Accounts
                  and notes payable,
                  affiliate
              
              ****
              **(25,934**
              **)**
              
              
              19,585Retainage
                  payable
              
              ****
              **(10,990**
              **)**
              
              
              2,257Customer
                  deposits
              
              ****
              **3,063**
              
              
              
              3,464Regulatory
                  assets and
                  liabilities, net
              
              ****
              **10,431**
              
              
              
              (46,083
              )Other
                  deferred
                  accounts
              
              ****
              **(7,688**
              **)**
              
              
              2,445Taxes
                  accrued
              
              ****
              **6,134**
              
              
              
              10,966Interest
                  accrued
              
              ****
              **4,189**
              
              
              
              413Margin
                  deposits
              
              ****
              **12,292**
              
              
              
              (20,510
              )Other,
                  net
              
              ****
              **1,376**
              
              
              
              2,392Net
                  cash used in operating
                  activities
              
              ****
              **(9,781**
              **)**
              
              
              (36,350
              )**Investing
                  activities**Additions
                  to property, plant and
                  equipment
              
              ****
              **(214,642**
              **)**
              
              
              (72,194
              )Allowance
                  for other funds used
                  during construction
              
              ****
              **12,163**
              
              
              
              2,041Proceeds
                  from sale of property,
                  plant and equipment
              
              ****
              **250**
              
              
              
              429Premiums
                  paid on company-owned
                  life insurance
              
              ****
              **(470**
              **)**
              
              
              (470
              )Transfer
                  of cash from restricted
                  accounts
              
              ****
              **24,361**
              
              
              
              -Net
                  cash used in investing
                  activities
              
              ****
              **(178,338**
              **)**
              
              
              (70,194
              )**Financing
                  activities**Retirement
                  of long-term
                  obligations
              
              ****
              **(25,163**
              **)**
              
              
              (10,162
              )Issuance
                  of long-term
                  debt
              
              ****
              **125,000**
              
              
              
              -Deferred
                  financing
                  costs
              
              ****
              **(916**
              **)**
              
              
              (595
              )Net
                  cash provided by (used in)
                  financing activities
              
              ****
              **98,921**
              
              
              
              (10,757
              )**Net
                  decrease in cash and cash equivalents**
              
              ****
              **(89,198**
              **)**
              
              
              (117,301
              )**Cash
                  and cash equivalents at beginning of period**
              
              ****
              **101,878**
              
              
              
              183,381**Cash
                  and cash equivalents at end of period**
              
              **$**
              **12,680**
              
              
              $
              66,080**Supplementary
                  cash flow information**Interest
                  paid
              
              **$**
              **19,300**
              
              
              $
              17,983Income
                  taxes
                  paid
              
              **$**
              **-**
              
              
              $
              189**Supplementary
                  non-cash investing and financing activities**Accrued
                  additions to property,
                  plant and equipment not reported above
              
              **$**
              **53,098**
              
              
              $
              39,976The
                  accompanying notes are an integral part of the condensed financial
                  statements.
 
 19
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Index
        to
        Applicable Notes to the Unaudited Condensed Financial Statements of Registrants
 
 Note
                  1
              Summary
                  of Significant Accounting Policies
              Cleco
                  Corporation and Cleco PowerNote
                  2
              Regulatory
                  Assets and Liabilities
              Cleco
                  Corporation and Cleco PowerNote
                  3
              Disclosures
                  about Segments
              Cleco
                  CorporationNote
                  4
              Equity
                  Investment in Investees
              Cleco
                  CorporationNote
                  5
              Recent
                  Accounting Standards
              Cleco
                  Corporation and Cleco PowerNote
                  6
              Restricted
                  Cash
              Cleco
                  Corporation and Cleco PowerNote
                  7
              Electric
                  Customer Credits
              Cleco
                  Corporation and Cleco PowerNote
                  8
              Litigation
                  and Other Commitments and Contingencies
              Cleco
                  Corporation and Cleco PowerNote
                  9
              Disclosures
                  about Guarantees
              Cleco
                  Corporation and Cleco PowerNote
                  10
              Preferred
                  Stock
              Cleco
                  CorporationNote
                  11
              Pension
                  Plan and Employee Benefits
              Cleco
                  Corporation and Cleco PowerNote
                  12
              Income
                  Taxes
              Cleco
                  Corporation and Cleco PowerNote
                  13
              Deferred
                  Fuel and Purchased Power Costs
              Cleco
                  Corporation and Cleco PowerNote
                  14
              Affiliate
                  Transactions
              Cleco
                  Corporation and Cleco PowerNote
                  15
              Debt
              Cleco
                  Corporation and Cleco PowerNote
                  16
              Calpine
                  Bankruptcy
              Cleco
                  CorporationNote
                  17
              Subsequent
                  Event
              Cleco
                  Corporation
  Notes
        to the Unaudited Condensed
        Financial Statements
 
  **Note
        1 — Summary of Significant Accounting Policies**
 ***Principles
          of Consolidation***
 The
        accompanying consolidated condensed financial statements of Cleco include
        the
        accounts of Cleco and its majority-owned subsidiaries after elimination of
        intercompany accounts and transactions.
 Cleco
        has
        adopted the provisions of FIN 46R on its scheduled effective
        dates.  Through a review of equity interests and other contractual
        relationships, Cleco has determined that it is not the primary beneficiary
        of
        one of its indirect, wholly owned subsidiaries and two of its wholly owned
        subsidiaries.  Evangeline, Perryville, and Attala are considered
        variable interest entities.  In accordance with FIN 46R, Cleco reports
        its investment in these entities on the equity method of
        accounting.  As a result, the assets and liabilities of these entities
        are represented by one line item corresponding to Cleco’s equity investment in
        these entities.  The pre-tax results of operations of these
        entities are reported as equity income from investees on Cleco Corporation’s
        Condensed Consolidated Statements of Income.  For additional
        information on the operations of these entities, see Note 4 — “Equity Investment
        in Investees.”
  ***Basis
        of Presentation***
 The
        condensed consolidated financial statements of Cleco Corporation and the
        condensed financial statements of Cleco Power have been prepared pursuant
        to the
        rules and regulations of the SEC.  Accordingly, certain information
        and note disclosures normally included in financial statements prepared in
        accordance with generally accepted accounting principles have been condensed
        or
        omitted, although Cleco believes that the disclosures are adequate to make
        the
        information presented not misleading.
 The
        year-end condensed consolidated balance sheet data was derived from audited
        financial statements but does not include all disclosures required by generally
        accepted accounting principles.  The unaudited financial information
        included in the condensed financial statements of Cleco Corporation and Cleco
        Power reflects all adjustments of a normal recurring nature which are, in
        the
        opinion of the management of Cleco Corporation and Cleco Power, necessary
        for a
        fair statement of the financial position and the results of operations for
        the
        interim periods. Information for interim periods is affected by seasonal
        variations in sales, rate changes, timing of fuel expense recovery and other
        factors and is not indicative necessarily of the results that may be expected
        for the full fiscal year.  For more information on recent accounting
        standards and their effect on financial results, see Note 5 — “Recent Accounting
        Standards.”
  ***Reclassifications***
 Certain
        reclassifications have been made to prior period financial
        statements to conform them to the presentation used in the current year’s
        financial statements. These reclassifications had no effect on Cleco
        Corporation’s net income applicable to common stock or total common
        shareholders’ equity or Cleco Power’s net income or total member’s
        equity.
  ***Risk
        Management***
 Market
        risk inherent in Cleco’s market risk-sensitive instruments and positions
        includes the potential change arising from changes in interest rates and
        the
        commodity market prices of power and natural gas on different energy
        exchanges. Cleco’s Risk Management Committee has the authority to approve
        the use of various derivative instruments, including futures and option
        contracts, forward purchase and sales contracts, and swap transactions to
        reduce
        exposure to fluctuations in the price of power and natural gas. Cleco
  20
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Power’s
        market risk-sensitive instruments and positions qualify for the normal-purchase,
        normal-sale exception to mark-to-market accounting of SFAS No. 133, as modified
        by SFAS No. 149, since Cleco Power generally takes physical delivery and
        the
        instruments and positions are used to satisfy customer
        requirements.
 Cleco
        Power has entered into certain financial transactions it considers economic
        hedges to mitigate the risk associated with the fixed-price power to be provided
        to a wholesale customer through December 2010.  The economic
        hedges cover approximately 97% of the estimated daily peak hour power sales
        to
        the wholesale customer.  These transactions are derivatives as defined
        by SFAS No. 133 but do not meet the accounting criteria to be considered
        hedges.  These transactions are marked-to-market with the resulting
        gain or loss recorded on the income statement as a component of operating
        revenue, net.  For the three and six months ended June 30, 2007, and
        June 30, 2006, the following gains and losses related to these economic hedge
        transactions were recorded in other operations revenue.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              
              FOR
                  THE SIX MONTHS ENDED JUNE
                  30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Realized
                  gain (loss)
              
              **$**
              **44**
              
              
              $
              (143
              )
              
              **$**
              **(17**
              **)**
              
              $
              (231
              )Mark-to-market(loss)
                  gain
              
              ****
              **(230**
              **)**
              
              
              (514
              )
              
              ****
              **1,229**
              
              
              
              (2,390
              )Total
                  (loss)
                  gain
              
              **$**
              **(186**
              **)**
              
              $
              (657
              )
              
              **$**
              **1,212**
              
              
              $
              (2,621
              )
  Cleco
        Power has entered into other positions to mitigate some of the volatility
        in
        fuel costs passed on to customers.  These positions are
        marked-to-market with the resulting gain or loss recorded on the balance
        sheet
        as a component of the accumulated deferred fuel asset or liability and a
        component of risk management assets or liabilities.  When these
        positions close, actual gains or losses will be included in the fuel adjustment
        clause and reflected on customers’ bills as a component of the fuel cost
        adjustment.  Based on market prices at June 30, 2007, and December 31,
        2006, the net mark-to-market impact relating to these positions were losses
        of
        $21.8 million and $60.3 million, respectively.  Deferred losses
        relating to closed natural gas positions at June 30, 2007, and December 31,
        2006, totaled $5.8 million and $8.0 million, respectively.
 Cleco
        Power maintains margin accounts with commodity brokers used to partially
        fund
        the acquisition of natural gas futures, options and swap
        contracts.  These contracts/positions are used to mitigate the risks
        associated with the fixed-price power sales and volatility in customer fuel
        costs noted above.  At June 30, 2007, and December 31, 2006, Cleco
        Power had deposited collateral of $6.3 million and $18.6 million, respectively,
        to cover margin requirements relating to open natural gas futures, options
        and
        swap positions.
 Cleco
        and
        Cleco Power maintain a master netting agreement policy and monitor credit
        risk
        exposure through review of counterparty credit quality, corporate-wide aggregate
        counterparty credit exposure and corporate-wide aggregate counterparty
        concentration levels.  Cleco actively manages these risks by
        establishing appropriate credit and concentration limits on transactions
        with
        counterparties and by requiring contractual guarantees, cash deposits or
        letters
        of credit from counterparties or their affiliates, as deemed
        necessary.  Cleco Power has agreements in place with various
        counterparties that authorize the netting of financial buys and sells and
        contract payments to mitigate credit risk for transactions entered into for
        risk
        management purposes.
  ***Earnings
        per Average Common Share***
 The
        following table shows the calculation of basic and diluted earnings per
        share.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,**2007**
              
              
              
              
              
              
              
              
              2006(THOUSANDS,
                  EXCEPT SHARES AND PER SHARE AMOUNTS)
              
              **INCOME**
              
              
              **SHARES**
              
              
              **PER
                  SHARE**
                **AMOUNT**
              
              
              INCOME
              
              
              SHARES
              
              
              PER
                  SHARE
                AMOUNTIncome
                  from continuing operations
              
              **$**
              **63,191**
              
              
              
              
              
              
              
              
              $
              23,329Deduct:  non-participating
                  stock dividends (4.5% preferred stock)
              
              ****
              **12**
              
              
              
              
              
              
              
              
              
              12Deduct:  participating
                  preferred stock dividends
              
              ****
              **-**
              
              
              
              
              
              
              
              
              
              413Deduct:  amount
                  allocated to participating preferred
              
              ****
              **-**
              
              
              
              
              
              
              
              
              
              421**Basic
                  earnings per share**Income
                  from continuing operations
              
              **$**
              **63,179**
              
              
              ****
              **59,490**
              
              
              **$**
              **1.06**
              
              
              $
              22,483
              
              
              
              50,054
              
              
              $
              0.45Loss
                  from discontinued operations
              
              ****
              **-**
              
              
              
              
              
              
              ****
              **-**
              
              
              
              (103
              )
              
              
              
              
              
              
              -Total
                  basic net income applicable to common stock
              
              **$**
              **63,179**
              
              
              ****
              **59,490**
              
              
              **$**
              **1.06**
              
              
              $
              22,380
              
              
              
              50,054
              
              
              $
              0.45**Effect
                  of Dilutive Securities**Add:  stock
                  option grants
              
              ****
              **-**
              
              
              ****
              **126**
              
              
              
              
              
              
              
              -
              
              
              
              107Add:  restricted
                  stock (LTICP)
              
              ****
              **9**
              
              
              ****
              **183**
              
              
              
              
              
              
              
              8
              
              
              
              258Add:  convertible
                  ESOP preferred stock
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              
              
              
              
              
              835
              
              
              
              1,879**Diluted
                  earnings per share**Income
                  from continuing operations plus assumed conversions
              
              **$**
              **63,188**
              
              
              ****
              **59,799**
              
              
              **$**
              **1.05**
              
              
              $
              23,326
              
              
              
              52,298
              
              
              $
              0.44Loss
                  from discontinued operations
              
              ****
              **-**
              
              
              
              
              
              
              
              
              
              
              
              (103
              )
              
              
              
              
              
              
              -Total
                  diluted net income applicable to common stock
              
              **$**
              **63,188**
              
              
              ****
              **59,799**
              
              
              **$**
              **1.05**
              
              
              $
              23,223
              
              
              
              52,298
              
              
              $
              0.44
 
 21
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  FOR
                  THE SIX MONTHS ENDED JUNE 30,**2007**
              
              
              
              
              
              
              
              
              2006(THOUSANDS,
                  EXCEPT SHARES AND PER SHARE AMOUNTS)
              
              **INCOME**
              
              
              **SHARES**
              
              
              **PER
                  SHARE**
                **AMOUNT**
              
              
              INCOME
              
              
              SHARES
              
              
              PER
                  SHARE
                AMOUNTIncome
                  from continuing operations
              
              **$**
              **71,837**
              
              
              
              
              
              
              
              
              $
              35,554Deduct:  non-participating
                  stock dividends (4.5% preferred stock)
              
              ****
              **23**
              
              
              
              
              
              
              
              
              
              23Deduct:  participating
                  preferred stock dividends
              
              ****
              **412**
              
              
              
              
              
              
              
              
              
              863Deduct:  amount
                  allocated to participating preferred
              
              ****
              **596**
              
              
              
              
              
              
              
              
              
              454**Basic
                  earnings per share**Income
                  from continuing operations
              
              **$**
              **70,806**
              
              
              ****
              **58,585**
              
              
              **$**
              **1.21**
              
              
              $
              34,214
              
              
              
              49,956
              
              
              $
              0.68Loss
                  from discontinued operations
              
              ****
              **-**
              
              
              
              
              
              
              ****
              **-**
              
              
              
              (190
              )
              
              
              
              
              
              
              -Total
                  basic net income applicable to common stock
              
              **$**
              **70,806**
              
              
              ****
              **58,585**
              
              
              **$**
              **1.21**
              
              
              $
              34,024
              
              
              
              49,956
              
              
              $
              0.68**Effect
                  of Dilutive Securities**Add:  stock
                  option grants
              
              ****
              **-**
              
              
              ****
              **128**
              
              
              
              
              
              
              
              -
              
              
              
              96Add:  restricted
                  stock (LTICP)
              
              ****
              **14**
              
              
              ****
              **89**
              
              
              
              
              
              
              
              17
              
              
              
              114Add:  convertible
                  ESOP preferred stock
              
              ****
              **1,008**
              
              
              ****
              **784**
              
              
              
              
              
              
              
              1,317
              
              
              
              1,929**Diluted
                  earnings per share**Income
                  from continuing operations plus assumed conversions
              
              **$**
              **71,828**
              
              
              ****
              **59,586**
              
              
              **$**
              **1.20**
              
              
              $
              35,548
              
              
              
              52,095
              
              
              $
              0.68Loss
                  from discontinued operations
              
              ****
              **-**
              
              
              
              
              
              
              ****
              **-**
              
              
              
              (190
              )
              
              
              
              
              
              
              -Total
                  diluted net income applicable to common stock
              
              **$**
              **71,828**
              
              
              ****
              **59,586**
              
              
              **$**
              **1.20**
              
              
              $
              35,358
              
              
              
              52,095
              
              
              $
              0.68
 
 There
        were no stock option grants excluded from diluted earnings per share in 2007,
        because the average market price was higher than the stock option grant exercise
        prices.
 Stock
        option grants excluded from the computation of diluted earnings per share
        for
        the three and six months ended June 30, 2006, presented in the table below,
        had
        exercise prices higher than the average market price.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              FOR
                  THE SIX MONTHS ENDED JUNE 30,2006
              
              
              
              2006STRIKE
                  PRICE
              AVERAGEMARKET
                  PRICE
              SHARES
              
              STRIKE
                  PRICE
              AVERAGE
                MARKET
                  PRICE
              SHARESStock
                  option grants excluded
              $
                  22.69 – $ 24.25
              $22.57
              136,934
              
              $
                  22.25 – $ 24.25
              $22.22
              290,036
 
 ***Stock-Based
        Compensation***
 At
        June
        30, 2007, Cleco had one share-based compensation plan, the
        LTICP.  Options or restricted shares of stock, known as non-vested
        stock as defined by SFAS No. 123(R), common stock equivalents, and stock
        appreciation rights may be granted to certain officers, key employees, or
        directors of Cleco Corporation and its subsidiaries pursuant to the
        LTICP.
 On
        January 26, 2007, Cleco granted 71,863 shares of non-vested stock and 55,249
        common stock equivalent units to certain officers, key employees and directors
        of Cleco Corporation and its subsidiaries pursuant to the
        LTICP.
 Cleco
        and
        Cleco Power reported pre-tax compensation expense for their share-based
        compensation plan as shown in the following table:
 CLECO
                  CORPORATION
              
              
              CLECO
                  POWER
              
              
              CLECO
                  CORPORATION
              
              
              CLECO
                  POWERFOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              
              
              
              
              FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006**Equity
                  classification**Non-vested
                  stock
              
              **$**
              **488**
              
              
              $
              669
              
              
              **$**
              **205**
              
              
              $
              299
              
              
              **$**
              **1,113**
              
              
              $
              969
              
              
              **$**
              **455**
              
              
              $
              489Stock
                  options
              
              ****
              **(14**
              **)**
              
              
              27
              
              
              ****
              **(9**
              **)**
              
              
              6
              
              
              ****
              **8**
              
              
              
              49
              
              
              ****
              **(5**
              **)**
              
              
              13Non-forfeitable
                  dividends
              
              ****
              **9**
              
              
              
              9
              
              
              ****
              **5**
              
              
              
              5
              
              
              ****
              **15**
              
              
              
              17
              
              
              ****
              **9**
              
              
              
              9**Total**
              
              **$**
              **483**
              
              
              $
              705
              
              
              **$**
              **201**
              
              
              $
              310
              
              
              **$**
              **1,136**
              
              
              $
              1,035
              
              
              **$**
              **459**
              
              
              $
              511**Liability
                  classification**Common
                  stock equivalent units
              
              **$**
              **184**
              
              
              $
              98
              
              
              **$**
              **73**
              
              
              $
              40
              
              
              **$**
              **392**
              
              
              $
              211
              
              
              **$**
              **154**
              
              
              $
              85Company
                  funded participants income tax obligations
              
              ****
              **1,269**
              
              
              
              291
              
              
              ****
              **757**
              
              
              
              155
              
              
              ****
              **3,355**
              
              
              
              622
              
              
              ****
              **1,799**
              
              
              
              382**Total**
              
              **$**
              **1,453**
              
              
              $
              389
              
              
              **$**
              **830**
              
              
              $
              195
              
              
              **$**
              **3,747**
              
              
              $
              833
              
              
              **$**
              **1,953**
              
              
              $
              467**Total
                  pre-tax compensation expense**
              
              **$**
              **1,936**
              
              
              $
              1,094
              
              
              **$**
              **1,031**
              
              
              $
              505
              
              
              **$**
              **4,883**
              
              
              $
              1,868
              
              
              **$**
              **2,412**
              
              
              $
              978**Tax
                  benefit (excluding income tax gross-up)**
              
              **$**
              **256**
              
              
              $
              309
              
              
              **$**
              **106**
              
              
              $
              135
              
              
              **$**
              **588**
              
              
              $
              480
              
              
              **$**
              **236**
              
              
              $
              229
 
 22
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  **Note
        2 — Regulatory Assets and Liabilities**
 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.
 The
        following chart summarizes Cleco Power’s regulatory assets and liabilities at
        June 30, 2007, and December 31, 2006:
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,(THOUSANDS)
              
              **2007**
              
              
              2006Regulatory
                  assets and liabilities – deferred taxes, net
              
              **$**
              **107,274**
              
              
              $
              94,653Deferred
                  mining costs
              
              **$**
              **22,007**
              
              
              $
              20,096Deferred
                  storm restoration costs – Lili/Isidore
              
              ****
              **2,079**
              
              
              
              2,772Deferred
                  storm restoration costs – Katrina/Rita
              
              ****
              **135,198**
              
              
              
              138,935Deferred
                  interest costs
              
              ****
              **7,747**
              
              
              
              8,430Deferred
                  asset removal costs
              
              ****
              **585**
              
              
              
              562Deferred
                  postretirement plan costs
              
              ****
              **37,359**
              
              
              
              38,719Regulatory
                  assets –
                  other
              
              **$**
              **204,975**
              
              
              $
              209,514Deferred
                  fuel transportation revenue
              
              **$**
              **(1,233**
              **)**
              
              $
              (1,566
              )Deferred
                  construction carrying costs
              
              ****
              **(15,647**
              **)**
              
              
              (4,897
              )Regulatory
                  liabilities -
                  other
              
              **$**
              **(16,880**
              **)**
              
              $
              (6,463
              )Deferred
                  fuel and purchased power
              
              ****
              **52,988**
              
              
              
              77,435Total
                  regulatory assets and
                  liabilities, net
              
              **$**
              **348,357**
              
              
              $
              375,139
  ***Deferred
        Fuel and Purchased Power Costs***
 The
        cost
        of fuel used for electric generation and the cost of power purchased for
        utility
        customers are recovered through the LPSC-established fuel adjustment clause,
        which enables Cleco Power to pass on to its customers substantially all such
        charges.  The regulatory asset represents costs to be collected from
        customers in future months.  The $24.4 million decrease in the
        regulatory asset for deferred fuel and purchased power costs is the result
        of a
        $38.4 million decrease in deferred losses associated with open natural gas
        hedge
        positions and $2.2 million of lower deferred losses on closed natural gas
        hedge positions, both due to increases in natural gas prices, partially offset
        by the deferral of $16.2 million in additional fuel and purchased power
        costs.  For additional information on deferred fuel and purchased
        power costs, see Note 13 — “Deferred Fuel and Purchased Power
        Costs.”  For additional information on natural gas hedges, see Note 1
— “Summary of Significant Accounting Policies — Risk Management.”
  ***Deferred
        Construction Carrying Costs***
 In
        February 2006, the LPSC approved Cleco Power’s plans to build Rodemacher Unit
        3.  Terms of the approval included acceptance of an LPSC Staff
        recommendation that Cleco Power collect from customers an amount equal to
        75% of
        the LPSC jurisdictional portion of the carrying costs of capital during the
        construction phase of the unit.  In any calendar year during the
        construction period, the amount collected from customers is not to exceed
        6.5%
        of Cleco Power’s projected retail revenues.  Cleco Power began
        collection of the carrying costs in May 2006.  For the three- and
        six-month periods ended June 30, 2007, Cleco Power has collected $6.2 million
        and $10.8 million, respectively.  A regulatory liability was
        established for the carrying costs due to the terms of the LPSC order which
        requires Cleco Power, as part of its next base rate application to recover
        Rodemacher Unit 3 ownership costs, to submit a plan to return to customers
        the
        carrying costs collected during the construction period.
  ***Deferred
        Taxes***
 Cleco
        Power has recorded SFAS No. 109 net regulatory assets related to probable
        future
        taxes payable that will be recovered from customers through future
        rates.  Amounts recorded as regulatory assets are partially offset by
        deferred tax liabilities resulting from the regulatory requirement to flow
        through the current tax benefits to customers of certain accelerated deductions
        that are recovered from customers as they are paid.  The recovery
        periods for regulatory assets and liabilities are based on assets’ lives, which
        are typically 30 years or greater.  The amounts deferred are
        attributable to differences between book and tax recovery periods. The
        increase in regulatory assets relating to deferred taxes is primarily the
        result
        of the collection and deferral of carrying costs for Cleco Power’s construction
        of Rodemacher Unit 3.
  ***Deferred
        Storm Restoration Costs***
 At
        June
        30, 2007, Cleco Power had approximately $2.1 million and $135.2 million of
        unamortized storm restoration costs relating to damage caused by Tropical
        Storm
        Isidore and Hurricane Lili and damage caused by Hurricanes Katrina and Rita,
        respectively.  According to an agreement with the LPSC, approximately
        $8.2 million of restoration costs related to Isidore and Lili were recorded
        as a
        regulatory asset ($7.0 million in 2002 and $1.2 million in 2003) and are
        being
        amortized to maintenance expense over the six-year period which began in
        January
        2003.  The restoration costs relating to Hurricanes Katrina and Rita were
        being amortized to depreciation expense based on the amounts collected monthly
        from customers through a surcharge, according to the terms of an interim
        rate
        increase approved by the LPSC.  The decrease of $4.4 million of
        deferred storm restoration costs is primarily the result of the amortization
        mentioned above.
 In
        March
        2007, after completing a review of Hurricanes Katrina and Rita restoration
        costs, Cleco Power and the LPSC Staff filed a settlement agreement allowing
        the
        recovery of essentially all of Cleco Power’s Hurricanes Katrina and Rita storm
        costs.  The agreement also allows Cleco Power to securitize the storm
        costs.  Through securitization, debt securities may be issued, the
        debt service of which will be paid from dedicated amounts collected from
        customers.  Management expects the securitization financing order to
        be approved by the LPSC in the third quarter of 2007.
  **Note
        3 — Disclosures about Segments**
 Cleco’s
          reportable segments are based on its method of internal reporting, which
          disaggregates business units by first-tier subsidiary. Reportable segments
          were determined by applying SFAS No. 131. Cleco’s reportable segments are
          Cleco Power and Midstream. The reconciling items in the following tables
          consist of the holding company, a shared services subsidiary, two transmission
          substations, and an investment
  23
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  subsidiary.  Effective
        February 1, 2007, the ownership interests of Midstream’s transmission
        interconnection facilities were transferred to Cleco Corporation.  In
        accordance with SFAS No. 131, the prior period has been adjusted to reflect
        this
        change in organizational structure.
 Each
        reportable segment engages in business activities from which it earns revenue
        and incurs expenses. Segment managers report periodically to Cleco’s Chief
        Executive Officer (the chief operating decision-maker) with discrete financial
        information and, at least quarterly, present discrete financial information
        to
        Cleco Corporation’s Board of Directors. Each reportable segment prepared
        budgets for 2007 that were presented to and approved by Cleco Corporation’s
        Board of Directors.
 The
        financial results of Cleco’s segments are presented on an accrual
        basis. Management evaluates the performance of its segments and allocates
        resources to them based on segment profit and the requirements to implement
        new
        strategic initiatives and projects to meet current business
        objectives.  Material intercompany transactions occur on a regular
        basis.  These intercompany transactions relate primarily to joint and
        common administrative support services provided by Support Group.
 
 24
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 
 **SEGMENT
        INFORMATION FOR THE THREE MONTHS ENDED JUNE 30,**
 **CLECO**
              
              
              
              
              
              **RECONCILING**2007 (THOUSANDS)
              
              **POWER**
              
              
              **MIDSTREAM**
              
              
              **ITEMS**
              
              
              **ELIMINATIONS**
              
              
              **CONSOLIDATED**RevenueElectric
                  operations
              
              **$**
              **251,909**
              
              
              **$**
              **-**
              
              
              **$**
              **-**
              
              
              **$**
              **-**
              
              
              **$**
              **251,909**Other
                  operations
              
              ****
              **7,922**
              
              
              ****
              **4**
              
              
              ****
              **53**
              
              
              ****
              **(8**
              **)**
              
              ****
              **7,971**Affiliate
                  revenue
              
              ****
              **13**
              
              
              ****
              **1,160**
              
              
              ****
              **448**
              
              
              ****
              **-**
              
              
              ****
              **1,621**Intercompany
                  revenue
              
              ****
              **502**
              
              
              ****
              **-**
              
              
              ****
              **11,416**
              
              
              ****
              **(11,918**
              **)**
              
              ****
              **-**Operating
                  revenue
              
              **$**
              **260,346**
              
              
              **$**
              **1,164**
              
              
              **$**
              **11,917**
              
              
              **$**
              **(11,926**
              **)**
              
              **$**
              **261,501**Depreciation
                  expense
              
              **$**
              **19,622**
              
              
              **$**
              **79**
              
              
              **$**
              **289**
              
              
              **$**
              **-**
              
              
              **$**
              **19,990**Interest
                  charges
              
              **$**
              **9,626**
              
              
              **$**
              **5,521**
              
              
              **$**
              **2,336**
              
              
              **$**
              **(5,494**
              **)**
              
              **$**
              **11,989**Interest
                  income
              
              **$**
              **1,060**
              
              
              **$**
              **423**
              
              
              **$**
              **6,600**
              
              
              **$**
              **(5,494**
              **)**
              
              **$**
              **2,589**Equity
                  income from investees
              
              **$**
              **-**
              
              
              **$**
              **70,755**
              
              
              **$**
              **527**
              
              
              **$**
              **-**
              
              
              **$**
              **71,282**Federal
                  and state income tax expense (benefit)
              
              **$**
              **6,531**
              
              
              **$**
              **25,015**
              
              
              **$**
              **(578**
              **)**
              
              **$**
              **-**
              
              
              **$**
              **30,968**Segment
                  profit (1)
              
              **$**
              **18,672**
              
              
              **$**
              **39,042**
              
              
              **$**
              **5,477**
              
              
              **$**
              **-**
              
              
              **$**
              **63,191**Additions
                  to long-lived assets
              
              **$**
              **121,070**
              
              
              **$**
              **5,000**
              
              
              **$**
              **286**
              
              
              **$**
              **-**
              
              
              **$**
              **126,356**Equity
                  investment in investees
              
              **$**
              **-**
              
              
              **$**
              **292,850**
              
              
              **$**
              **92,171**
              
              
              **$**
              **(73,894**
              **)**
              
              **$**
              **311,127**Total
                  segment assets
              
              **$**
              **2,108,352**
              
              
              **$**
              **398,212**
              
              
              **$**
              **508,172**
              
              
              **$**
              **(377,249**
              **)**
              
              **$**
              **2,637,487****(1)Reconciliation
                  of segment profit to consolidated profit:**
              
              **Segment
                  profit**
              
              
              
              
              
              
              
              
              
              
              **$**
              **63,191****Unallocated
                  items:****Preferred
                  dividends
                  requirements**
              
              
              
              
              
              
              ****
              **12****Net
                  income applicable to common stock**
              
              
              **$**
              **63,179**
  CLECO
                
                
                
                
                
                RECONCILING2006 (THOUSANDS)
                
                POWER
                
                
                MIDSTREAM
                
                
                ITEMS
                
                
                ELIMINATIONS
                
                
                CONSOLIDATEDRevenueElectric
                    operations
                
                $
                241,286
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                241,286Other
                    operations
                
                
                7,883
                
                
                
                1
                
                
                
                59
                
                
                
                (14
                )
                
                
                7,929Affiliate
                    revenue
                
                
                12
                
                
                
                1,138
                
                
                
                587
                
                
                
                -
                
                
                
                1,737Intercompany
                    revenue
                
                
                500
                
                
                
                -
                
                
                
                10,523
                
                
                
                (11,023
                )
                
                
                -Operating
                    revenue, net
                
                $
                249,681
                
                
                $
                1,139
                
                
                $
                11,169
                
                
                $
                (11,037
                )
                
                $
                250,952Depreciation
                    expense
                
                $
                15,301
                
                
                $
                78
                
                
                $
                335
                
                
                $
                -
                
                
                $
                15,714Interest
                    charges
                
                $
                8,924
                
                
                $
                4,645
                
                
                $
                1,968
                
                
                $
                (4,627
                )
                
                $
                10,910Interest
                    income
                
                $
                1,793
                
                
                $
                -
                
                
                $
                4,777
                
                
                $
                (4,627
                )
                
                $
                1,943Equity
                    income from investees
                
                $
                -
                
                
                $
                13,476
                
                
                $
                1,757
                
                
                $
                -
                
                
                $
                15,233Federal
                    and state income tax expense
                
                $
                7,802
                
                
                $
                4,018
                
                
                $
                1,708
                
                
                $
                (69
                )
                
                $
                13,459Segment
                    profit from continuing operations, net
                
                $
                17,047
                
                
                $
                3,870
                
                
                $
                2,412
                
                
                $
                -
                
                
                $
                23,329Loss
                    from discontinued operations, net of tax
                
                
                
                
                
                
                (103
                )
                
                
                -
                
                
                
                -
                
                
                
                (103
                )Segment
                    profit (1)
                
                $
                17,047
                
                
                $
                3,767
                
                
                $
                2,412
                
                
                $
                -
                
                
                $
                23,226Additions
                    to long-lived assets
                
                $
                71,627
                
                
                $
                5
                
                
                $
                40
                
                
                $
                -
                
                
                $
                71,672Equity
                    investment in investees (2)
                
                $
                -
                
                
                $
                302,167
                
                
                $
                4,969
                
                
                $
                -
                
                
                $
                307,136Total
                    segment assets (2)
                
                $
                2,023,852
                
                
                $
                325,157
                
                
                $
                751,376
                
                
                $
                (639,281
                )
                
                $
                2,461,104(1)Reconciliation
                    of segment profit to consolidated profit:
                
                Segment
                    profit
                
                
                
                
                
                
                
                
                
                
                $
                23,226(2)Balances
                    as of
                    December 31, 2006
                
                Unallocated
                    items:Preferred
                    dividends
                    requirements
                
                
                
                
                
                
                
                427Net
                    income applicable to common stock
                
                
                $
                22,799
 25
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 
 **SEGMENT
        INFORMATION FOR THE SIX MONTHS ENDED JUNE 30,**
 **CLECO**
              
              
              
              
              
              **RECONCILING**2007 (THOUSANDS)
              
              **POWER**
              
              
              **MIDSTREAM**
              
              
              **ITEMS**
              
              
              **ELIMINATIONS**
              
              
              **CONSOLIDATED**RevenueElectric
                  operations
              
              **$**
              **464,929**
              
              
              **$**
              **-**
              
              
              **$**
              **-**
              
              
              **$**
              **-**
              
              
              **$**
              **464,929**Other
                  operations
              
              ****
              **17,182**
              
              
              ****
              **11**
              
              
              ****
              **60**
              
              
              ****
              **(13**
              **)**
              
              ****
              **17,240**Affiliate
                  revenue
              
              ****
              **25**
              
              
              ****
              **2,146**
              
              
              ****
              **911**
              
              
              ****
              **-**
              
              
              ****
              **3,082**Intercompany
                  revenue
              
              ****
              **1,003**
              
              
              ****
              **-**
              
              
              ****
              **23,812**
              
              
              ****
              **(24,815**
              **)**
              
              ****
              **-**Operating
                  revenue
              
              **$**
              **483,139**
              
              
              **$**
              **2,157**
              
              
              **$**
              **24,783**
              
              
              **$**
              **(24,828**
              **)**
              
              **$**
              **485,251**Depreciation
                  expense
              
              **$**
              **39,383**
              
              
              **$**
              **154**
              
              
              **$**
              **551**
              
              
              **$**
              **-**
              
              
              **$**
              **40,088**Interest
                  charges
              
              **$**
              **19,670**
              
              
              **$**
              **10,563**
              
              
              **$**
              **4,248**
              
              
              **$**
              **(10,506**
              **)**
              
              **$**
              **23,975**Interest
                  income
              
              **$**
              **2,466**
              
              
              **$**
              **423**
              
              
              **$**
              **12,774**
              
              
              **$**
              **(10,506**
              **)**
              
              **$**
              **5,157**Equity
                  income from investees
              
              **$**
              **-**
              
              
              **$**
              **68,928**
              
              
              **$**
              **955**
              
              
              **$**
              **-**
              
              
              **$**
              **69,883**Federal
                  and state income tax expense
              
              **$**
              **9,647**
              
              
              **$**
              **22,062**
              
              
              **$**
              **1,402**
              
              
              **$**
              **-**
              
              
              **$**
              **33,111**Segment
                  profit (1)
              
              **$**
              **30,948**
              
              
              **$**
              **34,328**
              
              
              **$**
              **6,561**
              
              
              **$**
              **-**
              
              
              **$**
              **71,837**Additions
                  to long-lived assets
              
              **$**
              **220,807**
              
              
              **$**
              **5,000**
              
              
              **$**
              **420**
              
              
              **$**
              **-**
              
              
              **$**
              **226,227**Equity
                  investment in investees
              
              **$**
              **-**
              
              
              **$**
              **292,850**
              
              
              **$**
              **92,171**
              
              
              **$**
              **(73,894**
              **)**
              
              **$**
              **311,127**Total
                  segment assets
              
              **$**
              **2,108,352**
              
              
              **$**
              **398,212**
              
              
              **$**
              **508,172**
              
              
              **$**
              **(377,249**
              **)**
              
              **$**
              **2,637,487****(1)Reconciliation
                  of segment profit to consolidated profit:**
              
              **Segment
                  profit**
              
              
              
              
              
              
              
              
              
              
              **$**
              **71,837****Unallocated
                  items:****Preferred
                  dividends
                  requirements**
              
              
              
              
              
              
              ****
              **435****Net
                  income applicable to common stock**
              
              
              **$**
              **71,402**
  
 CLECO
              
              
              
              
              
              RECONCILING2006 (THOUSANDS)
              
              POWER
              
              
              MIDSTREAM
              
              
              ITEMS
              
              
              ELIMINATIONS
              
              
              CONSOLIDATEDRevenueElectric
                  operations
              
              $
              452,275
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              452,275Other
                  operations
              
              
              14,432
              
              
              
              5
              
              
              
              104
              
              
              
              (16
              )
              
              
              14,525Electric
                  customer
                  credits
              
              
              4,382
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,382Affiliate
                  revenue
              
              
              24
              
              
              
              2,188
              
              
              
              976
              
              
              
              -
              
              
              
              3,188Intercompany
                  revenue
              
              
              1,000
              
              
              
              -
              
              
              
              19,658
              
              
              
              (20,658
              )
              
              
              -Operating
                  revenue, net
              
              $
              472,113
              
              
              $
              2,193
              
              
              $
              20,738
              
              
              $
              (20,674
              )
              
              $
              474,370Depreciation
                  expense
              
              $
              30,526
              
              
              $
              156
              
              
              $
              676
              
              
              $
              -
              
              
              $
              31,358Interest
                  charges
              
              $
              17,904
              
              
              $
              8,876
              
              
              $
              3,916
              
              
              $
              (8,836
              )
              
              $
              21,860Interest
                  income
              
              $
              4,129
              
              
              $
              -
              
              
              $
              9,142
              
              
              $
              (8,836
              )
              
              $
              4,435Equity
                  income from investees
              
              $
              -
              
              
              $
              13,448
              
              
              $
              2,158
              
              
              $
              -
              
              
              $
              15,606Federal
                  and state income tax expense
              
              $
              14,859
              
              
              $
              2,322
              
              
              $
              2,516
              
              
              $
              (124
              )
              
              $
              19,573Segment
                  profit from continuing operations, net
              
              $
              30,921
              
              
              $
              599
              
              
              $
              4,034
              
              
              $
              -
              
              
              $
              35,554Loss
                  from discontinued operations, net of tax
              
              
              -
              
              
              
              (190
              )
              
              
              -
              
              
              
              -
              
              
              
              (190
              )Segment
                  profit (1)
              
              $
              30,921
              
              
              $
              409
              
              
              $
              4,034
              
              
              $
              -
              
              
              $
              35,364Additions
                  to long-lived assets
              
              $
              122,318
              
              
              $
              13
              
              
              $
              155
              
              
              $
              -
              
              
              $
              122,486Equity
                  investment in investees (2)
              
              $
              -
              
              
              $
              302,167
              
              
              $
              4,969
              
              
              $
              -
              
              
              $
              307,136Total
                  segment assets (2)
              
              $
              2,023,852
              
              
              $
              325,157
              
              
              $
              751,376
              
              
              $
              (639,281
              )
              
              $
              2,461,104(1)Reconciliation
                  of segment profit to consolidated profit:
              
              Segment
                  profit
              
              
              
              
              
              
              
              
              
              
              $
              35,364(2)Balances
                  as of
                  December 31, 2006
              
              Unallocated
                  items:Preferred
                  dividends
                  requirements
              
              
              
              
              
              
              
              886Net
                  income applicable to common stock
              
              
              $
              34,478
 
 **Note
        4 — Equity Investment in Investees**
 Equity
          investment in investees represents primarily Midstream’s $234.6 million
          investment in Acadia, owned 50% by APH and 50% by Calpine.  Equity
          investment in investees also represents a $76.4 million investment in other
          subsidiaries owned 100% by Cleco Corporation.  The remaining $0.1
          million relates to equity investments which are less than 100% owned by
          Cleco
          Innovations LLC.
 Cleco
        reports on the equity method of accounting its investment in Acadia,
        subsidiaries owned 100% by Cleco Corporation, and other investments held
        by
        Cleco Innovations LLC, in accordance with FIN 46R.  Under the equity
        method, the assets and liabilities of these entities are reported as equity
        investment in investees on Cleco Corporation’s Condensed Consolidated Balance
        Sheets.  The revenue and expenses (excluding income taxes) of these
        entities are netted and reported as equity income from investees on Cleco
        Corporation’s Condensed Consolidated Statements of Income.
 
 26
 
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  The
        table
        below presents the equity income (loss) from each investment accounted for
        using the equity method.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006APH
              
              **$**
              **73,749**
              
              
              $
              11,903Subsidiaries
                  100% owned by Cleco Corporation
              
              ****
              **(2,468**
              **)**
              
              
              3,380Other
              
              ****
              **1**
              
              
              
              (50
              )Total
                  equity
                  income
              
              **$**
              **71,282**
              
              
              $
              15,233
 
 FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006APH
              
              **$**
              **71,354**
              
              
              $
              11,837Subsidiaries
                  100% owned by Cleco Corporation
              
              ****
              **(1,462**
              **)**
              
              
              3,844Other
              
              ****
              **(9**
              **)**
              
              
              (75
              )Total
                  equity
                  income
              
              **$**
              **69,883**
              
              
              $
              15,606
  For
        the
        three and six months ended June 30, 2006, APH’s equity income includes $12.2
        million and $15.0 million, respectively, of draws against the $15.0 million
        letter of credit.  The letter of credit, of which APH was the
        beneficiary, was posted by Calpine to support its obligations under the Calpine
        Tolling Agreements.
 For
        the
        three and six months ended June 30, 2007, APH’s equity income includes net
        proceeds of $78.2 million from the settlement of the Calpine bankruptcy
        claims.  For more information on these claims, see Note 16 — “Calpine
        Bankruptcy.”
  ***Acadia***
 Cleco’s
        current assessment of its maximum exposure to loss at June 30, 2007, consists
        of
        its equity investment of $234.6 million.
 The
        table
        below presents the components of Midstream's equity investment in
        Acadia.
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,INCEPTION
                  TO DATE (THOUSANDS)
              
              **2007**
              
              
              2006Contributed
                  assets (cash and land)
              
              **$**
              **250,612**
              
              
              $
              250,612Income
                  before taxes
              
              ****
              **98,852**
              
              
              
              105,698Capitalized
                  interest and other
              
              ****
              **19,469**
              
              
              
              19,469Less:
                  Cash
                  distributions
              
              ****
              **134,264**
              
              
              
              136,464Total
                  equity investment in
                  investee
              
              **$**
              **234,669**
              
              
              $
              239,315
  Midstream’s
        equity, as reported on the balance sheet of Acadia at June 30, 2007, was
        $266.5
        million.  The difference of $31.9 million between the equity investment in
        investee of $234.6 million as shown in the table above and Midstream’s equity
        includes $19.5 million of interest capitalized on funds contributed to Acadia.
         It also includes other miscellaneous charges related to the construction
        of the Acadia facility offset by $58.9 million which represents the difference
        between the accounting treatments used by the partnership entities to record
        the
        allocation of termination agreement income.  The remaining $7.5 million is
        due to the difference in accounting treatment of the letter of credit draws
        between Acadia and APH.  The cash distributions of $134.3 million were
        used to pay interest and repay principal on debt at Cleco Corporation relating
        to this investment.
 In
        December 2005, the Calpine Debtors, including CES and the subsidiary which
        owns
        the other 50% of Acadia, filed voluntary petitions in the Calpine Debtors
        Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy
        Code.  In February 2006, APH drew $2.8 million against the $15.0
        million Calpine letter of credit due to the default of CES under the tolling
        agreements.  In August 2006, APH drew the remaining $12.2 million
        available under Calpine’s $15.0 million letter of credit.  These
        amounts were reported as equity income from investees on Cleco Corporation’s
        Condensed Consolidated Statements of Income in the respective
        periods.
 On
        April
        23, 2007, Cleco announced that a settlement had been reached with Calpine
        that
        resolves issues surrounding the Calpine bankruptcy filing and its effect
        on the
        Acadia facility.  On May 9, 2007, the Calpine Debtors Bankruptcy Court
        approved the terms of the April 23, 2007, settlement agreement.  For
        additional information, see Note 16 — “Calpine Bankruptcy” and Note 17 —
“Subsequent Event.”
 The
        table
        below contains summarized financial information for Acadia.
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,(THOUSANDS)
              
              **2007**
              
              
              2006Current
                  assets
              
              **$**
              **6,669**
              
              
              $
              5,233Property,
                  plant and equipment, net
              
              ****
              **433,815**
              
              
              
              437,281Total
                  assets
              
              **$**
              **440,484**
              
              
              $
              442,514Current
                  liabilities
              
              **$**
              **9,746**
              
              
              $
              3,327Partners’
                  capital
              
              ****
              **430,738**
              
              
              
              439,187Total
                  liabilities and partners’
                  capital
              
              **$**
              **440,484**
              
              
              $
              442,514
 
 FOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              
              FOR
                  THE SIX MONTHS ENDED JUNE
                  30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Total
                  revenue
              
              **$**
              **2,248**
              
              
              $
              42,204
              
              
              **$**
              **25,490**
              
              
              $
              59,496Total
                  operating expenses
              
              ****
              **11,614**
              
              
              
              41,751
              
              
              ****
              **39,652**
              
              
              
              64,772Other
                  income
              
              ****
              **464**
              
              
              
              1,737
              
              
              ****
              **470**
              
              
              
              1,741(Loss)
                  income before
                  taxes
              
              **$**
              **(8,902**
              **)**
              
              $
              2,190
              
              
              **$**
              **(13,692**
              **)**
              
              $
              (3,535
              )
  Income
        tax expense recorded on APH’s financial statements for the three and six months
        ended June 30, 2007, was $26.5 million and $23.6 million, respectively,
        compared to $2.7 million and $1.0 million for the three and six months ended
        June 30, 2006, respectively.  The increase in income tax expense at
        APH is primarily due to the settlement of the Calpine bankruptcy claims included
        in income for the three and six months ended June 30, 2007.
  ***Subsidiaries
        100% owned by Cleco Corporation***
 Cleco’s
        current assessment of its maximum exposure to loss at June 30, 2007, related
        to
        its 100% investment in Evangeline, Attala, and Perryville consists of its
        equity
        investment of $76.4 million.
 The
        table
        below presents the components of Cleco Corporation’s equity investment in such
        entities.
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,INCEPTION
                  TO DATE (THOUSANDS)
              
              **2007**
              
              
              2006Contributed
                  assets (cash)
              
              **$**
              **152,760**
              
              
              $
              152,760Income
                  before taxes
              
              ****
              **185,907**
              
              
              
              187,369Less:  distributions
              
              ****
              **262,229**
              
              
              
              272,414Total
                  equity investment in
                  investee
              
              **$**
              **76,438**
              
              
              $
              67,715
 
 27
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  The
        table
        below contains summarized financial information for Evangeline, Attala and
        Perryville.
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,(THOUSANDS)
              
              **2007**
              
              
              2006Current
                  assets
              
              **$**
              **22,308**
              
              
              $
              17,453Accounts
                  receivable - affiliate
              
              ****
              **17,254**
              
              
              
              5,159Property,
                  plant and equipment, net
              
              ****
              **183,304**
              
              
              
              185,958Other
                  assets
              
              ****
              **63,839**
              
              
              
              64,744Total
                  assets
              
              **$**
              **286,705**
              
              
              $
              273,314Current
                  liabilities
              
              **$**
              **26,302**
              
              
              $
              17,532Accounts
                  payable - affiliate
              
              ****
              **11,328**
              
              
              
              4,802Long-term
                  debt
              
              ****
              **172,965**
              
              
              
              177,064Other
                  liabilities
              
              ****
              **66,259**
              
              
              
              61,562Member’s
                  equity
              
              ****
              **9,851**
              
              
              
              12,354Total
                  liabilities and member’s
                  equity
              
              **$**
              **286,705**
              
              
              $
              273,314
 
 FOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              
              FOR
                  THE SIX MONTHS ENDED JUNE
                  30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Operating
                  revenue
              
              **$**
              **14,296**
              
              
              $
              13,202
              
              
              **$**
              **25,365**
              
              
              $
              24,017Operating
                  expenses
              
              ****
              **8,433**
              
              
              
              4,654
              
              
              ****
              **13,043**
              
              
              
              9,733Depreciation
              
              ****
              **1,299**
              
              
              
              1,299
              
              
              ****
              **2,585**
              
              
              
              2,607Interest
                  charges
              
              ****
              **6,255**
              
              
              
              4,204
              
              
              ****
              **10,777**
              
              
              
              8,361Interest
                  income
              
              ****
              **318**
              
              
              
              344
              
              
              ****
              **676**
              
              
              
              669Other
                  expense
              
              ****
              **1,095**
              
              
              
              9
              
              
              ****
              **1,098**
              
              
              
              141(Loss)
                  income before taxes
              
              **$**
              **(2,468**
              **)**
              
              $
              3,380
              
              
              **$**
              **(1,462**
              **)**
              
              $
              3,844
  Since
        its
        inception, Cleco has had 100% ownership and voting interest of
        Evangeline.  All of the capacity and output of the power plant has
        been tolled to Williams, which pays Evangeline certain fixed and variable
        amounts.  In May 2007, The Williams Companies, Inc. agreed to sell
        substantially all of its power assets, including its tolling agreement with
        Evangeline, to Bear Energy LP.  The sale, which is subject to
        regulatory and other approvals, is expected to close no later than the fourth
        quarter of 2007, and is not expected to have an impact on
        operations.
  **Note
        5 — Recent Accounting Standards**
 The
          Registrants adopted, or will adopt, the recent accounting standards listed
          below
          on their respective effective dates.
 In
        February 2006, the FASB issued SFAS No. 155 which amends SFAS No. 133 and
        SFAS
        No. 140.  The provisions of this statement:
  §
              permit
                  fair value accounting for hybrid financial instruments that contain
                  an
                  embedded derivative that otherwise would require
                  bifurcation;
 §
              clarify
                  the exemption from SFAS No. 133 for certain interest-only and
                  principal-only strips;
 §
              establish
                  a requirement to evaluate interests in securitized financial assets
                  that
                  contain an embedded derivative requiring
                  bifurcation;
 §
              clarify
                  that concentrations of credit risk in the form of subordination
                  are not
                  embedded derivatives; and
 §
              amend
                  SFAS No. 140 as it relates to qualifying special-purpose entities
                  and
                  derivative financial instruments.
  This
        statement is effective for all financial instruments acquired, issued or
        subject
        to a remeasurement event occurring after the beginning of an entity’s first
        fiscal year that begins after September 15, 2006.  The adoption of
        SFAS No. 155 did not have an impact on the financial condition or results
        of
        operations of the Registrants.
 In
        March
        2006, the FASB issued SFAS No. 156 which amends SFAS No. 140 with respect
        to the
        accounting for separately recognized servicing assets and
        liabilities.  This statement requires all separately recognized
        servicing assets and liabilities to be initially measured at fair value,
        requires fair value accounting for derivative instruments used to mitigate
        risks
        of the servicing assets and liabilities, and allows for the election to use
        fair
        value accounting for the servicing assets and liabilities in subsequent
        periods.  SFAS No. 156 is effective for the first fiscal year
        beginning after September 15, 2006.  The adoption of SFAS No. 156 did
        not have an impact on the financial condition or results of operations of
        the
        Registrants.
 In
        July
        2006, the FASB issued FIN 48, which provides guidance on accounting for
        uncertain tax positions.  FIN 48 allows recognition of those tax
        benefits that satisfy a greater than 50% probability threshold.  This
        interpretation requires each tax position to be evaluated using a two-step
        process.  The first step is a determination of the likelihood the
        position will be sustained upon examination based upon the technical merits
        of
        the position.  For tax positions that result from permanent
        differences between book and tax income, the company must evaluate the
        likelihood that the position will be sustained to determine whether a tax
        benefit can be recognized.  Once it is determined that a tax benefit
        can be recognized, the second step is to measure and record the tax benefit
        to
        be realized.  For tax positions that do not meet the requirements of
        the first step, no tax benefit should be recognized.  This
        interpretation also provides for the recognition and measurement of expected
        penalties and interest, as well as disclosure requirements about tax
        positions.  This interpretation is effective for fiscal years
        beginning after December 15, 2006.  For additional information
        regarding the impact the adoption of FIN 48 had on the financial condition
        and
        results of operations of the Registrants, see Note 12 — “Income
        Taxes.”
 In
        September 2006, the FASB issued SFAS No. 157, which provides guidance on
        how
        companies should measure fair value when required for recognition or disclosure
        purposes under generally accepted accounting
        principles.  Specifically, SFAS No. 157 creates a common definition of
        fair value throughout generally accepted accounting principles, establishes
        a
        fair value hierarchy, and requires companies to make expanded disclosures
        about
        fair value measurements.  This statement is effective for fiscal years
        beginning after November 15, 2007.  Management is currently evaluating
        the impact this statement will have on the financial condition and results
        of
        operations of the Registrants.
 In
        February 2007, the FASB issued SFAS No. 159, which allows entities to choose,
        at
        specified election dates, to measure eligible financial assets and liabilities
        at fair value that are
  28
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  not
        otherwise required to be measured at fair value.  SFAS No. 159 is
        effective for fiscal years beginning after November 15,
        2007.  Management is currently evaluating the impact this statement
        will have on the financial condition and results of operations of the
        Registrants.
 In
        April
        2007, the FASB issued FSP No. FIN 39-1, which amends FIN 39.  The new
        guidance permits companies to offset fair value amounts recognized for
        derivative instruments executed with the same counterparty under a master
        netting arrangement and fair value amounts recognized for the right to reclaim
        cash collateral (a receivable) or the obligation to return cash collateral
        (a
        payable) arising from the same master netting arrangement as the derivative
        instruments.  FSP No. FIN 39-1 is effective for fiscal years beginning
        after November 15, 2007.  Management is currently evaluating the
        impact this statement will have on the financial condition and results of
        operations of the Registrants.
 In
        May
        2007, the FASB issued FSP FIN 48-1, which provides three conditions that
        should
        be met for a tax position to be considered effectively settled with the
        applicable taxing authority.  The guidance in this FSP is effective
        upon the initial adoption of FIN 48.  Companies that have already
        adopted FIN 48, but have not yet applied FIN 48 in a manner that is consistent
        with this FSP, will be required to retrospectively apply the provisions of
        the
        FSP to the date of their initial adoption of FIN 48.  The adoption of
        this statement had no effect on the financial condition and results of
        operations of the Registrants.
 In
        June
        2007, the FASB ratified EITF No. 06-11.  This consensus requires
        companies to record the realized income tax benefits from dividends or dividend
        equivalents that are charged to retained earnings and are paid to employees
        to
        the additional paid-in capital pool.  This consensus is effective
        prospectively for dividends declared in fiscal years beginning after September
        15, 2007.  This consensus may be adopted early in financial periods
        for which financial statements have not been issued.  Entities shall
        disclose the nature of any change in their accounting policy for income tax
        benefits of dividends on share-based payment awards resulting from the adoption
        of this guidance.  Management is currently evaluating the impact this
        consensus will have on the financial condition and results of operations
        of the
        Registrants.
 In
        June
        2007, the FASB ratified EITF No. 07-3.  This consensus requires
        companies that make non-refundable advance payments for future research and
        development activities to capitalize the payments until the goods have been
        delivered or the related services performed.  This consensus is
        effective for financial statements issued for fiscal years beginning after
        December 15, 2007.  Earlier application is not
        permitted.  The adoption of this EITF is not expected to have a
        material impact to the financial condition and results of operations of the
        Registrants.
  **Note
        6 — Restricted Cash**
 Various
          agreements to which Cleco is subject contain covenants that restrict its
          use of
          cash.  As certain provisions under these agreements are met, cash is
          transferred out of related escrow accounts and becomes available for general
          corporate purposes.  At June 30, 2007, and December 31, 2006, $0.1
          million of cash was restricted under the Diversified Lands mitigation escrow
          agreement.  Also, at June 30, 2007, and December 31, 2006, less than
          $0.1 million and $24.4 million of cash, respectively, were restricted under
          the
          Cleco Power solid waste disposal bonds indenture.  Restricted cash at
          Cleco Power decreased $24.3 million compared to December 31, 2006, due
          to the
          release of funds for construction of the solid waste disposal facilities
          at
          Rodemacher Unit 3.
  **Note
        7 — Electric Customer Credits**
 Earnings
          for the six months ended June 30, 2006, for Cleco and Cleco Power reflect
          reversals of previously accrued credits of $4.4 million under terms of
          a RSP
          established in an earnings review settlement with the LPSC in
          1996.
 The
        original terms of the 1996 LPSC earnings review settlement were extended
        without
        modification to September 30, 2006, through subsequent amendments and two
        approved one-year extensions.  As part of the settlement, Cleco Power
        was 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 were credited to
        customers.  This effectively allowed Cleco Power the opportunity to
        realize a regulatory rate of return up to 12.625%.  The amount of
        credits due customers, if any, is determined by Cleco Power and the LPSC
        annually, based on results for each 12-month period ended September
        30.  The 1996 LPSC settlement provided for such credits to be made on
        customers’ bills the following summer.
 The
        $4.4
        million reversal of previously accrued credits mentioned above was the result
        of
        two events.  The first event was the April 2006 settlement of issues raised
        in the LPSC’s review of Cleco Power’s RSP filings for the 12-month periods ended
        September 30, 2002, 2003, and 2004.  Under the terms of the settlement,
        Cleco Power refunded $1.3 million as credits on customers’ September 2006
        utility bills and reversed, in the first quarter of 2006, previously accrued
        customer credits of $3.2 million.  The second event was the April 2006
        filing by Cleco Power of its required monitoring report for the 12-month
        period
        ended September 30, 2005.  Based on the reassessment of amounts filed
        in this monitoring report, the results of the Staff’s review as discussed above,
        and projections for the year 2006, Cleco Power reversed in the first quarter
        of
        2006 an additional $1.2 million of customer credits previously accrued for
        the 12-month periods ended September 30, 2005, and 2006.
 In
        the
        first proceeding, the LPSC also reserved the right to further review Cleco
        Power’s calculation of working capital included in the filings for the 12-month
        periods ended September 30, 2002, 2003, and 2004.  Cleco Power reached
        an agreement of the working capital issue with the LPSC and refunded an
        additional $3.2 million of previously accrued customer credits to customers
        in
        March 2007.
 The
        LPSC
        consultants completed the review of the 2005 monitoring report in March
        2007.  Cleco Power received the
  29
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  LPSC
        Staff’s report in April 2007, indicating that no refund is due based on the 2005
        RSP filing.
 Cleco
        Power filed its RSP monitoring report with the LPSC for the 12-month period
        ended September 30, 2006, on March 30, 2007.  The LPSC consultants
        have begun their review of the 2006 filing.  Cleco Power anticipates
        the review will be completed by the end of 2007.
 Cleco
        Power’s Balance Sheets at June 30, 2007, and December 31, 2006, reflect the
        following accruals for estimated electric customer credits relating to the
        12-month periods ended September 30, 2002, through September 30,
        2007.
 **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,(THOUSANDS)
              
              **2007**
              
              
              2006Provision
                  for rate refund
              
              **$**
              **2**
              
              
              $
              3,174Other
                  deferred credits
              
              ****
              **1,933**
              
              
              
              1,933Total
                  customer
                  credits
              
              **$**
              **1,935**
              
              
              $
              5,107
  Amounts
        reported under the line item provision for rate refund at December 31, 2006,
        relate to the working capital issue mentioned above for the 12-month periods
        ended September 30, 2002, 2003, and 2004, that were refunded in March
        2007.  The amounts reported under the line item other deferred credits
        relate to potential RSP and fuel audit issues and currently are not
        due.  All customer credits relating to Cleco Power’s RSP were recorded
        as a reduction in revenue due to the nature of the credits.  The
        accruals are based upon the original 1996 settlement, the modified terms
        of the
        RSP extension, the resolution of the 2001-2002 fuel audit which was settled
        in
        2004, annual issues as agreed to between Cleco and the LPSC, and Cleco’s
        assessment of issues that remain outstanding.
 In
        July
        2006, Cleco Power’s request for an extension of the RSP to the in-service date
        of Rodemacher Unit 3, targeted for the fourth quarter of 2009, was approved
        by
        the LPSC with several modifications to the terms of the original
        RSP.  Effective October 1, 2006, Cleco Power began operating under the
        new RSP, which allows Cleco Power to earn a maximum regulated return on equity
        of 11.65%.  This maximum return is based on a return on equity of
        11.25%, with any regulated earnings between 11.25% and 12.25% shared between
        shareholders and customers in a 40/60 ratio.  All regulated earnings
        over 12.25% will be returned to customers.  The terms relating to the
        sharing of regulated earnings were modified by the LPSC in its order approving
        the recovery of storm restoration costs discussed below.
 In
        February 2006, the LPSC approved Cleco Power’s request to recover storm
        restoration costs incurred for Hurricanes Katrina and Rita.  As part
        of this approval, the LPSC required that effective during the interim recovery
        period (Phase I), which began with the May 2006 billing cycle, Cleco Power’s
        portion of the shared regulated earnings between the 12.25% and 13% allowed
        return on equity (between 11.25% and 12.25% effective October 1, 2006) be
        credited against outstanding Hurricanes Katrina and Rita storm restoration
        costs, rather than being shared between shareholders and
        customers.  In March 2007, as a result of Phase II of the LPSC Staff’s
        review of storm restoration costs, Cleco Power and the LPSC Staff filed a
        settlement agreement with the LPSC allowing the recovery of essentially all
        of
        Cleco Power’s Hurricanes Katrina and Rita storm costs.  As part of the
        agreement, Cleco Power will continue to forgo its share of any excess earnings
        calculated according to the terms of the current RSP (unless modified in
        a
        subsequent base rate proceeding).  For information concerning this
        agreement, see Note 2 — “Regulatory Assets and Liabilities.”  As of
        June 30, 2007, Cleco Power had not credited any earnings against storm
        restoration costs.
  **Note 8
        — Litigation and Other Commitments and Contingencies**
 ***Other
          Litigation***
 On
        June
        22, 2005, the City of Alexandria, Louisiana (the City), a current wholesale
        municipal customer of Cleco Power, filed a lawsuit in Ninth Judicial
        District Court against Cleco Corporation, Cleco Power, and certain other
        subsidiaries.  The lawsuit alleges unspecified damages as a result of
        certain sales made to the City, revenue derived by Cleco using the City’s power
        generating facilities under contracts with the City, and other alleged improper
        conduct, including, without limitation, allegations that Cleco fraudulently
        mishandled the management of the City’s power requirements under the
        contracts.  The lawsuit was removed to and currently is pending in the
        U.S. District Court for the Western District of Louisiana.  Cleco
        filed responses which include claims for unspecified amounts owed by the
        City to
        Cleco.  On January 13, 2006, Cleco and the City agreed upon guidelines
        whereby an audit and subsequent mediation of the disputed transactions would
        be
        performed.  On February 21, 2006, the court designated KPMG LLP (KPMG)
        to examine the claims made by both parties and subsequently serve as the
        mediator.  On February 23, 2007, KPMG delivered a preliminary audit
        report to outside counsel for each party.  Pursuant to a court order,
        the report’s distribution is limited and its contents are
        confidential.  In March 2007, the parties met to mediate the dispute
        and have agreed to continue to negotiate a framework for resolution of the
        dispute under the supervision of the mediator and the U.S. District
        Judge. The presiding judge reviewed the mediation with the parties on June
        5, 2007, and extended the mediation to September 5, 2007.  Management
        believes the dispute will not have a material adverse effect on the Registrants’
financial condition, results of operations, or cash flows.
 Cleco
        is
        involved in regulatory, environmental, and legal proceedings before various
        courts, regulatory commissions, and governmental agencies regarding matters
        arising in the ordinary course of business.  Some of these proceedings,
        such as fuel review and environmental issues, could involve substantial
        amounts.  Management regularly analyzes current information and, as
        necessary, provides accruals for probable liabilities on the eventual
        disposition of these matters.  Management believes the disposition of
        these matters will not have a material adverse effect on the Registrants’
financial condition, results of operations, or cash flows.  Cleco has
        been named as a defendant in two lawsuits by individuals who claimed injury
        due
        to asbestos exposure.  These two lawsuits were dismissed by the trial
        court; however, the claimants
  30
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  appealed
        the trial court’s dismissal.  On March 21, 2007, the appeals court
        affirmed the trial court’s dismissal.  The claimants filed a request
        for review of the appeals court decision with the Louisiana Supreme
        Court.  On June 15, 2007, the Louisiana Supreme Court denied the
        claimants’ request for review.
  ***Off-Balance
        Sheet Commitments***
 Cleco
        Corporation and Cleco Power have entered into various off-balance sheet
        commitments, in the form of guarantees and standby letters of credit, in
        order
        to facilitate their activities and the activities of Cleco Corporation’s
        subsidiaries and equity investees (affiliates). Cleco Corporation entered
        into these off-balance sheet commitments in order to entice desired
        counterparties to contract with its affiliates by providing some measure
        of
        credit assurance to the counterparty in the event Cleco’s affiliates do not
        fulfill certain contractual obligations. If Cleco Corporation had not
        provided the off-balance sheet commitments, the desired counterparties may
        not
        have contracted with Cleco’s affiliates or may have contracted with them at
        terms less favorable to its affiliates.
 The
        off-balance sheet commitments are not recognized on Cleco’s Condensed
        Consolidated Balance Sheets, because it has been determined that Cleco’s
        affiliates are able to perform these obligations under their contracts and
        that
        it is not probable that payments by Cleco will be required. Some of these
        commitments reduce borrowings available to Cleco Corporation under its credit
        facility pursuant to the terms of the credit facility.  Cleco’s
        off-balance sheet commitments as of June 30, 2007, are summarized in the
        following table, and a discussion of the off-balance sheet commitments follows
        the table. The discussion should be read in conjunction with the table to
        understand the impact of the off-balance sheet commitments on Cleco’s financial
        condition.
 AT
                  JUNE 30, 2007REDUCTIONS
                  TO THEAMOUNT
                  AVAILABLETO
                  BE DRAWN ONFACE
              
              
              
              
              
              NET
              
              
              CLECO
                  CORPORATION’S(THOUSANDS)
              
              AMOUNT
              
              
              REDUCTIONS
              
              
              AMOUNT
              
              
              CREDIT
                  FACILITY**Cleco
                  Corporation**Guarantee
                  issued to Entergy
                  companies for performance obligations of Perryville
              
              **$**
              **277,400**
              
              
              **$**
              **135,000**
              
              
              **$**
              **142,400**
              
              
              **$**
              **328**Guarantees
                  issued to purchasers
                  of the assets of Cleco Energy
              
              ****
              **1,400**
              
              
              ****
              **-**
              
              
              ****
              **1,400**
              
              
              ****
              **1,400**Obligations
                  under standby letter
                  of credit issued to the Evangeline Tolling Agreement
                  counterparty
              
              ****
              **15,000**
              
              
              ****
              **-**
              
              
              ****
              **15,000**
              
              
              ****
              **15,000**Guarantee
                  issued to Entergy
                  Mississippi on behalf of Attala
              
              ****
              **500**
              
              
              ****
              **-**
              
              
              ****
              **500**
              
              
              ****
              **500**Guarantee
                  issued to Tenaska on
                  behalf of Cleco Evangeline
              
              ****
              **5,000**
              
              
              ****
              **-**
              
              
              ****
              **5,000**
              
              
              ****
              **5,000****Cleco
                  Power**Obligations
                  under standby letter
                  of credit issued to the Louisiana Department of Labor
              
              ****
              **525**
              
              
              ****
              **-**
              
              
              ****
              **525**
              
              
              ****
              **-**Obligations
                  under the Lignite
                  Mining Agreement
              
              ****
              **17,215**
              
              
              ****
              **-**
              
              
              ****
              **17,215**
              
              
              ****
              **-**Total
              
              **$**
              **317,040**
              
              
              **$**
              **135,000**
              
              
              **$**
              **182,040**
              
              
              **$**
              **22,228**
 
 Cleco
        Corporation provided a limited guarantee to Entergy Louisiana and Entergy
        Gulf
        States for Perryville’s performance, indemnity, representation, and warranty
        obligations under the Sale Agreement, the Power Purchase Agreement, and other
        ancillary agreements related to the sale of the Perryville facility.  As of
        June 30, 2007, the aggregate guarantee of $277.4 million is limited to $142.4
        million (other than with respect to the indemnification of environmental
        matters
        to which there is no limit) due to the performance of some of the underlying
        obligations that were guaranteed.  The discounted probability-weighted
        liability under the guarantees and indemnifications as of June 30, 2007,
        was
        $0.3 million, resulting in a corresponding reduction in the available credit
        under Cleco’s credit facility, which was determined in accordance with the
        facility’s definition of a contingent obligation.  The contingent
        obligation reduces the amount available under the credit agreements by an
        amount
        equal to the reasonably anticipated liability in respect of the contingent
        obligation as determined in good faith.  For additional information on
        this guarantee, see Note 9 — “Disclosures about Guarantees.”
 In
        November 2004, Cleco completed the sale of substantially all of the assets
        of
        Cleco Energy.  Cleco Corporation provided guarantees to the buyers of
        Cleco Energy’s assets for the payment and performance of the indemnity
        obligations of Cleco Energy.  The aggregate amount of the guarantees
        is $1.4 million, and the guarantees expire in 2009.
 If
        Evangeline fails to perform certain obligations under its tolling agreement,
        Cleco Corporation will be required to make payments to the Evangeline Tolling
        Agreement counterparty. Cleco Corporation’s obligation under the Evangeline
        commitment is in the form of a standby letter of credit from investment grade
        banks and is limited to $15.0 million. Ratings triggers do not exist in the
        Evangeline Tolling Agreement. Cleco expects Evangeline to be able to meet
        its obligations under the tolling agreement and does not expect Cleco
        Corporation to be required to make payments to the counterparty. However,
        under the covenants associated with Cleco Corporation’s credit facility, the
        entire net amount of the Evangeline commitment reduces the amount that can
        be
        borrowed under the credit facility. The letter of credit for Evangeline is
        expected to be renewed annually until 2020.
 In
        January 2006, Cleco Corporation provided a $0.5 million guarantee to Entergy
        Mississippi for Attala’s obligations under the Interconnection
        Agreement.  This guarantee will be effective through the life of the
        agreement.
 On
        June
        13, 2007, Cleco Corporation issued a guarantee to Tenaska pursuant to a power
        replacement agreement between Evangeline and Tenaska.  The amount of
        the guarantee is $5.0 million, and the guarantee expires on December 31,
        2007.
 The
        State
        of Louisiana allows employers of certain financial net worth to self-insure
        their workers’ compensation benefits.
  31
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Cleco
        Power has a certificate of self-insurance from the Louisiana Office of Workers’
Compensation and is required to post a $0.5 million letter of credit, an
        amount
        equal to 110% of the average losses over the previous three years, as
        surety.
 As
        part
        of the Lignite Mining Agreement entered into in 2001, Cleco Power and SWEPCO,
        joint owners of Dolet Hills, have agreed to pay the lignite miner’s loan and
        lease principal obligations when due, if the lignite miner does not have
        sufficient funds or credit to pay. Any amounts paid on behalf of the miner
        would be credited by the lignite miner against the next invoice for lignite
        delivered. At June 30, 2007, Cleco Power’s 50% exposure for this obligation
        was approximately $17.2 million. The lignite mining contract is in place
        until 2011 and does not affect the amount Cleco Corporation can borrow under
        its
        credit facility.
 The
        following table summarizes the expected termination date of the guarantees
        and
        standby letters of credit discussed above:
 AT
                  JUNE 30, 2007AMOUNT
                  OF COMMITMENT EXPIRATION PER PERIODNET
              
              
              
              
              
              
              
              
              
              
              
              MOREAMOUNT
              
              
              LESS
                  THAN
              
              
              
              
              
              
              
              
              THAN(THOUSANDS)
              
              COMMITTED
              
              
              ONE
                  YEAR
              
              
              1-3
                  YEARS
              
              
              3-5
                  YEARS
              
              
              5
                  YEARSGuarantees
              
              **$**
              **166,515**
              
              
              **$**
              **5,000**
              
              
              **$**
              **1,400**
              
              
              **$**
              **117,215**
              
              
              **$**
              **42,900**Standby
                  letters of credit
              
              ****
              **15,525**
              
              
              ****
              **525**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **15,000**Total
                  commercial
                  commitments
              
              **$**
              **182,040**
              
              
              **$**
              **5,525**
              
              
              **$**
              **1,400**
              
              
              **$**
              **117,215**
              
              
              **$**
              **57,900**
 
 ***Acadia***
 In
        May
        2005, a detailed review of the gas and electric metering at the Acadia plant
        resulted in the discovery of a potential electric metering error
        whereby Acadia unknowingly generated excess power to its electric
        interconnections for the period beginning June 1, 2002, and ending May 31,
        2005.  Acadia has made a claim against Cleco Power for the delivery of
        the excess generation for which it has not received
        compensation.  Cleco Power has evaluated the claim and communicated to
        Acadia that to the extent any unmetered power was generated, Entergy received
        the predominant benefit of that power and therefore Acadia’s claim, if any,
        primarily is against Entergy rather than Cleco Power.  Acadia has
        responded, insisting that its claim against Cleco Power is valid.  As
        such, in a letter dated July 19, 2006, Acadia demanded compensation from
        Cleco
        Power totaling approximately $4.5 million, allegedly representing the value
        of
        the energy delivered.  Cleco Power continues to assert that Acadia’s
        claim is against Entergy, not Cleco Power.  On April 23, 2007, Cleco
        announced that a settlement agreement had been reached with Calpine, subject
        to
        bankruptcy court approval, which resolves issues related to the Acadia power
        plant, including the potential electric metering error at the
        plant.  As part of that settlement, Calpine will sell APH the right to
        settle Acadia’s outstanding dispute with Cleco Power.  On May 9, 2007,
        the Calpine Debtors Bankruptcy Court approved the terms of the April 23,
        2007,
        settlement agreement.  For more information on the Acadia settlement,
        see Note 16 — “Calpine Bankruptcy.”
  ***Other
        Contingencies***
  **General
        Electric Services Corporation**
 Cleco
        Power has entered into an operating lease agreement with General Electric
        Services Corporation for leasing of railcars in order to transport coal
        deliveries to its Rodemacher Power Station.  The lease contains a
        provision for early termination, along with an associated termination
        fee.  The termination provision can only be exercised in December
        2010.  If exercised by Cleco Power, the termination fee would be
        approximately $1.4 million.  At this time, Cleco Power has no plans to
        early terminate this lease.
  **CBL
        Capital Corporation**
 Cleco
        Power has entered into an operating lease agreement with CBL Capital
        Corporation.  This is a master leasing agreement for company vehicles
        and other equipment.  The lease contains a provision for early
        termination, along with an associated termination fee.  At any time
        during the lease, Cleco Power may terminate the agreement.  The
        termination fee is based upon the unamortized residual value of the equipment
        under lease at the end of the month of termination.  The fee is
        decreased by any sale proceeds obtained by CBL Capital
        Corporation.  Cleco Power would be liable for 87% of the termination
        fee net of any sale proceeds.  Cleco Power’s maximum obligation at
        June 30, 2007, is approximately $4.1 million.  At this time, Cleco
        Power has no plans to terminate this lease prior to expiration of the lease
        term.
  **FERC
        Staff Investigation**
 In
        November 2005, after a review of Cleco’s October 2005 quarterly compliance
        report, the FERC Staff initiated a preliminary, non-public investigation
        into
        certain representations made by Cleco.  In response to data requests
        from the FERC Staff, Cleco provided information regarding those representations
        as well as compliance with the Code of Conduct and Compliance Plan contained
        in
        the Consent Agreement. The information primarily concerns the possible sharing
        of employees and information among Cleco’s subsidiaries, as well as the accuracy
        of information furnished to the FERC Staff in connection with reporting on
        compliance with the Consent Agreement.  On June 12, 2007, the FERC
        issued an order approving a Stipulation and Consent Agreement between Cleco
        and
        the FERC’s Office of Enforcement which completely resolved these
        matters.  The FERC’s investigation was terminated, and Cleco was
        released of any further claims arising from such investigation.  Cleco
        agreed to pay a one-time civil penalty of $2.0 million and adhere to a new
        one-year compliance plan.  At March 31, 2007, Cleco had fully reserved
        the civil penalty, and in June 2007, Cleco paid the penalty, the
  32
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  payment
        of which may not be passed through, directly or indirectly, to any current
        or
        future customers or ratepayers.
  **Fuel
        Audit**
 On
        July
        14, 2006, the LPSC informed Cleco Power that it was planning to conduct a
        periodic fuel audit.  The audit commenced on July 26, 2006, and
        included fuel adjustment clause filings for January 2003 through December
        2004.  Cleco Power has provided to the LPSC Staff all of the requested
        information. The audit is pursuant to the Fuel Adjustment Clause General
        Order issued November 6, 1997, in Docket No. U-21497 which anticipates that
        an
        audit will be performed not less than every other year.  The LPSC
        Staff is performing this review, and Cleco Power expects a preliminary report
        to
        be issued when the review is complete. Management is unable to predict the
        results of the LPSC audit, which could require Cleco Power to refund previously
        recovered revenue and could result in a significant material adverse effect
        on
        the Registrants’ results of operations, financial condition, and cash
        flows.
  **Other**
 Cleco
        has
        accrued for liabilities to third parties, employee medical benefits, storm
        damages, and deductibles under insurance policies that it maintains on major
        properties, primarily generation stations and transmission
        substations.
 Consistent
        with regulatory treatment, annual charges to operating expenses 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 six years, excluding costs for Hurricanes Katrina and
        Rita.
  ***Risks
        and Uncertainties***
  **Cleco**
 Cleco
        Corporation could be subject to possible adverse consequences if Cleco’s
        counterparties fail to perform their obligations or if Cleco Corporation
        or its
        affiliates are not in compliance with loan agreements or bond
        indentures.
  Williams
 The
        credit ratings of the senior unsecured debt of The Williams Companies, Inc.
        (Moody’s – Ba2; Standard & Poor’s – BB), the parent company of Williams
        under the Evangeline Tolling Agreement, remain below “investment
        grade.”  The following list discusses some possible adverse
        consequences if Williams should fail to perform its obligations under the
        Evangeline Tolling Agreement:
  §
              If
                  Williams’ failure to perform constituted a default under the tolling
                  agreement, the holders of the Evangeline bonds would have the right
                  to
                  declare the entire outstanding principal amount ($180.9 million
                  at June
                  30, 2007) and interest to be immediately due and payable, which
                  could
                  result in:
 §
              Cleco
                  seeking to refinance the bonds, the terms of which may be less
                  favorable
                  than existing terms;
 §
              Cleco
                  causing Evangeline to seek protection under federal bankruptcy
                  laws;
                  or
 §
              the
                  trustee of the bonds foreclosing on the mortgage and assuming ownership
                  of
                  the Evangeline plant;
 §
              Cleco
                  may not be able to enter into agreements in replacement of the
                  Evangeline
                  Tolling Agreement on terms as favorable as that agreement or at
                  all;
 §
              Cleco’s
                  equity investment in Evangeline may be impaired, requiring a write-down
                  to
                  its fair market value, which could be substantial;
                  and
 §
              Cleco’s
                  credit ratings could be downgraded, which would increase borrowing
                  costs
                  and limit sources of financing.
  In
        May
        2007, The Williams Companies, Inc. agreed to sell substantially all of its
        power
        assets, including its tolling agreement with Evangeline, to Bear Energy
        LP.  The sale, which is subject to regulatory and other approvals, is
        expected to close no later than the fourth quarter of
        2007.  Management anticipates an improvement in Evangeline's senior
        secured debt rating due to the more favorable credit rating of Bear Stearns
        Companies, Inc.
  CES
 In
        December 2005, the Calpine Debtors filed for protection under Chapter 11
        of the
        U.S. Bankruptcy Code in the Calpine Debtors Bankruptcy Court and filed a
        motion
        with the court seeking to reject the Calpine Tolling Agreements.  For
        additional information about the Calpine bankruptcy and subsequent Acadia
        settlement, see Note 16 — “Calpine Bankruptcy.”
 Although
        neither Acadia nor Cleco were required to record an impairment of their assets
        or equity investment at June 30, 2007, future events could cause the valuation
        of those assets or equity investment to be higher than market whereby an
        impairment would be required and Cleco’s financial condition would be adversely
        affected.
  Other
 Financing
        for operational needs and construction requirements is dependent upon the
        cost
        and availability of external funds from capital markets and financial
        institutions. Access to funds is dependent upon factors such as general
        economic conditions, regulatory authorizations and policies, the credit ratings
        of Cleco Corporation and Cleco Power, the cash flows from routine operations
        and
        the credit ratings of project counterparties. If Cleco Corporation’s credit
        rating was to be downgraded by Moody’s or by Standard & Poor’s, Cleco
        Corporation would be required to pay additional fees and higher interest
        rates
        under its bank credit and other debt agreements.
  **Cleco Power**
 Cleco
        Power supplies a portion of its customers’ electric power requirements from its
        own generation facilities.  In addition to power obtained from power
        purchase agreements, Cleco Power purchases power from other utilities and
  33
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  marketers
        to supplement its generation at times of relatively high demand or when the
        purchase price of power is less than its own cost of generation. Because of
        its location on the transmission grid, Cleco Power relies on two main suppliers
        of electric transmission when accessing external power markets.  At
        times, constraints limit the amount of purchased power these transmission
        providers can deliver into Cleco Power‘s service territory.
 Financing
        for operational needs and construction requirements is dependent upon the
        cost
        and availability of external funds from capital markets and financial
        institutions. Access to funds is dependent upon factors such as general
        economic conditions, regulatory authorizations and policies, the credit ratings
        of Cleco Corporation and Cleco Power, the cash flows from routine
        operations and the credit ratings of project counterparties. If Cleco
        Power’s credit rating was to be downgraded by Moody’s or by Standard &
Poor’s, Cleco Power would be required to pay additional fees and higher interest
        rates under its bank credit and other debt agreements.
 Under
        the
        terms of the Amended EPC Contract, in the event Cleco Power does not maintain
        a
        senior unsecured credit rating of either: (i) Baa3 or better from Moody’s or
        (ii) BBB- or better from Standard  & Poor’s, Cleco Power will be
        required to provide a letter of credit to Shaw in the amount of $20.0 million.
         In the event of further downgrade to both of its credit ratings to: 
(i) Ba2 or below from Moody’s, and (ii) BB or below from Standard & Poor’s,
        Cleco Power will be required to provide an additional $15.0 million letter
        of
        credit to Shaw.
  **Note
        9 — Disclosures about Guarantees**
 Cleco
          Corporation and Cleco Power have agreed to contractual terms that require
          them
          to pay third parties if certain triggering events occur. These contractual
          terms generally are defined as guarantees in FIN 45. Guarantees issued or
          modified after December 31, 2002, that fall within the initial recognition
          scope
          of FIN 45 are required to be recorded as a liability. Outstanding
          guarantees that fall within the disclosure scope of FIN 45 are required
          to be
          disclosed for all accounting periods ending after December 15,
          2002.
 Guarantees
        and indemnifications were issued in connection with the sale of the generation
        assets to Entergy Louisiana by Perryville.  These guarantees and
        indemnifications fall within the recognition scope of FIN 45 because they
        relate
        to the past performance, indemnity, representation, and warranty obligations
        of
        the disposed assets and also contain provisions requiring payment for potential
        damages.  The potential length of these liabilities range from a
        five-year life to an indefinite life.  Each indemnification and
        guarantee was assigned a probability and an estimate of potential damages.
         The maximum aggregate potential damages under the guarantees and
        indemnifications are $42.4 million (excluding maximum aggregate potential
        damages of $100.0 million for discharge of project debt discussed in more
        detail
        below and the indemnification of environmental matters to which there is
        no
        limit).  On June 30, 2005, Perryville paid all interest and principal
        owed under the Senior Loan Agreement, and on July 19, 2005, it exercised
        offset
        rights against MAI to satisfy its obligations of $98.7 million under the
        Subordinated Loan Agreement.  As a result, it is unlikely that Cleco
        Corporation will have any other liabilities which would give rise to indemnity
        claims against Perryville and trigger any actual obligation under the $100.0
        million portion of the guarantee which terminates on June 30,
        2010.  The discounted probability-weighted liability under the
        guarantees and indemnifications as of June 30, 2007, calculated in accordance
        with FIN 45, was $0.3 million.
 Guarantees
        and indemnifications were issued in connection with the asset sales of Cleco
        Energy's oil and gas properties and natural gas pipelines.  These
        guarantees and indemnifications fall within the recognition scope of FIN
        45,
        because they relate to the past performance obligations of the disposed assets
        and also contain provisions requiring payment for potential
        damages.  The potential liabilities expire either after a two- or
        five-year life.  Each indemnification and guarantee was assigned
        probabilities and estimates of potential damages.  On September 15,
        2006, the portion of the guarantee with a two-year life expired.  The
        maximum aggregate potential payment under the guarantees and indemnifications
        is
        $1.2 million.  The discounted probability-weighted liability under the
        guarantees and indemnifications as of June 30, 2007, was $0.1
        million.  The buyers of the Cleco Energy assets would be entitled to
        amounts under the guarantees and indemnifications due to breach or default
        of
        performance of Cleco Energy under their respective sale
        agreements.  Cleco Corporation has guaranteed Cleco Energy’s
        indemnification obligations under the sale agreements.  Maximum
        potential payments under the Cleco Corporation guarantees are $1.4 million
        but
        are not within the recognition scope of FIN 45.
 In
        its
        bylaws, Cleco Corporation has agreed to indemnify directors, officers, agents
        and employees who are made a party to a pending or completed suit, arbitration,
        investigation, or other proceeding whether civil, criminal, investigative
        or
        administrative, if the basis of inclusion arises as the result of acts conducted
        in the discharge of their official capacity. Cleco Corporation has
        purchased various insurance policies to reduce the risks associated with
        the
        indemnification. In its Operating Agreement, Cleco Power provides for the
        same indemnification as described above with respect to its managers, officers,
        agents, and employees.
 Cleco
        Corporation has issued guarantees and a letter of credit to support the
        activities of Perryville, Attala, and Evangeline.  These commitments
        are not within the scope of FIN 45, since these are guarantees of performance
        by
        wholly owned subsidiaries.  For information regarding these
        commitments, see Note 8 — “Litigation and Other Commitments and Contingencies —
Off-Balance Sheet Commitments.”
 Under
        the
        Lignite Mining Agreement, Cleco Power and SWEPCO have agreed to pay the lignite
        miner’s loan and lease principal obligation.  For information on the
        Lignite Mining Agreement, see Note 8 — “Litigation and Other Commitments and
        Contingencies — Off-Balance Sheet Commitments.”
 Generally,
        neither Cleco Corporation nor Cleco Power has recourse that would enable
        them to
        recover amounts paid under the guarantees. The one exception is the
        insurance
  34
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  contracts
        associated with the indemnification of directors, managers, officers, agents
        and
        employees. There are no assets held as collateral for third parties that
        either Cleco Corporation or Cleco Power could obtain and liquidate to recover
        amounts paid pursuant to the guarantees.
  **Note
        10 — Preferred Stock**
 Within
          the ESOP, each share of Cleco Corporation 8.125% Convertible Preferred
          Stock
          Series 1991 (ESOP preferred stock) was convertible into 9.6 shares of Cleco
          Corporation common stock (Cleco common stock).  The annual dividend rate on
          a share of ESOP preferred stock was generally the higher of $8.125 per
          share or
          9.6 times the annual dividend rate for a share of Cleco common stock.
 At
        December 31, 2006, the ESOP had allocated 190,635 shares of ESOP preferred
        stock
        to 401(k) Plan participants.  In March 2007, in order to comply with
        provisions of the Pension Protection Act of 2006, 190,372 shares of ESOP
        preferred stock were converted into 1.8 million shares of Cleco common
        stock. The ESOP trustee holds the newly converted shares of Cleco common
        stock on behalf of the 401(k) Plan participants.
 As
        a
        result of this conversion, total shareholders’ equity reported on Cleco
        Corporation’s Condensed Consolidated Balance Sheet at June 30, 2007, did not
        change. Cleco Corporation recorded a $19.1 million reduction in preferred
        stock
        with a corresponding increase in common shareholders’ equity.
  **Note
        11 — Pension Plan and Employee Benefits**
 ***Pension
          Plan and Other Benefits Plan***
 Most
        employees are covered by a noncontributory, defined benefit pension
        plan. 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 10 years of employment with Cleco
        Corporation. Cleco Corporation’s policy is to base its contributions to the
        employee pension plan upon actuarial computations utilizing the projected
        unit
        credit method, subject to the IRS’s full funding limitation.  No
        contributions to the pension plan were made during the six months ended June
        30,
        2007.  During 2007, a contribution is not expected to be required by
        funding regulations.  A discretionary contribution may be made during
        2007; however, the decision by management to make a contribution and the
        amount,
        if any, has not been determined.  Cleco Power is considered the plan
        sponsor, and Support Group is considered the plan administrator.  In
        July 2007, Cleco Corporation’s Board of Directors approved an amendment to the
        pension plan to provide that employees hired or rehired on or after August
        1,
        2007, will not be eligible for benefits under the pension plan.
 Cleco
        Corporation’s retirees and their dependents are eligible to receive medical,
        dental, vision, and life insurance benefits (other benefits). Cleco
        Corporation recognizes the expected cost of these benefits during the periods
        in
        which the benefits are earned.
 
 The
        components of net periodic pension and other benefit cost for the three and
        six
        months ended June 30, 2007, and 2006, are as follows:
 PENSION
                  BENEFITS
              
              
              OTHER
                  BENEFITSFOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Components
                  of periodic benefit costsService
                  cost
              
              **$**
              **1,910**
              
              
              $
              2,069
              
              
              **$**
              **355**
              
              
              $
              376Interest
                  cost
              
              ****
              **3,863**
              
              
              
              3,507
              
              
              ****
              **460**
              
              
              
              415Expected
                  return on plan
                  assets
              
              ****
              **(4,748**
              **)**
              
              
              (4,851
              )
              
              ****
              **-**
              
              
              
              -Transition
                  obligation
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **5**
              
              
              
              5Prior
                  period service cost
                  (benefit)
              
              ****
              **213**
              
              
              
              239
              
              
              ****
              **(515**
              **)**
              
              
              (527
              )Net
                  loss
              
              ****
              **467**
              
              
              
              1,143
              
              
              ****
              **250**
              
              
              
              221Net
                  periodic benefit
                  cost
              
              **$**
              **1,705**
              
              
              $
              2,107
              
              
              **$**
              **555**
              
              
              $
              490
 
 PENSION
                  BENEFITS
              
              
              OTHER
                  BENEFITSFOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Components
                  of periodic benefit costsService
                  cost
              
              **$**
              **3,820**
              
              
              $
              3,921
              
              
              **$**
              **710**
              
              
              $
              769Interest
                  cost
              
              ****
              **7,725**
              
              
              
              7,211
              
              
              ****
              **920**
              
              
              
              847Expected
                  return on plan
                  assets
              
              ****
              **(9,495**
              **)**
              
              
              (9,143
              )
              
              ****
              **-**
              
              
              
              -Transition
                  obligation
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **10**
              
              
              
              10Prior
                  period service cost
                  (benefit)
              
              ****
              **425**
              
              
              
              486
              
              
              ****
              **(1,030**
              **)**
              
              
              (1,033
              )Net
                  loss
              
              ****
              **935**
              
              
              
              1,272
              
              
              ****
              **500**
              
              
              
              433Net
                  periodic benefit
                  cost
              
              **$**
              **3,410**
              
              
              $
              3,747
              
              
              **$**
              **1,110**
              
              
              $
              1,026
  Since
        Cleco Power is the pension plan sponsor and the related trust holds the assets,
        the accrued liability of the pension plan is reflected at Cleco
        Power.  The liability of Cleco Corporation’s other subsidiaries is
        transferred, with a like amount of assets, to Cleco Power
        monthly.  The expense of the pension plan related to Cleco
        Corporation’s other subsidiaries for the three and six months ended June 30,
        2007, was $0.5 million and $1.1 million, respectively. The expense of the
        pension plan related to Cleco Corporation’s other subsidiaries for the three and
        six months ended June 30, 2006, was $0.5 million and $1.1 million,
        respectively.
 Cleco
        Corporation is the plan sponsor for the other benefits.  There are no
        assets set aside in a trust, and the liabilities are reported on the individual
        subsidiaries’ financial statements.  The expense related to other
        benefits reflected on Cleco Power’s Condensed Statements of Income for the three
        and six months ended June 30, 2007, was $0.5 million and $0.9 million,
        respectively.  The expense related to other benefits reflected on
        Cleco Power’s Condensed Statements of Income for the three and six months ended
        June 30, 2006, was $0.4 million and $0.9 million, respectively.
  ***SERP***
 Certain
        key executives and key managers are covered by the SERP. The SERP is a
        non-qualified, non-contributory, defined benefit pension plan. Benefits
        under the plan reflect an employee’s years of service, age at retirement, and
        the sum of the highest base salary paid out of the last five calendar years
        and
        the average of the three highest bonuses paid during the last 60 months prior
        to
        retirement, reduced by benefits received from any other defined benefit pension
        plan. Cleco Corporation does not fund the SERP liability, but instead pays
  35
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  for
        current benefits out of the general funds available. Cleco Power has formed
        a “rabbi trust” designated as the beneficiary for life insurance policies issued
        on the SERP participants. Proceeds from the life insurance policies are
        expected to be used to pay SERP participants’ life insurance benefits, as well
        as future SERP payments. However, since this is a non-qualified plan, the
        assets of the trust could be used to satisfy general creditors of Cleco Power
        in
        the event of insolvency. No contributions to the SERP were made during the
        six months ended June 30, 2007, and 2006.  Cleco Power is considered
        the plan sponsor, and Support Group is considered the plan
        administrator.
 The
        components of the net SERP cost are as follows:
 FOR
                  THE THREE MONTHS ENDED JUNE 30,
              
              
              FOR
                  THE SIX MONTHS ENDED JUNE
                  30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Components
                  of periodic benefit costsService
                  cost
              
              **$**
              **290**
              
              
              $
              350
              
              
              **$**
              **580**
              
              
              $
              690Interest
                  cost
              
              ****
              **438**
              
              
              
              425
              
              
              ****
              **875**
              
              
              
              793Prior
                  period service cost
              
              ****
              **12**
              
              
              
              13
              
              
              ****
              **25**
              
              
              
              27Net
                  loss
              
              ****
              **243**
              
              
              
              216
              
              
              ****
              **485**
              
              
              
              418Net
                  periodic benefit cost
              
              **$**
              **983**
              
              
              $
              1,004
              
              
              **$**
              **1,965**
              
              
              $
              1,928
  The
        SERP
        has no assets, and liabilities are reported on the individual subsidiaries’
financial statements.  The expense related to the SERP reflected on
        Cleco Power’s Condensed Statements of Income for the three and six months ended
        June 30, 2007, was $0.3 million and $0.5 million, respectively.  The
        expense related to the SERP reflected on Cleco Power’s Condensed Statements of
        Income for the three and six months ended June 30, 2006, was $0.2 million
        and
        $0.5 million, respectively.
  ***401(k) Plan/ESOP***
 Most
        employees are eligible to participate in the 401(k) Plan, which was amended
        in
        April 1991 to include a leveraged ESOP.  The ESOP was established with
        300,000 shares of ESOP preferred stock which served as Cleco Corporation’s match
        to employees’ 401(k) Plan contributions and funded dividend payments on
        allocated shares.  Compensation expense related to the 401(k) Plan was
        based upon the value of the shares of ESOP preferred stock allocated to 401(k)
        Plan participants and the amount of interest incurred by the ESOP, less
        dividends on unallocated shares held by the ESOP.
 At
        March
        31, 2006, substantially all of the shares of ESOP preferred stock were fully
        allocated to current and former 401(k) Plan participants. Beginning April
        1, 2006, Cleco Corporation made matching contributions to, and funded dividend
        reinvestments by, 401(k) Plan participants with Cleco common stock.
 Compensation expense related to the newly issued common shares is based
        upon the fair market value of the common stock issued to 401(k) Plan
        participants.  At June 30, 2007, and December 31, 2006, Cleco Corporation
        had issued 227,016 and 140,189 shares of Cleco common stock, respectively,
        to
        401(k) Plan participants, including dividend reinvestments.
 On
        March
        26, 2007, the ESOP trustee converted all outstanding 190,372 shares of ESOP
        preferred stock into 1.8 million shares of Cleco common stock.  For
        more information on the conversion, see Note 10 — “Preferred
        Stock.”
 The
        table
        below contains information about the 401(k) Plan and the ESOP:
 FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006401(k)
                  Plan expense
              
              **$**
              **601**
              
              
              $
              576Dividend
                  requirements to ESOP on convertible preferred stock
              
              **$**
              **-**
              
              
              $
              414Interest
                  incurred by ESOP on its indebtedness
              
              **$**
              **-**
              
              
              $
              -
 
 FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006401(k)
                  Plan expense
              
              **$**
              **1,499**
              
              
              $
              676Dividend
                  requirements to ESOP on convertible preferred stock
              
              **$**
              **411**
              
              
              $
              863Interest
                  incurred by ESOP on its indebtedness
              
              **$**
              **-**
              
              
              $
              8
  Cleco
        Power is the plan sponsor for the 401(k) Plan.  The expense of the
        401(k) Plan related to Cleco Corporation’s other subsidiaries for the three and
        six months ended June 30, 2007, was $0.2 million and $0.4 million,
        respectively.  The expense of the 401(k) Plan related to Cleco
        Corporation’s other subsidiaries for the three and six months ended June 30,
        2006, was $0.1 million and $0.2 million, respectively.  The expense
        related to the dividend requirements on the shares of ESOP preferred stock
        is
        reflected on Cleco Corporation’s Condensed Consolidated Statements of Income for
        the three and six months ended June 30, 2007, and 2006.
  **Note
        12 — Income Taxes**
 The
          following tables summarize the effective income tax rates for Cleco Corporation
          and Cleco Power for the three- and six- month periods ended June 30, 2007,
          and
          June 30, 2006.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,**2007**
              
              
              2006Cleco
                  Corporation
              
              ****
              **32.9**
              **%**
              
              
              36.6
              %Cleco
                  Power
              
              ****
              **25.9**
              **%**
              
              
              31.4
              %
 
 FOR
                  THE SIX MONTHS ENDED JUNE 30,**2007**
              
              
              2006Cleco
                  Corporation
              
              ****
              **31.6**
              **%**
              
              
              35.5
              %Cleco
                  Power
              
              ****
              **23.8**
              **%**
              
              
              32.5
              %
  Cleco
        Corporation’s and Cleco Power’s effective income tax rates for the three- and
        six-month periods ended June 30, 2007, decreased compared to the three- and
        six-month periods ended June 30, 2006, as shown in the tables
        above.  A common contributing factor includes the flow-through of tax
        benefits associated with AFUDC equity recorded as a result of the construction
        of Rodemacher Unit 3.  Tax rates also were affected by the relative
        size of pre-tax income related to this item.
 Effective
        January 1, 2007, Cleco adopted the provisions of FIN 48 which provide guidance
        on accounting for uncertain
  36
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  tax
          positions.  During 2006, Cleco included all interest related to
          uncertain tax positions as a component of tax expense and taxes
          payable.  Subsequent to the adoption of FIN 48, Cleco classified all
          interest related to uncertain tax positions as a component of interest
          expense
          and interest payable.  As of the second quarter of 2006, $(0.5)
          million of interest expense, net of the tax benefit, was included in tax
          expense
          and was not reclassified in the financial statements.  The total
          amount of interest associated with tax positions recognized on the balance
          sheets of Cleco Corporation and Cleco Power as of the date of adoption
          was $16.7
          million and $10.2 million, respectively, and $23.4 million and $13.8 million
          as
          of June 30, 2007, respectively.  There was no additional interest
          expense recognized at the date of adoption.  The total amount of
          unrecognized tax benefits for Cleco Corporation and Cleco Power as of the
          date
          of adoption was $62.3 million and $30.9 million, respectively, and $92.0
          million
          and $65.6 million as of June 30, 2007, respectively.  Approximately
          $33.1 million of the increase was mainly due to adjustments taken on the
          2005
          federal income tax return for an indirect cost study and a casualty loss
          deduction.  Approximately $1.3 million of the increase was due to a
          request for refund filed with the IRS due to the deduction for the tax
          life of
          street lights and meters from a 1997 cost segregation study.  In
          addition, approximately $0.9 million of the increase was due to current
          year
          activity for uncertain tax positions.  Partially offsetting these
          increases was $5.6 million attributable to a change in the estimate for
          the FIN
          48 liability related to Evangeline tax depreciation.  Due to
          settlement discussions with the IRS, management believes that some of these
          unrecognized benefits may be recognized, resulting in an approximate $1.0
          million benefit to tax expense.
 The
        federal income tax years that remain subject to examination by the IRS are
        2001-2006.  The Louisiana state income tax years that remain subject
        to examination by the Louisiana Department of Revenue are
        1998-2006.
 During
        the six months ended June 30, 2007, there were no decreases in unrecognized
        tax
        benefits relating to settlements or a lapse of the applicable statute of
        limitation, and there were no material changes to tax years that remain subject
        to examination by major tax jurisdictions.
  **Note
        13 — Deferred Fuel and Purchased Power Costs**
 The
          cost
          of fuel used for electric generation and the cost of power purchased for
          utility
          customers are recovered through the LPSC-established fuel adjustment clause,
          which enables Cleco Power to pass on to its customers substantially all
          such
          charges.  For the three and six months ended June 30, 2007,
          approximately 96% of Cleco Power’s total fuel cost was regulated by the LPSC,
          while the remainder was regulated by the FERC. Deferred fuel and purchased
          power costs recorded at June 30, 2007, and December 31, 2006, were
          under-recoveries of $53.0 million and $77.4 million, respectively, and
          are
          scheduled to be collected from customers in future months.  The $24.4
          million decrease in the unrecovered costs was primarily the result of a
          $38.4
          million decrease in deferred losses associated with open natural gas hedge
          positions along with $2.2 million of lower deferred losses in closed natural
          gas
          hedge positions, both due to increases in natural gas prices since December
          31,
          2006.  The lower deferred losses were partially offset by the deferral of
          $16.2 million in additional fuel and purchased power costs.
 For
        additional information on Cleco Power’s treatment of natural gas hedges, see
        Note 1 — “Summary of Significant Accounting Policies — Risk
        Management.”
  **Note
        14 — Affiliate Transactions**
 Cleco
          has
          affiliate balances that were not eliminated as of June 30, 2007.  The
          balances were not eliminated due to the use of the equity method of accounting
          for Evangeline, Perryville, Attala, and Acadia.  At June 30, 2007, the
          payable to Evangeline was $3.8 million, and the payable to Perryville was
          $13.5
          million.  Also, at June 30, 2007, the receivable from Evangeline was
          $0.8 million, the receivable from Perryville was $10.5 million, and the
          receivable from APH was $5.7 million.
 Cleco
        Power has affiliate balances that are payable to or due from its
        affiliates.  At June 30, 2007, the payable to Cleco Corporation was
        $4.9 million, and the payable to Support Group was $5.1
        million.  Also, at June 30, 2007, the receivable from Cleco
        Corporation was $0.6 million, the receivable from Support Group was $1.1
        million, and the receivable from other affiliates was less than $0.1
        million.
  **Note
        15 — Debt**
 ***Long-term
          Debt***
 At
        June
        30, 2007, and December 31, 2006, Cleco’s long-term debt outstanding was $644.3
        million and $619.3 million, respectively.  The $25.0 million increase
        primarily was due to $125.0 million in draws against Cleco Power’s credit
        facility, classified as long-term debt.  This was partially offset by
        the reclassification of $100.0 million of 7.00% Senior Notes at Cleco
        Corporation to long-term debt due within one year.
 During
        the first six months of 2007, Cleco Power repaid $10.0 million of 6.53%
        medium-term notes and $15.0 million of 7.50% medium-term notes, both at
        maturity.  These issues were classified as long-term debt due within
        one year; therefore, these repayments did not affect the total amount of
        long-term debt recorded.
  **Note
        16 — Calpine Bankruptcy**
 ***Bankruptcy
          Proceedings***
 In
          December 2005, the Calpine Debtors filed for protection under Chapter 11
          of the
          U.S. Bankruptcy Code in the Calpine Debtors Bankruptcy Court.  CAH, a
          wholly owned subsidiary of Calpine, is one of the Calpine
          Debtors.  CAH owns a 50% interest in Acadia, and APH owns the other
          50% interest in Acadia.  Acadia owns a 1,160-MW natural gas-fired
          power plant.
 In
          December 2005, the Calpine Debtors filed a motion with the Calpine Debtors
          Bankruptcy Court seeking to reject the Calpine Tolling Agreements in addition
          to
          six other power supply contracts with other entities.  The rejection
          motion was referred to the U.S. District Court for the Southern District
          of
 37
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  New
          York,
          and in January 2006, a federal judge dismissed the motion.  The
          Calpine Debtors have appealed the decision to the U.S. Court of Appeals
          for the
          Second Circuit, where it remains pending.
 In
          March
          2006, the Calpine Debtors Bankruptcy Court entered an order permitting
          Acadia to
          suspend its obligations to CES under the Calpine Tolling Agreements in
          view of
          CES’s non-performance of the agreements.
 ***Settlement
        Agreement***
 On
          April
          23, 2007, Cleco announced that a settlement agreement had been reached
          with
          Calpine, subject to the approval of the Calpine Debtors Bankruptcy Court,
          which
          resolves issues related to the Acadia power plant.  The settlement
          includes the fixing of Acadia’s claims against the Calpine Debtors and an
          agreement by the parties to certain bidding procedures (Bidding Procedures)
          which would govern the sale of CAH’s interest in Acadia and certain related
          assets (collectively, the CAH Assets).  On May 9, 2007, the Calpine
          Debtors Bankruptcy Court approved the terms of the settlement and entered
          orders
          approving the Claims Settlement Agreement and the Bidding
          Procedures.
 The
          Claims Settlement Agreement addresses Acadia’s outstanding claims against the
          Calpine Debtors.  Under the Claims Settlement Agreement, Acadia
          received a pre-petition general unsecured claim against each of CES and
          Calpine
          (as guarantor of CES’s obligations under the Calpine Tolling Agreements) for
          $185.0 million, which takes into account prior draws made by APH under
          a letter
          of credit in the aggregate amount of $15.0 million.  Acadia made a
          dividend by assignment to APH for its portion of the claims.
 On
          May
          22, 2007, APH sold its claims of $85.0 million against CES and Calpine
          to
          JPMorgan Chase Bank, N.A. at 92% of face value.  The pre-tax proceeds
          from this sale were $78.2 million.
 The
          Bidding Procedures Order sets forth the procedures governing the sale of
          the CAH
          Assets.  Under the Bidding Procedures Order, APH agreed to serve as
          the “stalking horse bidder” for the CAH Assets.  APH’s agreement is
          subject to certain terms and conditions, including payment to APH of a
          $2.9
          million break-up fee in the event APH is not the successful
          purchaser.  APH and CAH entered into a purchase agreement whereby APH
          agreed to purchase the CAH Assets for $60.0 million plus assumed liabilities,
          subject to any higher or better offers which may be received by CAH in
          connection with the bankruptcy court sponsored auction. APH paid a $5.0
          million
          initial deposit to an escrow agent at the time of the execution of the
          purchase
          agreement and an additional deposit of $5.0 million was paid on July 27,
          2007.
 The
          Calpine Debtors Bankruptcy Court approved the transfer of the operations,
          maintenance and project management functions of the Acadia power plant
          to Cleco
          Generation Services LLC, a wholly owned subsidiary of Midstream.  The
          transfer will occur upon the closing of the CAH asset sale, whether APH
          or
          another bidder is the successful purchaser at the auction.  A
          subsidiary of Calpine has been performing these functions since the Acadia
          power
          plant became operational.
 At
          the
          closing of the sale, APH will also acquire, for $1.25 million (subject,
          in
          certain circumstances, to reduction), Calpine’s interest in Acadia’s claim
          against Cleco Power regarding a potential electric metering error at the
          Acadia
          power plant.
 **Note
        17 — Subsequent Event**
 ***Acadia
          Auction Results***
 On
          July
          30, 2007, CAH conducted an auction for the CAH Assets.  APH
          participated in the auction.  At the conclusion of the auction, Cajun Gas
          Energy, L.L.C. (Cajun), an affiliate of pooled investment funds managed
          by King
          Street Capital Management, L.L.C., emerged as the successful bidder, with
          a
          price of $189.0 million.  APH will receive payment from Cajun at the
          closing of Cajun’s purchase of CAH Assets in the amount of $85.0 million for the
          agreed upon value of the priority distribution, plus a $2.9 million break-up
          fee
          and other expense reimbursements not to exceed $350,000 under the Bidding
          Procedures Order.  This $85.0 million payment is separate from APH’s $85.0
          million pre-petition unsecured claim that it sold on May 22, 2007.
 A
          hearing
          for the Calpine Debtors Bankruptcy Court to consider the sale of the CAH
          Assets
          to Cajun was held on August 1, 2007.  The Calpine Debtors
          Bankruptcy Court approved the sale, and it is expected that an order will
          be
          entered in the near term finalizing the sale.  Once all regulatory
          approvals have been received, the sale is expected to be consummated during
          the
          fourth quarter of 2007.  APH will retain its 50% membership interest
          in Acadia.
 38
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 
 **ITEM
        2****.**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 The
        following discussion and analysis should be read in combination with the
        Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006, and Cleco Corporation’s and Cleco Power’s Condensed Financial
        Statements contained in this Form 10-Q. The information included therein is
        essential to understanding the following discussion and
        analysis.  Below is information concerning the consolidated results of
        operations of Cleco for the three and six months ended June 30, 2007, and
        June
        30, 2006.
  **OVERVIEW**
 Cleco
        is
        a regional energy services holding company that conducts substantially all
        of
        its business operations through its two principal operating business
        segments:
  §
              Cleco
                  Power, an integrated electric utility services subsidiary regulated
                  by the
                  LPSC and the FERC, among other regulators, which also engages in
                  energy
                  management activities, and
 §
              Midstream,
                  a merchant energy subsidiary regulated by the FERC, that owns and
                  operates
                  a merchant generation station and invests in a joint venture that
                  owns and
                  operates a merchant generation
                  station.
  While
        management believes that Cleco remains a strong company, Cleco continues
        to
        focus on several significant factors affecting Cleco Power and Midstream
        as
        described below.
  ***Cleco
        Power***
 Many
        factors affect the opportunities, challenges, and risks of Cleco Power's
        primary
        business of selling electricity.  These factors include the presence
        of a stable regulatory environment, which includes recovery of costs and
        maintenance of a competitive return on equity; the ability to achieve energy
        sales growth while containing costs; and the ability to recover costs related
        to
        growing demand and rising fuel prices and increasingly stringent regulatory
        and
        environmental standards.
 As
        part
        of its plan to resolve long-term capacity needs, Cleco Power began construction
        of Rodemacher Unit 3 in May 2006, which, upon completion, will provide a
        portion
        of the utility’s future power supply needs and help stabilize customer fuel
        costs.  The project’s capital cost, including carrying costs during
        construction, is estimated at $1.0 billion.  Cleco Power anticipates
        the plant will be operational in the fourth quarter of 2009.  For
        additional information, see “— Financial Condition — Liquidity and Capital
        Resources — Regulatory Matters — Rodemacher Unit 3.”
 In
        2005,
        Hurricanes Katrina and Rita caused catastrophic damage to the Gulf
        Coast region, including Cleco Power's service territory.  Storm
        restoration costs from Hurricanes Katrina and Rita are currently estimated
        to
        total $157.0 million, a decrease from the original estimate of $161.8 million
        filed with the LPSC.  In March 2007, Cleco Power and the LPSC Staff
        filed a settlement agreement allowing the recovery of storm restoration
        costs.  For additional information, see Item 1, “Financial Statements
        and Supplementary Data — Notes to the Unaudited Condensed Financial Statements —
Note 2 — Regulatory Assets and Liabilities.”
 Cleco
        Power is exploring the potential reimbursement of storm restoration costs
        from
        the U.S. Government to reduce the amount to be recovered from
        customers.  Cleco Power cannot predict with certainty that any
        reimbursement from the U.S. Government or securitization of costs will be
        approved or that any such financing can be consummated.  Previously,
        Cleco Power was exploring the possibility of financing the storm restoration
        costs with tax-exempt bonds through the Gulf Opportunities Zone Act of 2005
        (the
        GO Zone Act).  The Louisiana State Bond Commission granted preliminary
        approval to Cleco Power for the issuance of up to $160.0 million of tax-exempt
        bonds under the GO Zone Act.  Currently, Cleco Power has identified
        certain projects in the Gulf Opportunities Zone areas to be completed by
        2010
        and has filed a supplemental application with the Louisiana Public Finance
        Authority to reduce the amount of bonds requested to $100.0 million, which
        would
        provide proceeds to fund capital expenditures in those identified
        areas.  It is not certain that final approval will be granted by the
        Louisiana State Bond Commission as a result of the limited supply of available
        GO Zone Act financing capacity.
  ***Midstream***
 In
        December 2005, the Calpine Debtors filed for protection under Chapter 11
        of the
        Bankruptcy Code and subsequently filed a motion with the Calpine Debtors
        Bankruptcy Court to reject the Calpine Tolling Agreements.  In March
        2006, Acadia and CES executed amendments to the Calpine Tolling Agreements,
        which were approved by the Calpine Debtors Bankruptcy Court, permitting Acadia
        to suspend its obligations under the agreements.
 On
        April
        23, 2007, Cleco announced that a settlement, subject to bankruptcy court
        approval, had been reached with Calpine that resolves issues surrounding
        the
        Calpine bankruptcy filing.  On May 9, 2007, the Calpine Debtors
        Bankruptcy Court approved the terms of the April 23, 2007, settlement
        agreement.  Under the settlement, Acadia received a pre-petition
        general unsecured claim against Calpine of $185.0 million in connection with
        the
        Calpine Tolling Agreements and Calpine’s guaranty of those
        agreements.  Acadia made a dividend by assignment to APH for its
        portion of the claims.  On May 22, 2007, APH sold the claim of $85.0
        million at 92% of face value.  Additionally, APH agreed to purchase
        Calpine’s ownership interest in Acadia for $60.0 million, subject to higher or
        better offers Calpine received in the bankruptcy court-sponsored
        auction.  The auction was held on July 30, 2007, and Cajun Gas Energy,
        L.L.C. (Cajun), an affiliate of pooled investment funds managed by King Street
        Capital Management, L.L.C., emerged as the successful bidder.  The
        Calpine Debtors Bankruptcy Court approved the sale to Cajun on August 1,
        2007.  The Calpine Debtors Bankruptcy Court


39
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 approved
          the transfer of the operations, maintenance and project management functions
          of
          the Acadia facility to Midstream.  The transfer will occur upon the
          closing of the CAH asset sale to Cajun.  A subsidiary of Calpine has
          been performing these functions since the Acadia facility became
          operational.  For additional information on Acadia and the Calpine
          bankruptcy, see Item 1, “Notes to the Unaudited Condensed Financial Statements —
Note 16 — Calpine Bankruptcy and Note 17 — Subsequent Event.”
 Cleco
          continues to assess the ongoing credit condition of the Evangeline Tolling
          Agreement counterparty, as Midstream’s merchant energy business is heavily
          dependent on the performance of this tolling agreement.  For
          additional information on the risks associated with this tolling agreement
          counterparty, see Item 1, “Financial Statements and Supplementary Data — Notes
          to the Unaudited Condensed Financial Statements — Note 8 — Litigation and Other
          Commitments and Contingencies — Risks and Uncertainties.”
 Effective
        February 1, 2007, the ownership interests of Midstream’s transmission
        interconnection facilities were transferred to Cleco Corporation.  In
        accordance with SFAS No. 131, the net operating results for Midstream for
        the
        three and six months ended June 30, 2006, have been adjusted to reflect this
        organizational change.
  ***Comparison
        of the Three Months Ended June 30, 2007, and 2006***
  **Cleco
                Consolidated**FOR
                  THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenue, net
              
              **$**
              **261,501**
              
              
              $
              250,952
              
              
              $
              10,549
              
              
              
              4.20
              %Operating
                  expenses
              
              ****
              **236,422**
              
              
              
              221,536
              
              
              
              (14,886
              )
              
              
              (6.72
              )%Operating
                  income
              
              **$**
              **25,079**
              
              
              $
              29,416
              
              
              $
              (4,337
              )
              
              
              (14.74
              )%Allowance
                  for other funds used during construction
              
              **$**
              **7,032**
              
              
              $
              1,372
              
              
              $
              5,660
              
              
              
              412.54
              %Equity
                  income from investees
              
              **$**
              **71,282**
              
              
              $
              15,233
              
              
              $
              56,049
              
              
              
              367.94
              %Interest
                  charges
              
              **$**
              **11,989**
              
              
              $
              10,910
              
              
              $
              (1,079
              )
              
              
              (9.89
              )%Federal
                  and state income taxes
              
              **$**
              **30,968**
              
              
              $
              13,459
              
              
              $
              (17,509
              )
              
              
              (130.09
              )%Net
                  income applicable to common stock
              
              **$**
              **63,179**
              
              
              $
              22,799
              
              
              $
              40,380
              
              
              
              177.11
              %
  Consolidated
        net income applicable to common stock increased $40.4 million, or 177.1%,
        in the
        second quarter of 2007 compared to the second quarter of 2006 primarily due
        to
        increased Midstream, Cleco Power, and corporate earnings.
 Operating
        revenue, net increased $10.5 million, or 4.2%, in the second quarter of 2007
        compared to the same period of 2006 largely as a result of higher fuel cost
        recovery revenue at Cleco Power.
 Operating
        expenses increased $14.9 million, or 6.7%, in the second quarter of 2007
        compared to the second quarter of 2006 primarily due to increased fuel costs
        and
        higher depreciation expense at Cleco Power.  The resulting change in
        operating income was primarily due to the higher depreciation expense at
        Cleco
        Power.
 Allowance
        for other funds used during construction increased $5.7 million, or 412.5%,
        in
        the second quarter of 2007 compared to the same period of 2006 primarily
        due to
        increased construction activity at Rodemacher Unit 3.
 Equity
        income from investees increased $56.0 million, or 367.9%, in the second quarter
        of 2007 compared to the same period of 2006 primarily due to increased equity
        earnings at APH, resulting from the settlement of Acadia’s pre-petition
        unsecured claims against CES and Calpine.
 Interest
        charges increased $1.1 million, or 9.9%, in the second quarter of 2007 compared
        to the same period of 2006 primarily due to the accrual of interest related
        to
        uncertain tax positions at Cleco Power, which was previously reported in
        tax
        expense.
 Federal
        and state income taxes increased $17.5 million, or 130.1%, during the second
        quarter of 2007 compared to the same period of 2006 primarily due to the
        $57.4
        million increase in pre-tax income for the second quarter of 2007 compared
        to
        the same period of 2006.  The effective income tax rate decreased from
        36.6% to 32.9% during the second quarter of 2007 compared to the same period
        of
        2006, mainly due to the flow-through of tax benefits associated with AFUDC
        equity recorded as a result of the construction of Rodemacher Unit
        3.
 Results
        of operations for Cleco Power and Midstream are more fully described
        below.
  **Cleco
                Power**FOR
                  THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenueBase
              
              **$**
              **90,213**
              
              
              $
              90,677
              
              
              $
              (464
              )
              
              
              (0.51
              )%Fuel
                  cost
                  recovery
              
              ****
              **161,696**
              
              
              
              150,609
              
              
              
              11,087
              
              
              
              7.36
              %Other
                  operations
              
              ****
              **7,922**
              
              
              
              7,883
              
              
              
              39
              
              
              
              0.49
              %Affiliate
                  revenue
              
              ****
              **13**
              
              
              
              12
              
              
              
              1
              
              
              
              8.33
              %Intercompany
                  revenue
              
              ****
              **502**
              
              
              
              500
              
              
              
              2
              
              
              
              0.40
              %Operating
                  revenue,
                  net
              
              ****
              **260,346**
              
              
              
              249,681
              
              
              
              10,665
              
              
              
              4.27
              %Operating
                  expensesFuel
                  used for electricgeneration
                  – recoverable
              
              ****
              **48,667**
              
              
              
              55,424
              
              
              
              6,757
              
              
              
              12.19
              %Power
                  purchased for
                  utilitycustomers – recoverable
              
              ****
              **113,009**
              
              
              
              95,275
              
              
              
              (17,734
              )
              
              
              (18.61
              )%Non-recoverable
                  fuel andpower
                  purchased
              
              ****
              **5,228**
              
              
              
              4,987
              
              
              
              (241
              )
              
              
              (4.83
              )%Other
                  operations
              
              ****
              **22,965**
              
              
              
              24,432
              
              
              
              1,467
              
              
              
              6.00
              %Maintenance
              
              ****
              **14,270**
              
              
              
              13,591
              
              
              
              (679
              )
              
              
              (5.00
              )%Depreciation
              
              ****
              **19,622**
              
              
              
              15,301
              
              
              
              (4,321
              )
              
              
              (28.24
              )%Taxes
                  other than
                  incometaxes
              
              ****
              **9,584**
              
              
              
              9,887
              
              
              
              303
              
              
              
              3.06
              %Total
                  operating
                  expenses
              
              ****
              **233,345**
              
              
              
              218,897
              
              
              
              (14,448
              )
              
              
              (6.60
              )%Operating
                  income
              
              **$**
              **27,001**
              
              
              $
              30,784
              
              
              $
              (3,783
              )
              
              
              (12.29
              )%Interest
                  income
              
              **$**
              **1,060**
              
              
              $
              1,793
              
              
              $
              (733
              )
              
              
              (40.88
              )%Allowance
                  for other funds used during construction
              
              **$**
              **7,032**
              
              
              $
              1,372
              
              
              $
              5,660
              
              
              
              412.54
              %Interest
                  charges
              
              **$**
              **9,626**
              
              
              $
              8,924
              
              
              $
              (702
              )
              
              
              (7.87
              )%Federal
                  and state income taxes
              
              **$**
              **6,531**
              
              
              $
              7,802
              
              
              $
              1,271
              
              
              
              16.29
              %Net
                  income
              
              **$**
              **18,672**
              
              
              $
              17,047
              
              
              $
              1,625
              
              
              
              9.53
              %
   40
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Cleco
        Power’s net income applicable to member’s equity in the second quarter of 2007
        increased $1.6 million, or 9.5%, compared to the second quarter of
        2006.  Contributing factors include:
  §
              higher
                  allowance for other funds used during
                  construction,
 §
              lower
                  other operations expense, and
 §
              lower
                  effective income tax rate.
  These
        were partially offset by:
  §
              higher
                  maintenance expense,
 §
              higher
                  depreciation expense,
 §
              lower
                  interest income, and
 §
              higher
                  interest charges.
 
 FOR
                  THE THREE MONTHS ENDED JUNE 30,(MILLION
                  kWh)
              
              **2007**
              
              
              2006
              
              
              FAVORABLE/
                (UNFAVORABLE)Electric
                  salesResidential
              
              ****
              **777**
              
              
              
              820
              
              
              
              (5.24
              )%Commercial
              
              ****
              **594**
              
              
              
              471
              
              
              
              26.11
              %Industrial
              
              ****
              **758**
              
              
              
              725
              
              
              
              4.55
              %Other
                  retail
              
              ****
              **34**
              
              
              
              147
              
              
              
              (76.87
              )%Total
                  retail
              
              ****
              **2,163**
              
              
              
              2,163
              
              
              
              -Sales
                  for resale
              
              ****
              **117**
              
              
              
              114
              
              
              
              2.63
              %Unbilled
              
              ****
              **182**
              
              
              
              224
              
              
              
              (18.75
              )%Total
                  retail and wholesale customer sales
              
              ****
              **2,462**
              
              
              
              2,501
              
              
              
              (1.56
              )%
 
 FOR
                  THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              FAVORABLE/
                (UNFAVORABLE)Electric
                  salesResidential
              
              **$**
              **36,113**
              
              
              $
              37,529
              
              
              
              (3.77
              )%Commercial
              
              ****
              **22,654**
              
              
              
              17,844
              
              
              
              26.96
              %Industrial
              
              ****
              **14,077**
              
              
              
              13,773
              
              
              
              2.21
              %Other
                  retail
              
              ****
              **1,427**
              
              
              
              5,726
              
              
              
              (75.08
              )%Storm
                  surcharge
              
              ****
              **5,720**
              
              
              
              3,926
              
              
              
              45.70
              %Total
                  retail
              
              ****
              **79,991**
              
              
              
              78,798
              
              
              
              1.51
              %Sales
                  for resale
              
              ****
              **4,044**
              
              
              
              4,282
              
              
              
              (5.56
              )%Unbilled
              
              ****
              **6,178**
              
              
              
              7,597
              
              
              
              (18.68
              )%Total
                  retail and wholesale customer sales
              
              **$**
              **90,213**
              
              
              $
              90,677
              
              
              
              (0.51
              )%
  During
          the third quarter of 2006, a review of customer rate schedules was performed
          by
          Cleco Power and certain other retail customers were reclassified to the
          commercial class of customers.  As a result of this reclassification,
          commercial electric sales increased 27.0%, as reflected in the chart
          above.  This reclassification had no impact on base revenue during the
          second quarter of 2007.
 Cleco
        Power’s residential customers’ demand for electricity largely is affected by
        weather.  Weather generally is measured in cooling degree-days and
        heating degree-days.  A cooling degree-day is an indication of the
        likelihood that a consumer will use air conditioning, while a heating degree-day
        is an indication of the likelihood that a consumer will use
        heating.  An increase in heating degree-days does not produce the same
        increase in revenue as an increase in cooling degree-days, because alternative
        heating sources are more available.  Normal heating degree-days 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
        30 years.
 The
        following chart shows how cooling degree-days varied from normal conditions
        and
        from the prior period. Cleco Power uses temperature data collected by the
        National Oceanic and Atmospheric Administration to determine
        degree-days.
 FOR
                  THE THREE MONTHS ENDED JUNE 30,2007
                  CHANGE**2007**
              
              
              2006
              
              
              NORMAL
              
              
              PRIOR
                  YEAR
              
              
              NORMALCooling
                  degree-days
              
              ****
              **922**
              
              
              
              1,074
              
              
              
              898
              
              
              
              (14.15
              )%
              
              
              2.67
              %
  ***Base***
 Base
        revenue during the second quarter of 2007 decreased $0.5 million, or 0.5%,
        compared to the same period in 2006. The decrease primarily was due to
        slightly lower retail and wholesale kWh sales, primarily from milder weather
        as
        compared to the same period in 2006.  Partially offsetting this
        decrease was the recovery of storm restoration costs through a monthly customer
        surcharge that began in May 2006.  These storm-related costs are being
        amortized to depreciation expense based on the amounts collected monthly
        from
        customers through this surcharge.
 During
        the third and fourth quarters of 2007, Cleco Power is expected to begin
        providing service to expansions of current customers’ operations, as well as
        services to new commercial and industrial customers.  As a result of
        the expansions and new customers, the addition of 5 MWs, which approximates
        $0.6
        million of base revenue annually, is expected during 2007.
 In
        July
        2007, a large industrial customer began operations of a cogeneration
        project.  The project is a 15-MW unit on site fueled by waste
        heat.  The project displaced the customer’s load of 12 MW, and the
        remaining 3 MW is being purchased by Cleco Power under a power purchase
        agreement.  The annual base revenue reduction from this customer is
        expected to be approximately $1.3 million.
 During
        the second quarter of 2007, another industrial customer began construction
        of a
        cogeneration project.  This project is designed to displace 30-MW of
        the customer’s 38-MW load.  Potential annual base revenue reduction
        from this customer is expected to be between $2.0 and $3.0 million, depending
        on
        final contract terms.  This project is expected to be operational
        during the third quarter of 2008.
 During
        the second quarter of 2007, Cleco Power received notification from one of
        its
        wholesale customers that it would be canceling its energy services
        agreement.  This agreement has a one-year notification; therefore, the
        annual base revenue reduction of approximately $0.7 million is expected to
        begin
        during the second quarter of 2008.
 Cleco
        Power began selling fixed-priced power to a 30-MW wholesale customer on January
        1, 2006.  As a result of the fixed-price contract, the new customer is
        expected to increase base revenue while potentially diluting earnings in
        years
        2007 and 2008.  In years 2009 through 2012, Cleco Power anticipates
        earnings accretion related to this contract.  For additional
        information on Cleco’s energy commodity activities, see
  41
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Item
        3,
“Quantitative and Qualitative Disclosures about Market Risk — Risk Overview —
Commodity Price Risks.”  For information on the effects of future
        energy sales on Cleco Power’s financial condition, results of operations, and
        cash flows, see “Risk Factors — Future Electricity Sales” in the Registrants’
Combined Annual Report on Form 10-K for the fiscal year ended December 31,
        2006.  ***Fuel
          Cost Recovery***
 Fuel
          cost
          recovery revenue billed to customers during the second quarter of 2007
          compared
          to the same period in 2006 increased $11.1 million, or 7.4%, primarily
          due to
          increases in
  ***Operating
        Expenses***
 Operating
        expenses increased $14.4 million, or 6.6%, in the second quarter of 2007
        compared to the same period of 2006. Fuel used for electric generation
        (recoverable) decreased $6.8 million, or 12.2%, primarily due to lower volumes
        of fuel used as a result of plant outages as compared to the same period
        of
        2006.  Partially offsetting this decrease was higher per-unit costs of
        fuel used for electric generation.  Power purchased for utility
        customers (recoverable) increased $17.7 million, or 18.6%, largely due to
        higher
        per-unit costs and volumes of power purchased.  Fuel used for electric
        generation and power purchased for utility customers generally are influenced
        by
        natural gas prices.  However, other factors such as unscheduled
        outages, unusual maintenance or repairs, or other developments may affect
        fuel
        used for electric generation and power purchased for utility
        customers.  Other operations expense decreased $1.5 million, or 6.0%,
        primarily due to lower employee benefit costs, lower payroll and administrative
        expenses, and lower accruals for third party damage
        claims.  Maintenance expenses during the second quarter of
        2007 increased $0.7 million, or 5.0%, compared to the same period of 2006
        primarily due to $3.9 million of increased generation station maintenance
        work
        performed, partially offset by a $3.2 million reclassification of certain
        storm
        amortization costs to depreciation expense during the third quarter of
        2006.  Depreciation expense increased $4.3 million, or 28.2%,
        primarily as a result of $3.9 million of storm amortization costs and $0.4
        million of normal recurring additions to fixed assets.
  ***Interest
        Income***
 Interest
        income decreased $0.7 million, or 40.9%, during the second quarter of 2007
        compared to the same period of 2006 primarily due to lower average investment
        balances.  Lower investment balances were the result of construction
        payments for Rodemacher Unit 3 being partially funded by these
        investments.
  ***Allowance
        for Other Funds Used During Construction***
 Allowance
        for other funds used during construction increased $5.7 million, or 412.5%,
        during the second quarter of 2007 compared to the same period of 2006 primarily
        due to increased construction activity at Rodemacher Unit
        3.  Allowance for other funds used during construction equaled 37.7%
        of Cleco Power’s net income for the second quarter of 2007, compared to 8.0% for
        the second quarter of 2006.
  ***Interest
        Charges***
 Interest
        charges increased $0.7 million, or 7.9%, during the second quarter of 2007
        compared to the same period of 2006 primarily due to the accrual of interest
        related to uncertain tax positions, which was previously reported in tax
        expense.  For additional information, see Item 1, “Notes to the
        Unaudited Condensed Financial Statements — Note 12 — Income Taxes.”
  ***Income
        Taxes***
 Income
        tax expense decreased $1.3 million, or 16.3%, during the second quarter of
        2007
        compared to the same period of 2006.  Cleco Power’s effective income
        tax rate decreased from 31.4% to 25.9% during the second quarter of 2007
        compared to the same period of 2006. The decrease in the rate was primarily
        due to the flow-through of tax benefits associated with AFUDC equity recorded
        as
        a result of the construction of Rodemacher Unit 3.
  **Midstream**FOR
                  THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenueOther
                  operations
              
              **$**
              **4**
              
              
              $
              1
              
              
              $
              3
              
              
              
              300.00
              %Affiliate
                  revenue
              
              ****
              **1,160**
              
              
              
              1,138
              
              
              
              22
              
              
              
              1.93
              %Operating
                  revenue
              
              ****
              **1,164**
              
              
              
              1,139
              
              
              
              25
              
              
              
              2.19
              %Operating
                  expensesOther
                  operations
              
              ****
              **2,006**
              
              
              
              1,400
              
              
              
              (606
              )
              
              
              (43.29
              )%Maintenance
              
              ****
              **601**
              
              
              
              537
              
              
              
              (64
              )
              
              
              (11.92
              )%Depreciation
              
              ****
              **79**
              
              
              
              78
              
              
              
              (1
              )
              
              
              (1.28
              )%Taxes
                  other than
                  incometaxes
              
              ****
              **77**
              
              
              
              65
              
              
              
              (12
              )
              
              
              (18.46
              )%Total
                  operatingexpenses
              
              ****
              **2,763**
              
              
              
              2,080
              
              
              
              (683
              )
              
              
              (32.84
              )%Operating
                  loss
              
              **$**
              **(1,599**
              **)**
              
              $
              (941
              )
              
              $
              (658
              )
              
              
              (69.93
              )%Equity
                  income from investees
              
              **$**
              **70,755**
              
              
              $
              13,476
              
              
              $
              57,279
              
              
              
              425.04
              %Interest
                  charges
              
              **$**
              **5,521**
              
              
              $
              4,645
              
              
              $
              (876
              )
              
              
              (18.86
              )%Federal
                  and state income tax expense
              
              **$**
              **25,015**
              
              
              $
              4,018
              
              
              $
              (20,997
              )
              
              
              (522.57
              )%Loss
                  from discontinued operations
              
              **$**
              **-**
              
              
              $
              (103
              )
              
              $
              103
              
              
              
              100.00
              %Net
                  income
              
              **$**
              **39,042**
              
              
              $
              3,767
              
              
              $
              35,275
              
              
              
              936.42
              %
  42
 CLECO
                        CORPORATIONCLECO
                        POWER
                      2007
                          2ND QUARTER
                          10-Q
 Midstream’s
        net income applicable to member’s equity for the second quarter of 2007
        increased $35.3 million, or 936.4%, compared to the second quarter of
        2006.  Factors affecting Midstream during the second quarter of 2007
        are described below.
  ***Operating
        Expenses***
 Operating
        expenses increased $0.7 million, or 32.8%, in the second quarter of 2007
        compared to the second quarter of 2006.  The increase largely was due
        to higher employee benefit costs and higher administrative
        expenses.
  ***Equity
        Income from Investees***
 Equity
        income from investees increased $57.3 million, or 425.0%, in the second quarter
        of 2007 compared to the second quarter of 2006.  The increase was due to a
        $61.8 million increase in equity earnings at APH, partially offset by a $4.5
        million decrease at Evangeline.  The increase in earnings at APH
        primarily was due to the settlement of Acadia’s pre-petition unsecured claims
        against CES and Calpine.  Partially offsetting this increase was the
        absence in the second quarter of 2007 of APH’s $12.2 million draw against the
        $15.0 million letter of credit issued by Calpine.  The decrease at
        Evangeline primarily was due to purchases of replacement power related to
        an
        outage at the facility, as well as higher interest charges and the write-off
        of
        obsolete equipment.  These decreases were partially offset by higher
        revenue from replacement energy.  As previously discussed, Midstream’s
        ownership interests in Perryville and Attala were transferred to Cleco
        Corporation effective February 1, 2007, and are no longer reported as equity
        income from investees on Midstream’s financial statements.  In accordance
        with SFAS No. 131, operating results for the second quarter of 2006 have
        been
        adjusted to reflect this new structure.  For additional information, see
        Item 1, “Notes to the Unaudited Condensed Financial Statements — Note 3 —
Disclosures about Segments.”
  ***Interest
        Charges***
 Interest
        charges increased $0.9 million, or 18.9%, during the second quarter of 2007
        compared to the same period of 2006 primarily due to a higher interest rate
        and
        a higher balance on affiliate debt relating to APH’s investment in
        Acadia.
  ***Income
        Taxes***
 Income
        tax expense increased $21.0 million, or 522.6%, during the second quarter
        of
        2007 compared to the same period of 2006 due to the $56.2 million increase
        in pre-tax income for the second quarter of 2007 compared to the same period
        of
        2006.  Midstream’s effective income tax rate decreased from 50.9% to
        39.1% during the second quarter of 2007 compared to the same period of 2006,
        mainly due to tax adjustments booked in 2006 and interest related to tax
        positions being accounted for as interest expense in 2007, compared to tax
        expense in 2006, as a result of the adoption of FIN 48.
  ***Comparison
        of the Six Months Ended June 30, 2007, and 2006***
  **Cleco
                Consolidated**FOR
                  THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenue, net
              
              **$**
              **485,251**
              
              
              $
              474,370
              
              
              $
              10,881
              
              
              
              2.29
              %Operating
                  expenses
              
              ****
              **442,521**
              
              
              
              418,979
              
              
              
              (23,542
              )
              
              
              (5.62
              )%Operating
                  income
              
              **$**
              **42,730**
              
              
              $
              55,391
              
              
              $
              (12,661
              )
              
              
              (22.86
              )%Allowance
                  for other funds used during construction
              
              **$**
              **12,163**
              
              
              $
              2,041
              
              
              $
              10,122
              
              
              
              495.93
              %Equity
                  income from investees
              
              **$**
              **69,883**
              
              
              $
              15,606
              
              
              $
              54,277
              
              
              
              347.80
              %Other
                  expense
              
              **$**
              **1,882**
              
              
              $
              859
              
              
              $
              (1,023
              )
              
              
              (119.09
              )%Interest
                  charges
              
              **$**
              **23,975**
              
              
              $
              21,860
              
              
              $
              (2,115
              )
              
              
              (9.68
              )%Federal
                  and state income taxes
              
              **$**
              **33,111**
              
              
              $
              19,573
              
              
              $
              (13,538
              )
              
              
              (69.17
              )%Net
                  income applicable to common stock
              
              **$**
              **71,402**
              
              
              $
              34,478
              
              
              $
              36,924
              
              
              
              107.09
              %
  Consolidated
        net income applicable to common stock increased $36.9 million, or 107.1%,
        in the
        first six months of 2007 compared to the first six months of 2006 primarily
        due
        to increased Midstream and corporate earnings.
 Operating
        revenue, net increased $10.9 million, or 2.3%, in the first six months of
        2007
        compared to the same period of 2006 largely as a result of higher base and
        fuel
        cost recovery revenue at Cleco Power.
 Operating
        expenses increased $23.5 million, or 5.6%, in the first six months of 2007
        compared to the first six months of 2006 primarily due to increased depreciation
        expense and other operations and maintenance expenses at Cleco
        Power.
 Allowance
        for other funds used during construction increased $10.1 million, or 495.9%,
        in
        the first six months of 2007 compared to the same period of 2006 primarily
        due
        to increased construction activity at Rodemacher Unit 3.
 Equity
        income from investees increased $54.3 million, or 347.8%, in the first six
        months of 2007 compared to the same period of 2006.  The increase
        primarily was due to increased equity earnings at APH, resulting from the
        settlement of Acadia’s pre-petition unsecured claims against CES and
        Calpine.
 Other
        expense increased $1.0 million, or 119.1%, in the first six months of 2007
        compared to the same period of 2006 primarily due to penalties related to
        the
        FERC Staff investigation that were accrued during the first quarter of 2007
        and
        subsequently paid in June 2007.
 Interest
        charges increased $2.1 million, or 9.7%, in the first six months of 2007
        compared to the same period of 2006 primarily due to the accrual of interest
        related to uncertain tax positions at Cleco Power, which was previously reported
        in tax expense.
 Federal
        and state income taxes increased $13.5 million, or 69.2%, during the first
        six
        months of 2007 compared to the same period of 2006 primarily due to the $49.8
        million increase in pre-tax income for 2007 compared to the same period of
        2006.  The effective income tax rate decreased from 35.5% to 31.6%
        during the first six months of 2007 compared to the same period of 2006,
        mainly
        due to the flow-through of tax benefits associated with AFUDC equity recorded
        as
        a result of the construction of Rodemacher Unit 3.
 
 43
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 Results
        of operations for Cleco Power and Midstream are fully described
        below.
  **Cleco
                Power**FOR
                  THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenueBase
              
              **$**
              **168,289**
              
              
              $
              158,575
              
              
              $
              9,714
              
              
              
              6.13
              %Fuel
                  cost
                  recovery
              
              ****
              **296,640**
              
              
              
              293,700
              
              
              
              2,940
              
              
              
              1.00
              %Electric
                  customer
                  credits
              
              ****
              **-**
              
              
              
              4,382
              
              
              
              (4,382
              )
              
              
              (100.00
              )%Other
                  operations
              
              ****
              **17,182**
              
              
              
              14,432
              
              
              
              2,750
              
              
              
              19.05
              %Affiliate
                  revenue
              
              ****
              **25**
              
              
              
              24
              
              
              
              1
              
              
              
              4.17
              %Intercompany
                  revenue
              
              ****
              **1,003**
              
              
              
              1,000
              
              
              
              3
              
              
              
              0.30
              %Operating
                  revenue,
                  net
              
              ****
              **483,139**
              
              
              
              472,113
              
              
              
              11,026
              
              
              
              2.34
              %Operating
                  expensesFuel
                  used for electric
                  generation – recoverable
              
              ****
              **102,034**
              
              
              
              101,575
              
              
              
              (459
              )
              
              
              (0.45
              )%Power
                  purchased for utility
                  customers – recoverable
              
              ****
              **194,563**
              
              
              
              192,242
              
              
              
              (2,321
              )
              
              
              (1.21
              )%Non-recoverable
                  fuel and power
                  purchased
              
              ****
              **9,950**
              
              
              
              10,063
              
              
              
              113
              
              
              
              1.12
              %Other
                  operations
              
              ****
              **48,576**
              
              
              
              42,052
              
              
              
              (6,524
              )
              
              
              (15.51
              )%Maintenance
              
              ****
              **23,997**
              
              
              
              18,938
              
              
              
              (5,059
              )
              
              
              (26.71
              )%Depreciation
              
              ****
              **39,383**
              
              
              
              30,526
              
              
              
              (8,857
              )
              
              
              (29.01
              )%Taxes
                  other than income
                  taxes
              
              ****
              **18,487**
              
              
              
              18,768
              
              
              
              281
              
              
              
              1.50
              %Total
                  operating
                  expenses
              
              ****
              **436,990**
              
              
              
              414,164
              
              
              
              (22,826
              )
              
              
              (5.51
              )%Operating
                  income
              
              **$**
              **46,149**
              
              
              $
              57,949
              
              
              $
              (11,800
              )
              
              
              (20.36
              )%Interest
                  income
              
              **$**
              **2,466**
              
              
              $
              4,129
              
              
              $
              (1,663
              )
              
              
              (40.28
              )%Allowance
                  for other funds used during construction
              
              **$**
              **12,163**
              
              
              $
              2,041
              
              
              $
              10,122
              
              
              
              495.93
              %Interest
                  charges
              
              **$**
              **19,670**
              
              
              $
              17,904
              
              
              $
              (1,766
              )
              
              
              (9.86
              )%Federal
                  and state income taxes
              
              **$**
              **9,647**
              
              
              $
              14,859
              
              
              $
              5,212
              
              
              
              35.08
              %Net
                  income
              
              **$**
              **30,948**
              
              
              $
              30,921
              
              
              $
              27
              
              
              
              0.09
              %
  Cleco
        Power’s net income applicable to member’s equity in the first six months of 2007
        slightly increased compared to the first six months of
        2006.  Contributing factors include:
  §
              higher
                  base revenue,
 §
              higher
                  other operations revenue,
 §
              higher
                  allowance for other funds used during construction,
                  and
 §
              lower
                  effective income tax rate.
 
 These
        were partially offset by:
  §
              absence
                  of favorable customer credit
                  adjustments,
 §
              higher
                  other operations and maintenance
                  expenses,
 §
              higher
                  depreciation expense,
 §
              lower
                  interest income, and
 §
              higher
                  interest charges.
  FOR
                  THE SIX MONTHS ENDED JUNE 30,(MILLION
                  kWh)
              
              **2007**
              
              
              2006
              
              
              FAVORABLE/
                (UNFAVORABLE)Electric
                  salesResidential
              
              ****
              **1,619**
              
              
              
              1,570
              
              
              
              3.12
              %Commercial
              
              ****
              **1,137**
              
              
              
              878
              
              
              
              29.50
              %Industrial
              
              ****
              **1,468**
              
              
              
              1,417
              
              
              
              3.60
              %Other
                  retail
              
              ****
              **67**
              
              
              
              279
              
              
              
              (75.99
              )%Total
                  retail
              
              ****
              **4,291**
              
              
              
              4,144
              
              
              
              3.55
              %Sales
                  for resale
              
              ****
              **219**
              
              
              
              232
              
              
              
              (5.60
              )%Unbilled
              
              ****
              **112**
              
              
              
              141
              
              
              
              (20.57
              )%Total
                  retail and wholesale customer sales
              
              ****
              **4,622**
              
              
              
              4,517
              
              
              
              2.32
              %
 
 FOR
                  THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              FAVORABLE/
                (UNFAVORABLE)Electric
                  salesResidential
              
              **$**
              **69,377**
              
              
              $
              67,869
              
              
              
              2.22
              %Commercial
              
              ****
              **44,949**
              
              
              
              34,790
              
              
              
              29.20
              %Industrial
              
              ****
              **27,711**
              
              
              
              27,156
              
              
              
              2.04
              %Other
                  retail
              
              ****
              **2,868**
              
              
              
              11,223
              
              
              
              (74.45
              )%Storm
                  surcharge
              
              ****
              **11,651**
              
              
              
              3,926
              
              
              
              196.77
              %Total
                  retail
              
              ****
              **156,556**
              
              
              
              144,964
              
              
              
              8.00
              %Sales
                  for resale
              
              ****
              **7,931**
              
              
              
              8,522
              
              
              
              (6.93
              )%Unbilled
              
              ****
              **3,802**
              
              
              
              5,089
              
              
              
              (25.29
              )%Total
                  retail and wholesale customer sales
              
              **$**
              **168,289**
              
              
              $
              158,575
              
              
              
              6.13
              %
  During
          the third quarter of 2006, a review of customer rate schedules was performed
          by
          Cleco Power and certain other retail customers were reclassified to the
          commercial class of customers.  As a result of this reclassification,
          commercial electric sales increased 29.2%, as reflected in the chart
          above.  This reclassification had no impact on base revenue
          during the first six months of 2007.
 The
        following chart shows how cooling and heating degree-days varied from normal
        conditions and from the prior period. Cleco Power uses temperature data
        collected by the National Oceanic and Atmospheric Administration to determine
        degree-days.
 
 FOR
                  THE SIX MONTHS ENDED JUNE 30,2007
                  CHANGE**2007**
              
              
              2006
              
              
              NORMAL
              
              
              PRIOR
                  YEAR
              
              
              NORMALHeating
                  degree-days
              
              ****
              **950**
              
              
              
              693
              
              
              
              1,026
              
              
              
              37.09
              %
              
              
              (7.41
              )%Cooling
                  degree-days
              
              ****
              **1,034**
              
              
              
              1,184
              
              
              
              968
              
              
              
              (12.67
              )%
              
              
              6.82
              %
  ***Base***
 Base
        revenue during the first six months of 2007 increased $9.7 million, or
        6.1%, compared to the same period in 2006. The increase primarily was due
        to the recovery of storm restoration costs through a monthly customer surcharge
        that began in May 2006.  These storm-related costs are being amortized
        to depreciation expense based on the amounts collected monthly from
        customers through this surcharge.  Also contributing to the
        increase in base revenue were higher retail and wholesale kWh sales,
        primarily from colder winter weather as compared to the same period in
        2006.
 For
        information on the anticipated effects of changes in revenue from industrial
        and
        wholesale customer, see “— Comparison of the Three Months Ended June 30, 2007,
        and 2006 — Cleco Power — Base.”  For additional information on Cleco’s
        energy commodity activities, see Item 3, “Quantitative
  44
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  and
        Qualitative Disclosures about Market Risk — Risk Overview — Commodity Price
        Risks.”
 For
        information on the effects of future energy sales on Cleco Power’s financial
        condition, results of operations, and cash flows, see “Risk Factors — Future
        Electricity Sales” in the Registrants’ Combined Annual Report on Form 10-K for
        the fiscal year ended December 31, 2006.
  ***Fuel
        Cost Recovery***
 Fuel
        cost
        recovery revenue billed to customers during the first six months of 2007
        compared to the same period in 2006 increased $2.9 million, or 1.0%, primarily
        due to increases in the per-unit cost of fuel used for electric
        generation.  For information on Cleco Power’s ability to recover fuel
        and purchase power costs, see “— Comparison of the Three Months Ended June 30,
        2007, and 2006 — Cleco Power — Fuel Cost Recovery.”
  ***Electric
        Customer Credits***
 The
        $4.4
        million change in electric customer credits is the result of the absence
        in the
        first six months of 2007 of favorable adjustments made during the first six
        months of 2006 related to prior RSP filing periods.  The potential
        refunds associated with the RSP are based on results for each 12-month period
        ended September 30.  For additional information on the accrual of
        electric customer credits, see Item 1, “Notes to the Unaudited Condensed
        Financial Statements — Note 7 — Electric Customer Credits.”
  ***Other
        Operations***
 Other
        operations revenue increased $2.8 million, or 19.1%, in the first six months
        of
        2007 compared to the first six months of 2006 primarily due to a $1.2 million
        mark-to-market gain in the first six months of 2007 as compared to a $2.4
        million mark-to-market loss in the first six months of 2006 relating to
        economic hedge transactions associated with fixed-price power being
        provided to a wholesale customer.  These increases were partially
        offset by lower transmission services revenue. For information
        on Cleco’s energy commodity activities, see Item 3, “Quantitative and
        Qualitative Disclosures about Market Risk — Risk Overview — Commodity Price
        Risks.”
  ***Operating
        Expenses***
 Operating
        expenses increased $22.8 million, or 5.5%, in the first six months of 2007
        compared to the same period of 2006. Fuel used for electric generation
        (recoverable) increased $0.5 million, or 0.5%, primarily due to higher per-unit
        costs of fuel used as compared to the same period of 2006.  Power
        purchased for utility customers (recoverable) increased $2.3 million, or
        1.2%,
        largely due to higher volumes of purchased power, partially offset by lower
        per-unit costs of purchased power.  Fuel used for electric generation
        and power purchased for utility customers generally are influenced by natural
        gas prices.  However, other factors such as unscheduled outages,
        unusual maintenance or repairs, or other developments may affect fuel used
        for
        electric generation and power purchased for utility customers.  Other
        operations expense increased $6.5 million, or 15.5%, primarily due to the
        absence in 2007 of the $3.5 million recognition of previously recorded storm
        restoration expenses as a regulatory asset as a result of the LPSC's February
        22, 2006, approval of Cleco Power's request to recover these storm restoration
        costs.  Also contributing to the increase were higher professional
        fees, higher employee benefit costs, and higher payroll and administrative
        expenses. Maintenance expenses during the first six months of
        2007 increased $5.1 million, or 26.7%, compared to the same period of 2006
        primarily due to the absence of the $3.0 million recognition of previously
        recorded storm restoration expenses as a regulatory asset as a result of
        the
        LPSC’s February 22, 2006 order.  Also contributing to the increase was more
        generating station maintenance work performed during the first six months
        of
        2007.  Partially offsetting these increases was the reclassification of
        certain storm amortization costs to depreciation expense during the third
        quarter of 2006.  Depreciation expense increased $8.9 million, or 29.0%,
        primarily as a result of $8.1 million of storm amortization costs and $0.8
        million of normal recurring additions to fixed assets.
  ***Interest
        Income***
 Interest
        income decreased $1.7 million, or 40.3%, during the first six months of 2007
        compared to the same period of 2006 primarily due to lower average investment
        balances.  Lower investment balances were the result of construction
        payments for Rodemacher Unit 3 being partially funded by these
        investments.
  ***Allowance
        for Other Funds Used During Construction***
 Allowance
        for other funds used during construction increased $10.1 million, or 495.9%,
        during the first six months of 2007 compared to the same period of 2006
        primarily due to increased construction activity at Rodemacher Unit
        3.  Allowance for other funds used during construction equaled 39.3%
        of Cleco Power’s net income for the first six months of 2007, compared to 6.6%
        for the first six months of 2006.
  ***Interest
        Charges***
 Interest
        charges increased $1.8 million, or 9.9%, during the first six months of 2007
        compared to the same period of 2006 primarily due to the accrual of interest
        related to uncertain tax positions, which was previously reported in tax
        expense.  For additional information, see Item 1, “Notes to the
        Unaudited Condensed Financial Statements — Note 12 —
Income Taxes.”
  ***Income
        Taxes***
 Income
        tax expense decreased $5.2 million, or 35.1%, during the first six months
        of
        2007 compared to the same period of 2006, partially due to the $5.2 million
        decrease in pre-tax income for 2007 compared to the same period of
        2006.  Cleco Power’s effective income tax rate decreased from 32.5% to
        23.8% during the first six months of 2007 compared to the same period of
        2006,
        mainly due to the flow-through of tax benefits associated with AFUDC equity
        recorded as a result of
  45
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  the
        construction of Rodemacher Unit 3.  The
        tax rate is also affected by the relative size of this item to pre-tax
        income.
  **Midstream**FOR
                  THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              **2007**
              
              
              2006
              
              
              VARIANCE
              
              
              CHANGEOperating
                  revenueOther
                  operations
              
              **$**
              **11**
              
              
              $
              5
              
              
              $
              6
              
              
              
              120.00
              %Affiliate
                  revenue
              
              ****
              **2,146**
              
              
              
              2,188
              
              
              
              (42
              )
              
              
              (1.92
              )%Operating
                  revenue
              
              ****
              **2,157**
              
              
              
              2,193
              
              
              
              (36
              )
              
              
              (1.64
              )%Operating
                  expensesOther
                  operations
              
              ****
              **3,206**
              
              
              
              2,523
              
              
              
              (683
              )
              
              
              (27.07
              )%Maintenance
              
              ****
              **1,061**
              
              
              
              1,040
              
              
              
              (21
              )
              
              
              (2.02
              )%Depreciation
              
              ****
              **154**
              
              
              
              156
              
              
              
              2
              
              
              
              1.28
              %Taxes
                  other than income
                  taxes
              
              ****
              **132**
              
              
              
              122
              
              
              
              (10
              )
              
              
              (8.20
              )%Total
                  operating
                  expenses
              
              ****
              **4,553**
              
              
              
              3,841
              
              
              
              (712
              )
              
              
              (18.54
              )%Operating
                  loss
              
              **$**
              **(2,396**
              **)**
              
              $
              (1,648
              )
              
              $
              (748
              )
              
              
              (45.39
              )%Equity
                  income from investees
              
              **$**
              **68,928**
              
              
              $
              13,448
              
              
              $
              55,480
              
              
              
              412.55
              %Interest
                  charges
              
              **$**
              **10,563**
              
              
              $
              8,876
              
              
              $
              (1,687
              )
              
              
              (19.01
              )%Federal
                  and state income tax expense
              
              **$**
              **22,062**
              
              
              $
              2,322
              
              
              $
              (19,740
              )
              
              
              (850.13
              )%Loss
                  from discontinued operations
              
              **$**
              **-**
              
              
              $
              (190
              )
              
              $
              190
              
              
              
              100.00
              %Net
                  income
              
              **$**
              **34,328**
              
              
              $
              409
              
              
              $
              33,919
              
              
              
              **Not
                  meaningful
  Midstream’s
        net income applicable to member’s equity for the first six months of 2007
        increased $33.9 million compared to the first six months of
        2006.  Factors affecting Midstream during the first six months of 2007
        are described below.
  ***Operating
        Expenses***
 Operating
        expenses increased $0.7 million, or 18.5%, in the first six months of 2007
        compared to the first six months of 2006.  The increase largely was
        due to higher employee benefit costs and higher administrative
        expenses.
  ***Equity
        Income from Investees***
 Equity
        income from investees increased $55.5 million, or 412.6%, in the first six
        months of 2007 compared to the first six months of 2006.  The increase was
        due to a $59.5 million increase in equity earnings at APH, partially offset
        by a
        $4.0 million decrease at Evangeline.  The increase in earnings at APH
        primarily was due to the settlement of Acadia’s pre-petition unsecured claims
        against CES and Calpine.  Partially offsetting this increase was the
        absence in 2007 of APH's draw against the $15.0 million letter of credit
        issued by Calpine.  The decrease at Evangeline primarily was due to
        purchases of replacement power related to an outage at the facility, as well
        as
        higher interest charges and the write-off of obsolete
        equipment.  These decreases were partially offset by higher revenue
        from replacement energy.  As previously discussed, Midstream’s
        ownership interests in Perryville and Attala were transferred to Cleco
        Corporation effective February 1, 2007, and are no longer reported as equity
        income from investees on Midstream’s financial statements.  In accordance
        with SFAS No. 131, operating results for the first six months of 2006 have
        been
        adjusted to reflect this new structure.  For additional information, see
        Item 1, “Notes to the Unaudited Condensed Financial Statements — Note 3 —
Disclosures about Segments.”
  ***Interest
        Charges***
 Interest
        charges increased $1.7 million, or 19.0%, during the first six months of
        2007
        compared to the same period of 2006 primarily due to a higher interest rate
        and
        a higher balance on affiliate debt relating to APH’s investment in
        Acadia.
  ***Income
        Taxes***
 Income
        tax expense increased $19.7 million, or 850.1%, during the first six months
        of
        2007 compared to the same period of 2006 due to a $53.5 million increase in
        pre-tax income for 2007 compared to the same period of
        2006.  Midstream’s effective income tax rate decreased from 79.5% to
        39.1% during the first six months of 2007 compared to the same period of
        2006,
        mainly due to tax adjustments booked in 2006 and interest related to tax
        positions being accounted for as interest expense in 2007, compared to tax
        expense in 2006, as a result of the adoption of FIN 48.
  **FINANCIAL
        CONDITION**
 **Liquidity
        and Capital Resources**
  **General
        Considerations and Credit-Related Risks**
  ***Credit
        Ratings and Counterparties***
 At
        June
        30, 2007, Moody’s outlook for both Cleco Corporation and Cleco Power was
        stable.  Standard & Poor’s ratings outlook for both companies was
        negative due to continued uncertainties surrounding Cleco’s merchant energy
        activities and risks associated with the construction of Rodemacher Unit
        3.  If Cleco Corporation or Cleco Power’s credit rating were to be
        downgraded by Moody’s or Standard & Poor’s, Cleco Corporation and/or Cleco
        Power would be required to pay additional fees and higher interest rates
        under
        their bank credit and other debt agreements.
 On
        May
        22, 2007, Moody’s placed Evangeline’s Senior Secured Debt Rating of Ba2 under
        review for possible upgrade.  The rating action reflects the announced
        sale of Williams’ power business segment, including its tolling agreement with
        Evangeline, to Bear Energy LP.  The sale, which is subject to
        regulatory and other approvals, is expected to close no later than the fourth
        quarter of 2007.  Management anticipates an improvement in the
        project’s credit rating due to the more favorable credit rating of Bear Stearns
        Companies, Inc.
 In
        August
        2005, Cleco Power entered into an EPC contract with Shaw to construct Rodemacher
        Unit 3.  Under the terms of the Amended EPC Contract, in the event
        Cleco Power does not maintain a senior unsecured credit rating of either:
        (i)
        Baa3 or better from Moody’s or (ii) BBB- or better from
        Standard  & Poor’s, Cleco Power will be required to provide a
        letter of credit to Shaw in the amount of $20.0 million.  In the event
        of further downgrade to both of its credit ratings to:  (i) Ba2 or
        below from Moody’s, and (ii) BB or below from Standard &
  46
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  Poor’s,
        Cleco Power will be required to provide an additional $15.0 million letter
        of
        credit to Shaw. With
          respect to any open power or gas positions that Cleco may initiate in the
          future, Cleco Corporation may be
  ***Debt***
 At
        June
        30, 2007, Cleco Corporation and Cleco Power were in compliance with the
        covenants in their credit facilities.  If Cleco Corporation were to
        default under the covenants in its various credit facilities, it would be
        unable
        to borrow additional funds under the facilities.  Further, if Cleco
        Power were to default under its credit facility, Cleco Corporation would
        be
        considered in default under its credit facility. The bonds issued by
        Evangeline are non-recourse to Cleco Corporation, and a default on these
        bonds
        would not be considered a default under Cleco Corporation’s credit
        facility.  If Cleco Corporation’s credit rating were to be downgraded
        one level below investment grade, Cleco Corporation would be required to
        pay
        fees and interest at a rate of 0.45% higher than the current level for its
        $150.0 million credit facility.  A similar downgrade to the credit
        ratings of Cleco Power would require Cleco Power to pay fees and interest
        at a
        rate of 0.70% higher than the current level on its $275.0 million credit
        facility.
  ***Cleco
        Consolidated***
 Cleco
        had
        no short-term debt outstanding at June 30, 2007, or December 31,
        2006.  At June 30, 2007, Cleco’s long-term debt outstanding was $644.3
        million compared to $619.3 million at December 31, 2006.  The $25.0
        million increase was primarily due to $125.0 million in draws against Cleco
        Power’s credit facility, partially offset by the reclassification of $100.0
        million of 7.00% Senior Notes at Cleco Corporation to long-term debt due
        within
        one year.  During the first six months of 2007, Cleco repaid $10.0
        million of 6.53% medium-term notes and $15.0 million of 7.50% medium-term
        notes,
        both at maturity.  These issues were classified as long-term debt due
        within one year; therefore, these repayments did not affect the total amount
        of
        long-term debt recorded. For additional information, see “— Cleco
        Corporation (Holding Company Level)” and “— Cleco Power” below.
 At
        June
        30, 2007, and December 31, 2006, Cleco had a working capital surplus of $46.1
        million and $152.6 million, respectively.  The $106.5 million decrease
        in working capital is primarily due to payment of dividends, increases in
        accruals for taxes and interest, additions to property, plant and equipment,
        including Rodemacher Unit 3, and the reclassification of long-term debt to
        long-term debt due within one year.  Partially offsetting the decrease
        was cash received from draws on Cleco Power’s credit facility, proceeds from the
        sale of the Calpine bankruptcy claims, and cash received from ongoing
        operations.
 Cash
        and
        cash equivalents available at June 30, 2007, were $178.8 million combined
        with
        $277.8 million facility capacity ($127.8 million from Cleco Corporation and
        $150.0 million from Cleco Power) for total liquidity of $456.6
        million.  Cash and cash equivalents decreased $13.7 million, when
        compared to December 31, 2006, largely due to repayment of debt, payment
        of
        dividends, an increase in customer accounts receivable, and additions to
        property, plant and equipment, including Rodemacher Unit 3.  This was
        partially offset by draws against Cleco Power’s credit facility, lower margin
        deposit requirements, and proceeds from the sale of the Calpine bankruptcy
        claims.
  ***Cleco
        Corporation (Holding Company Level)***
 Cleco
        Corporation had no short-term debt outstanding at June 30, 2007, or December
        31,
        2006.  At June 30, 2007, Cleco Corporation had $100.0 million of
        long-term debt due within one year related to its 7.00% Senior Notes due
        May 1,
        2008.
 Cleco
        Corporation’s $150.0 million five-year credit facility matures on June 2,
        2011.  This facility provides for working capital and other
        needs.  Cleco Corporation’s borrowing costs under the facility are
        equal to LIBOR plus 0.650%, including facility fees.
 At
        June
        30, 2007, off-balance sheet commitments reduced available borrowings by an
        additional $22.2 million, leaving available capacity of $127.8
        million.  For more information about these commitments, see Item 1,
“Notes to the Unaudited Condensed Financial Statements — Note 8 — Litigation and
        Other Commitments and Contingencies — Off-Balance Sheet Commitments.” An
        uncommitted line of credit with a bank in an amount up to $10.0 million also
        is
        available to support Cleco’s working capital needs.  This line of
        credit is available to either Cleco Corporation or Cleco Power.
 Cash
        and
        cash equivalents available at June 30, 2007, were $92.5 million, combined
        with
        $127.8 million facility capacity, for total liquidity of $220.3
        million. Cash and cash equivalents increased $2.0 million, when compared to
        December 31, 2006, largely due to the settlement of affiliate payables and
        receivables.  This was partially offset by the payment of
        dividends.
  ***Cleco
        Power***
 Cleco
        Power had no short-term debt outstanding at June 30, 2007, or December 31,
        2006.  At June 30, 2007, Cleco Power’s long-term debt outstanding was
        $644.3 million compared to $519.3 million at December 31, 2006.  The
        $125.0
  47
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  million
        increase was due to $125.0 million in draws against Cleco Power’s credit
        facility during the second quarter of 2007.  During the first six
        months of 2007, Cleco Power repaid $10.0 million of 6.53% medium-term notes
        and
        $15.0 million of 7.50% medium-term notes, both at maturity.  These
        issues were classified as long-term debt due within one year; therefore,
        these
        repayments did not affect the total amount of long-term debt
        recorded.
 Cleco
        Power’s $275.0 million five-year credit facility matures on June 2,
        2011.  This facility provides for working capital and other
        needs.  Cleco Power’s borrowing costs under the facility are equal to
        LIBOR plus 0.400%, including facility fees.
 At
        June
        30, 2007, $125.0 million was outstanding under Cleco Power’s $275.0 million,
        five-year facility with a weighted average interest rate of 5.64%.  An
        uncommitted line of credit with a bank in an amount up to $10.0 million also
        is
        available to support Cleco Power’s working capital needs.  This line
        of credit is available to either Cleco Power or Cleco Corporation.
 Cash
        and
        cash equivalents available at June 30, 2007, were $12.7 million, combined
        with
        $150.0 million facility capacity for total liquidity of $162.7
        million. Cash and cash equivalents decreased $89.2 million, when compared
        to December 31, 2006 primarily due to repayment of debt, an increase in customer
        accounts receivable, and additions to property, plant and equipment, including
        Rodemacher Unit 3.  This was partially offset by draws against Cleco
        Power’s credit facility and lower margin deposit requirements.
 Storm
        restoration costs from Hurricanes Katrina and Rita are currently estimated
        to
        total $157.0 million.  During 2006, the LPSC agreed to an interim
        increase in rates of $23.4 million annually over a ten-year period to recover
        approximately $161.8 million of estimated storm restoration costs, until
        a
        review of the costs by the LPSC was completed.  In March 2007, after
        completing this review, Cleco Power and the LPSC Staff filed a settlement
        agreement with the LPSC allowing the recovery of essentially all of Cleco
        Power’s Hurricanes Katrina and Rita storm costs.  The agreement also allows
        Cleco Power to securitize the storm costs and to recover debt service costs
        through a customer billing surcharge.  Management expects the
        securitization financing order to be approved by the LPSC in the third quarter
        of 2007.
 Cleco
        Power is exploring the potential reimbursement of storm restoration costs
        from
        the U.S. Government to reduce the amount to be recovered from
        customers.  Cleco Power cannot predict with certainty that any
        reimbursement from the U.S. Government or securitization of costs will be
        approved or that any such financing can be consummated.  Previously,
        Cleco Power was exploring the possibility of financing the storm restoration
        costs with tax-exempt bonds through the GO Zone Act.  The Louisiana State
        Bond Commission granted preliminary approval to Cleco Power for the issuance
        of
        up to $160.0 million of tax-exempt bonds under the GO Zone
        Act.  Currently, Cleco Power has identified certain projects in the
        Gulf Opportunities Zone areas to be completed by 2010 and has filed a
        supplemental application with the Louisiana Public Finance Authority to reduce
        the amount of bonds requested to $100.0 million, which would provide proceeds
        to
        fund capital expenditures in those identified areas.  It is not
        certain that final approval will be granted by the Louisiana State Bond
        Commission as a result of the limited supply of available GO Zone Act financing
        capacity.
 On
        February 22, 2006, the LPSC approved Cleco Power’s plans to build Rodemacher
        Unit 3.  Terms of the approval included acceptance of an LPSC Staff
        recommendation that Cleco Power collect from customers an amount equal to
        75% of
        the carrying costs of capital during the construction phase of the
        unit.  In addition to this recovery, Cleco Power plans to fund the
        construction costs related to Rodemacher Unit 3 by utilizing cash on hand,
        available funds from its credit facility, the issuance of long-term debt
        and
        equity contributions from Cleco Corporation.
 The
        Louisiana State Bond Commission has approved the issuance of up to $200.0
        million of tax-exempt bonds to finance the qualifying costs of the solid
        waste
        disposal facilities at Rodemacher Unit 3.  Thus far, a total of $152.9
        million of qualifying costs at Rodemacher Unit 3 has been identified. A
        total of $60.0 million was allocated by the Governor’s office for issuance in
        2006.  Cleco Power has applied to the Governor’s office for allocation
        in 2007 and can apply again in 2008, if necessary, up to the total amount
        of
        qualifying costs identified.  The $60.0 million of bonds allocated for
        2006 were issued on November 21, 2006, by the Rapides Finance Authority,
        and
        Cleco Power agreed to pay the debt service on the bonds.  The fixed
        interest rate on the bonds is 4.70%, and the maturity date is November 1,
        2036.  The bonds may be called at the option of the issuer at the
        direction of Cleco Power after November 1, 2016.
  ***Midstream***
 Midstream
        had no short-term or long-term debt outstanding at June 30, 2007, or December
        31, 2006.
 APH
        had
        cash and cash equivalents of $73.6 million at June 30, 2007, compared to
        none at
        December 31, 2006.  The $73.6 million increase is due to the $78.2
        million settlement of APH’s pre-petition unsecured claims against CES and
        Calpine that were subsequently sold, partially offset by payments made by
        APH
        relating to the settlement of such claims.
 Evangeline,
        deconsolidated and no longer reported in Cleco Corporation’s consolidated
        results, had no short-term debt outstanding at June 30,
        2007.  Evangeline did have $173.0 million and $177.1 million of
        long-term debt outstanding at June 30, 2007, and December 31, 2006,
        respectively, in the form of 8.82% Senior Secured Bonds due 2019.  In
        addition, Evangeline had $7.9 million and $7.6 million of long-term debt
        due
        within one year at June 30, 2007, and December 31, 2006, respectively, relating
        to these bonds.  The bonds issued by Evangeline are non-recourse to
        Cleco Corporation.
  ***Restricted
        Cash***
 Various
        agreements to which Cleco is subject contain covenants that restrict its
        use of
        cash.  As certain provisions under these agreements are met, cash is
        transferred out of related
 escrow
        accounts and becomes available for general
  48
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  corporate
        purposes.  At June 30, 2007, and December 31, 2006, $31.9 million and
        $59.0 million of cash, respectively, was restricted.  At June 30, 2007, the
        $31.9 million of restricted cash consisted of $0.1 million under the Diversified
        Lands mitigation escrow agreement, $31.8 million under the Evangeline senior
        secured bond indenture, and less than $0.1 million under the Cleco Power
        solid
        waste disposal bonds indenture.  Restricted cash at Cleco Power
        decreased $24.3 million compared to December 31, 2006, due to the release
        of
        funds for construction of the solid waste disposal facility at Rodemacher
        Unit
        3.  Restricted cash at Evangeline decreased $2.7 million, however, the
        restricted cash at Evangeline is not included in Cleco Corporation’s Condensed
        Consolidated Balance Sheets at June 30, 2007, due to the deconsolidation
        of
        Evangeline.
  ***Contractual
        Obligations and Other Commitments***
 Cleco,
        in
        the normal course of business activities, enters into a variety of contractual
        obligations.  Some of these result in direct obligations that are
        reflected in the Consolidated Balance Sheets while other commitments, some
        firm
        and some based on uncertainties, are not reflected in the consolidated financial
        statements.  The obligations listed in the following table do not
        include amounts for ongoing needs for which no contractual obligation existed
        as
        of June 30, 2007, and represent only the projected future payments that Cleco
        was obligated to make relative to uncertain tax positions as of June 30,
        2007.  For more information on Cleco’s uncertain tax positions, see
        Item 1, “Notes to the Unaudited Condensed Financial Statements – Note 12 —
Income Taxes.”  For additional information regarding Cleco’s
        Contractual Obligations and Other Commitments, please read “Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
—
Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash
        Requirements — Contractual Obligations and Other Commitments” in the
        Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006.
 **AT
                  JUNE 30,**UNCERTAIN
                  TAX POSITIONS (THOUSANDS)
              
              **2007**Tax
                  liability
              
              **$**
              **92,039**Interest
              
              ****
              **23,443**Total*
              
              **$**
              **115,482**Cleco
                  Corporation (1)
              
              **$**
              **3,000**Cleco
                  Power (2)
              
              ****
              **79,484**Midstream
                  (3)
              
              ****
              **32,998**Total
              
              **$**
              **115,482***Uncertain
                  federal and state tax positions as of June 30, 2007, that will
                  be settled
                  at some future date with the IRS and Louisiana Department of
                  Revenue.
                (1)Includes
                  interest of $3,000
                (2)Includes
                  interest of $13,848
                (3)Includes
                  interest of $6,596
  ***Off-Balance
        Sheet Commitments***
 Cleco
        Corporation and Cleco Power have entered into various off-balance sheet
        commitments, in the form of guarantees and standby letters of credit, in
        order
        to facilitate their activities and the activities of Cleco Corporation’s
        subsidiaries and equity investees (affiliates). Cleco Corporation entered
        into these off-balance sheet commitments in order to entice desired
        counterparties to contract with its affiliates by providing some measure
        of
        credit assurance to the counterparty in the event Cleco’s affiliates do not
        fulfill certain contractual obligations. If Cleco Corporation had not
        provided the off-balance sheet commitments, the desired counterparties may
        not
        have contracted with Cleco’s affiliates, or may have contracted with them at
        terms less favorable to its affiliates.
 The
        off-balance sheet commitments are not recognized on Cleco’s Condensed
        Consolidated Balance Sheets, because it has been determined that Cleco’s
        affiliates are able to perform these obligations under their contracts and
        that
        it is not probable that payments by Cleco will be required. Some of these
        commitments reduce borrowings available to Cleco Corporation under its credit
        facility pursuant to the terms of the credit facility.  Cleco’s
        off-balance sheet commitments as of June 30, 2007, are summarized in the
        following table, and a discussion of the off-balance sheet commitments follows
        the table. The discussion should be read in conjunction with the table to
        understand the impact of the off-balance sheet commitments on Cleco’s financial
        condition.
 AT
                  JUNE 30, 2007REDUCTIONS
                  TO THEAMOUNT
                  AVAILABLETO
                  BE DRAWN ONFACE
              
              
              
              
              
              NET
              
              
              CLECO
                  CORPORATION’S(THOUSANDS)
              
              AMOUNT
              
              
              REDUCTIONS
              
              
              AMOUNT
              
              
              CREDIT
                  FACILITY**Cleco
                  Corporation**Guarantee
                  issued to Entergy
                  companies for performance obligations of Perryville
              
              **$**
              **277,400**
              
              
              **$**
              **135,000**
              
              
              **$**
              **142,400**
              
              
              **$**
              **328**Guarantees
                  issued to purchasers
                  of the assets of Cleco Energy
              
              ****
              **1,400**
              
              
              ****
              **-**
              
              
              ****
              **1,400**
              
              
              ****
              **1,400**Obligations
                  under standby letter
                  of credit issued to the Evangeline Tolling Agreement
                  counterparty
              
              ****
              **15,000**
              
              
              ****
              **-**
              
              
              ****
              **15,000**
              
              
              ****
              **15,000**Guarantee
                  issued to Entergy
                  Mississippi on behalf of Attala
              
              ****
              **500**
              
              
              ****
              **-**
              
              
              ****
              **500**
              
              
              ****
              **500**Guarantee
                  issued to Tenaska on
                  behalf of Cleco Evangeline
              
              ****
              **5,000**
              
              
              ****
              **-**
              
              
              ****
              **5,000**
              
              
              ****
              **5,000****Cleco
                  Power**Obligations
                  under standby letter
                  of credit issued to the Louisiana Department of Labor
              
              ****
              **525**
              
              
              ****
              **-**
              
              
              ****
              **525**
              
              
              ****
              **-**Obligations
                  under the Lignite
                  Mining Agreement
              
              ****
              **17,215**
              
              
              ****
              **-**
              
              
              ****
              **17,215**
              
              
              ****
              **-**Total
              
              **$**
              **317,040**
              
              
              **$**
              **135,000**
              
              
              **$**
              **182,040**
              
              
              **$**
              **22,228**
 
 49
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 
 Cleco
        Corporation provided a limited guarantee to Entergy Louisiana and Entergy
        Gulf
        States for Perryville’s performance, indemnity, representation, and
        warranty obligations under the Sale Agreement, the Power Purchase Agreement,
        and
        other ancillary agreements related to the sale of the Perryville
        facility.  As of June 30, 2007, the aggregate guarantee of $277.4
        million is limited to $142.4 million (other than with respect to the
        indemnification of environmental matters, to which there is no limit) due
        to the
        performance of some of the underlying obligations that were
        guaranteed.  The discounted probability-weighted liability under the
        guarantees and indemnifications as of June 30, 2007, was $0.3 million, resulting
        in a corresponding reduction in the available credit under Cleco’s credit
        facility, which was determined in accordance with the facility’s definition of a
        contingent obligation.  The contingent obligation reduces the amount
        available under the credit agreements by an amount equal to the reasonably
        anticipated liability in respect of the contingent obligation as determined
        in
        good faith.  For additional information on this guarantee, see Item 1,
“Notes to the Unaudited Condensed Financial Statements — Note 9 — Disclosures
        about Guarantees.”
 In
        November 2004, Cleco completed the sale of substantially all of the assets
        of
        Cleco Energy.  Cleco Corporation provided guarantees to the buyers of
        Cleco Energy’s assets for the payment and performance of the indemnity
        obligations of Cleco Energy.  The aggregate amount of the guarantees
        is $1.4 million, and the guarantees expire in 2009.
 If
        Evangeline fails to perform certain obligations under its tolling agreement,
        Cleco Corporation will be required to make payments to the Evangeline Tolling
        Agreement counterparty. Cleco Corporation’s obligation under the Evangeline
        commitment is in the form of a standby letter of credit from investment grade
        banks and is limited to $15.0 million. Ratings triggers do not exist in the
        Evangeline Tolling Agreement. Cleco expects Evangeline to be able to meet
        its obligations under the tolling agreement and does not expect Cleco
        Corporation to be required to make payments to the counterparty. However,
        under the covenants associated with Cleco Corporation’s credit facility, the
        entire net amount of the Evangeline commitment reduces the amount that can
        be
        borrowed under the credit facility. The letter of credit for Evangeline is
        expected to be renewed annually until 2020.
 In
        January 2006, Cleco Corporation provided a $0.5 million guarantee to Entergy
        Mississippi for Attala’s obligations under the Interconnection
        Agreement.  This guarantee will be effective through the life of the
        agreement.
 On
        June
        13, 2007, Cleco Corporation issued a guarantee to Tenaska pursuant to a power
        replacement agreement between Evangeline and Tenaska.  The amount of
        the guarantee is $5.0 million, and the guarantee expires on December 31,
        2007.
 The
        State
        of Louisiana allows employers of certain financial net worth to self-insure
        their workers’ compensation benefits.  Cleco Power has a certificate
        of self-insurance from the Louisiana Office of Workers’ Compensation and is
        required to post a $0.5 million letter of credit, an amount equal to 110%
        of the
        average losses over the previous three years, as surety.
 As
        part
        of the Lignite Mining Agreement entered into in 2001, Cleco Power and SWEPCO,
        joint owners of Dolet Hills, have agreed to pay the lignite miner’s loan and
        lease principal obligations when due, if the lignite miner does not have
        sufficient funds or credit to pay. Any amounts paid on behalf of the miner
        would be credited by the lignite miner against the next invoice for lignite
        delivered. At June 30, 2007, Cleco Power’s 50% exposure for this obligation
        was approximately $17.2 million. The lignite mining contract is in place
        until 2011 and does not affect the amount Cleco Corporation can borrow under
        its
        credit facility.
 The
        following table summarizes the expected termination date of the guarantees
        and
        standby letters of credit discussed above:
 AT
                  JUNE 30, 2007AMOUNT
                  OF COMMITMENT EXPIRATION PER PERIODNET
              
              
              
              
              
              
              
              
              
              
              
              MOREAMOUNT
              
              
              LESS
                  THAN
              
              
              
              
              
              
              
              
              THAN(THOUSANDS)
              
              COMMITTED
              
              
              ONE
                  YEAR
              
              
              1-3
                  YEARS
              
              
              3-5
                  YEARS
              
              
              5
                  YEARSGuarantees
              
              **$**
              **166,515**
              
              
              **$**
              **5,000**
              
              
              **$**
              **1,400**
              
              
              **$**
              **117,215**
              
              
              **$**
              **42,900**Standby
                  letters of credit
              
              ****
              **15,525**
              
              
              ****
              **525**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **15,000**Total
                  commercial
                  commitments
              
              **$**
              **182,040**
              
              
              **$**
              **5,525**
              
              
              **$**
              **1,400**
              
              
              **$**
              **117,215**
              
              
              **$**
              **57,900**
 
 **Regulatory
        Matters**
  ***Wholesale
        Rates of Cleco***
 On
        February 16, 2007, the FERC issued Order No. 890 amending its regulations
        and
        the pro forma tariff (a FERC-approved document outlining rates, charges,
        rules
        and conditions under which a utility provides wholesale electric service)
        adopted in FERC Order Nos. 888 and 889 to address apparent deficiencies in
        the
        pro forma tariff and to standardize several industry practices relating to
        the
        provision of wholesale electric service.  The order became effective
        on March 14, 2007, and contained various implementation deadlines ranging
        from
        30 days to one year.  Cleco Power is in the process of incorporating
        these new requirements and business practices into its operations.
 In
        May
        2006, the FERC issued a NOPR (Docket No. RM04-7-000) pursuant to Sections
        205
        and 206 of the Federal Power Act proposing to amend its regulations governing
        market-based rate authorizations for wholesale sales of electric energy,
        capacity and ancillary services by public utilities. In June 2007, the FERC
        issued Order No. 697 revising and redefining the agency’s current market power
        test, codifying restrictions on affiliate abuse and setting details on how
        it
        will handle mitigation where sellers cannot show a lack of market power.
         The amended regulations had no impact on Cleco’s operations or financial
        condition.
  50
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  For
        additional information on the wholesale rates of Cleco, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations — Financial Condition — Liquidity and Capital Resources — Regulatory
        Matters — Wholesale Rates of Cleco” in the Registrants’ Combined Annual Report
        on Form 10-K for the fiscal year ended December 31, 2006.
  ***Retail
        Rates of Cleco Power***
 In
        March
        2007, as a result of Phase II of the LPSC Staff’s review of storm restoration
        costs, Cleco Power and the LPSC Staff filed a settlement agreement allowing
        the
        recovery of essentially all Cleco Power’s Hurricanes Katrina and Rita storm
        costs, currently estimated to total $157.0 million.  Cleco Power is
        currently recovering these storm costs under an interim rate increase approved
        by the LPSC.  The settlement agreement also allows Cleco Power to
        securitize the amount of the storm costs and to fund and securitize a $50.0
        million reserve for future, extraordinary storm damage
        costs.  Management expects the settlement agreement to be approved by
        the LPSC in the third quarter of 2007.
 In
        April
        2006, the LPSC approved a recommendation of the LPSC Staff requiring Cleco
        Power
        to refund $1.3 million to customers relating to Cleco Power’s RSP filings for
        the 12-month periods ended September 30, 2002, 2003, and 2004.  Cleco
        Power refunded the amount as credits on customers’ September 2006 utility
        bills.  However, the LPSC also reserved the right to further review
        Cleco Power’s calculation of working capital included in the filings for the
        12-month periods ended September 30, 2002, 2003, and 2004.  Cleco
        Power reached an agreement of the working capital issue with the LPSC in
        March
        2007 and refunded to customers an additional $3.2 million of previously accrued
        customer credits in the same month.
 In
        March
        2007, the LPSC consultants completed the review of Cleco Power’s RSP monitoring
        report for the 12-month period ended September 30, 2005.  Cleco Power
        received the LPSC Staff’s report in April 2007 indicating that no refund is due
        based on the 2005 RSP filing.
 Cleco
        Power filed its RSP monitoring report with the LPSC for the 12-month period
        ended September 30, 2006, on March 30, 2007.  The LPSC consultants
        have begun their review of the 2006 filing.  Cleco Power anticipates
        the review will be completed by the end of 2007 and expects no refunds to
        customers.
 For
        additional information on other regulatory aspects of retail rates concerning
        Cleco Power, please read “Management’s Discussion and Analysis of Financial
        Condition and Results of Operations — Financial Condition — Liquidity and
        Capital Resources — Regulatory Matters — Retail Rates of Cleco Power” in the
        Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006.
  ***Wholesale
        Electric Markets***
 On
        March
        16, 2007, to implement the new directives added by Section 215 of the Federal
        Power Act regarding establishment of reliability standards for all public
        utilities subject to the FERC’s authority, the FERC issued Order No. 693
        approving 83 standards currently filed by the North American Electric
        Reliability Council in its capacity as the authorized ERO. The rules essentially
        deal with documentation and the standardization of practices across the
        industry. The FERC began enforcement of these standards on June 18,
        2007.  Cleco Power has incorporated these new reliability standards
        into its operations.
 For
        additional information on regulatory aspects of wholesale electric markets
        affecting Cleco, please read “Management’s Discussion and Analysis of Financial
        Condition and Results of Operations — Financial Condition — Liquidity and
        Capital Resources — Regulatory Matters — Market Restructuring — Wholesale
        Electric Markets” in the Registrants’ Combined Annual Report on Form 10-K for
        the fiscal year ended December 31, 2006.
  ***Retail
        Electric Markets***
 For
        a
        discussion of the regulatory aspects of retail electric markets affecting
        Cleco
        Power, please read “Management’s Discussion and Analysis of Financial Condition
        and Results of Operations — Financial Condition — Liquidity and Capital
        Resources — Regulatory Matters — Retail Electric Markets” in the Registrants’
Combined Annual Report on Form 10-K for the fiscal year ended December 31,
        2006.
  ***Generation
        RFP***
  2007
        Short-Term RFP for 2008 Resources
 On
        January 29, 2007, Cleco Power issued a RFP for a minimum of 50 MW up to 350
        MW
        to meet its 2008 capacity and energy requirements.  Proposals were
        received on February 19, 2007.  Cleco Power has selected the winning
        bids and has signed contracts with the selected bidders.  Cleco Power
        will file for certification with the LPSC for these resources to begin in
        2008.
  2007
        Long-Term RFP
 On
        June
        27, 2007, Cleco Power filed draft documents with the LPSC for up to
        approximately 600 MW of intermediate and/or peaking resources to meet its
        long-term capacity and energy requirements.  Cleco Power has listed
        four potential self-build projects in the informational filing that will
        be
        tested against the market.  The final version of the RFP is scheduled
        for October 2007 with bids due in December 2007.
 For
        additional information on Cleco Power’s generation RFPs, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations — Financial Condition — Liquidity and Capital Resources — Regulatory
        Matters — Generation RFP” in the Registrants’ Combined Annual Report on Form
        10-K for the fiscal year ended December 31, 2006.
  ***Rodemacher
        Unit 3***
 In
        May
        2006, Cleco Power began construction of Rodemacher Unit 3 which will provide
        a
        portion of the utility’s future power supply needs. Rodemacher Unit 3 will be
        capable of burning various solid fuels, but primarily is expected to burn
        petroleum
  51
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  coke
        produced by several refineries throughout the Gulf Coast region.  All
        environmental permits for the unit have been received.  The total
        capital cost of the project, including AFUDC, Amended EPC Contract costs,
        and
        other development expenses, is estimated at $1.0 billion.
 In
        May
        2006, Cleco Power and Shaw entered into the Amended EPC Contract, which provides
        for substantial completion of construction by the fourth quarter of 2009.
         The Amended EPC Contract allows for termination at Cleco Power’s sole
        discretion, which would require payment of increasing termination fees, or
        if
        certain milestones, approvals, or other typical commercial terms and conditions
        are not met.  At June 30, 2007, the maximum termination fee would
        have been $436.7 million.  The project construction remains on
        schedule for commercial operation by the fourth quarter of 2009.
 At June
        30, 2007, Cleco Power had incurred approximately $405.1 million in project
        costs.
 For
        additional information on the CCN and construction of Rodemacher Unit 3,
        please
        read “Management’s Discussion and Analysis of Financial Condition and Results of
        Operations — Financial Condition — Liquidity and Capital Resources —Regulatory
        Matters — Rodemacher Unit 3” in the Registrants’ Combined Annual Report on Form
        10-K for the fiscal year ended December 31, 2006.  For a discussion of
        risks associated with the Rodemacher Unit 3 project, see “Risk Factors —
Rodemacher Unit 3 Construction Costs,” — “Rodemacher Unit 3 Technical
        Specifications,” and — “Termination of the Rodemacher Unit 3 Project or the
        Amended EPC Contract” in the Registrants’ Combined Annual Report on Form 10-K
        for the fiscal year ended December 31, 2006.
  ***Lignite
        Deferral***
 For
        information on Cleco Power’s deferred lignite mining expenditures, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations — Financial Condition — Liquidity and Capital Resources — Regulatory
        Matters — Other Matters — Lignite Deferral” in the Registrants’ Combined Annual
        Report on Form 10-K for the fiscal year ended December 31, 2006.
 In
        November 2006, Cleco Power and SWEPCO submitted a joint application to the
        LPSC
        requesting that Cleco Power recover its existing deferral balance and eliminate
        any future benchmarking of lignite mining costs.  The application was
        docketed by the LPSC, and Cleco Power and SWEPCO filed testimony in support
        of
        the application on January 29, 2007.  As a result of recommendations
        provided by the LPSC Staff, Cleco Power and SWEPCO proposed a revised benchmark
        as opposed to the elimination of benchmarking, as originally requested in
        the
        joint application.  Cleco Power expects a favorable response to its
        request, and current and future deferrals are expected to be
        collected.  It is anticipated the LPSC Staff will finalize its review
        of this information and issue a recommendation during the fourth quarter
        of
        2007.
 If
        this
        request is not granted, Cleco Power may be required to expense a portion
        of the
        current deferred balance as well as expense future amounts instead of deferring
        them.
 At
        June
        30, 2007, and December 31, 2006, Cleco Power had $22.0 million and $20.1
        million, respectively, in deferred costs remaining.  Included in the
        deferred cost balance is interest totaling $3.8 million and $3.0 million
        as of
        June 30, 2007, and December 31, 2006, respectively.
 For
        a
        discussion of risks associated with Cleco Power’s application to recover
        deferred lignite mining costs, see “Risk Factors — Deferred Lignite Mining
        Costs” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal
        year ended December 31, 2006.
  ***Franchises***
 In
        May
        2007, Cleco Power renewed franchise agreements in Louisiana with the cities
        of
        Mamou, Ville Platte and DeQuincy ahead of their respective expiration dates.
         The term of the renewed agreements is 30 years beginning in May
        2007.  Currently, Cleco Power serves approximately 7,600 customers in
        these cities.
 In
        June
        2007, South Louisiana Electric Membership Cooperative (SLEMCO) entered into
        a
        limited franchise agreement with the city of Crowley, Louisiana.  Cleco
        Power also provides electric service to Crowley under an existing franchise
        agreement.  The new agreement allows SLEMCO to compete for new customers in
        areas of the city that have been annexed by Crowley since 2003.  This
        decision does not have a material impact on Cleco Power's results of operations
        or financial condition, but could reduce future customer and load growth
        as both
        utilities compete for new customers.
 Historically,
        Cleco Power has been allowed to recover municipal franchise fees as part
        of base
        rates it charges retail customers.  Consequently, franchise fees are
        recovered from customers both inside and outside a franchised
        area.  In May 2007, the LPSC approved the practice of billing
        franchise fees as a separate line item on customer bills.  The decision
        provided that 50% of the franchise fee would continue to be included in base
        rates charged to all customers and 50% of the franchise fee would be included
        on
        customer bills as a separate line item, billed only to customers within the
        franchised area.  An order from the LPSC is still pending and has been
        delayed to address additional concerns raised by several affected parties.
         Cleco Power anticipates no material impact to its results of operations or
        financial condition if the order is approved.
 For
        additional information on Cleco Power’s electric service franchises, please read
“Business — Regulatory Matters, Industry Developments, and Franchises —
Franchises” in the Registrants’ Combined Annual Report on Form 10-K for the
        fiscal year ended December 31, 2006.
  ***Environmental
        Matters***
 Cleco
        is
        subject to extensive environmental regulation by federal, state and local
        authorities and is required to comply with numerous environmental laws and
        regulations, and to obtain and to comply with numerous governmental permits,
        in
        operating its facilities.  In addition, existing environmental laws,
        regulations and permits could be revised or reinterpreted; new laws and
        regulations could be adopted or become applicable
  52
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  to
        Cleco
        or its facilities; and future changes in environmental laws and regulations
        could occur, including potential regulatory and enforcement developments
        related
        to air emissions.  Cleco may incur significant additional costs to comply
        with these revisions, reinterpretations and requirements.  If Cleco fails
        to comply with these revisions, reinterpretations and requirements, it could
        be
        subject to civil or criminal liabilities and fines.
 The
        regulatory program, Section 316(b) of the Clean Water Act, intends to minimize
        adverse environmental impacts to all aquatic species due to water intake
        structures.  These regulations establish requirements applicable to
        the location, design, construction, and capacity of cooling water intake
        structures.  These rules are applicable to only two Cleco facilities, Teche
        Power Station and Evangeline Power Station.  On July 2, 2007, the EPA
        officially suspended the Phase II, 316(b) rule.  As such, mandatory
        compliance dates for the completion of studies and assessments will likely
        be
        delayed for some time.  Until then, the EPA will likely use 316(b)
        Phase II rules as guidance for future permit renewals until a new 316(b)
        rule is
        promulgated by the EPA.  Although it is uncertain when the EPA will
        promulgate these new rules, Cleco anticipates that any new requirements for
        its
        affected facilities will be established as the facilities go through the
        water
        discharge permit renewal process.
 On
        June
        20, 2007, the EPA proposed to strengthen the national ambient air quality
        standards (NAAQS) for ground-level ozone, the primary component of
        smog.  The Agency also requested comments on alternative levels of the
        primary ozone standard.  Depending on the final level the EPA chooses,
        a significant number of additional parishes of Louisiana could be designated
        as
“non-attainment,” meaning they do not meet the national ambient air quality
        standards for that area.  Since NOx emissions are a precursor to ozone
        formation, existing fossil fuel fired units located in or near these ozone
        non-attainment areas that do not currently utilize best available control
        technology could be targeted for installation of additional NOx emission
        controls.  While it is unknown at this time what the final rule will
        entail, any capital and operating costs of additional pollution control
        equipment could have a material adverse effect on the Registrants’ results of
        operations, financial condition, and cash flows.
 For
        a
        discussion of other Cleco environmental matters, please read “Business —
Environmental Matters” in the Registrants’ Combined Annual Report on Form 10-K
        for the fiscal year ended December 31, 2006.
  ***Recent
        Accounting Standards***
 For
        a
        discussion of recent accounting standards, see Item 1, “Notes to the Unaudited
        Condensed Financial Statements — Note 5 — Recent Accounting Standards” of this
        form 10-Q, which discussion is incorporated herein by reference.
  **CRITICAL
        ACCOUNTING POLICIES**
 Cleco’s
        critical accounting policies include those accounting policies that are both
        important to Cleco’s financial condition and results of operations and those
        that require management to make difficult, subjective, or complex judgments
        about future events, which could result in a material impact to the financial
        statements of Cleco Corporation’s segments or to Cleco as a consolidated
        entity.  The financial statements contained in this report are prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America, which require Cleco to make estimates and assumptions.  Estimates
        and assumptions about future events and their effects cannot be made with
        certainty.  Management bases its current estimates and assumptions on
        historical experience and on various other factors that are believed to be
        reasonable under the circumstances.  On an ongoing basis, these estimates
        and assumptions are evaluated and, if necessary, adjustments are made when
        warranted by new or updated information or by a change in circumstances or
        environment.  Actual results may differ significantly from these estimates
        under different assumptions or conditions.  For a discussion of Cleco’s
        critical accounting policies, see “Management’s Discussion and Analysis of
        Financial Condition and Results of Operations — Critical Accounting Policies” in
        the Registrant’s Combined Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006.
  **CLECO
        POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS**
 Set
        forth
        below is information concerning the results of operations of Cleco Power
        for the
        three and six months ended June 30, 2007, and June 30, 2006. The following
        narrative analysis should be read in combination with Cleco Power’s Unaudited
        Condensed Financial Statements and the Notes contained in this Form
        10-Q.
 Cleco
        Power meets the conditions specified in General Instructions H(1)(a) and
        (b) to
        Form 10-Q and is therefore permitted to use the reduced disclosure format
        for
        wholly owned subsidiaries of reporting companies. Accordingly, Cleco Power
        has omitted from this report the information called for by Item 2 (Management’s
        Discussion and Analysis of Financial Condition and Results of Operations)
        and
        Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part
        I of
        Form 10-Q and the following Part II items of Form 10-Q: Item 2 (Unregistered
        Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior
        Securities), and Item 4 (Submission of Matters to a Vote of Security
        Holders).  Pursuant to the General Instructions, Cleco Power has
        included an explanation of the reasons for material changes in the amount
        of
        revenue and expense items of Cleco Power between the first six months of
        2007
        and the first six months of 2006.  Reference is made to Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
        in Item
        7 of the Registrants’ Combined Annual Report on Form 10-K for the fiscal year
        ended December 31, 2006.
 For
        an
        explanation of material changes in the amount of revenue and expense items
        of
        Cleco Power between the
  53
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  second
        quarter of 2007 and the second quarter of 2006, see “— Results of Operations —
Comparison of the Three Months Ended June 30, 2007, and 2006 — Cleco Power” of
        this Form 10-Q, which discussion is incorporated herein by
        reference.
 For
        an
        explanation of material changes in the amount of revenue and expense items
        of
        Cleco Power between the first six months of 2007 and the first six months
        of
        2006, see “— Results of Operations — Comparison of the Six Months Ended June 30,
        2007, and 2006 — Cleco Power” of this Form 10-Q, which discussion is
        incorporated herein by reference.
 
  **ITEM
            3.**QUANTITATIVE AND QUALITATIVE DISCLOSURES
            ABOUT MARKET RISK
 
 ***Risk
        Overview***
 Market
        risk inherent in Cleco’s market risk-sensitive instruments and positions
        includes potential changes arising from changes in interest rates and the
        commodity market prices of power and natural gas in the industry on different
        energy exchanges.  Cleco is subject to market risk associated with
        economic hedges relating to open natural gas contracts.  Cleco also is
        subject to market risk associated with its remaining tolling agreement
        counterparty.  For additional information concerning Cleco’s market
        risk associated with its remaining counterparty, see Item 2, “Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
—
Financial Condition — Liquidity and Capital Resources — General Considerations
        and Credit-Related Risks.”
 Cleco
        uses SFAS No. 133 to determine whether the market risk-sensitive instruments
        and
        positions are required to be marked-to-market.  Generally, Cleco
        Power’s market risk-sensitive instruments and positions qualify for the
        normal-purchase, normal-sale exception to mark-to-market accounting of SFAS
        No.
        133, as modified by SFAS No. 149, since Cleco Power generally takes physical
        delivery and the instruments and positions are used to satisfy customer
        requirements.
 Cleco’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 commodity prices of power 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.
 Cleco
        monitors credit risk exposure through reviews of counterparty credit quality,
        corporate-wide aggregate counterparty credit exposure and corporate-wide
        aggregate counterparty concentration levels.  Cleco actively manages
        these risks by establishing appropriate credit and concentration limits on
        transactions with counterparties and requiring contractual guarantees, cash
        deposits or letters of credit from counterparties or their affiliates, as
        deemed
        necessary.  Cleco Power has agreements in place with various
        counterparties that authorize the netting of financial transactions and contract
        payments to mitigate credit risk for transactions entered into for risk
        management purposes.
 
 **Interest
        Rate Risks**
 Cleco
        monitors its mix of fixed- and variable-rate debt obligations in light of
        changing market conditions and from time to time may alter that mix, for
        example, refinancing balances outstanding under its variable-rate credit
        facility with fixed-rate debt.  Calculations of the changes in fair
        market value and interest expense of the debt securities are made over a
        one-year period.
 Sensitivity
        to changes in interest rates for fixed-rate obligations is computed by
        calculating the current fair market value using a net present value model
        based
        upon a 1% change in the average interest rate applicable to such
        debt.  Sensitivity to changes in interest rates for variable-rate
        obligations is computed by assuming a 1% change in the current interest rate
        applicable to such debt.
 As
        of
        June 30, 2007, Cleco had no long-term or short-term variable-rate
        debt.  However, at June 30, 2007, Cleco Power had borrowings of $125.0
        million outstanding under its $275.0 million five-year credit facility at
        a
        weighted average cost of 5.64%.  The borrowing costs under the
        facility are equal to LIBOR plus 0.400%, including facility fees.  The
        existing borrowings have 30-day terms and various maturity dates.  If
        the amounts of the individual borrowings are renewed at maturity, rather
        than
        repaid, each 1.0% change in the average interest rates applicable to such
        debt
        would result in a change of approximately $1.3 million in Cleco’s annual pre-tax
        earnings.
  **Commodity
        Price Risks**
 Management
        believes Cleco has controls in place to minimize the risks involved in its
        financial and energy commodity activities.  Independent controls over
        energy commodity functions consist of a middle office (risk management), a
        back office (accounting), regulatory compliance staff, as well as oversight
        by a
        risk management committee comprised of officers and the General Manager –
Internal Audit, who are appointed by Cleco Corporation’s Board of
        Directors.  VaR limits are established by the Risk Management
        Committee and monitored through a daily risk report that identifies the current
        VaR and market conditions.
 During
        2005, Cleco Power entered into certain financial hedge transactions it considers
        economic hedges to mitigate the risk associated with fixed-price power to
        be
        provided to a wholesale customer through December 2010.  These
        transactions are derivatives as defined by SFAS No. 133 but do not meet the
        accounting criteria to be considered hedges.  These transactions are
        marked-to-market with the resulting gain or loss recorded on the income
        statement as a component of operating revenue, net.  At June 30, 2007,
        the positions had a
  54
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
  mark-to-market
        value of $2.1 million, which is an increase of $1.2 million from the
        mark-to-market value of $0.9 million at December 31, 2006.  In
        addition, these positions resulted in a realized gain of $1.2 million for
        the
        six-month period ended June 30, 2007.  In light of these economic
        hedge transactions, volatility in natural gas prices will likely cause
        fluctuations in the market value of open natural gas positions and ultimately
        in
        Cleco Power’s future earnings.
 Cleco
        Power provides fuel for generation and purchases power to meet the power
        demands
        of customers. Cleco Power has entered into positions to mitigate the
        volatility in fuel costs passed on to customers as encouraged by an LPSC
        order.  In December 2004, Cleco Power implemented a fuel stabilization
        policy (which was filed with the LPSC and subsequently amended in June 2006)
        to
        target higher levels of minimum hedging percentages and mitigate the volatility
        in customer fuel costs.  The change in positions could result in
        increased volatility in the marked-to-market amounts for the financial
        positions.  These positions are marked-to-market with the resulting
        gain or loss recorded on the balance sheet as a component of the accumulated
        deferred fuel asset or liability and a component of the risk management assets
        or liabilities.  When these positions close, actual gains or losses
        are deferred and included in the fuel adjustment clause in the month the
        physical contract settles.  Based on market prices at June 30, 2007, the
        net mark-to-market impact related to open natural gas positions was a loss
        of
        $21.8 million.  Deferred losses relating to closed natural gas
        positions at June 30, 2007, totaled $5.8 million.
 Cleco
        utilizes a VaR model to assess the market risk of its hedging portfolios,
        including derivative financial instruments. VaR represents the potential
        loss in fair value for an instrument from adverse changes in market factors
        over
        a defined period of time with a specified confidence level. VaR is
        calculated daily, using the variance/covariance method with delta approximation,
        assuming a holding period of one day, and a 95% confidence level for natural
        gas
        and power positions.  Volatility is calculated daily from historical
        forward prices using the exponentially weighted moving average
        method.
 Based
        on
        these assumptions, the VaR relating to the economic hedge transactions for
        the
        three and six months ended June 30, 2007, as well as the VaR at June 30,
        2007,
        and December 31, 2006, is summarized below:
 **FOR
                  THE THREE MONTHS**
                **ENDED
                  JUNE 30, 2007**(THOUSANDS)
              
              **HIGH**
              
              
              **LOW**
              
              
              **AVERAGE**Cleco
                  Power
              
              **$**
              **318.9**
              
              
              **$**
              **164.5**
              
              
              **$**
              **255.9**
 
 **FOR
                  THE SIX MONTHS**
                **ENDED
                  JUNE 30, 2007**
              
              
              **AT
                  JUNE 30,**
              
              
              AT
                  DECEMBER 31,(THOUSANDS)
              
              **HIGH**
              
              
              **LOW**
              
              
              **AVERAGE**
              
              
              **2007**
              
              
              2006Cleco
                  Power
              
              **$**
              **452.6**
              
              
              **$**
              **164.5**
              
              
              **$**
              **306.9**
              
              
              **$**
              **196.5**
              
              
              $
              459.5
  ***Cleco
        Power***
 Please
          refer to “— Risk Overview” above for a discussion of market risk inherent in
          Cleco Power’s market risk-sensitive instruments.
 Cleco
        Power has entered into various fixed- and variable-rate debt
        obligations.  Please refer to “— Interest Rate Risks” above for a
        discussion of how Cleco Power monitors its mix of fixed- and variable-rate
        debt
        obligations and the manner of calculating changes in fair market value and
        interest expense of its debt obligations.
 As
        of
        June 30, 2007, Cleco Power had no long-term or short-term variable-rate
        debt.  However, at June 30, 2007, Cleco Power had borrowings of $125.0
        million outstanding under its $275.0 million five-year credit facility at
        a
        weighted average cost of 5.64%.  The borrowing costs under the
        facility are equal to LIBOR plus 0.400%, including facility fees.  The
        existing borrowings have 30-day terms and various maturity dates.  If
        the amounts of the individual borrowings are renewed at maturity, rather
        than
        repaid, each 1.0% change in the average interest rates applicable to such
        debt
        would result in a change of approximately $1.3 million in Cleco Power’s annual
        pre-tax earnings.
 Please
        refer to “— Commodity Price Risks” above for a discussion of controls,
        transactions, VaR, and market value maturities associated with Cleco Power’s
        energy commodity activities.
  **ITEM
            4.**CONTROLS AND PROCEDURES
 ***Evaluation
        of Disclosure Controls and Procedures***
 In
        accordance with Rules 13a–15 and 15d–15 under the Securities Exchange Act of
        1934, the Registrants’ management has evaluated, as of the end of the period
        covered by this report, with the supervision and participation of the
        Registrants’ chief executive officer and chief financial officer, the
        effectiveness of the Registrants’ disclosure controls and procedures as defined
        by Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934
        (Disclosure Controls).  Based on that evaluation, such officers
        concluded that the Registrants’ disclosure controls were effective as of the
        date of that evaluation.
 During
        the Registrants’ second fiscal quarter of 2007, there have been no
        changes in the Registrants’ internal control over financial reporting (as
        such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
        Act)
        that have materially affected, or are reasonably likely to materially affect,
        the Registrants’ internal control over financial reporting.
  55
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER 10-Q
 PART
            II —
OTHER INFORMATION
 **ITEM
          1****.**LEGAL PROCEEDINGS
 **CLECO**
 For
          information on legal proceedings affecting Cleco, see Part I, Item 1, “Notes to
          the Unaudited Condensed Financial Statements — Note 8 — Litigation and Other
          Commitments and Contingencies — Other Litigation,” and Note 16 — Calpine
          Bankruptcy.”
 
 **CLECO
        POWER**
 For
          information on legal proceedings affecting Cleco Power, see Part I, Item
          1,
“Notes to the Unaudited Condensed Financial Statements — Note 8 — Litigation and
          Other Commitments and Contingencies — Other Litigation.”
 
 **ITEM
          1A.**RISK FACTORS
 Other
        than the removal of the risk factor regarding the FERC Staff Investigation,
        there have been no material changes to the risk factors previously disclosed
        in
        the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006 (the “2006 Form 10-K”).  For risks that could affect
        actual results and cause results to differ materially from those expressed
        in
        any forward-looking statements made by, or on behalf of, the Registrants,
        see
        the risk factors disclosed under “Risk Factors” in Item 1A of the 2006 Form
        10-K.  For additional information on the settlement of the FERC Staff
        Investigation, see Item 1, “Notes to the Unaudited Condensed Financial
        Statements — Note 8 — Litigation and Other Commitments and Contingencies —
Other Contingencies — FERC Staff Investigation.”
  **ITEM****4.**SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)The
                  Annual Meeting of Shareholders of Cleco Corporation was held April
                  20,
                  2007, in Alexandria, Louisiana.
 (b)Proxies
                  for the election of directors were solicited pursuant to Regulation
                  14A
                  under the Securities Exchange Act of 1934, as amended.  There
                  was no solicitation in opposition to management’s nominees, and all
                  nominees listed in the Proxy Statement were
                  elected.
 (c)The
                  following is a tabulation of the votes cast upon each proposal
                  presented
                  at the Annual Meeting of Shareholders of Cleco Corporation on April
                  20,
                  2007.
 
 (1)Election
                  of Directors to serve until the 2010 Annual Meeting of
                  Shareholders:
 
 **CLASS
                  I DIRECTORS**
              **FOR**
              **WITHHELD**
              **BROKER**
                **NON-VOTES**Sherian
                  G. Cadoria
              52,470,850
              892,589
              0Richard
                  B. Crowell
              52,778,660
              584,779
              0Michael
                  H. Madison
              52,555,243
              808,196
              0W.L.
                  Westbrook
              52,750,631
              612,808
              0
 
 The
        term
        of office as a director of each of Messrs. William L. Marks, Robert T. Ratcliff,
        Sr., William H. Walker, Jr., J. Patrick Garrett, F. Ben James, Jr., and Elton
        R.
        King continued after the meeting.
 
 (2)Ratification
                  of the Audit Committee’s appointment of PricewaterhouseCoopers LLP as
                  Cleco’s independent registered public accounting firm for the fiscal
                  year
                  ending December 31, 2007:
 
 **FOR**
              **AGAINST**
              **ABSTAIN**
              **BROKER**
                **NON-VOTES**52,668,209
              577,192
              118,038
              0
 
 56
 CLECO
                      CORPORATIONCLECO
                      POWER
                    2007
                        2ND QUARTER
                        10-Q
 
 **ITEM
                6****.**EXHIBITS
  **CLECO
                  CORPORATION**10.1
              Claims
                  Settlement Agreement, dated as of April 23, 2007, by and among
                  Calpine
                  Corporation, Calpine Acadia Holdings, LLC and Calpine Energy Services,
                  L.P., and Acadia Power Partners, LLC and Acadia Power Holdings,
                  LLC
                  (incorporated by reference to Exhibit 10.1 of Form 8-K (file no.
                  1-15759),
                  filed April 26, 2007)10.2
              Purchase
                  Agreement, dated as of April 23, 2007, by and among Calpine Acadia
                  Holdings, LLC, as Seller, and Acadia Power Holdings, LLC, as Buyer
                  (incorporated by reference to Exhibit 10.2 of Form 8-K (file no.
                  1-15759),
                  filed April 26, 2007)10.3
              Guaranty,
                  made as of April 23, 2007 by Cleco Corporation in favor of Calpine
                  Acadia
                  Holdings, LLC (incorporated by reference to Exhibit 10.3 of Form
                  8-K (file
                  no. 1-15759), filed April 26, 2007)12(a)
              Computation
                  of Ratios of Earnings to Fixed Charges and of Earnings to Combined
                  Fixed
                  Charges and Preferred Stock Dividends for the three-, six-, and
                  twelve-month periods ended June 30, 2007, for Cleco
                  Corporation31.1
              CEO
                  Certification in accordance with section 302 of the Sarbanes-Oxley
                  Act of
                  200231.2
              CFO
                  Certification in accordance with section 302 of the Sarbanes-Oxley
                  Act of
                  200232.1
              CEO
                  Certification pursuant to section 906 of the Sarbanes-Oxley Act
                  of
                  200232.2
              CFO
                  Certification pursuant to section 906 of the Sarbanes-Oxley Act
                  of
                  200299.1
              FERC
                  Order, issued June 12, 2007, approving the Stipulation and Consent
                  Agreement by and among the Staff of the Office of Enforcement of
                  the FERC
                  and Cleco Corporation, Cleco Power LLC, Cleco Midstream Resources
                  LLC,
                  Cleco Evangeline LLC, Acadia Power Partners, LLC and Cleco Support
                  Group
                  LLC (incorporated by reference to Exhibit 99.1 of Form 8-K (file
                  no.
                  1-15759), filed June 14, 2007)99.2
              Stipulation
                  and Consent Agreement by and among the Staff of the Office of Enforcement
                  of the FERC and Cleco Corporation, Cleco Power LLC, Cleco Midstream
                  Resources LLC, Cleco Evangeline LLC, Acadia Power Partners, LLC
                  and Cleco
                  Support Group LLC (incorporated by reference to Exhibit 99.2 of
                  Form 8-K
                  (file no. 1-15759), filed June 14, 2007)**CLECO
                  POWER**10.4
              401(k)
                  Savings and Investment Plan, Amendment Number 212(b)
              Computation
                  of Ratios of Earnings to Fixed Charges for the three-, six-, and
                  twelve-month periods ended June 30, 2007, for Cleco Power31.3
              CEO
                  Certification in accordance with section 302 of the Sarbanes-Oxley
                  Act of
                  200231.4
              CFO
                  Certification in accordance with section 302 of the Sarbanes-Oxley
                  Act of
                  200232.3
              CEO
                  Certification pursuant to section 906 of the Sarbanes-Oxley Act
                  of
                  200232.4
              CFO
                  Certification pursuant to section 906 of the Sarbanes-Oxley Act
                  of
                  200299.1
              FERC
                  Order, issued June 12, 2007, approving the Stipulation and Consent
                  Agreement by and among the Staff of the Office of Enforcement of
                  the FERC
                  and Cleco Corporation, Cleco Power LLC, Cleco Midstream Resources
                  LLC,
                  Cleco Evangeline LLC, Acadia Power Partners, LLC and Cleco Support
                  Group
                  LLC (incorporated by reference to Exhibit 99.1 of Form 8-K (file
                  no.
                  1-15759), filed June 14, 2007)99.2
              Stipulation
                  and Consent Agreement by and among the Staff of the Office of Enforcement
                  of the FERC and Cleco Corporation, Cleco Power LLC, Cleco Midstream
                  Resources LLC, Cleco Evangeline LLC, Acadia Power Partners, LLC
                  and Cleco
                  Support Group LLC (incorporated by reference to Exhibit 99.2 of
                  Form 8-K
                  (file no. 1-15759), filed June 14, 2007)
  57
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  SIGNATURE
 Pursuant
          to the requirements 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)By: /s/
                  R. Russell
                  DavisR.
                  Russell
                  DavisVice
                  President and Chief
                  Accounting Officer
 
 
 
 
 Date:  August 1,
        2007
  58
 CLECO
                    CORPORATIONCLECO
                    POWER
                  2007
                      2ND QUARTER
                      10-Q
  SIGNATURE
 Pursuant
          to the requirements 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)By: /s/
                  R. Russell
                  DavisR.
                  Russell
                  DavisVice
                  President and Chief
                  Accounting Officer
 
 
 
 
 Date:  August
        1, 2007
   59