----

**UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

__________________

**FORM 10-Q**

**[X]  QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended June 30, 2005Or

**[  ]  TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

__________________

**Commissionfile number 1-15759**

**CLECO CORPORATION***(Exact name ofregistrant 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**               |
| ** **                                                                                  |

__________________

**Commissionfile number 1-05663**

**CLECO POWER LLC***(Exact name ofregistrant as specified in its charter)*

| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
| **Louisiana***(State or other jurisdiction of incorporation or organization)*                                                                                                                                                                                                                                                                                                                                                         | **72-0244480*******(I.R.S. Employer Identification No.)* |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                               |
| **2030  Donahue Ferry Road, Pineville, Louisiana***(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                          | **71360-5226***(Zip Code)*                               |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                               |
| **Registrant's telephone number, including area code:  (318)  484-7400**                                                                                                                                                                                                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether the Registrants: (1) have filed all reports required to  be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the Registrants were  required to file such reports) and (2) have been subject to such filing  requirements for the past 90 days.  Yes   x       No __ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether Cleco Corporation is an accelerated filer (as defined  in Rule 12b-2 of the Exchange Act)  Yes   x       No ___                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether Cleco Power LLC is an accelerated filer (as defined in  Rule 12b-2 of the Exchange Act)  Yes           No       x                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |

Number of shares outstandingof each of Cleco Corporation's classes of Common Stock, as of the latestpracticable date.

| Registrant         | Description  of Class          | Shares  Outstanding at July 31, 2005 |
|--------------------|--------------------------------|--------------------------------------|
|                    |                                |                                      |
| Cleco  Corporation | Common  Stock, $1.00 Par Value | 49,924,153                           |

**ClecoPower LLC, a wholly owned subsidiary of Cleco Corporation, meets the conditionsset forth in General Instructions H(1)(a) and (b) of Form 10-Q and is thereforefiling this Form 10-Q with the reduced disclosure format.**

----

This combined Form 10-Q is separately filed byCleco Corporation and Cleco Power.  Information in this filing relating toCleco Power is filed by Cleco Corporation and separately by Cleco Power on itsown behalf.  Cleco Power makes no representation as to information relating toCleco Corporation (except as it may relate to Cleco Power) or any otheraffiliate or subsidiary of Cleco Corporation.

This report should be read in its entirety as itpertains to each respective Registrant.  The Notes to the Unaudited CondensedFinancial Statements are combined.

TABLE OF CONTENTS

|                                                        |                   PAGE                                                          |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| GLOSSARYOF    TERMS                                    |                            3       |
| DISCLOSURE REGARDING  FORWARD-LOOKING STATEMENTS  |                            5  |
|                                                        |                                                                                                                                                                      |  |
| **PART I**                                             | **Financial  Information**                                                                                                                                           |  |
| ITEM 1.                                                | Cleco Corporation -  Condensed Consolidated Financial Statements                                                                                                     |                            6 |
|                                                        | Cleco Power -  Condensed Financial Statements                                                                                                                        |                          14 |
|                                                        | Notes  to the Unaudited Condensed Financial Statements                                                                                                               |                          19 |
| ITEM 2.                                                | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                                               |                          41 |
| ITEM 3.                                                | Quantitative and  Qualitative Disclosures About Market Risk of Cleco Corporation                                                                                     |                          57 |
| ITEM 4.                                           | Controls and  Procedures                                                                                                                                        |                          59  |
|                                                        |                                                                                                                                                                      |  |
| **PART II**                                            | **Other Information**                                                                                                                                                |  |
| ITEM 1.                                                | Legal Proceedings                                                                                                                                                    |                          60 |
| ITEM 2.                                                | Unregistered Sales of  Equity Securities and Use of Proceeds                                                                                                         |                          60 |
| ITEM 3.                                                | Defaults Upon Senior  Securities                                                                                                                                     |                          60 |
| ITEM 4.                                                | Submission of Matters  to a Vote of Security Holders                                                                                                                 |                          61 |
| ITEM 5.                                                | Other Information                                                                                                                                                    |                          61 |
| ITEM 6.                                                | Exhibits                                                                                                                                                             |                          62 |
|                                                        | Signatures                                                                                                                                                           |                          63 |
|                                                        |                                                                                                                                                                      |  |  |

2

----

GLOSSARY OF TERMS

References in this filing, including allitems in Parts I and II, to "Cleco" mean Cleco Corporation and its subsidiaries,including Cleco Power, and references to "Cleco Power" mean Cleco Power LLC,unless the context clearly indicates otherwise.  Additional abbreviations oracronyms used in this filing, including all items in Part I and II are definedbelow:

| Abbreviation or  Acronym     | Definition                                                                                                                                                                                                                   |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1935 FPA                     | 1935 Federal Power Act                                                                                                                                                                                                       |
| 401(k) Plan                  | Cleco Power 401(k)  Savings and Investment Plan                                                                                                                                                                              |
| APB                          | Accounting Principles  Board                                                                                                                                                                                                 |
| APB Opinion No. 20           | Accounting Changes                                                                                                                                                                                                           |
| APB Opinion No. 25           | Accounting for Stock  Issued to Employees                                                                                                                                                                                    |
| APH                          | Acadia Power Holdings  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                           |
| APP                          | Acadia Power Partners,  LLC and its 1,160-MW combined-cycle, natural gas-fired power plant near  Eunice, Louisiana, 50% owned by APH and 50% owned by Calpine                                                                |
| Attala                       | Attala Transmission  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                             |
| Calpine                      | Calpine Corporation                                                                                                                                                                                                          |
| Calpine Tolling Agreements   | Capacity Sale and Tolling Agreements between APP and CES                                                                                                                                                                     |
| CES                          | Calpine Energy  Services, L.P.                                                                                                                                                                                               |
| Cleco Energy                 | Cleco Energy LLC, a  wholly owned subsidiary of Midstream                                                                                                                                                                    |
| Diversified Lands            | Diversified Lands LLC, a wholly owned subsidiary of Cleco  Innovations LLC, a wholly owned subsidiary of Cleco Corporation                                                                                                   |
| Dynegy                       | Dynegy Power  Marketing, Inc.                                                                                                                                                                                                |
| EITF                         | Emerging Issues Task Force of the FASB                                                                                                                                                                                       |
| EITF No. 04-10               | Applying Paragraph 19  of FASB Statement No. 131, Disclosures about Segments of an Enterprise and  Related Information, in Determining Whether to Aggregate Operating Segments  That Do Not Meet the Quantitative Thresholds |
| EITF No. 05-6                | Determining the  Amortization Period for Leasehold Improvements                                                                                                                                                              |
| Entergy                      | Entergy Corporation                                                                                                                                                                                                          |
| Entergy Gulf States          | Entergy Gulf States, Inc.                                                                                                                                                                                                    |
| Entergy Louisiana            | Entergy Louisiana,  Inc.                                                                                                                                                                                                     |
| Entergy Services             | Entergy Services, Inc., as agent for Entergy Louisiana  and Entergy Gulf States                                                                                                                                              |
| EPA                          | Environmental  Protection Agency                                                                                                                                                                                             |
| ESOP                         | Cleco Corporation Employee Stock Ownership Plan                                                                                                                                                                              |
| ESPP                         | Cleco Corporation Employee Stock Purchase Plan                                                                                                                                                                               |
| Evangeline                   | Cleco Evangeline LLC, a wholly owned subsidiary of  Midstream, and its 775-MW combined-cycle, natural gas-fired power plant  located in Evangeline Parish, Louisiana                                                         |
| Evangeline Tolling Agreement | Capacity Sale and Tolling Agreement between Evangeline  and Williams                                                                                                                                                         |
| FASB                         | Financial Accounting Standards Board                                                                                                                                                                                         |
| FERC                         | Federal Energy Regulatory Commission                                                                                                                                                                                         |
| FIN                          | FASB Interpretation No.                                                                                                                                                                                                      |
| FIN 45                       | Guarantor's Accounting and Disclosure Requirements for  Guarantees, Including Indirect Guarantees of Indebtedness to Others                                                                                                  |
| FIN 46                       | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51                                                                                                                      |
| FIN 46R                      | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)                                                                                              |
| FIN 46R-5                    | Implicit Variable Interests under FASB Statement  Interpretation No. 46 (revised December 2003), Consolidation of Variable  Interest Entities                                                                                |
| FIN 47                       | Accounting for Conditional Asset Retirement Obligations -  an interpretation of FASB Statement No. 143                                                                                                                       |
| FSP SFAS No. 106-2           | FASB Staff Position Accounting and Disclosure  Requirements Related to the Medicare Prescription Drug, Improvement and  Modernization Act of 2003                                                                            |
| FSP SFAS No. 131-a           | Determining Whether Operating Segments Have "Similar  Economic Characteristics" under Paragraph 17 of FASB Statement No. 131, Disclosures  about Segments of an Enterprise and Related Information                 |
| IRP                          | Integrated Resource Planning                                                                                                                                                                                                 |
| KBC                          | KBC Bank N.V.                                                                                                                                                                                                                |
| kWh                          | Kilowatt-hour(s) as applicable                                                                                                                                                                                               |
| LIBOR                        | London Inter-Bank Offer Rate                                                                                                                                                                                                 |
| Lignite Mining Agreement     | Dolet Hills Mine Lignite Mining Agreement, dated as of  May 31, 2001                                                                                                                                                         |
| LPSC                         | Louisiana Public Service Commission                                                                                                                                                                                          |
| LTICP                        | Cleco Corporation Long-Term Incentive Compensation Plan                                                                                                                                                                      |
| MAEM                         | Mirant Americas Energy  Marketing, LP                                                                                                                                                                                        |  
MAI

Mirant Americas, Inc., a wholly owned subsidiary of  Mirant

 
Marketing & Trading

Cleco Marketing & Trading LLC, a wholly owned  subsidiary of Midstream

 
Midstream

Cleco Midstream Resources LLC, a wholly owned subsidiary  of Cleco Corporation

 
Mirant

Mirant Corporation

 
Mirant Debtors

Mirant, MAEM, MAI, and certain other Mirant subsidiaries

 
MW

Megawatt(s) as applicable

 
3

Abbreviation or  Acronym

Definition

Mirant Debtors Bankruptcy Court

U.S. Bankruptcy Court for the Northern District of Texas,  Ft. Worth Division 

 
Not meaningful

A percentage comparison of these items is not  statistically meaningful either because the percentage difference is greater  than 1,000% or the comparison involves a positive and negative number.

 
NOx

Nitrogen oxides

 
PEH

Perryville Energy Holdings LLC, a wholly owned subsidiary  of Midstream

 
Perryville

Perryville Energy Partners, L.L.C., a wholly owned  subsidiary of PEH, and its 718-MW, natural gas-fired power plant (sold to  Entergy Louisiana on June 30, 2005) near Perryville, Louisiana  

 
Perryville Tolling Agreement

Capacity Sale and Tolling Agreement between Perryville  and MAEM

 
Power Purchase Agreement

Power Purchase Agreement, dated as of January 28, 2004,  between Perryville and Entergy Services

 
PRP

Potentially responsible party

 
PUHCA

Public Utility Holding Company Act of 1935

 
PURPA

Public Utility Regulatory Policies Act of 1978

 
Registrant(s)

Cleco Corporation and Cleco Power

 
RFP

Request for Proposal

 
RTO

Regional Transmission Organization

 
Sale Agreement

Purchase and Sale Agreement, dated as of January 28,  2004, between Perryville and Entergy Louisiana

 
SEC

Securities and Exchange Commission

 
Senior Loan Agreement

Construction and Term Loan Agreement, dated as of June 7,  2001, between Perryville and KBC Bank N.V., as Agent Bank

 
SERP

Cleco Corporation Supplemental Executive Retirement Plan

 
SESCO

San Angelo Electric Service Company

 
SFAS

Statement of Financial Accounting Standards

 
SFAS No. 3

Reporting Accounting Changes in Interim Financial  Statements

 
SFAS No. 123

Accounting for Stock-Based Compensation

 
SFAS No. 123R

Share-Based Payment

 
SFAS No. 131

Disclosures about Segments of an Enterprise and  Related Information

 
SFAS No. 133

Accounting for Derivative Instruments and Hedging  Activities

 
SFAS No. 143

Accounting for Asset Retirement Obligations

 
SFAS No. 144

Accounting for the Impairment or Disposal of  Long-Lived Assets

 
SFAS No. 149

Amendment of Statement 133 on Derivative Instruments and  Hedging Activities

 
SFAS No. 154

Accounting Changes and Error Corrections

 
SOP 90-7

Statement of Position issued by the American Institute of  Certified Public Accountants - Financial Reporting by Entities in  Reorganization Under the Bankruptcy Code

 
SO2

Sulfur dioxide

 
SPP

Southwest Power Pool

 
Subordinated Loan Agreement

Subordinated Loan Agreement, dated as of August 23, 2002,  between Perryville and MAI

 
Support Group

Cleco Support Group LLC, a wholly owned subsidiary of  Cleco Corporation

 
SWEPCO

Southwestern Electric Power Company

 
Tolling Agreements

Reference to one or more of the following:  Evangeline Tolling  Agreement and Calpine Tolling Agreements

 
VAR

Value-at-risk

 
Westar

Westar Energy, Inc.

 
Williams

Williams Power Company, Inc.

 
4

DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS

This report includes "forward-looking statements"about future events, circumstances, and results.  All statements other thanstatements of historical fact included in this report are forward-lookingstatements.  Although the Registrants believe that the expectations reflectedin such forward-looking statements are reasonable, such forward-lookingstatements are based on numerous assumptions (some of which may prove to beincorrect) and are subject to risks and uncertainties that could cause theactual results to differ materially from the Registrants' expectations.  Inaddition to any assumptions and other factors referred to specifically inconnection with these forward-looking statements, the following list identifiessome of the factors that could cause the Registrants' actual results to differmaterially from those contemplated in any of the Registrants' forward-lookingstatements:
-  Factors affecting utility operations, such as unusual weatherconditions or other natural phenomena; catastrophic weather-related damage;unscheduled generation outages; unusual maintenance or repairs; unanticipatedchanges 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; orpower transmission system constraints;
-  Outcome of the bankruptcy process of Perryville and PEH, and thetiming and amount received upon sale of Perryville's claims against Mirant andcertain of its subsidiaries;
-  Cleco Power's ability to construct, operate, and maintain, withinits projected costs, any self-build projects identified in its RFP and IRPprocesses;
-  Nonperformance by and creditworthiness of counterparties undertolling, power purchase, and energy service agreements, or the restructuring ofthose agreements, including possible termination;
-  Action by Calpine or its affiliates with respect to the CalpineTolling Agreements, including, without limitation, reduction of payments underthe Calpine Tolling Agreements, unwinding of Calpine's interest in APP, terminationof the Calpine Tolling Agreements or litigation against Cleco, resulting fromCES's dispute with APP under the Calpine Tolling Agreements includingarbitration proceedings;
-  Increased competition in power markets, including effects ofindustry restructuring or deregulation, transmission system operation oradministration, transmission reliability standards, retail wheeling, wholesalecompetition, retail competition, or cogeneration;
-  Regulatory factors such as changes in rate-setting policies,recovery of investments made under traditional regulation, the frequency andtiming of rate increases or decreases, the results of periodic fuel audits, theresults of the RFP and IRP processes, and the formation of RTOs; 
-  Cleco's ability to develop and execute on a point of viewregarding prices of electricity, natural gas, and other energy-related commodities; 
-  Financial or regulatory accounting principles or policies imposedby the FASB, the SEC, the Public Company Accounting Oversight Board, the FERC,the LPSC or similar entities with regulatory or accounting oversight;
-  Economic conditions, including inflation rates, monetaryfluctuations, and related growth and/or down-sizing of businesses in Cleco'sservice area;
-  Credit ratings of Cleco Corporation, Cleco Power, and Evangeline; 
-  Changing market conditions and a variety of other factorsassociated with physical energy, financial transactions, and energy serviceactivities, 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'sbusiness or financial condition, interest rates, and securities ratings ormarket perceptions of the electric utility industry and energy-relatedindustries;
-  Employee work force factors, including work stoppages and changesin key executives;
-  Legal, environmental, and regulatory delays and other obstaclesassociated with mergers, acquisitions, capital projects, reorganizations, orinvestments in joint ventures;
-  Costs and other effects of legal and administrative proceedings,settlements, investigations, claims and other matters; and
-  Changes in federal, state, or local legislative requirements,such as changes in tax laws or rates, regulating policies or environmental lawsand regulations.

All subsequent written and oralforward-looking statements attributable to the Registrants or persons acting ontheir behalf are expressly qualified in their entirety by the factorsidentified above.

The Registrants undertake no obligation to updateany forward-looking statements, whether as a result of changes in actualresults, changes in assumptions, or other factors affecting such statements.

5

PARTI - FINANCIAL INFORMATION

**ITEM 1. **   CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

**Cleco Corporation**

These unaudited condensed consolidated financialstatements should be read in conjunction with Cleco Corporation's ConsolidatedFinancial Statements and Notes included in the Registrants' Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2004.  For moreinformation on the basis of presentation, see "Notes to the Unaudited CondensedFinancial Statements - Note 1 - Summary of Significant Accounting Policies -Basis of Presentation."

 

6

CLECO CORPORATION

Condensed Consolidated Statementsof Income (Unaudited)

     FOR THE    THREE MONTHS ENDED JUNE 30,

(Thousands, except  share and per share amounts)

**                      2005**

** **

                      2004

**Operating revenue**

     Electric operations

** $   183,881**

   $         176,292

     Other operations

**           8,102**

                   6,989

     Intercompany revenue

**           2,378**

                   2,152

          Gross operating revenue

**       194,361**

              185,433

               Electric customer credits

**             (253)**

               (19,111)

          Operating revenue, net

**       194,108**

              166,322

**Operating expenses**

     Fuel used for electric generation

**         13,725**

                 19,707

     Power purchased for utility customers

**         92,501**

                 71,795

     Other operations

**         21,118**

                 21,736

     Maintenance

**         13,653**

                 10,896

     Depreciation

**         15,105**

                 14,432

     Taxes other than income taxes

**           9,281**

                   9,767

     Gain on sales of assets

**         (2,201)**

                            -

          Total operating expenses

**       163,182**

              148,333

**Operating income**

**         30,926**

                 17,989

Interest income

**              884**

                   2,031

Allowance for other funds used during  construction

**              831**

                       884

Equity income from investees

**         11,044**

                   9,094

Other income

**              441**

                       210

Other expense

**             (228)**

                     (293)

**Interest charges**

     Interest charges, including amortization of  debt expenses, premium and discount, net of capitalized interest

**         10,930**

                 11,096

     Allowance for borrowed funds used during  construction

**             (278)**

                     (287)

          Total interest charges

**         10,652**

                 10,809

**Income from continuing operations before  income taxes**

**         33,246**

                 19,106

Federal and state income tax expense    

**         12,547**

                   7,919

**Income from continuing operations**

**         20,699**

                 11,187

     Loss from discontinued operations, net of  tax

**               (72)**

                     (288)

**Net income**

**         20,627**

                 10,899

Preferred dividends requirements, net

**              448**

                       778

**Net income applicable to common stock**

** $     20,179**

   $            10,121

Average shares of common stock outstanding

     Basic

** 49,507,159**

        47,078,622

     Diluted

** 51,628,677**

        49,323,568

**Basic earnings (loss) per share**

**                   **

     From continuing operations

** $          0.40**

   $               0.23

     From discontinued operations

** $                -**

   $             (0.01)

     Net income applicable to common stock

** $          0.40**

   $               0.22

**Diluted earnings (loss) per share**

     From continuing operations

** $          0.40**

   $               0.23

     From discontinued operations

** $                -**

   $             (0.01)

     Net income applicable to common stock

** $          0.40**

   $               0.22

**Cash dividends paid per share of common stock**

** $        0.225**

   $             0.225

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

7

CLECO CORPORATION

Condensed Consolidated Statementsof Comprehensive Income (Unaudited)

     FOR    THE THREE MONTHS ENDED JUNE 30,

(Thousands)

**                      2005**

** **

                      2004

Net income 

** $     20,627**

   $           10,899

Other comprehensive income, net of tax:

     Net unrealized (loss) income from limited  partnership (net of tax (benefit) expense of $(7) in 2005 and $19 in 2004)

**              (11)**

                         30

     Net unrealized loss from available-for-sale  securities (net of tax benefit of $0 in 2005 and $1 in 2004)

**                  -**

                          (1)

Other comprehensive (loss) income    

**              (11)**

                         29

**Comprehensive income, net of tax**

** $     20,616**

   $           10,928

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

 

8

CLECO CORPORATION

Condensed Consolidated Statementsof Income (Unaudited)

          FOR THE    SIX MONTHS ENDED JUNE 30,

(Thousands, except  share and per share amounts)

**                      2005**

** **

                      2004

**Operating revenue**

     Electric operations

** $   346,712**

   $         325,671

     Tolling operations

**                   -**

                 10,255

     Other operations

**         15,252**

                 13,894

     Intercompany revenue

**           4,731**

                   2,984

          Gross operating revenue

**       366,695**

              352,804

               Electric customer credits

**             (471)**

               (19,833)

          Operating revenue, net

**       366,224**

              332,971

**Operating expenses**

     Fuel used for electric generation

**         62,473**

                 49,850

     Power purchased for utility customers

**       143,015**

              126,904

     Other operations

**         43,494**

                 41,224

     Maintenance

**         23,124**

                 19,503

     Depreciation

**         29,876**

                 30,643

     Taxes other than income taxes

**         19,708**

                 19,748

     Gain on sales of assets

**         (2,206)**

                            -

          Total operating expenses

**       319,484**

              287,872

**Operating income**

**         46,740**

                 45,099

Interest income

**           1,851**

                   2,406

Allowance for other funds used during  construction

**           1,779**

                   1,726

Equity income from investees

**         20,873**

                 17,603

Other income

**              819**

                       308

Other expense

**             (791)**

                     (623)

**Interest charges**

     Interest charges, including amortization of  debt expenses, premium and discount, net of capitalized interest

**         23,049**

                 29,014

     Allowance for borrowed funds used during  construction

**             (594)**

                     (570)

          Total interest charges

**         22,455**

                 28,444

**Income from continuing operations before  income taxes**

**         48,816**

                 38,075

Federal and state income tax expense    

**         18,543**

                 13,450

**Income from continuing operations**

**         30,273**

                 24,625

     Loss from discontinued operations, net of  tax

**             (205)**

                     (130)

**Net income**

**         30,068**

                 24,495

Preferred dividends requirements, net

**              923**

                   1,277

**Net income applicable to common stock**

** $     29,145**

   $            23,218

Average shares of common stock outstanding

     Basic

** 49,396,105**

        46,994,132

     Diluted

** 51,558,920**

        47,065,367

**Basic earnings (loss) per share**

**                   **

     From continuing operations

** $          0.59**

   $               0.49

     From discontinued operations

** $       (0.01)**

   $                     -

     Net income applicable to common stock

** $          0.58**

   $               0.49

**Diluted earnings (loss) per share**

     From continuing operations

** $          0.59**

   $               0.49

     From discontinued operations

** $       (0.01)**

   $                     -

     Net income applicable to common stock

** $          0.58**

   $               0.49

**Cash dividends paid per share of common stock**

** $       0.450**

   $             0.450

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

9

CLECO CORPORATION

Condensed Consolidated Statementsof Comprehensive Income (Unaudited)

             FOR THE SIX MONTHS ENDED JUNE 30,

(Thousands)

**                      2005**

** **

                      2004

Net income 

** $     30,068**

   $           24,495

Other comprehensive income, net of tax:

     Net unrealized income from limited  partnership (net of tax expense of $20 in 2005 and $49 in 2004)

**                33**

                         78

     Net unrealized (loss) income from  available-for-sale securities (net of tax (benefit) expense of $(37) in 2005  and $8 in 2004)

**              (59)**

                         12

Other comprehensive (loss) income    

**              (26)**

                         90

**Comprehensive income, net of tax**

** $     30,042**

   $           24,585

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

 

10

CLECO CORPORATION

Condensed Consolidated BalanceSheets (Unaudited)

(Thousands)

**        AT JUNE 30, 2005**

** **

   AT DECEMBER 31, 2004

**Assets**

     Current assets

          Cash and  cash equivalents

** $        14,424**

   $              123,787

          Customer  accounts receivable (less allowance for doubtful accounts of $710 in 2005 and  $506 in 2004)

**            35,287**

                     34,468

          Accounts  receivable - affiliate

**              2,413**

                        2,276

          Other  accounts receivable 

**            27,008**

                     23,562

          Unbilled  revenue

**            21,635**

                     17,256

          Fuel  inventory, at average cost

**            19,385**

                     21,132

          Material and  supplies inventory, at average cost

**            17,474**

                     16,609

          Risk  management asset

**              4,340**

                              84

          Accumulated  deferred federal and state income taxes, net

**              5,186**

                        4,767

          Accumulated  deferred fuel

**            32,015**

                     13,997

          Cash  surrender value of company-/trust-owned life insurance policies

**            20,232**

                     19,170

          Margin  deposits

**                      -**

                        5,159

          Prepayments

**              2,263**

                        4,023

          Other  current assets

**              1,168**

                        1,476

               Total  current assets

**          202,830**

                   287,766

     Property, plant  and equipment

          Property,  plant and equipment

**      1,791,247**

               1,733,970

          Accumulated  depreciation

**        (807,751)**

                 (781,925)

          Net  property, plant and equipment

**          983,496**

                   952,045

          Construction  work in progress

**            91,411**

                   108,000

               Total  property, plant and equipment, net

**      1,074,907**

               1,060,045

     Equity investment  in investees

**          314,101**

                   314,284

     Prepayments

**              6,246**

                        6,568

     Restricted cash    

**                   86**

                              93

     Regulatory assets  and liabilities - deferred taxes, net  

**            91,214**

                     92,864

     Regulatory assets  - other

**            26,620**

                     26,327

     Other deferred  charges

**            48,529**

                     49,116

       **   Total assets**

** $   1,764,533**

   $          1,837,063

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

                          

(Continued on nextpage)

 

11

CLECO CORPORATION

Condensed Consolidated BalanceSheets (Unaudited) (Continued)

(Thousands)

**        AT JUNE 30, 2005**

** **

   AT DECEMBER 31, 2004

**Liabilities and shareholders' equity**

**   Liabilities**

          Current  liabilities

               Short-term  debt

** $        30,000**

   $                            -

               Long-term  debt due within one year

**            10,000**

                   160,000

               Accounts  payable

**            70,466**

                     75,770

               Accrued  payroll

**              2,633**

                        2,693

               Accounts  payable - affiliate

**            23,383**

                     18,634

               Customer  deposits

**            23,154**

                     22,654

               Provision  for rate refund

**              7,927**

                     23,951

               Taxes  accrued

**            14,007**

                     16,323

               Interest  accrued

**              7,292**

                        9,572

               Margin  deposits

**                 121**

                                 -

               Other  current liabilities

**              5,653**

                        8,080

          Total  current liabilities

**          194,636**

                   337,677

     Deferred credits

          Accumulated  deferred federal and state income taxes, net

**          387,122**

                   368,846

          Accumulated  deferred investment tax credits

**            16,467**

                     17,303

          Other  deferred credits

**          111,468**

                   101,621

               Total  deferred credits

**          515,057**

                   487,770

     Long-term debt,  net 

**          480,554**

                   450,552

               Total  liabilities

**      1,190,247**

               1,275,999

Commitments and  Contingencies (Note 8)

**Shareholders' equity**

     Preferred stock

          Not subject  to mandatory redemption, $100 par value, authorized 1,491,900 shares, issued 219,030  and 234,160 shares at June 30, 2005          and December 31, 2004,  respectively

**            21,903**

                     23,416

          Deferred  compensation related to preferred stock held by ESOP

**            (1,977)**

                      (4,190)

          Total  preferred stock not subject to mandatory redemption

**            19,926**

                     19,226

     Common  shareholders' equity

          Common  stock, $1 par value, authorized 100,000,000 shares, issued 49,986,753 and 49,667,861  shares at June 30, 2005 and           December 31, 2004, respectively

**            49,987**

                     49,668

          Premium on  common stock

**          199,755**

                   194,055

          Retained  earnings

**          314,749**

                   308,003

          Unearned  compensation

**            (6,015)**

                      (5,733)

          Treasury  stock, at cost 42,166 and 44,275 shares at June 30, 2005 and December 31, 2004,  respectively

**                (822)**

                          (887)

          Accumulated  other comprehensive loss

**            (3,294)**

                      (3,268)

               Total  common shareholders' equity

**          554,360**

                   541,838

                   Total  shareholders' equity

**          574,286**

                   561,064

**Total liabilities and shareholders' equity**

** $   1,764,533**

   $          1,837,063

The accompanying  notes are an integral part of the condensed consolidated financial  statements.

12

CLECO CORPORATION

Condensed Consolidated Statementsof Cash Flows (Unaudited)

             FOR THE SIX MONTHS ENDED JUNE 30,

(Thousands)

**                     2005**

** **

                      2004

**Operating activities**

     Net income    

** $    30,068**

   $            24,495

     Adjustments to  reconcile net income to net cash provided by operating activities:

          Depreciation  and amortization

**        31,418**

                 32,480

          Gain on sale  of property, plant and equipment

**         (2,206)**

                            -

          Provision for  doubtful accounts

**             780**

                       600

          Return on  equity investment in investee

**        15,913**

                 14,777

          Income from  equity investments

**       (20,873)**

               (17,811)

          Unearned/deferred  compensation expense

**          3,333**

                  (1,204)

          Employee  stock ownership plan expense

**             578**

                       329

          Allowance for  other funds used during construction

**         (1,779)**

                  (1,726)

          Amortization  of investment tax credits

**            (836)**

                     (856)

          Net deferred  income taxes 

**        19,625**

                   7,218

          Deferred fuel  costs 

**       (24,583)**

               (25,002)

          Impairment of  long-lived assets

**                  -**

                   1,100

          Cash  surrender value of company-/trust-owned life insurance

**            (353)**

                     (860)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**       (23,133)**

               (12,261)

               Accounts  and notes receivable, affiliate 

**            (138)**

               (14,445)

               Unbilled  revenue

**         (4,379)**

                       252

               Fuel,  materials and supplies inventory

**             883**

                  (1,415)

               Prepayments

**          2,133**

                   2,530

               Accounts  payable

**         (4,822)**

                  (9,696)

               Accounts  and notes payable, affiliate

**          4,749**

                   9,902

               Customer  deposits

**          2,618**

                   2,634

               Long-term  receivable

**                  -**

                  (2,206)

               Regulatory  assets and liabilities, net

**            (701)**

                       453

               Other  deferred accounts

**          9,789**

                 32,646

               Retainage  payable

**              (50)**

                  (7,463)

               Taxes  accrued

**         (2,473)**

                 55,318

               Interest  accrued

**         (1,548)**

                  (3,583)

               Margin  deposits

**          6,068**

                       394

               Other,  net

**            (771)**

                  (1,136)

          Net cash  provided by operating activities

**        39,310**

                 85,464

**Investing  activities**

     Additions to  property, plant and equipment

**       (44,484)**

               (39,761)

     Allowance for  other funds used during construction

**          1,779**

                   1,726

     Proceeds from sale  of property, plant and equipment

**          2,760**

                         34

     Return of equity  investment in investee

**          5,874**

                   6,868

     Investment in cost  method investments

**         (1,385)**

                  (2,715)

     Equity investment  in investee

**              (20)**

                            -

     Cash surrender  value of company-/trust-owned life insurance

**         (1,545)**

                  (2,865)

     Transfer of cash  from restricted accounts

**                 8**

                 10,178

          Net cash used  in investing activities

**       (37,013)**

               (26,535)

**Financing  activities**

     Exercise of  options to common stock

**          1,910**

                       136

     Change in  short-term debt, net

**        30,000**

               (67,750)

     Retirement of  long-term obligations

**     (160,020)**

                  (2,479)

     Issuance of  long-term debt

**        40,000**

                            -

     Deferred financing  costs

**         (1,345)**

                  (1,576)

     Change in ESOP  trust 

**          1,636**

                   1,753

     Dividends paid on  preferred stock

**         (1,442)**

                  (1,316)

     Dividends paid on  common stock 

**       (22,399)**

               (21,216)

          Net cash used  in financing activities

**     (111,660)**

               (92,448)

**Net decrease in  cash and cash equivalents**

**     (109,363)**

               (33,519)

**Cash and cash  equivalents at beginning of period**

**      123,787**

                 95,381

**Cash and cash  equivalents at end of period**

** $    14,424**

   $            61,862

**Supplementary cash  flow information**

     Interest paid    

** $    23,003**

   $            32,141

     Income taxes  paid/(received)

** $      6,061**

   $         (44,206)

**Supplementary  noncash financing activities**

Issuance of treasury  stock - LTICP and ESOP plans

** $            65**

   $              1,815

Issuance of common stock  - LTICP/ESOP/ESPP 1

** $      2,920**

   $              3,842

1     Amount reported for 2005 includes conversion of preferred stock to common  stock of $1,513

The accompanying notes are an integral part of the condensed  consolidated financial statements.

13

PART I - FINANCIAL INFORMATION

**ITEM 1.**    CONDENSEDFINANCIAL STATEMENTS

**Cleco Power**

These unaudited condensed financial statementsshould be read in conjunction with Cleco Power's Financial Statements and Notesincluded in the Registrants' Combined Annual Report on Form 10-K for the fiscalyear ended December 31, 2004.  For more information on the basis ofpresentation, see "Notes to the Unaudited Condensed Financial Statements - Note1 - Summary of Significant Accounting Policies - Basis of Presentation."

 

14

CLECO POWER

Condensed Statements of Income(Unaudited)

      FOR THE    THREE MONTHS ENDED JUNE 30,

(Thousands)

**                      2005**

** **

                      2004

**Operating revenue**

** **

     Electric  operations

** $   183,881**

   $         176,292

     Other operations

**           8,034**

                   6,931

     Affiliate revenue

**              496**

                       458

          Gross  operating revenue

**       192,411**

              183,681

               Electric  customer credits

**             (253)**

               (19,111)

          Operating  revenue, net

**       192,158**

              164,570

**Operating expenses**

     Fuel used for  electric generation

**         13,725**

                 19,707

     Power purchased  for utility customers

**         92,501**

                 71,795

     Other operations

**         19,003**

                 19,330

     Maintenance

**         12,804**

                 10,020

     Depreciation

**         14,662**

                 14,111

     Taxes other than  income taxes

**           8,659**

                   9,256

     Gain on sales of  assets

**         (2,201)**

                            -

          Total  operating expenses

**       159,153**

              144,219

**Operating income**

**         33,005**

                 20,351

Interest income

**              532**

                   1,942

Allowance for other  funds used during construction

**              831**

                       884

Other income

**              458**

                         78

Other expense

**             (401)**

                     (407)

Income before interest  charges

**         34,425**

                 22,848

**Interest charges**

     Interest charges,  including amortization of debt expenses, premium and discount

**           6,596**

                   6,580

     Allowance for  borrowed funds used during construction

**             (278)**

                     (287)

          Total  interest charges

**           6,318**

                   6,293

**Income before income taxes**

**         28,107**

                 16,555

Federal and state  income taxes

**         10,783**

                   6,658

**Net income**

** $     17,324**

   $              9,897

The accompanying  notes are an integral part of the condensed financial statements.
 
15

CLECO POWER

Condensed Statements of Income(Unaudited)

          FOR THE    SIX MONTHS ENDED JUNE 30,

(Thousands)

**                      2005**

** **

                      2004

**Operating revenue**

** **

     Electric  operations

** $   346,712**

   $         325,671

     Other operations

**         15,115**

                 13,793

     Affiliate revenue

**              991**

                       948

          Gross  operating revenue

**       362,818**

              340,412

               Electric  customer credits

**             (471)**

               (19,833)

          Operating  revenue, net

**       362,347**

              320,579

**Operating expenses**

     Fuel used for  electric generation

**         62,473**

                 49,850

     Power purchased  for utility customers

**       143,015**

              126,904

     Other operations

**         39,351**

                 35,216

     Maintenance

**         21,350**

                 16,993

     Depreciation

**         29,059**

                 28,117

     Taxes other than  income taxes

**         18,242**

                 18,472

     Gain on sales of  assets

**         (2,206)**

                            -

          Total operating  expenses

**       311,284**

              275,552

**Operating income**

**         51,063**

                 45,027

Interest income

**           1,144**

                   2,200

Allowance for other  funds used during construction

**           1,779**

                   1,726

Other income

**              756**

                       143

Other expense

**             (846)**

                     (942)

Income before interest  charges

**         53,896**

                 48,154

**Interest charges**

     Interest charges,  including amortization of debt expenses, premium and discount

**         14,100**

                 14,227

     Allowance for  borrowed funds used during construction

**             (594)**

                     (570)

          Total  interest charges

**         13,506**

                 13,657

**Income before income taxes**

**         40,390**

                 34,497

Federal and state  income taxes

**         15,456**

                 12,594

**Net income**

** $     24,934**

   $            21,903

The accompanying  notes are an integral part of the condensed financial statements.

16

CLECO POWER

Condensed Balance Sheets(Unaudited)

(Thousands)

**           AT JUNE 30,  2005**

** **

   AT DECEMBER 31, 2004

**Assets**

** **

     Utility plant and equipment

          Property, plant and equipment

** $    1,778,040**

   $            1,721,752

          Accumulated depreciation

**          (801,934)**

                   (776,925)

          Net property, plant and equipment

**           976,106**

                     944,827

          Construction work in progress

**             90,307**

                     106,368

               Total utility plant, net

**        1,066,413**

                 1,051,195

     Current assets

          Cash and cash equivalents

**               3,943**

                       54,113

          Customer accounts receivable (less  allowance for doubtful accounts of $680 in 2005 and $506 in 2004)

**             35,317**

                       34,468

          Other accounts receivable

**             26,111**

                       21,460

          Accounts receivable - affiliate

**               3,839**

                          5,208

          Unbilled revenue

**             21,635**

                       17,256

          Fuel inventory, at average cost

**             19,385**

                       21,132

          Material and supplies inventory, at  average cost

**             17,474**

                       16,609

          Margin deposits

**                       -**

                          5,159

          Risk management assets

**               4,340**

                                84

          Prepayments

**               1,838**

                          2,897

          Accumulated deferred fuel

**             32,015**

                       13,997

          Accumulated deferred federal and state  income taxes, net

**               5,270**

                          4,247

          Cash surrender value of life insurance  policies

**               4,825**

                          4,880

          Other current assets

**                  838**

                             464

               Total current assets

**           176,830**

                     201,974

     Prepayments

**               6,246**

                          6,568

     Regulatory assets and liabilities - deferred  taxes, net

**             91,214**

                       92,864

     Regulatory assets - other

**             26,620**

                       26,327

Other deferred charges

**             45,759**

                       46,460

**Total assets**

** $    1,413,082**

   $            1,425,388

**Liabilities and member's equity**

     Member's equity

** $       458,491**

   $               453,457

     Long-term debt

**           380,554**

                     350,552

          Total capitalization

**           839,045**

                     804,009

Current liabilities

     Long-term debt due within one year

**             10,000**

                       60,000

     Accounts payable

**             65,947**

                       68,630

     Accounts payable - affiliate

**               8,248**

                          8,075

     Customer deposits

**             23,154**

                       22,637

     Provision for rate refund

**               7,927**

                       23,951

     Taxes accrued

**             32,634**

                       20,709

     Interest accrued

**               6,031**

                          7,621

     Margin deposits

**                  121**

                                   -

     Other current liabilities

**               3,344**

                          6,253

               Total current liabilities

**           157,406**

                     217,876

Deferred credits

     Accumulated deferred federal and state  income taxes, net

**           343,481**

                     339,060

     Accumulated deferred investment tax credits

**             16,467**

                       17,303

     Other deferred credits

**             56,683**

                       47,140

               Total deferred credits

**           416,631**

                     403,503

**Total liabilities and member's equity**

** $    1,413,082**

   $            1,425,388

The accompanying  notes are an integral part of the condensed financial statements.

17

CLECO POWER

Statements of Cash Flows (Unaudited)

           FOR THE    SIX MONTHS ENDED JUNE 30,

(Thousands)

**                      2005**

** **

                      2004

**Operating activities**

     Net income

** $     24,934**

   $            21,903

     Adjustments to  reconcile net income to net cash provided by operating activities:

          Depreciation  and amortization

**         29,959**

                 29,142

          Gain on sale  of property, plant and equipment

**         (2,206)**

                            -

          Provision  for doubtful accounts

**              750**

                       600

          Unearned/deferred  compensation expense

**              996**

                     (406)

          Allowance  for other funds used during construction

**         (1,779)**

                  (1,726)

          Amortization  of investment tax credits

**             (836)**

                     (856)

          Net deferred  income taxes

**           5,161**

                   1,321

          Deferred  fuel costs 

**       (24,583)**

               (25,002)

          Cash  surrender value of company-owned life insurance

**             (151)**

                     (229)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**       (24,338)**

               (15,766)

               Accounts  and notes receivable, affiliate

**           2,118**

                 13,353

               Unbilled  revenue

**         (4,379)**

                  (1,644)

               Fuel,  materials and supplies inventory

**              883**

                  (1,397)

               Prepayments

**           1,433**

                     (328)

               Accounts  payable

**         (2,684)**

                  (8,933)

               Accounts  and notes payable, affiliate

**         (1,037)**

               (20,609)

               Customer  deposits

**           2,635**

                   2,637

               Regulatory  assets and liabilities, net

**             (701)**

                       453

               Other  deferred accounts

**           8,536**

                 26,283

               Retainage  payable

**               (50)**

                            -

               Taxes  accrued

**         11,926**

                 22,799

               Interest  accrued

**             (859)**

                       635

               Margin  deposits

**           6,068**

                       394

               Other,  net

**         (1,321)**

                       874

          Net cash  provided by operating activities

**         30,475**

                 43,498

**Investing activities**

     Additions to  property, plant and equipment

**       (44,021)**

               (39,167)

     Allowance for  other funds used during construction

**           1,779**

                   1,726

     Proceeds from  sale of property, plant and equipment

**           2,760**

                         34

     Cash surrender  value of company-owned life insurance

**             (629)**

                       137

          Net cash  used in investing activities

**       (40,111)**

               (37,270)

**Financing activities**

     Retirement of  long-term obligations

**       (60,020)**

                            -

     Issuance of  long-term debt

**         40,000**

                            -

     Deferred  financing costs

**             (614)**

                     (719)

     Distribution to  parent

**       (19,900)**

               (22,900)

          Net cash  used in financing activities

**       (40,534)**

               (23,619)

**Net decrease in cash and cash equivalents**

**       (50,170)**

               (17,391)

**Cash and cash equivalents at beginning of  period**

**         54,113**

                 70,990

**Cash and cash equivalents at end of period**

** $       3,943**

   $            53,599

**Supplementary cash flow information**

     Interest paid    

** $     14,300**

   $            14,407

     Income taxes paid    

** $       7,143**

   $              4,452

The accompanying  notes are an integral part of the condensed financial statements.

19

Index to Applicable Notes to the UnauditedCondensed Financial Statements of Registrants

Note 1

Summary of Significant  Accounting Policies

Cleco Corporation and  Cleco Power

Note 2

Reclassifications

Cleco Corporation and  Cleco Power

Note 3

Disclosures  about Segments

Cleco Corporation    

Note 4

Restricted    Cash

Cleco Corporation    

Note 5

Equity Investment in Investees

Cleco Corporation    

Note 6

Recent Accounting Standards

Cleco Corporation and  Cleco Power

Note 7

Accrual of Electric Customer Credits

Cleco Corporation and  Cleco Power

Note 8

Litigation and Other  Commitments and Contingencies

Cleco Corporation and  Cleco Power

Note 9

Disclosures about  Guarantees

Cleco Corporation and  Cleco Power

Note 10

Debt

Cleco Corporation and  Cleco Power

Note 11

Variable Interest  Entities

Cleco Corporation    

Note 12

Pension Plan and  Employee Benefits

Cleco Corporation and  Cleco Power

Note 13

Perryville

Cleco Corporation

Note 14

Discontinued  Operations and Dispositions

Cleco Corporation    

Note 15

Income Taxes

Cleco Corporation and  Cleco Power

Note 16

Deferred Fuel and Purchased  Power Costs

Cleco Corporation and  Cleco Power

Note 17

Affiliate Transactions

Cleco Corporation

Note 18

Franchise

Cleco Corporation and Cleco  Power

19

Notes to the Unaudited Condensed FinancialStatements

**Note 1 - Summary of Significant AccountingPolicies**

***Principles of Consolidation***

The accompanying condensed consolidated financialstatements of Cleco include the accounts of Cleco and its majority-owned subsidiariesafter elimination of intercompany accounts and transactions.

Cleco has adopted the provisions of FIN 46R on itsscheduled effective dates.  Through a review of equity interests and othercontractual relationships, Cleco has determined that it is not the primarybeneficiary of Evangeline, which is considered a variable interest entity.  Inaccordance with FIN 46R, Cleco deconsolidated Evangeline from its condensedconsolidated financial statements and began reporting its investment inEvangeline on the equity method of accounting effective March 31, 2004.  As aresult, the assets and liabilities of Evangeline no longer are reported onCleco Corporation's Condensed Consolidated Balance Sheet but instead are representedby one line item corresponding to Cleco's equity investment in Evangeline.  EffectiveApril 1, 2004, Evangeline's results of operations are reported as equity incomefrom investees on Cleco Corporation's Condensed Consolidated Statements of Income. For additional information on the deconsolidation of Evangeline, see Note 5 -"Equity Investment in Investees."

The financial results of Perryville and PEH areincluded in Cleco Corporation's consolidated results through January 27, 2004. However, generally accepted accounting principles preclude consolidation ofmajority-owned subsidiaries where control does not rest with the majorityowners.  Cleco is utilizing the cost method to account for its investment inPerryville and PEH.  The cost method requires Cleco to present the net assetsof Perryville and PEH at January 27, 2004, as an investment and not recognizeany income or loss from Perryville or PEH in Cleco's results of operationsduring the reorganization period.  As of June 30, 2005, this investment had anegative cost basis of approximately $35.9 million, which is included in otherdeferred credits on Cleco Corporation's Condensed Consolidated Balance Sheet. When Perryville's bankruptcy proceedings are concluded, the subsequent accountingtreatment will be determined based upon the applicable facts and circumstancesexisting at such time, including the terms of any plan of reorganization.  Foradditional information on the deconsolidation of Perryville, see Note 13 -"Perryville."

***Basis of Presentation***

The condensed consolidated financial statements ofCleco Corporation and Cleco Power have been prepared pursuant to the rules andregulations of the SEC.  Accordingly, certain information and note disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted, although Clecobelieves that the disclosures are adequate to make the information presentednot misleading.

The year-end condensed consolidated balance sheetdata was derived from audited financial statements, but does not include alldisclosures required by generally accepted accounting principles.  Theunaudited financial information included in the condensed financial statementsof Cleco Corporation and Cleco Power reflect all adjustments of a normalrecurring nature which are, in the opinion of the management of Cleco Corporationand Cleco Power, as the case may be, necessary for a fair presentation of thefinancial position and the results of operations for the interim periods.  Informationfor interim periods is affected by seasonal variations in sales, rate changes,timing of fuel expense recovery and other factors, and is not indicativenecessarily of the results that may be expected for the full fiscal year.  Formore information on recent accounting standards and their effect on financialresults, see Note 6 - "Recent Accounting Standards."

***Risk Management***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positions includes the potential change arisingfrom changes in interest rates and the commodity market prices of power and naturalgas in the industry on different energy exchanges.  Cleco's Trading Risk ManagementPolicy authorizes the use of various derivative instruments, including exchangetraded options and futures contracts, forward purchase and sales contracts, andswap transactions, to reduce exposure to fluctuations in the price of power andnatural gas.  Cleco adopted SFAS No. 133 in the first quarter of 2001 todetermine whether market risk-sensitive instruments and positions were requiredto be marked-to-market.  Generally, Cleco Power's market risk-sensitiveinstruments and positions qualify for the normal-purchase, normal-sale exceptionto mark-to-market accounting of SFAS No. 133, as modified by SFAS No. 149,since Cleco Power generally takes physical delivery and the instruments andpositions are used to satisfy customer requirements.  From time to time, ClecoPower could have positions that are required to be marked-to-market, becausethey do not meet the exceptions of SFAS No. 133 and do not qualify for hedgeaccounting treatment.  Cleco Power has entered into certain transactions itconsiders economic hedges to mitigate the risk associated with a new wholesalemunicipal customer that do not meet the criteria of accounting hedge treatment.  These positions are marked-to-marketwith the resulting gain or loss recorded in income.  Cleco Power has enteredinto other positions to mitigate some of the volatility in fuel costs passed onto customers.  These positions are marked-to-market with the resulting gain orloss recorded on the balance sheet as a component of the accumulated deferredfuel asset or liability.  When these positions close, actual gains or losseswill be included in the fuel adjustment clause and reflected on customers'bills.  Any positions entered into for marketing and trading purposes do notmeet the exemptions of SFAS No. 133, and the net mark-to-market of thosepositions is recorded in income.  Cleco maintains a master netting agreementpolicy and monitors credit risk

20

exposure through review of counterparty creditquality, corporate-wide aggregate counterparty credit exposure and corporate-wide aggregate counterparty concentration levels.  Cleco activelymanages these risks by establishing appropriate credit and concentration limitson transactions with counterparties and requiring contractual guarantees, cashdeposits or letters of credit from counterparties or their affiliates, asdeemed necessary.  Cleco Power has agreements in place with various counterpartiesthat authorize the netting of financial buys and sells and contract payments tomitigate credit risk for transactions entered into for risk management purposes.

***Earnings per Average CommonShare***

Earnings per average common share are computed usingthe weighted average number of shares of common stock outstanding during theyear.  The table below is a reconciliation of the components in the calculationof basic and diluted earnings per share. 
 
   FOR THE THREE    MONTHS ENDED JUNE 30,

**              2005**

              2004

(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

**INCOME(NUMERATOR)**

**SHARES(DENOMINATOR)**

**   PER  SHAREAMOUNT**

INCOME(NUMERATOR)

            SHARES(DENOMINATOR)

     PER SHAREAMOUNT

Income from continuing operations

** $    20,699**

   $        11,187

Deduct:  non-participating stock dividends (4.5%  preferred stock)

**               12**

                      12

Deduct:  participating preferred stock dividends

**             451**

                   486

Deduct:  amount allocated to participating  preferred

**             358**

                        4

**Basic earnings per share**

Income from continuing operations available to  common shareholders

** $    19,878**

**        49,507**

** $    0.40**

   $        10,685

              47,079

   $          0.23

**Effect of Dilutive Securities**

Add:  stock option grants

**               85**

                       35

Add:  restricted stock (LTICP)

**               13**

                       34

Add:  ESOP shares

**             809**

**          2,023**

                   490

                 2,176

**Diluted earnings per share**

Income from continuing operations available to  common shareholders plus assumed    conversions

**  $    20,687**

**            51,628**

**  $    0.40**

       $        11,175

                  49,324

       $          0.23

 

                        FOR THE SIX MONTHS ENDED JUNE 30,

**              2005**

              2004

    (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

**INCOME(NUMERATOR)**

**SHARES(DENOMINATOR)**

**   PER  SHARE       AMOUNT**

               INCOME      (NUMERATOR)

               SHARES(DENOMINATOR)

     PER SHAREAMOUNT

Income from continuing operations

** $    30,273**

   $        24,625

Deduct:  non-participating stock dividends (4.5%  preferred stock)

**               23**

                      23

Deduct:  participating preferred stock dividends

**             935**

                1,325

Deduct:  amount allocated to participating  preferred

**             288**

                      97

**Basic earnings per share**

Income from continuing operations available to  common shareholders

** $    29,027**

**        49,396**

** $    0.59**

   $        23,180

              46,994

   $          0.49

**Effect of Dilutive Securities**

Add:  stock option grants

**               73**

                       37

Add:  restricted stock (LTICP)

**               13**

                       34

Add:  ESOP shares

**          1,223**

**          2,077**

**Diluted earnings per share**

Income from continuing operations available to  common shareholders plus assumed conversions

**  $    30,250**

**        51,559**

**  $    0.59**

   $        23,180

              47,065

   $          0.49

Options to purchase 371,968 shares of common stockat prices ranging from $21.88 to $24.25 were outstanding as of June 30, 2005. The shares subject to these options were not included in the computation ofdiluted earnings per share for the three and six months ended June 30, 2005,because the options' exercise prices were greater than the average market priceof Cleco's common stock.  These options expire between 2010 and 2012.

Options topurchase 911,036 shares of common stock at prices ranging from $18.44 to $24.25were outstanding as of June 30, 2004.  The shares subject to these options werenot included in the computation of diluted earnings per share for the threemonths ended June 30, 2004, because the options' exercise prices were greaterthan the average market price of Cleco's common stock.  These options expire between2010 and 2012.

Options topurchase 931,036 shares of common stock at prices ranging from $17.75 to $24.25were outstanding as of June 30, 2004.  The shares subject to these options werenot included in the computation of diluted earnings per share for the sixmonths ended June 30, 2004, because the options' exercise prices were greaterthan the average market price of Cleco's common stock.  These options expire between2012 and 2014.

ESOP sharesof 2,242,737 were not included in the computation of diluted earnings per sharefor the six months ended June 30, 2004, because the effects would have beenanti-dilutive.

***Stock-BasedCompensation***

At June 30, 2005, Cleco Corporation had twostock-based compensation plans:  the LTICP and the ESPP.  Options or 

21

restrictedshares of stock, known as non-vested stock as defined by SFAS No. 123, may begranted to certain officers, key employees, or directors of Cleco Corporationand its subsidiaries pursuant to the LTICP.  Substantially all employees, excludingofficers and general managers, of Cleco Corporation and its subsidiaries maychoose to participate in the ESPP and purchase a limited amount of common stockat a discount through a stock option agreement.  APB Opinion No. 25 and relatedinterpretations are applied in accounting for Cleco Corporation's stock-basedcompensation plans.  Therefore, no stock-based employee compensation isreflected in the Cleco Corporation Condensed Consolidated Statements of Incomefor the three and six months ended June 30, 2005, or 2004, other than forrestricted stock grants, as all compensatory stock options granted had anexercise price equal to the fair market value of common stock on the date ofthe grant and ESPP options are considered noncompensatory.  

The fair market value of restricted stock asdetermined on the measurement date is recorded as compensation expense duringthe service periods, which is generallythree years, in which the restrictions lapse and if obtainment of vesting requirementsis probable.  Cleco and Cleco Power reportedpre-tax compensation expense (reversal of expense) for shares of restrictedstock granted under the LTICP and the related income tax gross-up paid onbehalf of participants as shown in the following table:

    FOR THE THREE MONTHS ENDED    JUNE 30,

          FOR THE    SIX MONTHS ENDED JUNE 30,

(Thousands)

**                     2005**

                      2004

**                     2005**

                      2004

Cleco pre-tax compensation expense (reversal of  expense) including related tax gross-up

**     $   1,794**

         $           884

**     $   3,266**

         $      (1,168)

Cleco Power pre-tax compensation expense (reversal  of expense) including related tax gross-up

**     $      304**

         $           281

**     $      996**

         $         (406)

Cleco grants to employees two types of restrictedstock with market and performance objectives.  The first type, target shares,can be voted, and employees receive dividends on the shares prior to the lapseof the restrictions.  The second type, opportunity shares, is not issued toemployees until the market and performance objectives have been met; therefore,these shares cannot be voted, nor do employees receive dividends on the shares priorto the lapse of the restrictions.  Both types of these grants require thesatisfaction of the service requirement, as well as the achievement of one ormore market-based or performance-based objectives in order to obtain vesting. However, if certain events occur, such as retirement after age 55 or terminationas part of a plan of reorganization prior to the end of the service period, thenemployees would vest in a pro-rata number of target and opportunity shares.  AtJune 30, 2005, the number of target and opportunity restricted sharespreviously granted for which restrictions had not lapsed totaled 796,586. Cleco also grants to employees and directors restricted stock with only aservice period requirement.  These grants require the satisfaction of apre-determined service period in order for the shares to vest.  During thevesting period, the employees and directors can vote and receive dividends onthe shares.  At June 30, 2005, the number of shares of restricted stockpreviously granted with only a service period requirement for which the periodhad not ended was 79,060.

Net income and net income per common share forCleco and net income for Cleco Power would approximate the pro forma amounts shownin the following tables if the compensation expense for these plans wasrecognized in compliance with SFAS No. 123.  The income tax gross-up related tothe shares of restricted stock granted under the LTICP is not included in thepro forma amounts as shown below since its treatment is the same under APBOpinion No. 25 and SFAS No. 123.

***Cleco***

FOR THE THREE MONTHS ENDED    JUNE 30,

FOR THE SIX MONTHS ENDED JUNE 30,

(Thousands, except per share amounts)

**                     2005**

                      2004

**                     2005**

                      2004

Net income applicable to common stock, as  reported

**     $ 20,179**

         $     10,121

**     $ 29,145**

         $     23,218

Add:  stock-based employee compensation expense  recognized (reversed) and included in reported

     net income applicable to common stock, net  of related tax effects

**             520**

                       393

**          1,230**

                     (936)

Deduct:  total stock-based employee compensation  expense determined under the fair value based method of all awards, net of related tax effects

**             459**

                       590

**             950**

                   1,151

Pro forma net income applicable to common stock

**     $ 20,240**

         $        9,924

**     $ 29,425**

         $     21,131

Earnings per share:

     Basic - as reported

**     $      0.40**

         $          0.22

**     $      0.58**

         $          0.49

     Basic - pro forma

**     $      0.40**

         $          0.22

**     $      0.59**

         $          0.45

     Diluted - as reported

**     $      0.40**

         $          0.22

**     $      0.58**

         $          0.49

     Diluted - pro forma

**     $      0.40**

         $          0.22

**     $      0.59**

         $          0.45

***Cleco Power***

 FOR THE THREE MONTHS ENDED    JUNE  30,

   FOR THE SIX MONTHS ENDED    JUNE 30,

(Thousands, except per share amounts)

**                     2005**

                      2004

**                     2005**

                      2004

Net income, as reported

**     $ 17,324**

         $        9,897

**     $ 24,934**

         $     21,903

Add:  stock-based employee compensation expense (reversed)  recognized and included in reported

     net income, net of related tax effects

**              (31)**

                       103

**             340**

                     (345)

Deduct:  total stock-based employee compensation  expense determined under the fair value based method     of all awards, net of  related tax effects

**             195**

                       199

**             387**

                       398

Pro forma net income 

**     $ 17,098**

         $        9,801

**     $ 24,887**

         $     21,160

22

The effects of applyingSFAS No. 123 in this pro forma disclosure are not necessarily indicative offuture amounts.  SFAS No. 123 is not applicable to awards prior to 1995.  ClecoCorporation anticipates making awards in the future under its stock-basedcompensation plans.

**Note 2 - Reclassifications**

Certain reclassifications have been made to priorperiod financial statements to conform them to the presentation used in thecurrent year's financial statements.  These reclassifications had no effect on ClecoCorporation's net income applicable to common stock, total common shareholders'equity, or Cleco Power's net income or total member's equity. 

On May 19, 2004, the FASB issued FSP SFAS No. 106-2which requires companies that provide post-retirement prescription drugbenefits which are "actuarially equivalent" to Medicare Part D to reflect thefederal subsidy in their calculations of the post-retirement liability andcurrent expense.  Cleco adopted this standard effective July 1, 2004, andelected retroactive application to January 1, 2004. The effect of thisretroactive application was a reduction in benefit costs, resulting in anincrease of $0.2 million and $0.4 million in Cleco Corporation's net incomeapplicable to common stock and in Cleco Power's net income for the three andsix months ended June 30, 2004, respectively.  Cleco Corporation's condensedconsolidated statements of income and Cleco Power's condensed statements of incomefor the three and six months ended June 30, 2004, include this retroactive increase. 

**Note 3 - Disclosures about Segments**

Cleco's reportable segments are based on itsmethod of internal reporting, which disaggregates business units by first-tiersubsidiary.  Reportable segments were determined by applying SFAS No. 131.  Cleco'sreportable segments are Cleco Power, Midstream, and Other.  The Other segmentconsists of the holding company, a shared services subsidiary, and aninvestment subsidiary.  The Other segment subsidiaries operate within Louisianaand Delaware.

Each reportable segment engages in businessactivities from which it earns revenue and incurs expenses.  Segment managersreport periodically to Cleco's Chief Executive Officer (the chief operatingdecision-maker) with discrete financial information and, at least quarterly,present discrete financial information to Cleco's Board of Directors.  Eachreportable segment prepared budgets for 2005 that were presented to andapproved by Cleco's Board of Directors.  The reportable segments exceeded thequantitative thresholds as defined in SFAS No. 131.

The financial results of Cleco's segments arepresented on an accrual basis.  Management evaluates the performance of itssegments and allocates resources to them based on segment profit and therequirements to implement new strategic initiatives to meet current businessobjectives.  Material intercompany transactions occur on a regular basis.

 

23

**SEGMENT INFORMATION FOR THE THREEMONTHS ENDED JUNE 30,**

**                  CLECO**

** **

** **

** **

** **

** **

** **

** **

** **

2005 (THOUSANDS)

**                POWER**

** **

**           MIDSTREAM**

** **

**                  OTHER**

** **

**               ELIMINATIONS**

** **

**CONSOLIDATED**

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

**$   183,881**

** $                -**

** $                -**

**        $                 -**

** $      183,881**

     Other operations

**        8,034**

**               28**

**              42**

**                    (2)**

**         8,102**

     Electric customer credits

**          (253)**

**                 -**

**                -**

**                      -**

**           (253)**

Affiliate revenue

**               8**

**         1,523**

**            847**

**                      -**

**         2,378**

Intercompany revenue

**           488**

**                 -**

**      11,483**

**           (11,971)**

**                 -**

Operating revenue, net

**$    192,158**

** $       1,551 **

** $    12,372**

**        $   (11,973)**

** $      194,108**

Depreciation expense

**$       14,662**

** $             79**

** $          364**

**        $                 -**

** $        15,105**

Interest charges

**$         6,318**

** $       3,752**

** $       4,359**

**        $     (3,777)**

** $        10,652**

Interest income

**$            532**

** $                -**

** $       4,121**

**        $     (3,769)**

** $              884**

Equity income from investees

**$                  -**

** $     11,047**

** $            (3)**

**        $                 -**

** $        11,044**

Federal and state income tax expense (benefit)

**$       10,783**

** $       2,510**

** $        (755)**

**        $                9**

** $        12,547**

Segment profit (loss) from continuing operations,  net

**$       17,324**

** $       3,584**

** $        (209)**

**        $                  -**

** $        20,699**

Loss from discontinued operations, net of tax

**                -**

**             (72)**

**                -**

**                      -**

**             (72)**

Segment profit (loss) (1)

**$       17,324**

** $       3,512**

** $       (209)**

**        $                 -**

** $        20,627**

Additions to long-lived assets    

**$       25,619**

** $                -**

** $          201**

**        $                 -**

** $        25,820**

Segment assets

**$ 1,413,082**

** $  340,635**

** $  554,966**

**        $ (544,150)**

** $  1,764,533**

**(1) Reconciliation of segment  profit (loss) to consolidated profit:**

**Segment profit**

** **

**        $      20,627**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**                (448)**

** **

** **

**Net income applicable to common stock**

** **

**        $      20,179**

** **

** **

 

                  CLECO

2004 (THOUSANDS)

                 POWER

         MIDSTREAM

                  OTHER

                 ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $     176,292

   $                  -

   $                  -

            $                    -

   $        176,292

     Other operations

              6,931

                    27

                    82

                             (51)

                 6,989

     Electric customer credits

          (19,111)

                       -

                       -

                                  -

             (19,111)

Affiliate revenue

                       8

              1,321

                  823

                                  -

                 2,152

Intercompany revenue

                  450

                       -

            10,037

                     (10,487)

                          -

Operating revenue, net

   $     164,570

   $          1,348

   $        10,942

            $      (10,538)

   $        166,322

Depreciation expense

   $        14,111

   $               81

   $             240

            $                   -

   $          14,432

Interest charges

   $          6,293

   $          2,957

   $          4,569

            $        (3,010)

   $          10,809

Interest income

   $          1,942

   $                  -

   $          3,075

            $        (2,986)

   $            2,031

Equity income from investees

   $                  -

   $          9,153

   $             (59)

            $                  -

   $            9,094

Federal and state income tax expense (benefit)

   $          6,658

   $          2,049

   $           (733)

            $             (55)

   $            7,919

Segment profit (loss) from continuing operations,  net

   $          9,897

   $          2,826

   $        (1,536)

            $                  -

   $         11,187

Loss from discontinued operations, net of tax

                       -

                (288)

                       -

                                  -

                   (288)

Segment profit (loss) (1)

   $          9,897

   $          2,538

   $        (1,536)

            $                  -

   $         10,899

Additions to long-lived assets    

   $        18,641

   $             (40)

   $             339

            $                  -

   $         18,940

Segment assets

   $   1,391,655

   $      347,654

   $      561,569

            $    (548,399)

   $    1,752,479

(1)     Reconciliation of  segment profit (loss) to consolidated profit:

Segment profit

** **

            $        10,899

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                           (778)

** **

** **

Net income applicable to common stock

** **

            $        10,121

** **

** **

24

**SEGMENTINFORMATION FOR THE SIX MONTHS ENDED JUNE 30,**

**                  CLECO**

** **

** **

** **

** **

** **

** **

** **

** **

2005 (THOUSANDS)

**                POWER**

** **

**           MIDSTREAM**

** **

**                  OTHER**

** **

**                ELIMINATIONS**

** **

**CONSOLIDATED**

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

** $     346,712**

** $                -**

** $              -**

**        $                 -**

** $     346,712**

     Other operations

**      15,115**

**               40**

**            101**

**                    (4)**

**       15,252**

     Electric customer credits

**          (471)**

**                 -**

**                -**

**                      -**

**           (471)**

Affiliate revenue

**             15**

**         3,016**

**        1,700**

**                      -**

**         4,731**

Intercompany revenue

**           976**

**                 -**

**      22,254**

**           (23,230)**

**                 -**

Operating revenue, net

**$     362,347**

** $       3,056**

** $   24,055**

**        $    (23,234)**

** $      366,224**

Depreciation expense

**$       29,059**

** $          159**

** $         659**

**        $                  -**

** $        29,877**

Interest charges

**$       13,506**

** $       7,233**

** $      8,849**

**        $       (7,133)**

** $        22,455**

Interest income

**$          1,144**

** $                -**

** $      7,825**

**        $       (7,118)**

** $          1,851**

Equity income from investees

**$                   -**

** $     20,966**

** $         (93)**

**        $                  -**

** $        20,873**

Federal and state income tax expense (benefit)

**$        15,456**

** $       4,500**

** $   (1,410)**

**        $              (3)**

** $        18,543**

Segment profit (loss) from continuing operations,  net

**$        24,934**

** $       6,473**

** $   (1,134)**

**        $                  -**

** $        30,273**

Loss from discontinued operations, net of tax

**                -**

**           (205)**

**                -**

**                      -**

**           (205)**

Segment profit (loss) (1)

**$        24,934**

** $       6,268**

** $   (1,134)**

**        $                  -**

** $        30,068**

Additions to long-lived assets    

**$       44,021**

** $               8**

** $        455**

**      $                  -**

** $        44,484**

Segment assets

**$  1,413,082**

** $  340,635**

** $ 554,966**

**        $ (544,150)**

** $  1,764,533**

**(1)****Reconciliation of segment  profit (loss) to consolidated profit:**

**Segment profit**

** **

**        $      30,068**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**                (923)**

** **

** **

**Net income applicable to common stock**

** **

**        $      29,145**

** **

** **

 

                  CLECO

2004 (THOUSANDS)

                 POWER

     MIDSTREAM

                  OTHER

                 ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $     325,671

   $                  -

   $                  -

            $                    -

   $       325,671

     Tolling operations

                       -

            10,255

                       -

                                  -

              10,255

     Other operations

            13,793

                    29

                  157

                             (85)

              13,894

     Electric customer credits

          (19,833)

                       -

                       -

                                  -

             (19,833)

Affiliate revenue

                       8

              1,788

              1,188

                                  -

                 2,984

Intercompany revenue

                  940

                    12

            18,899

                     (19,851)

                          -

Operating revenue, net

   $     320,579

   $       12,084

   $         20,244

            $       (19,936)

   $       332,971

Depreciation expense

   $       28,117

   $         2,036

   $              490

            $                    -

   $         30,643

Interest charges

   $       13,657

   $       11,190

   $           9,581

            $         (5,984)

   $         28,444

Interest income

   $         2,200

   $              49

   $           6,117

            $         (5,960)

   $           2,406

Equity income from investees

   $                 -

   $       17,811

   $           (208)

            $                    -

   $         17,603

Federal and state income tax expense (benefit)

   $       12,594

   $         3,454

   $        (2,502)

            $               (96)

   $         13,450

Segment profit (loss) from continuing operations,  net

   $       21,903

   $         5,026

   $        (2,304)

            $                    -

   $         24,625

Income from discontinued operations, net of tax

                       -

                (130)

                       -

                                  -

                   (130)

Segment profit (loss) (1)

   $       21,903

   $         4,896

   $        (2,304)

            $                    -

   $         24,495

Additions to long-lived assets    

   $       39,167

   $            (40)

   $             634

            $                    -

   $         39,761

Segment assets

   $  1,391,655

   $      347,654

   $      561,569

            $      (548,399)

   $    1,752,479

(1)     Reconciliation of  segment profit (loss) to consolidated profit:

Segment profit

** **

            $          24,495

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                       (1,277)

** **

** **

Net income applicable to common stock

** **

            $          23,218

** **

** **

25

**Note 4 - Restricted Cash**

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.  At June 30, 2005, atotal of $34.9 million of cash was restricted under various agreements,including $0.1 million under the Diversified Lands mitigation escrow agreement,$32.7 million under the Evangeline senior secured bond indenture, and $2.1million under an agreement with the lenders for Perryville.  On July 8, 2005, approximately$1.8 million of the $2.1 million of restricted cash for Perryville was releasedby the Perryville lenders.  The amounts for Evangeline and Perryville are notincluded in Cleco Corporation's Condensed Consolidated Balance Sheets at June30, 2005, due to the deconsolidation of Perryville and Evangeline in 2004.

**Note 5 - Equity Investment inInvestees**

Equity investment in investees representsMidstream's $251.6 million investment in APP, owned 50% by APH and 50% byCalpine; its $62.3 million investment in Evangeline, owned 100% by Midstream;and $0.2 million of minimal other Cleco equity investments.  Midstream'sportion of earnings from APP and Evangeline is included in the equityinvestments of each company.  APP earned $11.8 million and $24.8 million forthe three and six months ended June 30, 2005, respectively.  APH receivespriority cash distributions and earnings as its consideration for the restructuringrelated to the May 2003 Calpine Tolling Agreement.  Midstream's equity investmentearnings from APP were $7.6 million and $15.9 million for the three and six monthsended June 30, 2005, respectively.  In accordance with FIN 46R, Clecodeconsolidated Evangeline from its consolidated financial statements effectiveApril 1, 2004.  Equity investment earnings from Evangeline were $3.4 million and$5.1 million for the three and six months ended June 30, 2005, respectively. For the three and six months ended June 30, 2005, no significant earnings orlosses were recorded for the other equity investments.

***APP***

The following table presents the components ofMidstream's equity investment in APP.

**  AT  JUNE 30,**

** **

AT DECEMBER 31,

(thousands)

**                      2005**

** **

                       2004

Contributed assets (cash and land)

**   $  250,612**

     $       250,612

Net income (inception to date)

**         90,049**

                 74,135

Capitalized interest and other (inception to  date)

**         19,469**

                 19,469

     Less: Cash distributions (inception to date)

**       108,576**

                 87,232

          Total equity investment in investee

**   $  251,554**

     $       256,984

Midstream's equity, as reported on thebalance sheet of APP at June 30, 2005, was $282.5 million.  The difference of $30.9million between the equity investment in investee of $251.6 million as shown inthe table above and Midstream's equity includes $19.5 million of interestcapitalized on funds contributed to APP.  It also includes other miscellaneouscharges related to the construction of the APP facility, offset by $50.4million which represents the difference between the accounting treatments usedby the partnership entities to record the allocation of termination agreementincome.  Cash distributions to date of $108.6 million were used to pay interestand repay principal on debt issued by Cleco Corporation relating to thisinvestment.  For the six months ended June 30, 2005, APH had received all ofits $14.0 million annual priority cash distributions.

Cleco has credit support available in the event CESand Calpine fail to fulfill their obligations under either tolling agreement.  Calpinehad posted letters of credit totaling $40.0 million as of June 30, 2005.  Theseletters of credit have various expiration terms, of which $13.0 million will expireon May 9, 2006, $12.0 million will expire on December 31, 2006, and $15.0million will remain in effect for the duration of the tolling agreements.

The following tables contain summarized financialinformation for APP.

**             AT  JUNE 30,**

   AT DECEMBER 31,    

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$      14,742**

   $            13,929

Property, plant and equipment, net

**       455,662**

               462,654

Other assets

**           9,514**

                    7,632

     Total assets

**$    479,918**

   $          484,215

Current liabilities

**$        8,630**

   $              9,070

Partners' capital

**       471,288**

               475,145

     Total liabilities and partners' capital

**$    479,918**

   $          484,215

 

FOR THE THREE MONTHS ENDED    JUNE 30,

   FOR THE SIX MONTHS ENDED    JUNE 30,

(THOUSANDS)

                       **2005**

                   2004

                       **2005**

                  2004

Total revenue

** $   17,923**

   $        19,562

** $   36,552**

   $        38,842

Total operating expenses

**         6,149**

             10,714

**       11,745**

             16,267

Other income 

**              13**

                         -

**              22**

                        -

     Net income

** $   11,787**

   $           8,848

** $   24,829**

   $        22,575

Income tax expense and interest charges recordedon APH's financial statements related to Midstream's 50% ownership interest in APPwere $1.4 million and $3.8 million, and $3.1 million and $7.4 million, for the threeand six months ended June 30, 2005, respectively.

Income tax expense and interest charges recorded onAPH's financial statements related to Midstream's 50% ownership interest in APPwere $1.1 million and $3.0 million, and $3.1 million and $6.5 million, for thethree and six months ended June 30, 2004, respectively.

***Evangeline***

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

**             AT  JUNE 30,**

** **

**  **AT DECEMBER 31,

(thousands)

**                      2005**

** **

                      2004

Contributed assets (cash)

**   $    43,580**

     $          43,580

Net income (inception to date)

**       108,580**

               103,527

     Less:  Cash distributions (inception to  date)

**         89,843**

                 89,843

          Total equity investment in investee

**   $    62,317**

     $          57,264

26

The followingtables contain summarized financial information for Evangeline.

**             AT  JUNE 30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$      20,450**

   $            17,721

Accounts receivable - affiliate

**           1,609**

                    5,819

Property, plant and equipment, net

**       195,848**

               198,053

Other assets

**         45,828**

                 42,502

     Total assets

**$    263,735**

   $          264,095

Current liabilities

**$      12,922**

   $            13,334

Accounts payable - affiliate

**              704**

                    2,624

Long-term debt

**       188,268**

               191,820

Other liabilities

**         55,798**

                 53,018

Member's equity

**           6,043**

                    3,299

     Total liabilities and member's equity

**$    263,735**

   $          264,095

 

FOR THE THREE MONTHS ENDED    JUNE 30,

   FOR THE SIX MONTHS ENDED    JUNE 30,

(THOUSANDS)

**                    2005**

                   2004

**                   2005**

                  2004

Operating revenue

** $   11,988**

   $        11,860

** $   21,706**

   $        22,051

Operating expenses

**         3,048**

                2,935

**         5,559**

               6,037

Depreciation

**         1,296**

                1,406

**         2,589**

               2,813

Interest charges

**         4,350**

                4,513

**         8,748**

               8,915

Other income

**            165**

                      37

**            299**

                     96

Other expense

**              53**

                        9

**              56**

                     13

Federal and state income taxes    

**                 -**

                         -

**                 -**

                   528

Net income

** $     3,406**

   $           3,034

** $     5,053**

   $          3,841

Income tax expense recorded onMidstream's financial statements related to Midstream's 100% ownership interestin Evangeline was $1.5 million and $2.3 million for the three and six monthsended June 30, 2005, respectively.

Income tax expense, not reflected in the chartabove, recorded on Midstream's financial statements related to Midstream's 100%ownership interest in Evangeline was $1.3 million for the three and six monthsended June 30, 2004.

**Note 6 - Recent Accounting Standards**

Cleco and Cleco Power adopted, or will adopt, therecent accounting standards listed below, if applicable, on their respectiveeffective dates.

On September 30, 2004, EITF No.04-10 was issued which clarifies the aggregation of segments which do not meetthe quantitative thresholds contained in SFAS No. 131.  This consensus allowscompanies to aggregate segments which do not meet quantitative thresholds ifthe aggregation is consistent with the objective of SFAS No. 131; the segmentshave similar economic characteristics; and the segments have a majority ofseveral operational and regulatory characteristics.  In June 2005, the FASBratified a modification to the effective date of the consensus.  EITF No. 04-10is effective for the first fiscal year ending after September 15, 2005.  Clecocurrently is evaluating the impact of EITF No. 04-10 on its SFAS No. 131disclosures.  A related proposed FASB Staff position, FSP SFAS No. 131-a, waswithdrawn for approval in May 2005.

On December 16, 2004, SFAS No.123R was issued, which provides expensing and disclosure requirements forstock-based compensation.  This statement will require all equity instruments,including stock options, to be expensed at their fair value and supersedes APBOpinion No. 25 and SFAS No. 123 which allowed companies to use the intrinsicvalue method.  Currently, Cleco utilizes the intrinsic value method as describedin APB Opinion No. 25.  SFAS No. 123R also prohibits reversing previouslyrecognized stock-based compensation expense, if the forfeiture of theinstruments was due to the failure of a market-based performance measure.  Mostof Cleco's stock-based compensation contains market-based performance measures. On April 14, 2005, the SEC extended the effective date of this statement frominterim periods beginning after June 15, 2005, to the first fiscal yearbeginning after June 15, 2005.  For Cleco, the extension means that SFAS No.123R will be implemented effective January 1, 2006.  Cleco currently expects tochoose the modified prospective method of transition which requires a companyto prospectively recognize compensation expense calculated pursuant to SFAS No.123R for all non-vested stock-based compensation outstanding on the date ofadoption.  If future stock-based awards and assumptions are consistent with historicalawards and assumptions, Cleco expects to record pre-tax compensation expense ofapproximately $2.6 million annually upon adoption of SFAS No. 123R.  See Note 1- "Summary of Significant Accounting Policies - Stock-Based Compensation," foradditional information concerning Cleco's stock-based compensation.

On March 3, 2005, the FASB issuedFIN 46R-5 which provides a clarification to FIN 46R.  FIN 46R-5 provides that,when assessing the primary beneficiary of a variable interest entity, a companymust consider implicit variable interests along with explicit variableinterests.  An implicit variable interest is similar to an explicit interest,except the variability is indirectly absorbed or received, for instance througha third party, rather than directly from the variable interest entity.  FIN46R-5 is effective in the first reporting period beginning after March 3,2005.  The implementation of FIN 46R-5 had no effect on the financial conditionor results of operations of the Registrants.

On March 30, 2005, the FASB issued FIN 47 which isan interpretation of SFAS No. 143.  FIN 47 requires an asset retirementobligation which is conditional on a future event, to be recorded, even if theevent has not yet occurred.  The obligation to perform the asset retirement isunconditional even though uncertainty exists as to the timing and method of settlementdue to the existence of a conditional event.  This interpretation is effectivefor fiscal years ending after December 15, 2005.  Retrospective application forthe year 2005 interim periods is permitted but not required.  Additionalrecognition of the obligation caused by the adoption of FIN 47 will be recordedas a cumulative effect due to a change in accounting principle.  Clecocurrently is evaluating the impact of FIN 47.

On June 1, 2005, FASB issued SFAS No. 154 which describesthe reporting and disclosures of accounting changes and error corrections byreplacing APB Opinion No. 20 and SFAS No. 3.  A change from one accountingprinciple to another, unless otherwise stated in a specific accounting pronouncement,will require retrospective application.  Retrospective application will requireall periods presented to be restated as if the new principle had been in effectduring 

27

the respective time period and reflect a cumulative effect adjustment tothe opening balance of the appropriate balance sheet account for prior periodswhich are not presented.  Changes in accounting estimates should be accountedfor in the period of change and subsequent periods affected by the change. Errors in financial statements of a prior period shall be reported asprior-period adjustments.  SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005;therefore, management is unable to estimate the impact this statement will haveon the financial condition or results of operations of the Registrants.

On June 29, 2005, FASB ratified the consensus inEITF No. 05-6 which specifies the amortization period of leasehold improvements. EITF No. 05-6 states that leasehold improvements should be amortized over thelesser of (i) the leasehold improvements' useful life or (ii) a period that reflectsrenewals that are reasonably assured upon acquisition of the leaseholdimprovements.  This EITF is effective on a prospective basis for leaseholdimprovements acquired in periods beginning after June 29, 2005 therefore,management is unable to estimate the impact this EITF will have on thefinancial condition or results of operations of the Registrants.

**Note 7 - Accrual of Electric Customer Credits**

Cleco's reported earnings for the three and six monthsended June 30, 2005, and 2004, reflect accruals of $0.3 million, $0.5 million,$19.1 million, and $19.8 million, respectively, within Cleco Power for electriccustomer credits that are expected to be required under terms of an earningsreview settlement reached with the LPSC in 1996.  The amounts recorded in 2004also include the accrual of credits relating to Cleco Power's 2001-2002 fuelaudit settlement.

The 1996 LPSC settlement, subsequent amendments,and an approved one-year extension, set Cleco Power's rates until September 30,2005.  The subsequent amendments and one-year extension have not changed theterms of the original 1996 settlement.  As part of the settlement, Cleco Poweris allowed to retain all regulated earnings up to a 12.25% return on equity,and to share equally with customers, as credits on their bills, all regulated earningsbetween 12.25% and 13% return on equity.  All regulated earnings above a 13%return on equity are credited to customers.  This effectively allows ClecoPower the opportunity to realize a regulatory rate of return up to 12.625%.  Theamount of credits due customers, if any, is determined by the LPSC annuallybased on results for each 12-month period ended September 30.  The 1996 LPSC settlementprovides for such credits to be made on customers' bills the following summer.

Credits due to customers relating to ClecoPower's 2001-2002 fuel audit settlement were included on customer bills in thefirst quarter of 2005.  The LPSC has not yet issued its preliminary report forthe cycles ended September 30, 2002, 2003, or 2004, for which Cleco Power hasmade the requisite filings.  Cleco Power anticipates the completion of thereviews for the cycles ended September 30, 2002, 2003, and 2004 by the end of2005.

ClecoPower's Balance Sheets at June 30, 2005, and December 31, 2004, reflect thefollowing accruals for estimated customer credits relating to the 12-monthcycles ended September 30, 2002 through September 30, 2005.

**              AT JUNE 30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Provision for rate refund

**$         7,927**

   $            23,951

Other deferred credits

**           2,633**

                    1,962

     Total customer credits

**$       10,560**

   $            25,913

Thebalance at December 31, 2004, includes $16.0 million relating to the 2001-2002 fuelaudit settlement.  The $16.0 million was refunded to customers in the firstquarter of 2005.  Other amounts reported under the line item provision for raterefund relate to the 12-month cycles ended September 30, 2002, throughSeptember 30, 2004, and reflect amounts due currently.  The amounts reportedunder the line item other deferred credits are not currently due.

All customercredits relating to Cleco Power's rate stabilization plan were recorded as areduction in revenue due to the nature of the credits.  The accruals are based upon the original 1996 settlement, theresolution of the 2001-2002 fuel audit which was settled in 2004, annual issuesas agreed to between Cleco and the LPSC, and Cleco's assessment of issues thatremain outstanding.

As stated above, Cleco Power's current ratestabilization plan expires on September 30, 2005.  Cleco Power currentlyintends to seek a minimum one-year extension on its current rate stabilizationplan.  Cleco Power plans to file for an extension during the third quarter of2005.  If the current plan expires before an extension is granted by the LPSC,Cleco Power will continue to operate under its current rates until a substituterate filing can be prepared and approved.  The extension of the current ratestabilization plan, if granted, would allow Cleco Power additional time toevaluate different rate design options relating to its solid-fuel power plantconstruction proposal.  Management currently is unable to predict the LPSC's responseto the extension request or the length of any extension that might be grantedby the LPSC.

**Note 8 - Litigation and Other Commitments and Contingencies**

***Securities Litigation***

On November 22, 2002, a lawsuit was filed in theNinth Judicial District Court, Parish of Rapides, State of Louisiana, on behalfof a class of persons or entities who purchased Cleco Corporation's commonstock during a specified period of time, hereinafter referenced as the ClassPeriod.  Cleco Corporation refers to this lawsuit as the Securities Litigation. In the Securities Litigation, the plaintiff alleged that Cleco Corporation issueda number of materially false and misleading statements during the Class Period,among other purposes, in order to cause the price of Cleco Corporation's stockto rise artificially.  The plaintiff alleged that, during the Class Period, ClecoCorporation failed to disclose the existence of the round-trip trades thatCleco Corporation disclosed in its Quarterly Report on Form 10-Q for the quarterlyperiod ended September 30, 

28

2002.  The plaintiff also alleged that ClecoCorporation's financial information was not prepared in conformity with generallyaccepted accounting principles during the Class Period.  Cleco Corporation removedthe lawsuit to the United States District Court for the Western District ofLouisiana.  In May 2003, the lawsuit was dismissed without prejudice, allowingthe plaintiff to re-file the lawsuit subject to certain stipulations andrestrictions.  On November 12, 2003, the plaintiff again filed suit in theNinth Judicial District Court, Parish of Rapides, State of Louisiana.  ClecoCorporation again removed the suit to the United States District Court for theWestern District of Louisiana and moved that the suit be dismissed pursuant tofederal law.  On March 19, 2004, the United States District Court heard oralarguments on Cleco Corporation's Motion to Dismiss and the plaintiff's Motionto Remand.  On April 9, 2004, the court denied the plaintiff's Motion to Remandand granted Cleco Corporation's Motion to Dismiss, dismissing this matter withprejudice.  The plaintiff filed an appeal with the United States Fifth CircuitCourt of Appeals (the Appellate Court) on May 14, 2004.  On March 14, 2005, theAppellate Court affirmed the district court's dismissal of the lawsuit.  Theplaintiff has failed to file a timely appeal or rehearing request of theAppellate Court's ruling, and this matter therefore should be permanentlyresolved.

On April 18, 2003, a Shareholder's DerivativeComplaint was filed by a shareholder of Westar, in the United States DistrictCourt for the District of Kansas.  The defendants named in the complaint were Westar,its Board of Directors, its former Chief Executive Officer, President andChairman, and Cleco Corporation.  The complaint alleged violations of Section14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgatedthereunder, and, in addition, breaches of fiduciary duties owed to Westar,and/or for aiding and abetting such breaches.  The complaint asserted thatCleco Corporation aided and abetted the director defendants' breaches of fiduciaryduties by engaging in round-trip trades with Westar.  The complaint sought theaward of unspecified compensatory damages against the defendants and theplaintiff's costs and disbursements of the lawsuit.  The complaint was amended,but the claims against Cleco Corporation did not change substantively.  On May 31,2005, a settlement agreement was finalized between the parties.  The settlementagreement still requires approval by the federal district court, the hearing ofwhich is scheduled for September 1, 2005.  The settlement will not be finaluntil that hearing.  If approved in its current form, the final settlement isnot expected to have a material impact on Cleco's financial condition, resultsof operations, or cash flows, due to the fact that the settlement releasesCleco from any liability.

***Other Litigation***

On June 22, 2005, the City of Alexandria,Louisiana, a current municipal customer of Cleco Power and referred to in thisnote as (the City), filed a lawsuit against Cleco Corporation, Cleco Power andcertain subsidiaries alleging unspecified damages as a result of certain salesmade to the City, revenue derived by Cleco using the City's power generatingfacilities under contracts with the City, and other alleged improper conduct,including, without limitation, allegations that Cleco fraudulently mishandledthe management of the City's power requirements under the contracts.  Clecopreviously was in discussions with the City to perform an audit of these disputedtransactions; however, the City and Cleco could not agree on the process bywhich the audit would be conducted.  Management believes that the dispute willnot have a material adverse effect on the Registrants' financial condition,results of operations, or cash flows.

Cleco is involved in regulatory, environmental, andlegal proceedings before various courts, regulatory commissions, and governmentalagencies regarding matters arising in the ordinary course of business.  Some ofthese proceedings, such as fuel review and environmental issues, could involvesubstantial amounts.  In several lawsuits, Cleco has been named as a defendantby individuals who claim injury due to exposure to asbestos while working atsites in central Louisiana.  Most of the claimants were workers whoparticipated in the construction of various industrial facilities, includingpower plants, and some of the claimants have worked at locations owned byCleco.  Cleco's management regularly analyzes current information and, asnecessary, provides accruals for probable liabilities on the eventualdisposition of these matters.  Cleco's management believes that the dispositionof these matters will not have a material adverse effect on the Registrants'financial condition, results of operations, or cash flows.

***Off-Balance SheetCommitments***

Cleco Corporation and Cleco Power have enteredinto various off-balance sheet commitments, in the form of guarantees andstandby letters of credit, in order to facilitate their activities and theactivities of Cleco Corporation's subsidiaries and equity investees(affiliates).  Cleco Corporation entered into these off-balance sheetcommitments in order to entice desired counterparties to contract with itsaffiliates by providing some measure of credit assurance to the counterparty inthe event Cleco's affiliates do not fulfill certain contractual obligations.  IfCleco Corporation had not provided the off-balance sheet commitments, thedesired counterparties may not have contracted with Cleco's affiliates, or mayhave contracted with them at terms less favorable to its affiliates.

The off-balance sheet commitments are notrecognized on Cleco's Condensed Consolidated Balance Sheets because it has beendetermined that Cleco's affiliates are able to perform these obligations undertheir contracts and that it is not probable that payments by Cleco will berequired.  Some of these commitments reduce the amount of the credit facilityavailable to Cleco Corporation by an amount defined by the credit facility.  Thefollowing table shows the issuer of the off-balance sheet commitment and theaffiliate, if any, on whose behalf it was issued.  The table also shows theface amount of the commitment, applicable reductions, the resulting net amountof the commitment, and associated reductions in Cleco Corporation's ability todraw on its credit facility at June 30, 2005.  A discussion of the off-balancesheet commitments is detailed 

29

in the explanations following the table.  Thediscussion should be read in conjunction with the table to understand theimpact of the off-balance sheet commitments on Cleco's financial condition.
 
              AT JUNE 30, 2005

          REDUCTIONS TO THE

          AMOUNT AVAILABLE

               TO BE DRAWN ON

                 FACE

** **

                   NET

CLECO CORPORATION'S

(THOUSANDS)

      AMOUNT   

REDUCTIONS

            AMOUNT

               CREDIT FACILITY

Cleco Corporation guarantee issued to Entergy  companies for performance obligations of Perryville

**         $ 277,400**

** $  135,000**

**            $ 142,400**

**         $        328**

Cleco Corporation guarantees issued to purchasers  of the assets of Cleco Energy 

**                   1,400**

**             **

**                   1,400**

**                1,400**

Cleco Corporation obligations under standby  letter of credit issued to Evangeline Tolling Agreement counterparty

**                 15,000**

**             **

**                 15,000**

**              15,000**

Cleco Corporation guarantee issued to Central  Mississippi Generating Co. on behalf of Attala 

**                   6,688**

**             **

**                   6,688**

**                6,688**

Cleco Power obligations under standby letter of  credit issued to Louisiana Department of Labor

**                      525**

**             **

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 19,408**

**             **

**                 19,408**

**                        -**

     Total

**           $ 320,421**

** $  135,000**

**            $ 185,421**

**         $   23,416**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  As of June 30, 2005, the aggregate guaranteeof $277.4 million is limited to $142.4 million based on the following amountsand events:  (i) $42.4 million relating to the Power Purchase Agreement, otherancillary agreements, and certain pre-closing liabilities associated with theSale Agreement, and (ii) $100.0 million with respect to the Sale Agreementarising from Perryville's failure to pay, perform, or discharge the Senior LoanAgreement debt, Subordinated Loan Agreement debt and any other liabilitiesarising from the Senior Loan Agreement.  The $100.0 million portion of theguarantee was previously $235.0 million prior to the payment of the Senior LoanAgreement as referred to in Note 13 - "Perryville - Perryville Bankruptcy."  OnJune 30, 2005, Perryville paid all interest and principal owed under the SeniorLoan Agreement, and on July 19, 2005, it exercised offset rights against MAI tosatisfy its obligations of $98.7 million under the Subordinated Loan Agreement. As a result, it is unlikely that Cleco Corporation will have any other liabilitieswhich would give rise to indemnity claims against Perryville and trigger anyactual obligation under the $100.0 million portion of the guarantee.  The $0.3million reduction in the available credit was determined in accordance withCleco's credit facilities' definition of a contingent obligation.  Thecontingent obligation reduces the amount available under the credit agreementsby an amount equal to the reasonably anticipated liability in respect of the contingentobligation as determined in good faith if the total amount of indebtednessoutstanding, including such contingent obligations, exceeds certainthresholds.  This required an estimate of the probability, amount and timing ofa payment by Cleco pursuant to this guarantee.

Previously, if Perryville was unable to makeprincipal payments to its lenders, Cleco Corporation would be required to payup to $0.5 million on behalf of Perryville under a cash collateral order issuedby the Perryville and PEH Bankruptcy Court.  As of June 30, 2005, Perryvillehad paid the remaining outstanding amount of $131.0 million under its Senior LoanAgreement; accordingly, Cleco Corporation has no remaining obligation under the$0.5 million guarantee.  This guarantee will cease upon termination ofPerryville's cash collateral order.  For information on the cash collateralorder, bankruptcy filings of the Mirant Debtors, Perryville and PEH, and theirrelated impacts on the Senior Loan Agreement, see Note 13 - "Perryville."

In November 2004, Cleco completed the sale ofsubstantially all of the assets of Cleco Energy.  Cleco Corporation providedguarantees to the buyers of Cleco Energy's assets for the payment andperformance of the indemnity obligations of Cleco Energy.  The aggregate amountof the guarantees is $1.4 million.  The purchaser of Cleco Energy's assets hasinvoked its indemnification provisions pursuant to the purchase and saleagreement that Cleco guaranteed, as a result of a recently filed lawsuitagainst the purchaser and Cleco Energy (related to the price charged forcertain natural gas sales by Cleco Energy).  After an initial investigation,management believes this matter will not have a material impact on Cleco's financialcondition, results of operations, or cash flows.  For information on the sale ofCleco Energy's assets, see Note 14 - "Discontinued Operations and Dispositions."

If Evangeline fails to perform certain obligationsunder its tolling agreement, Cleco Corporation will be required to makepayments to the Evangeline Tolling Agreement counterparty.  Cleco Corporation'sobligation under the Evangeline commitment is in the form of a standby letterof credit from investment grade banks and is limited to $15.0 million.  Ratingstriggers do not exist in the Evangeline Tolling Agreement.  Cleco expectsEvangeline to be able to meet its obligations under the tolling agreement anddoes not expect Cleco Corporation to be required to make payments to thecounterparty.  However, under the covenants associated with Cleco Corporation'scredit facility, the entire net amount of the Evangeline commitment reduces theamount that can be borrowed under the credit facility.  The letter of creditfor Evangeline is expected to be renewed annually until 2020.

On March 16, 2005, Cleco Corporation issued aguarantee to Central Mississippi Generating Company, LLC for Attala'sobligations and liabilities under the purchase and sale agreement betweenCentral Mississippi Generating Company, LLC and Attala.  This agreementprovides for the acquisition by Attala of transmission assets, includingAttala's obligations to pay the purchase price for the assets and to indemnifythe seller.  The maximum amount payable under the guarantee is $6.7 million(subject to certain purchase price adjustments).

30

The State of Louisiana allows employers of certainfinancial net worth to self-insure their workers' compensation benefits. Inorder to self-insure, Cleco Power applied to the Louisiana Office of Workers'Compensation for a certificate of self-insurance.  The State of Louisianarequired Cleco Power to post a $0.5 million letter of credit as surety in anamount equal to 110 percent of the average losses over the previous threeyears.

As part of the Lignite Mining Agreement enteredinto in 2001, Cleco Power and SWEPCO, joint owners of Dolet Hills, have agreedto pay the lignite miner's loan and lease principal obligations when due, ifthe lignite miner does not have sufficient funds or credit to pay.  Any amountspaid on behalf of the miner would be credited by the lignite miner against thenext invoice for lignite delivered.  At June 30, 2005, Cleco Power's 50%exposure for this obligation was approximately $19.4 million.  The lignitemining contract is in place until 2011 and does not affect the amount ClecoCorporation can borrow under its credit facility.

The following table summarizes the expectedtermination date of the guarantees and standby letters of credit discussedabove:

                          AT JUNE 30, 2005

                                 AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

                   NET
     
MORE

            AMOUNTt

     LESS    THAN

             THAN

(THOUSANDS)

   COMMITTED

       ONE YEAR

      1-3 YEARS

      4-5 YEARS

      5 YEARS

Guarantees

   $ 169,896

   $      6,688

   $               -

   $      1,400

   $ 161,808

Standby letters of credit

        15,525

              525

                    -

                    -

        15,000

     Total commercial commitments

   $ 185,421

   $      7,213

   $               -

   $      1,400

   $ 176,808

***CES***

In a series of written notices commencing in May2004, CES notified APP that CES was invoking certain rights regarding disputeresolution under the Calpine Tolling Agreements between CES and APP.  CES requestedthat APP conduct a simultaneous capacity test of both Power Blocks of the APPelectric generation facility in the manner specified within the notices.  CES thennotified APP that it might withhold up to one-half of the monthly payments dueAPP under the Calpine Tolling Agreements and might take other action,including, without limitation, (i) unwinding Calpine's interest in APP, (ii)terminating the Calpine Tolling Agreements, (iii) asserting claims againstCleco Power for allegedly flawed interconnection studies, and/or (iv) seekingreimbursement for the alleged overpayment of capacity fees from August 2003. CES indicated that the dispute is primarily based upon transmission constraintsthat, according to allegations by CES, limit the ability of CES to deliverAPP's capacity and energy to the wholesale market.  

Under the Calpine Tolling Agreements, bindingarbitration is a means of resolving the dispute.  In letters dated April 12,2005, May 3, 2005, and June 8, 2005, CES informed APP that it intended toinitiate binding arbitration proceedings pursuant to the Calpine TollingAgreements, unless resolution of matters described in the letters could bereached.  The letters stated that CES intended to invoke arbitration under theCalpine Tolling Agreements due to the failure of meetings between seniorofficers of APP and CES to produce resolution of issues regarding transmissionconstraints that, according to CES's allegations, limit its ability to deliverAPP's capacity and energy to the wholesale market and impact reservation andfixed operations and maintenance payments under the Calpine TollingAgreements.  Under the Calpine Tolling Agreements, the arbitrator is to beselected by APP and CES.  As of the date of this filing, CES has not invokedarbitration.  If CES were to fail to perform its obligations under the CalpineTolling Agreements, it could have a material adverse impact on Cleco's resultsof operations, financial condition and cash flow.  In addition, APP may not beable to enter into agreements in replacement of the existing tolling agreementson terms as favorable as its existing agreements or at all.

As of the date of this report, APP and CES areengaged in advanced discussions to finalize the terms of a settlement relatedto the dispute referred to above.  APP expects to finalize the terms of thesettlement by mid-August 2005.

On March 8, 2005, APP received a letter from CES requestinga refund of approximately $2.3 million and claiming that natural gas meteringerrors caused errors in calculating the heat rate performance of APP's facilityfrom January 2003 through July 2004.  In June 2005, APP credited $1.3 millionto CES to settle the gas metering and heat rate calculation claims by CES.  Duringa review of detailed data on the gas metering and heat rate issue, a potentialelectric metering error in favor of APP was discovered.  Due to the potential electricmetering error, APP unknowingly generated excess power to their electricinterconnections.  APP has made a claim against Cleco Power for the delivery ofthe excess generation for which it has not received compensation.  Cleco Power currentlyis evaluating the claim and has not made a determination of any amounts due toAPP related to this matter.

***SESCO***

In October 2003, the Texas Commission on EnvironmentalQuality notified Cleco Power that it had been identified as a PRP for the SESCOfacility in San Angelo, Texas.  The facility operated as a transformerrepair and recycling facility from the 1930s until 2003, and both soil andgroundwater contamination exist at the site and in surrounding areas.  Based oninitial available information, Cleco Power accrued a minimal amount for itspotential liability for the site in November 2003.  The investigation ofSESCO's historical records is still ongoing.  Additional work is beingconducted by a group of PRPs, including Cleco Power, at the direction of theTexas Commission of Environmental Quality to maintain the site and to identify additionalPRPs.  It is likely that Cleco Power together with other PRPs will be requiredto contribute to the past and future cost of the investigation and remediationof the site.  The ultimate cost of remediation of the site, Cleco Power's shareof 

31

such cost, and the timing of any additional accrual that Cleco Power may berequired to make in connection with this matter cannot be estimated at thistime.  However, management believes that the outcome of the site remediationwill not have a material adverse impact on the Registrants' financial condition,results of operations, or cash flows.

***EPA***

In February 2005, Cleco Power received notices fromthe EPA requesting certain information relating to the Rodemacher and DoletHills Power Stations as authorized by Section 114 of the Clean Air Act.  Theapparent purpose of the investigation is to determine whether Cleco Power hascomplied with applicable New Source Review and New Source Performance Standardsrequirements under the Clean Air Act in connection with capital expenditures,modifications, or operational changes made at these facilities.  Cleco Powerhas completed its response to the initial data request.  It is unknown at thistime when the EPA will take further action, if any, as a result of the informationprovided by Cleco Power and if any such action would have a material adverseimpact on the Registrants' financial condition, results of operations, or cashflows.

***Other Contingencies***

On June 6, 2005, the Louisiana EnvironmentalAction Network and the Austin Civil War Roundtable filed a notice of intent tosue Dolet Hills Lignite Company.  Dolet Hills Lignite Company is a wholly ownedsubsidiary of SWEPCO and operates the mine which supplies the lignite used inthe Dolet Hills Power plant, which is 50% owned by Cleco Power.  The two groupsclaim that Dolet Hills Lignite Company is violating certain sections of theClean Water Act.  Dolet Hills Lignite Company has sixty days to resolve theclaim.  If an agreement is not reached in sixty days, then the group can file alawsuit.  Cleco cannot determine at this time if a lawsuit will be filed.

The capacity and energy contract between ClecoPower and Williams stipulates that Cleco Power must provide additional securityin the event of certain Cleco Power ratings triggers.  These Cleco Powertriggers include: ratings downgrade below investment grade, negative creditwatch for possible downgrade below investment grade, failure to make requiredpayments, and failure to maintain a certain debt-to-equity ratio.  The amountof the additional security required to be provided by Cleco Power to Williamsin the event of a Cleco Power ratings trigger is $5.0 million under thiscontract.  The capacity and energy contract between Cleco Power and Williams expireson December 31, 2005.

Cleco has accrued for liabilities to third parties,employee medical benefits, storm damages, and deductibles under insurancepolicies that it maintains on major properties, primarily generation stationsand transmission substations.

Consistent with regulatory treatment, annualcharges to operating expenses to provide a reserve for future storm damages arebased upon the average amount of noncapital, uninsured storm damagesexperienced by Cleco Power during the previous six years.

***Risks andUncertainties***

**Cleco**

Cleco Corporation could be subject to possibleadverse consequences if any of Cleco's remaining counterparties fail to performtheir obligation under their respective tolling agreements or if ClecoCorporation or its affiliates are not in compliance with loan agreements orbond indentures.  Cleco's remaining tolling counterparties are Williams andCES.  The following list is not all-inclusive, but represents examples ofpossible adverse consequences resulting from the nonperformance of Cleco's TollingAgreement counterparties and certain defaults resulting from noncompliance withdebt covenant agreements or bond indentures:
-  Cleco's financial condition and results of operations may beadversely affected by the tolling counterparties' failure to pay amounts due toCleco and may not be consistent with historical and projected results.
-  Cleco may not be able to enter into agreements in replacement ofits existing tolling agreements on terms as favorable as its existing agreementsor at all.
-  Cleco would be required to test any long-lived generation assetfor impairment.  If Cleco determined that an impairment existed, the assetwould be written down to its fair market value, which could materially adverselyaffect Cleco's results of operations and financial condition.
-  Possible acceleration of Cleco's project-level debt, inparticular under provisions of the bonds issued by Evangeline, the bondholdershave the right to demand the entire outstanding principal amount ($194.8million at June 30, 2005) and interest to be immediately due and payable upon adefault under the Evangeline Tolling Agreement.  As of June 30, 2005, Cleco wasnot aware of any such default by Williams.  If the bondholders were to exercisethis right, Evangeline might, among other things, refinance the bonds, pay offthe bonds with other borrowings or the proceeds of issuances of additionaldebt, or cause Evangeline to seek protection under federal bankruptcy laws.  Inaddition, the trustee of the bonds could foreclose on the mortgage and assumeownership of the plant.  Any alternative financing would likely be on lessfavorable terms than the existing terms.  The bonds issued by Evangeline arenonrecourse to Cleco Corporation.

Financing for operationalneeds and construction requirements is dependent upon the cost and availabilityof external funds from capital markets and financial institutions.  Access to fundsis dependent upon factors such as general economic conditions, regulatoryauthorizations and policies, Cleco Corporation's credit rating, the creditrating of Cleco Corporation's subsidiaries, the cash flows from routineoperations and the credit ratings of project counterparties.  If ClecoCorporation's credit rating were to be downgraded by Moody's or by Standard & Poor's, Cleco Corporation would be required to pay additionalfees and higher interest rates under its bank credit and other debt agreements.

32

**Cleco Power**

Cleco Power supplies a portion of its customers'electric power requirements from its own generation facilities.  In addition topower obtained from power purchase agreements, Cleco Power purchases power fromother utilities and marketers to supplement its generation at times ofrelatively high demand or when the purchase price of power is less than its owncost of generation.  Because of its location on the transmission grid, ClecoPower relies on one main supplier of electric transmission, and at times constraintslimit the amount of purchased power it can deliver into and/or through its system.

Financing for operational needs and constructionrequirements is dependent upon the cost and availability of external funds fromcapital markets and financial institutions.  Access to funds is dependent uponfactors such as general economic conditions, regulatory authorizations andpolicies, Cleco Corporation's credit rating, Cleco Power's credit rating, thecash flows from routine operations and the credit ratings of projectcounterparties.  If Cleco Power's credit rating were to be downgraded byMoody's or by Standard & Poor's, Cleco Power would be required to payadditional fees and higher interest rates under its bank credit and other debtagreements.

**Note 9 - Disclosures about Guarantees**

Cleco Corporation and Cleco Power have agreed tocontractual terms that require them to pay third parties if certain triggeringevents occur.  These contractual terms generally are defined as guarantees inFIN 45.  Guarantees issued or modified after December 31, 2002, that fallwithin the initial recognition scope of FIN 45 are required to be recorded as aliability.  Outstanding guarantees that fall within the disclosure scope of FIN45 are required to be disclosed for all accounting periods ending afterDecember 15, 2002.

Guarantees and indemnifications were issued inconnection with the sale of the generation assets to Entergy Louisiana byPerryville.  These guarantees and indemnifications fall within the recognitionscope of FIN 45 because they relate to the past performance obligations of thedisposed assets and also contain provisions requiring payment for potential damages. The potential length of these liabilities range from a five-year life toindefinite.  Each indemnification and guarantee was assigned a probability and anestimate of potential damages.  The maximum aggregate potential damages underthe guarantees and indemnifications are $42.4 million (excluding maximum aggregatepotential damages of $100.0 million for discharge of project debt discussed inmore detail below).  On June 30, 2005, Perryville paid all interest andprincipal owed under the Senior Loan Agreement, and on July 19, 2005, itexercised offset rights against MAI to satisfy its obligations of $98.7 millionunder the Subordinated Loan Agreement.  As a result, it is unlikely that ClecoCorporation will have any other liabilities which would give rise to indemnityclaims against Perryville and trigger any actual obligation under the $100.0million portion of the guarantee.  The discounted probability-weightedliability under the guarantees and indemnifications as of June 30, 2005, was$0.3 million.  For additional information on the sale of the generation assetsof Perryville, see Note 13 - "Perryville."

Guarantees and indemnifications were issued inconnection with the asset sales of Cleco Energy's oil and gas properties andnatural gas pipelines.  These guarantees and indemnifications fall within therecognition scope of FIN 45, because they relate to the past performanceobligations of the disposed assets and also contain provisions requiring paymentfor potential damages.  The potential liabilities expire either after a two- orfive-year life.  Each indemnification and guarantee was assigned probabilitiesand estimates of potential damages.  The maximum aggregate potential paymentunder the guarantees and indemnifications is $1.2 million.  The discountedprobability-weighted liability under the guarantees and indemnifications as of June30, 2005, was $0.1 million.  The buyers of the Cleco Energy assets would be entitledto amounts under the guarantees and indemnifications due to breach or defaultof performance of Cleco Energy under their respective sale agreements.  ClecoCorporation has guaranteed Cleco Energy's indemnification obligations under thesale agreements.  Maximum potential payments under the Cleco Corporationguarantees are $1.4 million, but are not within the recognition scope of FIN45.  The purchaser of Cleco Energy's assets has invoked its indemnificationprovisions pursuant to the purchase and sale agreement that Cleco guaranteed,as a result of a recently filed lawsuit against the purchaser and Cleco Energy(related to the price charged for certain natural gas sales by Cleco Energy). After an initial investigation, management believes that this matter will nothave a material impact on Cleco's financial condition, results of operations,or cash flows.  For additional information on the sales of Cleco Energy assets,see Note 14 - "Discontinued Operations and Dispositions."

In its bylaws, Cleco Corporation has agreed toindemnify directors, officers, agents and employees who are made a party to apending or completed suit, arbitration, investigation, or other proceeding whethercivil, criminal, investigative or administrative if the basis of inclusionarises as the result of acts conducted in the discharge of their officialcapacity.  Cleco Corporation has purchased various insurance policies to reducethe risks associated with the indemnification.  In its Operating Agreement (OperatingAgreement of Cleco Power LLC, dated December 13, 2000, amended October 24,2003), Cleco Power provides for the same indemnifications as described abovewith respect to its managers, officers, agents and employees.

Cleco Corporation has issued guarantees and a letterof credit to support the activities of Perryville,Attala and Evangeline.  These commitments are not within the scope ofFIN 45, since these are guarantees ofperformance by wholly owned subsidiaries.  For information regardingthese commitments, see Note 8 - "Litigation and Other Commitments and Contingencies- Off-Balance Sheet Commitments."

 

33

For information on the Lignite Mining Agreemententered into by Cleco Power and SWEPCO, see Note 8 - "Litigation and OtherCommitments and Contingencies - Off-Balance Sheet Commitments."

Generally, neither Cleco Corporation nor ClecoPower has recourse that would enable them to recover amounts paid under the guarantees. The one exception is the insurance contracts associated with theindemnifications issued to directors, managers, officers, agents and employees. There are no assets held as collateral for third parties that either Cleco Corporationor Cleco Power could obtain and liquidate to recover amounts paid pursuant tothe guarantees.

**Note 10 - Debt**

***Cleco***

At June 30, 2005, Cleco's long-term debtoutstanding was $480.6 million, compared to $450.6 million at December 31,2004.  The $30.0 million increase was the result of $40.0 million in additionalborrowings by Cleco Power against its credit facility, classified as long-term. This amount was offset by the classification of $10.0 million of Cleco Power's6.95% medium-term notes, due on June 21, 2006, to long-term debt due within oneyear. 

At June 30, 2005, Cleco had long-term debt duewithin one year of $10.0 million, compared to $160.0 million at December 31,2004.  The $150.0 million decrease was the result of the repayment at maturity of$100.0 million of Cleco Corporation's 8.75% Senior Notes, due June 1, 2005, andthe repayment at maturity of $60.0 million of Cleco Power's Series X, 9.5%First Mortgage Bonds, due March 15, 2005, offset partially by theclassification of the $10.0 million of medium-term notes mentioned above.  The repaymentswere funded by available cash and new borrowings by Cleco Corporation and ClecoPower against their respective credit facilities.

At June 30, 2005, Cleco had $30.0 million ofshort-term debt outstanding.  At December 31, 2004, Cleco had no outstandingshort-term debt.  The $30.0 million increase was the result of additionalborrowings by Cleco Corporation against its credit facility.

Cash and cashequivalents available at June 30, 2005, were $14.4 million combined with $181.6million total facility capacity for total liquidity of $196.0 million.  Cashand cash equivalents at June 30, 2005, decreased $109.4 million, when comparedto December 31, 2004, due to the repayment of long-term debt, payment ofdividends, routine additions of property, plant and equipment, and routine workingcapital fluctuations.

As a result of the deconsolidation of Perryvilleand PEH, the assets and liabilities of Perryville and PEH no longer arereported in Cleco Corporation's consolidated results.  At June 30, 2005,Perryville had no short-term debt outstanding and had long-term debtoutstanding of $98.7 million in the form of the Subordinated Loan Agreement. For additional information on Perryville's Subordinated Loan Agreement, includingPerryville's election to set off the debt, see Note 13 - "Perryville - PerryvilleTolling Agreement Administrative Expense and Damage Claims."

Evangeline, also deconsolidated and no longerreported in Cleco Corporation's consolidated results, had no short-term debt outstandingat June 30, 2005.  Evangeline had $188.2 million and $191.8 million oflong-term debt outstanding at June 30, 2005, and December 31, 2004,respectively, in the form of 8.82% Senior Secured Bonds due in 2019.  Inaddition, Evangeline had $6.6 million and $6.0 million of long-term debt duewithin one year at June 30, 2005, and December 31, 2004, respectively, relatingto these bonds.  The bonds issued by Evangeline are non-recourse to Cleco Corporation.

***Cleco Power***

At June 30, 2005, Cleco Power's long-term debtoutstanding was $380.6 million, compared to $350.6 million at December 31,2004. The $30.0 million increase was the result of $40.0 million in additionalborrowings by Cleco Power against its credit facility, classified as long-term. This amount was offset by the classification of $10.0 million of Cleco Power's6.95% medium-term notes, due on June 21, 2006, to long-term debt due within oneyear. 

At June 30, 2005, Cleco Power had long-term debtdue within one year of $10.0 million, compared to $60.0 million at December 31,2004. The $50.0 million decrease was the result of the repayment at maturity of$60.0 million of Cleco Power's Series X, 9.5% First Mortgage Bonds, due March15, 2005, offset by the $10.0 million of medium-term notes mentioned above. Therepayment was funded by available cash and new borrowings by Cleco Poweragainst its credit facility.

At June 30, 2005, and December 31, 2004, ClecoPower had no short-term debt outstanding. 

On July 6, 2005, Cleco Power issued $50.0 million of4.95% unsecured notes due July 15, 2015. The net proceeds from this issuancewere used to repay amounts borrowed under Cleco Power's credit facility.

Cash and cash equivalents available at June 30, 2005,were $3.9 million, which when combined with $85.0 million remaining facilitycapacity totaled $88.9 million.  Cash and cash equivalents at June 30, 2005, decreased$50.2 million, when compared to December 31, 2004, due to the repayment oflong-term debt, dividends paid to Cleco Corporation, routine additions toproperty, plant and equipment, and routine working capital fluctuations.

***Credit Facilities***

Cleco has two separate revolving creditfacilities, one for Cleco Corporation and one for Cleco Power, totaling $275.0million.

On April 25, 2005, Cleco Corporation replaced itsthen existing $150.0 million, three-year credit facility with a $150.0 million,five-year facility.  This facility provides for working capital and otherneeds.  Cleco Corporation's borrowing costs under this facility are equal toLIBOR plus 0.875%, including facility fees.  Cleco Corporation's borrowingcosts under the prior facility were equal to LIBOR plus 1.225%, and theweighted average cost of borrowings was 3.795%.  At June 30, 2005, therewas $30.0 million of short-term debt outstanding under the facility, at aninterest rate of 3.795%. 

On April 25, 2005, Cleco Power replaced itsexisting $125.0 million, 364-day credit facility with a $125.0 million,five-year facility.  This facility provides for working capital and 

 

34

otherneeds.  Cleco Power's initial borrowing cost under this facility is equal toLIBOR plus 0.600%, including facility fees. Cleco Power's borrowing costs underthe prior facility were equal to LIBOR plus 1.0%, including facility fees. AtJune 30, 2005, there was $40.0 million in long-term debt outstanding under thisfacility at an interest rate of 5.4338%.

On May 10, 2005, Cleco renewed an uncommitted lineof credit.  The line of credit was increased from $5.0 million to $10.0 millionand is available to support Cleco's and Cleco Power's working capital needs.

***Interest Rate Swaps***

Cleco Corporation had two $50.0 millionfixed-to-floating interest rate swaps involving Cleco Corporation's 8.75%Senior Notes due June 1, 2005.  These interest rate swaps were entered into onFebruary 20, 2004, and May 3, 2004.  Under the swaps, the 8.75% fixed-rate onits Senior Notes was swapped for floating rate exposure based on the six-monthLIBOR on the last day of each calculation period, plus agreed upon spreads of6.615% and 6.03%, respectively, on the $50.0 million notional amountsassociated with each of the swaps.  A net settlement amount was paidsemi-annually on June 1 and December 1.  These interest rate swaps terminatedon June 1, 2005.  For the six months ended June 30, 2005, Cleco Corporation paidthe swap counterparty a net settlement amount of $0.6 million.

**Note 11 - Variable Interest Entities**

Cleco has adopted the provisions of FIN 46R on itsscheduled effective dates.  Through a review of contracts, equity interests andother contractual relationships, Cleco has determined that it is not theprimary beneficiary of Evangeline, which is considered a variable interestentity.

In accordance with FIN 46R, Cleco was required to deconsolidateEvangeline from its condensed consolidated financial statements and beginreporting its investment in Evangeline on the equity method of accounting.  Asa result, effective March 31, 2004, the assets and liabilities of Evangelineare no longer reported on Cleco Corporation's Condensed Consolidated BalanceSheets, but instead are represented by one line item corresponding to Cleco'sequity investment in Evangeline.  Effective April 1, 2004, Evangeline's resultsof operations are reported as equity income from investees on ClecoCorporation's Condensed Consolidated Statements of Income.

Since its inception, Cleco has had 100% ownershipand voting interest of Evangeline.  All of the capacity and output of the powerplant has been tolled to Williams which pays Evangeline certain fixed andvariable amounts.  At June 30, 2005, Evangeline had assets with a book value ofapproximately $263.7 million and liabilities of $257.7 million.  For the three andsix months ended June 30, 2005, Evangeline had operating revenue of $12.0million and $21.7 million, respectively and operating expenses (includingdepreciation) of $4.3 million and $8.1 million, respectively.  Cleco's currentassessment of its maximum exposure to loss at June 30, 2005, consists of itsequity investment of $62.3 million.

**Note 12 - Pension Plan and Employee Benefits**

Most employees are covered by a noncontributory,defined benefit pension plan.  Benefits under the plan reflect an employee'syears of service, age at retirement, and highest total average compensation forany consecutive five calendar years during the last 10 years of employment withCleco Corporation.  Cleco Corporation's policy is to base its contributions tothe employee pension plan upon actuarial computations utilizing the projectedunit credit method, subject to the Internal Revenue Service's full fundinglimitation.  No contributions to the pension plan were made for the six monthsended June 30, 2005.  Currently, a contribution required by funding regulationsis not expected during 2005.  A discretionary contribution may be made during2005; however, the decision to make a contribution and the amount, if any, hasnot been determined.  Cleco Power is considered the plan sponsor and SupportGroup is considered the plan administrator.

Cleco Corporation's retirees and their dependentsare eligible to receive medical, dental, vision, and life insurance benefits(other benefits).  Cleco Corporation recognizes the expected cost of thesebenefits during the periods in which the benefits are earned.

The components of net periodic pension and otherbenefit cost for the three and six months ended June 30, 2005, and 2004 are asfollows:

                      PENSION BENEFITS

                       OTHER BENEFITS

                                    FOR THE THREE MONTHS ENDED JUNE 30,

(thousands)

**             2005**

               2004

                 **2005**

             2004

Components of periodic benefit costs

** **

     Service cost

**            $    1,640**

** **

   $       1,598

** $     654**

   $         596

     Interest cost    

**    3,290**

** **

            3,218

**         594**

              589

     Expected return on plan assets

**(4,587)**

** **

          (4,356)

**             -**

                   -

     Amortization of transition obligation  (asset)

**            -**

** **

                   (9)

**             -**

                98

     Prior period service cost amortization

**        246**

** **

               246

**       (188)**

                   -

     Net loss amortization

**        221**

** **

                  68

**         304**

              191

     Net periodic benefit cost

**$     810**

** **

   $          765

** $  1,364**

   $     1,474

 

                      PENSION BENEFITS

                       OTHER BENEFITS

                                         FOR THE SIX MONTHS ENDED JUNE 30,

(thousands)

**             2005**

               2004

                 **2005**

             2004

Components of periodic benefit costs

** **

     Service cost

**            $    3,397**

** **

   $       3,197

** $  1,308**

   $     1,192

     Interest cost    

**    6,654**

** **

            6,437

**     1,189**

          1,179

     Expected return on plan assets

**(9,183)**

** **

          (8,713)

**             -**

                   -

     Amortization of transition obligation  (asset)

**            -**

** **

                (19)

**             -**

              195

     Prior period service cost amortization

**        493**

** **

               493

**       (378)**

                   -

     Net loss amortization

**        507**

** **

               135

**         608**

              383

     Net periodic benefit cost

**$  1,868**

** **

   $       1,530

** $  2,727**

   $     2,949

Since Cleco Power is the plan sponsor andthe related trust holds the assets, the prepaid benefit cost of the pensionplan is reflected at Cleco Power.  The liability of Cleco Corporation's othersubsidiaries is transferred, with a like amount of assets, to Cleco Powermonthly.  The expense of the pension 

 

35

plan related to Cleco Corporation's othersubsidiaries for the three and six months ended June 30, 2005, was $0.5 millionand $1.1 million, respectively.  The expense of the pension plan related toCleco Corporation's other subsidiaries for the three and six months ended June30, 2004, was $0.5 million and $1.0 million, respectively.

Cleco Corporation is the plan sponsor for the otherbenefits.  There are no assets set aside in a trust, and the liabilities arereported on the individual subsidiaries' financial statements.  The expenserelated to other benefits reflected on Cleco Power's statement of income forthe three and six months ended June 30, 2005, was $1.2 million and $2.3 million,respectively.  The expense related to other benefits reflected on Cleco Power'sstatement of income for the three and six months ended June 30, 2004, was $1.3million and $2.6 million, respectively.

Certain key executives and key managers are coveredby a SERP.  The SERP is a non-qualified, non-contributory, defined benefit pensionplan.  Benefits under the plan reflect an employee's years of service, age atretirement, and the sum of the highest base salary paid out of the last fivecalendar years and the average of the three highest bonuses paid during thelast 60 months prior to retirement, reduced by benefits received from any otherdefined benefit pension plan.  Cleco Corporation does not fund the SERPliability, but instead pays for current benefits out of the general fundsavailable.  Cleco Power has formed a Rabbi Trust designated as the beneficiaryfor life insurance policies issued on the SERP participants.  Proceeds from thelife insurance policies are expected to be used to pay SERP participants' lifeinsurance benefits, as well as future SERP payments.  However, since this is anon-qualified plan, the assets of the trust could be used to satisfy generalcreditors of Cleco Power in the event of insolvency.  No contributions to the SERPwere made during the six months ended June 30, 2005, and 2004.  Cleco Power isconsidered 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)

**                    2005**

                   2004

**                   2005**

                  2004

Components of periodic benefit costs

                     
          
 

Service cost

** $         380**

   $              210

** $        641**

   $              421

Interest cost

**            377**

                   325

**            695**

                   651

Prior period service cost amortization

**              13**

                      13

**              26**

                     26

Net loss amortization

**            217**

                   154

**            348**

                   307

Net periodic benefit cost

**  $         987**

   $              702

**  $     1,710**

   $          1,405

The SERP is a non-qualified plan, as defined by theEmployee Retirement Income Security Act of 1974.  The plan has no assets, and liabilitiesare reported on the individual subsidiaries' financial statements.  The expenserelated to the SERP reflected on Cleco Power's statements of income for thethree and six months ended June 30, 2005 was $0.3 million and $0.5 million,respectively.  The expense related to the SERP reflected on Cleco Power'sstatements of income for the three and six months ended June 30, 2004 was $0.2million and $0.4 million, respectively.  

Most employees are eligible to participate in a401(k) savings and investment plan.  Cleco Corporation makes matchingcontributions to 401(k) Plan participants by allocating shares of convertiblepreferred stock held by the ESOP.  Compensation expense related to the 401(k)Plan is based upon the value of shares of preferred stock allocated to ESOPparticipants and the amount of interest incurred by the ESOP, less dividends onunallocated shares held by the ESOP.  At June 30, 2005, and 2004, the ESOP hadallocated to employees 183,409 and 176,867 preferred shares, respectively.

The table below contains information about the401(k) Plan and the ESOP:

    FOR THE THREE    MONTHS ENDED JUNE 30,

(thousands)

**                       2005**

                       2004

401(k) Plan expense

**      $      553**

          $           205

Dividend requirements to ESOP on convertible  preferred stock

**      $      451**

          $           800

Interest incurred by ESOP on its indebtedness

**      $        41**

          $             84

Company contributions to ESOP

**      $           -**

          $                -

 

           FOR THE SIX MONTHS ENDED JUNE 30,

(thousands)

**                       2005**

                       2004

401(k) Plan expense

**      $      755**

          $           350

Dividend requirements to ESOP on convertible  preferred stock

**      $      935**

          $        1,324

Interest incurred by ESOP on its indebtedness

**      $        85**

          $           172

Company contributions to ESOP

**      $           -**

          $                -

Cleco Power is the plan sponsor for the401(k) Plan.  The expense of the 401(k) plan related to Cleco Corporation'sother subsidiaries for the three and six months ended June 30, 2005, was $0.1million and $0.2 million, respectively.  The expense of the 401(k) plan relatedto Cleco Corporation's other subsidiaries for the three and six months endedJune 30, 2004, was less than $0.1 million and $0.1 million, respectively. 

The expenserelated to the dividend requirements of the ESOP on convertible preferred stockis reflected on Cleco Corporation's income statement for the three and sixmonths ended June 30, 2005 and 2004. 

**Note 13 - Perryville**

***Background***

Perryville owned and operated a 718-MW naturalgas-fired power plant near Perryville, Louisiana.  The Perryville facilityconsisted of approximately 562 MW of combined-cycle capacity and approximately156 MW of peaking capacity.  In July 2001, Perryville began operating under thePerryville Tolling Agreement, a 21-year capacity and energy sale agreement foruse of Perryville's entire capacity, with MAEM, a subsidiary of Mirant.  Underthe terms of the Perryville Tolling Agreement, MAEM had the right to supplynatural gas to fuel the Perryville facility, and it was exclusively entitled toall of the capacity and energy output from the facility.  Perryville wasobligated to provide energy conversion services, within 

36

specified performanceparameters, when requested by MAEM.  The agreement required MAEM to payPerryville various capacity reservation and fixed operations and maintenancefees, the amounts of which depended upon the type of capacity and ultimateperformance achieved by the facility.  In addition to the capacity reservationand fixed operating and maintenance payments from MAEM, Perryville was entitledto collect and MAEM was obligated to pay amounts associated with variableoperating and maintenance expenses based on MAEM's dispatch of the facilityunder the Perryville Tolling Agreement.  Payments received from MAEM under thePerryville Tolling Agreement were Perryville's only source of revenue.  Mirantand MAI provided limited guarantees that supported MAEM's obligations under thePerryville Tolling Agreement.

***Mirant Bankruptcy and MAEM's Rejection of thePerryville Tolling Agreement***

On July 14, 2003, the Mirant Debtors filed forprotection under Chapter 11 of the U.S. Bankruptcy Code in the Mirant DebtorsBankruptcy Court.  The Perryville Tolling Agreement was rejected pursuant tosection 365 of the U.S. Bankruptcy Code as of September 15, 2003, in accordancewith a motion by the Mirant Debtors that was granted by the Mirant Debtors BankruptcyCourt.  Upon the rejection of the Perryville Tolling Agreement, MAEM's rightsand obligations under such agreement were terminated.

***Perryville TollingAgreement Administrative Expense and Damage Claims***

Perryville asserted an administrative expenseclaim against MAEM arising out of post-petition services performed by Perryvilleunder the Perryville Tolling Agreement prior to its rejection.  In addition,Perryville filed damage claims against MAEM due to the rejection of the PerryvilleTolling Agreement and against Mirant and MAI under their respective limitedguarantees.  The Mirant Debtors filed various objections to Perryville'sclaims.  The parties participated in mediation and engaged in extensivediscovery.  On May 27, 2005, Perryville and PEH and the Mirant Debtors executeda settlement agreement (the Mirant Settlement Agreement) resolving Perryville'sclaims against the Mirant Debtors, as well as MAI's $98.7 million claimsagainst Perryville and PEH related to the Subordinated Loan Agreement (the MAIClaim).  The Mirant Settlement Agreement was approved by the Perryville and PEHBankruptcy Court on June 24, 2005, and by the Mirant Debtors Bankruptcy Courton June 28, 2005.  The Mirant Settlement Agreement became effective on July 8,2005.

Subject to the terms and conditions therein, theMirant Settlement Agreement provides that Perryville's claims in Mirant'sbankruptcy cases are allowed in the amount of $207.0 million.  On July 19,2005, this amount was reduced, pursuant to the Mirant Settlement Agreement, to$108.3 million when Perryville elected to offset its $98.7 million claim (theSubordinated Debt Claim) against MAI with MAI's $98.7 million claim against Perryville. Under the terms of the Mirant Settlement Agreement, if the plan ofreorganization currently on file in Mirant's bankruptcy cases is confirmed,Perryville will receive its pro rata share of substantially all of the sharesof New Mirant Common Stock to be issued under such plan.  The Mirant SettlementAgreement also provides that Perryville may sell its allowed claims of $108.3million against MAEM and Mirant to a third party.  

Perryville has agreed, subject to the execution ofdefinitive documentation, to sell such claims to various parties at approximately76.5% of the face amount of these claims.  The pre-tax net proceeds from thissale are expected to be approximately $81.0 million.  Perryville expects thesale of the claims to close in late-August 2005; however, no distribution canbe made to Cleco until Perryville confirms a plan of reorganization and emergesfrom bankruptcy. 

As a result of the Mirant Debtors' bankruptcy andMAEM's failure to make payments under the Perryville Tolling Agreement, allobligations of Perryville to make principal and interest payments under theSubordinated Loan Agreement, as well as the accrual of additional interest,were suspended.  On July 19, 2005, Perryville, consistent with the termsof the Mirant Settlement Agreement, elected to set off the MAI Claim againstthe Subordinated Debt Claim, thereby satisfying all of Perryville's obligationsof $98.7 million under the Subordinated Loan Agreement.

***Perryville Bankruptcy***

On January 28, 2004, to facilitate an orderlysales process, Perryville and PEH filed voluntary petitions in the Perryvilleand PEH Bankruptcy Court for protection under Chapter 11 of the U.S. BankruptcyCode.  Neither Cleco Corporation nor any of its other subsidiaries wereincluded in the filings.  Perryville and PEH are debtors and debtors inpossession and are continuing to operate their business under the U.S.Bankruptcy Code.  

Perryville and PEH have received approval from thePerryville and PEH Bankruptcy Court to extend their exclusive period for filinga plan of reorganization until October 17, 2005.  The period within which thedebtors may solicit acceptance of a plan of reorganization was extended toDecember 16, 2005.  Perryville and PEH expect to file a consolidated plan ofreorganization by the end of the third quarter of 2005.  No distributions maybe made to Cleco until such plan is confirmed by the Perryville and PEHBankruptcy Court.

On July 29, 2005, Perryville and PEH filed adisclosure statement for a joint plan of reorganization to the Perryville andPEH Bankruptcy Court.  A hearing by the Perryville and PEH Bankruptcy Court toapprove the disclosure statement is scheduled for August 30, 2005 and a hearingto approve the proposed plan of reorganization is scheduled for September 28,2005.

As a result of the bankruptcy filings of Perryvilleand PEH, the assets and liabilities of Perryville and PEH were deconsolidatedfrom Cleco with the Senior Loan Agreement classified as a pre-petition securedliability on Perryville's balance sheet.  Perryville's Senior Loan Agreement wasnonrecourse to Cleco Corporation other than a possible conditional guaranteedescribed below in "- Sale of the Perryville Facility."  For 

37

additionalinformation on the deconsolidation of Perryville, see "- Financial Results"below.  For information on the sale, see "- Sale of the Perryville Facility" below.

***Sale of the PerryvilleFacility***

On January 28, 2004, Perryville entered into theSale Agreement to sell its 718-MW power plant to Entergy Louisiana.  The SaleAgreement was approved by the Perryville and PEH Bankruptcy Court by ordersdated April 23, 2004, December 8, 2004 and June 24, 2005.  The sale wasconsummated on June 30, 2005, and Perryville received $162.0 million in cashproceeds.  The assets sold to Entergy Louisiana did not include Perryville'sclaims against the Mirant Debtors, transmission assets or any othercash-related assets of Perryville.  Perryville recorded a pre-tax gain on thesale of the generating assets of $10.1 million, as reflected in the "Financial Results"below.

On June 30, 2005, Perryville used $131.0 million ofthe proceeds from the sale of the generating assets to Entergy Louisiana torepay all principal and interest owed under the Senior Loan Agreement.  Onlyfees and expenses (of no more than $0.3 million at June 30, 2005) remain relatedto the Senior Loan Agreement.

Cleco Corporation provided a limited guarantee toEntergy Louisiana and Entergy Gulf States for Perryville's performanceobligations under the Sale Agreement, the Power Purchase Agreement, and otherancillary agreements related to the sale.  As of June 30, 2005, the aggregateguarantee of $277.4 million is limited to $142.4 million based on the followingamounts and events:  (i) $42.4 million relating to the Power PurchaseAgreement, other ancillary agreements, and certain pre-closing liabilities associatedwith the Sale Agreement, and (ii) $100.0 million with respect to the SaleAgreement arising from Perryville's failure to pay, perform, or discharge theSenior Loan Agreement debt, Subordinated Loan Agreement debt and any otherliabilities arising from the Senior Loan Agreement.  The $100.0 million portionof the guarantee was previously $235.0 million prior to the payment of theSenior Loan Agreement as referred to above in "- Perryville Bankruptcy."  OnJune 30, 2005, Perryville paid all interest and principal owed under the SeniorLoan Agreement, and on July 19, 2005, it exercised offset rights against MAI tosatisfy its obligations of $98.7 million under the Subordinated Loan Agreement. As a result, it is unlikely that Cleco Corporation will have any otherliabilities which would give rise to indemnity claims against Perryville andtrigger any actual obligation under the $100.0 million portion of theguarantee.

***Perryville Operations***

Perryville has retained ownership of itstransmission interconnection equipment, which had a net book value of $6.3 millionas of June 30, 2005.  The transmission assets, comprised primarily oftransformers and interconnection equipment, are expected to provide transmissionservice for Entergy Louisiana to interconnect and deliver the output of thePerryville generating assets to the Entergy transmission grid.  Perryville willprovide transmission and interconnection service to Entergy Louisiana under acost of service based tariff accepted for filing by the FERC, subject to hearingand refund by order issued on March 22, 2005.  On May 25, 2005, Perryville andEntergy Louisiana filed an offer of settlement to resolve all issues betweenthem and the FERC's trial staff with respect to Perryville's proposed change ofinterconnection service to Entergy Louisiana.  On June 3, 2005, the FERC trialstaff filed comments in support of the offer of settlement.  On June 13, 2005,the Administrative Law Judge certified the offer of settlement to the FERC asuncontested.  A settlement of this issue by the FERC is anticipated by thethird quarter of 2005.  

***Financial Results***

The financial results of Perryville and PEH areincluded in Cleco Corporation's condensed consolidated results through January27, 2004.  However, generally accepted accounting principles precludeconsolidation of majority-owned subsidiaries where control does not rest withthe majority owners.  Cleco is utilizing the cost method to account for itsinvestment in Perryville and PEH.  The cost method requires Cleco to presentthe net assets of Perryville and PEH at January 27, 2004, as an investmentand not recognize any income or loss from Perryville or PEH in ClecoCorporation's results of operations during the reorganization period.  As of June30, 2005, this investment had a negative cost basis of approximately $35.9million, which is included in other deferred credits on Cleco Corporation'sConsolidated Balance Sheet.  When Perryville's bankruptcy proceedings are concluded,the subsequent accounting treatment will be determined based upon the applicablefacts and circumstances existing at such time, including the terms of any planof reorganization.

The following tables contain the consolidated summarizedfinancial information for Perryville and PEH which has been prepared inconformity with SOP 90-7.  This statement requires a segregation of liabilitiessubject to compromise by the Perryville and PEH Bankruptcy Court as of thebankruptcy filing date and identification of all transactions and events thatare associated directly with the reorganization.  Liabilities subject to compromise include pre-petition unsecured claims, which may besettled at amounts which differ from those recorded in the Perryville and PEHconsolidated financial statements.

     FOR    THE THREE MONTHS ENDED JUNE 30,

(THOUSANDS)

**                         2005**

** **

                      2004

Operating revenue

** $         5,008**

 $               4,408

Operating expenses

**            5,528**

                   4,287

Interest charges

**            2,873**

                   2,285

Gain on disposal of  generating assets

**          10,110**

                            -

Other income

**                  67**

                         36

Other expense

**                    3**

                         10

Federal and state  income tax expense (benefit)

**            2,609**

                     (821)

Net income (loss)

** $         4,172**

 $            (1,317)

38

**FOR THE SIX MONTHS    ENDED JUNE 30,**

FOR THE SIX MONTHS    ENDED JUNE 30,

(THOUSANDS)

**               2005**

** **

PRE-PETITION(1)

POST-PETITION(2)

             2004

Operating revenue

**$   9,788**

** **

   $           72

   $       6,682

 $      6,754

Operating expenses

**    10,738**

** **

          2,373

            6,972

          9,345

Interest charges

**      5,459**

** **

             458

            3,405

          3,863

Gain on disposal  of generating assets

**    10,110**

** **

                   -

                     -

                   -

Other income

**         127**

** **

                10

                  55

                65

Other expense

**             6**

** **

                  4

                  12

                16

Federal and state  income tax expense (benefit)

**      1,471**

** **

        (1,059)

          (1,402)

         (2,461)

Net income (loss)

**$   2,351**

** **

        (1,694)

          (2,250)

 $     (3,944)

(1)  January 1, 2004 -  January 27, 2004

(2)  January 28, 2004 -  June 30, 2004

 

**              AT JUNE 30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$       58,773**

   $            18,462

Accounts receivable-affiliate

**         21,774**

                 12,815

Property, plant and equipment, net

**           6,340**

               161,748

Other assets

**         11,285**

                 29,920

     Total assets

**$       98,172**

   $          222,945

Current liabilities

**$            427**

   $               2,052

Pre-petition secured liability

**                   -**

               127,552

Accounts payable-affiliate

**               749**

                       377

Liabilities subject to compromise    (1)

**       101,990**

               102,008

Deferred credits

**               339**

                          24

Long-term debt, net

**                   -**

                             -

Member's equity

**          (5,333)**

                  (9,068)

     Total liabilities and member's equity

**$       98,172**

   $          222,945

(1)  Liabilities subject to compromise consist of the  following:

               Unsecured debt

**$       98,650**

   $            98,650

               Accounts payable-affiliate

**               960**

                       960

               Accounts payable

**           1,435**

                    1,435

               Current deferred taxes

**               176**

                       208

               Long-term deferred taxes

**               769**

                       755

                        Total

**$     101,990**

   $          102,008

Cleco has assessed the liquidity positionof Perryville and PEH as a result of the bankruptcy filings and anticipatesthat Perryville can continue to fund its operating activities and capitalrequirements for the foreseeable future.  However, the ability of Perryville tocontinue as a going concern is dependent upon its ability to perform under its interconnectionagreement.  As a result of the bankruptcy filings and related events, there areno assurances that the carrying value of assets will be realized or that liabilities will be liquidated or settled forthe amounts recorded.

Perryville and PEHroutinely engage in affiliate transactions with other entities within Cleco inthe ordinary course of business.  As a result of its bankruptcy filings,Perryville and PEH are precluded from paying dividends to equity holders andmaking payments on any pre-bankruptcy filing accounts or notes payable that aredue and owing to any other entity within Cleco (pre-petition accounts payable-affiliate,which was $1.0 million as of June 30, 2005) and other creditors during thependency of the bankruptcy case.

**Note 14 - Discontinued Operations and Dispositions**

***Cleco Energy***

Management formed two disposal groups comprised ofthe assets of Cleco Energy and worked to find buyers for those assets through asolicitation process.  One disposal group consisted of the natural gas pipelineand marketing operations of Cleco Energy.  The second disposal group consistedof the oil and gas production properties of Cleco Energy.  After reviewing thepreliminary bids received in June 2004, management committed to a plan to sellthe two disposal groups. 

On September 15, 2004, Cleco Energy completed thesale of the second disposal group for a gross sales price of $0.8 million(subject to certain adjustments).  On November 16, 2004, Cleco Energy completedthe sale of its first disposal group consisting of the natural gas pipeline andmarketing operations for a gross sales price of $9.1 million (subject to certainadjustments).  

For information on guarantees entered into relatedto the sale of the disposal groups, see Note 8 - "Litigation and OtherCommitments and Contingencies - Off-Balance Sheet Commitments."

The following table summarizes the operating resultsand settlement adjustments that have been classified as discontinued operationson Cleco Corporation's Consolidated Statements of Income and are reported inthe Midstream segment in Note 3 - "Disclosures About Segments."  Prior period resultshave been reclassified from income from continuing operations to discontinued operations.

FOR THE THREE MONTHS ENDED    JUNE 30,

   FOR THE SIX MONTHS ENDED    JUNE 30,

(THOUSANDS)

**                    2005**

                   2004

**                   2005**

                  2004

Operating revenue, net

**  $             -**

   $        14,694

**  $             -**

   $        32,677

Pre-tax loss

**           (108)**

                  (427)

**           (307)**

                 (146)

Federal and state income tax benefit

**             (36)**

                  (139)

**           (102)**

                    (16)

Loss from discontinued operations, net of tax    

**  $        (72)**

   $          (288)

**  $     (205)**

   $          (130)

**Note 15 - Income Taxes**

Cleco Corporation's effective income tax rate forthe three months ended June 30, 2005 was 37.7% compared to 41.5% for the same periodin 2004.  Cleco Power's effective income tax rate for the three months endedJune 30, 2005 was 38.4% compared to 40.2% for the same period in 2004.  The decreasesin the effective income tax rates are mainly due to recognition of thequalified production activities tax deduction in 2005 under The American JobsCreation Act of 2004 and a non-taxable death benefit related to company-ownedlife insurance proceeds.  Also contributing to the lower rates for the secondquarter is the flow through of reduced state income tax expense from amendedreturns for Cleco Power and an adjustment of state tax reserves due to the settlementof tax litigation.  Tax rates also were affected by the relative size of pre-taxincome to these items.

39

Cleco Corporation's effective income tax rate forthe first six months of 2005 was 38.0% compared to 35.3% for the same period in2004.  Cleco Power's effective income tax rate for the first six months of 2005was 38.3% compared to 36.5% for the same period in 2004.  The increases in theeffective income tax rates are mainly due to a favorable return to provisionadjustment in 2004 that did not occur in 2005 and a 2005 increase in theaccrual of tax contingency reserves.  Tax rates also were affected by therelative size of pre-tax income to these items.  

**Note 16 - Deferred Fuel and Purchased Power Costs**

The cost of fuel usedfor electric generation and the cost of power purchased for utility customersare recovered through the LPSC-established fuel adjustment clause which enablesCleco Power to pass on to its customers substantially all such charges.  Approximately94% of Cleco Power's total fuel cost is regulated by the LPSC, while theremainder is regulated by the FERC.  Deferred fuel and purchased power costs recordedat June 30, 2005, and December 31, 2004, were under-recoveries of $32.0 millionand $14.0 million, respectively, and are scheduled to be collected fromcustomers in future months.  Under-recovery of fuel and purchased power costsin the summer months are typical.  Increased fuel and purchased power costs dueto additional seasonal demand are generally recovered from customers insubsequent months.  The $14.0 million under-recovered amount reported at December31, 2004, included favorable surcharge adjustments representing fuel costs notcollected in prior periods and the reversal of gas transportation chargesrecorded in 2002 as a result of the settlement of Cleco Power's 2001-2002 fuelaudit.  The $18.0 million increase in deferred fuel and purchased power costsfor the six-month period ended June 30, 2005, was primarily the result of highernatural gas and purchased power costs.

**Note 17 - Affiliate Transactions**

Cleco has affiliate balances that were noteliminated as of June 30, 2005.  The balances were not eliminated due to thedeconsolidation of Evangeline and Perryville.  For information on thesedeconsolidations, see Note 1 - "Summary of Significant Accounting Policies -Principles of Consolidation."  At June 30, 2005, Cleco Corporation had anaffiliate payable to Evangeline of $1.6 million and a payable to Perryville of$6.0 million.  These amounts represent the balances over 30 days old andbearing interest.

**Note 18 - Franchise**

Cleco Power's franchise with the town ofFranklinton, and its approximately 1,850 customers, was up for renewal in April2003.  Franklinton voted not to renew its franchise agreement with Cleco Power,electing to take service from another provider.  As a result, a ten-year franchisewas granted to a competing cooperative in December 2003.  On February 23, 2005,the LPSC reviewed an independent third party appraisal of these assets andordered that the distribution system's fair market value was $2.3 million.  OnMay 26, 2005, Cleco Power completed the sale and transferred service to thecooperative.  Cleco Power received $2.3 million from the sale and recorded again of $1.9 million on the disposition of these distribution assets.  The gainis included in the gain on sales of assets line on the income statements.

40

**ITEM 2.**    MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should beread in combination with the Registrants' Combined Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004, and Cleco Corporation's and ClecoPower's Unaudited Condensed Financial Statements contained in this Form 10-Q.  Theinformation included therein is essential to understanding the followingdiscussion and analysis.  Below is information concerning the consolidatedresults of operations of Cleco for the three and six months ended June 30, 2005,and June 30, 2004.

**RESULTS OF OPERATIONS**

***Overview***

Cleco is a regional energy services holdingcompany that conducts substantially all of its business operations through itstwo principal operating business segments:
-  Cleco Power, an integrated electric utility services subsidiaryregulated by the LPSC and the FERC, among other regulators, which also engagesin energy management activities, and
-  Midstream, a merchant energy subsidiary that owns and operatesmerchant generation stations, invests in joint ventures that own and operatemerchant generation stations, and owns and operates transmission interconnectionfacilities.

While Cleco Power has always been Cleco'score business and primary source of revenue, Cleco began to expand its merchantenergy business in the late 1990s.  As a result of a perceived near-termsurplus of generating capacity, Cleco re-evaluated its merchant energy businessstrategy, scaled back the expansion of this business and has focused on maximizingthe value of its existing merchant energy assets.  Cleco has made substantialprogress on these efforts and in January 2004 signed an agreement to sell thePerryville facility.  To facilitate an orderly sales process, Perryville andPEH filed voluntary petitions for bankruptcy protection in January 2004.  As aresult of these bankruptcy filings, Perryville and PEH were prospectivelydeconsolidated from Cleco.  On June 30, 2005, Cleco completed the sale of thePerryville facility.  For additional information on Perryville, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 13 - Perryville."

While management believes thatCleco remains a fundamentally strong company, Cleco continues to face the followingnear-term challenges: 
-  resolving Cleco Power's long-term capacity needs, 
-  extending Cleco Power's rate stabilization plan, 
-  assessing ongoing credit condition of APP and Evangeline Tolling Agreementcounterparties, and
-  resolving the ongoing dispute with CES under the Calpine TollingAgreements.

In June 2005, Cleco Power madepreliminary selections from its long-term and short-term RFPs.  Cleco Power plansto construct a solid-fuel power plant and negotiate two power purchaseagreements with third party suppliers.  However, Cleco Power continues toevaluate a range of generation supply options for 2006 and beyond.  As such,Cleco has begun to update its IRP to look at future sources of supply alongwith transmission projects.  Possible sources of supply could include long-termpower purchases, acquisition of additional generation facilities, self-buildproposals, and reconfiguration of certain of its existing generationfacilities.  Cleco Power may not be able to obtain purchased power or generationfacilities on terms comparable to those in its current power purchaseagreements.  In addition, recovery of any additional amounts it may pay undernew power purchase agreements, in obtaining new generation facilities, in reconfiguringexisting generation facilities or otherwise as a result of the expiration ofits existing power purchase agreements would require LPSC approval.  Suchadditional amounts could be substantial.  For additional information on ClecoPower's IRP process and its preliminary selections from its RFPs, see "-Financial Condition - Regulatory Matters - Generation RFP."

Cleco Power currently intends to seek a minimumone-year extension on its current rate stabilization plan, which otherwise wouldexpire on September 30, 2005.  Cleco Power plans to file for an extensionduring the third quarter of 2005.  If the current plan expires before anextension is granted by the LPSC, Cleco Power will continue to operate underits current rates until a substitute rate filing can be prepared and approved. The extension of the current rate stabilization plan, if granted, would allowCleco Power additional time to evaluate different rate design options relatingto its solid-fuel power plant construction proposal.  Management currently isunable to predict the LPSC's response to the extension request or the length ofany extension that might be granted by the LPSC.

Cleco's merchantenergy business is heavily dependent on the performance of the APP andEvangeline tolling agreements.  The credit ratings of the parent companies ofthe tolling agreement counterparties, The Williams Companies, Inc. and Calpine,which provide guarantees of their affiliates' performance obligations, arebelow investment grade.  Failure of the counterparties to perform under their respectivetolling agreements likely would have a material adverse impact on Cleco'sfinancial condition, results of operations, and cash flows.

 

41

Since May 2004, CES has made various allegations regardingthe Calpine Tolling Agreements and notified APP that it might, among otherthings, withhold up to one-half of monthly payments due, unwind its interest inAPP, terminate the Calpine Tolling Agreements, assert specified claims againstCleco Power or seek specified reimbursements for alleged overpayments.  Inletters dated April 12, 2005, May 3, 2005, and June 8, 2005, CES informed APPthat it intended to initiate binding arbitration proceedings against APP underthe Calpine Tolling Agreements.  For additional information on the ongoingdispute with CES under the Calpine Tolling Agreements and amounts paid by APPto CES related to gas metering and heat rate calculation errors, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 8 - Litigationand Other Commitments and Contingencies - CES."

***Deconsolidation ofEvangeline***

In accordance with FIN 46R, Cleco was required todeconsolidate Evangeline from its condensed consolidated financial statementsand begin reporting its investment in Evangeline on the equity method ofaccounting.  As a result, effective March 31, 2004, the assets and liabilitiesof Evangeline no longer are reported on Cleco Corporation's Condensed ConsolidatedBalance Sheet, but instead are represented by one line item corresponding toCleco's equity investment in Evangeline.  Effective April 1, 2004, Evangelinerevenue and expenses are netted and reported as equity income from investees onCleco Corporation's Condensed Consolidated Statements of Income.  Foradditional information on FIN 46R and the deconsolidation of Evangeline, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 5 -Equity Investment in Investees" and Note 11 - "Variable Interest Entities."

***DiscontinuedOperations and Dispositions***

In June 2004, management decided to sellsubstantially all of Cleco Energy's assets and discontinue Cleco Energy'snatural gas marketing, pipeline, and production operations after the sale.  OnSeptember 15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  Prior to the sale of Cleco Energy's assets,and in accordance with SFAS No. 144, the property, plant and equipment of ClecoEnergy were classified as held for sale on Cleco Corporation's ConsolidatedBalance Sheet, and the related operations were classified as discontinued onCleco Corporation's Consolidated Statements of Income.  For additionalinformation on SFAS No. 144 and the discontinued operations and sale of ClecoEnergy's assets, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 14 - Discontinued Operations and Dispositions."

***Comparison of the Three Months Ended June 30, 2005and 2004***

**Cleco Consolidated**

** **

                   FOR THE THREE MONTHS ENDED JUNE  30,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

             CHANGE

Operating revenue, net

**$ 194,108**

   $ 166,322

   $    27,786

      16.71 %

Operating expenses

**163,182**

      148,333

       (14,849)

    (10.01)%

Operating income 

**$   30,926**

   $   17,989

   $     12,937

      71.92 %

Interest income

**$         884**

   $     2,031

   $    (1,147)

    (56.47)%

Equity income from investees

**$   11,044**

   $     9,094

   $       1,950

      21.44 %

Net income applicable to common stock

**$   20,179**

   $   10,121

   $    10,058

      99.38 %

Consolidated net income applicableto common stock increased $10.1 million, or 99.4%, in the second quarter of 2005compared to the second quarter of 2004 primarily due to increased earnings fromCleco Power.  Also contributing to the increase were lower corporate legal andconsulting fees associated with Cleco Power's 2001-2002 fuel audit.

Operating revenue increased $27.8million, or 16.7%, in the second quarter of 2005 compared to the same period of2004 largely as a result of the absence in 2005 of the effects of thesettlement of Cleco Power's 2001-2002 fuel audit.  Also contributing to theincrease in operating revenue was higher fuel cost recovery revenue at ClecoPower.

Operating expenses increased $14.8million, or 10.0%, in the second quarter of 2005 compared to the second quarterof 2004 primarily due to increased cost and volumes of power purchased forutility customers and higher maintenance expense at Cleco Power.  Partiallyoffsetting these increases was the sale of certain distribution assets at ClecoPower.

Interest income decreased $1.1million, or 56.5%, in the second quarter of 2005 compared to the same period of2004 primarily due to lower interest income at Cleco Power.

Equity income from investeesincreased $2.0 million, or 21.4%, in the second quarter of 2005 compared to thesame period of 2004 due to increased equity earnings at APH and Evangeline. 

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

**Cleco Power**

Cleco Power's net income applicable to member'sequity in the second quarter of 2005 increased $7.4 million, or 75.0%, comparedto the second quarter of 2004.  Contributing factors include:
-  lower customer refund credits,
-  lower capacity payments, and
-  gain on the sale of certain distribution assets. 

These werepartially offset by:
-  lower base revenue,
-  higher maintenance expense, and
-  lower interest income.

42

                     FOR THE THREE MONTHS ENDED JUNE  30,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

              CHANGE

Operating revenue

     Base

** $ 82,653**

   $   84,799

   $    (2,146)

        (2.53)%

     Fuel cost recovery

** 101,228**

        91,493

           9,735

        10.64 %

     Electric customer credits

**       (253)**

       (19,111)

        18,858

        98.68 %

     Other operations

**     8,034**

           6,931

           1,103

        15.91 %

     Affiliate revenue

**            8**

                   8

                    -

                      *

     Intercompany revenue

**        488**

              450

                 38

          8.44 %

          Operating revenue, net

** 192,158**

      164,570

        27,588

        16.76 %

Operating expenses

     Fuel used for electric generation -  recoverable

**   13,249**

        19,053

           5,804

        30.46 %

     Power purchased for utility customers -  recoverable

**   87,745**

        65,596

       (22,149)

      (33.77)%

     Non-recoverable fuel and power  purchased

**     5,232**

           6,853

           1,621

        23.65 %

     Other operations

**   19,003**

        19,330

              327

          1.69 %

     Maintenance

**   12,804**

        10,020

         (2,784)

      (27.78)%

     Depreciation

**   14,662**

        14,111

             (551)

        (3.90)%

     Taxes other than income taxes

**     8,659**

           9,256

              597

          6.45 %

     Gain on sales of assets

**    (2,201)**

                    -

           2,201

                      *

               Total operating expenses

**  159,153**

      144,219

       (14,934)

      (10.36)%

Operating income

** $ 33,005**

   $    20,351

   $    12,654

        62.18 %

Interest income

** $       532**

   $      1,942

   $    (1,410)

      (72.61)%

Federal and state income taxes

** $ 10,783**

   $      6,658

   $    (4,125)

      (61.96)%

Net income 

** $ 17,324**

   $      9,897

   $      7,427

        75.04 %

*    Not meaningful

 

                      FOR THE    THREE MONTHS  ENDED JUNE 30,

(Million kWh)

**              2005**

              2004

         FAVORABLE/    (UNFAVORABLE)

Electric sales

     Residential

**        751**

              767

             (2.09)%

     Commercial

**        437**

              449

             (2.67)%

     Industrial

**        705**

              761

             (7.36)%

     Other retail

**        143**

              143

               0.00 %

     Unbilled

**        224**

              131

             70.99 %

               Total retail

**     2,260**

           2,251

               0.40 %

     Sales for resale

**        264**

              176

             50.00 %

Total retail and wholesale customer sales

**     2,524**

           2,427

               4.00 %

Short-term sales to other utilities and energy  marketers

**          19**

                 42

           (54.76)%

               Total electric sales

**     2,543**

           2,469

               3.00 %

 

                      FOR THE    THREE MONTHS  ENDED JUNE 30,

(thousands)

**              2005**

              2004

         FAVORABLE/        (UNFAVORABLE)

Electric sales

     Residential

** $ 35,025**

   $   36,167

             (3.16)%

     Commercial

**   17,021**

        17,213

             (1.12)%

     Industrial

**   13,325**

        14,569

             (8.54)%

     Other retail

**     5,686**

           5,678

               0.14 %

     Unbilled

**     7,486**

           4,358

             71.78 %

               Total retail

**   78,543**

        77,985

               0.72 %

     Sales for resale

**     4,110**

           6,814

           (39.68)%

Total retail and wholesale customer sales

**   82,653**

        84,799

             (2.53)%

Short-term sales to other utilities and energy  marketers

**        821**

           1,037

           (20.83)%

               Total electric sales

** $ 83,474**

   $   85,836

             (2.75)%

Cleco Power's residential customers'demand for electricity largely is affected by weather.  Weather generally is measuredin cooling degree-days and heating degree-days.  A cooling degree-day is anindication of the likelihood that a consumer will use air conditioning, while aheating degree-day is an indication of the likelihood that a consumer will useheating.  An increase in heating degree-days does not produce the same increasein revenue as an increase in cooling degree-days, because alternative heatingsources are more available.  Normal heating degree-days and cooling degree-daysare calculated for a month by separately calculating the average actual heatingand cooling degree-days for that month over a period of 30 years.

The following chart shows howcooling degree-days varied from normal conditions and from the prior period.  ClecoPower uses temperature data collected by the National Oceanic and AtmosphericAdministration to determine cooling degree-days.

      FOR THE THREE MONTHS ENDED JUNE 30,

**                      2005**

                       2004

**Cooling degree-days**

     Increase (decrease) from normal

**           7.57 %**

                  (0.82)%

     Increase (decrease) from prior year

**           5.57 %**

                  (8.51)%

***Base***

Base revenue during the second quarter of 2005 decreased$2.1 million, or 2.5%, compared to the same period in 2004.  The decrease wasprimarily due to the absence in 2005 of favorable fuel surcharge adjustmentsthat were included in the Fuel Adjustment Clause Report filed by Cleco Power inJune 2004 and the May 2004 expiration of a contract with a municipal customer. Partially offsetting these decreases were higher volumes of retail andwholesale customer kWh sales, primarily from unusually warm weather and highersales to two municipal customers.

In September 2004, Cleco Power executed a newwholesale agreement to begin providing load-following service to a newwholesale customer by committing generation to follow the moment-by-momentchanges in the wholesale customer's load.  The service is dependent upon thecustomer reserving firm transmission.  This customer increased base revenue inthe second quarter of 2005 by $0.2 million and is projected to increase total 2005base revenue by approximately $0.7 million.

In June 2004, Cleco Power began serving a newindustrial customer.  Additionally, during the first quarter of 2005 ClecoPower began providing service to an expansion of a current customer'soperation, as well as service to two new industrial customers.  During thethird quarter of 2005, Cleco Power is expected to begin providing service toanother new industrial customer.  The expansion and new services increased baserevenue in the second quarter of 2005 by $0.2 million and are projected toincrease total 2005 base revenue by approximately $1.2 million and future annualbase revenue, contingent upon contract retention, by approximately $2.8 million.

During the first quarter of 2006, Cleco Power isexpected to begin providing services to sell fixed-priced power to a new

 

43

wholesale municipal customer.  As a result of the fixed-price contract, the newcustomer is expected to potentially decrease 2006, 2007, and 2008 base revenue. However, future base revenue, contingent upon contract retention, for years2009 through 2012 is expected to increase.

During the second quarter of 2006, Cleco Poweris expected to begin providing service to an expansion of an existing customer,as well as service to another new industrial customer.  The expansion and thenew customer are expected to increase 2006 base revenue by approximately $0.6 millionand future annual base revenue, contingent upon contract retention, by $1.2 million.

Cleco Power's commercial and industrialcustomers' demand for electricity is affected less by the weather and primarilyis dependent upon the strength of the economy and by the worldwide demand forthe customers' products compared to their ability to produce the productseconomically.  Three of Cleco Power's customers who manufacture wood products,such as newsprint, cardboard, corrugated packaging, and kraft paper areexperiencing a downturn in their markets.  Cleco Power expects decreased baserevenue from these customers, which currently contribute $19.8 million to ClecoPower's base revenue annually, as a result of the downturn.

***Fuel Cost Recovery***

Fuel cost recovery revenue billed to customersduring the second quarter of 2005 compared to the same period in 2004 increased$9.7 million, or 10.6%, primarily due to higher costs of power purchased andfuel used for electric generation.  In addition, higher volumes of purchasedpower also increased fuel cost recovery revenue.  Higher volumes of purchasedpower were a result of generating station planned outages during 2005.  Alsocontributing to the increase was the absence in 2005 of a 2004 reversal ofestimates recorded in conjunction with issues covered by Cleco Power's2001-2002 fuel audit settlement.  Changes in fuel costs historically have notsignificantly affected Cleco Power's net income.  Generally, fuel and purchasedpower expenses are recovered through the LPSC-established fuel adjustmentclause, which enables Cleco Power to pass on to its customers substantially allsuch charges.  Approximately 94% of Cleco Power's total fuel cost is regulatedby the LPSC, while the remainder is regulated by the FERC.  Recovery of fuel adjustmentclause costs is subject to refund until monthly approval is received from theLPSC; however, all amounts are subject to a periodic fuel audit by the LPSC.  Afuel audit is required to be performed not less than every other year.  ClecoPower anticipates the next fuel audit to cover 2003 and 2004; however, anyfuture audit could include prior periods with the exception of January 2001through December 2002, which were periods covered in Cleco Power's 2001-2002 fuelaudit.

***Electric Customer Credits***

Electric customer credits during the secondquarter of 2005 decreased $18.9 million, or 98.7%, compared to the same periodin 2004.  This decrease in electric customer credits is primarily due to theabsence in 2005 of a $16.0 million accrual made in June 2004 related to ClecoPower's 2001-2002 fuel audit, a $1.7 million accrual made in June 2004 relatedto a surcharge adjustment that was included in the Fuel Adjustment Clausereport filed by Cleco Power in June 2004, and $1.2 million of lower accrualsfor the current rate stabilization plan filing period.  The potential refundsassociated with the rate stabilization plan are based on results for each 12-monthperiod ended September 30.  For additional information on the accrual ofelectric customer credits, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 7 - Accrual of Electric Customer Credits."

***Other Operations***

Other operations revenue increased $1.1 million,or 15.9%, in the second quarter of 2005 compared to the second quarter of 2004primarily due to an increase of $0.4 million of transmission revenue, $0.3million of customer fees, $0.3 million of timber sales, and $0.1 million of SO2 emission allowance proceeds.

***Operating Expenses***

Operating expenses increased $14.9 million, or 10.4%,in the second quarter of 2005 compared to the same period of 2004.  Fuel usedfor electric generation decreased $5.8 million, or 30.5%, primarily as a resultof lower volumes of fuel used for electric generation.  These decreases involumes were largely the result of generating station planned outages duringthe second quarter of 2005.  Also contributing to this decrease were theabsences in 2005 of a 2004 reversal of fuel expenses related to gastransportation charges recorded as a result of Cleco Power's 2001-2002 fuelaudit and favorable surcharge adjustments that were included in the Fuel AdjustmentClause Report filed by Cleco Power in June 2004.  Power purchased for utilitycustomers increased $22.1 million, or 33.8%, largely due to higher cost and volumesof purchased power.  These increases in volumes were largely a result ofgenerating station planned outages during 2005.  Fuel used for electric generationand power purchased for utility customers generally are influenced by naturalgas prices.  However, other factors such as unscheduled outages, unusualmaintenance or repairs, or other developments may affect fuel used for electricgeneration and power purchased for utility customers.  Non-recoverable fuel andpower purchased decreased $1.6 million, or 23.7%, primarily due to lowercapacity payments made during 2005.  Other operations expense decreased $0.3 million,or 1.7%, primarily due to the absence in 2005 of $1.9 million of legal feesassociated with the fuel audit and $0.8 million of adjustments related togenerating facility joint billing costs from prior years.  Partially offsettingthese decreases in other operations expense was $2.0 million of higherincentive compensation and payroll expense, $0.2 million of higher property andliability insurance costs, and $0.2 million in higher professional fees.  Maintenanceexpenses during the second quarter of 2005 increased $2.8 million, or 27.8%,compared to the same period of 2004 primarily due to additional generatingstation and transmission substation maintenance work performed during thesecond quarter of 2005.  Gain on sales of 

 

44

assets increased $2.2 million duringthe second quarter of 2005 compared to the second quarter of 2004 largely as aresult of the sale of distribution assets resulting from the town ofFranklinton's election not to renew its franchise agreement with Cleco Power. For additional information, see "- Financial Condition - Regulatory Matters -Franchises."

On July 6, 2005, Cleco Power received a letterfrom Union Pacific Corporation (Union Pacific) notifying it that a force majeureevent requiring maintenance on Union Pacific's rail lines is expected to resultin a 15-20% reduction in the amount of contracted deliveries of Powder RiverBasin coal to Cleco Power's Rodemacher coal generating facility from June 2005through November 2005.  As a result of this notification, and its potentialimpact on Cleco Power's current coal inventory levels and forecasted generationfor the duration of this delivery reduction, Cleco Power has initiated anevaluation of methods for minimizing any reduction in energy output due to reducedcoal deliveries by Union Pacific.  Although Cleco Power believes that it willbe able to minimize the adverse impact to its fuel and purchased power costs,the amount of generation capability supplied by the Rodemacher facility couldbe reduced thereby requiring Cleco Power to obtain additional power purchasesthrough other potentially higher cost generation resources in the market.  Atthis time, Cleco Power is unable to determine the impact of this delivery reductionand related events, if any, on its 2005 results of operations.

***Interest Income***

Interest incomedecreased $1.4 million, or 72.6%, in the second quarter of 2005 compared to thesecond quarter of 2004 primarily due to the absence in 2005 of additionalinterest recorded on under-recovered fuel costs that was included as surchargeadjustments in Cleco Power's Fuel Adjustment Clause Report filed in June 2004.

***Income Taxes***

Income tax expense increased $4.1 million, or 62.0%,during the second quarter of 2005 compared to the same period of 2004.  ClecoPower's effective income tax rate decreased from 40.2% to 38.4% during the secondquarter of 2005 compared to the same period of 2004, largely due to recognitionof the qualified production activities tax deduction in 2005 under The AmericanJobs Creation Act of 2004 and a non-taxable death benefit related to company-ownedlife insurance proceeds.  Also contributing to the lower rate for the secondquarter is the flow through of reduced state income tax expense from amendedreturns.  Tax rates also were affected by the relative size of pre-tax income tothese items.  Pre-tax income during the second quarter of 2005 increased $11.6million compared to the same period of 2004.

***Midstream***

Midstream's net income applicable to member'sequity for the second quarter of 2005 increased $1.0 million, or 38.4%, comparedto the second quarter of 2004.  Factors affecting Midstream during the secondquarter of 2005 are described below.

                                                   FOR THE THREE MONTHS ENDED JUNE 30,

              FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

        VARIANCE

                 CHANGE

Operating revenue

     Other operations

** $       28**

   $            27

   $              1

             3.70 %

     Affiliate revenue

**     1,523**

           1,321

              202

          15.29 %

          Operating revenue, net

**     1,551**

           1,348

              203

          15.06 %

Operating expenses

     Other operations

**     1,933**

    

           1,956

                 23

             1.18 %

     Maintenance

**        666**

               558

             (108)

        (19.35)%

     Depreciation

**          79**

                 81

                   2

             2.47 %

     Taxes other than income taxes

**          69**

                 66

                  (3)

           (4.55)%

               Total operating expenses

**     2,747**

           2,661

               (86)

           (3.23)%

Operating loss

** $ (1,196)**

   $     (1,313)

   $         117

             8.91 %

Equity income from investees

** $ 11,047**

   $        9,153

   $      1,894

          20.69 %

Interest charges

** $   3,752**

   $        2,957

   $      (795)

        (26.89)%

Federal and state income tax expense    

**  $   2,510**

   $        2,049

   $      (461)

        (22.50)%

Loss from discontinued operations    

**  $       (72)**

   $        (288)

   $         216

          75.00 %

Net income 

** $   3,512**

   $        2,538

   $         974

          38.38 %

***Equity Income fromInvestees***

Equity income from investees increased $1.9million, or 20.7%, in the second quarter of 2005 compared to the second quarterof 2004.  The increase was largely due to a $1.5 million increase from equityearnings at APH and a $0.4 million increase at Evangeline.  The increase inearnings at APH was primarily due to lower outage expenses and a highercapacity factor during the second quarter of 2005, partially offset by APP'sheat rate settlement with CES.  For additional information on Evangeline and APP,see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 5 -Equity Investment in Investees" and for additional information on APP's heat ratesettlement, see "Note 8 - Litigation and Other Commitments and Contingencies -CES."

***Interest Charges***

Interest charges increased $0.8 million, or 26.9%,during the second quarter of 2005 compared to the same period of 2004 primarilydue to higher interest rates at APH.

***Income Taxes***

Income tax expense increased $0.5 million, or 22.5%,during the second quarter of 2005 compared to the same period of 2004.  Midstream'seffective income tax rate decreased from 42.0% to 41.2% during the secondquarter of 2005 compared to the same period of 2004 primarily due torecognition of the qualified production activities tax deduction in 2005 underthe American Jobs Creation Act of 2004.  Tax rates also were affected by therelative size of pre-tax income to this item.  Pre-tax income during the secondquarter of 2005 increased $1.2 million compared to the same period of 2004.

 

45

***Comparison of the Six Months Ended June 30, 2005 and2004***

**Cleco Consolidated**

** **

                        FOR THE SIX  MONTHS ENDED JUNE  30,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

             CHANGE

Operating revenue, net

**$ 366,224**

   $ 332,971

   $   33,253

        9.99 %

Operating expenses

**319,484**

      287,872

       (31,612)

    (10.98)%

Operating income 

**$   46,740**

   $   45,099

   $     1,641

        3.64 %

Equity income from investees

**$   20,873**

   $   17,603

   $     3,270

      18.58 %

Interest charges

**$   22,455**

   $   28,444

   $     5,989

      21.06 %

Net income applicable to common stock

**$   29,145**

   $   23,218

   $     5,927

      25.53 %

Consolidated net income applicable tocommon stock increased $5.9 million, or 25.5%, in the first six months of 2005compared to the first six months of 2004 primarily due to increased earningsfrom Cleco Power and Midstream.  Also contributing to the increase were lowercorporate legal and consulting fees associated with Cleco Power's 2001-2002fuel audit.

Operating revenue increased $33.3million, or 10.0%, in the first six months of 2005 compared to the same periodof 2004 largely as a result of higher fuel cost recovery revenue at Cleco Powerand the absence in 2005 of the effects of the settlement of Cleco Power's2001-2002 fuel audit.  Partially offsetting these increases was the change inthe reporting of tolling operations revenue at Evangeline beginning in thesecond quarter of 2004 in accordance with FIN 46R.

Operating expenses increased $31.6million, or 11.0%, in the first six months of 2005 compared to the first sixmonths of 2004 primarily due to increased cost of fuel used for electricgeneration and power purchased for utility customers, increased volumes of fuelused for electric generation, and higher other operations and maintenanceexpenses at Cleco Power.  Partially offsetting these increases were the effectsof the deconsolidation of Evangeline from Cleco and the sale of certaindistribution assets at Cleco Power.

Equity income from investeesincreased $3.3 million, or 18.6%, in the first six months of 2005 compared tothe same period of 2004 primarily due to the change in reporting for Evangelineeffective April 1, 2004 in accordance with FIN 46R.  Also contributing to the increasewere higher equity earnings at APH and Evangeline.  

Interest charges decreased $6.0million, or 21.1%, compared to the first six months of 2004 primarily due tothe effects of the deconsolidation of Evangeline from Cleco's consolidated resultseffective April 1, 2004. 

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

**Cleco Power**

Cleco Power's net income applicable to member'sequity in the first six months of 2005 increased $3.0 million, or 13.8%,compared to the first six months of 2004.  Contributing factors include:
-  lower customer refund credits, 
-  higher other operations revenue,
-  lower capacity payments, and
-  gain on the sale of certain distribution assets. 

These werepartially offset by:
-  lower base revenue, 
-  net unfavorable fuel surcharge adjustments, 
-  higher other operations and maintenance expenses, 
-  higher depreciation expense, and
-  lower interest income.

                          FOR THE SIX MONTHS ENDED JUNE 30,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

              CHANGE

Operating revenue

     Base

**$ 149,444**

   $ 153,688

   $    (4,244)

        (2.76)%

     Fuel cost recovery

**197,268**

      171,983

        25,285

        14.70 %

     Electric customer credits

**       (471)**

       (19,833)

        19,362

        97.63 %

     Other operations

**   15,115**

        13,793

           1,322

          9.58 %

     Affiliate revenue

**          15**

                   8

                   7

        87.50 %

     Intercompany revenue

**        976**

              940

                 36

          3.83 %

          Operating revenue, net

**362,347**

      320,579

        41,768

        13.03 %

Operating expenses

     Fuel used for electric generation -  recoverable

**   61,350**

        48,690

       (12,660)

      (26.00)%

     Power purchased for utility customers -  recoverable

**133,859**

      116,443

       (17,416)

      (14.96)%

     Non-recoverable fuel and power  purchased

**   10,279**

        11,621

           1,342

        11.55 %

     Other operations

**   39,351**

        35,216

         (4,135)

      (11.74)%

     Maintenance

**   21,350**

        16,993

         (4,357)

      (25.64)%

     Depreciation

**   29,059**

        28,117

             (942)

        (3.35)%

     Taxes other than income taxes

**   18,242**

        18,472

              230

          1.25 %

     Gain on sales of assets

**    (2,206)**

                    -

         (2,206)

                      *

               Total operating expenses

**311,284**

      275,552

       (35,732)

      (12.97)%

Operating income

**$   51,063**

   $   45,027

   $       6,036

        13.41 %

Interest income

**$     1,144**

   $     2,200

   $    (1,056)

      (48.00)%

Federal and state income taxes

**$   15,456**

   $   12,594

   $    (2,862)

      (22.73)%

Net income 

**$   24,934**

   $   21,903

   $      3,031

        13.84 %

*    Not meaningful

 

                           FOR THE    SIX MONTHS  ENDED JUNE 30,

(Million kWh)

**              2005**

              2004

         FAVORABLE/    (UNFAVORABLE)

Electric sales

     Residential

**     1,541**

           1,589

             (3.02)%

     Commercial

**        843**

              855

             (1.40)%

     Industrial

**     1,386**

           1,421

             (2.46)%

     Other retail

**        279**

              276

               1.09 %

     Unbilled

**        131**

                 50

          162.00 %

               Total retail

**     4,180**

           4,191

             (0.26)%

     Sales for resale

**        385**

              363

               6.06 %

Total retail and wholesale customer sales

**     4,565**

           4,554

               0.24 %

Short-term sales to other utilities and energy  marketers

**          67**

                 78

           (14.10)%

               Total electric sales

**     4,632**

           4,632

               0.00 %

46

                           FOR THE    SIX  MONTHS  ENDED JUNE 30,

(thousands)

**  ****           2005**

              2004

         FAVORABLE/    (UNFAVORABLE)

Electric sales

     Residential

** $ 66,578**

   $   68,506

             (2.81)%

     Commercial

**   33,834**

        33,990

             (0.46)%

     Industrial

**   26,623**

        27,424

             (2.92)%

     Other retail

**   11,354**

        11,228

               1.12 %

     Unbilled

**     4,379**

           1,644

          166.36 %

               Total retail

** 142,768**

      142,792

             (0.02)%

     Sales for resale

**     6,676**

        10,896

           (38.73)%

Total retail and wholesale customer sales

** 149,444**

      153,688

             (2.76)%

Short-term sales to other utilities and energy  marketers

**     2,312**

           2,049

             12.84 %

               Total electric sales

** $  151,756**

   $ 155,737

             (2.56)%

The following chart shows how cooling andheating degree-days varied from normal conditions and from the prior period.  ClecoPower uses temperature data collected by the National Oceanic and AtmosphericAdministration to determine cooling and heating degree-days.

           FOR THE    SIX MONTHS ENDED JUNE 30,

**                      2005**

                       2004

**Cooling degree-days**

     Increase from normal

**           9.84 %**

                    2.91 %

     Increase (decrease) from prior year

**           5.79 %**

                  (1.39)%

**Heating degree-days**

     Decrease from normal

**       (28.97)%**

                  (7.22)%

     Decrease from prior year

**       (21.32)%**

               (20.16)%

***Base***

Base revenue during the first six months of 2005 decreased$4.2 million, or 2.8%, compared to the same period in 2004.  The decrease wasprimarily due to the absence in 2005 of favorable fuel surcharge adjustmentsthat were included in the Fuel Adjustment Clause Report filed by Cleco Power inJune 2004 and the May 2004 expiration of a contract with a municipal customer. Partially offsetting these decreases were higher sales to two municipalcustomers and warmer weather.  For information on the anticipated effects of changesin revenue from industrial and wholesale customers, see "- Comparison of theThree Months Ended June 30, 2005 and 2004 - Cleco Power - Base."

***Fuel Cost Recovery***

Fuel cost recovery revenue billed to customersduring the first six months of 2005 compared to the same period in 2004 increased$25.3 million, or 14.7%, primarily due to higher costs of power purchased andfuel used for electric generation.  In addition, higher volumes of fuel usedfor electric generation and favorable fuel surcharge adjustments from rateorders received related to fuel transportation charges during the first sixmonths of 2005 also increased fuel cost recovery revenue.  Also contributing tothe increase was the absence in 2005 of a 2004 reversal of estimates recordedin conjunction with issues covered by Cleco Power's 2001-2002 fuel auditsettlement.  For information on Cleco Power's ability to recover fuel and purchasepower costs, see "- Comparison of the Three Months Ended June 30, 2005 and 2004- Cleco Power - Fuel Cost Recovery."

***Electric CustomerCredits***

Electric customer credits during the first sixmonths of 2005 decreased $19.4 million, or 97.6%, compared to the same periodin 2004.  This decrease in electric customer credits is primarily due to theabsence in 2005 of a $16.0 million accrual made in June 2004 related to ClecoPower's 2001-2002 fuel audit, a $1.7 million accrual made in June 2004 relatedto a surcharge adjustment that was included in the Fuel Adjustment Clausereport filed by Cleco Power in June 2004, and $1.7 million of lower accrualsfor the current rate stabilization plan filing period.  The potential refundsassociated with the rate stabilization plan are based on results for each12-month period ended September 30.  For additional information on the accrual ofelectric customer credits, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 7 - Accrual of Electric Customer Credits."

***Other Operations***

Other operations revenue increased $1.3 million,or 9.6%, in the first six months of 2005 compared to the first six months of2004 primarily due to an increase of $0.5 million of transmission revenue, $0.4million of customer fees, $0.3 million of timber sales, and $0.1 million ofother miscellaneous revenue.

***Operating Expenses***

Operating expenses increased $35.7 million, or 13.0%,in the first six months of 2005 compared to the same period of 2004.  Fuel usedfor electric generation increased $12.7 million, or 26.0%, primarily as aresult of higher cost and volumes of fuel used for electric generation.  Alsocontributing to this increase were the absences in 2005 of a 2004 reversal offuel expenses related to gas transportation charges recorded as a result of ClecoPower's 2001-2002 fuel audit and favorable surcharge adjustments that wereincluded in the Fuel Adjustment Clause Report filed by Cleco Power in June2004.  Power purchased for utility customers increased $17.4 million, or 15.0%,largely due to increased costs of purchased power.  Fuel used for electricgeneration and power purchased for utility customers generally are influencedby natural gas prices.  However, other factors such as unscheduled outages,unusual maintenance or repairs, or other developments may affect fuel used for electricgeneration and power purchased for utility customers.  Non-recoverable fuel andpower purchased decreased $1.3 million, or 11.6%, primarily due to lower capacitypayments made during 2005.  Other operations expense increased $4.1 million, or11.7%, primarily due to $5.3 million of higher incentive compensation andpayroll expense, $0.5 million of higher property and liability insurance costs,and $0.9 million of higher pension and retirement benefit costs.  Partiallyoffsetting the increase in other operations expense was $2.3 million of legaland consulting fees incurred during 2004 associated with Cleco Power's2001-2002 fuel audit and $0.3 million of lower other miscellaneous expenses in2005.  Maintenance expenses during the first six months of 2005  

47

increased $4.4 million, or 25.6%, compared to the same period of 2004 primarilydue to additional generating station and transmission substation maintenancework performed during 2005.  Depreciation expense increased $0.9 million, or3.4%, as a result of normal recurring additions to fixed assets.  Gain on salesof assets increased $2.2 million during the first six months of 2005 comparedto the same period of 2004 largely as a result of the sale of distributionassets resulting from the town of Franklinton's election not to renew its franchiseagreement with Cleco Power.  For additional information, see "- FinancialCondition - Regulatory Matters - Franchises."  For information on potentialreduction of coal deliveries to Cleco Power during June 2005 through November2005, see "- Comparison of the Three Months Ended June 30, 2005 and 2004 -Cleco Power - Operating Expenses."

***Interest Income***

Interest income decreased $1.1 million, or 48.0%,during the first six months of 2005 compared to the same period of 2004primarily due to the absence in 2005 of additional interest recorded onunder-recovered fuel costs that was included as surcharge adjustments in ClecoPower's Fuel Adjustment Clause Report filed in June 2004.

***IncomeTaxes***

Income tax expense increased $2.9 million, or 22.7%,during the first six months of 2005 compared to the same period of 2004.  ClecoPower's effective income tax rate increased from 36.5% to 38.3% during thefirst six months of 2005 compared to the same period of 2004 largely due to afavorable return to provision adjustment in 2004 that did not occur in 2005 anda 2005 increase in the accrual of tax contingency reserves.  Tax rates alsowere affected by the relative size of pre-tax income to these items.  Pre-taxincome during the first six months of 2005 increased $5.9 million compared tothe same period of 2004.

***Midstream***

Midstream's net income applicable to member'sequity for the first six months of 2005 increased $1.4 million, or 28.0%,compared to the first six months of 2004.  Factors affecting Midstream duringthe first six months of 2005 are described below.

***Perryville***

The deconsolidation of Perryville and PEH fromCleco in connection with their bankruptcy filings affected Midstream's earningsfor the first six months of 2005 compared to the first six months of 2004,since no income or loss was recognized in Midstream's consolidated financialstatements subsequent to the bankruptcy filing on January 28, 2004. Consequently, the chart below does not reflect operating results for Perryvilleand PEH for the first six months of 2005 as compared to income through January27, 2004, for the first six months of 2004.  For financial results andadditional information on Perryville, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 13 - Perryville."

***Evangeline***

In accordance with FIN 46R, Cleco was required todeconsolidate Evangeline from its condensed consolidated financial statementsand begin reporting its investment in Evangeline on the equity method of accounting. As a result, effective March 31, 2004, the assets and liabilities of Evangelineno longer are reported on Cleco Corporation's Condensed Consolidated BalanceSheet, but instead are represented by one line item corresponding to Cleco'sequity investment in Evangeline.  Effective April 1, 2004, Evangeline revenueand expenses are netted and reported as equity income from investees on ClecoCorporation's Condensed Consolidated Statements of Income.  Consequently, the followingchart reflects net operating results for Evangeline for the first six months of2005 on the equity income from investees' line as compared to being reported onvarious line items for the first three months of 2004.  For additionalinformation on FIN 46R and the deconsolidation of Evangeline, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 1 - Summary ofSignificant Accounting Policies - Principles of Consolidation" and Note 11 -"Variable Interest Entities."

***Cleco Energy***

In June 2004, management decided to sellsubstantially all of Cleco Energy's assets and discontinue Cleco Energy'snatural gas marketing, pipeline, and production operations after the sale.  OnSeptember 15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  Prior to the sale of Cleco Energy's assetsand in accordance with SFAS No. 144, the property, plant and equipment of ClecoEnergy were classified as held for sale on Cleco Corporation's CondensedConsolidated Balance Sheet, and the related operations were classified as discontinuedon Cleco Corporation's Condensed Consolidated Statements of Income. Consequently, the net operating results for Cleco Energy for the first sixmonths of 2005 and the first six months of 2004 are reported as discontinuedoperations in the following chart.  For additional information on SFAS No. 144and the discontinued operations and sale of Cleco Energy's assets, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 14 - DiscontinuedOperations and Dispositions."

48

                                                        FOR THE SIX MONTHS ENDED JUNE 30,

              FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

        VARIANCE

                 CHANGE

Operating revenue

     Tolling operations

** $         -**

   $    10,255

   $  (10,255)

        100.00 %

     Other operations

**          40**

                 29

                 11

          37.93 %

     Affiliate revenue

**     3,016**

           1,788

           1,228

          68.68 %

     Intercompany revenue

**             -**

                 12

               (12)

      (100.00)%

          Operating revenue, net

**     3,056**

         12,084

         (9,028)

        (74.71)%

Operating expenses

     Purchases for energy operations

**            6**

               222

              216

          97.30 %

     Other operations

**     4,115**

    

           5,918

           1,803

          30.47 %

     Maintenance

**     1,337**

           2,086

              749

          35.91 %

     Depreciation

**        159**

           2,036

           1,877

          92.19 %

     Restructuring charge

**             -**

             (161)

              161

                        *

     Taxes other than income taxes

**        191**

               152

               (39)

        (25.66)%

               Total operating expenses

**     5,808**

         10,253

           4,445

          43.35 %

Operating (loss) income 

** $ (2,752)**

   $      1,831

   $    (4,583)

                        *

Equity income from investees

** $ 20,966**

   $    17,811

   $      3,155

          17.71 %

Interest charges

** $   7,233**

   $    11,190

   $      3,957

          35.36 %

Federal and state income tax expense    

**  $   4,500**

   $      3,454

   $    (1,046)

        (30.28)%

Loss from discontinued operations    

**  $   (205)**

   $      (130)

   $         (75)

        (57.69)%

Net income 

** $   6,268**

   $      4,896

   $      1,372

          28.02 %

*    Not meaningful

***Tolling Operations***

Tolling operations revenue decreased $10.3 million,or 100.0%, in the first six months of 2005 compared to the first six months of 2004. The decrease was due to a $10.2 million decrease as a result of Cleco'saccounting for Evangeline on the equity method in accordance with FIN 46R and a$0.1 million decrease as a result of the bankruptcy filings of the MirantDebtors, MAEM's rejection of the Perryville Tolling Agreement, the subsequentbankruptcy filings of Perryville and PEH, and their subsequent deconsolidationfrom Cleco's consolidated results.

***Affiliate Revenue***

Affiliate revenue increased $1.2 million, or 68.7%,in the first six months of 2005 compared to the first six months of 2004.  Theincrease was primarily due to affiliate transactions with Evangeline,Perryville, and PEH that no longer are eliminated as a result of those companies'deconsolidation from Cleco.

***Operating Expenses***

Operating expenses decreased $4.4 million, or 43.4%,in the first six months of 2005 compared to the same period of 2004.  Thedecrease was largely due to a $3.7 million decrease at Evangeline and a $2.2million decrease at Perryville and PEH as a result of their deconsolidationfrom Cleco's consolidated results.  These decreases were partially offset by $0.5million of higher incentive compensation benefits, $0.5 of higher professionalfees, and $0.5 million of higher other miscellaneous expenses.

***Equity Income fromInvestees***

Equity income from investees increased $3.2million, or 17.7%, for the first six months of 2005 compared to the first sixmonths of 2004.  The increase was largely due to a $2.0 million increase atEvangeline as a result of the change in reportingfor Evangeline effective April 1, 2004, in accordance with FIN 46R and a $1.2million increase in equity earnings at APH primarily due to fewer outagesduring 2005.  These increases were partially offset by APP's heat ratesettlement with CES.  For additional information on Evangeline and APP, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 5 -Equity Investment in Investees" and for additional information on APP's heat ratesettlement, see "Note 8 - Litigation and Other Commitments and Contingencies -CES."

***Interest Charges***

Interest charges decreased $4.0 million, or 35.4%,during the first six months of 2005 compared to the same period of 2004.  The decreasewas primarily due to a $4.4 million decrease at Evangeline and a $0.5 milliondecrease at Perryville and PEH as a result of their deconsolidation fromCleco's consolidated results.  This decrease was partially offset by a $0.9million increase at APH as a result of higher interest rates.

***Income Taxes***

Income tax expense increased $1.0 million, or 30.3%,during the first six months of 2005 compared to the same period of 2004.  Midstream'seffective income tax rate increased from 40.7% to 41.0% during the first sixmonths of 2005 compared to the same period of 2004 primarily due to a 2005increase in the accrual of tax contingency reserves.  Tax rates also wereaffected by the relative size of pre-tax income to these items.  Pre-tax incomeduring the first six months of 2005 increased $2.5 million compared to the sameperiod of 2004.

**FINANCIAL CONDITION**

**Liquidity and CapitalResources**

**General Considerations andCredit-Related Risks**

***Credit Ratings andCounterparties***

For a discussion of certain factors affectingCleco's financial condition relating to its credit ratings, the credit ratingsof its counterparties, and other credit-related risks, please read"Management's Discussion and Analysis of Financial Condition and Results ofOperations - Financial Condition - Liquidity and Capital Resources - GeneralConsiderations and Credit-Related Risks - Credit Ratings and Counterparties" inthe Registrants' Combined Annual Report on Form 10-K for the fiscal year endedDecember 31, 2004.

As more fully described in the Registrants'Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2004,with respect to any open power or gastrading positions that Cleco may initiate in the future, Cleco Corporation maybe required to provide credit support (or pay liquidated damages).  The amountCleco Corporation may be required to pay at any point in the future isdependent on changes in the market 

 

49

price of power and gas, the changes in theopen power and gas positions, and changes in the amount counterparties owe Cleco Corporation.  Changes in any of these factors could cause the amount ofrequested credit support to increase or decrease.

***Debt***

As discussed further below, Cleco Corporation andCleco Power entered into new credit facilities in April 2005.  If ClecoCorporation were to default under covenants in its credit facility, it would beunable to borrow additional funds under the credit facility.  If Cleco Corporation'scredit rating, as determined by outside rating agencies, were to be downgradedone level below investment grade, fees and interest under the facility wouldincrease by 0.375% from the current levels.  The same downgrade at Cleco Powerwould result in a 0.65% increase in fees and interest from current levels underits facility.  At June 30, 2005, Cleco Corporation and Cleco Power were incompliance with the covenants in their credit facilities.

***Cleco***

Short-term debt at Cleco increased $30.0 millionat June 30, 2005, compared to December 31, 2004, due to a $30.0 million draw onCleco Corporation's credit facility, which partially funded the maturity of $100.0million of long-term debt at Cleco Corporation.  Long-term debt at Cleco decreased$120.0 million at June 30, 2005, compared to December 31, 2004, due to the repaymentof $60.0 million of first mortgage bonds at maturity by Cleco Power and therepayment of $100.0 million of 8.75% senior notes at Cleco Corporation, offsetby $40.0 million in long-term debt issued by Cleco Power during the first sixmonths of 2005.  For additional information, see "- Cleco Corporation (HoldingCompany Level)," "- Cleco Power," and "- Midstream" below.

At June 30, 2005 and December 31, 2004, Clecohad a working capital surplus of $8.2 million and a working capital deficit of $49.9million, respectively.  The reversal in the deficit and the $8.2 millionsurplus during the first six months of 2005 was due to a decrease in currentliabilities of $143.5 million, partially offset by a decrease in current assetsof $85.0 million.  The decrease in current assets was largely due to a decreasein cash, which was used to reduce short-term debt, partially offset byincreases in accumulated deferred fuel, unbilled revenue, and accountsreceivable.  The decrease in current liabilities was primarily due to decreasesin short-term debt, which was reduced by cash and long-term debt funding, and adecrease in the rate refund provision.

Cash and cash equivalentsavailable at June 30, 2005, were $14.4 million combined with $181.6 million totalfacility capacity for total liquidity of $196.0 million.  Cash and cashequivalents decreased $109.4 million, when compared to December 31, 2004, dueto the repayment of long-term debt, payment of dividends, routine additions ofproperty, plant and equipment, and routine working capital fluctuations.

Cleco believes that its cash and cash equivalentson hand, together with cash generated from its operations, borrowings fromcredit facilities, and the net proceeds of any issuances under Cleco's shelfregistration statements, will be adequate to fund normal ongoing capitalexpenditures, working capital, and debt service requirements for theforeseeable future.

***ClecoCorporation (Holding Company Level)***

Cleco Corporation had $30.0 million short-termdebt outstanding at June 30, 2005 and none outstanding at December 31, 2004.  ClecoCorporation repaid $100.0 million of its 8.75% Senior Notes on June 1, 2005, withcash on hand and cash from new borrowings.  

On April 25, 2005, Cleco Corporation replacedits then existing $150.0 million, three-year credit facility with a $150.0million, five-year facility.  This facility provides for working capital andother needs.  Cleco Corporation's borrowing costs under this facility are equalto LIBOR plus 0.875%, including facility fees.  Cleco Corporation's borrowingcosts under the prior facility were equal to LIBOR plus 1.225%, and the weightedaverage cost of borrowings was 3.795%.  The facility contains a covenantgenerally limiting Cleco's aggregate secured and unsecured debt, includingborrowings under the facility, to $425.0 million, which may have the effect of reducingavailability under the facility in some circumstances.  As of June 30, 2005, the$150.0 million facility was reduced by $30.0 million short-term debt outstanding,as well as $23.4 million of off-balance sheet commitments, leaving approximately$96.6 million available for borrowing.  For more information about thesecommitments, see "- Off-Balance Sheet Commitments" below.  On May 10, 2005,Cleco renewed an uncommitted line of credit.  The line of credit was increasedfrom $5.0 million to $10.0 million and is available to support Cleco's workingcapital needs.  This line of credit is available to either Cleco Corporation orCleco Power.

Cash and cash equivalents available at June 30,2005, were $10.4 million, which combined with $96.6 million facility capacity,for total liquidity at Cleco Corporation of $107.0 million.  Cash and cashequivalents decreased $59.2 million, when compared to December 31, 2004,largely due to the repayment of the 8.75% senior notes.

If Cleco Power were to default under its creditfacility, Cleco Corporation would be considered in default under its current creditfacility.  However, the 8.82% Senior Secured Bonds due 2019 issued byEvangeline are non-recourse to Cleco Corporation, and a default on the bondswould not be considered a default under Cleco Corporation's credit facility.

Cleco Corporation provided a limited guaranteeof $142.4 million to Entergy Louisiana and Entergy Gulf States for Perryville'sperformance obligations under the Sale Agreement, the Power Purchase Agreement,and other ancillary agreements related to the sale of the Perryville facility. For information on these agreements and related guarantees, see Item 1, "Notesto the Unaudited Condensed Financial Statements - Note 13 - Perryville."

***ClecoPower***

There was no short-term debt outstanding at ClecoPower at June 30, 2005, or December 31, 2004.  Cleco Power repaid $60.0 millionof Series X, 9.5% First Mortgage Bonds, due 

50

March 15, 2005, with a combinationof accumulated funds and long-term debt.

On April 25, 2005, Cleco Power replaced itsexisting $125.0 million, 364-day credit facility with a $125.0 million, five-yearfacility.  This facility provides for working capital and other needs.  ClecoPower's initial borrowing cost under this facility is equal to LIBOR plus 0.600%,including facility fees.  At June 30, 2005, there was $40.0 million in long-termdebt outstanding under Cleco Power's $125.0 million, five-year facility.  ClecoPower's borrowing costs under the prior facility were equal to LIBOR plus 1.0%,including facility fees.  On May 10, 2005, Cleco renewed an uncommitted line ofcredit.  The line of credit was increased from $5.0 million to $10.0 millionand is available to support Cleco Power's working capital needs.  This line ofcredit is available to either Cleco Power or Cleco Corporation.

On July 6, 2005, Cleco Power issued $50.0million of 4.95% unsecured notes due July 15, 2015. The net proceeds from thisissuance were used to repay amounts borrowed under Cleco Power's creditfacility.

Cash and cash equivalents available at June 30, 2005,were $3.9 million, which when combined with $85.0 million remaining facilitycapacity totaled $88.9 million.  Cash and cash equivalents decreased $50.2million, when compared to December 31, 2004, due to the repayment of long-termdebt, dividends paid to Cleco Corporation, routine additions to property, plantand equipment, and routine working capital fluctuations.

***Midstream***

There was no short-term debt at Midstream at June30, 2005, or December 31, 2004.  

As a result of the deconsolidation of Perryvilleand PEH, the assets and liabilities of Perryville and PEH no longer arereported in Cleco Corporation's consolidated results.  At June 30, 2005,Perryville had no short-term debt outstanding and long-term debt outstanding of$98.7 million in the form of the Subordinated Loan Agreement.  On July 19,2005, Perryville elected to offset its $98.7 million Subordinated Debt Claimagainst MAI with MAI's $98.7 million claim against Perryville.  On June 30,2005, Perryville paid the outstanding principal and interest of $131.0 millionunder the Senior Loan Agreement.  As of June 30, 2005, there was no materialdefault in respect to the Senior Loan Agreement.  For additional information onPerryville's Subordinated Loan Agreement, including the right to set off, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 13 -Perryville."

Evangeline, also deconsolidated and no longerreported in Cleco Corporation's consolidated results, had no short-term debt outstandingat June 30, 2005.  Evangeline had $188.2 million and $191.8 million oflong-term debt outstanding at June 30, 2005, and December 31, 2004, respectively,in the form of 8.82% Senior Secured Bonds due in 2019.  In addition, Evangelinehad $6.6 million and $6.0 million of long-term debt due within one year at June30, 2005, and December 31, 2004, respectively, relating to these bonds.  Thebonds issued by Evangeline are non-recourse to Cleco Corporation.  For information on the deconsolidation of Evangeline, see "Results of Operations -Deconsolidation of Evangeline."

***RestrictedCash***

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.  At June 30, 2005, andDecember 31, 2004, $34.9 million and $35.8 million of cash, respectively, was restrictedunder various agreements.  For additional information on restricted cash, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 4 - RestrictedCash."

At June 30, 2005, the $34.9 million ofrestricted cash consisted of $0.1 million under the Diversified Landsmitigation escrow agreement, $32.7 million under the Evangeline senior securedbond indenture, and $2.1 million under an agreement with the lenders for Perryville. On July 8, 2005, approximately $1.8 million of the $2.1 million of restrictedcash for Perryville was released by the Perryville lenders.  The amounts forEvangeline and Perryville are not included in Cleco Corporation's CondensedConsolidated Balance Sheets at June 30, 2005, due to the deconsolidation ofPerryville and Evangeline in 2004.

***Contractual Obligations andOther Commitments***

For information regarding Cleco's Contractual Obligationsand Other Commitments, please read "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Financial Condition - Liquidityand Capital Resources - Cash Generation and Cash Requirements - Contractual Obligationsand Other Commitments" in the Registrants' Combined Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.

***Off-Balance SheetCommitments***

Cleco Corporation and Cleco Power have enteredinto various off-balance sheet commitments, in the form of guarantees andstandby letters of credit, in order to facilitate their activities and theactivities of Cleco Corporation's subsidiaries and equity investees(affiliates).  Cleco Corporation entered into these off-balance sheetcommitments in order to entice desired counterparties to contract with itsaffiliates by providing some measure of credit assurance to the counterparty inthe event Cleco's affiliates do not fulfill certain contractual obligations.  IfCleco Corporation had not provided the off-balance sheet commitments, thedesired counterparties may not have contracted with Cleco's affiliates, or mayhave contracted with them at terms less favorable to its affiliates.

The off-balance sheet commitments are notrecognized on Cleco's Condensed Consolidated Balance Sheets because it has beendetermined that Cleco's affiliates are able to perform these obligations undertheir contracts and that it is not probable that payments by Cleco will berequired.  Some of these commitments reduce the amount of the credit facilityavailable to Cleco Corporation by an amount defined by the credit facility.  Thefollowing table shows the issuer of the off-balance sheet commitment and theaffiliate, if any, on whose behalf it 

 

51

was issued.  The table also shows theface amount of the commitment, applicable reductions, the resulting net amountof the commitment, and associated reductions in Cleco Corporation's ability todraw on its credit facility at June 30, 2005.  A discussion of the off-balancesheet commitments is detailed in the explanations following the table.  Thediscussion should be read in conjunction with the table to understand theimpact of the off-balance sheet commitments on Cleco's financial condition.

              AT JUNE 30, 2005

          REDUCTIONS TO THE

          AMOUNT AVAILABLE

               TO BE DRAWN ON

                 FACE

** **

                   NET

CLECO CORPORATION'S

(THOUSANDS)

            AMOUNT

REDUCTIONS

            AMOUNT

               CREDIT FACILITY

Cleco Corporation guarantee issued to Entergy  companies for performance obligations of Perryville

**            $ 277,400**

** $  135,000**

**            $ 142,400**

**         $        328**

Cleco Corporation guarantees issued to purchasers  of the assets of Cleco Energy 

**                   1,400**

**             **

**                   1,400**

**                1,400**

Cleco Corporation obligations under standby  letter of credit issued to Evangeline Tolling Agreement counterparty

**                 15,000**

**             **

**                 15,000**

**              15,000**

Cleco Corporation guarantee issued to Central  Mississippi Generating Co. on behalf of Attala 

**                   6,688**

**             **

**                   6,688**

**                6,688**

Cleco Power obligations under standby letter of  credit issued to Louisiana Department of Labor

**                      525**

**             **

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 19,408**

**             **

**                 19,408**

**                        -**

     Total

**            $ 320,421**

** $  135,000**

**            $ 185,421**

**         $   23,416**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  As of June 30, 2005, the aggregate guaranteeof $277.4 million is limited to $142.4 million based on the following amountsand events:  (i) $42.4 million relating to the Power Purchase Agreement, otherancillary agreements, and certain pre-closing liabilities associated with theSale Agreement, and (ii) $100.0 million with respect to the Sale Agreementarising from Perryville's failure to pay, perform, or discharge the Senior LoanAgreement debt, Subordinated Loan Agreement debt and any other liabilitiesarising from the Senior Loan Agreement.  The $100.0 million portion of theguarantee was previously $235.0 million prior to the payment of the Senior LoanAgreement as referred to in Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 13 - Perryville - Perryville Bankruptcy."  On June 30, 2005,Perryville paid all interest and principal owed under the Senior LoanAgreement, and on July 19, 2005, it exercised offset rights against MAI tosatisfy its obligations of $98.7 million under the Subordinated LoanAgreement.  As a result, it is unlikely that Cleco Corporation will have any otherliabilities which would give rise to indemnity claims against Perryville andtrigger any actual obligation under the $100.0 million portion of theguarantee.  The $0.3 million reduction in the available credit was determinedin accordance with Cleco's credit facilities' definition of a contingentobligation.  The contingent obligation reduces the amount available under thecredit agreements by an amount equal to the reasonably anticipated liability inrespect of the contingent obligation as determined in good faith if the totalamount of indebtedness outstanding, including such contingent obligations,exceeds certain thresholds.  This required an estimate of the probability,amount and timing of a payment by Cleco pursuant to this guarantee.

Previously, if Perryville was unable to makeprincipal payments to its lenders, Cleco Corporation would be required to payup to $0.5 million on behalf of Perryville under a cash collateral order issuedby the Perryville and PEH Bankruptcy Court.  As of June 30, 2005, Perryvillehad paid the remaining outstanding amount of $131.0 million under its SeniorLoan Agreement; accordingly, Cleco Corporation has no remaining obligationunder the $0.5 million guarantee.  This guarantee will cease upon terminationof Perryville's cash collateral order.  For information on the cash collateralorder, bankruptcy filings of the Mirant Debtors, Perryville and PEH, and theirrelated impacts on the Senior Loan Agreement, see Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 13 - Perryville."

In November 2004, Cleco completed the sale ofsubstantially all of the assets of Cleco Energy.  Cleco Corporation providedguarantees to the buyers of Cleco Energy's assets for the payment andperformance of the indemnity obligations of Cleco Energy.  The aggregate amountof the guarantees is $1.4 million.  The purchaser of Cleco Energy's assets hasinvoked its indemnification provisions pursuant to the purchase and saleagreement that Cleco guaranteed, as a result of a recently filed lawsuitagainst the purchaser and Cleco Energy (related to the price charged forcertain natural gas sales by Cleco Energy).  After an initial investigation,management believes that this matter will not have a material impact on Cleco'sfinancial condition, results of operations, or cash flows.  For information onthe sale of Cleco Energy's assets, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 14 - Discontinued Operations and Dispositions."

If Evangeline fails to perform certain obligationsunder its tolling agreement, Cleco Corporation will be required to makepayments to the Evangeline Tolling Agreement counterparty.  Cleco Corporation'sobligation under the Evangeline commitment is in the form of a standby letterof credit from investment grade banks and is limited to $15.0 million.  Ratingstriggers do not exist in the Evangeline Tolling Agreement.  Cleco expectsEvangeline to be able to meet its obligations under the tolling agreement anddoes not expect Cleco Corporation to be required to make payments to thecounterparty.  However, under the covenants associated with Cleco Corporation'scredit facility, the entire net amount of the Evangeline commitment reduces theamount that can be borrowed under the 

 

52

credit facility.  The letter of creditfor Evangeline is expected to be renewed annually until 2020.

On March 16, 2005, Cleco Corporation issued aguarantee to Central Mississippi Generating Company, LLC for Attala'sobligations and liabilities under the purchase and sale agreement betweenCentral Mississippi Generating Company, LLC and Attala.  This agreementprovides for the acquisition by Attala of transmission assets, includingAttala's obligations to pay the purchase price for the assets and to indemnifythe seller.  The maximum amount payable under the guarantee is $6.7 million(subject to certain purchase price adjustments).

The State of Louisiana allows employers of certainfinancial net worth to self-insure their workers' compensation benefits. Inorder to self-insure, Cleco Power applied to the Louisiana Office of Workers'Compensation for a certificate of self-insurance.  The State of Louisianarequired Cleco Power to post a $0.5 million letter of credit as surety in anamount equal to 110 percent of the average losses over the previous threeyears.

As part of the Lignite Mining Agreement enteredinto in 2001, Cleco Power and SWEPCO, joint owners of Dolet Hills, have agreedto pay the lignite miner's loan and lease principal obligations when due, ifthe lignite miner does not have sufficient funds or credit to pay.  Any amountspaid on behalf of the miner would be credited by the lignite miner against thenext invoice for lignite delivered.  At June 30, 2005, Cleco Power's 50%exposure for this obligation was approximately $19.4 million.  The lignitemining contract is in place until 2011 and does not affect the amount ClecoCorporation can borrow under its credit facility.

The following table summarizes the expectedtermination date of the guarantees and standby letters of credit discussedabove:

                                                                                     AT JUNE 30, 2005

                                 AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

                   NET

                MORE

            AMOUNT

     LESS    THAN

                 THAN

(THOUSANDS)

   COMMITTED

       ONE YEAR

      1-3 YEARS

      4-5 YEARS

         5 YEARS

Guarantees

   $ 169,896

   $      6,688

   $               -

   $      1,400

   $ 161,808

Standby letters of credit

        15,525

              525

                    -

                    -

        15,000

     Total commercial commitments

   $ 185,421

   $      7,213

   $               -

   $      1,400

   $ 176,808

**RegulatoryMatters**

***Wholesale Rates of Cleco***

Cleco Power's wholesale sales are regulated by theFERC via cost-based and market-based tariffs including market-based tariffsused by Evangeline, APP, and Perryville.  These tariffs including theassociated codes of conduct accompanying them are updated periodically tocomply with FERC directives.  Such an update was completed in December 2003 foreach entity to comply with FERC's requirement to amend market-based rates toadd "market behavior rules" to the codes of conduct.  Contracts utilizingmarket-based tariffs do not require prior approval by FERC, but are reportedeach quarter pursuant to FERC's requirement for reporting of sales by authorizedpower marketers.

The FERC issued an order in April 2004 revisingthe methodology to be used in assessing whether a jurisdictional electricutility has generation market power.  The revised methodology requires a utilityto pass two screening tests.  The Pivotal Supplier test assesses availablemarket capacity during peak conditions, and the Market Share test assessesavailable market capacity during off-peak seasonal conditions.  Such determinationsare required of all FERC-jurisdictional electric utilities as a condition forsecuring and/or retaining approval to sell electricity in wholesale markets atmarket-based rates.  Among other things, the April 2004 Order required Cleco,on behalf of each of its authorized power marketing entities, Cleco Power,Evangeline, Marketing & Trading, APP, and Perryville, to file an updatedgeneration market power study using the revised methodology.  For companiesthat fail either screening test, evidence may then be presented to FERC torebut the market power presumption, including (i) performing a third and morerigorous test (the Delivered Price test); (ii) filing a mitigation proposal toeliminate the presumed market power; or (iii) voluntarily adopting cost-basedrates for wholesale sales.  Cleco Power submitted its compliance filing underthe revised methodology on December 21, 2004, indicating it passed all therevised tests except for the Market Share test in Cleco Power's control areafor three of the four seasonal periods.  Cleco Power refuted the test resultsin its filing, citing overly conservative input assumptions required by FERCand recent historical patterns contrary to the interim screening test results. On May 25, 2005, the FERC issued an order stating that it will institute aproceeding under Section 206 of the Federal Power Act to determine whetherCleco Power, Evangeline, APP, and Perryville may continue to chargemarket-based rates for wholesale power in specified geographic areas.  The FERCauthorizes wholesale power sales at market-based rates if, among other things,the seller and its affiliates do not have, or have adequately mitigated, marketpower in generation.  The agency states in its order that the Section 206proceeding will be instituted because a market power analysis filed by Clecoindicates that certain "screens" implemented by the agency were not satisfiedin specified geographic markets, creating a rebuttable presumption that ClecoPower, Evangeline, APP, and Perryville may possess market power.  The order,among other things, directed that within 60 days Cleco must (i) filea delivered price test analysis, which is a detailed economic evaluation of marketpower; (ii) file a mitigation proposal to eliminate Cleco's ability toexercise market power; or (iii) inform the agency that Cleco will adoptcost-based rates for power sales within Cleco Power's control area.  All filingdeadlines associated with the FERC Order of May 25, 2005, 

53

regarding Cleco'smarket-based sale tariff were met.  As a result of the Section 206proceeding, Cleco could be subject to refunds on wholesale sales as of60 days following the publishing of the agency's order in the FederalRegister.  Such refunds are not expected to be material since the Section 206proceeding is expected to only be applicable to new contracts.  However, if theproceeding is applicable to existing contracts, the implementation ofcost-based rates or operational changes in connection with any mitigationproposal could cause a material reduction in Cleco's revenue from wholesalepower sales.  In 2004, sales made by Cleco Power via market-based rates wereapproximately 3.4% of Cleco Power's total MW hour sales. 

***Retail Rates of Cleco Power***

For a discussion of regulatory aspects of retailrates concerning Cleco Power, please read "Management's Discussion and Analysisof Financial Condition and Results of Operations - Financial Condition -Liquidity and Capital Resources - Regulatory Matters - Retail Rates of ClecoPower" in the Registrants' Combined Annual Report on Form 10-K for the fiscalyear ended December 31, 2004.

***Wholesale ElectricMarkets***

The Energy Policy Act, enacted by Congress in1992, significantly changed U.S. energy policy, including rules and regulationsgoverning the electric utility industry.  The Energy Policy Act allows theFERC, on a case-by-case basis and with certain restrictions, to order wholesaletransmission access and to order electric utilities to expand theirtransmission systems.  The Energy Policy Act prohibits FERC-ordered retail wheeling,such as opening up electric utility transmission systems to allow customerchoice of energy suppliers at the retail level, including "sham" wholesaletransactions.  Further, under the Energy Policy Act, any FERC transmissionorder requiring a transmitting utility to provide wholesale transmission servicesmust include provisions that permit the utility to recover from the FERCapplicant all of the costs incurred in connection with the transmissionservices, including any enlargement of the transmission system and any associatedservices.

In addition, the Energy Policy Act revised the1935 FPA to permit utilities, including registered holding companies, as wellas non-utilities, to form "exempt wholesale generators" without the principalrestrictions of the 1935 FPA.  Under prior law, independent power producersgenerally were required to adopt inefficient and complex ownership structuresto avoid pervasive regulation under the 1935 FPA.

In 1999, the FERC issued Order No. 2000,which established a general framework for all transmission-owning entities inthe nation to voluntarily place their transmission facilities under the controlof an appropriate RTO.  Although participation is voluntary, the FERC has madeit clear that any jurisdictional entity not participating in an RTO will likelybe subject to further regulatory directives.  These directives could take theform of review and/or denial of market-based rates for wholesale power sales. In July 2001, the FERC issued orders stating its intention to form fourregional RTOs covering the Northeast, Southeast, Midwest, and West.  The FERClater relaxed its mandate to form the four RTOs, but continued to insist uponthe large regional RTO model.  Since 2001, many transmission-owning entitiesand system operators have been trying to interpret and implement FERC'sdirectives by attempting to organize and/or join acceptable RTOs.  On February10, 2004, FERC gave its approval of SPP's solo application for RTO recognitionwith a number of conditions specified that SPP must meet before it wouldreceive final FERC approved RTO status.  On February 11, 2005, FERC granted SPPstatus as an RTO, subject to a further compliance filing. 

Cleco Power continues to monitor and/orparticipate in the development of SPP's RTO activities.  Separately and uponcessation of activity related to SeTrans, Entergy filed at FERC to makepotentially significant modifications to its Open Access Transmission Tariff. The modifications would incorporate an independent third-party entity, theIndependent Coordinator of Transmission (ICT), into its transmission operationshaving access to pertinent information regarding the Entergy transmissionsystem.  In March 2005, FERC conditionally accepted Entergy's ICT proposal andindicated its preference for SPP to function as the ICT and perform specificfunctions to increase transparency across Entergy's service territory.  By order,Entergy had 60 days to confirm ICT authority over handling transmission servicerequests, calculating Available Transmission Capacity, administering Entergy'sOpen Access Same Time Information System and performing transmission planningand must make a Section 205 filing with FERC with more detailed description ofthe ICT duties and responsibilities.  On May 27, 2005, Entergy made therequired Section 205 filing with FERC.  Entergy has requested the FERC to acton this filing no later than October 31, 2005. Cleco will continue monitoringdevelopments in this proceeding.  Both the SPP and Entergy proceedings couldimpact the ability to transport power into and out of the Cleco control area. Cleco plans to be a participant in these and all other proceedings affectingavailability and sale of power in and around Louisiana.  As with RTOdevelopments at large, other various parties, including several statecommissions, utilities, and other industry participants, are participants inthe RTO and Entergy proceedings described above.

For additional information on other regulatoryaspects of wholesale electric markets affecting Cleco, please read "Management'sDiscussion 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' CombinedAnnual Report on Form 10-K for the fiscal year ended December 31, 2004.

***National Energy Policy***

Energy legislation has been approved by the U.S.House of Representatives and the U.S. Senate.  The electric section of theenergy policy has been shaped significantly by additional involvement of theFERC, the North American Electric Reliability Council, and the North AmericanEnergy Standards Board since the summer 2003 blackout in the Midwest and 

 

54

Northeast. Consequently, emphasis has shifted away from retail choice to electric systemreliability and electric system infrastructure investment.  Other areas subjectto potential energy legislation that could affect Cleco include:
-  accelerated tax depreciation for transmission lines and pollutioncontrol facilities,
-  reduction in the cost recovery period for pollution controlequipment,
-  investment credit for projects using advanced coal basedelectricity generation technologies,
-  provisions to create a mandatory reliability organization, 
-  provisions to streamline the federal permitting process fortransmission projects,
-  provisions that would defer the recognition of gains on the saleof transmission assets to a FERC-approved RTO or Independent System Operatorratably over an eight-year period,
-  provisions to offer all customer classes the option of a timebase rate schedule (time of use metering),
-  FERC's actions concerning integrated utility market power, 
-  limited backstop transmission citing authority for FERC, 
-  reform of PURPA's mandatory purchase obligation, and 
-  repeal of PUHCA.

Cleco cannot predictwhat future legislation may be proposed and/or passed and what impact, if any,it may have upon the Registrants' results of operations or financial condition.

***Generation RFP***

Cleco Power made an informational filing with theLPSC on April 15, 2004 seeking proposals for up to 1,000 MW of capacity andenergy to replace existing contracts and to accommodate load growth, as well asup to 800 MW of capacity to replace older natural gas-fired units.  Cleco Powerissued the final RFP on August 31, 2004.  Indicative bid proposals werereceived on October 29, 2004, and a short list of bidders was selected in February2005.  Cleco Power selected winning bidders in April 2005.  Evaluation of thebids was completed with oversight from the LPSC Staff and the RFP independentmonitor.

In January 2005, Cleco Power issued a one-year(2006 requirements) alternate solicitation for short-term resources that is notsubject to the LPSC's General Order U-26172 that requires acquisitions ofgenerating capacity to be subject to a "market test" in the form of an RFP.  Thebids from this solicitation were assessed both as separate alternatives to thelong-term RFP and in combination with the RFP.  The evaluation and selectiontimeline for the 2006 solicitation was parallel to that of the 2004 RFP. 

In June 2005, Cleco Power made preliminaryselections from its long-term and short-term RFPs and plans to (i)  construct anominal 595-MW solid-fuel power plant at its Rodemacher power station nearBoyce, Louisiana, at a cost initially estimated to be $1.0 billion; (ii)  negotiatea one-year power purchase agreement with CES providing 200 MW of capacity in2006; and (iii)  negotiate a four-year power purchase agreement with Williams providing500 MW of capacity from 2006 through 2009.  Cleco Power filed an applicationseeking approval and certification of its plan with the LPSC in July 2005 (theCCN filing).  The two power purchase agreements were executed on August 1,2005.  LPSC approval of the two power purchase agreements is expected duringthe fourth quarter of 2005, while approval and certification to construct thesolid-fuel power plant is expected during the first quarter of 2006.  Allenvironmental permits related to the construction of the solid-fuel power plantare expected to be received during the first half of 2006.  Cleco Power's Boardof Managers has authorized Cleco Power to spend up to $20.0 million to continueto develop this solid-fuel plant until approval and certification of theproject is received.  During the intervention filing period, ten interestedparties have intervened in Cleco Power's CCN filing.  The CCN filing requestedthat the LPSC issue Certificates of Public Convenience and Necessity which willfind Cleco Power's selections from its RFPs to be in the public interest andauthorize it to construct and contract for such generation resources.  TheLPSC's order governing such certificate applications requires the scheduling ofa public hearing and a commission decision within 120 days of the filing date;however, Cleco Power currently expects that the 120-day period could beextended as a result of its application involving a self-build option.  Consistentwith the provision of the LPSC's General Order of September 1983 and as it relatesto the above-mentioned selection to construct a solid-fuel power plant, ClecoPower currently is engaged in feasibility, engineering and environmentalstudies, site acquisition, and related activities required to fully develop itsself-build evaluation and selection of construction contractors, and to meetits obligations to provide low-cost, reliable services to its customers.  ClecoPower intends to seek a minimum one-year extension of its current ratestabilization plan from the LPSC, which expires on September 30, 2005, whileseeking approval and certification of its selections from its long-term andshort-term RFPs.  During the approval and certification process, Cleco Power willcontinue to evaluate cost recovery for its proposed self-build solid-fuel powerplant.  Cleco Power's current evaluations contain various financing scenarios;however, funding requirements for the estimated$1.0 billion project will not be finalized until a construction contractor forthe unit is selected, which is expected during the third quarter of 2005.

***Lignite Deferral***

For a discussion of Cleco Power's deferred lignitemining expenditures, please read "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Financial Condition - Liquidityand Capital Resources - Regulatory Matters - Lignite Deferral" in theRegistrants' Combined Annual Report on Form 10-K for the fiscal year endedDecember 31, 2004.

Asmore fully described in the Registrants' Combined Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004, Cleco Power defers lignite miningcosts above 98% of the previous mining contract's projected costs.  As of

55

June 30,2005, Cleco Power had remaining deferred costs and interest of $12.6 millionrelating to its lignite mining contract.  Cleco Power recorded a deferral of $0.5million and $1.2 million of these mining costs in the three and six monthsperiods ending June 30, 2005, respectively, including $0.2 million and $0.3million, respectively in interest.  Management expects Cleco Power to recoverthe amount deferred.

***Franchises***

For a discussion of Cleco Power's electric servicefranchises, please read "Business - Regulatory Matters, Industry Developments,and Franchises - Franchises" in the Registrants' Combined Annual Report on Form10-K for the fiscal year ended December 31, 2004. 

Cleco Power's franchise with the town ofFranklinton, and its approximately 1,850 customers, was up for renewal in April2003.  Franklinton elected not to renew its franchise agreement with ClecoPower, and a ten-year franchise was granted to a competing cooperative inDecember 2003.  On February 23, 2005, the LPSC reviewed an independent thirdparty appraisal of these assets and ordered that the distribution system's fairmarket value was $2.3 million.  On May 26, 2005, Cleco Power completed the saleand transferred service to the cooperative.  Cleco Power received $2.3 millionfor these assets.  

Cleco Power's next municipal franchise expires in2008.  Competing power cooperatives are actively attempting to gain dual franchisesin several municipalities currently served by Cleco Power.  A dual franchisearrangement would limit a new provider from providing service to existingcustomers; however, the existing and new power provider could compete for newcustomers.  In March 2005, one such cooperative did obtain a limited dualfranchise.  The granting of a dual municipal franchise to a competing powercooperative does not reduce current Cleco Power earnings, since existingcustomers do not have an option to change electric service providers underexisting LPSC regulations.  However, it could reduce future customer and loadgrowth.

***Environmental Matters***

Cleco is subject to extensive environmentalregulation by federal, state and local authorities and is required to complywith numerous environmental laws and regulations, and to obtain and to complywith 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 itsfacilities; and future changes in environmental laws and regulations couldoccur, including potential regulatory and enforcement developments related toair emissions.  Cleco may incur significant additional costs to comply with theserevisions, reinterpretations and requirements.  If Cleco fails to comply withthese revisions, reinterpretations and requirements, it could be subject tocivil or criminal liabilities and fines.  

On March 10, 2005, the EPAAdministrator signed the Clean Air Interstate Rule (CAIR) which obligatescertain states to address the interstate transport of certain pollutants.  CAIRcovers 28 eastern states, including Louisiana, and the District of Columbia.  TheEPA published these regulations on May 12, 2005.  CAIR provides a federalframework requiring the states to reduce emissions of SO2 and NOx.  TheEPA anticipates that the states will achieve this primarily by reducing emissionsfrom the power generation sector.  Louisiana must evaluate the provisions ofCAIR and make changes to the StateImplementation Plan (SIP) to incorporate these requirements within 18 months ofpromulgation.  Cleco has begun the process of evaluating the potential impactsto its generating resources.  

On March 15, 2005, the EPA issuedfinal rules regulating mercury emissions from electric utility boilers.  TheClean Air Mercury Rule (CAMR) establishes "standards of performance" limitingmercury emissions from new and existing coal-fired power plants and creates amarket-based cap-and-trade program that will reduce utility emissions ofmercury in two distinct phases.  The first phase cap is 38 tons, and emissionswill be reduced by taking advantage of "co-benefit" mercury reductions achievedby reducing SO2 and NOx emissions under the CAIR.  In the secondphase, due in 2018, coal-fired power plants will reduce emissions to 15 tonsupon full implementation.  On June 29, 2005, a modification to CAMR wasproposed by certain members of the U.S. Senate which would eliminate thecap-and-trade program and require instead absolute emission limits at eachfacility.  It is unknown whether this proposal will be enacted.  Louisiana mustevaluate the provisions of CAMR and make changes to the SIP to incorporatethese requirements within 18 months of promulgation.  Cleco has begun theprocess of evaluating the potential impacts to its generating resources.

For a discussion of Cleco'senvironmental matters, please read "Business - Environmental Matters" in theRegistrants' Combined Annual Report on Form 10-K for the fiscal year endedDecember 31, 2004.

***Recent AccountingStandards***

For a discussion of recent accounting standards,see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 6 - RecentAccounting Standards" of this form 10-Q, which discussion is incorporatedherein by reference.

**CRITICAL ACCOUNTING POLICIES**

Cleco's critical accounting policies include thoseaccounting policies that are both important to Cleco's financial condition andresults of operations and those that require management to make difficult,subjective, or complex judgments about future events, which could result in amaterial impact to the financial statements of Cleco Corporation's segments orto Cleco as a consolidated entity.  The financial statements contained in thisreport are prepared in accordance with accounting principles generally acceptedin the United States of America, which require Cleco to make estimates andassumptions.  Estimates and assumptions about future events and their effectscannot be made with certainty.  Management bases its current estimates andassumptions on historical  

56

experience and on various other factors that are believed to be reasonableunder the circumstances.  On an ongoing basis, these estimates and assumptionsare evaluated and, if necessary, adjustments are made when warranted by new orupdated information or by a change in circumstances or environment.  Actualresults may differ significantly from these estimates under differentassumptions or conditions.  For a discussion of critical accounting policies,see "Management's Discussion and Analysis of Financial Condition and Results ofOperations - Critical Accounting Policies" in the Registrant's Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2004.

**CLECO POWER - NARRATIVE ANALYSIS OF RESULTS OFOPERATIONS**

Set forth below is information concerning theresults of operations of Cleco Power for the three and six months ended June30, 2005, and June 30, 2004.  The following narrative analysis should be readin combination with Cleco Power's Unaudited Condensed Financial Statements andthe Notes contained in this Form 10-Q.

Cleco Power meets the conditionsspecified in General Instructions H(1)(a) and (b) to Form 10-Q and is thereforepermitted to use the reduced disclosure format for wholly owned subsidiaries ofreporting companies.  Accordingly, Cleco Power has omitted from this report theinformation called for by Item 2 (Management's Discussion and Analysis ofFinancial Condition and Results of Operations) and Item 3 (Quantitative andQualitative Disclosures About Market Risk) of Part I of Form 10-Q and thefollowing Part II items of Form 10-Q: Item 2 (Unregistered Sales of EquitySecurities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities), andItem 4 (Submission of Matters to a Vote of Security Holders).  Pursuant to theGeneral Instructions, Cleco Power has included an explanation of the reasonsfor material changes in the amount of revenue and expense items of Cleco Powerbetween the three and six month periods ended June 30, 2005, and the three andsix month periods ended June 30, 2004.  Reference is made to Management'sDiscussion and Analysis of Financial Condition and Results of Operations in Item7 of the Registrants' Combined Annual Report on Form 10-K for the fiscal yearended December 31, 2004.

For anexplanation of material changes in the amount of revenue and expense items ofCleco Power between the second quarter of 2005 and the second quarter of 2004,see "- Results of Operations - Comparison of the Three Months Ended June30, 2005 and 2004 - Cleco Power" of thisForm 10-Q, which discussion is incorporated herein by reference.

For anexplanation of material changes in the amount of revenue and expense items ofCleco Power between the first six months of 2005 and the first six months of2004, see "- Results of Operations - Comparison of the Six Months Ended June30, 2005 and 2004 - Cleco Power" of this Form 10-Q, which discussion isincorporated herein by reference.

**ITEM3.**       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK OF CLECOCORPORATION

***Cleco***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positions includes potential changes arisingfrom changes in interest rates and the commodity market prices of power andnatural gas in the industry on different energy exchanges.  Cleco Power usesSFAS No. 133 to determine whether the market risk-sensitive instruments andpositions are required to be marked-to-market.  Generally, Cleco Power's marketrisk-sensitive instruments and positions qualify for the normal-purchase,normal-sale exception to mark-to-market accounting of SFAS No. 133, as modifiedby SFAS No. 149, since Cleco Power generally takes physical delivery and theinstruments and positions are used to satisfy customer requirements.  From timeto time, Cleco Power could have positions that are required to bemarked-to-market, because they do not meet the exceptions of SFAS No. 133 anddo not qualify for hedge accounting treatment.  Cleco Power has enteredinto certain transactions it considers economic hedges to mitigate the riskassociated with a new wholesale municipal customer that do not meet the criteriaof accounting hedge treatment.  These positions are marked-to-market with those results recorded in income.  Cleco Power hasentered into other positions to mitigate some of the volatility in fuel costspassed on to customers.  These positions are marked-to-market, with the resultinggain or loss recorded on the balance sheet as a component of the accumulateddeferred fuel asset or liability and a component of the risk management assetor liability.  When these positions close, actual gains or losses will beincluded in the fuel adjustment clause and reflected on customers' bills.  Anypositions for marketing and trading purposes that do not meet the exemptions ofSFAS No. 133 are marked-to-market and the results are recorded in income. 

Cleco also is subject to market risk associatedwith its remaining tolling agreement counterparties.  For additional informationconcerning Cleco's market risk associated with its remaining counterparties,see Item 2, "Management's Discussion and Analysis of Financial Condition andResults of Operations - Financial Condition - Liquidity and Capital Resources -General Considerations and Credit Related Risks" and Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 13 - Perryville."

Cleco's exposure to market risk, as discussedbelow, represents an estimate of possible changes in the fair value or futureearnings that would occur, assuming possible future movements in the interestrates and commodity prices of power and natural gas.  Management's views onmarket risk are not necessarily indicative of actual results, nor do theyrepresent the maximum possible gains or losses.  The views do represent, withinthe parameters disclosed, what management estimates may happen.

Cleco monitors credit risk exposure through reviewof counterparty credit quality, corporate-wide aggregate counterparty creditexposure and corporate-wide aggregate counterparty concentration levels.  Clecoactively manages these 

57

risks by establishing appropriate credit andconcentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits or letters of credit from counterpartiesor their affiliates, as deemed necessary.  Cleco Power has agreements in placewith various counterparties that authorize the netting of financial buys andsells and contract payments to mitigate credit risk for transactions enteredinto for risk management purposes.

**Interest Rate Risks**

Cleco has entered into various fixed- andvariable-rate debt obligations.  The calculations of the changes in fair marketvalue and interest expense of the debt securities are made over a one-yearperiod.

Cleco monitors its mix of fixed- and variable-ratedebt obligations in light of changing market conditions and from time to timemay alter that mix by, for example, refinancing balances outstanding under itsvariable-rate credit facility with fixed-rate debt.

Sensitivity to changes in interest rates forfixed-rate obligations is computed by calculating the current fair market valueusing a net present value model based upon a 1.0% change in the averageinterest rate applicable to such debt.  Sensitivity to changes in interestrates for variable-rate obligations is computed by assuming a 1.0% change inthe current interest rate applicable to such debt.

As of June 30, 2005, the carrying value of thevariable-rate debt of Cleco and Cleco Power was $70.0 million, which approximatesfair market value.  Each 1.0% change in the average interest rates applicableto such debt would result in a change of $0.7 million in the pre-tax earningsof Cleco and Cleco Power.

On June 1, 2005, Cleco Corporation's two $50.0 millionfixed-to-floating interest rate swaps involving its 8.75% Senior Notes due June1, 2005, terminated.  The interest rate swaps were entered into on February 20,2004, and May 3, 2004.  Under the swaps, the 8.75% fixed-rate on its SeniorNotes was swapped for floating rate exposure based on the six-month LIBOR onthe last day of each calculation period, plus agreed upon spreads of 6.615% and6.03%, respectively, on the $50.0 million notional amounts associated with eachof the swaps.  A net settlement amount was paid semi-annually on June 1 andDecember 1.  For the six months ended June 30, 2005, Cleco Corporation paid theswap counterparty a net settlement amount of $0.6 million.

**Commodity Price Risks**

Management believes Cleco has controls in place tominimize the risks involved in financial and energy commodity activities. Independent controls over energy commodity functions consist of a back office(accounting), a middle office (risk management), regulatory compliance staff,as well as, oversight by a risk management committee comprised of officers andmanagers, and a daily risk report that shows VAR and current marketconditions.  Cleco's Board of Directors appoints the members of the RiskManagement Committee.  VAR limits are established and monitored by the RiskManagement Committee.

Cleco Power's financial positions that are not usedto meet the power demands of customers are marked-to-market as required by SFASNo. 133.  There were no speculative positions at June 30, 2005, and December31, 2004; therefore, no mark-to-market amounts related to these positions wererecorded on the income statement or balance sheet.

During June 2005, Cleco Power entered into certain financialnatural gas economic hedge transactions, related to a new wholesale municipalcustomer, through December 2010.  At June 30, 2005, there was a netmark-to-market gain of $0.1 million related to these economic hedgetransactions.

Cleco Power provides fuel for generation andpurchases power to meet the power demands of customers.  Cleco Power hasentered into positions to mitigate some of the volatility in fuel costs passedon to customers as encouraged by an LPSC order.  In December 2004, Cleco Powerimplemented a fuel stabilization policy (which was filed with the LPSC) totarget higher levels of minimum hedging percentages.  This LPSC order couldresult in larger volatility in the marked-to-market amounts for the financialpositions to mitigate fuel cost volatility for Cleco Power customers.  These positionsare marked-to-market with the resulting gain or loss recorded on the balancesheet as a component of the accumulated deferred fuel asset or liability and acomponent of the risk management asset or liability.  Based on market prices atJune 30, 2005, the net mark-to-market impact related to these positions was again of $4.1 million.

Cleco Power utilizes a VAR model to assess themarket risk of its financial instruments.  VAR represents the potential loss infair value of an instrument from adverse changes in market factors for aspecified period of time and confidence level.  The VAR is estimated using ahistorical simulation calculated daily assuming a holding period of one day,with a 95% confidence level for natural gas and power positions.  Totalvolatility is based on historical cash, implied market, and current cashvolatility assessments.

As a result of the financial economic hedgetransactions, VAR at June 30, 2005 was $0.4 million.

**FOR THE THREE MONTHS ENDED****JUNE 30, 2005**

(THOUSANDS)

**                HIGH**

** **

**       LOW**

** **

**   AVERAGE**

Cleco Power

** $    385.6**

** $       -**

** $  11.6**

Consolidated

** $    385.6**

** $       -**

** $  11.6**

 

**FOR THE SIX MONTHS ENDED****JUNE 30, 2005**

(THOUSANDS)

**                HIGH**

** **

**       LOW**

** **

**   AVERAGE**

Cleco Power

** $    385.6**

** $       -**

** $    5.8**

Consolidated

** $    385.6**

** $       -**

** $    5.8**

 

**          AT    JUNE 30,**

** **

   AT DECEMBER 31,

(THOUSANDS)

**                      2005**

** **

                       2004

Cleco Power

**      $    385.6**

         $                 -

Consolidated

**      $    385.6**

         $                 -

58

**ITEM 4.**       CONTROLSAND PROCEDURES

***Quarterly Evaluation of Disclosure Controls andProcedures***

Inaccordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of1934, the Registrants' management hasevaluated, as of the end of the period covered by this Report, with the supervision and participationof the Registrants' chief executive officer and chief financial officer, theeffectiveness of the Registrants' disclosure controls and procedures as definedby Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934 (Disclosure Controls).  Based on thatevaluation, such officers concluded that the Registrants' Disclosure Controls were effective as of the date of that evaluation.

During the second fiscal quarter of2005, there have been no changes in the Registrants' internal control overfinancial 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 likelyto materially affect, the Registrants' internal control over financialreporting. 

59

PART II - OTHER INFORMATION

**ITEM 1.**    LEGAL PROCEEDINGS

**CLECO**

For information on legal proceedings affectingCleco, see Part I, Item 1, "Notes tothe Unaudited Condensed Financial Statements - Note 8 - Litigation and OtherCommitments and Contingencies - Securities Litigation," "- Other Litigation," "-CES," and "- SESCO", Note 13 - "Perryville - Mirant Bankruptcy and MAEM'sRejection of the Perryville Tolling Agreement," "- Perryville Tolling AgreementAdministrative Expense and Damage Claims," "- Perryville Bankruptcy," and "- Saleof the Perryville Facility."

**CLECO POWER**

For information on legal proceedings affectingCleco Power, see Part I, Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 8 - Litigationand Other Commitments and Contingencies - Other Litigation" and "-SESCO."

**ITEM 2.**    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

***Cleco Purchases of Equity Securities***

During the quarter ended June 30, 2005, none ofCleco Corporation's equity securities registered pursuant to Section 12 of theSecurities Exchange Act of 1934 was purchased by or on behalf of ClecoCorporation or any of its "affiliated purchasers," as defined in Rule10b-18(a)(3) under the Securities Exchange Act of 1934.

**ITEM3. **   DEFAULTS UPON SENIOR SECURITIES

***Cleco***

The bankruptcy filings by the Mirant Debtors,MAEM's failure to remit amounts due under the Perryville Tolling Agreement, andMAEM's rejection of the Perryville Tolling Agreement were events of defaultunder the Senior Loan Agreement.  On June 30, 2005, Perryville paid theoutstanding principal and interest of $131.0 million under the Senior LoanAgreement.  As of June 30, 2005, there was no material default in respect toany indebtedness of Cleco Corporation and its subsidiaries.  For additionalinformation regarding the Senior Loan Agreement, see Part I, Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 13 -Perryville," which is incorporated herein by reference.
 
60

**ITEM 4. **   SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

(a)     TheAnnual Meeting of Shareholders of Cleco Corporation was held May 5, 2005, inPineville, Louisiana.

(b)     Proxiesfor the election of directors were solicited pursuant to Regulation 14A underthe Securities Exchange Act of 1934, as amended.  There was no solicitation inopposition to management's nominees, and all nominees listed in the ProxyStatement were elected.

(c)     Thefollowing is a tabulation of the votes cast upon each proposal presented at theAnnual Meeting of Shareholders of Cleco Corporation on May 5, 2005.

          (1)     Electionof Directors to serve until the 2008 Annual Meeting of Shareholders:

**CLASS****II DIRECTORS**

**FOR**

**WITHHELD**

**BROKERS****NON-VOTES**

Williams L. Marks

35,023,756

10,856,513

0

Ray B. Nesbitt

35,094,542

10,785,727

0

Robert T. Ratcliff, Sr.

35,159,056

10,721,213

0

William H. Walker, Jr.

35,020,770

10,859,499

0

The term of office as a director of each of Messrs.J. Patrick Garrett, F. Ben James, Jr., Elton R. King, Richard B. Crowell, W.Larry Westbrook and General Sherian G. Cadoria continued after the meeting. David M. Eppler resigned as a director effective immediately after the meetingand was replaced by Michael H. Madison.

          (2)     Ratificationof the appointment of PricewaterhouseCoopers LLP as Cleco's independent registeredpublic accounting firm for 2004 and quarterly reviews through September 30,2005:

**FOR**

**AGAINST**

**ABSTAIN**

**BROKERS****NON-VOTES**

44,683,207

1,059,361

137,701

0

          (3)     Amendmentto the 2000 LTICP to increase the number of shares of common stock reserved forissuance by 1,600,000 shares and to renew material terms of performance goalsunder the LTICP in order to allow certain grants and awards made to certainofficers and other key employees to continue to qualify as performance-basedcompensation deductible under Internal Revenue Code Section 162(m):

**FOR**

**AGAINST**

**ABSTAIN**

**BROKERS****NON-VOTES**

31,133,648

6,354,665

451,547

7,940,409

**ITEM 5.**    OTHER INFORMATION

The summary description of the amendments to the2000 LTICP set forth in paragraph (c)(3) of "Item 4.  Submission of Matters toa Vote of Security Holders" is incorporated herein by reference.

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**ITEM 6.**    EXHIBITS  

**Cleco Corporation**

3(a)

Bylaws of Cleco  Corporation revised effective October 24, 2003 (incorporated by reference to  Exhibit 3(a) of Form 10-Q, filed November 6, 2003) 

10(a)

Employee Stock  Purchase Plan, Amendment No. 2, effective as of January 1, 2006 

10(c)

Credit Agreement dated  as of April 25, 2005 among Cleco Corporation, The Bank of New York, as  Administrative Agent, and the lenders and other parties thereto (incorporated  by reference to Exhibit 10.1 of Form 8-K, filed April 29, 2005) 

10(e)

Settlement Agreement  dated May 26, 2005 by and among Mirant Corporation, Mirant Americas Energy  Marketing, LP, Mirant Americas, Inc., Perryville Energy Partners, L.L.C. and  Perryville Energy Holdings LLC (incorporated by reference to Exhibit 99.1 of  Form 8-K, filed June 1, 2005) 

10(f)

Amended 2005  compensation information for Michael H. Madison, David M. Eppler and Dilek  Samil (incorporated by reference to Exhibit 10.1 of Form 8-K, filed May 6,  2005) 

10(g)

2000 Long-Term  Incentive Compensation Plan, Amendment No. 3, dated January 28, 2005  (incorporated by reference to Exhibit 10(b) of Form 10-Q, filed May 5, 2005) 

11

Computation of  Earnings per Common Share for the three and six months ended June 30, 2005,  and 2004 

12(a)

Computation of Ratios  of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and  Preferred Stock Dividends for the three-, six- and twelve-month periods ended  June 30, 2005, for Cleco Corporation 

31(a)

CEO Certification in accordance with section 302 of the  Sarbanes-Oxley Act of 2002CFO Certification in accordance with section 302 of the Sarbanes-Oxley Act of  2002 

32(a)

CEO and CFO  Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002

**Cleco Power**

1(a)

Underwriting Agreement  dated June 29, 2005 among Cleco Power LLC, McDonald Investments Inc. and  Wedbush Morgan Securities Inc. (incorporated by reference to Exhibit 1.1 of  Form 8-K, filed July 6, 2005) 

3(b)

Operating Agreement of  Cleco Power LLC revised effective October 24, 2003 (incorporated by reference  to Exhibit 3(b) of Form 10-Q, filed November 6, 2003) 

4(a)

Form of Seventh Supplemental  Indenture, dated as of July 6, 2005, between Cleco Power LLC and the Bank of  New York Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of  Form 8-K, filed July 6, 2005) 

10(b)

401(K) Savings and  Investment Plan, First Amendment, effective as of June 1, 2005 

10(d)

Credit Agreement dated  as of April 25, 2005 among Cleco Power LLC, The Bank of New York, as  Administrative Agent, and the lenders and other parties thereto (incorporated  by reference to Exhibit 10.2 of Form 8-K, filed April 29, 2005) 

12(b)

Computation of Ratios  of Earnings to Fixed Charges for the three-, six- and twelve-month periods  ended June 30, 2005, for Cleco Power 

31(b)

CEO Certification in accordance with section 302 of the  Sarbanes-Oxley Act of 2002CFO Certification in accordance with section 302 of the Sarbanes-Oxley Act of  2002 

32(b)

CEO and CFO  Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURE
Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

          

**CLECO  CORPORATION**

(Registrant) 

By:   /s/ R. Russell Davis                                           

          R. Russell Davis

          Vice President and Chief Accounting  Officer

Date:  August 2, 2005

 

63

SIGNATURE

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

**CLECO  POWER LLC**

(Registrant) 

By:   /s/ R. Russell Davis                                                 

          R. Russell Davis

          Vice President and Chief Accounting  Officer

Date:  August 2, 2005

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