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, 2008
  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)
      484-7400Indicate
      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, a non-accelerated filer, or a smaller reporting
      company.  See definitions of “large accelerated filer,”
      “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
      Exchange Act.  (Check one):
                Large
      accelerated filer x           Accelerated
      filer  ̈
                       Non-accelerated
      filer  ̈  (Do
      not check if a smaller reporting
      company)            Smaller
      reporting company  ̈Indicate
      by check mark whether Cleco Power LLC is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See definitions of “large accelerated filer,”
      “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
      Exchange Act.  (Check one):
                Large
      accelerated filer  ̈           Accelerated
      filer  ̈
                       Non-accelerated
      filer x  (Do
      not check if a smaller reporting
      company)            Smaller
      reporting company  ̈Indicate
      by check mark whether the Registrants are shell companies (as defined in
      Rule 12b-2 of the Exchange Act)  Yes  ̈    No
      x
 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 atJuly
      31, 2008Cleco
      Corporation
              Common
      Stock, $1.00 Par Value
              60,225,515
 
 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
                      2008 2ND QUARTER
      FORM 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 Consolidated
Financial Statements are combined.




TABLE
OF CONTENTS


PAGEGLOSSARY OF
      TERMS
            3CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
            5PART
      I
            Financial
      InformationITEM
      1.
            Cleco
      Corporation — Condensed Consolidated Financial Statements
            6Cleco
      Power — Condensed Consolidated Financial Statements
            14Notes
      to the Unaudited Condensed Consolidated Financial
    Statements
            19ITEM
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            36ITEM
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            50ITEM
      4 and 4T.
            Controls
      and Procedures
            52PART
      II
            Other
      InformationITEM
      1.
            Legal
      Proceedings
            53ITEM
      1A.
            Risk
      Factors
            53ITEM
      4.
            Submission
      of Matters to a Vote of Security Holders
            54ITEM
      6.
            Exhibits
            55Signatures
            56





2
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 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 and its subsidiary, 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 combined-cycle, natural gas-fired power plant
      near Eunice, Louisiana, 50% owned by APH and 50% owned by
      Cajun.  Prior to September 13, 2007, Acadia was 50% owned by APH
      and 50% owned by Calpine Acadia Holdings, LLCAFUDC
            Allowance
      for Funds Used During ConstructionAmended
      EPC Contract
            Amended
      and Restated EPC Contract between Cleco Power and Shaw, executed on May
      12, 2006, for engineering, procurement, and construction of Rodemacher
      Unit 3, as amended by Amendment No. 1 thereto effective March 9, 2007 and
      Amendment No. 2 thereto dated as of July 2, 2008.APB
            Accounting
      Principles BoardAPB
      Opinion No. 10
            Consolidated
      Financial Statements, Poolings of Interest, Convertible Debt and Debt
      Issued with Stock Warrants Installment Method of
  AccountingAPB
      Opinion No. 18
            The
      Equity Method of Accounting for Investments in Common
  StockAPH
            Acadia
      Power Holdings LLC, a wholly owned subsidiary of
  MidstreamARB
            Accounting
      Research BulletinARB
      No. 51
            Consolidated
      Financial StatementsAttala
            Attala
      Transmission LLC, a wholly owned subsidiary of Cleco
      Corporation.  Prior to February 1, 2007, Attala was a wholly
      owned subsidiary of MidstreamAttala
      Interconnection Agreement
            Interconnection
      Agreement and Real Estate Agreements between Attala and Entergy
      MississippiBear
      Energy
            BE
      Louisiana LLC, an indirect wholly owned subsidiary of JPMorgan Chase &
      Co.Bear
      Stearns Companies Inc.
            The
      parent company of Bear, Stearns & Co. Inc.Cajun
            Cajun
      Gas Energy L.L.C., an affiliate of pooled investment funds managed by King
      Street Capital Management, L.L.C.Calpine
            Calpine
      CorporationCES
            Calpine
      Energy Services, L.P.Cleco
      Energy
            Cleco
      Energy LLC, a wholly owned subsidiary of MidstreamCleco
      Katrina/Rita
            Cleco
      Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of
      Cleco PowerDiversified
      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. 07-1
            Accounting
      for Collaborative Arrangements Related to the Development and
      Commercialization of Intellectual PropertyEITF
      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
      combined-cycle, natural gas-fired power plant located in Evangeline
      Parish, LouisianaEvangeline
      Tolling Agreement
            Capacity
      Sale and Tolling Agreement between Evangeline and BE Louisiana LLC (as
      successor to Williams Power Company, Inc. (formerly known as Williams
      Energy Marketing & Trading Company)) which expires in 2020.FASB
            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 ARB No. 51 (revised
      December 2003)FIN
      48
            Accounting
      for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.
      109FSP
            FASB
      Staff PositionFSP
      EITF No. 03-6-1
            Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating SecuritiesFSP
      No. FAS 142-3
            Determining
      the Useful Life of Intangible
Assets




3
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




ABBREVIATION
      OR ACRONYM
            DEFINITIONFSP
      No. FAS 157-1
            Application
      of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
      Pronouncements That Address Fair Value Measurements for Purposes of Lease
      Classification or Measurement under Statement 13FSP
      No. FAS 157-2
            Effective
      date of FASB Statement No. 157FSP
      No. FIN 39-1
            Amendment
      of FASB Interpretation No. 39GAAP
            Generally
      Accepted Accounting PrinciplesICT
            Independent
      Coordinator of TransmissionIRP
            Integrated
      Resource PlanningkWh
            Kilowatt-hour(s)
      as applicableLDEQ
            Louisiana
      Department of Environmental QualityLIBOR
            London
      Interbank Offered 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 PlanMidstream
            Cleco
      Midstream Resources LLC, a wholly owned subsidiary of Cleco
      CorporationMoody’s
            Moody’s
      Investors ServiceMW
            Megawatt(s)
      as applicablePCAOB
            Public
      Company Accounting Oversight BoardPCB
            Polychlorinated
      biphenylsPerryville
            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 Perryville Energy Holdings LLC, a wholly owned
      subsidiary of Midstream.Perryville
      Interconnection Agreement
            Interconnection
      Agreement and Real Estate Agreements between Perryville and Entergy
      LouisianaPower
      Purchase Agreement
            Power
      Purchase Agreement, dated as of January 28, 2004, between Perryville and
      Entergy ServicesPRP
            Potentially
      responsible partyRegistrant(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, LouisianaRTO
            Regional
      Transmission OrganizationSale
      Agreement
            Purchase
      and Sale Agreement, dated as of January 28, 2004, between Perryville and
      Entergy LouisianaSEC
            Securities
      and Exchange CommissionSERP
            Cleco
      Corporation Supplemental Executive Retirement PlanSFAS
            Statement
      of Financial Accounting StandardsSFAS
      No. 13
            Accounting
      for LeasesSFAS
      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. 141(R)
            Business
      CombinationsSFAS
      No. 142
            Goodwill
      and Other Intangible AssetsSFAS
      No. 149
            Amendment
      of Statement 133 on Derivative Instruments and Hedging
      ActivitiesSFAS
      No. 157
            Fair
      Value MeasurementsSFAS
      No. 159
            The
      Fair Value Option For Financial Assets and Financial Liabilities –
      Including an amendment of FASB Statement No. 115SFAS
      No. 160
            Noncontrolling
      Interests in Consolidated Financial Statements—an amendment of ARB No.
      51SFAS
      No. 161
            Disclosures
      about Derivative Instruments and Hedging Activities, an amendment of FASB
      Statement No. 133SFAS
      No. 162
            The
      Hierarchy of Generally Accepted Accounting PrinciplesShaw
            Shaw
      Contractors, Inc., a subsidiary of The Shaw Group Inc.Support
      Group
            Cleco
      Support Group LLC, a wholly owned subsidiary of Cleco
      CorporationSWEPCO
            Southwestern
      Electric Power Company, a wholly owned subsidiary of American Electric
      Power Company, Inc.VaR
            Value-at-risk





4
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q


CAUTIONARY
NOTE 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; timing and outcome
of Cleco Power’s proposed new rate plan; Bear Energy’s performance under the
Evangeline Tolling Agreement; future capital expenditures; projections;
business strategies; goals; competitive strengths; market and industry
developments; development and operation of facilities; future environmental
regulations and remediation liabilities; and the anticipated outcome of various
regulatory and legal proceedings.  Although the Registrants believe
that the expectations reflected in such forward-looking statements are
reasonable, such forward-looking statements are based on numerous assumptions
(some of which may prove to be incorrect) and are subject to risks and
uncertainties that could cause the actual results to differ materially from the
Registrants’ expectations.  In addition to any assumptions and other
factors referred to specifically in connection with these forward-looking
statements, the following list identifies some of the factors that could cause
the Registrants’ actual results to differ materially from those contemplated in
any of the Registrants’ forward-looking statements:




§
            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; environmental
      compliance costs; power transmission system constraints; or outcome of
      Cleco Power’s proposed new rate plan filed with the LPSC in July
      2008;




§
            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;




§
            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
      compliance with ERO reliability standards for bulk power systems by Cleco
      Power, Acadia, Attala, Evangeline, and
  Perryville;




§
            Financial
      or regulatory accounting principles or policies imposed by the FASB, the
      SEC, the PCAOB, 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;




§
            The
      amount of uncertain tax positions;




§
            Employee
      work force factors, including work stoppages and changes in key
      executives;




§
            Legal,
      environmental, and regulatory delays and other obstacles associated with
      mergers, acquisitions, reorganizations, investments in joint ventures, or
      other capital projects;




§
            Costs
      and other effects of legal and administrative proceedings, settlements,
      investigations, claims and other
matters;




§
            Changes
      in federal, state, or local laws, and changes in 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 and in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.


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.





5
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 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, 2007.  For more information on the basis of
presentation, see “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 1 — Summary of Significant Accounting Policies — Basis of
Presentation.”













6
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION





Condensed Consolidated
Statements of Income (Unaudited)


FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS,
      EXCEPT SHARE AND PER SHARE AMOUNTS)
            
            2008
            
            
            2007Operating
      revenueElectric
    operations
            
            $
            259,581
            
            
            $
            251,909Other operations
            
            
            12,758
            
            
            
            7,971Affiliate
revenue
            
            
            2,448
            
            
            
            1,621Operating
    revenue
            
            
            274,787
            
            
            
            261,501Operating
      expensesFuel used for electric
      generation
            
            
            22,887
            
            
            
            51,312Power purchased for utility
      customers
            
            
            151,949
            
            
            
            115,592Other operations
            
            
            22,862
            
            
            
            24,722Maintenance
            
            
            14,589
            
            
            
            14,939Depreciation
            
            
            19,336
            
            
            
            19,990Taxes other than income
      taxes
            
            
            9,455
            
            
            
            9,867Total operating
      expenses
            
            
            241,078
            
            
            
            236,422Operating
      income
            
            
            33,709
            
            
            
            25,079Interest
      income
            
            
            1,258
            
            
            
            2,589Allowance
      for other funds used during construction
            
            
            14,993
            
            
            
            7,032Equity
      (loss) income from investees
            
            
            (2,365
            )
            
            
            71,282Other
      income
            
            
            91
            
            
            
            582Other
      expense
            
            
            (1,377
            )
            
            
            (416
            )Interest
      chargesInterest charges, including
      amortization of debt expenses, premium and discount, net of capitalized
      interest
            
            
            14,947
            
            
            
            14,377Allowance for borrowed funds
      used during construction
            
            
            (5,026
            )
            
            
            (2,388
            )Total interest
      charges
            
            
            9,921
            
            
            
            11,989Income
      before income taxes
            
            
            36,388
            
            
            
            94,159Federal
      and state income tax expense
            
            
            6,999
            
            
            
            30,968Net
      income
            
            
            29,389
            
            
            
            63,191Preferred
      dividends requirements, net of tax
            
            
            12
            
            
            
            12Net
      income applicable to common stock
            
            $
            29,377
            
            
            $
            63,179Average
      shares of common stock outstandingBasic
            
            
            59,998,227
            
            
            
            59,489,725Diluted
            
            
            60,168,947
            
            
            
            59,798,877Basic
      earnings per shareFrom continuing
      operations
            
            $
            0.49
            
            
            $
            1.06Net income applicable to common
      stock
            
            $
            0.49
            
            
            $
            1.06Diluted
      earnings per shareFrom continuing
      operations
            
            $
            0.49
            
            
            $
            1.05Net income applicable to common
      stock
            
            $
            0.49
            
            
            $
            1.05Cash
      dividends paid per share of common stock
            
            $
            0.225
            
            
            $
            0.225The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.








7
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION





Condensed
Consolidated Statements of Comprehensive Income (Unaudited)


FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Net
      income
            
            $
            29,389
            
            
            $
            63,191Other
      comprehensive loss, net of tax:Net unrealized loss from
      available-for-sale securities (net of tax benefit of $18 in 2008 and
      $4 in 2007)
            
            
            (29
            )
            
            
            (7
            )Amortization of post-retirement
      benefit net losses (net of tax benefit of $8 in 2008 and $3 in
      2007)
            
            
            (5
            )
            
            
            (2
            )Other
      comprehensive loss
            
            
            (34
            )
            
            
            (9
            )Comprehensive
      income, net of tax
            
            $
            29,355
            
            
            $
            63,182The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.











8
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q


CLECO
CORPORATION





Condensed Consolidated
Statements of Income (Unaudited)


FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS,
      EXCEPT SHARE AND PER SHARE AMOUNTS)
            
            2008
            
            
            2007Operating
      revenueElectric
    operations
            
            $
            469,462
            
            
            $
            464,929Other operations
            
            
            22,821
            
            
            
            17,240Affiliate
revenue
            
            
            5,054
            
            
            
            3,082Operating
    revenue
            
            
            497,337
            
            
            
            485,251Operating
      expensesFuel used for electric
      generation
            
            
            68,423
            
            
            
            106,808Power purchased for utility
      customers
            
            
            241,743
            
            
            
            199,739Other operations
            
            
            45,138
            
            
            
            51,038Maintenance
            
            
            24,702
            
            
            
            25,181Depreciation
            
            
            38,686
            
            
            
            40,088Taxes other than income
      taxes
            
            
            18,286
            
            
            
            19,667Gain on sales of
      assets
            
            
            (99
            )
            
            
            -Total operating
      expenses
            
            
            436,879
            
            
            
            442,521Operating
      income
            
            
            60,458
            
            
            
            42,730Interest
      income
            
            
            2,875
            
            
            
            5,157Allowance
      for other funds used during construction
            
            
            28,677
            
            
            
            12,163Equity
      (loss) income from investees
            
            
            (6,939
            )
            
            
            69,883Other
      income
            
            
            157
            
            
            
            872Other
      expense
            
            
            (2,046
            )
            
            
            (1,882
            )Interest
      chargesInterest charges, including
      amortization of debt expenses, premium and discount, net of capitalized
      interest
            
            
            29,265
            
            
            
            28,034Allowance for borrowed funds
      used during construction
            
            
            (9,603
            )
            
            
            (4,059
            )Total interest
      charges
            
            
            19,662
            
            
            
            23,975Income
      before income taxes
            
            
            63,520
            
            
            
            104,948Federal
      and state income tax expense
            
            
            12,060
            
            
            
            33,111Net
      income
            
            
            51,460
            
            
            
            71,837Preferred
      dividends requirements, net of tax
            
            
            23
            
            
            
            435Net
      income applicable to common stock
            
            $
            51,437
            
            
            $
            71,402Average
      shares of common stock outstandingBasic
            
            
            59,948,801
            
            
            
            58,585,451Diluted
            
            
            60,068,682
            
            
            
            59,586,444Basic
      earnings per shareFrom continuing
      operations
            
            $
            0.86
            
            
            $
            1.21Net income applicable to common
      stock
            
            $
            0.86
            
            
            $
            1.21Diluted
      earnings per shareFrom continuing
      operations
            
            $
            0.86
            
            
            $
            1.20Net income applicable to common
      stock
            
            $
            0.86
            
            
            $
            1.20Cash
      dividends paid per share of common stock
            
            $
            0.450
            
            
            $
            0.450The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.












9
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION





Condensed
Consolidated Statements of Comprehensive Income (Unaudited)


FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Net
      income
            
            $
            51,460
            
            
            $
            71,837Other
      comprehensive loss, net of tax:Net unrealized loss from
      available-for-sale securities (net of tax benefit of $27 in 2008 and $22
      in 2007)
            
            
            (43
            )
            
            
            (35
            )Amortization of post-retirement
      benefit net losses (net of tax benefit of $15 in 2008 and $6 in
      2007)
            
            
            (9
            )
            
            
            (4
            )Other
      comprehensive loss
            
            
            (52
            )
            
            
            (39
            )Comprehensive
      income, net of tax
            
            $
            51,408
            
            
            $
            71,798The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.









10
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION


Condensed
Consolidated Balance Sheets (Unaudited)


(THOUSANDS)
            
            AT
      JUNE 30, 2008
            
            
            AT
      DECEMBER 31, 2007AssetsCurrent assetsCash and cash
      equivalents
            
            $
            150,769
            
            
            $
            129,013Restricted cash
            
            
            5,217
            
            
            
            17,866Customer accounts receivable
      (less allowance for doubtful accounts of $1,307 in 2008 and $1,028 in
      2007)
            
            
            54,485
            
            
            
            39,587Accounts receivable –
      affiliate
            
            
            15,650
            
            
            
            9,367Other accounts
      receivable
            
            
            59,353
            
            
            
            39,029Unbilled
revenue
            
            
            24,205
            
            
            
            17,759Fuel inventory, at average
      cost
            
            
            48,007
            
            
            
            43,291Material and supplies
      inventory, at average cost
            
            
            36,983
            
            
            
            39,195Risk management assets,
      net
            
            
            87,372
            
            
            
            7,201Accumulated deferred
      fuel
            
            
            -
            
            
            
            9,398Cash surrender value of
      company-/trust-owned life insurance policies
            
            
            27,419
            
            
            
            28,857Prepayments
            
            
            2,579
            
            
            
            3,661Regulatory assets -
      other
            
            
            2,553
            
            
            
            20,194Other current
      assets
            
            
            907
            
            
            
            1,098Total current
      assets
            
            
            515,499
            
            
            
            405,516Property, plant and
      equipmentProperty, plant and
      equipment
            
            
            1,952,311
            
            
            
            1,926,848Accumulated
      depreciation
            
            
            (938,842
            )
            
            
            (917,043
            )Net property, plant and
      equipment
            
            
            1,013,469
            
            
            
            1,009,805Construction work in
      progress
            
            
            864,095
            
            
            
            716,075Total property, plant and
      equipment, net
            
            
            1,877,564
            
            
            
            1,725,880Equity investment in
      investees
            
            
            242,508
            
            
            
            258,101Prepayments
            
            
            6,318
            
            
            
            6,783Restricted cash, less current
      portion
            
            
            51,658
            
            
            
            95Regulatory assets and
      liabilities – deferred taxes, net
            
            
            157,216
            
            
            
            126,686Regulatory assets –
      other
            
            
            53,603
            
            
            
            158,268Intangible
assets
            
            
            173,919
            
            
            
            -Other deferred
      charges
            
            
            57,289
            
            
            
            25,294Total assets
            
            $
            3,135,574
            
            
            $
            2,706,623The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.





(Continued
      on next page)





11
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION


Condensed
Consolidated Balance Sheets (Unaudited) (Continued)


(THOUSANDS)
            
            AT
      JUNE 30, 2008
            
            
            AT
      DECEMBER 31, 2007Liabilities
      and shareholders’ equityLiabilitiesCurrent
    liabilitiesLong-term debt due within one
      year
            
            $
            58,350
            
            
            $
            100,000Accounts
payable
            
            
            133,302
            
            
            
            123,061Retainage
            
            
            8,316
            
            
            
            25Accounts payable –
      affiliate
            
            
            1,924
            
            
            
            6,860Customer
    deposits
            
            
            26,577
            
            
            
            25,989Taxes accrued
            
            
            17,302
            
            
            
            12,411Interest
accrued
            
            
            11,916
            
            
            
            21,933Accumulated deferred
      fuel
            
            
            108,597
            
            
            
            -Accumulated current deferred
      taxes, net
            
            
            45,087
            
            
            
            43,055Risk management liability,
      net
            
            
            -
            
            
            
            3,881Regulatory liabilities -
      other
            
            
            528
            
            
            
            538Deferred
      compensation
            
            
            6,290
            
            
            
            6,366Other current
      liabilities
            
            
            14,456
            
            
            
            13,348Total current
      liabilities
            
            
            432,645
            
            
            
            357,467Deferred creditsAccumulated deferred federal
      and state income taxes, net
            
            
            361,320
            
            
            
            366,305Accumulated deferred investment
      tax credits
            
            
            11,976
            
            
            
            12,665Regulatory liabilities -
      other
            
            
            59,694
            
            
            
            31,855Restricted storm
      reserve
            
            
            51,667
            
            
            
            -Uncertain tax
      positions
            
            
            66,485
            
            
            
            68,369Other deferred
      credits
            
            
            116,398
            
            
            
            89,490Total deferred
      credits
            
            
            667,540
            
            
            
            568,684Long-term debt,
    net
            
            
            998,090
            
            
            
            769,103Total
    liabilities
            
            
            2,098,275
            
            
            
            1,695,254Commitments
      and Contingencies (Note 11)Shareholders’
      equityPreferred stockNot subject to mandatory
      redemption, $100 par value, authorized 1,491,900 shares, issued 10,288
      shares at
              June 30, 2008 and December 31,
      2007
            
            
            1,029
            
            
            
            1,029Common shareholders’
      equityCommon stock, $1 par value,
      authorized 100,000,000 shares, issued 60,044,157 and 59,971,945 shares and
      outstanding 60,017,557
              and 59,943,589 shares
      at June 30, 2008 and December 31, 2007, respectively
            
            
            60,044
            
            
            
            59,972Premium on common
      stock
            
            
            393,125
            
            
            
            391,565Retained
    earnings
            
            
            592,028
            
            
            
            567,724Treasury stock, at
      cost, 26,600 and 28,356 shares at June 30, 2008 and December 31,
      2007, respectively
            
            
            (484
            )
            
            
            (530
            )Accumulated other comprehensive
      loss
            
            
            (8,443
            )
            
            
            (8,391
            )Total common shareholders’
      equity
            
            
            1,036,270
            
            
            
            1,010,340Total shareholders’
      equity
            
            
            1,037,299
            
            
            
            1,011,369Total
      liabilities and shareholders’ equity
            
            $
            3,135,574
            
            
            $
            2,706,623The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.





12
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
CORPORATION





Condensed
Consolidated Statements of Cash Flows (Unaudited)


FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Operating
      activitiesNet income
            
            $
            51,460
            
            
            $
            71,837Adjustments to reconcile net
      income to net cash provided by operating activities:Depreciation and
      amortization
            
            
            42,436
            
            
            
            41,893Gain on sales of
      assets
            
            
            (99
            )
            
            
            -Proceeds from sale of
      bankruptcy claims
            
            
            -
            
            
            
            78,200Provision for doubtful
      accounts
            
            
            1,228
            
            
            
            816Loss (income) from equity
      investments
            
            
            6,939
            
            
            
            (69,882
            )Unearned compensation
      expense
            
            
            1,654
            
            
            
            5,027ESOP expense
            
            
            -
            
            
            
            1,481Allowance for other funds used
      during construction
            
            
            (28,677
            )
            
            
            (12,163
            )Amortization of investment tax
      credits
            
            
            (690
            )
            
            
            (717
            )Net deferred income
      taxes
            
            
            (20,920
            )
            
            
            (3,018
            )Deferred fuel
    costs
            
            
            (36,677
            )
            
            
            (16,111
            )Gain on economic
      hedges
            
            
            (4,506
            )
            
            
            (1,229
            )Cash surrender value of
      company-/trust-owned life insurance
            
            
            772
            
            
            
            (1,015
            )Changes in assets and
      liabilities:Accounts
    receivable
            
            
            (23,226
            )
            
            
            (27,194
            )Accounts and notes receivable,
      affiliate
            
            
            2,020
            
            
            
            (4,083
            )Unbilled
revenue
            
            
            (6,446
            )
            
            
            (3,802
            )Fuel, materials and supplies
      inventory
            
            
            (2,504
            )
            
            
            (3,999
            )Prepayments
            
            
            1,971
            
            
            
            1,382Accounts
payable
            
            
            20,023
            
            
            
            410Accounts and notes payable,
      affiliate
            
            
            (27,200
            )
            
            
            (3,390
            )Customer
    deposits
            
            
            2,816
            
            
            
            3,063Regulatory assets and
      liabilities, net
            
            
            22,297
            
            
            
            10,431Other deferred
      accounts
            
            
            11,054
            
            
            
            (7,434
            )Retainage
    payable
            
            
            8,291
            
            
            
            (10,990
            )Taxes accrued
            
            
            19,583
            
            
            
            24,448Interest
accrued
            
            
            (9,309
            )
            
            
            4,590Risk management assets and
      liabilities, net
            
            
            19,566
            
            
            
            12,292Other, net
            
            
            1,256
            
            
            
            1,664Net cash provided by
      operating activities
            
            
            53,112
            
            
            
            92,507Investing
      activitiesAdditions to property, plant and
      equipment
            
            
            (190,841
            )
            
            
            (220,062
            )Allowance for other funds used
      during construction
            
            
            28,677
            
            
            
            12,163Proceeds from sale of property,
      plant and equipment
            
            
            287
            
            
            
            250Return of equity investment in
      investee
            
            
            7,860
            
            
            
            -Premiums paid on
      company-/trust-owned life insurance
            
            
            (629
            )
            
            
            (1,263
            )Settlements received from
      insurance policies
            
            
            941
            
            
            
            -Transfer of cash (to) from
      restricted accounts
            
            
            (38,915
            )
            
            
            24,359Other investing
            
            
            661
            
            
            
            (2,125
            )Net cash used in investing
      activities
            
            
            (191,959
            )
            
            
            (186,678
            )Financing
      activitiesRetirement of long-term
      obligations
            
            
            (350,247
            )
            
            
            (25,163
            )Issuance of long-term
      debt
            
            
            537,541
            
            
            
            125,000Deferred financing
      costs
            
            
            (281
            )
            
            
            (917
            )Dividends paid on preferred
      stock
            
            
            (23
            )
            
            
            (435
            )Dividends paid on common
      stock
            
            
            (27,007
            )
            
            
            (26,351
            )Other financing
            
            
            620
            
            
            
            8,373Net cash provided by financing
      activities
            
            
            160,603
            
            
            
            80,507Net
      increase (decrease) in cash and cash equivalents
            
            
            21,756
            
            
            
            (13,664
            )Cash
      and cash equivalents at beginning of period
            
            
            129,013
            
            
            
            192,471Cash
      and cash equivalents at end of period
            
            $
            150,769
            
            
            $
            178,807Supplementary
      cash flow informationInterest paid (net of amount
      capitalized)
            
            $
            24,893
            
            
            $
            22,800Income taxes
      paid
            
            $
            40,180
            
            
            $
            15,000Supplementary
      non-cash investing and financing activitiesIssuance of treasury stock –
      LTICP and ESOP plans
            
            $
            47
            
            
            $
            42Issuance of common stock –
      LTICP/ESOP/ESPP1
            
            $
            23
            
            
            $
            20,699Accrued additions to property,
      plant and equipment not reported above
            
            $
            22,737
            
            
            $
            53,0981 Includes conversion of preferred
      stock to common stock($19,063/2007)The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.





13
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





PART
I — FINANCIAL INFORMATION





ITEM
1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Cleco
Power


These
unaudited condensed consolidated financial statements should be read in
conjunction with Cleco Power’s Consolidated Financial Statements and Notes
included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal
year ended December 31, 2007.  For more information on the basis of
presentation, see “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 1 — Summary of Significant Accounting Policies — Basis of
Presentation.”











14
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
POWER





Condensed
Consolidated Statements of Income (Unaudited)


FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Operating
      revenueElectric
    operations
            
            $
            259,581
            
            
            $
            251,909Other operations
            
            
            12,714
            
            
            
            7,922Affiliate
revenue
            
            
            594
            
            
            
            515Operating
    revenue
            
            
            272,889
            
            
            
            260,346Operating
      expensesFuel used for electric
      generation
            
            
            22,887
            
            
            
            51,312Power purchased for utility
      customers
            
            
            151,949
            
            
            
            115,592Other operations
            
            
            21,706
            
            
            
            22,965Maintenance
            
            
            13,645
            
            
            
            14,270Depreciation
            
            
            19,007
            
            
            
            19,622Taxes other than income
      taxes
            
            
            8,181
            
            
            
            9,584Total operating
      expenses
            
            
            237,375
            
            
            
            233,345Operating
      income
            
            
            35,514
            
            
            
            27,001Interest
      income
            
            
            999
            
            
            
            1,060Allowance
      for other funds used during construction
            
            
            14,993
            
            
            
            7,032Other
      income
            
            
            115
            
            
            
            190Other
      expense
            
            
            (518
            )
            
            
            (454
            )Interest
      chargesInterest charges, including
      amortization of debt expenses, premium and discount
            
            
            13,857
            
            
            
            12,014Allowance for borrowed funds
      used during construction
            
            
            (5,026
            )
            
            
            (2,388
            )Total interest
      charges
            
            
            8,831
            
            
            
            9,626Income
      before income taxes
            
            
            42,272
            
            
            
            25,203Federal
      and state income taxes
            
            
            9,610
            
            
            
            6,531Net
      income
            
            $
            32,662
            
            
            $
            18,672The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.





15
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
POWER


Condensed
Consolidated Statements of Income (Unaudited)


FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Operating
      revenueElectric
    operations
            
            $
            469,462
            
            
            $
            464,929Other operations
            
            
            22,775
            
            
            
            17,182Affiliate
revenue
            
            
            1,102
            
            
            
            1,028Operating
    revenue
            
            
            493,339
            
            
            
            483,139Operating
      expensesFuel used for electric
      generation
            
            
            68,423
            
            
            
            106,808Power purchased for utility
      customers
            
            
            241,743
            
            
            
            199,739Other operations
            
            
            42,620
            
            
            
            48,576Maintenance
            
            
            22,838
            
            
            
            23,997Depreciation
            
            
            38,025
            
            
            
            39,383Taxes other than income
      taxes
            
            
            15,995
            
            
            
            18,487Total operating
      expenses
            
            
            429,644
            
            
            
            436,990Operating
      income
            
            
            63,695
            
            
            
            46,149Interest
      income
            
            
            1,576
            
            
            
            2,466Allowance
      for other funds used during construction
            
            
            28,677
            
            
            
            12,163Other
      income
            
            
            216
            
            
            
            284Other
      expense
            
            
            (864
            )
            
            
            (797
            )Interest
      chargesInterest charges, including
      amortization of debt expenses, premium and discount
            
            
            26,065
            
            
            
            23,729Allowance for borrowed funds
      used during construction
            
            
            (9,603
            )
            
            
            (4,059
            )Total interest
      charges
            
            
            16,462
            
            
            
            19,670Income
      before income taxes
            
            
            76,838
            
            
            
            40,595Federal
      and state income taxes
            
            
            16,569
            
            
            
            9,647Net
      income
            
            $
            60,269
            
            
            $
            30,948The
      accompanying notes are an integral part of the condensed financial
      statements.





16
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





CLECO
POWER





Condensed
Consolidated Balance Sheets (Unaudited)


(THOUSANDS)
            
            AT
      JUNE 30, 2008
            
            
            AT DECEMBER 31,
      2007AssetsUtility plant and
      equipmentProperty, plant and
      equipment
            
            $
            1,937,111
            
            
            $
            1,911,626Accumulated
      depreciation
            
            
            (928,626
            )
            
            
            (907,434
            )Net property, plant and
      equipment
            
            
            1,008,485
            
            
            
            1,004,192Construction work in
      progress
            
            
            862,448
            
            
            
            714,978Total utility plant,
      net
            
            
            1,870,933
            
            
            
            1,719,170Current assetsCash and cash
      equivalents
            
            
            142,930
            
            
            
            11,944Restricted cash
            
            
            5,217
            
            
            
            17,866Customer accounts receivable
      (less allowance for doubtful accounts of $1,307 in 2008 and $1,028 in
      2007)
            
            
            54,485
            
            
            
            39,587Other accounts
      receivable
            
            
            59,270
            
            
            
            38,527Accounts receivable –
      affiliate
            
            
            18,793
            
            
            
            17,425Unbilled
revenue
            
            
            24,205
            
            
            
            17,759Fuel inventory, at average
      cost
            
            
            48,007
            
            
            
            43,291Material and supplies
      inventory, at average cost
            
            
            36,983
            
            
            
            39,195Risk management assets,
      net
            
            
            87,372
            
            
            
            7,201Prepayments
            
            
            2,333
            
            
            
            2,900Regulatory assets –
      other
            
            
            2,553
            
            
            
            20,194Accumulated deferred
      fuel
            
            
            -
            
            
            
            9,398Cash surrender value of
      company-owned life insurance policies
            
            
            5,347
            
            
            
            5,333Other current
      assets
            
            
            1,124
            
            
            
            439Total current
      assets
            
            
            488,619
            
            
            
            271,059Prepayments
            
            
            6,318
            
            
            
            6,783Restricted cash, less current
      portion
            
            
            51,562
            
            
            
            -Regulatory assets and
      liabilities – deferred taxes, net
            
            
            157,216
            
            
            
            126,686Regulatory assets –
      other
            
            
            53,603
            
            
            
            158,268Intangible
assets
            
            
            173,919
            
            
            
            -Other deferred
      charges
            
            
            47,353
            
            
            
            24,516Total
      assets
            
            $
            2,849,523
            
            
            $
            2,306,482Liabilities
      and member’s equityMember’s equity
            
            $
            876,183
            
            
            $
            816,110Long-term debt,
    net
            
            
            950,090
            
            
            
            769,103Total
      capitalization
            
            
            1,826,273
            
            
            
            1,585,213Current
      liabilitiesLong-term debt due within one
      year
            
            
            58,350
            
            
            
            -Accounts payable
            
            
            130,813
            
            
            
            117,640Accounts payable –
      affiliate
            
            
            36,998
            
            
            
            18,881Retainage
            
            
            8,316
            
            
            
            25Customer
deposits
            
            
            26,577
            
            
            
            25,989Taxes accrued
            
            
            21,364
            
            
            
            6,958Interest accrued
            
            
            11,856
            
            
            
            17,536Accumulated deferred
      fuel
            
            
            108,597
            
            
            
            -Accumulated deferred taxes,
      net
            
            
            46,663
            
            
            
            45,205Risk management liability,
      net
            
            
            -
            
            
            
            3,881Regulatory liabilities -
      other
            
            
            528
            
            
            
            538Other current
      liabilities
            
            
            10,884
            
            
            
            9,690Total current
      liabilities
            
            
            460,946
            
            
            
            246,343Deferred
      creditsAccumulated deferred federal and
      state income taxes, net
            
            
            319,034
            
            
            
            321,747Accumulated deferred investment
      tax credits
            
            
            11,976
            
            
            
            12,665Regulatory liabilities -
      other
            
            
            59,694
            
            
            
            31,855Restricted storm
      reserve
            
            
            51,667
            
            
            
            -Uncertain tax
      positions
            
            
            43,802
            
            
            
            44,960Other deferred
      credits
            
            
            76,131
            
            
            
            63,699Total deferred
      credits
            
            
            562,304
            
            
            
            474,926Total
      liabilities and member’s equity
            
            $
            2,849,523
            
            
            $
            2,306,482The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.




17
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q


CLECO
POWER





Condensed
Consolidated Statements of Cash Flows (Unaudited)


FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Operating
      activitiesNet income
            
            $
            60,269
            
            
            $
            30,948Adjustments to reconcile net
      income to net cash provided by (used in) operating
    activities:Depreciation and
      amortization
            
            
            41,519
            
            
            
            40,901Provision for doubtful
      accounts
            
            
            1,223
            
            
            
            816Unearned compensation
      expense
            
            
            447
            
            
            
            2,412Allowance for other funds used
      during construction
            
            
            (28,677
            )
            
            
            (12,163
            )Amortization of investment tax
      credits
            
            
            (690
            )
            
            
            (717
            )Net deferred income
      taxes
            
            
            (18,407
            )
            
            
            (16,589
            )Deferred fuel
    costs
            
            
            (36,677
            )
            
            
            (16,111
            )Gain on economic
      hedges
            
            
            (4,506
            )
            
            
            (1,229
            )Cash surrender value of
      company-owned life insurance
            
            
            (211
            )
            
            
            (75
            )Changes in assets and
      liabilities:Accounts
    receivable
            
            
            (23,641
            )
            
            
            (27,016
            )Accounts and notes receivable,
      affiliate
            
            
            (1,327
            )
            
            
            1,105Unbilled
revenue
            
            
            (6,446
            )
            
            
            (3,802
            )Fuel, materials and supplies
      inventory
            
            
            (2,504
            )
            
            
            (3,999
            )Prepayments
            
            
            1,455
            
            
            
            840Accounts
payable
            
            
            23,698
            
            
            
            2,025Accounts and notes payable,
      affiliate
            
            
            17,878
            
            
            
            (25,934
            )Customer
    deposits
            
            
            2,816
            
            
            
            3,063Regulatory assets and
      liabilities, net
            
            
            22,297
            
            
            
            10,431Other deferred
      accounts
            
            
            6,232
            
            
            
            (7,688
            )Retainage
    payable
            
            
            8,291
            
            
            
            (10,990
            )Taxes accrued
            
            
            14,406
            
            
            
            6,134Interest
accrued
            
            
            (4,973
            )
            
            
            4,189Risk management assets and
      liabilities, net
            
            
            19,566
            
            
            
            12,292Other, net
            
            
            566
            
            
            
            1,376Net cash provided by (used in)
      operating activities
            
            
            92,604
            
            
            
            (9,781
            )Investing
      activitiesAdditions to property, plant and
      equipment
            
            
            (190,258
            )
            
            
            (214,642
            )Allowance for other funds used
      during construction
            
            
            28,677
            
            
            
            12,163Proceeds from sale of property,
      plant and equipment
            
            
            286
            
            
            
            250Premiums paid on company-owned
      life insurance
            
            
            (424
            )
            
            
            (470
            )Transfer of cash (to) from
      restricted accounts
            
            
            (38,913
            )
            
            
            24,361Net cash used in investing
      activities
            
            
            (200,632
            )
            
            
            (178,338
            )Financing
      activitiesRetirement of long-term
      obligations
            
            
            (250,246
            )
            
            
            (25,163
            )Issuance of long-term
      debt
            
            
            489,541
            
            
            
            125,000Deferred financing
      costs
            
            
            (281
            )
            
            
            (916
            )Net cash provided by financing
      activities
            
            
            239,014
            
            
            
            98,921Net
      increase (decrease) in cash and cash equivalents
            
            
            130,986
            
            
            
            (89,198
            )Cash
      and cash equivalents at beginning of period
            
            
            11,944
            
            
            
            101,878Cash
      and cash equivalents at end of period
            
            $
            142,930
            
            
            $
            12,680Supplementary
      cash flow informationInterest paid (net of amount
      capitalized)
            
            $
            21,206
            
            
            $
            19,300Supplementary
      non-cash investing and financing activitiesAccrued additions to property,
      plant and equipment not reported above
            
            $
            22,737
            
            
            $
            53,098The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.







18
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q


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


Note
      1
            Summary
      of Significant Accounting Policies
            Cleco
      Corporation and Cleco PowerNote
      2
            Recent
      Accounting Standards
            Cleco
      Corporation and Cleco PowerNote
      3
            Fair
      Value Measurement Disclosures
            Cleco
      Corporation and Cleco PowerNote
      4
            Regulatory
      Assets and Liabilities
            Cleco
      Corporation and Cleco PowerNote
      5
            Restricted
      Cash
            Cleco
      Corporation and Cleco PowerNote
      6
            Debt
            Cleco
      Corporation and Cleco PowerNote
      7
            Pension
      Plan and Employee Benefits
            Cleco
      Corporation and Cleco PowerNote
      8
            Income
      Taxes
            Cleco
      Corporation and Cleco PowerNote
      9
            Disclosures
      about Segments
            Cleco
      CorporationNote
      10
            Equity
      Investment in Investees
            Cleco
      CorporationNote
      11
            Litigation,
      Other Commitments and Contingencies, and Disclosures about
      Guarantees
            Cleco
      Corporation and Cleco PowerNote
      12
            Affiliate
      Transactions
            Cleco
      Corporation and Cleco PowerNote
      13
            Intangible
      Asset
            Cleco
      Corporation and Cleco Power





Notes
to the Unaudited Condensed Consolidated Financial Statements





Note
1 — Summary of Significant Accounting Policies





Principles
of Consolidation


The
accompanying condensed consolidated financial statements of Cleco include the
accounts of Cleco and its majority-owned subsidiaries after elimination of
intercompany accounts and transactions.


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
Evangeline, Perryville, Attala, and Acadia.  These 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 10 — “Equity Investment in
Investees.”


In
March 2008, in connection with the closing of the securitization transaction,
Cleco Power sold the right to bill and collect from customers unamortized storm
damage costs to Cleco Katrina/Rita, a special purpose, wholly owned subsidiary
of Cleco Power.  Cleco Power, through a review of its relationships
with Cleco Katrina/Rita, has determined the entity should be consolidated with
Cleco Power.  For additional information about Cleco Katrina/Rita, see
Note 4 — “Regulatory Assets and Liabilities — Deferred Storm Restoration Costs -
Katrina/Rita.”




Basis
of Presentation


The
condensed consolidated financial statements of Cleco Corporation and 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 consolidated 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 2 — “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.




Fair
Value Measurements


Various
accounting pronouncements require certain assets and liabilities to be measured
at their fair values.  Certain assets and liabilities are required to
be measured at their fair value each reporting period, while others are required
to be measured only one time, generally the date of acquisition or
issuance.  Beginning with reporting periods ending after January 1,
2008, Cleco and Cleco Power are required to




19
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




disclose
the fair value of financial assets and liabilities by one of three
levels.  For more information about fair value levels, see Note 3 —
“Fair Value Measurement Disclosures.”




Risk
Management


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. Cleco’s Energy Risk
Management Policy authorizes the use of various derivative instruments,
including exchange traded futures and option contracts, forward purchase and
sales contracts, and swap transactions to reduce exposure to fluctuations in the
price of power and natural gas.  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 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 91% 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, 2008, and
2007, 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)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Realized
      gain (loss)
            
            $
            679
            
            
            $
            44
            
            
            $
            788
            
            
            $
            (17
            )Mark-to-marketgain
      (loss)
            
            
            2,736
            
            
            
            (230
            )
            
            
            4,506
            
            
            
            1,229Total gain
(loss)
            
            $
            3,415
            
            
            $
            (186
            )
            
            $
            5,294
            
            
            $
            1,212




Cleco
Power has entered into other positions to mitigate the volatility in customer
fuel costs.  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, 2008, and December 31, 2007, the net mark-to-market impact relating to these
positions was a gain of $134.0 million and a loss of $7.0 million,
respectively.  The increase is due to higher natural gas prices at
June 30, 2008, compared to December 31, 2007.  Deferred gains relating
to closed natural gas positions at June 30, 2008, totaled $15.9 million, and
deferred losses at December 31, 2007, totaled $3.1 million.


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, 2008, Cleco Power had received
collateral of $34.0 million, compared to paying collateral of $3.0 million at
December 31, 2007, 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 tables show the calculation of basic and diluted earnings per
share.





FOR
      THE THREE MONTHS ENDED JUNE 30,2008
            
            
            
            
            
            
            
            
            2007(THOUSANDS,
      EXCEPT SHARES AND PER SHARE AMOUNTS)
            
            INCOME
            
            
            SHARES
            
            
            PER
      SHARE
              AMOUNT
            
            
            INCOME
            
            
            SHARES
            
            
            PER
      SHARE
              AMOUNTIncome
      from continuing operations
            
            $
            29,389
            
            
            
            
            
            
            
            
            $
            63,191Deduct:  non-participating
      stock dividends (4.5% preferred stock)
            
            
            12
            
            
            
            
            
            
            
            
            
            12Deduct:  participating
      preferred stock dividends
            
            
            -
            
            
            
            
            
            
            
            
            
            -Basic
      earnings per shareIncome
      from continuing operations
            
            $
            29,377
            
            
            
            
            
            $
            0.49
            
            
            $
            63,179
            
            
            
            
            
            $
            1.06Total
      basic net income applicable to common stock
            
            $
            29,377
            
            
            
            59,998,227
            
            
            $
            0.49
            
            
            $
            63,179
            
            
            
            59,489,725
            
            
            $
            1.06Effect
      of dilutive securitiesAdd:  stock
      option grants
            
            
            -
            
            
            
            51,775
            
            
            
            
            
            
            
            -
            
            
            
            125,734Add:  restricted
      stock (LTICP)
            
            
            -
            
            
            
            118,945
            
            
            
            
            
            
            
            9
            
            
            
            183,418Diluted
      earnings per shareIncome
      from continuing operations plus assumed conversions
            
            $
            29,377
            
            
            
            
            
            
            $
            0.49
            
            
            $
            63,188
            
            
            
            
            
            
            $
            1.05Total
      diluted net income applicable to common stock
            
            $
            29,377
            
            
            
            60,168,947
            
            
            $
            0.49
            
            
            $
            63,188
            
            
            
            59,798,877
            
            
            $
            1.05






20
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





FOR
      THE SIX MONTHS ENDED JUNE 30,2008
            
            
            
            
            
            
            
            
            2007(THOUSANDS,
      EXCEPT SHARES AND PER SHARE AMOUNTS)
            
            INCOME
            
            
            SHARES
            
            
            PER
      SHARE
              AMOUNT
            
            
            INCOME
            
            
            SHARES
            
            
            PER
      SHARE
              AMOUNTIncome
      from continuing operations
            
            $
            51,460
            
            
            
            
            
            
            
            
            $
            71,837Deduct:  non-participating
      stock dividends (4.5% preferred stock)
            
            
            23
            
            
            
            
            
            
            
            
            
            23Deduct:  participating
      preferred stock dividends
            
            
            -
            
            
            
            
            
            
            
            
            
            412Deduct:  amount
      allocated to participating preferred
            
            
            -
            
            
            
            
            
            
            
            
            
            596Basic
      earnings per shareIncome
      from continuing operations
            
            $
            51,437
            
            
            
            
            
            $
            0.86
            
            
            $
            70,806
            
            
            
            
            
            $
            1.21Total
      basic net income applicable to common stock
            
            $
            51,437
            
            
            
            59,948,801
            
            
            $
            0.86
            
            
            $
            70,806
            
            
            
            58,585,451
            
            
            $
            1.21Effect
      of dilutive securitiesAdd:  stock
      option grants
            
            
            -
            
            
            
            61,744
            
            
            
            
            
            
            
            -
            
            
            
            127,466Add:  restricted
      stock (LTICP)
            
            
            -
            
            
            
            58,137
            
            
            
            
            
            
            
            14
            
            
            
            89,205Add:  convertible
      ESOP preferred stock
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            1,008
            
            
            
            784,322Diluted
      earnings per shareIncome
      from continuing operations plus assumed conversions
            
            $
            51,437
            
            
            
            
            
            
            $
            0.86
            
            
            $
            71,828
            
            
            
            
            
            
            $
            1.20Total
      diluted net income applicable to common stock
            
            $
            51,437
            
            
            
            60,068,682
            
            
            $
            0.86
            
            
            $
            71,828
            
            
            
            59,586,444
            
            
            $
            1.20





Stock
option grants are excluded from the computation of diluted earnings per share if
the exercise price is higher than the average market price.


There
were no stock option grants excluded from the computation for the six months
ended June 30, 2008, or the three and six months ended June 30,
2007.  Stock option grants excluded from the computation for the three
months ended June 30, 2008 are presented in the table below.





FOR
      THE THREE MONTHS ENDED JUNE 30, 2008STRIKE
      PRICE
            
            
            AVERAGE
              MARKET
      PRICE
            
            
            SHARESStock
      option grants excluded
            
            $
            24.00
      - $24.25
            
            
            $
            23.63
            
            
            
            45,767




Stock-Based
Compensation


At
June 30 2008, 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 25, 2008, Cleco granted 82,993 shares of non-vested stock and 63,733 of
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 plans 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)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Equity
      classificationNon-vested
      stock
            
            $
            330
            
            
            $
            488
            
            
            $
            80
            
            
            $
            205
            
            
            $
            783
            
            
            $
            1,113
            
            
            $
            197
            
            
            $
            455Stock
      options
            
            
            14
            
            
            
            (14
            )
            
            
            -
            
            
            
            (9
            )
            
            
            28
            
            
            
            8
            
            
            
            -
            
            
            
            (5
            )Non-forfeitable
      dividends
            
            
            -
            
            
            
            9
            
            
            
            -
            
            
            
            5
            
            
            
            -
            
            
            
            15
            
            
            
            -
            
            
            
            9Total
            
            $
            344
            
            
            $
            483
            
            
            $
            80
            
            
            $
            201
            
            
            $
            811
            
            
            $
            1,136
            
            
            $
            197
            
            
            $
            459Liability
      classificationCommon
      stock equivalent units
            
            $
            781
            
            
            $
            184
            
            
            $
            297
            
            
            $
            73
            
            
            $
            677
            
            
            $
            392
            
            
            $
            250
            
            
            $
            154Company
      funded participants income tax obligations
            
            
            -
            
            
            
            1,269
            
            
            
            -
            
            
            
            757
            
            
            
            -
            
            
            
            3,355
            
            
            
            -
            
            
            
            1,799Total
            
            $
            781
            
            
            $
            1,453
            
            
            $
            297
            
            
            $
            830
            
            
            $
            677
            
            
            $
            3,747
            
            
            $
            250
            
            
            $
            1,953Total
      pre-tax compensation expense
            
            $
            1,125
            
            
            $
            1,936
            
            
            $
            377
            
            
            $
            1,031
            
            
            $
            1,488
            
            
            $
            4,883
            
            
            $
            447
            
            
            $
            2,412Tax
      benefit
            
            $
            433
            
            
            $
            256
            
            
            $
            145
            
            
            $
            106
            
            
            $
            573
            
            
            $
            588
            
            
            $
            172
            
            
            $
            236





Note
2 — Recent Accounting Standards


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


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.  In February 2008, FASB amended
SFAS No. 157.  FSP No. FAS 157-1 excludes fair value lease
calculations pursuant to SFAS No. 13, as amended, from SFAS No. 157, but does
not exclude assets and liabilities acquired pursuant to SFAS No.
141(R).  FSP No. FAS 157-2 defers the effective date of SFAS No. 157
by one year for non-financial assets and liabilities that are not recognized or
disclosed at fair value on a recurring basis.  The adoption of SFAS
No. 157 and the related FSPs did not have a material impact on the financial
condition or results of operations of the Registrants.  For more
information regarding SFAS No. 157 related disclosures, see Note 1 — “Summary of
Significant Accounting Policies — Risk Management.”




21
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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 not otherwise required to be measured at fair
value.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.  The Registrants did not elect the fair value
option for eligible items existing at the effective date.  The
adoption of SFAS No. 159 did not have an impact on the financial condition or
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.  Upon the adoption of FSP No.
FIN 39-1, Cleco Corporation and Cleco Power adopted the policy to net the fair
value of derivative instruments along with the right to reclaim cash collateral
or obligation to return cash collateral.  In accordance with the
provisions of this FSP, the netting was applied retrospectively to the prior
balance sheet presented as a change to an accounting principle.  The
following table represents the right to reclaim cash collateral or obligation to
return cash collateral netted against the fair value of derivative instruments
for both Cleco Corporation and Cleco Power.





(THOUSANDS)
            
            AT
      JUNE 30, 2008
            
            
            AT
      DECEMBER 31, 2007Cash
      collateralRight to receive
            
            $
            -
            
            
            $
            2,966Obligation to
    return
            
            $
            34,018
            
            
            $
            -




Cleco
Corporation and Cleco Power’s Condensed Consolidated Balance Sheets at December
31, 2007, have been retrospectively adjusted due to the adoption of FSP No. FIN
39-1.  The retrospective adjustments to the December 31, 2007, balance
sheets are described in the following tables.





(THOUSANDS)
            
            AS
      REPORTED
            
            
            AS
      ADJUSTEDCleco
      CorporationCurrent assets – margin
      deposits
            
            $
            2,966
            
            
            $
            -Current assets – risk management
      asset
            
            $
            7,396
            
            
            $
            7,201Assets – other deferred
      charges
            
            $
            26,245
            
            
            $
            25,294Current liabilities – risk
      management liability
            
            $
            7,993
            
            
            $
            3,881





(THOUSANDS)
            
            AS
      REPORTED
            
            
            AS
      ADJUSTEDCleco
      PowerCurrent assets – margin
      deposits
            
            $
            2,966
            
            
            $
            -Current assets – risk management
      asset
            
            $
            7,396
            
            
            $
            7,201Assets – other deferred
      charges
            
            $
            25,467
            
            
            $
            24,516Current liabilities – risk
      management liability
            
            $
            7,993
            
            
            $
            3,881




The
retrospective adoption of FSP No. FIN 39-1 had no effect on net income, earnings
per share, shareholders’ equity or member’s equity.


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.  The adoption of this EITF did not have an impact on
the financial condition or 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 did not have an impact on the
financial condition and results of operations of the Registrants.


In
December 2007, the FASB released SFAS No. 141(R).  This revision
requires the acquirer of a business to recognize assets acquired, liabilities
assumed, and any non-controlling interests at their fair market
values.  The statement gives guidance on the calculation of goodwill
or gain from a bargain purchase and expands the required
disclosures.  The provisions of this statement are applicable to
acquisitions either through one transaction or through a step
acquisition.  This SFAS is applied prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  This statement may not be adopted early.  The
adoption of this statement will only impact the financial condition and results
of operations of the Registrants, if they are involved in transactions within
the scope of this statement after its effective date.


In
December 2007, the FASB released SFAS No. 160.  This statement gives
guidance on the presentation and disclosure of noncontrolling interests
(currently known as minority interests) of consolidated
subsidiaries.  This statement requires the noncontrolling interest to
be included in the equity section of the balance sheet, requires disclosure on
the face of the consolidated income statement of the amounts of consolidated net
income attributable to the consolidated parent and the noncontrolling interest,
and expands disclosures.  The provisions of this statement are to be
applied prospectively to fiscal years beginning on or after December 15,
2008.  Early adoption is prohibited.  The adoption of SFAS
No. 160 is not expected to have an impact on the financial condition or results
of operations of the Registrants.


In
December 2007, the FASB ratified EITF No. 07-1.  This EITF prescribes
the income statement presentation and disclosures for participants in
collaborative arrangements.  A collaborative arrangement is defined as
a contractual arrangement that involves a joint operating activity, usually
outside of a legal entity.  The provisions of this EITF
are




22
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




effective
for fiscal years beginning after December 15, 2008 and shall be applied
retrospectively for all collaborative arrangements existing as of the effective
date.  Management currently is evaluating the impact this EITF will
have on the financial condition and results of operations of the
Registrants.


In
March 2008, the FASB issued SFAS No. 161 which enhances the disclosures about an
entity’s derivative and hedging activities.  The disclosures include
how and why a derivative instrument is used, how the derivative instrument and
the hedged item are related, and the impact of the derivative instrument and the
hedged item on the entity’s financial statements.  SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008.  Since this SFAS is only a change in disclosure, the adoption of
SFAS No. 161 will not have an impact on the financial condition or results of
operations of the Registrants.


In
April 2008, the FASB issued FSP No. FAS 142-3 which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset.  This FSP
amends SFAS No. 142 to allow an entity’s own experience in renewing arrangements
or to use market assumptions about renewal in determining the useful life of a
recognized intangible asset.  This FSP also requires additional
disclosure about the renewal costs.  FSP No. FAS 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008.  Early adoption is prohibited.  The
adoption of FSP No. FAS 142-3 is not expected to have an impact on the financial
condition or results of operations of the Registrants.


In
May 2008, the FASB issued SFAS No. 162 which identifies, categorizes and ranks
sources of GAAP.  This SFAS has four broad categories with “a” being
the highest source of GAAP, descending to category “d.”  An entity is
required to use the highest category of GAAP specified by a
pronouncement.  If a particular transaction is not specified by a
pronouncement within the categories, an entity can then apply accounting
pronouncements for similar transactions (unless such analogy is prohibited by a
particular pronouncement) followed by other accounting
literature.  This SFAS is effective 60 days following the SEC’s
approval of the PCAOB’s amendments to Auditing Standard Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.”The adoption of SFAS
No. 162 is not expected to have an impact on the financial condition or results
of operations of the Registrants.


In
June 2008, the FASB issued FSP EITF 03-6-1 which gives guidance on determining
whether non-vested instruments issued in share-based payment transactions are
participating securities when calculating earnings per share.  This
FSP states that non-vested share-based instruments that contain nonforfeitable
rights to dividends or dividend equivalents are participating securities and are
required to be included in the computation of earnings per share pursuant to the
two-class method.  This FSP is effective for fiscal years and interim
periods beginning after December 15, 2008.  Earnings per share for
prior periods presented are required to be adjusted retrospectively to conform
to this FSP.  Early adoption of this FSP is
prohibited.  Management currently is evaluating the impact this FSP
will have on the financial condition and results of operations of the
Registrants.




Note
3 — Fair Value Measurement Disclosures


SFAS
No. 157 requires entities to classify assets and liabilities measured at their
fair value according to three different levels depending on the inputs used in
determining fair value.




§
            Level
      1 – unadjusted quoted prices in active, liquid markets for the identical
      asset or liability;


§
            Level
      2 – quoted prices for similar assets and liabilities in active markets or
      other inputs that are observable for the asset or liability, including
      inputs that can be corroborated by observable market data, observable
      interest rate yield curves and
volatilities;


§
            Level
      3 – unobservable inputs based upon the entities own
      assumptions.




The
tables below disclose for Cleco and Cleco Power the fair value of financial
assets and liabilities measured on a recurring basis and within the scope of
SFAS No. 157.





CLECO
      CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
    USING:(THOUSANDS)
            
            AT JUNE 30,
      2008
            
            
            QUOTED
      PRICES IN
              ACTIVE MARKETS
              FOR
      IDENTICAL
              ASSETS
              (LEVEL
      1)
            
            
            SIGNIFICANT
              OTHER
              OBSERVABLE
              INPUTS
              (LEVEL
      2)
            
            
            SIGNIFICANT
              UNOBSERVABLE
              INPUTS
              (LEVEL
      3)Asset
      DescriptionDerivatives
            
            $
            386,496
            
            
            $
            36,807
            
            
            $
            349,689
            
            
            $
            -Institutional  money  market  funds
            
            
            161,467
            
            
            
            -
            
            
            
            161,467
            
            
            
            -Security available for
      sale
            
            
            80
            
            
            
            80
            
            
            
            -
            
            
            
            -Total
            
            $
            548,043
            
            
            $
            36,887
            
            
            $
            511,156
            
            
            $
            -





CLECO
      CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
    USING:(THOUSANDS)
            
            AT JUNE
      30, 2008
            
            
            QUOTED
      PRICES IN
              ACTIVE MARKETS
              FOR
      IDENTICAL
              LIABILITIES
              (LEVEL
      1)
            
            
            SIGNIFICANT
              OTHER
              OBSERVABLE
              INPUTS
              (LEVEL
      2)
            
            
            SIGNIFICANT
              UNOBSERVABLE
              INPUTS
              (LEVEL
      3)Liability
      DescriptionDerivatives
            
            $
            246,017
            
            
            $
            -
            
            
            $
            246,017
            
            
            $
            -





CLECO
      POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:(THOUSANDS)
            
            AT JUNE
      30, 2008
            
            
            QUOTED
      PRICES IN
              ACTIVE MARKETS
              FOR
      IDENTICAL
              ASSETS
              (LEVEL
      1)
            
            
            SIGNIFICANT
              OTHER
              OBSERVABLE
              INPUTS
              (LEVEL
      2)
            
            
            SIGNIFICANT
              UNOBSERVABLE
              INPUTS
              (LEVEL
      3)Asset
      DescriptionDerivatives
            
            $
            386,496
            
            
            $
            36,807
            
            
            $
            349,689
            
            
            $
            -Institutional  money 
      market  funds
            
            
            153,667
            
            
            
            -
            
            
            
            153,667
            
            
            
            -Total
            
            $
            540,163
            
            
            $
            36,807
            
            
            $
            503,356
            
            
            $
            -




23
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




CLECO
      POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE USING:(THOUSANDS)
            
            AT JUNE
      30, 2008
            
            
            QUOTED
      PRICES IN
              ACTIVE MARKETS
              FOR
      IDENTICAL
              LIABILITIES
              (LEVEL
      1)
            
            
            SIGNIFICANT
              OTHER
              OBSERVABLE
              INPUTS
              (LEVEL
      2)
            
            
            SIGNIFICANT
              UNOBSERVABLE
              INPUTS
              (LEVEL
      3)Liability
      DescriptionDerivatives
            
            $
            246,017
            
            
            $
            -
            
            
            $
            246,017
            
            
            $
            -




Cleco
chose to defer for one year the provisions of SFAS No. 157 for non-financial
assets and liabilities in accordance with FSP No. FAS 157-2.


The
derivative assets and liabilities are classified as either current or
non-current depending on when the positions close.  All derivative
current assets and current liabilities are reported as a net current risk
management asset or liability.  All derivative non-current assets and
non-current liabilities are reported net in other deferred charges or other
deferred credits.  Net presentation is appropriate due to the right of
offset included in the master netting agreements.  In accordance with
FSP No. FIN 39-1, the net current and net non-current derivative positions are
netted with the applicable margin deposits.  At June 30, 2008, a net
current risk management asset of $87.4 million represented net current
derivative positions of $110.5 million reduced by current margin deposits of
$23.1 million.  Net non-current derivative positions were $35.2
million, reduced by non-current margin deposits of $10.9 million which was
recorded in other deferred charges on the balance sheet.  The $161.5
million in institutional money market funds was reported on the Cleco
Consolidated balance sheet in cash and cash equivalents, current restricted
cash, and restricted non-current cash in the amounts of $104.7 million, $5.2
million, and $51.6 million, respectively.  At Cleco Power, cash and
cash equivalents, current restricted cash, and restricted non-current cash
contained $96.9 million, $5.2 million, and $51.6 million,
respectively.  The security available for sale is reported as a
component of other current assets.


Cleco
utilizes different valuation techniques for fair value
calculations.  In order to measure the fair value for Level 1 assets
and liabilities, Cleco obtains the closing price from published indices in
active markets for the various instruments and multiplies by the appropriate
number of instruments held.  Level 2 fair values for assets and
liabilities are determined by obtaining the closing price from published indices
in active markets for instruments that are similar to Cleco’s assets and
liabilities.  The fair value obtained is then discounted to the
current period using a U.S. Treasury published interest rate as a proxy for a
risk-free rate of return.  For some options, Cleco uses the
Black-Scholes model using observable and available inputs to calculate the fair
value, consistent with the income approach.  These techniques have
been applied consistently from fiscal period to fiscal period.  Level
3 fair values allow for situations in which there is little, if any, market
activity for the asset or liability at the measurement date.  Cleco
had no Level 3 assets or liabilities at June 30, 2008.




Note
4 — 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, 2008, and December 31, 2007.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,(THOUSANDS)
            
            2008
            
            
            2007Regulatory
      assets and liabilities – deferred taxes, net
            
            $
            157,216
            
            
            $
            126,686Deferred
      mining costs
            
            $
            28,087
            
            
            $
            29,364Deferred
      storm restoration costs - Katrina/Rita
            
            
            -
            
            
            
            127,578Deferred
      interest costs
            
            
            8,224
            
            
            
            9,389Deferred
      asset removal costs
            
            
            621
            
            
            
            608Deferred
      postretirement plan costs
            
            
            11,558
            
            
            
            11,523Deferred
      tree trimming costs
            
            
            2,490
            
            
            
            -Deferred
      training costs
            
            
            1,014
            
            
            
            -Deferred
      storm surcredit, net
            
            
            4,162
            
            
            
            -Regulatory assets –
      other
            
            $
            56,156
            
            
            $
            178,462Deferred
      fuel transportation revenue
            
            $
            (658
            )
            
            $
            (930
            )Deferred
      construction carrying costs
            
            
            (59,564
            )
            
            
            (31,463
            )Regulatory liabilities -
      other
            
            $
            (60,222
            )
            
            $
            (32,393
            )Deferred
      fuel and purchased power
            
            
            (108,597
            )
            
            
            9,398Total regulatory assets and
      liabilities, net
            
            $
            44,553
            
            
            $
            282,153




Deferred
Taxes


Cleco
Power has recorded a net regulatory asset related to deferred income taxes in
accordance with SFAS No. 109.  The regulatory asset or liability is
recorded under SFAS No. 71 and represents the effect of tax benefits or
detriments that must be flowed through to customers as they are received or
paid.  For the most part, 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 $30.5 million increase in
regulatory assets and liabilities – deferred taxes, net is primarily the result
of AFUDC equity for Cleco Power’s construction of Rodemacher Unit
3.




Deferred
Storm Restoration Costs - Katrina/Rita


At
December 31, 2007, Cleco Power had approximately $127.6 million of unamortized
storm restoration costs deferred as regulatory assets relating to damage caused
by Hurricanes Katrina and Rita.  The restoration costs relating to
Hurricanes Katrina and Rita were amortized to depreciation expense based on
amounts collected monthly from customers through a surcharge, according to the
terms of an interim storm recovery plan approved by the LPSC in February
2006.  In March 2007, after completing a review of the restoration
costs, Cleco Power and the LPSC Staff filed a settlement agreement allowing
recovery of essentially all of Cleco Power's Hurricanes Katrina and Rita storm
costs.  The agreement authorized the issuance of securitized storm
recovery bonds to finance the restoration costs from Hurricanes Katrina and Rita
and the collection of a special storm recovery charge from Cleco Power's
customers to pay principal, interest and other amounts related to the
bonds.  The LPSC approved the settlement agreement




24
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




and
issued a securitization financing order in September 2007.  In March
2008, the securitization financing was completed, collection of the interim
surcharge ceased and the right to bill and collect from customers unamortized
storm damage costs was sold to Cleco Katrina/Rita, a special purpose, wholly
owned subsidiary of Cleco Power.


Cleco
Katrina/Rita issued $180.6 million aggregate principal amount of senior secured
storm recovery bonds.  A portion of the net proceeds of $176.0 million
from the issuance of the bonds was used to pay Cleco Power the purchase price of
its right to bill and collect from customers unamortized storm damage costs by
Hurricanes Katrina and Rita reducing Cleco Power’s regulatory asset established
for this purpose.  Cleco Power used $50.8 million of such proceeds to
establish a storm reserve fund for future storm damage, with the remaining
portion of the proceeds, which is reimbursement of previously unrecovered storm
costs from Hurricanes Katrina and Rita, to be used for working capital and other
general corporate purposes.  As of June 30, 2008, Cleco Power had
$51.6 million of storm reserve reflected on the balance sheet, $0.8 million of
which is interest earned on the $50.8 million reserve.  For additional
information on the securitization of storm costs, see Note 6 —
“Debt.”




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 months ended June 30, 2008,
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, 2008, and December 31, 2007, were
$108.6 million over-recovery and $9.4 million under-recovery,
respectively.  The $118.0 million increase in the recoverable costs
was primarily the result of a $141.0 million increase in the market value of
open natural gas hedge positions and a $19.0 million gain on closed
natural gas hedge positions, both due to increases in natural gas prices since
December 31, 2007.  The increase in market value and gains was partially
offset by the deferral of $42.0 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.”




Deferred
Construction Carrying Costs


In
February 2006, the LPSC approved Cleco Power’s plans to build Rodemacher Unit
3.  Terms of the approval included authorization for Cleco Power to
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, 2008, Cleco
Power collected $16.3 million and $28.1 million, respectively, compared to $6.2
million and $10.8 million for the three and six months ended June 30, 2007,
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 base rate application to recover Rodemacher Unit 3 ownership costs, to
submit a plan to return to customers the carrying costs over a shorter period
than the life of the Rodemacher Unit 3 asset.




Deferred
Tree Trimming Costs


In
January 2008, the LPSC approved Cleco Power’s request to establish a regulatory
asset which is being charged with actual expenditures at Cleco Power’s
grossed-up rate of return for costs incurred to trim, cut or remove trees that
were damaged by Hurricanes Katrina and Rita, but were not addressed as part of
the restoration efforts. The amount of expenditures subject to deferral as a
regulatory asset was limited to $12.0 million by the LPSC.  Recovery of
these expenditures was requested as part of Cleco Power’s base rate application
filed July 14, 2008.  At June 30, 2008, Cleco Power had deferred $2.5
million in tree trimming expenditures.




Deferred
Training Costs


In
February 2008, the LPSC approved Cleco Power’s request to establish a regulatory
asset which is being charged with training costs associated with existing
processes and technology for new employees at Rodemacher Unit 3.  Normally
these types of training costs would be expensed as incurred; however, this order
by the LPSC allows Cleco Power to defer the training costs and seek recovery in
rates when Rodemacher Unit 3 goes into service.  At June 30, 2008,
Cleco Power had deferred $1.0 million of Rodemacher Unit 3 training
costs.




Deferred
Storm Surcredit, net


Cleco
Power has recorded a storm surcredit as the result of a settlement with the LPSC
that addressed, among other things, the recovery of the storm damages related to
Hurricanes Katrina and Rita.  In the settlement, Cleco Power was required
to implement a surcredit to provide the ratepayers the economic benefit of the
carrying charges of all accumulated deferred income tax liabilities due to the
storm damage costs at a12.2% rate of return.  The accumulated deferred
income tax liability includes deductions for operation and maintenance expense,
casualty loss, and depreciation against taxable income in the year incurred and
all subsequent periods.  The settlement, through a true-up mechanism,
allows the surcredit to be adjusted to reflect the actual tax deductions allowed
by the United States Internal Revenue Service (IRS).  During the
second quarter of 2008, the regulatory liability was reduced by $4.2 million
through this true-up mechanism to reflect the expected amounts to be refunded
through the surcredit to ratepayers.
 Cleco
Power was also allowed to record a corresponding regulatory asset in an amount
representing the flow back of


25
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




the
carrying charges to ratepayers.  This amount is being amortized over
the life of the securitized storm recovery bonds. The corresponding regulatory
asset will be adjusted through the same surcredit true-up mechanism at the time
of a final determination of the tax benefit for storm damage costs by the
IRS.


Note
5 — 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, 2008, and
December 31, 2007, $56.9 million and $18.0 million of cash, respectively, were
restricted.  At June 30, 2008, restricted cash consisted of $0.1 million
under the Diversified Lands mitigation escrow agreement, $51.6 million reserved
at Cleco Power for future storm restoration costs, and $5.2 million at Cleco
Katrina/Rita restricted for payment of operating expenses, interest and
principal on the Cleco Katrina/Rita storm recovery
bonds.




Note
6 — Debt


Long-term
Debt


At
June 30, 2008, Cleco’s long-term debt outstanding was $1.1 billion, of
which $58.4 million was long-term debt due within one year, compared to $869.1
million at December 31, 2007, which included $100.0 million of long-term debt
due within one year.  At June 30, 2008, Cleco Power’s long-term debt
outstanding was $1.0 billion, of which $58.4 million was long-term debt due
within one year, compared to $769.1 million at December 31, 2007, none of which
was due within one year.  The long-term debt due within one year is
$50.0 million of medium-term notes and an $8.4 million principal payment on the
Cleco Katrina/Rita storm recovery bonds scheduled to be paid in March
2009.


For
Cleco, the $187.3 million increase in long-term debt from December 31, 2007, was
primarily due to $180.6 million of storm recovery bonds issued by Cleco
Katrina/Rita in March 2008, the issuance by Cleco Power of $250.0 million
aggregate principal amount of 6.65% notes due 2018 in June 2008, and $48.0
million in draws on Cleco’s $150.0 million, five-year credit
facility.  These issuances were partially offset by a reduction of
$190.0 million in draws against Cleco Power’s credit facility, which is
classified as long-term debt, and the repayment at maturity of $100.0 million of
7% senior notes in May 2008, which was classified as long-term debt due within
one year.


For
Cleco Power, the $239.3 million increase in long-term debt from December 31,
2007, was primarily due to $180.6 million of storm recovery bonds issued by
Cleco Katrina/Rita in March 2008 and the issuance by Cleco Power of $250.0
million of 6.65% notes due 2018 in June 2008.  These issuances were
partially offset by a reduction of $190.0 million in draws against Cleco Power’s
credit facility, which is classified as long-term debt.


On
June 3, 2008, Cleco Power issued $250.0 million aggregate principal amount of
senior unsecured notes at an interest rate of 6.65%.  The notes mature
on June 15, 2018. The proceeds from this offering are to be used for general
corporate purposes, including financing a portion of the construction costs of
Rodemacher Unit 3 and repaying borrowings under Cleco Power's
$275.0 million, five-year credit facility, some of which were used to fund
a portion of the construction costs of Rodemacher Unit 3.


The
Cleco Katrina/Rita storm recovery bonds were issued in two
tranches.  One tranche of $113.0 million initial principal amount of
bonds with an expected average life of five years was issued with an interest
rate of 4.41%, and one tranche of $67.6 million initial principal amount of
bonds with an expected average life of 10.58 years was issued with an interest
rate of 5.61%.  The resulting weighted average interest rate of both
tranches is 4.86%, and the effective weighted average life is seven
years.


The
solid waste disposal bonds that were issued in 2007 initially had a variable
interest rate which was reset weekly via an auction agent.  On March
12, 2008, Cleco Power exercised a provision in the bond indenture to change the
method of interest through a reoffering of the bonds.  As a part of
the reoffering, the holders of the original auction rate bonds were required to
tender them.  The reoffered bonds have a five-year term with a fixed
rate of 5.25% per annum, with the option to redeem the bonds or require that
they be mandatorily tendered at the end of the five years.  If Cleco
Power does not cause the bonds to be optionally redeemed or mandatorily tendered
at the end of the five years, the bonds will become variable
rate.  Cleco Power plans to remarket the bonds at the end of the
five-year period.  The maturity date of the 2007 bonds is November 1,
2037.




Note
7 — 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 Internal Revenue Service’s full funding
limitation.  No discretionary contributions were made during the six
months ended June 30, 2008.  Funding regulations do not require a
contribution for 2008.  A discretionary contribution may be made
during 2008; however, the decision by management to make a contribution in 2008
and the amount, if any, have 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
and Cleco Power’s Board of Managers approved an amendment to the pension plan to
provide that all employees hired





26
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




on
or after August 1, 2007, are not 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 other 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, 2008, and 2007, are as follows:


PENSION
      BENEFITS
            
            
            OTHER
      BENEFITSFOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Components
      of periodic benefit  costsService cost
            
            $
            1,470
            
            
            $
            1,910
            
            
            $
            350
            
            
            $
            355Interest cost
            
            
            3,964
            
            
            
            3,863
            
            
            
            458
            
            
            
            460Expected return on plan
      assets
            
            
            (5,044
            )
            
            
            (4,748
            )
            
            
            -
            
            
            
            -Transition obligation
            
            
            -
            
            
            
            -
            
            
            
            5
            
            
            
            5Prior period service
      cost
            
            
            (18
            )
            
            
            213
            
            
            
            (534
            )
            
            
            (515
            )Net loss
            
            
            -
            
            
            
            467
            
            
            
            250
            
            
            
            250Net periodic benefit
      cost
            
            $
            372
            
            
            $
            1,705
            
            
            $
            529
            
            
            $
            555





PENSION
      BENEFITS
            
            
            OTHER
      BENEFITSFOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Components
      of periodic benefit  costsService cost
            
            $
            2,939
            
            
            $
            3,820
            
            
            $
            699
            
            
            $
            710Interest cost
            
            
            7,928
            
            
            
            7,725
            
            
            
            916
            
            
            
            920Expected return on plan
      assets
            
            
            (10,089
            )
            
            
            (9,495
            )
            
            
            -
            
            
            
            -Transition obligation
            
            
            -
            
            
            
            -
            
            
            
            10
            
            
            
            10Prior period service
      cost
            
            
            (35
            )
            
            
            425
            
            
            
            (1,068
            )
            
            
            (1,030
            )Net loss
            
            
            -
            
            
            
            935
            
            
            
            500
            
            
            
            500Net periodic benefit
      cost
            
            $
            743
            
            
            $
            3,410
            
            
            $
            1,057
            
            
            $
            1,110




Since
Cleco Power is the pension plan sponsor and the related trust holds the assets,
the prepaid benefit cost 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,
2008, was $0.4 million and $0.7 million, respectively, compared to $0.5 million
and $1.1 million for the same periods in 2007.


Cleco
Corporation is the plan sponsor for the other benefit plans.  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 Consolidated Statements of
Income for the three and six months ended June 30, 2008, was $0.1 million and
$0.2 million, respectively, compared to $0.5 million and $0.9 million for the
same periods in 2007.




SERP


Certain
key executives and key managers of Cleco 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 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, because 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, 2008, and 2007. 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)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Components
      of  periodic benefit  costsService
      cost
            
            $
            359
            
            
            $
            290
            
            
            $
            717
            
            
            $
            580Interest 
      cost
            
            
            445
            
            
            
            438
            
            
            
            889
            
            
            
            875Prior
      period service cost
            
            
            13
            
            
            
            12
            
            
            
            27
            
            
            
            25Net
      loss
            
            
            254
            
            
            
            243
            
            
            
            508
            
            
            
            485Net 
      periodic benefit  cost
            
            $
            1,071
            
            
            $
            983
            
            
            $
            2,141
            
            
            $
            1,965




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 Consolidated Statements of Income was $0.8 million and
$1.6 million for the three and six months ended June 30, 2008, respectively,
compared to $0.3 million and $0.5 million for the same periods in 2007.




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 convertible preferred stock which served as Cleco
Corporation’s match to employees’ 401(k) Plan contributions and funded dividend
payments on allocated shares.  By late March 2006, substantially all
of the shares of ESOP preferred stock were fully allocated to current and former
401(k) Plan participants.  Beginning January 2007, Cleco Corporation
made matching contributions and funded dividend reinvestments with Cleco common
stock.  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.  Beginning January 2008, Cleco Corporation made matching
contributions and funded dividend reinvestments with cash.


In
August 2007, Cleco Corporation’s Board of Directors approved an amendment to the
401(k) Plan to provide an enhanced 401(k) benefit for employees not otherwise
eligible to participate in Cleco’s pension plan.




27
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




The
table below contains information about the 401(k) Plan and the
ESOP:





FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007401(k)
      Plan expense
            
            $
            681
            
            
            $
            601




FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007401(k)
      Plan expense
            
            $
            1,692
            
            
            $
            1,499Dividend
      requirements to ESOP on convertible preferred stock
            
            $
            -
            
            
            $
            411




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, 2008, was $0.2 million and $0.5 million,
respectively.  The expense related to the payment of dividends on
the shares of convertible preferred stock held in the ESOP is reflected on
Cleco Corporation’s Condensed Consolidated Statements of Income for the six
months ended June 30, 2007.




Note
8 — Income Taxes


The
following table summarizes the effective income tax rates for Cleco Corporation
and Cleco Power for the three- and six- month periods ended June 30, 2008, and
2007.





FOR
      THE THREE MONTHS ENDED JUNE 30,2008
            
            
            2007Cleco
      Corporation
            
            
            19.2
            %
            
            
            32.9
            %Cleco
      Power
            
            
            22.7
            %
            
            
            25.9
            %





FOR
      THE SIX MONTHS ENDED JUNE 30,2008
            
            
            2007Cleco
      Corporation
            
            
            19.0
            %
            
            
            31.6
            %Cleco
      Power
            
            
            21.6
            %
            
            
            23.8
            %




For
the three- and six-month periods ended June 30, 2008 and 2007, the effective
income tax rate for Cleco Corporation and Cleco Power was less than the federal
statutory rate primarily due to the flow-through of tax benefits associated with
AFUDC equity recorded as a result of the construction of Rodemacher Unit
3.  Cleco Corporation accounts for income taxes under SFAS No. 109 and
records uncertain tax positions under FIN 48.  In the first quarter of
2008, Cleco and the Internal Revenue Service agreed to apply industry-wide
guidelines as the basis for settling a potential dispute regarding the amount of
indirect overhead costs required to be capitalized for tax
purposes.  Based on acceptance of the settlement guidelines, Cleco
recorded, in the first quarter of 2008, an interest benefit of approximately
$2.1 million.




Note
9 — 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
interconnection facilities, and an investment
subsidiary.


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 2008 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.





28
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




SEGMENT
INFORMATION FOR THE THREE MONTHS ENDED JUNE 30,


CLECO
            
            
            
            
            
            RECONCILING2008(THOUSANDS)
            
            POWER
            
            
            MIDSTREAM
            
            
            ITEMS
            
            
            ELIMINATIONS
            
            
            CONSOLIDATEDRevenueElectric
    operations
            
            $
            259,581
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            259,581Other operations
            
            
            12,714
            
            
            
            -
            
            
            
            47
            
            
            
            (3
            )
            
            
            12,758Affiliate
      revenue
            
            
            8
            
            
            
            1,831
            
            
            
            609
            
            
            
            -
            
            
            
            2,448Intercompany
      revenue
            
            
            586
            
            
            
            11
            
            
            
            10,406
            
            
            
            (11,003
            )
            
            
            -Operating
      revenue
            
            $
            272,889
            
            
            $
            1,842
            
            
            $
            11,062
            
            
            $
            (11,006
            )
            
            $
            274,787Depreciation
      expense
            
            $
            19,007
            
            
            $
            76
            
            
            $
            253
            
            
            $
            -
            
            
            $
            19,336Interest
      charges
            
            $
            8,831
            
            
            $
            1,522
            
            
            $
            1,099
            
            
            $
            (1,531
            )
            
            $
            9,921Interest
      income
            
            $
            999
            
            
            $
            -
            
            
            $
            1,789
            
            
            $
            (1,530
            )
            
            $
            1,258Equity
      (loss) income from investees
            
            $
            -
            
            
            $
            (2,549
            )
            
            $
            184
            
            
            $
            -
            
            
            $
            (2,365
            )Federal
      and state income tax expense (benefit)
            
            $
            9,610
            
            
            $
            (1,879
            )
            
            $
            (732
            )
            
            $
            -
            
            
            $
            6,999Segment
      profit (loss) (1)
            
            $
            32,662
            
            
            $
            (2,912
            )
            
            $
            (361
            )
            
            $
            -
            
            
            $
            29,389Additions
      to long-lived assets
            
            $
            77,748
            
            
            $
            37
            
            
            $
            421
            
            
            $
            -
            
            
            $
            78,206Equity
      investment in investees
            
            $
            -
            
            
            $
            233,920
            
            
            $
            8,588
            
            
            $
            -
            
            
            $
            242,508Total
      segment assets
            
            $
            2,849,523
            
            
            $
            256,626
            
            
            $
            366,111
            
            
            $
            (336,686
            )
            
            $
            3,135,574(1)Reconciliation
      of segment profit to consolidated profit:
            
            Segment
      profit
            
            
            
            
            
            
            
            
            
            
            $
            29,389Unallocated
      items:Preferred dividends
      requirements, net of tax
            
            
            
            
            
            
            12Net
      income applicable to common stock
            
            
            $
            29,377








CLECO
            
            
            
            
            
            RECONCILING2007(THOUSANDS)
            
            POWER
            
            
            MIDSTREAM
            
            
            ITEMS
            
            
            ELIMINATIONS
            
            
            CONSOLIDATEDRevenueElectric
    operations
            
            $
            251,909
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            251,909Other operations
            
            
            7,922
            
            
            
            4
            
            
            
            53
            
            
            
            (8
            )
            
            
            7,971Affiliate
      revenue
            
            
            13
            
            
            
            1,160
            
            
            
            448
            
            
            
            -
            
            
            
            1,621Intercompany
      revenue
            
            
            502
            
            
            
            -
            
            
            
            11,416
            
            
            
            (11,918
            )
            
            
            -Operating
      revenue, net
            
            $
            260,346
            
            
            $
            1,164
            
            
            $
            11,917
            
            
            $
            (11,926
            )
            
            $
            261,501Depreciation
      expense
            
            $
            19,622
            
            
            $
            79
            
            
            $
            289
            
            
            $
            -
            
            
            $
            19,990Interest
      charges
            
            $
            9,626
            
            
            $
            5,521
            
            
            $
            2,336
            
            
            $
            (5,494
            )
            
            $
            11,989Interest
      income
            
            $
            1,060
            
            
            $
            423
            
            
            $
            6,600
            
            
            $
            (5,494
            )
            
            $
            2,589Equity
      (loss) income from investees
            
            $
            -
            
            
            $
            70,755
            
            
            $
            527
            
            
            $
            -
            
            
            $
            71,282Federal
      and state income tax expense (benefit)
            
            $
            6,531
            
            
            $
            25,015
            
            
            $
            (578
            )
            
            $
            -
            
            
            $
            30,968Segment
      profit (loss) (1)
            
            $
            18,672
            
            
            $
            39,042
            
            
            $
            5,477
            
            
            $
            -
            
            
            $
            63,191Additions
      to long-lived assets
            
            $
            121,070
            
            
            $
            5,000
            
            
            $
            286
            
            
            $
            -
            
            
            $
            126,356Equity
      investment in investees (2)
            
            $
            -
            
            
            $
            249,758
            
            
            $
            8,342
            
            
            $
            1
            
            
            $
            258,101Total
      segment assets (2)
            
            $
            2,306,482
            
            
            $
            265,918
            
            
            $
            459,139
            
            
            $
            (324,916
            )
            
            $
            2,706,623(1)Reconciliation
      of segment profit to consolidated profit:
            
            Segment
      profit
            
            
            
            
            
            
            
            
            
            
            $
            63,191(2)Balances
      as of December 31, 2007
            
            Unallocated
      items:Preferred dividends
      requirements, net of tax
            
            
            
            
            
            
            
            12Net
      income applicable to common stock
            
            
            $
            63,179








29
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




SEGMENT
INFORMATION FOR THE SIX MONTHS ENDED JUNE 30,


CLECO
            
            
            
            
            
            RECONCILING2008(THOUSANDS)
            
            POWER
            
            
            MIDSTREAM
            
            
            ITEMS
            
            
            ELIMINATIONS
            
            
            CONSOLIDATEDRevenueElectric
    operations
            
            $
            469,462
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            469,462Other operations
            
            
            22,775
            
            
            
            1
            
            
            
            51
            
            
            
            (6
            )
            
            
            22,821Affiliate
      revenue
            
            
            14
            
            
            
            3,749
            
            
            
            1,291
            
            
            
            -
            
            
            
            5,054Intercompany
      revenue
            
            
            1,088
            
            
            
            12
            
            
            
            19,886
            
            
            
            (20,986
            )
            
            
            -Operating
      revenue
            
            $
            493,339
            
            
            $
            3,762
            
            
            $
            21,228
            
            
            $
            (20,992
            )
            
            $
            497,337Depreciation
      expense
            
            $
            38,025
            
            
            $
            152
            
            
            $
            509
            
            
            $
            -
            
            
            $
            38,686Interest
      charges
            
            $
            16,462
            
            
            $
            3,491
            
            
            $
            3,221
            
            
            $
            (3,512
            )
            
            $
            19,662Interest
      income
            
            $
            1,576
            
            
            $
            -
            
            
            $
            4,809
            
            
            $
            (3,510
            )
            
            $
            2,875Equity
      (loss) income from investees
            
            $
            -
            
            
            $
            (7,563
            )
            
            $
            624
            
            
            $
            -
            
            
            $
            (6,939
            )Federal
      and state income tax expense (benefit)
            
            $
            16,569
            
            
            $
            (4,681
            )
            
            $
            172
            
            
            $
            -
            
            
            $
            12,060Segment
      profit (loss) (1)
            
            $
            60,269
            
            
            $
            (7,528
            )
            
            $
            (1,281
            )
            
            $
            -
            
            
            $
            51,460Additions
      to long-lived assets
            
            $
            182,816
            
            
            $
            39
            
            
            $
            544
            
            
            $
            -
            
            
            $
            183,399Equity
      investment in investees
            
            $
            -
            
            
            $
            233,920
            
            
            $
            8,588
            
            
            $
            -
            
            
            $
            242,508Total
      segment assets
            
            $
            2,849,523
            
            
            $
            256,626
            
            
            $
            366,111
            
            
            $
            (336,686
            )
            
            $
            3,135,574(1)Reconciliation
      of segment profit to consolidated profit:
            
            Segment
      profit
            
            
            
            
            
            
            
            
            
            
            $
            51,460Unallocated
      items:Preferred dividends
      requirements, net of tax
            
            
            
            
            
            
            23Net
      income applicable to common stock
            
            
            $
            51,437








CLECO
            
            
            
            
            
            RECONCILING2007(THOUSANDS)
            
            POWER
            
            
            MIDSTREAM
            
            
            ITEMS
            
            
            ELIMINATIONS
            
            
            CONSOLIDATEDRevenueElectric
    operations
            
            $
            464,929
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            464,929Other operations
            
            
            17,182
            
            
            
            11
            
            
            
            60
            
            
            
            (13
            )
            
            
            17,240Affiliate
      revenue
            
            
            25
            
            
            
            2,146
            
            
            
            911
            
            
            
            -
            
            
            
            3,082Intercompany
      revenue
            
            
            1,003
            
            
            
            -
            
            
            
            23,812
            
            
            
            (24,815
            )
            
            
            -Operating
      revenue, net
            
            $
            483,139
            
            
            $
            2,157
            
            
            $
            24,783
            
            
            $
            (24,828
            )
            
            $
            485,251Depreciation
      expense
            
            $
            39,383
            
            
            $
            154
            
            
            $
            551
            
            
            $
            -
            
            
            $
            40,088Interest
      charges
            
            $
            19,670
            
            
            $
            10,563
            
            
            $
            4,248
            
            
            $
            (10,506
            )
            
            $
            23,975Interest
      income
            
            $
            2,466
            
            
            $
            423
            
            
            $
            12,774
            
            
            $
            (10,506
            )
            
            $
            5,157Equity
      (loss) income from investees
            
            $
            -
            
            
            $
            68,928
            
            
            $
            955
            
            
            $
            -
            
            
            $
            69,883Federal
      and state income tax expense (benefit)
            
            $
            9,647
            
            
            $
            22,062
            
            
            $
            1,402
            
            
            $
            -
            
            
            $
            33,111Segment
      profit (loss) (1)
            
            $
            30,948
            
            
            $
            34,328
            
            
            $
            6,561
            
            
            $
            -
            
            
            $
            71,837Additions
      to long-lived assets
            
            $
            220,807
            
            
            $
            5,000
            
            
            $
            420
            
            
            $
            -
            
            
            $
            226,227Equity
      investment in investees (2)
            
            $
            -
            
            
            $
            249,758
            
            
            $
            8,342
            
            
            $
            1
            
            
            $
            258,101Total
      segment assets (2)
            
            $
            2,306,482
            
            
            $
            265,918
            
            
            $
            459,139
            
            
            $
            (324,916
            )
            
            $
            2,706,623(1)Reconciliation
      of segment profit to consolidated profit:
            
            Segment
      profit
            
            
            
            
            
            
            
            
            
            
            $
            71,837(2)Balances
      as of December 31, 2007
            
            Unallocated
      items:Preferred dividends
      requirements, net of tax
            
            
            
            
            
            
            
            435Net
      income applicable to common stock
            
            
            $
            71,402





Note
10 — Equity Investment in Investees


Cleco
reports its investment in Acadia, Evangeline and certain other
subsidiaries on the equity method of accounting in accordance with APB Opinion
No. 18, after consideration of 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.


Equity
investment in investees represents primarily Midstream’s $183.1 million
investment in Acadia, owned 50% by APH and 50% by Cajun, and its $50.8 million
investment in Evangeline, owned 100% by Midstream.  Equity investment in
investees also represents a $7.3 million investment in Attala and a $1.3 million
equity investment in Perryville, both owned 100% by Cleco
Corporation.


The
table below presents the equity (loss) income from each investment accounted for
using the equity method.





FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Acadia
            
            $
            (3,407
            )
            
            $
            73,749Evangeline
            
            
            858
            
            
            
            (2,994
            )Other
      subsidiaries 100% owned by ClecoCorporation
            
            
            184
            
            
            
            526Other
            
            
            -
            
            
            
            1Total equity (loss)
      income
            
            $
            (2,365
            )
            
            $
            71,282





30
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007Acadia
            
            $
            (6,778
            )
            
            $
            71,354Evangeline
            
            
            (785
            )
            
            
            (2,426
            )Other
      subsidiaries 100% owned by ClecoCorporation
            
            
            624
            
            
            
            964Other
            
            
            -
            
            
            
            (9
            )Total equity (loss)
      income
            
            $
            (6,939
            )
            
            $
            69,883




Acadia


Cleco’s
current assessment of its maximum exposure to loss with respect to
Acadia at June 30, 2008, consists of its equity investment of $183.1
million.


The
following table presents the components of Midstream's equity investment in
Acadia.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,INCEPTION
      TO DATE (THOUSANDS)
            
            2008
            
            
            2007Contributed
      assets (cash and land)
            
            $
            259,019
            
            
            $
            259,019Income
      before taxes
            
            
            164,978
            
            
            
            171,914Impairment
      of investment
            
            
            (45,847
            )
            
            
            (45,847
            )Capitalized
      interest and other
            
            
            19,627
            
            
            
            19,469Less:  non-cash
      distribution
            
            
            78,200
            
            
            
            78,200Less:  cash
      distributions
            
            
            136,464
            
            
            
            136,464Total equity investment in
      investee
            
            $
            183,113
            
            
            $
            189,891




Midstream’s
equity, as reported on the balance sheet of Acadia at June 30, 2008, was $209.2
million.  The difference between the $209.2 million and the equity
investment in investee of $183.1 million as shown in the table above is $26.1
million, and primarily consists of the $45.8 million other-than-temporary
impairment of APH’s investment in Acadia, partially offset by $19.6 million of
interest capitalized on funds contributed by Acadia.


The
tables below contain summarized financial information for Acadia.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,(THOUSANDS)
            
            2008
            
            
            2007Current
      assets
            
            $
            7,795
            
            
            $
            13,672Property,
      plant and equipment, net
            
            
            412,447
            
            
            
            419,882Total assets
            
            $
            420,242
            
            
            $
            433,554Current
      liabilities
            
            $
            1,765
            
            
            $
            1,206Partners’
      capital
            
            
            418,477
            
            
            
            432,348Total liabilities and partners’
      capital
            
            $
            420,242
            
            
            $
            433,554





FOR
      THE THREE MONTHS ENDED JUNE 30,
            
            
            FOR THE SIX MONTHS ENDED JUNE
      30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenue
            
            $
            17,169
            
            
            $
            2,248
            
            
            $
            24,937
            
            
            $
            25,490Operating
      expenses
            
            
            23,785
            
            
            
            10,912
            
            
            
            38,668
            
            
            
            38,950Gain
      on settlement
            
            
            -
            
            
            
            170,200
            
            
            
            -
            
            
            
            170,200Other
      (loss) income, net
            
            
            (198
            )
            
            
            2
            
            
            
            (139
            )
            
            
            8(Loss) income before
      taxes
            
            $
            (6,814
            )
            
            $
            161,538
            
            
            $
            (13,870
            )
            
            $
            156,748




Income
tax benefit recorded on APH’s financial statements related to Midstream’s
50% ownership interest in Acadia for the three and six months ended June
30, 2008, was $2.0 million and $4.2 million, respectively, compared to
income tax expense of $26.5 million and $23.6 million for the three and six
months ended June 30, 2007, respectively.  The decrease in income tax
expense at APH is primarily due to the absence in 2008 of the settlement of
Acadia’s pre-petition unsecured claims against CES and Calpine.




Evangeline


Cleco’s
current assessment of its maximum exposure to loss with respect to Evangeline at
June 30, 2008, consists of its equity investment of $50.8 million.


The
table below presents the components of Midstream's equity investment in
Evangeline.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,INCEPTION
      TO DATE (THOUSANDS)
            
            2008
            
            
            2007Contributed
      assets (cash)
            
            $
            49,961
            
            
            $
            49,156Net
      income
            
            
            146,633
            
            
            
            147,418Less:  non-cash
      distributions
            
            
            16,906
            
            
            
            15,685Less:  cash
      distributions
            
            
            128,881
            
            
            
            121,022Total equity investment in
      investee
            
            $
            50,807
            
            
            $
            59,867




The
tables below contain summarized financial information for
Evangeline.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,(THOUSANDS)
            
            2008
            
            
            2007Current
      assets
            
            $
            20,575
            
            
            $
            17,018Accounts
      receivable - affiliate
            
            
            -
            
            
            
            2,280Property,
      plant and equipment, net
            
            
            179,426
            
            
            
            181,604Other
      assets
            
            
            48,417
            
            
            
            48,999Total assets
            
            $
            248,418
            
            
            $
            249,901Current
      liabilities
            
            $
            18,468
            
            
            $
            15,122Accounts
      payable - affiliate
            
            
            5,514
            
            
            
            2,721Long-term
      debt, net
            
            
            165,314
            
            
            
            168,866Other
      liabilities
            
            
            71,692
            
            
            
            71,501Member’s
      deficit
            
            
            (12,570
            )
            
            
            (8,309
            )Total liabilities and member’s
      deficit
            
            $
            248,418
            
            
            $
            249,901





FOR
      THE THREE MONTHS ENDED JUNE 30,
            
            
            FOR THE SIX MONTHS ENDED JUNE
      30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenue
            
            $
            12,984
            
            
            $
            13,707
            
            
            $
            23,413
            
            
            $
            24,252Operating
      expenses
            
            
            6,010
            
            
            
            8,370
            
            
            
            12,225
            
            
            
            12,894Depreciation
            
            
            1,337
            
            
            
            1,299
            
            
            
            2,692
            
            
            
            2,585Interest
      charges
            
            
            4,674
            
            
            
            6,255
            
            
            
            9,337
            
            
            
            10,777Interest
      income
            
            
            95
            
            
            
            318
            
            
            
            258
            
            
            
            676Other
      expense
            
            
            200
            
            
            
            1,095
            
            
            
            202
            
            
            
            1,098Income (loss) before
      taxes
            
            $
            858
            
            
            $
            (2,994
            )
            
            $
            (785
            )
            
            $
            (2,426
            )




The
difference between the equity investment in investee and member’s deficit shown
in the tables above is due to income tax items being reported in the
corresponding tax accounts on Midstream’s financial statements, rather than the
equity investment account.


Income
taxes recorded on Midstream’s financial statements related to Midstream’s 100%
ownership interest in Evangeline were a $0.2 million expense and a
$0.3 million benefit for the three and six months ended June 30, 2008,
respectively, compared to a $0.9 million and $0.7 million benefit for the three
and six months ended June 30, 2007, respectively.


Since
its inception, Cleco has had 100% ownership and voting interest of
Evangeline.  Prior to November 9, 2007, all of the capacity and output
of the power plant had been tolled to Williams Power Company, Inc., which paid
Evangeline certain




31
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




fixed
and variable amounts.  In November 2007, The Williams Companies, Inc.
assigned all of its rights and interests in its tolling agreement with
Evangeline to Bear Energy.  On March 16, 2008, JPMorgan Chase &
Co. announced it was acquiring Bear Stearns Companies Inc., the parent company
of Bear Energy.  On May 30, 2008, JPMorgan Chase & Co. completed
the acquisition of Bear Stearns Companies Inc.  For more information
regarding Bear Energy and the announced purchase by JPMorgan Chase & Co.,
see Note 11 — Litigation, Other Commitments and Contingencies, and Disclosures
about Guarantees — Risks and Uncertainties.”




Other
Subsidiaries 100% owned by Cleco Corporation


Cleco’s
current assessment of its maximum exposure to loss with respect to Perryville
and Attala at June 30, 2008, consists of its equity investment of $8.6
million.


The
table below presents the components of Cleco Corporation’s equity investments in
Perryville and Attala.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,INCEPTION
      TO DATE (THOUSANDS)
            
            2008
            
            
            2007Contributed
      assets (cash)
            
            $
            126,592
            
            
            $
            126,591Net
      income
            
            
            53,324
            
            
            
            52,735Less:  non-cash
      distributions
            
            
            20,869
            
            
            
            20,555Less:  cash
      distributions
            
            
            150,463
            
            
            
            150,433Total equity investment in
      investee
            
            $
            8,584
            
            
            $
            8,338




The
tables below contain summarized financial information for Perryville and
Attala.





AT
      JUNE 30,
            
            
            AT
      DECEMBER 31,(THOUSANDS)
            
            2008
            
            
            2007Current
      assets
            
            $
            1,751
            
            
            $
            691Accounts
      receivable - affiliate
            
            
            750
            
            
            
            493Other
      assets
            
            
            14,311
            
            
            
            14,499Total assets
            
            $
            16,812
            
            
            $
            15,683Current
      liabilities
            
            $
            273
            
            
            $
            175Accounts
      payable - affiliate
            
            
            3,547
            
            
            
            2,968Other
      liabilities
            
            
            397
            
            
            
            328Member’s
      equity
            
            
            12,595
            
            
            
            12,212Total liabilities and member’s
      equity
            
            $
            16,812
            
            
            $
            15,683





FOR
      THE THREE MONTHS ENDED JUNE 30,
            
            
            FOR THE SIX MONTHS ENDED JUNE
      30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenue
            
            $
            496
            
            
            $
            589
            
            
            $
            992
            
            
            $
            1,113Operating
      expenses
            
            
            312
            
            
            
            63
            
            
            
            368
            
            
            
            149Income before
    taxes
            
            $
            184
            
            
            $
            526
            
            
            $
            624
            
            
            $
            964




The
difference between the equity investment in investee and member’s equity shown
in the tables above is due to income tax items being reported in the
corresponding tax accounts on Cleco Corporation’s financial statements, rather
than the equity investment account.


The
transmission assets utilized by Perryville under the Perryville Interconnection
Agreement are accounted for as a direct financing lease by Perryville and are
included in other assets in the summarized financial information
above.


Income
tax expense recorded on Cleco’s financial statements related to Cleco
Corporation’s 100% interest in Perryville and Attala was $0.1 million and $0.2
million for the three and six months ended June 30, 2008, respectively, compared
to $1.5 million and $1.7 million for the three and six months ended June 30,
2007, respectively.




Note
11 — Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees


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.  In June
2008, the City and Cleco agreed in principle to resolve all outstanding issues
between them that were involved in the litigation.  The agreement in
principle is subject to execution of definitive agreements, which the parties
are currently negotiating and preparing, and serves to eliminate the March 3,
2009 termination of the current service agreement.  Management
believes the dispute will not have a material adverse effect on the Registrants’
financial condition, results of operations, or cash flows.


On
October 8, 2007, Cleco received a Special Notice for Remedial Investigation and
Feasibility Study from the EPA.  The special notice requested that
Cleco Corporation and Cleco Power, along with many other listed potentially
responsible parties, enter into negotiations with the EPA for the performance of
a Remedial Investigation and Feasibility Study at an area known as the Devil’s
Swamp Lake just northwest of Baton Rouge, Louisiana.  The EPA has
identified Cleco as one of many companies sending PCB wastes for disposal to the
site.  The Devil’s Swamp Lake site has been proposed to be added
to the National Priorities List (NPL) based on the release of PCBs to fisheries
and wetlands located on the site.  The EPA will make a final decision
on the listing of the site to the NPL after considering relevant
comments.  Cleco has contacted the EPA in response to the special
notice and is reviewing the available information.  The EPA and a
number of PRPs met on January 31, 2008, for an organizational meeting to discuss
the background of the site.  The PRPs began discussing a potential
proposal to the EPA on February 19, 2008.  As this investigation is in
the preliminary stages, management is unable to determine whether the costs
associated with possible remediation of the facility site will have a material
adverse effect on the Registrants’ results of operations, financial condition,
and 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,




32
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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.




Off-Balance
Sheet Commitments and Disclosures about Guarantees


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 and Cleco
Power also 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 ended after December 15, 2002.


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, 2008, 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, 2008REDUCTIONS
      TO THEAMOUNT
      AVAILABLETO
      BE DRAWN ONFACE
            
            
            
            
            
            NET
            
            
            CLECO
      CORPORATION’S(THOUSANDS)
            
            AMOUNT
            
            
            REDUCTIONS
            
            
            AMOUNT
            
            
            CREDIT
      FACILITYCleco
      CorporationGuarantee issued to Entergy
      companies for performance obligations of Perryville
            
            $
            277,400
            
            
            $
            135,000
            
            
            $
            142,400
            
            
            $
            328Guarantees issued to purchasers
      of the assets of Cleco Energy
            
            
            1,400
            
            
            
            -
            
            
            
            1,400
            
            
            
            1,400Obligations under standby letter
      of credit issued to the Evangeline Tolling Agreement
      counterparty
            
            
            15,000
            
            
            
            -
            
            
            
            15,000
            
            
            
            15,000Guarantee issued to Entergy
      Mississippi on behalf of Attala
            
            
            500
            
            
            
            -
            
            
            
            500
            
            
            
            500Cleco
      PowerObligations under standby letter
      of credit issued to the Louisiana Department of Labor
            
            
            525
            
            
            
            -
            
            
            
            525
            
            
            
            -Obligations under the Lignite
      Mining Agreement
            
            
            6,848
            
            
            
            -
            
            
            
            6,848
            
            
            
            -Total
            
            $
            301,673
            
            
            $
            135,000
            
            
            $
            166,673
            
            
            $
            17,228





Cleco
Corporation provided a limited guarantee and an indemnification, which fall
within the recognition scope of FIN 45, 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, 2008, 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.  It is unlikely that Cleco Corporation will have any other
liabilities which would give rise to indemnity claims under the agreements
providing for the Perryville disposition.  The discounted
probability-weighted liability under the guarantees and indemnifications as of
June 30, 2008, 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 facility by an amount equal to the maximum reasonably
anticipated liability in respect of the contingent obligation as determined in
good faith.


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.  These guarantees
do not fall within the scope of FIN 45.  Cleco Energy issued guarantees and
indemnifications that 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
maximum aggregate potential payment under the guarantees and indemnifications is
$1.2 million.  The discounted probability-weighted liability under the
FIN 45 guarantees and indemnifications as of June 30, 2008, was $0.1
million.


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




33
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




commitment
is in the form of a standby letter of credit from investment grade banks and is
limited to $15.0 million. Rating 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 Attala Interconnection
Agreement.  This guarantee will be effective through the life of the
agreement.


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, 2008, Cleco Power’s 50% exposure for this obligation
was approximately $6.8 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 dates of the guarantees and
standby letters of credit discussed above:





AT
      JUNE 30, 2008AMOUNT
      OF COMMITMENT EXPIRATION PER PERIODNET
            
            
            
            
            
            
            
            
            
            
            
            MOREAMOUNT
            
            
            LESS
      THAN
            
            
            
            
            
            
            
            
            THAN(THOUSANDS)
            
            COMMITTED
            
            
            ONE
      YEAR
            
            
            1-3
      YEARS
            
            
            3-5
      YEARS
            
            
            5
      YEARSGuarantees
            
            $
            151,148
            
            
            $
            100,000
            
            
            $
            8,248
            
            
            $
            -
            
            
            $
            42,900Standby
      letters of credit
            
            
            15,525
            
            
            
            525
            
            
            
            -
            
            
            
            -
            
            
            
            15,000Total commercial
      commitments
            
            $
            166,673
            
            
            $
            100,525
            
            
            $
            8,248
            
            
            $
            -
            
            
            $
            57,900





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.


Generally,
neither Cleco Corporation nor Cleco Power has recourse that would enable them to
recover amounts paid under their guarantee or indemnification
obligations.  The one exception is the insurance 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.





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 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 terminate this
lease prior to the expiration of the lease term.




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.  Cleco Power
may terminate the agreement at any time during the lease.  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, 2008, was approximately $5.9 million.  At this
time, Cleco Power has no plans to terminate this lease prior to expiration of
the lease term.




LPSC
Fuel Audit


In
July 2006, the LPSC informed Cleco Power that it was planning to conduct a
periodic fuel audit that included fuel adjustment clause filings for January
2003 through December 2004.  Cleco Power believes that it has provided
the LPSC Staff with all of the information requested.  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.  However, it is not anticipated that the LPSC
Staff will begin another audit until the current audit is
complete.  Management is unable to predict the time of completion or
results of the






34
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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, and
storm damages. Prior to Cleco Katrina/Rita’s issuance of the storm recovery
bonds in March 2008, charges to Cleco Power’s operating expenses to provide a
reserve for future storm damages were 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.  The settlement agreement signed with the LPSC in March 2007
allowed, among other items, the funding and securitization of $50.8 million for
a reserve for future storm costs; at which time, the amount authorized to accrue
for future storm damages was reduced.  For more information regarding
storm restoration costs, see Note 4 — “Regulatory Assets and Liabilities —
Deferred Storm Restoration Costs - Katrina/Rita.”




Risks
and Uncertainties




Cleco
Corporation


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.




Evangeline
Tolling Agreement


In
May 2008, JPMorgan Chase & Co. acquired Bear Stearns Companies
Inc.  In connection with the acquisition, JPMorgan Chase & Co. has
guaranteed certain obligations of its subsidiaries, including Bear Energy’s
obligations under the Evangeline Tolling Agreement.  If JPMorgan Chase
& Co. or any successor or assignee were to fail to perform its
payment obligations, such failure could have a material adverse effect on Cleco
Corporation’s results of operations, financial condition, and cash flows for the
following reasons, among others:




§
            If
      such failure to perform constituted a default under the tolling agreement,
      the holders of the Evangeline bonds would have the right to declare the
      outstanding principal amount ($173.0 million at June 30, 2008) and
      interest to be immediately due and payable, which could result
      in:


o
            Cleco’s
      seeking to refinance the bonds, the terms of which may be less favorable
      than existing terms;


o
            Cleco’s
      causing Evangeline to seek protection under federal bankruptcy laws;
      or


o
            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.




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.


Changes
in the regulatory environment or market forces could cause Cleco to determine
its assets have suffered an other than temporary decline in value, whereby an
impairment would be required to be taken and Cleco’s financial condition could
be materially adversely affected.




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
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.  Due to 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.




Note
12 — Affiliate Transactions


Cleco
has affiliate balances that were not eliminated as of June 30,
2008.  The balances were not eliminated due to the use of the equity
method of accounting for Evangeline, Perryville, Attala, and
Acadia.  For information on the Evangeline, Perryville, Attala, and
Acadia equity investments, see Note 10 — “Equity Investment in
Investees.”  At June 30, 2008, the payable to Evangeline was $1.2
million, the payable to Perryville was $0.5 million, and the payable to Attala
was $0.2
  35
 CLECO
      CORPORATIONCLECO POWER
                        2008 2ND QUARTER
      FORM 10-Q
  million. 
Also, at June 30, 2008, the receivable from Evangeline was $8.1 million, the
receivable from Perryville was $6.9 million, the receivable from Acadia was $0.4
million, and the receivable from Attala was $0.3 million.


Cleco
Power has affiliate balances that are payable to or due from its
affiliates.  At June 30, 2008, the payable to Support Group was $5.1
million, the payable to Cleco Corporation was $31.9 million, and the payable to
other affiliates was less than $0.1 million.  Also, at June 30, 2008,
the receivable from Support Group was $1.3 million, the receivable from Cleco
Corporation was $17.4 million, and the receivable from other affiliates was less
than $0.1 million.




Note
13 — Intangible Asset


During
the first quarter of 2008, Cleco Katrina/Rita acquired a $177.5 million
intangible asset which includes $176.0 million for the right to bill and
collect storm recovery charges from customers of Cleco Power and $1.5 million of
financing costs.  This intangible asset is expected to have a life of
12 years, but could have a life of up to 15 years depending on the time period
required to collect the required amount from Cleco Power’s
customers.  The intangible asset is being amortized according to the
estimated collections from Cleco Power’s customers.  At the end of its
life, this asset will have no residual value.  During the three months
and six months ended June 30, 2008, Cleco Katrina/Rita recognized
amortization expense of $2.9 million and $3.6 million,
respectively.  For additional information on Cleco Katrina/Rita storm
costs and securitization, see Note 4 — “Regulatory Assets and Liabilities —
Deferred Storm Restoration Costs - Katrina/Rita.  The following tables
provide additional information about this intangible asset.





(THOUSANDS)
            
            AT
      JUNE 30, 2008Gross
      carrying amount
            
            $
            177,507Accumulated
      amortization
            
            
            3,588Intangible
      asset
            
            $
            173,919





(THOUSANDS)Expected
      amortization expenseFor the year ending June 30,
      2009
            
            $
            10,335For the year ending June 30,
      2010
            
            $
            11,538For the year ending June 30,
      2011
            
            $
            12,330For the year ending June 30,
      2012
            
            $
            13,167





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, 2007, and Cleco Corporation and Cleco Power’s Condensed
Consolidated 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, 2008, and June 30, 2007.




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 challenges and factors that could affect its results of
operations and financial condition in the near term.





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 substantially complete and operational by June 30,
2009.  Cleco Power’s current base rates have been extended through the
start of Rodemacher Unit 3.


On
July 14, 2008, Cleco Power filed with the LPSC a request for a new rate plan to
establish rates to be effective upon commercial operation of Rodemacher Unit
3.  Cleco Power has requested in the new rate plan a 12.25% return on
equity.  Cleco Power’s current base rates allow it the opportunity to
earn a maximum regulated return on equity of 11.65%, which is based on a return
on equity of 11.25% and 12.25% shared between shareholders and customers in a
40/60 ratio.  Cleco Power currently is recording AFUDC associated with
construction of Rodemacher Unit 3.  Once the plant begins commercial
operations, Cleco Power will no longer record AFUDC related to Rodemacher Unit
3.  Recovery of the Rodemacher Unit 3 investment is the largest
component in Cleco Power’s general rate plan that was filed with the
LPSC.  If the LPSC does not increase Cleco Power’s base rates or
denies Cleco Power’s request to recover costs incurred in the construction of
Rodemacher Unit 3, Cleco Power’s results of




36
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




operations,
financial condition, and cash flows could be materially adversely
affected.  For additional information, see “— Financial Condition —
Liquidity and Capital Resources — Regulatory Matters — Cleco Power’s Rate Case”
and — “Rodemacher Unit 3.”


Cleco
Power continues to evaluate a range of other power supply options for 2009 and
beyond.  As such, Cleco Power is continuing to update its IRP to look
at future sources of supply. Cleco Power released an RFP in October 2007
seeking long-term resources to fill the needs identified by the latest IRP and
also released an RFP in March 2008 to meet its 2009 capacity and energy
requirements.




Midstream


Acadia
resides in the Southeastern Electric Reliability Council (SERC)-Entergy
sub-region.  For merchant generators, this sub-region is challenged
both by the general oversupply of gas-fired generation available to serve the
Entergy system needs and the physical transmission constraints that can limit
the amount of power that Acadia can deliver.  The SERC-Entergy
sub-region has reserve margins among the highest in the nation.  These
high reserve margins can lead to lower capacity factors and lower profitability
for Acadia.  In the coming years, the wholesale power market within
the SERC-Entergy sub-region is expected to tighten as load grows.  The
tightening wholesale power market is expected to result in higher wholesale
power prices.  Due to Acadia’s location on the transmission
grid, Acadia relies on two main suppliers of electric transmission when
accessing external power markets.  At times, transmission availability
limits the wholesale markets accessible by Acadia resulting in limited buyers
for Acadia’s output.


To
address these risks, Acadia markets short-, mid- and long-term products
where available.  Through its third party energy marketer, Acadia
pursues opportunities in the hourly, weekly, monthly, and annual
markets.  In addition, Acadia actively participates in long-term
requests for capacity and energy.  Acadia’s success in these marketing
efforts is a primary driver of Acadia’s earnings and cash
flow.




Comparison
of the Three Months Ended June 30, 2008, and 2007




Cleco
Consolidated


FOR
      THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
            
            2008
            
            
            2007
            
            
            VARIANCE
            
            
            CHANGEOperating
      revenue, net
            
            $
            274,787
            
            
            $
            261,501
            
            
            $
            13,286
            
            
            
            5.08
            %Operating
      expenses
            
            
            241,078
            
            
            
            236,422
            
            
            $
            (4,656
            )
            
            
            (1.97
            )%Operating
      income
            
            $
            33,709
            
            
            $
            25,079
            
            
            $
            8,630
            
            
            
            34.41
            %Interest
      income
            
            $
            1,258
            
            
            $
            2,589
            
            
            $
            (1,331
            )
            
            
            (51.41
            )%Allowance
      for other funds used during construction
            
            $
            14,993
            
            
            $
            7,032
            
            
            $
            7,961
            
            
            
            113.21
            %Equity
      (loss) income from investees
            
            $
            (2,365
            )
            
            $
            71,282
            
            
            $
            (73,647
            )
            
            
            (103.32
            )%Other
      expense
            
            $
            1,377
            
            
            $
            416
            
            
            $
            (961
            )
            
            
            (231.01
            )%Interest
      charges
            
            $
            9,921
            
            
            $
            11,989
            
            
            $
            2,068
            
            
            
            17.25
            %Federal
      and state income taxes
            
            $
            6,999
            
            
            $
            30,968
            
            
            $
            23,969
            
            
            
            77.40
            %Net
      income applicable to common stock
            
            $
            29,377
            
            
            $
            63,179
            
            
            $
            (33,802
            )
            
            
            (53.50
            )%




Consolidated
net income applicable to common stock decreased $33.8 million, or 53.5%, in the
second quarter of 2008 compared to the second quarter of 2007 primarily due to
decreased Midstream and corporate earnings.  Partially offsetting
these decreases were increased Cleco Power earnings.


Operating
revenue, net increased $13.3 million, or 5.1%, in the second quarter of 2008
compared to the second quarter of 2007 largely as a result of higher base, fuel
cost recovery, and other operations revenues at Cleco Power.


Operating
expenses increased $4.7 million, or 2.0%, in the second quarter of 2008 compared
to the second quarter of 2007 primarily due to higher fuel costs and higher
capacity payments at Cleco Power.


Interest
income decreased $1.3 million, or 51.4%, in the second quarter of 2008 compared
to the second quarter of 2007 largely as a result of lower rates of return and
lower average investment balances.


Allowance
for other funds used during construction increased $8.0 million, or 113.2%, in
the second quarter of 2008 compared to the same period of 2007 primarily due to
increased construction activity at Rodemacher Unit 3.


Equity
income from investees decreased $73.6 million, or 103.3%, in the second quarter
of 2008 compared to the same period of 2007 primarily due to payments received
in the settlement of Acadia’s claims against CES and Calpine in the 2007
period.


Other
expense increased $1.0 million, or 231.0%, in the second quarter of 2008
compared to the same period of 2007 primarily due to a decrease in the cash
surrender value of life insurance policies at Cleco Corporation.


Interest
charges decreased $2.1 million, or 17.3%, in the second quarter of 2008 compared
to the same period of 2007 primarily due to the allowance for borrowed funds
used during construction associated with the construction activity at Rodemacher
Unit 3, interest related to the storm damage surcredit, repayments of
medium-term and senior notes at Cleco Power and Cleco Corporation, respectively,
and interest related to the repayment of draws against Cleco Power's credit
facility.  Partially offsetting this decrease was interest related to
the March 2008 issuance of storm recovery bonds and interest related to the
issuance of senior notes and solid waste disposal facility bonds at Cleco
Power.


Federal
and state income taxes decreased $24.0 million, or 77.4%, primarily due to a
decrease in pre-tax income during the second quarter of 2008 compared to the
same period of 2007.


Results
of operations for Cleco Power and Midstream are more fully described
below.




Cleco
Power


Cleco
Power’s net income in the second quarter of 2008 increased $14.0 million, or
74.9%, compared to the second quarter of 2007.  Contributing factors
include:




§
            higher
      allowance for other funds used during
  construction,


§
            higher
      other operations revenue,


§
            higher
      base revenue,




37
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




§
            lower
      other operations and maintenance
expenses,


§
            lower
      taxes other than income taxes, and


§
            lower
      interest charges.




These
were partially offset by higher non-recoverable fuel and
power purchased.





FOR
      THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
            
            2008
            
            
            2007
            
            
            VARIANCE
            
            
            CHANGEOperating
      revenueBase
            
            $
            92,653
            
            
            $
            90,213
            
            
            $
            2,440
            
            
            
            2.70
            %Fuel cost
    recovery
            
            
            166,928
            
            
            
            161,696
            
            
            
            5,232
            
            
            
            3.24
            %Other operations
            
            
            12,714
            
            
            
            7,922
            
            
            
            4,792
            
            
            
            60.49
            %Affiliate
revenue
            
            
            8
            
            
            
            13
            
            
            
            (5
            )
            
            
            (38.46
            )%Intercompany
    revenue
            
            
            586
            
            
            
            502
            
            
            
            84
            
            
            
            16.73
            %Operating revenue,
      net
            
            
            272,889
            
            
            
            260,346
            
            
            
            12,543
            
            
            
            4.82
            %Operating
      expensesFuel used for electricgeneration
      – recoverable
            
            
            20,140
            
            
            
            48,667
            
            
            
            28,527
            
            
            
            58.62
            %Power purchased for
      utilitycustomers – recoverable
            
            
            146,760
            
            
            
            113,009
            
            
            
            (33,751
            )
            
            
            (29.87
            )%Non-recoverable fuel andpower
      purchased
            
            
            7,936
            
            
            
            5,228
            
            
            
            (2,708
            )
            
            
            (51.80
            )%Other operations
            
            
            21,706
            
            
            
            22,965
            
            
            
            1,259
            
            
            
            5.48
            %Maintenance
            
            
            13,645
            
            
            
            14,270
            
            
            
            625
            
            
            
            4.38
            %Depreciation
            
            
            19,007
            
            
            
            19,622
            
            
            
            615
            
            
            
            3.13
            %Taxes other than income
      taxes
            
            
            8,181
            
            
            
            9,584
            
            
            
            1,403
            
            
            
            14.64
            %Total operating
      expenses
            
            
            237,375
            
            
            
            233,345
            
            
            
            (4,030
            )
            
            
            (1.73
            )%Operating
      income
            
            $
            35,514
            
            
            $
            27,001
            
            
            $
            8,513
            
            
            
            31.53
            %Allowance
      for other funds used during construction
            
            $
            14,993
            
            
            $
            7,032
            
            
            $
            7,961
            
            
            
            113.21
            %Interest
      charges
            
            $
            8,831
            
            
            $
            9,626
            
            
            $
            795
            
            
            
            8.26
            %Federal
      and state income taxes
            
            $
            9,610
            
            
            $
            6,531
            
            
            $
            (3,079
            )
            
            
            (47.14
            )%Net
      income
            
            $
            32,662
            
            
            $
            18,672
            
            
            $
            13,990
            
            
            
            74.93
            %





FOR
      THE THREE MONTHS ENDED JUNE 30,(MILLION
      kWh)
            
            2008
            
            
            2007
            
            
            FAVORABLE/
              (UNFAVORABLE)Electric
      salesResidential
            
            
            804
            
            
            
            777
            
            
            
            3.47
            %Commercial
            
            
            599
            
            
            
            594
            
            
            
            0.84
            %Industrial
            
            
            729
            
            
            
            758
            
            
            
            (3.83
            )%Other retail
            
            
            33
            
            
            
            34
            
            
            
            (2.94
            )%Total retail
            
            
            2,165
            
            
            
            2,163
            
            
            
            0.09
            %Sales for resale
            
            
            103
            
            
            
            117
            
            
            
            (11.97
            )%Unbilled
            
            
            203
            
            
            
            182
            
            
            
            11.54
            %Total
      retail and wholesale customer sales
            
            
            2,471
            
            
            
            2,462
            
            
            
            0.37
            %





FOR
      THE THREE MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            FAVORABLE/
              (UNFAVORABLE)Electric
      salesResidential
            
            $
            36,702
            
            
            $
            36,113
            
            
            
            1.63
            %Commercial
            
            
            23,027
            
            
            
            22,654
            
            
            
            1.65
            %Industrial
            
            
            13,995
            
            
            
            14,077
            
            
            
            (0.58
            )%Other retail
            
            
            1,372
            
            
            
            1,427
            
            
            
            (3.85
            )%Storm surcharge
            
            
            4,335
            
            
            
            5,720
            
            
            
            (24.21
            )%Total retail
            
            
            79,431
            
            
            
            79,991
            
            
            
            (0.70
            )%Sales for resale
            
            
            5,583
            
            
            
            4,044
            
            
            
            38.06
            %Unbilled
            
            
            7,639
            
            
            
            6,178
            
            
            
            23.65
            %Total
      retail and wholesale customer sales
            
            $
            92,653
            
            
            $
            90,213
            
            
            
            2.70
            %




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 30,2008
      CHANGE2008
            
            
            2007
            
            
            NORMAL
            
            
            PRIOR
      YEAR
            
            
            NORMALCooling-degree days
            
            
            1,047
            
            
            
            922
            
            
            
            898
            
            
            
            13.56
            %
            
            
            16.59
            %




Base


Base
revenue during the second quarter of 2008 increased $2.4 million, or 2.7%,
compared to the same period of 2007.  The increase was primarily due
to higher electric sales to retail and wholesale customers, generally resulting
from warmer weather in the second quarter of 2008 as compared to the same period
in 2007.  Partially offsetting this increase was a decrease in the
amount being recovered for storm restoration costs through a monthly customer
surcharge and a base rate reduction related to storm damage
expenses.  The monthly cost to customers was reduced in March 2008
when the storm costs were financed through the issuance of storm recovery bonds
by Cleco Katrina/Rita.


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, 2007.




Fuel
Cost Recovery


Fuel
cost recovery revenue billed to customers during the second quarter of 2008
compared to the same period in 2007 increased $5.2 million, or 3.2%, primarily
due to increases in the per-unit cost of power purchased for utility customers
and higher volumes of fuel used for electric generation.  Partially
offsetting the increase were decreased volumes of power purchased for utility
customers and decreases in the per-unit cost of fuel used for electric
generation.  Changes in fuel costs historically have not significantly
affected Cleco Power’s net income.  Generally, fuel and purchased
power expenses are recovered through the LPSC-established fuel adjustment
clause, which enables Cleco Power to pass on to its customers substantially all
such charges.  Approximately 96% of Cleco Power’s total fuel cost
during the second quarter of




38
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




2008
was regulated by the LPSC, while the remainder was regulated by the
FERC.  Recovery of fuel adjustment clause costs is subject to refund
until approval is received from the LPSC.  For information on Cleco
Power’s ongoing 2003 through 2004 fuel audit, see Item 1, “Notes to the
Unaudited Condensed Consolidated Financial Statements — Note 11 — Litigation,
Other Commitments and Contingencies, and Disclosures about Guarantees — Other
Contingencies — LPSC Fuel Audit.”




Other
Operations


Other
operations revenue increased $4.8 million, or 60.5%, in the second quarter of
2008 compared to the second quarter of 2007 primarily due to $3.6 million of
mark-to-market gains and realized gains relating to economic hedge transactions
associated with fixed-price power being provided to a wholesale
customer.  Also contributing to the increase was $1.2 million of
higher other miscellaneous 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 $4.0 million, or 1.7%, in the second quarter of 2008 compared
to the same period of 2007. Fuel used for electric generation (recoverable)
decreased $28.5 million, or 58.6%, primarily due to lower per-unit costs of fuel
used as compared to the same period of 2007, as a result of realized gains on
fuel hedging due to the price volatility of natural gas.  Partially
offsetting this decrease were higher volumes of fuel used for electric
generation, primarily from the absence in 2008 of plant outages as compared to
the same period of 2007.  Power purchased for utility customers
(recoverable) increased $33.8 million, or 29.9%, largely due to higher per-unit
costs of purchased power.  Partially offsetting this increase were
lower volumes of purchased power.  Fuel used for electric generation
and power purchased for utility customers generally are influenced by natural
gas prices, as well as availability of transmission.  However, other
factors such as scheduled and/or unscheduled outages, unusual maintenance or
repairs, or other developments may affect fuel used for electric generation and
power purchased for utility customers.  Non-recoverable fuel and power
purchased increased $2.7 million, or 51.8%, primarily due to $1.5 million of
higher capacity payments made during the second quarter of 2008 and a $1.1
million reclassification from recoverable to non-recoverable fuel expense during
the second quarter of 2008.  Also contributing to the increase was
$0.1 million of higher other miscellaneous non-recoverable
expenses.  Other operations expense decreased $1.3 million, or 5.5%,
primarily due to lower employee benefit costs and lower professional
fees.  Maintenance expenses during the second quarter of
2008 decreased $0.6 million, or 4.4%, compared to the same period of 2007
primarily due to less generating station maintenance work performed during the
second quarter of 2008.  Depreciation expense decreased $0.6 million,
or 3.1%, primarily due to $1.0 million of lower storm amortization costs,
partially offset by $0.4 million related to normal recurring additions to fixed
assets.  Taxes other than income taxes decreased $1.4 million, or
14.6%, primarily due to a change in the accounting treatment of city franchise
taxes as a result of an LPSC order.




Allowance
for Other Funds Used During Construction


Allowance
for other funds used during construction increased $8.0 million, or 113.2%,
during the second quarter of 2008 compared to the same period of 2007 primarily
due to increased construction activity at Rodemacher Unit
3.  Allowance for other funds used during construction comprised 45.9%
of Cleco Power’s net income for the second quarter of 2008, compared to 37.7%
for the second quarter of 2007.




Interest Charges


Interest
charges decreased $0.8 million, or 8.3%, during the second quarter of 2008
compared to the same period of 2007 primarily due to $1.4 million of interest
related to the storm damage surcredit, $2.6 million of allowance for borrowed
funds used during construction associated with the construction activity at
Rodemacher Unit 3, $0.7 million related to the repayment of draws against Cleco
Power’s credit facility, and $0.4 million related to the repayment of
medium-term notes.  Partially offsetting this decrease was $2.2
million related to the March 2008 issuance of storm recovery bonds, $1.3 million
related to the May 2008 issuance of senior notes, and $0.8 million related to
the November 2007 issuance of solid waste disposal facility bonds.




Income
Taxes


Income
tax expense increased $3.1 million, or 47.1%, primarily due to an increase in
pre-tax income during the second quarter of 2008 compared to the same period of
2007.




Midstream


FOR
      THE THREE MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
            
            2008
            
            
            2007
            
            
            VARIANCE
            
            
            CHANGEOperating
      revenueOther operations
            
            $
            -
            
            
            $
            4
            
            
            $
            (4
            )
            
            
            (100.00
            )%Affiliate
revenue
            
            
            1,842
            
            
            
            1,160
            
            
            
            682
            
            
            
            58.79
            %Operating
    revenue
            
            
            1,842
            
            
            
            1,164
            
            
            
            678
            
            
            
            58.25
            %Operating
      expensesOther operations
            
            
            1,504
            
            
            
            2,006
            
            
            
            502
            
            
            
            25.02
            %Maintenance
            
            
            880
            
            
            
            601
            
            
            
            (279
            )
            
            
            (46.42
            )%Depreciation
            
            
            76
            
            
            
            79
            
            
            
            3
            
            
            
            3.80
            %Taxes other than income
      taxes
            
            
            91
            
            
            
            77
            
            
            
            (14
            )
            
            
            (18.18
            )%Total operating
      expenses
            
            
            2,551
            
            
            
            2,763
            
            
            
            212
            
            
            
            7.67
            %Operating
      loss
            
            $
            (709
            )
            
            $
            (1,599
            )
            
            $
            890
            
            
            
            55.66
            %Equity
      (loss) income from investees
            
            $
            (2,549
            )
            
            $
            70,755
            
            
            $
            (73,304
            )
            
            
            (103.60
            )%Interest
      charges
            
            $
            1,522
            
            
            $
            5,521
            
            
            $
            3,999
            
            
            
            72.43
            %Federal
      and state income tax (benefit) expense
            
            $
            (1,879
            )
            
            $
            25,015
            
            
            $
            26,894
            
            
            
            107.51
            %Net
      (loss) income
            
            $
            (2,912
            )
            
            $
            39,042
            
            
            $
            (41,954
            )
            
            
            (107.46
            )%




39
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




Factors
affecting Midstream during the second quarter of 2008 are described
below.




Operating
Revenue


Operating
revenue increased $0.7 million, or 58.3%, in the second quarter of 2008 compared
to the second quarter of 2007.  The increase was primarily due to the
accounting treatment of Acadia's power plant operations, maintenance, and
engineering services resulting from Cajun's purchase of Calpine’s 50% ownership
interest in Acadia in September 2007.  Prior to September 2007,
Calpine employees provided power plant operations, maintenance, and engineering
services to Acadia.  Subsequent to September 2007, these services were
provided by Midstream.  As a result, all revenue associated with plant
operations for Acadia is included in affiliate revenue.




Equity
Income from Investees


Equity
income from investees decreased $73.3 million, or 103.6%, during the second
quarter of 2008 compared to the same period of 2007.  The decrease was
due to a $77.2 million decrease in equity earnings at APH, partially offset by a
$3.9 million increase in equity earnings at Evangeline.  The decrease
at APH was primarily due to the absence of the settlement of Acadia’s
pre-petition unsecured claims against CES and Calpine in the second quarter
of 2008.  The increase at Evangeline was primarily due to the absence
of replacement power purchases related to an outage at the facility during 2007,
as well as lower interest charges and write-offs of obsolete
equipment.  For additional information on Evangeline and Acadia, see
Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements —
Note 10 — Equity Investment in Investees.”




Interest
Charges


Interest
charges decreased $4.0 million, or 72.4%, during the second quarter of 2008
compared to the same period of 2007 primarily due to lower interest rates and a
lower balance on affiliate debt relating to APH’s investment in
Acadia.




Income
Taxes


Income
tax expense decreased $26.9 million, or 107.5%, primarily due to a decrease in
pre-tax income during the second quarter of 2008 compared to the same period of
2007.





Comparison
of the Six Months Ended June 30, 2008, and 2007




Cleco
Consolidated


FOR
      THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
            
            2008
            
            
            2007
            
            
            VARIANCE
            
            
            CHANGEOperating
      revenue, net
            
            $
            497,337
            
            
            $
            485,251
            
            
            $
            12,086
            
            
            
            2.49
            %Operating
      expenses
            
            
            436,879
            
            
            
            442,521
            
            
            
            5,642
            
            
            
            1.27
            %Operating
      income
            
            $
            60,458
            
            
            $
            42,730
            
            
            $
            17,728
            
            
            
            41.49
            %Interest
      income
            
            $
            2,875
            
            
            $
            5,157
            
            
            $
            (2,282
            )
            
            
            (44.25
            )%Allowance
      for other funds used during construction
            
            $
            28,677
            
            
            $
            12,163
            
            
            $
            16,514
            
            
            
            135.77
            %Equity
      (loss) income from investees
            
            $
            (6,939
            )
            
            $
            69,883
            
            
            $
            (76,822
            )
            
            
            (109.93
            )%Other
      expense
            
            $
            2,046
            
            
            $
            1,882
            
            
            $
            (164
            )
            
            
            (8.71
            )%Interest
      charges
            
            $
            19,662
            
            
            $
            23,975
            
            
            $
            4,313
            
            
            
            17.99
            %Federal
      and state income taxes
            
            $
            12,060
            
            
            $
            33,111
            
            
            $
            21,051
            
            
            
            63.58
            %Net
      income applicable to common stock
            
            $
            51,437
            
            
            $
            71,402
            
            
            $
            (19,965
            )
            
            
            (27.96
            )%




Consolidated
net income applicable to common stock decreased $20.0 million, or 28.0%, in the
first six months of 2008 compared to the first six months of 2007 primarily due
to decreased Midstream and corporate earnings.  Partially offsetting
these decreases were increased Cleco Power earnings.


Operating
revenue, net increased $12.1 million, or 2.5%, in the first six months of 2008
compared to the same period of 2007 primarily as a result of higher base,
fuel cost recovery, and other operations revenues at Cleco
Power.


Operating
expenses decreased $5.6 million, or 1.3%, in the first six months of 2008
compared to the first six months of 2007 primarily due to decreased other
operations and maintenance expenses, depreciation expense, and taxes other
than income taxes at Cleco Power.


Interest
income decreased $2.3 million, or 44.3%, in the first six months of 2008
compared to the first six months of 2007 primarily due to lower rates of return
and lower average investment balances.


Allowance
for other funds used during construction increased $16.5 million, or 135.8%, in
the first six months of 2008 compared to the same period of 2007 primarily due
to increased construction activity at Rodemacher Unit 3.


Other
expense increased $0.2 million, or 8.7%, in the first six months of 2008
compared to the first six months of 2007 primarily due to a decrease in the cash
surrender value of life insurance policies at Cleco Corporation, partially
offset by the absence in 2008 of penalties related to the FERC Staff
investigation.


Equity
income from investees decreased $76.8 million, or 109.9%, in the first six
months of 2008 compared to the same period of 2007.  The decrease
primarily was due to payments received in the settlement of Acadia’s claims
against CES and Calpine in the 2007 period.


Interest
charges decreased $4.3 million, or 18.0%, in the first six months of 2008
compared to the same period of 2007 primarily due to the allowance for borrowed
funds used during construction associated with the construction activity at
Rodemacher Unit 3, the repayments of medium-term and senior notes at Cleco Power
and Cleco Corporation, respectively, and interest related to the storm damage
surcredit.  Partially




40
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




offsetting
this decrease was increased interest related to draws against Cleco Power’s
credit facility and interest related to the issuances of new senior notes, solid
waste disposal facility bonds, and storm recovery bonds.


Federal
and state income taxes decreased $21.1 million, or 63.6%, during the first six
months of 2008 compared to the same period of 2007 primarily due to a decrease
in pre-tax income.


Results
of operations for Cleco Power and Midstream are fully described
below.




Cleco
Power


Cleco
Power’s net income in the first six months of 2008 increased $29.3 million, or
94.7%, compared to the first six months of 2007.  Contributing factors
include:




§
            higher
      allowance for other funds used during
  construction,


§
            lower
      other operations and maintenance
expenses,


§
            higher
      other operations revenue,


§
            higher
      base revenue,


§
            lower
      interest charges,


§
            lower
      taxes other than income taxes, and


§
            lower
      depreciation expense.




These
were partially offset by:




§
            higher
      non-recoverable fuel and power purchased
and


§
            lower
      interest income.





FOR
      THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
              
              2008
              
              
              2007
              
              
              VARIANCE
              
              
              CHANGEOperating
      revenueBase
              
              $
              171,842
              
              
              $
              168,289
              
              
              $
              3,553
              
              
              
              2.11
              %Fuel cost
    recovery
              
              
              297,620
              
              
              
              296,640
              
              
              
              980
              
              
              
              0.33
              %Other operations
              
              
              22,775
              
              
              
              17,182
              
              
              
              5,593
              
              
              
              32.55
              %Affiliate
revenue
              
              
              14
              
              
              
              25
              
              
              
              (11
              )
              
              
              (44.00
              )%Intercompany
    revenue
              
              
              1,088
              
              
              
              1,003
              
              
              
              85
              
              
              
              8.47
              %Operating revenue,
      net
              
              
              493,339
              
              
              
              483,139
              
              
              
              10,200
              
              
              
              2.11
              %Operating
      expensesFuel used for electricgeneration
      – recoverable
              
              
              63,463
              
              
              
              102,034
              
              
              
              38,571
              
              
              
              37.80
              %Power purchased for
      utilitycustomers – recoverable
              
              
              234,137
              
              
              
              194,563
              
              
              
              (39,574
              )
              
              
              (20.34
              )%Non-recoverable fuel andpower
      purchased
              
              
              12,566
              
              
              
              9,950
              
              
              
              (2,616
              )
              
              
              (26.29
              )%Other operations
              
              
              42,620
              
              
              
              48,576
              
              
              
              5,956
              
              
              
              12.26
              %Maintenance
              
              
              22,838
              
              
              
              23,997
              
              
              
              1,159
              
              
              
              4.83
              %Depreciation
              
              
              38,025
              
              
              
              39,383
              
              
              
              1,358
              
              
              
              3.45
              %Taxes other than income
      taxes
              
              
              15,995
              
              
              
              18,487
              
              
              
              2,492
              
              
              
              13.48
              %Total
      operatingexpenses
              
              
              429,644
              
              
              
              436,990
              
              
              
              7,346
              
              
              
              1.68
              %Operating
      income
              
              $
              63,695
              
              
              $
              46,149
              
              
              $
              17,546
              
              
              
              38.02
              %Interest
      income
              
              $
              1,576
              
              
              $
              2,466
              
              
              $
              (890
              )
              
              
              (36.09
              )%Allowance
      for other funds used during construction
              
              $
              28,677
              
              
              $
              12,163
              
              
              $
              16,514
              
              
              
              135.77
              %Interest
      charges
              
              $
              16,462
              
              
              $
              19,670
              
              
              $
              3,208
              
              
              
              16.31
              %Federal
      and state income taxes
              
              $
              16,569
              
              
              $
              9,647
              
              
              $
              (6,922
              )
              
              
              (71.75
              )%Net
      income
              
              $
              60,269
              
              
              $
              30,948
              
              
              $
              29,321
              
              
              
              94.74
              %







FOR
      THE SIX MONTHS ENDED JUNE 30,(MILLION
      kWh)
            
            2008
            
            
            2007
            
            
            FAVORABLE/
              (UNFAVORABLE)Electric
      salesResidential
            
            
            1,644
            
            
            
            1,619
            
            
            
            1.54
            %Commercial
            
            
            1,153
            
            
            
            1,137
            
            
            
            1.41
            %Industrial
            
            
            1,416
            
            
            
            1,468
            
            
            
            (3.54
            )%Other retail
            
            
            65
            
            
            
            67
            
            
            
            (2.99
            )%Total retail
            
            
            4,278
            
            
            
            4,291
            
            
            
            (0.30
            )%Sales for resale
            
            
            173
            
            
            
            219
            
            
            
            (21.00
            )%Unbilled
            
            
            147
            
            
            
            112
            
            
            
            31.25
            %Total
      retail and wholesale customer sales
            
            
            4,598
            
            
            
            4,622
            
            
            
            (0.52
            )%





FOR
      THE SIX MONTHS ENDED JUNE 30,(THOUSANDS)
            
            2008
            
            
            2007
            
            
            FAVORABLE/
              (UNFAVORABLE)Electric
      salesResidential
            
            $
            69,746
            
            
            $
            69,377
            
            
            
            0.53
            %Commercial
            
            
            46,063
            
            
            
            44,949
            
            
            
            2.48
            %Industrial
            
            
            26,995
            
            
            
            27,711
            
            
            
            (2.58
            )%Other retail
            
            
            2,737
            
            
            
            2,868
            
            
            
            (4.57
            )%Storm surcharge
            
            
            10,185
            
            
            
            11,651
            
            
            
            (12.58
            )%Total retail
            
            
            155,726
            
            
            
            156,556
            
            
            
            (0.53
            )%Sales for resale
            
            
            9,670
            
            
            
            7,931
            
            
            
            21.93
            %Unbilled
            
            
            6,446
            
            
            
            3,802
            
            
            
            69.54
            %Total
      retail and wholesale customer sales
            
            $
            171,842
            
            
            $
            168,289
            
            
            
            2.11
            %




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 30,2008
      CHANGE2008
            
            
            2007
            
            
            NORMAL
            
            
            PRIOR
      YEAR
            
            
            NORMALHeating-degree days
            
            
            860
            
            
            
            950
            
            
            
            1,035
            
            
            
            (9.47
            )%
            
            
            (16.91
            )%Cooling-degree days
            
            
            1,158
            
            
            
            1,034
            
            
            
            969
            
            
            
            11.99
            %
            
            
            19.50
            %




Base


Base
revenue during the first six months of 2008 increased $3.6 million, or
2.1%, compared to the same period in 2007. The increase was primarily due
to increased sales to a municipal customer, partially offset by a decrease in
the amount being recovered for storm restoration costs through a monthly
customer surcharge and a base rate reduction related to storm damage
expenses.  The monthly cost to customers was reduced in March 2008
when the storm costs were financed through the issuance of storm recovery bonds
by Cleco Katrina/Rita.


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, 2007.




Fuel
Cost Recovery


Fuel
cost recovery revenue billed to customers during the first six months of 2008
compared to the same period in 2007 increased $1.0 million, or 0.3%, primarily
due to increases in the per-unit cost of power purchased for utility customers
and higher volumes of fuel used for electric generation.  Partially
offsetting the increase were decreased volumes of power




41
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




purchased
for utility customers and decreases 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, 2008, and 2007 — Cleco Power — Fuel Cost Recovery.”




Other
Operations


Other
operations revenue increased $5.6 million, or 32.6%, in the first six months of
2008 compared to the first six months of 2007 primarily due to $4.1 million of
mark-to-market gains and realized gains relating to economic
hedge transactions associated with fixed-price power being provided to
a wholesale customer.  Also contributing to the increase was $1.5
million of higher other miscellaneous 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 decreased $7.3 million, or 1.7%, in the first six months of 2008
compared to the same period of 2007. Fuel used for electric generation
(recoverable) decreased $38.6 million, or 37.8%, primarily due to lower per-unit
costs of fuel used as compared to the same period of 2007, as a result of
realized gains on fuel hedging due to the price volatility of natural
gas.  Partially offsetting this decrease were higher volumes of fuel
used for electric generation, primarily from the absence in 2008 of plant
outages as compared to the same period of 2007.  Power purchased for
utility customers (recoverable) increased $39.6 million, or 20.3%, primarily due
to higher per-unit costs of purchased power.  Partially offsetting
this increase were lower volumes of purchased power.  Fuel used for
electric generation and power purchased for utility customers generally are
influenced by natural gas prices, as well as availability of
transmission.  However, other factors such as scheduled and/or
unscheduled outages, unusual maintenance or repairs, or other developments may
affect fuel used for electric generation and power purchased for utility
customers.  Non-recoverable fuel and power purchased increased $2.6
million, or 26.3%, primarily due to $1.2 million of higher capacity payments and
a $1.1 million reclassification from recoverable to non-recoverable fuel expense
during 2008.  Also contributing to the increase was $0.3 million of
higher other miscellaneous non-recoverable expenses.  Other operations
expense decreased $6.0 million, or 12.3%, primarily due to lower professional
fees, and lower employee benefit costs and administrative
expenses. Maintenance expenses during the first six months of
2008 decreased $1.2 million, or 4.8%, compared to the same period of 2007
primarily due to less generating station maintenance work performed during the
first six months of 2008.  Depreciation expense decreased $1.4
million, or 3.5%, primarily due to $2.0 million of lower storm amortization
costs, partially offset by $0.6 million related to normal recurring
additions to fixed assets.  Taxes other than income taxes decreased
$2.5 million, or 13.5%, primarily due to a change in the accounting treatment of
city franchise taxes as a result of an LPSC order.




Interest
Income


Interest
income decreased $0.9 million, or 36.1%, during the first six months of 2008
compared to the same period of 2007 primarily due to lower rates of return and
lower average investment balances.  Lower investment balances were the
result of partially liquidating short-term investments for construction payments
for Rodemacher Unit 3.




Allowance
for Other Funds Used During Construction


Allowance
for other funds used during construction increased $16.5 million, or 135.8%,
during the first six months of 2008 compared to the same period of 2007
primarily due to increased construction activity at Rodemacher Unit
3.  Allowance for other funds used during construction comprised 47.6%
of Cleco Power’s net income for the first six months of 2008, compared to 39.3%
for the first six months of 2007.




Interest
Charges


Interest
charges decreased $3.2 million, or 16.3%, during the first six months of 2008
compared to the same period of 2007 primarily due to $5.5 million of allowance
for borrowed funds used during construction associated with the construction
activity at Rodemacher Unit 3, $1.3 million related to the repayment of
medium-term notes during 2007, and $3.4 million related to the storm damage
surcredit.  Partially offsetting this decrease was $2.9 million
related to the March 2008 issuance of storm recovery bonds, $1.3 million related
to the May 2008 issuance of senior notes, $2.0 million related to the November
2007 issuance of solid waste disposal facility bonds, and $0.8 million related
to draws against Cleco Power's credit facility.




Income
Taxes


Income
tax expense increased $6.9 million, or 71.8%, during the first six months of
2008 compared to the same period of 2007, primarily due to an increase in
pre-tax income.




Midstream


FOR
      THE SIX MONTHS ENDED JUNE 30,FAVORABLE/(UNFAVORABLE)(THOUSANDS)
            
            2008
            
            
            2007
            
            
            VARIANCE
            
            
            CHANGEOperating
      revenueOther operations
            
            $
            1
            
            
            $
            11
            
            
            $
            (10
            )
            
            
            (90.91
            )%Affiliate
revenue
            
            
            3,761
            
            
            
            2,146
            
            
            
            1,615
            
            
            
            75.26
            %Operating
    revenue
            
            
            3,762
            
            
            
            2,157
            
            
            
            1,605
            
            
            
            74.41
            %Operating
      expensesOther operations
            
            
            2,945
            
            
            
            3,206
            
            
            
            261
            
            
            
            8.14
            %Maintenance
            
            
            1,729
            
            
            
            1,061
            
            
            
            (668
            )
            
            
            (62.96
            )%Depreciation
            
            
            152
            
            
            
            154
            
            
            
            2
            
            
            
            1.30
            %Taxes other than
      incometaxes
            
            
            178
            
            
            
            132
            
            
            
            (46
            )
            
            
            (34.85
            )%Gain on sales of
      assets
            
            
            (99
            )
            
            
            -
            
            
            
            99
            
            
            
            -Total operating
      expenses
            
            
            4,905
            
            
            
            4,553
            
            
            
            (352
            )
            
            
            (7.73
            )%Operating
      loss
            
            $
            (1,143
            )
            
            $
            (2,396
            )
            
            $
            1,253
            
            
            
            52.30
            %Equity
      (loss) income from investees
            
            $
            (7,563
            )
            
            $
            68,928
            
            
            $
            (76,491
            )
            
            
            (110.97
            )%Interest
      charges
            
            $
            3,491
            
            
            $
            10,563
            
            
            $
            7,072
            
            
            
            66.95
            %Federal
      and state income tax (benefit) expense
            
            $
            (4,681
            )
            
            $
            22,062
            
            
            $
            26,743
            
            
            
            121.22
            %Net
      (loss) income
            
            $
            (7,528
            )
            
            $
            34,328
            
            
            $
            (41,856
            )
            
            
            (121.93
            )%




42
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q






Midstream’s
net income for the first six months of 2008 decreased $41.9 million, or
121.9%, compared to the first six months of 2007.  Factors affecting
Midstream during the first six months of 2008 are described below.




Operating
Revenue


Operating
revenue increased $1.6 million, or 74.4%, in the first six months of 2008
compared to the first six months of 2007.  The increase was primarily
due to the accounting treatment of Acadia’s power plant operations, maintenance,
and engineering services resulting from Cajun’s purchase of Calpine’s 50%
ownership interest in Acadia in September 2007.  Prior to September
2007, Calpine employees provided power plant operations, maintenance, and
engineering services to Acadia.  Subsequent to September 2007, these
services were provided by Midstream.  As a result, all revenue
associated with plant operations for Acadia is included in affiliate
revenue.




Equity
Income from Investees


Equity
income from investees decreased $76.5 million, or 111.0%, in the first six
months of 2008 compared to the first six months of 2007.  The decrease was
due to a $78.1 million decrease in equity earnings at APH, partially offset by
$1.6 million of lower equity losses at Evangeline.  This decrease at APH
was primarily due to the absence in 2008 of the settlement of Acadia’s
pre-petition unsecured claims against CES and Calpine.  The increase
at Evangeline was primarily due to the absence of replacement power purchases
related to an outage at the facility, as well as lower interest charges and
write-offs of obsolete equipment.




Interest
Charges


Interest
charges decreased $7.1 million, or 67.0%, during the first six months of 2008
compared to the same period of 2007 primarily due to a lower interest rate and a
lower balance on affiliate debt relating to APH’s investment in
Acadia.




Income
Taxes


Income
tax expense decreased $26.7 million, or 121.2%, during the first six months of
2008 compared to the same period of 2007 primarily due to a decrease in
pre-tax income.




FINANCIAL
CONDITION


Liquidity
and Capital Resources




General
Considerations and Credit-Related Risks




Credit
Ratings and Counterparties


At
June 30, 2008, Moody’s and Standard & Poor’s outlooks for both Cleco
Corporation and Cleco Power were stable.  If Cleco Corporation’s 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, other debt agreements,
and collateral for derivatives.


On
May 30, 2008, JPMorgan Chase & Co. announced it completed the acquisition
of the Bear Stearns Companies Inc.  JPMorgan Chase & Co. is
guaranteeing the obligations of Bear Stearns Companies Inc. and its
subsidiaries, including obligations under the Evangeline Tolling
Agreement.  At June 30, 2008, Moody’s outlook for Evangeline was
stable.  The tolling agreement is the principal source of cash flow
for Evangeline.  For more information regarding Evangeline’s tolling
agreement, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial
Statements — Note 11 — Litigation, Other Commitments and Contingencies, and
Disclosures about Guarantees — Risk and Uncertainties — Evangeline Tolling
Agreement.”


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 & 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 natural gas hedging positions that Cleco may
initiate in the future, Cleco may be required to provide credit support (or pay
liquidated damages).  The amount of credit support that Cleco may be
required to provide at any point in the future is dependent on the amount of the
initial transaction, changes in the market price of power and natural gas, the
changes in open power and gas positions, and changes in the amount
counterparties owe Cleco.  Changes in any of these factors could cause
the amount of requested credit support to increase or decrease.  For
additional information, as well as a discussion of other factors affecting
Cleco’s financial condition relating to its credit ratings, the credit ratings
of its counterparties, and other credit-related risks, please read “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Liquidity and Capital Resources — General Considerations
and Credit-Related Risks — Credit Ratings and Counterparties” in the
Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.




Debt


At
June 30, 2008, 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




43
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




its
$150.0 million credit facility.  The same downgrade at 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, 2008, or December 31,
2007.  At June 30, 2008, Cleco’s long-term debt outstanding was
$1.1 billion, of which $58.4 million was long-term debt due within one
year, compared to $869.1 million at December 31, 2007, which included $100.0
million of long-term debt due within one year.  For additional
information, see “— Cleco Corporation (Holding Company Level)” and “— Cleco
Power” below.


At
June 30, 2008, Cleco had a working capital surplus of $82.9 million compared to
$48.1 million at December 31, 2007.  The $34.8 million increase in
working capital is primarily due to the mark-to-mark gains on gas hedges and the
establishment of restricted reserves for future storms, partially offset by
payment of dividends, additions to property, plant and equipment, and
construction costs for Rodemacher Unit 3.  An uncommitted bank line of
credit up to $10.0 million also is available to support Cleco’s working capital
needs.


Cash
and cash equivalents available at June 30, 2008, were $150.8 million combined
with $359.8 million facility capacity ($84.8 million from Cleco Corporation and
$275.0 million from Cleco Power) for total liquidity of $510.6
million.  Cash and cash equivalents increased $21.8 million, when
compared to December 31, 2007, primarily due to cash received from the issuance
of bonds, partially offset by additions to property, plant and equipment,
including Rodemacher Unit 3.




Cleco
Corporation (Holding Company Level)


Cleco
Corporation had no short-term debt outstanding at June 30, 2008, or December 31,
2007.  At June 30, 2008, Cleco Corporation’s long-term debt
outstanding was $48.0 million, of which none was due within one year, compared
to $100.0 million due within one year at December 31, 2007.  Cleco
Corporation’s 7.00% Senior Notes were repaid May 1, 2008 upon
maturity.


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 0.65%, including facility fees.


At
June 30, 2008, Cleco Corporation’s capacity was reduced by $48.0 million in
draws on Cleco Corporation’s $150.0 million, five-year facility with a weighted
average interest rate of 3.0%, and off-balance sheet commitments of $17.2
million, leaving available capacity of $84.8 million.  For more
information about these commitments, see “— Off-Balance Sheet
Commitments.”  An uncommitted bank line of credit up to $10.0 million
also is available to support Cleco’s working capital needs.


Cash
and cash equivalents available at June 30, 2008, were $7.8 million, combined
with $84.8 million facility capacity for total liquidity of $92.6
million.  Cash and cash equivalents decreased $109.2 million, when
compared to December 31, 2007, primarily due to the payment of dividends and the
settlement of affiliate payables and receivables.




Cleco
Power


There
was no short-term debt outstanding at Cleco Power at June 30, 2008, or December
31, 2007.  At June 30, 2008, Cleco Power’s long-term debt outstanding
was $1.0 billion, of which $58.4 million was long-term debt due within one
year, compared to $769.1 million at December 31, 2007, of which none was due
within one year.


At
June 30, 2008, there were no borrowings under Cleco Power’s $275.0 million,
five-year facility, which matures in June 2011.  An uncommitted bank
line of credit up to $10.0 million also is available to support Cleco Power’s
working capital needs.


On
June 3, 2008, Cleco Power issued $250.0 million aggregate principal amount of
senior unsecured notes at an interest rate of 6.65%.  The notes mature
on June 15, 2018.  The proceeds from this offering are to be used for
general corporate purposes, including financing a portion of the construction
costs of Rodemacher Unit 3 and repaying borrowings under Cleco Power’s $275.0
million, five-year credit facility, a portion of which was used to fund some of
the construction costs of Rodemacher Unit 3.


On
March 6, 2008, Cleco Katrina/Rita issued $180.6 million aggregate principal
amount of senior secured storm recovery bonds.  The bonds were issued
in two tranches, with one tranche of $113.0 million initial principal amount
with an expected average life of 5 years and bearing interest of 4.41% per
annum.  The other tranche was for $67.6 million initial principal
amount with an expected average life of 10.58 years and bearing interest at
5.61% per annum.  The resulting weighted average interest rate of both
tranches is 4.86% per annum, and the effective weighted average life is
seven years.  Proceeds from the bonds were used to repay loans under
Cleco Power’s revolving credit facility and for general corporate
purposes.  Debt service for the bonds will be paid by a special
monthly storm recovery surcharge paid by all Cleco Power's retail customers, as
discussed below.


Cash
and cash equivalents available at June 30, 2008, were $142.9 million, combined
with $275.0 million facility capacity for total liquidity of $417.9
million.  Cash and cash equivalents increased $131.0 million when
compared to December 31, 2007, primarily due to cash received from the issuance
of bonds, partially offset by additions to property, plant and equipment,
including Rodemacher Unit 3.


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 carrying costs of capital during the construction phase of the
unit.  Cleco Power had collected $59.6 million and $31.5 million
at June 30, 2008, and December 31, 2007, respectively.  In addition to
this recovery, Cleco Power plans to fund the construction costs related to
Rodemacher Unit 3 by utilizing




44
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




cash
on hand, available funds from its credit facility, the issuance of long-term
debt, and the receipt of 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.  The Governor’s office
allocated $60.0 million for issuance in 2006, and another $60.0 million for
issuance in 2007.  These bonds were issued by the Rapides Finance
Authority in November 2006 and November 2007, respectively.  The bonds
issued in 2006 have a fixed interest rate of 4.70% per annum, and the maturity
date is November 1, 2036.  The 2006 bonds may be called at the option
of the issuer at the direction of Cleco Power after November 1,
2016.  The bonds issued in 2007 initially had a variable interest rate
which was reset weekly via an auction agent.  On March 12, 2008, Cleco
Power exercised a provision in the bond indenture to change the variable
interest rate to a fixed interest rate through a reoffering of the
bonds.  As a part of the reoffering, the holders of the original
auction rate bonds were required to tender them.  The reoffered bonds
have a five-year term with a fixed rate of 5.25% per annum, with the option to
call at the end of the five years.  If Cleco Power does not call the
bonds at the end of the five years, the bonds will become variable
rate.  Cleco Power plans to remarket the bonds at the end of the
five-year period.  The maturity date of the 2007 bonds is November 1,
2037.  Again in 2008, Cleco Power applied for $32.0 million of volume
cap allocation, which is the remainder of the $152.9 million of qualifying costs
that have been identified.  On July 9, 2008, the governor signed an
order granting the $32.0 million of volume cap allocation.  Management
currently expects that the bonds will be issued by the Rapides Finance Authority
by October 8, 2008.  If the bonds are not issued before October 8,
2008, Cleco Power will forfeit the allocation.


Storm
restoration costs from Hurricanes Katrina and Rita totaled $158.0
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 signed a settlement term sheet allowing the
recovery and securitization of essentially all of Cleco Power’s Hurricanes
Katrina and Rita storm costs, along with the funding and securitization of an
approximately $50.0 million reserve for future storm costs.  The
agreement also allowed Cleco Power to recover debt service costs and other storm
related expenses through a customer billing surcharge.  For each of
the six-month periods ended June 30, 2008, and 2007, Cleco Power collected $10.2
million and $11.7 million, respectively, of storm recovery
surcharges.  For more information regarding storm restoration costs,
see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements
— Note 4 — Regulatory Assets and Liabilities — Deferred Storm Restoration Costs
- Katrina/Rita.”


Cleco
Power has identified certain generating, transmission, and distribution
construction projects in the Gulf Opportunities Zone (GO Zone)
areas.  Cleco Power filed an application with the Louisiana State
Board Commission requesting $100.0 million to fund these projects, and approval
was received on May 15, 2008.  Management currently expects that the
Louisiana Public Facilities Authority will issue the GO Zone bonds on behalf of
Cleco Power later this year.




Midstream


Midstream
had no debt outstanding at June 30, 2008, or December 31, 2007.


Evangeline,
which is accounted for under the equity method, had no short-term debt
outstanding at June 30, 2008 or December 31, 2007.  Evangeline had
$173.0 million and $177.1 million of long-term debt outstanding at June 30,
2008, and December 31, 2007, respectively, in the form of 8.82% senior secured
bonds due 2019.  Of these amounts, $7.7 million and $8.2 million were
due within one year at June 30, 2008, and December 31, 2007,
respectively.  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
corporate purposes.  At June 30, 2008, and December 31, 2007, $56.9
million and $18.0 million of cash, respectively, were restricted.  At
June 30, 2008, the $56.9 million of restricted cash consisted of $0.1 million
under the Diversified Lands mitigation escrow, $51.6 million reserved at Cleco
Power for future storm restoration costs, and $5.2 million at Cleco Katrina/Rita
restricted for payment of operating expenses, interest and principal on storm
securitization bonds under the storm recovery bonds loan
agreement.  Restricted cash at Cleco Power at June 30, 2008, increased
$38.9 million compared to December 31, 2007, primarily due to the establishment
of the reserve for future storm restoration costs, partially offset by the
release of funds for construction at Rodemacher Unit 3.  Restricted
cash at Cleco Katrina/Rita at June 30, 2008, increased $5.2 million compared to
December 31, 2007, due to the issuance of the storm recovery
bonds.


The
restricted cash at Evangeline is not included in restricted cash on Cleco
Corporation’s Condensed Consolidated Balance Sheets due to the equity method of
accounting.  Evangeline’s restricted cash at June 30, 2008, and
December 2007, was $29.7 million and $33.3 million,
respectively.  This cash is restricted under Evangeline’s senior
secured bond indenture.




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.




45
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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, 2007.




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, 2008, 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, 2008REDUCTIONS
      TO THEAMOUNT
      AVAILABLETO
      BE DRAWN ONFACE
            
            
            
            
            
            NET
            
            
            CLECO
      CORPORATION’S(THOUSANDS)
            
            AMOUNT
            
            
            REDUCTIONS
            
            
            AMOUNT
            
            
            CREDIT
      FACILITYCleco
      CorporationGuarantee issued to Entergy
      companies for performance obligations of Perryville
            
            $
            277,400
            
            
            $
            135,000
            
            
            $
            142,400
            
            
            $
            328Guarantees issued to purchasers
      of the assets of Cleco Energy
            
            
            1,400
            
            
            
            -
            
            
            
            1,400
            
            
            
            1,400Obligations under standby letter
      of credit issued to the Evangeline Tolling Agreement
      counterparty
            
            
            15,000
            
            
            
            -
            
            
            
            15,000
            
            
            
            15,000Guarantee issued to Entergy
      Mississippi on behalf of Attala
            
            
            500
            
            
            
            -
            
            
            
            500
            
            
            
            500Cleco
      PowerObligations under standby letter
      of credit issued to the Louisiana Department of Labor
            
            
            525
            
            
            
            -
            
            
            
            525
            
            
            
            -Obligations under the Lignite
      Mining Agreement
            
            
            6,848
            
            
            
            -
            
            
            
            6,848
            
            
            
            -Total
            
            $
            301,673
            
            
            $
            135,000
            
            
            $
            166,673
            
            
            $
            17,228





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, 2008, 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.  It is unlikely that Cleco Corporation will have any other
liabilities which would give rise to indemnity claims under the agreements
providing for the Perryville disposition.  The discounted
probability-weighted liability under the guarantees and indemnifications as of
June 30, 2008, 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 facility by an amount equal to the maximum reasonably
anticipated liability in respect of the contingent obligation as determined in
good faith.


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. Rating 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 Attala Interconnection
Agreement.  This guarantee will be in effect through the life of the
agreement.


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




46
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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, 2008, Cleco Power’s 50% exposure for this obligation
was approximately $6.8 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, 2008AMOUNT
      OF COMMITMENT EXPIRATION PER PERIODNET
            
            
            
            
            
            
            
            
            
            
            
            MOREAMOUNT
            
            
            LESS
      THAN
            
            
            
            
            
            
            
            
            THAN(THOUSANDS)
            
            COMMITTED
            
            
            ONE
      YEAR
            
            
            1-3
      YEARS
            
            
            3-5
      YEARS
            
            
            5
      YEARSGuarantees
            
            $
            151,148
            
            
            $
            100,000
            
            
            $
            8,248
            
            
            $
            -
            
            
            $
            42,900Standby
      letters of credit
            
            
            15,525
            
            
            
            525
            
            
            
            -
            
            
            
            -
            
            
            
            15,000Total commercial
      commitments
            
            $
            166,673
            
            
            $
            100,525
            
            
            $
            8,248
            
            
            $
            -
            
            
            $
            57,900





Regulatory Matters




Wholesale
Rates of Cleco


For
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, 2007.




Retail
Rates of Cleco Power


In
March 2007, after completing a review of restoration costs related to Hurricanes
Katrina and Rita, Cleco Power and the LPSC Staff filed a settlement agreement
allowing recovery of essentially all of Cleco Power's Hurricanes Katrina and
Rita storm costs.  The agreement authorized the issuance of
securitized bonds to finance the restoration costs and collection of a special
storm recovery charge from Cleco Power's customers to pay principal,
interest and other amounts related to the bonds.  The LPSC approved
the settlement agreement and issued a securitization financing order in
September 2007.  In March 2008, securitization financing was
completed.  For additional information about the recovery of storm
restoration costs, see Item 1, "Notes to the Unaudited Condensed Financial
Statements — Note 4 — Regulatory Assets and Liabilities — Deferred Storm
Restoration Costs - Katrina/Rita."


In
January 2008, Cleco Power filed its monitoring report for the 12-month period
ended September 30, 2007.  Cleco Power anticipates that the LPSC Staff
will complete their review of this report by the end of the fourth quarter of
2008.


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, 2007.




Wholesale
Electric Markets


For
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, 2007.




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, 2007.




Cleco
Power's Rate Case


On
July 14, 2008, Cleco Power filed a request for a new rate plan with the LPSC to
increase its base rates for electricity.  The LPSC directed Cleco
Power to file a full base rate case at least 12 months prior to the expected
in-service date for Rodemacher Unit 3.  If the new rate plan proposed
by Cleco Power is approved by the LPSC, it is expected to result in a net
decrease in billings to its retail customers of approximately $72.0 million in
the first normal year of commercial operation of Rodemacher Unit 3.  Cleco
Power primarily is seeking recovery of revenues sufficient to cover the addition
of Rodemacher Unit 3 to its existing expense and rate base
levels.  Although base revenues will increase under Cleco Power's
proposed rate plan, overall retail billings are expected to decrease.
 Factors contributing to this decrease are:  (i) anticipated
additional retail revenues of approximately $250.0 million recoverable through
its base rates and proposed riders; (ii) an expected decrease in projected costs
recoverable through its retail fuel clause of approximately $224.0 million; and
(iii) an expected decrease of $98.0 million of Rodemacher Unit 3 financing costs
which includes a refund of the cash collected from retail customers and the
absence of previously




47
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




collected
Rodemacher Unit 3 financing costs.  If Cleco Power's proposed rate
plan is approved, Cleco Power's customers would begin realizing benefits of
lower fuel costs immediately upon commercial operation of Rodemacher Unit
3.  Cleco Power expects that a new rate plan will be approved by the
LPSC prior to the third quarter of 2009.




Generation
RFP




2007
Long-Term RFP


In
June 2007, Cleco Power filed draft documents with the LPSC for up to
approximately 600 MW of intermediate and/or peaking resources to meet projected
load growth over a 10-year period beginning in 2010.  To meet these
needs, Cleco Power is looking for products for a term of 2 to 30
years.  Out of the approximately 600-MW total, up to approximately 350
MW may be sourced from a peaking resource.  Cleco Power has submitted
four potential self-build projects that will be tested against the
market.  The final version of the RFP was issued in October 2007,
and bids were received in December 2007. Cleco Power has notified bidders
if their bids have been selected for the short list.  Cleco Power
anticipates that final bidders will be notified before the end of the third
quarter of 2008.




2008
Short-Term RFP for 2009 Resources


On
March 5, 2008, Cleco Power issued a RFP for a minimum of 50 MW up to 450 MW to
meet its 2009 capacity and energy requirements.  Cleco Power is
currently negotiating a contract with the winning bidder and plans on filing for
regulatory approval during the third quarter of 2008.





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, 2007.




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 coke produced by several refineries throughout the
Gulf Coast region.  All environmental permits for the unit have
been received.  Cleco Power has entered into a contract with Exxon
Mobil to supply 300,000 tons of petroleum coke per year for a three-year period
beginning in 2009 and is in late stage negotiations to procure remaining
Rodemacher Unit 3 fuel requirements for a three- to five-year
period.


In
May 2006, Cleco Power and Shaw entered into an Amended EPC Contract, which
provided for substantial completion of the construction no later than the fourth
quarter of 2009.  On July 2, 2008, Cleco Power and Shaw amended this
contract further to provide for substantial completion and commencement of
commercial operation as of June 30, 2009, as well as changes to other commercial
terms.  As a result of the amendment, Cleco Power is no longer liable
for excess labor costs as contemplated under the original
agreement.  The total capital cost estimate for the project, including
AFUDC, Amended EPC Contract costs, and other development expenses, remains at
$1.0 billion.  The lump sum price under the scope of the Amended EPC
Contract, including accepted change orders under the contract, is $794.5
million.  As of June 30, 2008, Cleco Power had incurred approximately
$772.0 million in project costs.  Shaw is subject to payment of
liquidated damages if certain operating performance criteria and schedule dates
are not met.  The Amended EPC Contract allows for termination at Cleco
Power’s sole discretion, which would require payment of termination fees, or if
certain milestones, approvals, or other typical commercial terms and conditions
are not met.  As of June 30, 2008, the maximum termination costs would
have been $700.0 million, or an additional $20.1 million more than the capital
expended to date.  Upon issuance of the notice to start construction in May
2006, and in support of its performance obligations, Shaw provided a $58.9
million letter of credit to Cleco Power.  In addition to the letter of
credit, Shaw also posted a $200.0 million payment and performance bond in favor
of Cleco Power in support of its performance obligations under the Amended EPC
Contract.  The Amended EPC Contract also provides for Shaw
to:  (a) allow retention, or (b) issue an additional letter of credit,
in an amount equal to 7.5% of the payments made by Cleco Power under the
contract.  As of June 30, 2008, Shaw had issued an additional letter
of credit in the amount of $42.0 million and Cleco has retained amounts of $8.3
million.  The retention and letters of credit are provided in support
of Shaw’s potential payment of liquidated damages, or other payment performance
obligations.


For
additional information on the Certificate of Public Convenience and Necessity
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, 2007.  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,
2007.




Lignite
Deferral


At
June 30, 2008, and December 31, 2007, Cleco Power had $28.1 million and $29.4
million, respectively, in deferred costs remaining uncollected.


For
additional 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




48
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q






Deferral”
in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.




Franchises


On
May 14, 2008, the Town of Elizabeth entered into a lease/franchise agreement
with Cleco Power under which its electrical system will be leased to Cleco
Power.  The agreement is for 10 years with two 10-year renewal
terms.  Approximately 225 Cleco Power customers are located in
Elizabeth.


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, 2007.




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 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.


On
February 8, 2008, the U.S. Court of Appeals for the D.C. Circuit in New Jersey
v. EPA vacated both the EPA's rule delisting coal-fired electric generating
units (EGUs) from regulation under section 112 of the Clean Air Act (CAA) and
the entire Clean Air Mercury Rule (CAMR).  As a result of the court's
action, EGUs are subject to regulation under section 112, which will require the
EPA to promulgate Maximum Achievable Control Technology (MACT) standards for
hazardous air pollutants for coal and oil-fired EGUs.


On
March 24, 2008, the EPA filed a petition asking all of the judges (also known as
en banc) of the D.C. Circuit to re-hear the decision in New Jersey v. EPA.
 Industry intervenors also filed a petition requesting rehearing en banc,
as well as rehearing by the three-judge panel.  On May 20, 2008, the U.S.
Court of Appeals for the D.C. Circuit denied the EPA’s and industry intervenors’
petitions asking all of the judges of the D.C. Circuit to re-hear the decision
in New Jersey v. EPA vacating CAMR and the EPA’s rule delisting coal and
oil-fired EGUs from regulation under section 112 of the CAA (Delisting
Rule).  The court also denied the industry intervenors’ petition
requesting rehearing by the three-judge panel that decided New
Jersey.  The parties have a 90-day window to file a petition for
certiorari with the Supreme Court.


On
July 11, 2008, the D.C. Circuit Court of Appeals vacated the Clean Air
Interstate Rule (CAIR).  The court's opinion stated that the EPA acted
beyond its statutory authority in the CAA and that several of its regulatory
decisions in the promulgation of CAIR were without support in the record. 
The court effectively concluded that the EPA has an obligation to ensure that
emissions from states do not significantly interfere with attainment or
maintenance of air quality standards in other states.  As such, the
EPA will likely replace CAIR with a more stringent rule.  CAIR required
significant reductions for nitrogen oxide (NOx) and
sulfur dioxide (SO2) emissions
from EGUs and established a flexible cap and trade program to achieve
compliance.  With the court’s ruling, CAIR is vacated and the corresponding
regulations and compliance deadlines no longer apply.  Any new rule to
be promulgated by the EPA is unlikely to be handled by the incumbent
administration, which leaves uncertainty as to how the next administration will
address the CAIR vacature; however, NOx allowances
issued to EGUs under CAIR will likely be revoked and no longer
useable.  Cleco Power’s SO2 allowances
will not be revoked, as they were allocated under the Acid Rain Program and will
continue to be used for compliance under that program.  The CAIR rule
simply altered the surrender ratio of SO2
allowances, not the allocation.  The vacature of CAIR is not
official until the court issues its mandate, which is expected in mid-August
2008.


On
March 19, 2008, Cleco Power received a consolidated compliance order and notice
of potential penalty (CO/NOPP) from the LDEQ for alleged violations of the air
quality rules at its Dolet Hills and Rodemacher Power Stations.  For
Dolet Hills, the CO/NOPP alleges that upon a file review conducted on or about
February 26, 2008, the LDEQ found that Cleco Power was in violation of
conditions in its Title V permit regarding compliance assurance tests to be
conducted upon its continuous monitoring systems.  Upon review of the LDEQ
findings and the Part 75 regulations, Cleco Power contends that the actions
taken by Cleco Power were allowed under the Part 75 regulations, as well as the
Title V permit.  In regard to the Rodemacher Power Station violations,
the CO/NOPP states that a file review of the Rodemacher facility was conducted
on or about September 14, 2007, and that upon the agency’s review of the
Quarterly Stack Emissions Reports required under 40 CFR Part 60 submitted by
Cleco Power, the LDEQ found that Rodemacher Unit 2 exceeded opacity limits at
various times during the second, third and fourth quarters of
2007.  Cleco Power has met with the LDEQ in regard to these alleged
violations and is responding to LDEQ’s requests for additional
information.  On April 16, 2008, Cleco filed a Request for
Administrative Hearing with the LDEQ with regard to the CO/NOPP, because Cleco
contends that there are several factual errors in the CO/NOPP.  On May
15, 2008, Cleco Power and the LDEQ entered into a dispute resolution agreement
to give the parties additional time to discuss resolution of this
CO/NOPP.  The parties have until September 26, 2008 to resolve the
matter.  Cleco is unable to determine what, if any, action the LDEQ
will take with respect to the CO/NOPP.


For
a discussion of other Cleco environmental matters, please read “Business —
Environmental Matters” in the




49
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q






Registrants’
Combined Annual Report on Form 10-K for the fiscal year ended December 31,
2007.




Recent
Accounting Standards


For
a discussion of recent accounting standards, see Item 1, “Notes to the Unaudited
Condensed Consolidated Financial Statements — Note 2 — 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, 2007.




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, 2008, and June 30, 2007. The
following narrative analysis should be read in combination with Cleco Power’s
Unaudited Condensed Consolidated 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) and Item 3 (Defaults upon Senior
Securities).  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 2008
and the first six months of 2007.  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, 2007.


For
an explanation of material changes in the amount of revenue and expense items of
Cleco Power between the second quarter of 2008 and the second quarter of 2007,
see “— Results of Operations — Comparison of the Three Months Ended June 30,
2008, and 2007 — 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 2008 and the first six months of
2007, see “— Results of Operations — Comparison of the Six Months Ended June 30,
2008, and 2007 — 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 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




50
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




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, by 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, 2008, Cleco had no long-term or short-term variable-rate
debt.  However, at June 30, 2008, Cleco Corporation had borrowings of
$48.0 million outstanding under its $150.0 million five-year credit facility at
a weighted average cost of 3.00%.  The borrowing costs under the
facility are equal to LIBOR plus 0.65%, 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% change in the average interest rates applicable to such debt
would result in a change of approximately $0.5 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.  Risk limits are recommended by the Risk Management
Committee and monitored through a daily risk report that identifies the current
VaR, market conditions, and concentration of energy market
transactions.


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, 2008,
the positions had a mark-to-market value of $6.5 million, which is an increase
of $4.5 million from the mark-to-market value of $2.0 million at December 31,
2007.  In addition, these positions resulted in a realized gain of
$0.8 million for the six-month period ended June 30, 2008.  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 customer fuel costs, 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, 2008,
the net mark-to-market impact related to open natural gas positions was a gain
of $134.0 million.  Deferred gains relating to closed natural gas
positions at June 30, 2008, totaled $15.9 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, 2008, as well as the VaR at June 30,
2008, and December 31, 2007, is summarized below:






51
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q


FOR
      THE THREE MONTHS
              ENDED
      JUNE 30, 2008(THOUSANDS)
            
            HIGH
            
            
            LOW
            
            
            AVERAGECleco
      Power
            
            $
            481.9
            
            
            $
            328.7
            
            
            $
            396.5





FOR
      THE SIX MONTHS
              ENDED
      JUNE 30, 2008
            
            
            ATJUNE 30,
            
            
            AT
      DECEMBER 31,(THOUSANDS)
            
            HIGH
            
            
            LOW
            
            
            AVERAGE
            
            
            2008
            
            
            2007Cleco
      Power
            
            $
            502.3
            
            
            $
            167.3
            
            
            $
            332.4
            
            
            $
            334.1
            
            
            $
            160.1




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-rate debt obligations.  Please
refer to “— Interest Rate Risks” above for a discussion of Cleco Power’s
borrowing under its credit facility and how it monitors its mix of fixed-rate
debt obligations and the manner of calculating changes in fair market value and
interest expense of its debt obligations.


As
of June 30, 2008, Cleco Power had no long-term or short-term variable-rate
debt.


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
4AND 4T.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, each of Cleco Corporation’s and Cleco Power’s management has evaluated, as
of the end of the period covered by this report, with the supervision and
participation of each of Cleco Corporation’s and Cleco Power’s chief executive
officer and chief financial officer, the effectiveness of Cleco Corporation’s
and Cleco Power’s disclosure controls and procedures as defined by Rules
13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934 (Disclosure
Controls), as the case may be.  Based on that evaluation, such
officers concluded that each of Cleco Corporation’s and Cleco
Power’s disclosure controls were effective as of the date of that
evaluation.


During
Cleco Corporation’s and Cleco Power’s second fiscal quarter of 2008, there
have been no changes in either Cleco Corporation’s or Cleco Power’s
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, respectively, each of Cleco
Corporation’s or Cleco Power’s internal control over financial
reporting.





52
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 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 Consolidated Financial Statements — Note 11 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Litigation.”




CLECO
POWER


For
information on legal proceedings affecting Cleco Power, see Part I, Item 1,
“Notes to the Unaudited Condensed Consolidated Financial Statements — Note 11 —
Litigation, Other Commitments and Contingencies, and Disclosures about
Guarantees — Litigation.”





ITEM
1A.RISK FACTORS


Other
than the changes to the risk factors described below, there have been no
material changes from the risk factors disclosed under the heading “Risk
Factors” in Item 1A of the Registrants’ Combined Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 (the “2007 Annual Report on 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 2007 Annual Report on Form 10-K.  The risk
factors below should be read in conjunction with the risk factors disclosed in
the 2007 Annual Report on Form 10-K.




Evangeline
Tolling Agreement




Failure
by JPMorgan Chase & Co. to fulfill its guarantee obligations under the
Evangeline Tolling Agreement could have a material adverse effect on Cleco’s
results of operations, financial condition, and cash flows.


In
May 2008, JPMorgan Chase & Co. acquired Bear Stearns Companies Inc. In
connection with the acquisition, JPMorgan Chase & Co.
has guaranteed certain obligations of its subsidiaries, including Bear
Energy’s obligations under the Evangeline Tolling Agreement.  If JPMorgan
Chase & Co. or any successor or assignee were to fail to perform
its payment obligations, such failure could have a material adverse effect on
Cleco Corporation’s results of operations, financial condition, and cash flows
for the following reasons, among others:




§
            If
      such failure to perform constituted a default under the tolling agreement,
      the holders of the Evangeline bonds would have the right to declare the
      outstanding principal amount ($173.0 million at June 30, 2008) and
      interest to be immediately due and payable, which could result
      in:


o
            Cleco’s
      seeking to refinance the bonds, the terms of which may be less favorable
      than existing terms;


o
            Cleco’s
      causing Evangeline to seek protection under federal bankruptcy laws;
      or


o
            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.




Rodemacher
Unit 3 Construction Costs




The
recovery of costs incurred to construct Rodemacher Unit 3 is subject to LPSC
review and approval, and some of the costs could be disallowed.


Costs
incurred in the construction of Rodemacher Unit 3 are subject to a prudency
review by the LPSC.  Cleco Power filed a new rate plan with the LPSC on
July 14, 2008, seeking to recover the construction costs through its base
rates.  Cleco Power will be required to demonstrate that the costs
incurred to construct Rodemacher Unit 3 are prudently incurred and demonstrate
the impact of the operation of the facility on its
customers.  Accordingly, Cleco Power may not be able to recover some
of the costs incurred to construct the facility, which could be substantial.


Furthermore,
although the Amended EPC Contract is generally a fixed-price agreement,
unforeseen events could result in changes in the scope of the project that may
result in a delay in the completion of Rodemacher Unit 3 or result in additional
costs.  It may be more difficult to obtain LPSC approval to recover
such additional costs.  If the LPSC were to deny Cleco Power’s request
to recover substantial costs incurred in the construction of the facility, such
a decision could have a material adverse effect on the Registrants’ results of
operations, financial condition, and cash flows.




Cleco
Power’s Rates and Rate Case




The
LPSC regulates the rates that Cleco Power can charge its
customers.  On July 14, 2008, Cleco Power filed a new rate plan for
its rates that is expected to go into effect when Rodemacher Unit 3 starts
commercial operations.  The LPSC could disallow the recovery of
material costs or an adequate return on capital.


Cleco
Power’s ongoing financial viability depends on its ability to recover its costs
from its customers in a timely manner through its LPSC-approved rates and its
ability to pass




53
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q




through
to its customers in rates its FERC-authorized revenue
requirements.  Cleco Power’s financial viability also depends on its
ability to recover in rates an adequate return on capital, including long-term
debt and equity.  If Cleco Power is unable to recover any material
amount of its costs in rates in a timely manner or recover an adequate return on
capital, its results of operations, financial condition and cash flows could be
materially adversely affected.


Cleco
Power’s revenues and earnings are substantially affected by regulatory
proceedings known as rate cases.  During those cases, the LPSC
determines Cleco Power’s rate base, depreciation rates, operation and
maintenance costs, and administrative and general costs that Cleco Power may
recover from its retail customers through its rates.  These
proceedings may examine, among other things, the prudence of the company's
operation and maintenance practices, level of subject expenditures, allowed
rates of return, and previously incurred capital expenditures.  The
LPSC has the authority to disallow costs found not to have been prudently
incurred.  These regulatory proceedings typically involve multiple
parties, including governmental bodies and officials, consumer advocacy groups,
and various consumers of energy, who have differing concerns but who have the
common objective of limiting rate increases or reducing rates.  Rate
cases generally have long timelines, which may or may not be limited by
statute.  Decisions are typically subject to appeal, potentially
leading to additional uncertainty.


Cleco
Power’s current base rates have been extended through the start of Rodemacher
Unit 3.  On July 14, 2008, Cleco Power filed a rate plan to establish
new rates to be effective upon commercial operation of the Rodemacher Unit
3.  As part of the new rate plan, Cleco Power has requested a return
on equity of 12.25%.  Cleco Power’s current base rates allow it the
opportunity to earn a maximum regulated return on equity of 11.65%, which 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.  Cleco Power currently is recording AFUDC associated with
construction of Rodemacher Unit 3.  Once the plant begins commercial
operations, Cleco Power will no longer record AFUDC related to Rodemacher Unit
3.  Recovery of the Rodemacher Unit 3 investment is the largest
component in Cleco Power’s general rate plan that was filed with the LPSC July
14, 2008.  If the LPSC does not increase Cleco Power’s base rates or
denies Cleco Power’s request to recover costs incurred in the construction of
Rodemacher Unit 3, Cleco Power’s results of operations, financial condition, and
cash flows could be materially adversely affected.  For additional
information on Cleco Power’s rate case, see Part I, Item 2, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Liquidity and Capital Resources — Regulatory Matters —
Cleco Power’s Rate Case.”






ITEM4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


(a)
            The
      Annual Meeting of Shareholders of Cleco Corporation was held April 25,
      2008, in Pineville, 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 25,
      2008.





(1)   
      Election of Directors to serve until the 2011 Annual Meeting of
      Shareholders:





CLASS
      II DIRECTORS
            FOR
            WITHHELD
            BROKER
              NON-VOTESWilliam
      L. Marks
            54,082,350
            875,098
            0Robert
      T. Ratcliff, Sr.
            53,364,756
            1,592,692
            0William
      H. Walker, Jr.
            53,422,291
            1,535,157
            0




The
term of office as a director of each of Messrs. Michael H. Madison, Richard B.
Crowell, J. Patrick Garrett, Elton R. King, W. Larry Westbrook, and General
Sherian G. Cadoria 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, 2008:





FOR
            AGAINST
            ABSTAIN
            BROKER
              NON-VOTES53,527,263
            1,332,202
            97,983
            0







54
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 10-Q





ITEM
6.EXHIBITS


CLECO
      CORPORATION3.1
            Bylaws
      of Cleco Corporation, Revised effective July 25, 200810.1
            Separation
      Agreement between Cleco Corporation and each of its subsidiaries and
      affiliates and Kathleen F. Nolen, effective as of May 31,
200812(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, 2008, 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
      2002CLECO
      POWER4.1
            Form
      of Ninth Supplemental Indenture dated as of June 3, 2008 (incorporated by
      reference to Exhibit 4.1 of Form 8-K (file no. 001-15759), filed June 2,
      2008)4.2
            Form
      of Note (incorporated by reference to Exhibit 4.1 of Form 8-K (file no.
      001-15759), filed June 2, 2008)12(b)
            Computation
      of Ratios of Earnings to Fixed Charges for the three-, six-, and
      twelve-month periods ended June 30, 2008, 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
      2002





55
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 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, Chief
      Accounting Officer & Interim
CFO














Date:  August
5, 2008








56
 CLECO
      CORPORATIONCLECO POWER
                      2008 2ND QUARTER
      FORM 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, Chief
      Accounting Officer & Interim
CFO














Date:  August 5, 2008








57