----

 

**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 March 31, 2006**Or

**[  ]  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 a large accelerated filer, an  accelerated filer, or a non-accelerated filer.  See definition of  "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange  Act.  (Check one):  

Large  accelerated filer   x                         Accelerated  filer                                        Non-accelerated  filer            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Indicate  by check mark whether Cleco Power LLC is a large accelerated filer, an  accelerated filer, or a non-accelerated filer.  See definition of  "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange  Act.  (Check one):  

Large  accelerated filer                              Accelerated  filer                                        Non-accelerated  filer     x       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Indicate  by check mark whether the Registrants are shell companies (as defined in Rule  12b-2 of the Exchange Act)  Yes            No   x                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

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

| Registrant         | Description  of Class          | Shares  Outstanding at April 28, 2006 |
|--------------------|--------------------------------|---------------------------------------|
|                    |                                |                                       |
| Cleco  Corporation | Common  Stock, $1.00 Par Value | 50,405,198                            |

**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                                                                                                                        |                          12 |
|                                                        | Notes  to the Unaudited Condensed Financial Statements                                                                                                               |                          17 |
| ITEM 2.                                                | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                                               |                          34 |
| ITEM 3.                                                | Quantitative and  Qualitative Disclosures about Market Risk                                                                                                          |                          44 |
| ITEM 4.                                           | Controls and Procedures                                                                                                                                         |                          46  |
|                                                        |                                                                                                                                                                      |  |
| **PART II**                                            | **Other Information**                                                                                                                                                |  |
| ITEM 1.                                                | Legal Proceedings                                                                                                                                                    |                          47 |
| ITEM 1A.                                               | Risk Factors                                                                                                                                                         |                          47 |
| ITEM 2.                                                | Unregistered Sales of  Equity Securities and Use of Proceeds                                                                                                         |                          47 |
| ITEM 6.                                                | Exhibits                                                                                                                                                             |                          48 |
|                                                        | Signatures                                                                                                                                                           |                          49 |
|                                                        |                                                                                                                                                                      |  |  |

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 Parts I and II are definedbelow:

| Abbreviation or  Acronym         | Definition                                                                                                                                                           |
|----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 401(k) Plan                      | Cleco Power 401(k)  Savings and Investment Plan                                                                                                                      |
| Acadia                           | 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        |
| APB                              | Accounting Principles  Board                                                                                                                                         |
| APB Opinion No. 18               | The Equity Method of  Accounting for Investments in Common Stock                                                                                                     |
| APB Opinion No. 25               | Accounting for Stock  Issued to Employees                                                                                                                            |
| APB Opinion No. 29               | Accounting for  Nonmonetary Transactions                                                                                                                             |
| APH                              | Acadia Power Holdings  LLC, a wholly owned subsidiary of Midstream                                                                                                   |
| Attala                           | Attala Transmission  LLC, a wholly owned subsidiary of Midstream                                                                                                     |
| Calpine                          | Calpine Corporation                                                                                                                                                  |
| Calpine Debtors                  | Calpine, CES, and  certain other Calpine subsidiaries                                                                                                                |
| Calpine Debtors Bankruptcy Court | U.S. Bankruptcy Court for the Southern District of New  York                                                                                                         |
| Calpine Tolling Agreements       | Capacity Sale and Tolling Agreements between Acadia and  CES which expires in 2022                                                                                   |
| 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                                           |
| EITF                             | Emerging Issues Task Force of the FASB                                                                                                                               |
| EITF No. 04-13                   | Accounting for  Purchases and Sales of Inventory with the Same Counterparty                                                                                          |
| Entergy                          | Entergy Corporation                                                                                                                                                  |
| Entergy Gulf States              | Entergy Gulf States, Inc.                                                                                                                                            |
| Entergy Louisiana                | Entergy Louisiana, Inc.                                                                                                                                              |
| Entergy Mississippi              | Entergy Mississippi, Inc.                                                                                                                                            |
| Entergy Services                 | Entergy Services, Inc., as agent for Entergy Louisiana  and Entergy Gulf States                                                                                      |
| EPC                              | Engineering, Procurement, and Construction                                                                                                                           |
| 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 which expires in 2020                                                                           |
| 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 46R                          | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)                                      |
| GDP-IPD                          | Gross Domestic Product - Implicit Price Deflator                                                                                                                     |
| ICT                              | Independent Coordinator of Transmission                                                                                                                              |
| Interconnection Agreement        | Interconnection Agreement and Real Estate Agreement  between Attala and Entergy Mississippi                                                                          |
| IRP                              | Integrated Resource Planning                                                                                                                                         |
| kWh                              | Kilowatt-hour(s) as applicable                                                                                                                                       |
| 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                                                                                                              |
| MAI                              | Mirant Americas, Inc., a wholly owned subsidiary of  Mirant Corporation                                                                                              |  
Midstream

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

 
Moody's

Moody's Investors Service

 
MW

Megawatt(s) as applicable

 
Not meaningful

A percentage comparison of these items is not  statistically meaningful because the percentage difference is greater than  1,000%.

 
PEH

Perryville Energy Holdings LLC, a wholly owned subsidiary  of Midstream

 
Perryville

Perryville Energy Partners, L.L.C., a wholly owned  subsidiary of PEH, which retains ownership of the plant-related transmission  assets following the sale of its 718-MW, natural gas-fired power plant (sold  to Entergy Louisiana on June 30, 2005) near Perryville, Louisiana

 
Power Purchase Agreement

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

 
Registrant(s)

Cleco Corporation and Cleco Power

 
RFP

Request for Proposal

 
3
****
Abbreviation or  Acronym

Definition

RSP

Rate Stabilization Plan

 
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

 
SFAS

Statement of Financial Accounting Standards

 
SFAS No. 71

Accounting for the Effects of Certain Types of Regulation

 
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. 140

Accounting for Transfers and Servicing of  Financial Assets and Extinguishments of Liabilities

 
SFAS No. 149

Amendment of Statement 133 on Derivative  Instruments and Hedging Activities

 
SFAS No. 155

Accounting for Certain Hybrid Financial Instruments - an amendment  of FASB Statements No. 133 and 140

 
SFAS No. 156

Accounting for Servicing of Financial Assets - an  amendment of FASB Statement No. 140

 
Subordinated Loan Agreement

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

 
SWEPCO

Southwestern Electric Power Company

 
Support Group

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

 
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, including, without limitation, statements regarding theconstruction, timing and cost of Cleco Power's 600-MW solid-fuel power plant,future capital expenditures, and future environmental regulations.  Althoughthe Registrants believe that the expectations reflected in such forward-lookingstatements are reasonable, such forward-looking statements are based on numerousassumptions (some of which may prove to be incorrect) and are subject to risksand uncertainties that could cause the actual results to differ materially fromthe Registrants' expectations.  In addition to any assumptions and otherfactors referred to specifically in connection with these forward-lookingstatements, the following list identifies some of the factors that could causethe Registrants' actual results to differ materially from those contemplated inany of the Registrants' forward-looking statements:
-  Factorsaffecting utility operations, such as unusual weather conditions or othernatural phenomena; catastrophic weather-related damage (such as hurricanes andtropical storms); unscheduled generation outages; unusual maintenance orrepairs; unanticipated changes to fuel costs, cost of and reliance on naturalgas as a component of Cleco's generation fuel mix and their impact oncompetition and franchises, fuel supply costs or availability constraints dueto higher demand, shortages, transportation problems or other developments;environmental incidents; or power transmission system constraints;
-  ClecoCorporation's holding company structure and its dependence on the earnings ofits subsidiaries and the distribution of such earnings to Cleco Corporation inthe form of dividends or distributions to meet its debt obligations and paydividends on its common stock;
-  ClecoPower's ability to construct, operate, and maintain, within its projected costs(including financing) and timeframe, Rodemacher Unit 3, a 600-MW solid-fuelpower plant, in addition to any other self-build projects identified in future IRP and RFP processes; 
-  Dependenceof Cleco Power for energy from sources other than its facilities and theuncertainty of future long-term sources of such additional energy;
-  Nonperformanceby and creditworthiness of counterparties under tolling, power purchase, andenergy service agreements, or the restructuring of those agreements, includingpossible termination;
-  Outcomeof the Calpine Debtors bankruptcy filing and its effect on agreements withAcadia;
-  Thefinal amount of storm restoration costs approved by the LPSC that ultimatelycan be recovered from Cleco Power's customers;
-  Regulatoryfactors such as changes in rate-setting policies, recovery of investments madeunder traditional regulation, the frequency and timing of rate increases ordecreases, the results of periodic fuel audits, the results of IRP and RFP processes,the timely recovery of storm restoration costs, the formation of RTOs and ICTs,and the establishment by Electric Reliability Organization of reliabilitystandards for bulk power systems and compliance with these standards by ClecoPower;
-  Financialor regulatory accounting principles or policies imposed by the FASB, the SEC,the Public Company Accounting Oversight Board, the FERC, the LPSC or similarentities with regulatory or accounting oversight;
-  Economicconditions, including the ability of customers to continue paying for highenergy costs, related growth and/or down-sizing of businesses in Cleco'sservice area, monetary fluctuations, and inflation rates;
-  Creditratings of Cleco Corporation, Cleco Power, and Evangeline;
-  	Changingmarket conditions and a variety of other factors associated with physicalenergy, financial transactions, and energy service activities, including, butnot limited to, price, basis, credit, liquidity, volatility, capacity, transmission,interest rates, and warranty risks;
-  Actsof terrorism;
-  Availabilityor cost of capital resulting from changes in Cleco's business or financialcondition, interest rates, and securities ratings or market perceptions of theelectric utility industry and energy-related industries;
-  Employeework force factors, including work stoppages and changes in key executives; 
-  Legal,environmental, and regulatory delays and other obstacles associated withmergers, acquisitions, capital projects, reorganizations, or investments injoint ventures;
-  Costsand other effects of legal and administrative proceedings, settlements,investigations, claims and other matters; and
-  Changesin federal, state, or local legislative requirements, such as the adoption ofthe Energy Policy Act of 2005, and changes in tax laws or rates, regulating policiesor environmental laws and regulations.

For additionaldiscussion of these factors and other factors that could cause actual resultsto differ materially from those contemplated in the Registrants'forward-looking statements, please read "Risk Factors" in this Report, as wellas in the Registrants' Combined Annual Report on Form 10-K for the fiscal yearended December 31, 2005.

All subsequent written and oral forward-lookingstatements attributable to the Registrants or persons acting on their behalfare expressly qualified in their entirety by the factors identified 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, 2005.  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 MARCH 31,

(THOUSANDS,	EXCEPT SHARE AND PER SHARE AMOUNTS) 

**                         2006**

** **

                      2005

**Operating revenue**

     Electric operations

** $        210,989**

   $         162,831

     Other operations

**             6,596**

                   7,151

     Affiliate revenue

**             1,451**

                   2,352

          Gross operating revenue

**         219,036**

              172,334

               Electric customer credits

**             4,382**

                     (218)

          Operating revenue, net

**         223,418**

              172,116

**Operating expenses**

     Fuel used for electric generation

**           48,363**

                 48,748

     Power purchased for utility customers

**         100,784**

                 50,514

     Other operations

**           16,708**

                 22,376

     Maintenance

**             5,933**

                   9,471

     Depreciation

**           15,645**

                 14,771

     Taxes other than income taxes

**           10,012**

                 10,428

          Total operating expenses

**         197,445**

              156,308

**Operating income**

**           25,973**

                 15,808

Interest income

**             2,492**

                       966

Allowance for other funds used during  construction

**                669**

                       948

Equity income from investees

**                373**

                   9,919

Other income

**                108**

                       293

Other expense

**               (328)**

                     (562)

Income before interest charges

**           29,287**

                 27,372

**Interest charges**

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

**           11,176**

                 12,118

     Allowance for borrowed funds used during  construction

**               (227)**

                     (316)

          Total interest charges

**           10,949**

                 11,802

**Income from continuing operations before  income taxes**

**           18,338**

                 15,570

Federal and state income tax expense	

**             6,113**

                   5,995

**Income from continuing operations**

**           12,225**

                   9,575

**Discontinued operations**

     Loss from discontinued operations, net of  tax

**                 (87)**

                     (134)

**Net income**

**           12,138**

                   9,441

Preferred dividends requirements, net

**                459**

                       475

**Net income applicable to common stock**

** $          11,679**

   $              8,966

**Average shares of common stock outstanding**

     Basic

**   49,851,812**

        49,292,849

     Diluted

**   52,120,948**

        49,373,623

**Basic earnings per share**

**                     **

     From continuing operations

** $              0.23**

   $                0.18

     Net income applicable to common stock

** $              0.23**

   $                0.18

**Diluted earnings per share**

     From continuing operations

** $              0.23**

   $                0.18

     Net income applicable to common stock

** $              0.23**

   $                0.18

**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 MARCH 31,

(THOUSANDS)

**                         2006**

** **

                      2005

Net income 

** $       12,138**

   $              9,441

Other comprehensive income, net of tax:

     Net unrealized income from limited  partnership (net of tax expense of $27 in 2005)

**                     -**

                         44

     Net unrealized income (loss) from  available-for-sale securities (net of tax expense (benefit) of $30 in 2006  and $(37) in 2005)

**                  48**

                       (59)

Other comprehensive income (loss)

**                  48**

                       (15)

**Comprehensive income, net of tax**

** $       12,186**

   $              9,426

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

8
****
CLECO CORPORATION

 

Condensed Consolidated BalanceSheets (Unaudited)

(THOUSANDS)

**       At MARCH 31,  2006**

** **

   AT DECEMBER 31, 2005

**Assets**

     Current assets

          Cash and  cash equivalents

**    $       137,429**

   $              219,153

          Customer  accounts receivable (less allowance for doubtful accounts of $765 in 2006 and  $1,262 in 2005)

**               35,277**

                     54,768

          Accounts  receivable - affiliate

**                 1,024**

                        1,071

          Other  accounts receivable 

**               33,018**

                     33,911

          Unbilled  revenue

**               15,370**

                     17,878

          Fuel  inventory, at average cost

**               41,265**

                     21,313

          Material and  supplies inventory, at average cost

**               29,322**

                     24,289

          Risk  management assets

**                         -**

                     10,110

          Accumulated  deferred fuel

**               36,769**

                     23,165

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

**               23,236**

                     22,888

          Margin  deposits

**               12,602**

                                 -

          Prepayments

**                 2,726**

                        3,344

          Other  current assets

**                 2,222**

                        2,578

               Total  current assets

**             370,260**

                   434,468

     Property, plant  and equipment

          Property,  plant and equipment

**         1,844,258**

               1,836,973

          Accumulated  depreciation

**           (839,459)**

                 (804,323)

          Net  property, plant and equipment

**         1,004,799**

               1,032,650

          Construction  work in progress

**             103,502**

                   156,053

               Total  property, plant and equipment, net

**         1,108,301**

               1,188,703

     Equity investment  in investees

**             323,940**

                   317,762

     Prepayments

**                 6,129**

                        5,961

     Restricted cash	

**                      87**

                              87

     Regulatory assets  and liabilities - deferred taxes, net  

**               92,430**

                     90,960

     Regulatory assets  - other

**             178,266**

                     53,439

     Other deferred  charges

**               44,332**

                     58,108

       **   Total assets**

**    $   2,123,745**

   $          2,149,488

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

**                      **

(Continued on nextpage)

9
****
CLECO CORPORATION

 

Condensed Consolidated BalanceSheets (Unaudited) (Continued)

(THOUSANDS)

**       AT MARCH 31,  2006**

** **

   AT DECEMBER 31, 2005

**Liabilities and shareholders' equity**

**   Liabilities**

          Current  liabilities

               Long-term  debt due within one year

**    $         50,000**

   $                40,000

               Accounts  payable

**               90,281**

                   143,692

               Retainage

**                 1,071**

                           768

               Accrued  payroll

**                 1,509**

                        2,875

               Accounts  payable - affiliate

**                 7,604**

                        3,439

               Customer  deposits

**               23,979**

                     23,436

               Provision  for rate refund

**                 1,284**

                        7,927

               Taxes  accrued

**               36,788**

                     35,475

               Interest  accrued

**               10,810**

                        9,167

               Accumulated  current deferred taxes, net

**               22,069**

                     17,402

               Margin  deposits

**                         -**

                        4,316

               Risk  management liability

**               17,025**

                                 -

               Other  current liabilities

**                 5,070**

                        5,607

          Total  current liabilities

**             267,490**

                   294,104

     Deferred credits

          Accumulated  deferred federal and state income taxes, net

**             450,114**

                   449,129

          Accumulated  deferred investment tax credits

**               15,249**

                     15,632

          Other  deferred credits

**               81,246**

                     74,717

               Total  deferred credits

**             546,609**

                   539,478

     Long-term debt,  net 

**             599,597**

                   609,643

               Total  liabilities

**         1,413,696**

               1,443,225

Commitments and  Contingencies (Note 8)

**Shareholders' equity**

     Preferred stock

          Not subject  to mandatory redemption, $100 par value, authorized 1,491,900 shares, issued 210,175  and 218,170 shares at           March 31, 2006 and December 31, 2005, respectively

**               21,017**

                     21,817

          Deferred  compensation related to preferred stock held by ESOP

**                     (30)**

                      (1,783)

          Total  preferred stock not subject to mandatory redemption

**               20,987**

                     20,034

     Common  shareholders' equity

          Common  stock, $1 par value, authorized 100,000,000 shares, issued 50,335,050 and 50,030,035  shares at March 31, 2006 and           December 31, 2005, respectively

**               50,252**

                     50,030

          Premium on  common stock

**             199,274**

                   202,416

          Retained  earnings

**             444,305**

                   443,912

          Unearned  compensation

**                         -**

                      (5,285)

          Treasury  stock, at cost, 35,375 and 36,644 shares at March 31, 2006 and December 31, 2005,  respectively

**                   (687)**

                          (714)

          Accumulated  other comprehensive loss

**               (4,082)**

                      (4,130)

               Total  common shareholders' equity

**             689,062**

                   686,229

                   Total  shareholders' equity

**             710,049**

                   706,263

**Total liabilities and shareholders' equity**

**    $   2,123,745**

   $          2,149,488

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

10
****
CLECO CORPORATION

 

Condensed Consolidated Statementsof Cash Flows (Unaudited)

      FOR	THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**                            2006**

** **

                      2005

**Operating  activities**

     Net income	

**    $       12,138**

   $              9,441

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

          Depreciation  and amortization

**             16,506**

                 15,461

          Provision for  doubtful accounts

**                  646**

                       375

          Return on  equity investment in investee

**                    32**

                   8,273

          Income from  equity investments

**                (373)**

                  (9,919)

          Unearned/deferred  compensation expense

**                  831**

                   1,425

          ESOP expense

**                    92**

                       145

          Allowance for  other funds used during construction

**                (669)**

                     (948)

          Amortization  of investment tax credits

**                (383)**

                     (418)

          Net deferred  income taxes 

**               3,931**

                   4,123

          Deferred fuel  costs 

**             15,698**

                   4,862

          Loss on fuel  hedges

**               1,876**

                            -

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

**                (348)**

                        (66)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**             18,427**

               (12,642)

               Accounts  and notes receivable, affiliate 

**                    47**

                  (1,878)

               Unbilled  revenue

**               2,508**

                   3,108

               Fuel,  materials and supplies inventory

**           (24,984)**

                     (871)

               Accounts  payable

**           (41,675)**

               (26,190)

               Accounts  and notes payable, affiliate

**               4,165**

                   9,507

               Accrued  payroll

**             (1,366)**

                   1,359

               Customer  deposits

**               1,857**

                   1,311

               Regulatory  assets and liabilities, net

**           (42,177)**

                       322

               Other  deferred accounts

**               2,482**

                   4,002

               Taxes  accrued

**                (267)**

                  (2,943)

               Interest  accrued

**               1,643**

                       780

               Margin  deposits

**           (20,031)**

                   8,802

               Other,  net

**                  873**

                   1,949

          Net cash (used  in) provided by operating activities

**           (48,521)**

                 19,370

**Investing  activities**

     Additions to  property, plant and equipment

**           (20,213)**

               (18,664)

     Allowance for  other funds used during construction

**                  669**

                       948

     Return of equity  investment in investee

**               2,771**

                   5,102

     Investment in cost  method investments

**                       -**

                  (1,385)

     Equity investment  in investee

**             (7,026)**

                            -

     Other investing  activities

**                  229**

                         57

          Net cash used  in investing activities

**           (23,570)**

                (13,942)

**Financing  activities**

     Exercise of  options to common stock

**                  571**

                       726

     Issuance of common  stock under the ESOP

**                  422**

                            -

     Stock based  compensation tax benefit

**                    68**

                            -

     Change in  short-term debt, net

**                       -**

                 25,000

     Retirement of  long-term obligations

**                  (66)**

               (60,000)

     Issuance of  long-term debt

**                       -**

                 25,000

     Deferred financing  costs

**                (112)**

                            -

     Change in ESOP  trust 

**               1,661**

                   1,636

     Dividends paid on  preferred stock

**                (910)**

                     (979)

     Dividends paid on  common stock 

**           (11,267)**

               (11,173)

          Net cash used  in financing activities

**             (9,633)**

               (19,790)

**Net decrease in cash  and cash equivalents**

**           (81,724)**

               (14,362)

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

**           219,153**

              123,787

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

**    $     137,429**

   $          109,425

**Supplementary cash  flow information**

     Interest paid	

**    $         8,996**

   $            10,482

     Income taxes paid	

**    $               23**

   $              7,451

**Supplementary non-cash  investing and financing activities**

     Issuance of  treasury stock - LTICP and ESOP plans

**    $               27**

   $                   15

     Issuance of common  stock - LTICP/ESOP/ESPP 1

**    $         1,538**

   $              1,853

     Accrued additions  to property, plant and equipment not reported above

**    $       20,453**

   $                      -

1  Includes conversion of preferred stock to common  stock ($799/2006, $729/2005)

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

11
****
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, 2005.  For more information on the basis of presentation,see "Notes to the Unaudited Condensed Financial Statements - Note 1 - Summaryof Significant Accounting Policies - Basis of Presentation."

12
****
CLECO POWER

 

Condensed Statements of Income(Unaudited)

      FOR THE	THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**                         2006**

** **

                      2005

**Operating revenue**

** **

     Electric  operations

**    $   210,989**

   $         162,831

     Other operations

**             6,549**

                   7,080

     Affiliate revenue

**                512**

                       495

          Gross  operating revenue

**         218,050**

              170,406

               Electric  customer credits

**             4,382**

                     (218)

          Operating  revenue, net

**         222,432**

              170,188

**Operating expenses**

     Fuel used for  electric generation

**           48,363**

                 48,748

     Power purchased  for utility customers

**         100,784**

                 50,514

     Other operations

**           16,242**

                 20,349

     Maintenance

**             5,347**

                   8,545

     Depreciation

**           15,225**

                 14,396

     Taxes other than  income taxes

**             9,309**

                   9,584

          Total  operating expenses

**         195,270**

              152,136

**Operating income**

**           27,162**

                 18,052

Interest income

**             2,336**

                       612

Allowance for other  funds used during construction

**                669**

                       948

Other income

**                  67**

                       303

Other expense

**               (325)**

                     (445)

Income before interest  charges

**           29,909**

                 19,470

**Interest charges**

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

**             9,206**

                   7,503

     Allowance for  borrowed funds used during construction

**               (227)**

                     (316)

          Total  interest charges

**             8,979**

                   7,187

**Income before income taxes**

**           20,930**

                 12,283

Federal and state  income taxes

**             7,057**

                   4,674

**Net income**

**    $     13,873**

   $              7,609

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

13

CLECO POWER

 

Condensed Balance Sheets(Unaudited)

(Thousands)

**      	AT MARCH 31,  2006**

** **

   AT DECEMBER 31, 2005

**Assets**

** **

     Utility plant and equipment

          Property, plant and equipment

**    $   1,829,600**

   $            1,822,798

          Accumulated depreciation

**           (832,407)**

                   (797,690)

          Net property, plant and equipment

**             997,193**

                 1,025,108

          Construction work in progress

**             103,236**

                     155,427

               Total utility plant, net

**         1,100,429**

                 1,180,535

     Current assets

          Cash and cash equivalents

**             116,025**

                     183,381

          Customer accounts receivable (less  allowance for doubtful accounts of $765 in 2006 and $1,262 in 2005)

**               35,277**

                       54,768

          Other accounts receivable

**               32,451**

                       31,690

          Accounts receivable - affiliate

**                 3,766**

                          4,530

          Unbilled revenue

**               15,370**

                       17,878

          Fuel inventory, at average cost

**               41,265**

                       21,313

          Material and supplies inventory, at  average cost

**               29,322**

                       24,289

          Margin deposits

**               12,602**

                                   -

          Risk management assets

**                         -**

                       10,110

          Prepayments

**                 2,143**

                          2,460

          Accumulated deferred fuel

**               36,769**

                       23,165

          Cash surrender value of life insurance  policies

**                 5,251**

                          5,143

          Other current assets

**                 1,107**

                             512

               Total current assets

**             331,348**

                     379,239

     Prepayments

**                 6,129**

                          5,961

     Regulatory assets and liabilities - deferred  taxes, net

**               92,430**

                       90,960

     Regulatory assets - other

**             178,266**

                       53,439

     Other deferred charges

**               42,139**

                       55,800

**Total assets**

**    $    1,750,741**

   $             1,765,934

**Liabilities and member's equity**

     Member's equity

**    $       548,083**

   $                534,210

     Long-term debt, net

**             499,597**

                     509,643

          Total capitalization

**         1,047,680**

                 1,043,853

Current liabilities

     Long-term debt due within one year

**               50,000**

                       40,000

     Accounts payable

**               87,460**

                     135,342

     Accounts payable - affiliate

**               16,115**

                          8,122

     Customer deposits

**               23,979**

                       23,436

     Provision for rate refund

**                 1,284**

                          7,927

     Taxes accrued

**               10,307**

                       12,149

     Interest accrued

**                 7,893**

                          8,001

     Accumulated deferred taxes, net

**               21,220**

                       18,033

     Margin deposits

**                         -**

                          4,316

     Risk management liability

**               17,025**

                                   -

     Other current liabilities

**                 2,602**

                          3,815

               Total current liabilities

**             237,885**

                     261,141

Deferred credits

     Accumulated deferred federal and state  income taxes, net

**             389,578**

                     390,906

     Accumulated deferred investment tax credits

**               15,249**

                       15,632

     Other deferred credits

**               60,349**

                       54,402

               Total deferred credits

**             465,176**

                     460,940

**Total liabilities and member's equity**

**    $   1,750,741**

   $            1,765,934

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

14
****
CLECO POWER

 

Statements of Cash Flows(Unaudited)

      FOR THE	THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

** 2006**

** **

2005

**Operating activities**

     Net income

**    $     13,873**

   $              7,609

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

          Depreciation  and amortization

**           15,949**

                 14,907

          Provision  for doubtful accounts

**                646**

                       375

          Unearned/deferred  compensation expense

**                473**

                       691

          Allowance  for other funds used during construction

**               (669)**

                     (948)

          Amortization  of investment tax credits

**               (383)**

                     (418)

          Net deferred  income taxes

**             1,346**

                   1,657

          Deferred  fuel costs 

**           15,698**

                   4,862

          Loss on fuel  hedges

**             1,876**

                             -

          Cash  surrender value of company-owned life insurance

**               (108)**

                     (110)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**           16,767**

               (12,793)

               Accounts  and notes receivable, affiliate

**             1,074**

                   3,674

               Unbilled  revenue

**             2,508**

                   3,108

               Fuel,  materials and supplies inventory

**         (24,984)**

                     (871)

               Accounts  payable

**         (36,695)**

               (23,105)

               Accounts  and notes payable, affiliate

**             6,286**

                   6,325

               Accrued  payroll

**               (973)**

                       992

               Customer  deposits

**             1,857**

                   1,329

               Regulatory  assets and liabilities, net

**         (42,177)**

                       322

               Other  deferred accounts

**             2,075**

                   3,087

               Taxes  accrued

**           (1,842)**

                       469

               Interest  accrued

**               (107)**

                  (3,454)

               Margin  deposits

**         (20,031)**

                   8,802

               Other,  net

**               (446)**

                       628

          Net cash (used  in) provided by operating activities

**         (47,987)**

                 17,138

**Investing activities**

     Additions to  property, plant and equipment

**         (20,089)**

               (18,402)

     Allowance for  other funds used during construction

**                669**

                       948

     Proceeds from  sale of property, plant and equipment

**                229**

                         57

          Net cash  used in investing activities

**         (19,191)**

               (17,397)

**Financing activities**

     Change in short-term  debt, net

**                     -**

                 25,000

     Retirement of  long-term obligations

**                 (66)**

               (60,000)

     Issuance of  long-term debt

**                     -**

                 25,000

     Deferred  financing costs

**               (112)**

                            -

     Distribution to  parent

**                     -**

               (12,300)

          Net cash  used in financing activities

**               (178)**

               (22,300)

**Net decrease in cash and cash equivalents**

**         (67,356)**

               (22,559)

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

**         183,381**

                 54,113

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

**    $   116,025**

   $            31,554

**Supplementary cash flow information**

     Interest paid	

**    $       8,961**

   $            10,482

     Income taxes paid  

**    $                -**

   $              4,793

**Supplementary non-cash investing and  financing activities**

     Accrued additions  to property, plant and equipment not reported above

**    $     20,453**

   $                      -

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

15
****
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

Regulatory Assets and  Liabilities

Cleco Corporation and  Cleco Power

Note 4

Disclosures  about Segments

Cleco Corporation	

Note 5

Equity Investment in Investees

Cleco Corporation	

Note 6

Recent Accounting Standards

Cleco Corporation and  Cleco Power

Note 7

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

Pension Plan and  Employee Benefits

Cleco Corporation and  Cleco Power

Note 11

Discontinued  Operations and Dispositions

Cleco Corporation	

Note 12

Income Taxes

Cleco Corporation and  Cleco Power

Note 13

Deferred Fuel and Purchased  Power Costs

Cleco Corporation and  Cleco Power

Note 14

Affiliate Transactions

Cleco Corporation

Note 15

Franchises

Cleco Corporation and Cleco  Power

Note 16

Calpine Bankruptcy

Cleco Corporation

16
****
Notes to the Unaudited Condensed FinancialStatements

 

**Note 1 - Summary of Significant Accounting Policies**

 

***Principles of Consolidation***

The accompanying consolidated financial statementsof 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 three of its indirect, wholly owned subsidiaries.  These threesubsidiaries, Evangeline, Perryville, and Attala, are considered variableinterest entities.  In accordance with FIN 46R, Cleco reports its investmentsin these entities on the equity method of accounting.  As a result, the assetsand liabilities of these entities are represented by one line itemcorresponding to Cleco's equity investment in these entities.  The operationsof these entities are reported as equity income from investees on ClecoCorporation's Condensed Consolidated Statements of Income.  For additional informationon the operations of these entities, see Note 5 - "Equity Investment inInvestees."

The financial results of Perryville and PEH priorto their filing for bankruptcy protection on January 27, 2004, were included inCleco Corporation's consolidated results.  However, generally acceptedaccounting principles preclude consolidation of majority-owned subsidiarieswhere control does not rest with the majority owners.  During thereorganization period (January 28, 2004 through October 10, 2005), Clecoutilized the cost method to account for its investment in Perryville and PEH. The cost method required Cleco to present the net assets of Perryville and PEHat January 27, 2004, as an investment and not recognize any income or loss fromPerryville or PEH in Cleco's results of operations during the reorganizationperiod. 

On October 11, 2005, an order confirming Perryvilleand PEH's plan of reorganization became final.  As of the effective date of theorder, the cost method no longer was the appropriate method to use to accountfor the investment in Perryville and PEH.  Through a review of equity interestsand other contractual relationships, as required by FIN 46R, it was determined thatCleco was the primary beneficiary of PEH.  Therefore, effective October 11,2005, PEH's results during the reorganization period are reflected in Cleco'sconsolidated results.  In a similar review, Cleco has determined that it is notthe primary beneficiary of Perryville, which is considered a variable interestentity.  Therefore, effective October 11, 2005, Perryville's revenue andexpenses during the reorganization period are netted and reported as equityincome from investees on Cleco Corporation's Consolidated Statements of Income,and Perryville's assets and liabilities are represented by one line itemcorresponding to Cleco's equity investment in Perryville on Cleco Corporation'sConsolidated Balance Sheets.  Therefore, Cleco would reintegrate PEH retroactivelyto January 28, 2004, and in accordance with FIN 46R, Cleco would report itsinvestment in Perryville on the equity method of accounting retroactively toJanuary 28, 2004.  However, in accordance with APB Opinion No. 18, since PEHand Perryville had a negative cost basis and incurred losses for 2004 and thefirst and second quarters of 2005, PEH and Perryville should not be reflectedin Cleco Corporation's Consolidated Statements of Income until such time as PEHand Perryville have sufficient income to exceed their negative cost basis andcumulative losses.  In the third quarter of 2005, Perryville recognizedearnings from the settlement of its claims against Mirant Corporation sufficientto exceed PEH's and Perryville's initial negative cost basis and cumulativelosses incurred after January 28, 2004.  When Cleco files its Quarterly Reporton Form 10-Q for the period ending September 30, 2006, the comparative periodfor 2005 will be restated to reflect PEH's and Perryville's reintegration inthe third quarter of 2005.

***Basis of Presentation***

The condensed consolidated financial statements ofCleco Corporation and the condensed financial statements of Cleco Power havebeen prepared pursuant to the rules and regulations of the SEC.  Accordingly, certaininformation and note disclosures normally included in financial statements preparedin accordance with generally accepted accounting principles have been condensedor omitted, although Cleco believes that the disclosures are adequate to makethe information presented not 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 reflects all adjustments of a normalrecurring nature which are, in the opinion of the management of Cleco Corporationand Cleco Power, necessary for a fair statement of the financial position andthe results of operations for the interim periods.  Information for interim periodsis affected by seasonal variations in sales, rate changes, timing of fuelexpense recovery and other factors, and is not indicative necessarily of theresults that may be expected for the full fiscal year.  For more information onrecent accounting standards and their effect on financial results, see Note 6 -"Recent Accounting Standards."

***Risk Management***

Market riskinherent in Cleco's market risk-sensitive instruments and positions includesthe potential change in interest rates and the commodity market prices of powerand natural gas on different energy exchanges.  Cleco's Trading Risk ManagementPolicy authorizes the use of various derivative instruments, including exchangetraded futures and option contracts, forward purchase and sales contracts, andswap transactions to reduce exposure to fluctuations in the price of 

17
****
power andnatural gas.  Generally, Cleco Power's market risk-sensitive instruments andpositions qualify for the normal-purchase, normal-sale exception tomark-to-market accounting of SFAS No. 133, as modified by SFAS No. 149, sinceCleco Power generally takes physical delivery and the instruments and positionsare used to satisfy customer requirements.  Cleco Power has entered intocertain financial transactions, through December 2010, it considers economichedges to mitigate the risk associated with the fixed-price power that is beingprovided to a new wholesale customer.  The economic hedges cover approximately 98%of the estimated daily peak hour power sales to the municipal customer.  Thesetransactions are derivatives as defined by SFAS No. 133, but do not meet theaccounting criteria to be considered hedges.  These transactions aremarked-to-market with the resulting gain or loss recorded on the incomestatement as a component of operating revenue, net.  At March 31, 2006, the positions had a mark-to-market valueof $3.4 million, which is down $1.9 million from the mark-to-market value of$5.3 million at December 31, 2005.  In addition, the positions resulted in arealized loss of $0.1 million during the first quarter of 2006.

Cleco Powerhas entered into other positions to mitigate some of the volatility in fuel costs passed on to customers. These positions are marked-to-market with the resulting gain or loss recordedon the balance sheet as a component of the accumulated deferred fuel asset orliability and a component of risk management assets or liabilities.  When thesepositions close, actual gains or losses will be included in the fuel adjustmentclause and reflected on customers' bills as a component of the fuel cost adjustment.  Based on market prices at March 31,2006, the net mark-to-market impact relating to these positions was a loss of $17.5million.  

Anypositions entered into for marketing and trading purposes do not meet theexemptions of SFAS No. 133, and the net mark-to-market of those positions isrecorded in income.  There were no speculative positions at March 31, 2006, orDecember 31, 2005.

Cleco and ClecoPower maintain a master netting agreement policy and monitor credit riskexposure through review of counterparty credit quality, corporate-wideaggregate counterparty credit exposure and corporate-wide aggregate counterpartyconcentration levels.  Cleco actively manages these risks by establishing appropriatecredit and concentration limits on transactions with counterparties and byrequiring contractual guarantees, cash deposits or letters of credit fromcounterparties or their affiliates, as deemed necessary.  Cleco Power hasagreements in place with various counterparties that authorize the netting offinancial buys and sells and contract payments to mitigate credit risk fortransactions entered into for risk management purposes.

***Earnings per Average Common Share***

Earnings per share is calculated utilizing the"two-class" method by dividing earnings allocated to each share of common stockby the weighted average number of shares of common stock outstanding during theperiod.  The table below shows the calculation of basic and diluted earningsper share.
 
FOR THE THREE MONTHS ENDED MARCH 31,

**              2006**

              2005

  (THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

**                INCOME**

               	**SHARES**

**PER  SHARE AMOUNT**

               INCOME

               SHARES

PER SHARE AMOUNT

Net income from continuing operations

** $    12,225**

   $           9,575

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

**               12**

                      11

Deduct:  participating preferred stock dividends

**             449**

                   484

Deduct:  amount allocated to participating  preferred

**               22**

                         -

**Basic earnings per share**

Net income from continuing operations available to  common shareholders

** $    11,742**

** $    0.23**

   $           9,080

   $        0.18

Loss from discontinued operations

**             (87)**

**             -**

                  (134)

                   -

Total basic net income applicable to common stock

** $    11,655**

**   49,851,812**

** $    0.23**

   $           8,946

      49,292,849

   $        0.18

**Effect of Dilutive Securities**

Add:  stock option grants

**                 8**

**        94,382**

                         -

              69,210

Add:  restricted stock (LTICP)

**                  -**

**      197,800**

                         -

              11,564

Add:  Convertible ESOP preferred stock

**             471**

** 1,976,954**

                         -

                          -

**Diluted earnings per share**

Net income from continuing operations available to  common shareholders plus assumed conversions

**  $    12,221**
   
**  $    0.23**

   	$           9,080

 

   $        0.18

Loss from discontinued operations

**             (87)**

**             -**

                  (134)

                   -

Total diluted net income applicable to common  stock

** $    12,134**

**   52,120,948**

** $    0.23**

   $           8,946

      49,373,623

   $        0.18

Stock optiongrants excluded from the computation of diluted earnings per share arepresented in the table below.  The stock option grants excluded from the computationofdiluted earnings per share had exercise prices higher than the average marketprice.

** **

FOR THE THREE MONTHS ENDED MARCH 31,

**                 2006**

                   2005

 

**    	          STRIKE PRICE**

            	**AVERAGE	MARKET PRICE**

**          	   SHARES**

              	STRIKE PRICE

             AVERAGE MARKET PRICE

  	             SHARES

Stock option grants excluded

** $22.00 - $24.25**

**    $    21.90**

**    350,336**

     $21.88 - $24.25

          $     20.40

            380,468

18
****
Convertible ESOPpreferred stock shares of 2,131,591 were not included in the computation ofdiluted earnings per share for the three months ended March 31, 2005, becausethe effects would have been anti-dilutive.

***Stock-Based Compensation***

Effective January 1, 2006, Cleco adopted theprovisions of SFAS No. 123R for its share-based compensation plans.  Clecopreviously accounted for these plans under APB Opinion No. 25 and relatedinterpretations and provided disclosure requirements established by SFAS No.123.  At March 31, 2006, Cleco had two stock-based compensation plans:  theESPP and the LTICP.  Substantially all employees, excluding officers andgeneral managers, of Cleco Corporation and its subsidiaries may choose toparticipate in the ESPP and purchase a limited amount of common stock at adiscount through a stock option agreement.  Options or restricted shares ofstock, known as non-vested stock as defined by SFAS No. 123R, common stockequivalents, and stock appreciation rights may be granted to certain officers,key employees, or directors of Cleco Corporation and its subsidiaries pursuantto the LTICP.  

Under APB Opinion No. 25, no share-based employeecompensation was reflected in Cleco's income statement, other than for non-vestedstock grants, as all compensatory stock options granted had an exercise priceequal to the fair market value of common stock on the date of grant, and ESPPoptions were considered noncompensatory.  However, Cleco disclosed a pro forma fairvalue expense, as required by SFAS No. 123.  The fair market value of non-vestedstock was recorded as compensation expense during the service periods, which isgenerally three years, in which the restrictions lapse and if obtainment ofvesting requirements was probable.  Under SFAS No. 123R, all share-basedcompensation cost is measured at the grant date, based on the fair value of theaward, and is recognized as an expense in the income statement over anemployee's requisite service period which is typically three years.  Awardsthat vest pro rata during the requisite service period that contain only aservice condition could be viewed not as one award, but instead as multipleawards with separate vesting schedules and are defined as having a gradedvesting schedule.  As allowed by SFAS No. 123R, Cleco has elected to viewgrants with graded vesting schedules as one award and recognize the related compensationexpense on a straight-line basis over the requisite service period.  EffectiveJanuary 1, 2006, the ESPP was amended and defined as a noncompensatory plan pursuantto SFAS No. 123R.  The ESPP's discount rate is 5%, substantially all employeescan participate in the ESPP, and the plan does not contain optionality featuresbeyond those listed by SFAS No. 123R; therefore, it is considerednoncompensatory.  Cleco is not required to recognize a fair-value expenserelated to the ESPP.

Cleco adopted SFAS No. 123R using the modified prospectivemethod, which requires compensation expense to be recorded for all non-vestedoptions and non-vested stock beginning in the first quarter of adoption.  Underthis transition method, compensation cost recognized for the period ended March31, 2006, includes the cost for all share-based payments granted prior to, butnot yet vested, as of January 1, 2006.  This cost was based on the grant-datefair value.  The cost for all share-based awards granted subsequent to January1, 2006, represents the grant-date fair value.  Results for prior periods havenot been restated.  Cleco and Cleco Power reported pre-tax compensation expensefor their share-based compensation plans as shown in the following table:

CLECO CORPORATION

CLECO POWER

                            	FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**             2006**

               2005

             	**2006**

             2005

**Equity classification**

** **

Non-vested stock

**            $        731**

** **

   $       1,155

 $     299

   $         604

Stock options (1)

**          22**

** **

                     -

             6

                   -

Non-forfeitable dividends (1)

**            8**

** **

                     -

             5

                   -

**Total**

**$        761**

** **

   $       1,155

 $     310

   $         604

**Liability classification**

** **

Common stock equivalent units

**$        113**

** **

   $               -

 $       45

   $              -

Company funded participants income tax  obligations

**        291**

** **

               317

         155

                 88

**Total**

**$        404**

** **

   $          317

                       	

 $     200

   $           88

**Total pre-tax compensation expense**

**$     1,165**

** **

   $       1,472

 $     510

   $         692

**Tax benefit (excluding income tax gross-up)**

**$        336**

** **

   $          445

 $     136

   $         232

(1)  For the period ended March 31, 2006, compensation  expense charged against income for the first time for non-forfeitable dividends  paid on non-vested stock not expected to vest and stock options was less than  $0.1 million.
Net income and net income per common share forCleco and net income for Cleco Power would approximate the pro forma amountsshown in the following table, if the compensation expense for these plans wasrecognized in compliance with SFAS No. 123 prior to the adoption of SFAS No.123R.  The income tax gross-up related to the shares of non-vested stockgranted under the LTICP is not included in the pro forma amounts as shownbelow, since its treatment was the same under APB Opinion No. 25 and SFAS No.123.
19
****
***Cleco***

  (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FOR THE  THREE MONTHS ENDED MARCH  31, 2005

 
Net income applicable to common stock, as  reported

         $        8,966

Add:  stock-based employee compensation expense  recognized and included in reported net income applicable to common stock,  net of related tax effects

                       710

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

                       556

Pro forma net income applicable to common stock

         $        9,120

Earnings per share:

     Basic - as reported

         $          0.18

     Basic - pro forma

         $          0.18

     Diluted - as reported

         $          0.18

     Diluted - pro forma

         $          0.18

 

***Cleco Power***

  (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FOR THE  THREE MONTHS	 ENDED MARCH  31, 2005

Net income, as reported

         $        7,609

Add:  stock-based employee compensation expense  recognized and included in reported net income, net of related tax effects

                       372

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

                       224

Pro forma net income 

         $        7,757

In the pro forma disclosures presented for periodsprior to the adoption of SFAS No. 123R, Cleco did not disclose the amount ofthe stock-based compensation costs capitalized in property, plant andequipment.  As required by SFAS No. 123R, the amount of stock-basedcompensation capitalized in property, plant and equipment for the three monthsended March 31, 2006, was $0.2 million.

Cash received from options exercised under allshare-based compensation plans for the three months ended March 31, 2006, was$0.6 million.  No cash was paid to settle equity instruments granted under theshare-based compensation plans for the three months ended March 31, 2006.

***Share-Based Plan Descriptions and Share Information***

**Stock Options**

LTICP stock options may be granted to certainofficers, key employees, or directors of Cleco.  The directors' stock optionshave an exercise price approximately equal to the fair market value of thestock on the grant date, are immediately exercisable, and expire after tenyears.  The employees' stock options have an exercise price approximately equalto the fair market value of the stock on the grant date, vest one-third eachyear, beginning on the third anniversary of the grant date, and expire afterten years.  Prior to the adoption of SFAS No. 123R, Cleco Corporation recordedno charge to expense with respect to the granting of stock options at fairmarket value or above to employees or directors.  However, pursuant to SFASNo.123 the estimated fair value was calculated using the Black-Scholes optionpricing model and was included in the pro forma disclosures.  Cleco did notgrant any LTICP stock options in 2005.  Cleco did grant ESPP options during2005.  The fair market values of LTICP stock options granted in 2006 and the stockoptions granted prior to the adoption of SFAS No. 123R, which are beingexpensed for the first time, were measured on the grant date using theBlack-Scholes option-pricing model, with the following weighted-average assumptions:

                                               AS	OF MARCH 31, 

 
**                                 2006**

                     2005

 
Expected term (in years) (1)

**                      7.0**

                        1.0

Volatility (2)

**28.00% to 30.39%**

                 22.0%

Expected dividend yield

**                   4.2%**

                   4.2%

Risk-free interest rate

**                   4.4%**

                   2.8%

Weighted average fair value  (Black-Scholes value)

**              $    4.75**

               $   4.04

(1)  The expected termwas determined using  an SEC safe harbor method due to the small number of  recipients of these options.

 
(2)  The volatility rate is based on historical stock  prices over an appropriate period, generally equal to the expected term.

 
 A summary of LTICP stock option activityduring the three months ended March 31, 2006, is presented below:
   
                    		SHARES

	WEIGHTED-AVERAGE	EXERCISE PRICE
WEIGHTED-AVERAGE	REMAINING	CONTRACTUAL	TERM (YEARS)
         	AGGREGATE	INTRINSIC VALUE	(THOUSANDS)

Outstanding at January 1, 2006

**     1,023,729**

**     $     20.01**

Granted

**          60,000**

**     $     22.00**

Exercised

**        (35,400)**

**     $     16.13**

Forfeited 

**          (2,799)**

**     $     23.38**

Expired

**                    -**

**     $              -**

Outstanding at March 31, 2006

**     1,045,530**

**     $     20.25**

**               4.85**

**     $   2,363**

Exercisable at March 31, 2006

**        875,646**

**     $     19.90**

**               5.16**

**     $   2,232**

20
****
The totalintrinsic value of options exercised during the three months ended March 31,2006, and 2005 was $0.2 million and $0.1 million, respectively.

***Non-Vested Stock and Common Stock Equivalent Units***

Through December 31, 2005, Cleco had granted toemployees two types of non-vested stock with market and/or performanceobjectives.  The first type, target shares, can be voted, and employees receivedividends on the shares prior to the lapse of the restrictions.  The secondtype, opportunity shares, is not issued to employees until the market and/or performanceobjectives have been met; therefore, these shares cannot be voted, nor do employeesreceive dividends on the shares prior to the lapse of the restrictions.  Bothtypes of grants require the satisfaction of the service requirement, as well asthe achievement of one or more market-based or performance-based objectives inorder to obtain vesting.  However, if certain events occur, such as retirementafter age 55 or termination as part of a plan of reorganization prior to theend of the service period, then employees would vest in a pro rata number oftarget and opportunity shares. 

In 2006, Cleco granted non-vested stock and commonstock equivalent units (CEUs) to certain employees.  The non-vested stock isclassified as equity since the grant can only be settled in shares of ClecoCorporation common stock.  The recipients of the non-vested stock can vote theshares; however, dividends are not paid until the end of the service period andonly in proportion to the non-vested stock that actually vests.  The CEUsgranted are classified as liabilities since the grant can only be settled incash.  Recipients of the CEUs will receive a dividend equivalent under the sameterms as the dividends paid on the non-vested stock.  In order to vest, bothinstruments require the satisfaction of a service requirement and amarket-based requirement.  Recipients of both types of instruments are eligibleto receive opportunity instruments if certain market-based measures areexceeded.  

At March 31, 2006, the number of target andopportunity restricted shares and CEUs previously granted for which restrictionshad not lapsed totaled 682,420.  Cleco also grants to employees and directors non-vestedstock with only a service period requirement.  These grants require the satisfactionof a pre-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 March 31, 2006, the number of shares of non-vested stock previouslygranted with only a service period requirement for which the period had notended was 92,627.

The fair value of shares of non-vested stockgranted in 2006 and 2005 under the LTICP is estimated on the date of grant, andthe CEUs granted in 2006 under the LTICP are marked-to-market using the MonteCarlo simulation model with the assumptions listed below:

                                    AS OF  MARCH 31, 

                  	**2006**

                       2005

**NON-VESTED  STOCK**

** **

**                   CEUs**

NON-VESTED STOCK

Expected term (in years) (1)

**                  3.0**

**             3.0**

                        3.0

Volatility of Cleco stock (2)

**              23.0%**

**       20.47%**

                 33.0%

Correlation between Cleco  stock volatility and peer group

**              33.7%**

**        33.4%**

                 41.4%

Expected dividend yield

**                4.1%**

**          4.0%**

                    4.2%

Weighted average fair value (Monte Carlo model)

**        $    24.85**

**    $   25.69**

      $           24.98

(1)  The  expected term was based on the service period of the award.

(2)  The  volatility rate is based on historical stock prices over an appropriate  period, generally equal to the expected term.

A summary of non-vested stock activityduring the three months ended March 31, 2006, is presented below:

                 	SHARES

WEIGHTED-AVERAGE	GRANT-DATE FAIR	VALUE

                     	UNITS
WEIGHTED-AVERAGE	GRANT-DATE FAIR	VALUE
NON-VESTED STOCK

CEUs

Non-vested  at January 1, 2006

**       289,267**

**     $     22.08**

**                   -**

**     $             -**

Granted

**         83,425**

**     $     24.11**

**         61,145**

**     $    24.85**

Vested

**                   -**

**     $              -**

**                   -**

**     $             -**

Expected to vest (1)

**     (168,193)**

**     $     21.84**

**         (5,095)**

**     $    24.85**

Forfeited

**                   -**

**     $              -**

**                   -**

**     $             -**

Non-vested at March 31, 2006

**       204,499**

**     $     23.11**

**         56,050**

**     $    24.85**

(1)  Expected to vest are the pro rata amount of shares  that have been earned as of March 31, 2006.
During the three months ended March 31, 2006, and2005, Cleco did not significantly modify any of the terms of outstandingawards.  Certain awards of stock-based compensation allowed vesting of a pro ratashare of granted instruments upon retirement after age 55 but before the end ofthe normal vesting period, regardless of whether the performance or market-basedmeasures were achieved.  These same awards contained a provision of acceleratedvesting of the entire grant upon retirement after age 65 but before the end ofthe normal vesting period, regardless of whether the performance or marketbased measures were achieved.  In all periods presented, Cleco has recognized stock-basedcompensation expense for these provisions, which is known as thenon-substantive vesting period approach.  The grant of non-vested stock toemployees in January 2006 did not contain the accelerated vesting provisionsincluded in the prior years' grants.
A maximum of 3.2 million shares of ClecoCorporation common stock can be granted under the LTICP.  As of March 31, 2006,there were approximately 1.8 million shares available for future grants underthe LTICP.  Equity instruments awarded to employees and directors historically havecome from issuing new shares of common stock.  As of March 31, 2006, there was$9.8 million of total unrecognized before tax-compensation cost related tonon-vested share-based compensation arrangements granted under the LTICP.  The 

21
****
compensation expense will be recognized over a weighted average period of 2.2years. 

**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 or total commonshareholders' equity or Cleco Power's net income or total member's equity. 

**Note 3 - Regulatory Assets and Liabilities**

Cleco Power follows SFAS No. 71, which allowsutilities to capitalize or defer certain costs based on regulatory approval andManagement's ongoing assessment that it is probable these items will berecovered through the ratemaking process.

At March 31, 2006, Cleco Power reported $178.3million of costs deferred as regulatory assets, other than deferred incometaxes, compared to $53.4 million of regulatory assets at December 31, 2005.  Ofthe $124.9 million increase, $123.6 million was due to the deferral of stormrestoration costs relating to Hurricanes Katrina and Rita, initially recordedas additions to property, plant and equipment or charged to expense. 

At December 31, 2005, Cleco Power deferred $25.0million (costs of $25.6 million, less amortization of $0.6 million) of repair-relatedstorm restoration costs relating to Hurricanes Katrina and Rita as a regulatoryasset with the approval of the LPSC.  Additional costs totaling $126.3 millionwere recorded either as additions to property, plant and equipment ($115.5million), offset against a reserve for storm damage ($4.4 million), or expensed($6.4 million). 

On November 4, 2005, Cleco Power filed anapplication with the LPSC for the recovery in rates of the costs associated withthe restoration of service to Cleco Power's customers resulting from HurricanesKatrina and Rita.  On February 22, 2006, the LPSC approved an interim rateincrease of $23.4 million annually for a ten-year period to recoverapproximately $161.8 million of storm restoration costs. The interim rateincrease became effective upon the beginning of actual construction onRodemacher Unit 3 (Phase I) and will remain in effect until the LPSC completesa review to verify and approve the total amount of storm restoration costs tobe recovered (Phase II).  The review is expected to be completed in early 2007. As a result of this action by the LPSC, Cleco Power transferred to individualregulatory asset accounts the storm restoration costs for Hurricanes Katrina andRita previously charged to property, plant and equipment and to expense.  ClecoPower has informed the LPSC that construction has begun on Rodemacher Unit 3and that recovery of storm restoration costs through a monthly customersurcharge will begin in May 2006.  The storm-related amounts deferred asregulatory assets will be amortized to expense based on the amounts collectedmonthly from customers through the surcharge.

**Note 4 - Disclosures about Segments**

Cleco's reportable segments are based on its methodof 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 an investmentsubsidiary.  

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 2006 that were presented to andapproved by Cleco's Board of Directors.  

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.

22
****
**SEGMENT INFORMATION FOR THE THREEMONTHS ENDED MARCH 31,**

**              	CLECO**

** **

** **

** **

** **

** **

** **

** **

** **

2006 (THOUSANDS)

**            	POWER**

** **

**       	MIDSTREAM**

** **

**              	OTHER**

** **

**           	ELIMINATIONS**

** **

**CONSOLIDATED**

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

**$    210,989**

** $                 -**

** $              -**

**        $                -**

** $     210,989**

     Other operations

**        6,549**

**                 4**

**              43**

**                      -**

**         6,596**

     Electric customer credits

**        4,382**

**                 -**

**                -**

**                      -**

**         4,382**

Affiliate revenue

**             12**

**         1,050**

**            389**

**                      -**

**         1,451**

Intercompany revenue

**           500**

**                 -**

**        9,137**

**             (9,637)**

**                 -**

Operating revenue, net

**$    222,432**

** $        1,054**

** $      9,569**

**        $     (9,637)**

** $      223,418**

Depreciation expense

**$      15,225**

** $              78**

** $         342**

**        $                -**

** $        15,645**

Interest charges

**$         8,979**

** $        4,231**

** $      1,948**

**        $     (4,209)**

** $        10,949**

Interest income

**$         2,336**

** $                 -**

** $      4,365**

**        $     (4,209)**

** $          2,492**

Equity income (loss) from investees

**$                  -**

** $           398**

** $         (25)**

**        $                 -**

** $             373**

Federal and state income tax expense (benefit)

**$         7,057**

** $     (1,542)**

** $         653**

**        $           (55)**

** $          6,113**

Segment profit from continuing operations, net

**$       13,873**

** $     (3,000)**

** $      1,352**

**        $                 -**

** $        12,225**

Loss from discontinued operations

**                -**

**             (87)**

**                -**

**                      -**

**             (87)**

Segment profit (loss) (1)

**$       13,873**

** $     (3,087)**

** $      1,352**

**        $                 -**

** $        12,138**

Additions to long-lived assets	

**$       50,690**

** $                8**

** $         116**

**        $                 -**

** $        50,814**

Segment assets

**$ 1,750,741**

** $   333,382**

** $ 644,629**

**        $ (605,007)**

** $  2,123,745**

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

**Segment profit**

** **

**        $      12,138**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**                (459)**

** **

** **

**Net income applicable to common stock**

** **

**        $      11,679**

** **

** **

 

CLECO
2005 (THOUSANDS)

             	POWER

MIDSTREAM

OTHER

ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $    162,831

   $                -

   $                 -

            $                    -

   $       162,831

     Other operations

              7,080

                    12

                    60

                                (1)

                 7,151

     Electric customer credits

                (218)

                       -

                       -

                                  -

                   (218)

Affiliate revenue

                       8

              1,493

                  851

                                  -

                 2,352

Intercompany revenue

                  487

                       -

            10,772

                     (11,259)

                          -

Operating revenue, net

   $    170,188

   $         1,505

   $       11,683

            $       (11,260)

   $       172,116

Depreciation expense

   $      14,396

   $              80

   $            295

            $                   -

   $         14,771

Interest charges

   $        7,187

   $         3,480

   $         4,491

            $         (3,356)

   $         11,802

Interest income

   $           612

   $                 -

   $         3,703

            $         (3,349)

   $              966

Equity income from investees

   $                -

   $         9,919

   $                 -

            $                   -

   $           9,919

Federal and state income tax expense (benefit)

   $        4,674

   $         1,991

   $         (658)

            $              (12)

   $           5,995

Segment profit (loss) from continuing operations,  net

   $        7,609

   $         2,889

   $         (923)

            $                   -

   $           9,575

Loss from discontinued operations, net of tax

                       -

                (134)

                       -

                                  -

                   (134)

Segment profit (loss) (1)

   $         7,609

   $         2,755

   $         (923)

            $                   -

   $           9,441

Additions to long-lived assets	

   $       18,402

   $                8

   $            254

            $                   -

   $         18,664

Segment assets

   $  1,384,328

   $     333,268

   $     632,179

            $     (544,889)

   $    1,804,886

(1)  Reconciliation of  segment profit to consolidated profit:

Segment profit

** **

            $           9,441

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                           (475)

** **

** **

Net income applicable to common stock

** **

            $           8,966

** **

** **
**Note 5 - Equity Investment in Investees**
Equity investment in investees representsprimarily Midstream's $242.5 million investment in Acadia, owned 50% by APH and50% by Calpine; its $61.2 million investment in Evangeline, owned 100% byMidstream; its $12.9 million investment in Perryville, owned 100% by PEH; andits $7.1 million investment in Attala, owned 100% by Midstream.  The remaining$0.2 million relates to equity investments held by Cleco Innovations LLC, awholly owned subsidiary of Cleco Corporation.

Cleco reports its investment in Acadia, Attala,Evangeline, Perryville and the investments held by Cleco Innovations LLC on theequity method of accounting.  Under the equity method, the assets andliabilities of these entities are reported as equity investment in investees onCleco Corporation's Condensed Consolidated Balance Sheets.  The revenue and expenses(excluding income taxes) of these entities are netted and reported as equityincome from investees on Cleco Corporation's Condensed Consolidated Statementsof Income. 

23
****
The table below presents the equity earningsfrom each investment accounted for using the equity method.  

FOR THE THREE  MONTHS ENDED MARCH 31,

(THOUSANDS)

        **2006**

2005

Perryville

** $         240**

$           (2,960)*

Acadia

**             (65)**

                   8,273

Evangeline

**              38**

                   1,646

Other

**            160**

                            -

     Total equity income

** $         373**

$              6,959*

*  The $3.0 million Perryville equity loss for the  three months ended March 31, 2005, is presented for comparative purposes only  and is not recorded in equity income from investees on the Condensed Consolidated  Statements of Income.

 

***Acadia***

Cleco's current assessment of its maximum exposureto loss at March 31, 2006, consists of its equity investment of $242.5 million. The table below presents the components of Midstream's equity investment inAcadia.

**      	AT  MARCH 31,**

   AT DECEMBER 31,	

INCEPTION TO DATE (THOUSANDS)

**                       2006**

                       2005

Contributed assets (cash and land)

**$    250,612**

   $          250,612

Net income 

**         93,877**

                 96,714

Capitalized interest and other	

**         19,469**

                 19,469

     Less: Cash distributions

**       121,464**

               121,464

          Total equity investment in investee

**$    242,494**

   $          245,331

Midstream's equity, as reported on thebalance sheet of Acadia at March 31, 2006, was $274.4 million.  Thedifference of $31.9 million between the equity investment in investee of $242.5million as shown in the table above and Midstream's equity includes $19.5 millionof interest capitalized on funds contributed to Acadia.  It also includesother miscellaneous charges related to the construction of the Acadia facilityoffset by $51.4 million which represents the difference between the accountingtreatments used by the partnership entities to record the allocation oftermination agreement income.  The cash distributions of $121.5 millionwere used to pay interest and repay principal on debt at Cleco Corporationrelating to this investment.  

On December 20, 2005, the Calpine Debtors,including the subsidiary which owns the other 50% of Acadia and CES, filedvoluntary petitions in the Calpine Debtors Bankruptcy Court for protectionunder Chapter 11 of the U.S. Bankruptcy Code.  For more information about thebankruptcy filing by the Calpine Debtors, see Note 16 - "Calpine Bankruptcy." APH is the beneficiary of a $15.0 million letter of credit posted by Calpine tosupport its obligations under the Calpine Tolling Agreements.  In February2006, APH drew $2.8 million against the $15.0 million letter of credit due tothe default of CES under the tolling agreements.  As of March 31, 2006, no additionaldrawdowns were made against the letter of credit.  This letter of credit expireson May 5, 2007.  

The table below containssummarized financial information for Acadia.

**      	AT  MARCH 31,**

   AT DECEMBER 31,	

(THOUSANDS)

**                       2006**

                       2005

Current assets

**$        3,731**

   $               6,258

Property, plant and equipment, net

**       448,159**

               451,759

Other assets

**                   -**

                       624

     Total assets

**$   451,890**

   $          458,641

Current liabilities

**$        5,212**

   $              6,878

Other liabilities

**              640**

                             -

Partners' capital

**       446,038**

               451,763

     Total liabilities and partners' capital

**$    451,890**

   $          458,641

 

FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

                   	**2006**

                      2005

Total revenue

** $    17,292**

   $            18,630

Total operating expenses

**       23,020**

                   5,597

Other income 

**                3**

                         10

     Equity (loss) income	

** $    (5,725)**

   $            13,043

The income taxbenefit recorded on APH's financial statements related to Midstream's 50%interest in Acadia for the three months ended March 31, 2006, was $1.7 million,compared to an income tax expense of $1.7 million for the three months endedMarch 31, 2005.

***Evangeline***

Cleco's current assessment of its maximum exposureto loss at March 31, 2006, consists of its equity investment of $61.2 million. The table below presents the components of Midstream's equity investment inEvangeline.

**AT  MARCH 31,**

   AT DECEMBER 31,	

INCEPTION TO DATE (THOUSANDS)

**                       2006**

                       2005

Contributed assets (cash)

**$      43,580**

   $            43,580

Net income 

**       123,858**

               123,819

     Less:  distributions	

**       106,232**

               107,887

          Total equity investment in investee

**$      61,206**

   $            59,512

The tablebelow contains summarized financial information for Evangeline.

**      	AT  MARCH 31,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2006**

                       2005

Current assets

**$      12,929**

   $            12,702

Accounts receivable - affiliate

**           5,442**

                    1,316

Property, plant and equipment, net

**       192,943**

               194,159

Other assets

**         44,085**

                 52,481

     Total assets

**$    255,399**

   $          260,658

Current liabilities

**$      11,076**

   $            14,150

Accounts payable - affiliate

**              897**

                       989

Long-term debt

**       180,890**

               184,716

Other liabilities

**         63,957**

                 62,036

Member's deficit

**          (1,421)**

                  (1,233)

     Total liabilities and member's deficit

**$    255,399**

   $          260,658

24
****
FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**2006**

2005

Operating revenue

** $     10,343**

   $              9,717

Operating expenses

**           4,894**

                   2,510

Depreciation

**           1,308**

                   1,294

Interest charges

**           4,265**

                   4,398

Interest income

**              294**

                       134

Other expense

**              132**

                            3

Equity income

** $             38**

   $              1,646

At March 31, 2006, Evangeline had amember's deficit of $1.4 million.  This deficit was caused by the distributionof cash by Evangeline in excess of net income.  The deficit did not cause adefault under Evangeline's 8.82% Senior Secured Bonds due 2019 and is notexpected to impact Evangeline's ability to fund its operations.

Income tax expense recorded on Midstream'sfinancial statements related to its 100% interest in Evangeline was $0.2million and $0.8 million for the three months ended March 31, 2006, and 2005,respectively.

***Perryville***

Perryville provides transmission and interconnectionservice to Entergy Louisiana under a cost-based tariff.  Cleco's currentassessment of its maximum exposure to loss at March 31, 2006, consists of itsequity investment of $12.9 million.  The table below presents the components ofPEH's equity investment in Perryville.

**      	AT  MARCH 31,**

   AT DECEMBER 31,	

INCEPTION TO DATE (THOUSANDS)

**                       2006**

                       2005

Contributed assets (cash)

**$    102,174**

   $          102,174

Net income 

**         48,200**

                 47,960

     Less:  distributions	

**       137,467**

               137,424

          Total equity investment in investee

**$      12,907**

   $            12,710

The table below contains summarizedfinancial information for Perryville.

**      	AT  MARCH 31,**

   AT DECEMBER 31,

(THOUSANDS)

**  2006**

             2005

Current assets

**$        3,646**

   $               3,405

Accounts receivable - affiliate

**           2,162**

                    2,153

Other assets

**         17,380**

                 17,864

     Total assets

**$      23,188**

   $            23,422

Current liabilities

**$        7,157**

   $              7,460

Accounts payable - affiliate

**                65**

                       112

Other liabilities

**              328**

                       328

Member's equity

**         15,638**

                 15,522

     Total liabilities and member's equity

**$      23,188**

   $           23,422

 

FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**                      2006**

                      2005

Operating revenue

** $          264**

   $              4,779

Operating expenses

**              163**

                   3,641

Depreciation

**                   -**

                   1,569

Interest charges

**                   -**

                   2,586

Interest income

**              139**

                         60

Other expense

**                   -**

                            3

Equity income (loss)

** $          240**

   $             (2,960)

Income tax expenserecorded on PEH's financial statements related to Midstream's 100% interest inPerryville for the three months ended March 31, 2006, was $0.1 million, comparedto an income tax benefit of $1.1 million for the three months ended March 31,2005.

During the reorganization period (January 28,2004 toOctober 10, 2005), Cleco utilized the cost method to account for its investmentsin Perryville and PEH.  In accordance with the cost method, Cleco presented thenet assets of Perryville and PEH at January 27, 2004, as an investment and did notrecognize any income or loss from Perryville or PEH in Cleco Corporation'sresults of operations.  Therefore, the $3.0 million loss for the three monthsended March 31, 2005, as shown in the table above, is presented for comparativepurposes only and is not recorded in equity income from investees on theCondensed Consolidated Statements of Income for that same period.  Perryvilleand PEH's plans of reorganization were approved on October 11, 2005, and atthat time the cost method no longer was the appropriate method to use toaccount for the investments in Perryville and PEH.  For a discussion on theaccounting treatment applied to Perryville and PEH's financial resultsfollowing their emergence from bankruptcy, see Note 1 - "Summary of SignificantAccounting Policies - Principles of Consolidation."

**Note 6 - Recent Accounting Standards**

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

In December 2004, SFAS No. 123R was issued which providesexpensing and disclosure requirements for stock-based compensation.  On April14, 2005, the SEC extended the effective date of this statement from interimperiods beginning after June 15, 2005, to the first fiscal year beginning afterJune 15, 2005.  Cleco adopted SFAS No. 123R effective January 1, 2006.  Thisstatement requires all equity instruments, including stock options, to beexpensed at their fair value and supersedes APB Opinion No. 25 and SFAS No.123, which allowed companies to use the intrinsic value method.  Through December2005, Cleco utilized the intrinsic value method as described in APB Opinion No.25.  SFAS No. 123R also prohibits reversing previously recognized stock-basedcompensation expense if the forfeiture of the instruments was due to the failureof a market-based performance measure.  Most of Cleco's stock-basedcompensation contains market-based performance measures.  The adoption of SFASNo. 123R reduced Cleco's consolidated income from continuing operations beforeincome taxes and net income for the three months ended March 31, 2006, by $1.2million and $0.7 million ($0.01 per basic and diluted share), respectively. The adoption of SFAS No. 123R reduced Cleco Power's income before income taxesand net income for the three months ended March 31, 2006 by $0.5 million and$0.3 million, respectively.  Prior to the adoption of SFAS No. 123R, Clecopresented all tax benefits of deductions resulting from the exercise of stockoptions as operating cash flows in the Condensed Consolidated Statements ofCash Flows.  SFAS No. 123R requires the cash flow resulting from the taxdeductions in excess of the compensa-

25
****
tion cost recognized for those options to beclassified as financing cash flows.  The actual tax benefits realized for thetax deductions from options exercised for the three months ended March 31, 2006,were less than $0.1 million.  In connection with implementation, Cleco made thefollowing accounting policy choices from those allowed by the statement.
-  Cleco chose the modified prospective method of transition, whichrequires a company to prospectively recognize compensation expense calculatedpursuant to SFAS No. 123R for all non-vested stock-based compensation outstandingon the date of adoption.
-  Cleco chose the straight-line basis over the requisite serviceperiod to recognize expense for instruments with graded vesting.
-  Cleco chose the short-cut method to calculate its pool of excesstax benefits available to absorb tax deficiencies recognized subsequent toadoption.

Foradditional information concerning Cleco's stock-based compensation, see Note 1 -"Summary of Significant Accounting Policies - Stock-Based Compensation."

In September 2005, the FASB ratified EITF No.04-13, which provides guidance on accounting for purchases and sales ofinventory with the same counterparty.  If certain criteria are met, purchases and sales of inventory with thesame counterparty should be accounted for at fair value as required by APBOpinion No. 29.  Entities are required to apply this EITF to new arrangementsentered into during reporting periods beginning after March 15, 2006.  Theadoption of this EITF will have no impact on the financial condition or the resultsof operations of the Registrants.

In February 2006, FASB issued SFAS No. 155 whichamends SFAS No. 133 and SFAS No. 140.  The provisions of this statement:
-  permit fair value accounting for hybrid financial instrumentsthat contain an embedded derivative that otherwise would require bifurcation, 
-  clarify the exemption from SFAS No. 133 for certain interest-onlyand principal-only strips,
-  establish a requirement to evaluate interests in securitizedfinancial assets that contain an embedded derivative requiring bifurcation, 
-  clarify that concentrations of credit risk in the form of subordinationare not embedded derivatives, and 
-  amend SFAS No. 140 as it relates to qualifying special-purposeentities and derivative financial instruments.

This statement is effective for allfinancial instruments acquired, issued or subject to a remeasurement eventoccurring after the beginning of anentity's first fiscal year that begins after September 15, 2006.  Management currentlyis evaluating the impact this statement could have on the financial condition andresults of operations of the Registrants.

In March 2006, FASB issued SFAS No. 156 whichamends SFAS No. 140 with respect to the accounting for separately recognizedservicing assets and liabilities.  This statementrequires all separately recognized servicing assets and liabilities to beinitially measured at fair value, requires fair value accounting for derivativeinstruments used to mitigate risks of the servicing assets and liabilities, andallows for the election to use fair value accounting for the servicing assetsand liabilities in subsequent periods.  SFAS No. 156 is effective for the firstfiscal year beginning after September 15, 2006.  Management currently isevaluating the impact this statement could have on the financial condition orresults of operations of the Registrants.

**Note 7 - Electric CustomerCredits**

Cleco's reported earnings for the three monthsended March 31, 2006, reflect reversals of previously accrued credits of $4.4 millionwithin Cleco Power under terms of an earnings review settlement reached withthe LPSC in 1996.  Cleco's earnings for the three months ended March 31, 2005,reflect $0.2 million of additional credits for amounts expected at that time tobe refunded to electric customers.

The terms of the 1996 LPSC earnings review settlementhave been extended to September 30, 2006, through subsequent amendments and twoapproved one-year extensions.  The subsequent amendments and extensions havenot changed the terms of the original 1996 settlement, except as disclosedbelow.  As part of the original settlement, Cleco Power is allowed to retainall regulated earnings up to a 12.25% return on equity, and to share equallywith customers, as credits on their bills, all regulated earnings between12.25% and 13% return on equity.  All regulated earnings above a 13% return onequity are credited to customers.  This effectively allows Cleco Power theopportunity to realize a regulatory rate of return up to 12.625%.  The amountof credits due customers, if any, is determined by Cleco Power and the LPSCannually, based on results for each 12-month period ended September 30.  The1996 LPSC settlement provides for such credits to be made on customers' billsthe following summer.  

The LPSC Staff has issued reports summarizingthe results of the Staff's review of Cleco Power's filings for the 12-monthperiods ended September 30, 2002, 2003, and 2004.  The LPSC approved theStaff's recommendations on April 26, 2006, requiring Cleco Power to refund $1.3million to customers as credits on September 2006 utility bills.  The LPSC alsoreserved the right to further review Cleco Power's calculation of workingcapital included in the filings for the 12-month periods ended September 30,2002, 2003, and 2004.  Cleco Power expects resolution of these issues whenCleco Power's monitoring report for the 12-month period ending September 30,2006 is reviewed in 2007.  Based on the results of the Staff's reviews, ClecoPower reversed previously accrued customer credits of $3.2 million for theperiods ended September 30, 2002, 2003, and 2004.  

Cleco Power filed its required monitoring reportfor the 12-month period ended September 30, 2005, on April 3, 2006.  Based onthe amounts filed in this monitoring report and the reassessment, the resultsof the Staff's review discussed above and on projections for the year 2006,Cleco Power 

26
****
reversed $1.2 million of customer credits previously accrued for the 12-month periodsended September 30, 2005, and ending September 30, 2006.

ClecoPower's Balance Sheets at March 31, 2006, and December 31, 2005, reflect thefollowing accruals for estimated electric customer credits relating to the12-month periods ended September 30, 2002, through September 30, 2006.  

**       	AT  MARCH 31,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2006**

                       2005

Provision for rate refund

**     $     1,284**

       $           7,927

Other deferred credits

**           5,415**

                    3,154

     Total customer credits

**     $     6,699**

       $        11,081

Amountsreported under the line item provision for rate refund relate to the 12-monthperiods ended September 30, 2002, through September 30, 2005, and reflectamounts anticipated to be paid within 12 months.  The amounts reported underthe line item other deferred credits are not anticipated to be paid within 12months.  

All customercredits relating to Cleco Power's RSP were recorded as a reduction in revenuedue to the nature of the credits.  The accruals are based upon the original1996 settlement, the resolution of the 2001-2002 fuel audit which was settledin 2004, annual issues as agreed to between Cleco and the LPSC, and Cleco'sassessment of issues that remain outstanding.

On December 19, 2005, Cleco Power filed a requestwith the LPSC to extend the RSP to the in-service date of Cleco Power'ssolid-fuel power plant at its Rodemacher facility (Rodemacher Unit 3), targetedfor completion in the fourth quarter of 2009.  The application is still beingconsidered by the LPSC.  Preliminary testimony of the LPSC Staff consultants supportsthe extension, with several modifications to the terms of the current RSP.  Theconsultant's testimony recommends that beginning on October 1, 2006, themaximum allowed return on equity that can be realized by Cleco Power will be decreasedto 11.65%.  This assumes a return on equity of 11.25%, with any earningsbetween 11.25% and 12.25% shared between shareholders and customers in a 40/60ratio, respectively, and all earnings over 12.25% returned to customers.  ClecoPower expects the LPSC Staff to address this issue prior to the fourth quarterof 2006.

On February 22, 2006, the LPSC approved ClecoPower's request to recover storm restoration costs incurred for HurricanesKatrina and Rita.  As part of this approval, the LPSC required that effective duringthe interim recovery period (Phase I), any earnings above the current 12.25%allowed return on equity be credited against outstanding Hurricanes Katrina andRita storm restoration costs, rather than being shared 50/50 betweenshareholders and customers.  The credits against storm restoration costs willcontinue as long as interim relief for storm costs is in place and until theactual amount of storm costs is verified and approved by the LPSC (Phase II), whichis expected in early 2007.

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

 

***Securities Litigation***

On April 18, 2003, a Shareholder's DerivativeComplaint was filed by a shareholder of Westar, in the U.S. District Court forthe District of Kansas.  The defendants named in the complaint were Westar, itsBoard of Directors, its former Chief Executive Officer, President and Chairman,and Cleco Corporation.  The complaint alleged violations of Section 14(a) ofthe Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder and,in addition, breaches of fiduciary duties owed to Westar and/or for aiding andabetting such breaches.  The complaint asserted that Cleco Corporation aidedand abetted the director defendants' breaches of fiduciary duties by engagingin round-trip trades with Westar.  The complaint sought the award ofunspecified compensatory damages against the defendants and the plaintiff'scosts and disbursements of the lawsuit.  The complaint was amended, but theclaims against Cleco Corporation did not change substantively.  On May 31,2005, a settlement agreement was finalized between the parties.  The settlementwas approved by the court on September 1, 2005, despite an objection by oneshareholder to provisions in the settlement releasing Westar's outside counseland investment advisors.  Subsequent to the aforementioned hearing, the sameobjecting shareholder filed a motion requesting that the district courtreconsider its approval.  The district court has issued an order denying the motionto reconsider.  On December 30, 2005, an appeal was filed with the U.S. TenthCircuit Court of Appeals, appealing the district court's approval of thesettlement, as well as the order denying reconsideration.  If approved in itscurrent form, the final settlement will not have a material impact on Cleco'sfinancial condition, results of operations, or cash flows, due to thesettlement releasing Cleco from any liability.

***Other Litigation***

On June 22, 2005, the City of Alexandria,Louisiana (the City), a current municipal customer of Cleco Power, filed alawsuit in Ninth Judicial District Court, against Cleco Corporation, ClecoPower, and certain other subsidiaries.  The lawsuit alleges unspecified damagesas a result of certain sales made to the City, revenue derived by Cleco usingthe City's power generating facilities under contracts with the City, and otheralleged improper conduct, including, without limitation, allegations that Clecofraudulently mishandled the management of the City's power requirements underthe contracts.  The lawsuit wasremoved to and currently is pending in the U.S. District Court for the WesternDistrict of Louisiana.  On January 13, 2006, Cleco and the City agreed uponguidelines whereby an audit of the disputed transactions will be performed. These guidelines were submitted to the U.S. District Court, which approved themon January 19, 2006.  On February 21, 2006, the court designated theauditor/mediator to examine the claims made by both parties.  Cleco and theCity can designate consultants to assist the court-appointed auditor in chargeof the process.  An audit report is scheduled to be issued to Cleco and theCity by June 30, 2006, which will be used as the basis 

28
****
for the mediationprocess conducted by the independent auditor.  Management believes that the disputewill not have a material adverse effect on Cleco Corporation or Cleco Power'sfinancial condition, results of operations, or cash flows.

Cleco is involved in regulatory, environmental, andlegal proceedings before various courts, regulatory commissions, andgovernmental agencies regarding matters arising in the ordinary course ofbusiness.  Some of these proceedings, such as fuel review and environmentalissues, could involve substantial amounts.  In several lawsuits, Cleco has beennamed as a defendant by individuals who claim injury due to exposure toasbestos while working at sites in central Louisiana.  Most of the claimantswere workers who participated in the construction of various industrialfacilities, including power plants, and some of the claimants have worked atlocations owned by Cleco.  Cleco's management regularly analyzes currentinformation and, as necessary, provides accruals for probable liabilities onthe eventual disposition of these matters.  Cleco's management believes that thedisposition of these matters will not have a material adverse effect on theRegistrants' 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 not recognizedon Cleco's Consolidated Balance Sheets, because it has been determined thatCleco's affiliates are able to perform these obligations under their contractsand that it is not probable that payments by Cleco will be required.  Some ofthese commitments reduce borrowings available to Cleco Corporation under itscredit facility pursuant to the terms of the credit facility.  Cleco'soff-balance sheet commitments as of March 31, 2006, are summarized in the followingtable, and a discussion of the off-balance sheet commitments follows the table. The discussion should be read in conjunction with the table to understand theimpact of the off-balance sheet commitments on Cleco's financial condition.

       	AT MARCH 31, 2006

      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 

**                      727**

**             -**

**                 727**

**                   727**

Cleco Corporation guarantee issued to Entergy  Mississippi on behalf of Attala

**                      500**

**             -**

**                 500**

**                   500**

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

**                      525**

**             -**

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 14,008**

**             -**

**                 14,008**

**                        -**

     Total

**            $ 309,560**

** $  135,000**

**            $ 174,560**

**         $   17,955**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance, indemnity,representation, and warranty obligations under the Sale Agreement, the PowerPurchase Agreement, and other ancillary agreements related to the sale of thePerryville facility.  As of March 31, 2006, the aggregate guarantee of $277.4million is limited to $142.4 million (other than with respect to theindemnification of environmental matters to which there is no limit) due to theperformance of some of the underlying obligations that were guaranteed.  Thediscounted probability-weighted liability under the guarantees andindemnifications as of March 31, 2006, was $0.3 million, resulting in a correspondingreduction in the available credit under Cleco's credit facility, which wasdetermined in accordance with the facility's 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.  For additional information on this guarantee, seeNote 9 - "Disclosures about Guarantees."

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 lawsuit against the purchaserand Cleco Energy (related to the price charged for certain natural gas sales byCleco Energy).  After an initial investigation, Management believes this matterwill not have a material impact on Cleco's financial condition, results of operations,or cash flows.  

28
****
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 of transmission assets by Attala, includingAttala's obligations to pay the purchase price for the assets and to indemnifythe seller.  The maximum amount payable under the guarantee is $6.9 million. On January 20, 2006, Cleco completed the purchase of the transmission assets,and the guarantee wasreduced to $0.7 million.  In addition, on January 20, 2006, Cleco Corporationprovided a $0.5 million guarantee to Entergy Mississippi for Attala'sobligations under the Interconnection Agreement.

The State of Louisiana allows employers of certainfinancial net worth to self-insure their workers' compensation benefits.  ClecoPower applied to the Louisiana Office of Workers' Compensation for acertificate of self-insurance.  The State of Louisiana required Cleco Power topost a $0.5 million letter of credit, an amount equal to 110 percent of the averagelosses over the previous three years, as surety.

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 March 31, 2006, Cleco Power's 50%exposure for this obligation was approximately $14.0 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 MARCH 31, 2006

 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

**            $ 159,035**

**            $        727**

**            $             -**

**            $ 101,400**

**            $   56,908**

Standby letters of credit

**                 15,525**

**                      525**

**                           -**

**                           -**

**                 15,000**

     Total commercial commitments

**            $ 174,560**

**            $     1,252**

**            $             -**

**            $ 101,400**

**            $   71,908**

***Acadia***

In May 2005, a detailed review of the gas andelectric metering at the Acadia plant resulted in the discovery of a potentialelectric metering error whereby Acadia unknowingly generated excess power to itselectric interconnections for the period beginning June 1, 2002, and ending May31, 2005.  Acadia has made a claim against Cleco Power for the delivery of theexcess generation for which it has not received compensation.  Cleco Power hasevaluated the claim and communicated to Acadia that to the extent any unmeteredpower was generated, Entergy received the predominant benefit of that power andtherefore Acadia's claim, if any, primarily is against Entergy rather thanCleco Power.  Acadia has responded, insisting that its claim against Cleco Poweris valid.  The three parties are attempting to resolve the dispute.

On December 20, 2005, the Calpine Debtors filed forprotection under Chapter 11 of the U.S. Bankruptcy Code in the Calpine DebtorsBankruptcy Court.  For more information about the Calpine Bankruptcy, see Note 16- "Calpine Bankruptcy."

***Other Contingencies***

Cleco has accrued for liabilities to thirdparties, employee medical benefits, storm damages, and deductibles underinsurance policies that it maintains on major properties, primarily generationstations and 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 besubject to possible adverse consequences if Cleco's counterparties fail toperform theirobligations or if Cleco Corporation or its affiliates are not in compliancewith loan agreements or bond indentures.

Williams

The credit ratings of the senior unsecured debt ofThe Williams Companies, Inc. (Moody's - B1; Standard & Poor's - B+), theparent company of Williams under the Evangeline Tolling Agreement, remainsbelow "investment grade."  The following list discusses some possible adverseconsequences if Williams should fail to perform its obligations under theEvangeline Tolling Agreement:

29
****
 
-  If Williams' failure to perform constituted a default under thetolling agreement, the holders of the Evangeline bonds would have the right todeclare the entire outstanding principal amount ($188.3 million at March 31,2006) and interest to be immediately due and payable, which could result in:  
-  Cleco seeking to refinance the bonds, the terms of which may beless favorable than existing terms; 
-  Evangeline seeking protection under federal bankruptcy laws; or 
-  the trustee of the bonds foreclosing on the mortgage and assumingownership of the Evangeline plant;
-  Cleco may not be able to enter into agreements in replacement ofthe Evangeline Tolling Agreement on terms as favorable as that agreement or atall;
-  Cleco's equity investment in Evangeline may be impaired,requiring a write-down to its fair market value, which could be substantial;and
-  Cleco's credit ratings could be downgraded, which would increaseborrowing costs and limit sources of financing.

CES

On December 20, 2005, the Calpine Debtors filedfor protection under Chapter 11 of the U.S. Bankruptcy Code in the CalpineDebtors' Bankruptcy Court.  For additional information on the Calpine bankruptcy,see - Note 16 - "Calpine Bankruptcy." 

Neither Acadia nor Cleco were required to record animpairment of their assets or equity investment, respectively, at March 31,2006.  Future events could change assumptions concerning future cash flows andrights and obligations between Acadia and Cleco.  As assumptions change, Clecowill be required to re-evaluate, among other things, potential impairment ofAcadia's assets, potential impairment of Cleco's investment in Acadia, andpotential consolidation of Acadia.  If an impairment were to be recorded byeither Acadia or Cleco, the financial condition of Cleco could be adverselyaffected.  

Financing for operationalneeds and construction requirements is dependent upon the cost and availabilityof external funds from capital markets and financial institutions.  Access tofunds is 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 was to be downgraded by Moody's or by Standard& Poor's, Cleco Corporation would be required to pay additional fees andhigher interest rates under its bank credit and other debt agreements.

**Cleco Power**

Cleco Power supplies a portion of its customers'electric power requirements from its own generation facilities.  In addition topower obtained from power purchase agreements, Cleco Power purchases power fromother utilities andmarketers to supplement its generation at times of relatively high demand orwhen the purchase price of power is less than its own cost of generation.  Becauseof its location on the transmission grid, Cleco Power relies on two mainsuppliers of electric transmission, and at times constraints limit the amountof purchased power those suppliers deliver into and/or through the 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 was to be downgraded by Moody'sor by Standard & Poor's, Cleco Power would be required to pay additionalfees and higher interest rates under its bank credit and other debt agreements.

**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, indemnity,representation, and warranty obligations of the disposed assets and alsocontain provisions requiring payment for potential damages.  The potentiallength of these liabilities range from a five-year life to an indefinite life. Each indemnification and guarantee was assigned a probability and an estimateof potential damages.  The maximum aggregate potential damages under theguarantees and indemnifications are $42.4 million (excluding maximum aggregatepotential damages of $100.0 million for discharge of project debt discussed inmore detail below and the indemnification of environmental matters to whichthere is no limit).  On June 30, 2005, Perryville paid all interest and principalowed under the Senior Loan Agreement, and on July 19, 2005, it exercised offsetrights against MAI to satisfy its obligations of $98.7 million under theSubordinated 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 which terminates on June 30, 2010.  Thediscounted probability-weighted liability under the guarantees andindemnifications as of March 31, 2006, calculated in accordance with FIN 45, was$0.3 million. 

Guarantees and indemnifications were issued inconnection with the asset sales of Cleco Energy's oil and gas 

30
****
properties and natural gas pipelines.  These guarantees and indemnificationsfall within the recognition scope of FIN 45, because they relate to the pastperformance obligations of the disposed assets and also contain provisionsrequiring payment for potential damages.  The potential liabilities expire eitherafter a two- or five-year life.  Each indemnification and guarantee wasassigned probabilities and estimates of potential damages.  The maximumaggregate potential payment under the guarantees and indemnifications is $1.2million.  The discounted probability-weighted liability under the guaranteesand indemnifications as of March 31, 2006, was $0.1 million.  The buyers of theCleco Energy assets would be entitled to amounts under the guarantees andindemnifications due to breach or default of performance of Cleco Energy undertheir respective sale agreements.  Cleco Corporation has guaranteed ClecoEnergy's indemnification obligations under the sale agreements.  Maximumpotential payments under the Cleco Corporation guarantees are $1.4 million, butare not within the recognition scope of FIN 45.  The purchaser of ClecoEnergy's assets has invoked its indemnification provisions pursuant to thepurchase and sale agreement that Cleco guaranteed, as a result of a recentlyfiled lawsuit against the purchaser and Cleco Energy (related to the pricecharged for certain 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.  

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 proceedingwhether civil, criminal, investigative or administrative, if the basis ofinclusion arises as the result of acts conducted in the discharge of their officialcapacity.  Cleco Corporation has purchased various insurance policies to reducethe risks associated with such indemnifications.  In its operating agreement,Cleco Power provides for the same indemnifications as described above withrespect 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 andContingencies - Off-Balance Sheet Commitments."

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 theguarantees.  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 - Pension Plan and Employee Benefits**

 

***Pension Plan and OtherBenefits Plan***

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 during the three monthsended March 31, 2006.  During 2006, a contribution is not expected to be requiredby funding regulations.  A discretionary contribution may be made during 2006;however, the decision by Management to make a contribution and the amount, ifany, has not been determined.  Cleco Power is considered the plan sponsor, andSupport Group 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 months ended March 31, 2006, and 2005, are asfollows:

                  	PENSION BENEFITS

OTHER BENEFITS
                            	FOR THE THREE MONTHS MARCH 31,

(THOUSANDS)

**             2006**

               2005

             	**2006**

             2005

Components of periodic benefit costs

** **

     Service cost

**            $    1,852**

** **

   $       1,756

** $     393**

   $         654

     Interest cost	

**    3,704**

** **

            3,364

**         432**

              594

     Expected return on plan assets

**   (4,292)**

** **

          (4,595)

**             -**

                   -

     Amortization of transition obligation	

**            -**

** **

                     -

**             5**

                   -

     Prior period service cost amortization

**        247**

** **

               246

**       (506)**

            (188)

     Net loss amortization

**        129**

** **

               287

**         212**

              304

     Net periodic benefit cost

**$  1,640**

** **

   $       1,058

** $     536**

   $     1,364

 Since Cleco Power is the pension plansponsor and the related trust holds the assets, the prepaid benefit cost of thepension plan is reflected at Cleco Power.  The liability of Cleco Corporation'sother subsidiaries is transferred, with a like amount of assets, to Cleco Powermonthly.  The expense of the pension plan related to Cleco Corporation's othersubsidiaries for the three months ended March 31, 2006, and 2005, was $0.6million and $0.6 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 Condensed Statements of Incomefor the three months ended March 31, 2006, and 2005, was $0.5 million and $1.2million, respectively.  

31
****
***SERP***

Certain key executives and key managers arecovered by the SERP.  The SERP is a non-qualified, non-contributory, definedbenefit pension plan.  Benefits under the plan reflect an employee's years of service,age at retirement, and the sum of the highest base salary paid out of the lastfive calendar years and the average of the three highest bonuses paid duringthe last 60 months prior to retirement, reduced by benefits received from anyother defined 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 three months ended March 31, 2006, and 2005.  Cleco Poweris considered the plan sponsor, and Support Group is considered the plan administrator.

The components of the net SERP cost are as follows:

FOR THE THREE MONTHS ENDED  MARCH 31,

(THOUSANDS)

**                    2006**

                   2005

Components of periodic benefit costs

Service cost

** $         340**

   $              261

Interest cost

**            368**

                   318

Prior period service cost amortization

**              14**

                      13

Net loss amortization

**            202**

                   131

Net periodic benefit cost

** $         924**

   $              723

The SERP 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 months ended March 31, 2006, and 2005, was $0.3 million and $0.2 million,respectively.  

***401(k) Plan/ESOP***

Most employees are eligible to participate in a401(k) Plan, which was amended in April 1991 to include a leveraged ESOP.  TheESOP was established with 300,000 convertible preferred shares which served as ClecoCorporation's match to employees' 401(k) Plan contributions and funded dividendpayments on allocated shares.  At March 31, 2006, substantially all of the ESOPpreferred shares were fully allocated to current and former 401(k) Planparticipants.  As a result, the March 28, 2006, dividend payment on the ESOPconvertible preferred stock was funded by 19,107 shares of Cleco Corporationcommon stock.  Compensation expense related to the 401(k) Plan is based uponthe value of the preferred shares allocated to 401(k) Plan participants and theamount of interest incurred by the ESOP, less dividends on unallocated sharesheld by the ESOP.  At March 31, 2006, and 2005, the ESOP had allocated toemployees 199,602 and 191,248 preferred shares, respectively.  

Beginning April 1, 2006, Cleco Corporation willmake its matching contributions and fund dividend payments to 401(k) Planparticipants with Cleco Corporation common stock.  The Company has reserved 1.5million authorized, but unissued common shares for this program.

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

   FOR THE THREE	MONTHS ENDED MARCH 31,

(THOUSANDS)

**                      2006**

                       2005

401(k) Plan expense

**      $      100**

          $           202

Dividend requirements to ESOP on convertible  preferred stock

**      $      449**

          $           484

Interest incurred by ESOP on its indebtedness

**      $           9**

          $             45

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 months ended March 31, 2006, and 2005, was lessthan $0.1 million and $0.1 million, respectively.  The expense related to the dividendrequirements of the ESOP on convertible preferred stock is reflected on ClecoCorporation's Condensed Consolidated Statements of Income for the three monthsended March 31, 2006, and 2005. 

**Note 11 - Discontinued Operations and Dispositions**

 

***Cleco Energy***

In 2004, Management disposed of Cleco Energy'sassets relating to natural gas pipeline and marketing operations and its oiland gas production properties.

For information on guarantees entered into relatedto the sale of the assets, see Note 8 - "Litigation and Other Commitments andContingencies - Off-Balance Sheet Commitments."

The following table summarizes the operating resultsthat have been classified as discontinued operations on Cleco Corporation'sConsolidated Statements of Income and are reported in the Midstream segment inNote 4 - "Disclosures about Segments."  The amounts reported below represent adjustmentsto the initial gain on disposal of the assets recorded in 2004, and primarilyare the result of additional legal fees, taxes, and interest costs in 2006 andcontract termination costs and taxes in 2005.

FOR THE THREE MONTHS ENDED	MARCH 31,

(THOUSANDS)

**                    2006**

                   2005

Operating revenue, net

**     $          -**

       $               -

Pre-tax loss

**             (91)**

                  (199)

Federal and state income tax benefit

**               (4)**

                    (65)

Operating loss, net of tax 

**     $    (87)**

       $        (134)

**Note 12 - Income Taxes**

Cleco Corporation's effective income tax rate forthe three months ended March 31, 2006, was 33.3% compared to 38.5% for the sameperiod in 2005.  The decrease is mainly due to the flow through of reducedstate income tax expense related to Cleco Power's 2004 tax return that wasfiled in February 2006.  Tax rates also were affected by the relative size of pre-taxincome related to this item.

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****
Cleco Power's effective income tax rate for thefirst three months of 2006 was 33.7% compared to 38.1% for the same period in2005.  The decrease is mainly due to the flow through of reduced state incometax expense related to Cleco Power's 2004 tax return that was filed in February2006.  The decrease is offset by increased deferred tax expense for the carryforward of the 2005 state net operating loss resulting from casualty lossesrelated to Hurricanes Katrina and Rita.  Generally, the LPSC requires thatCleco Power flow through impacts of state income taxes to current earnings;however, the LPSC found normalization for state taxes related to stormdeductions to be more appropriate due to the size of such deductions.  Taxrates also were affected by the relative size of pre-tax income related tothese items.  

**Note 13 - Deferred Fuel and Purchased Power Costs**

The cost of fuel used forelectric generation and the cost of power purchased for utility customers arerecovered through the LPSC-established fuel adjustment clause, which enablesCleco Power to pass on to its customers substantially all such charges. Approximately 95% of Cleco Power's total fuel cost is regulated by the LPSC,while the remainder is regulated by the FERC.  Deferred fuel and purchased powercosts recorded at March 31, 2006, and December 31, 2005, were under-recoveries of$36.8 million and $23.2 million, respectively, and are scheduled to be collectedfrom customers in future months.  The $36.8 million under-recovered costsreported at March 31, 2006, increased $13.6 million from the amount reported atDecember 31, 2005, primarily as the result of a $26.2 million decrease in themarket value of open gas hedge positions partially offset by $15.8 million ofcollections of previously deferred fuel and purchased power costs.

**Note 14 - Affiliate Transactions**

Cleco has affiliate balances that were noteliminated as of March 31, 2006.  The balances were not eliminated due to the useof the equity method of accounting for Evangeline, Perryville, and Attala.  Forinformation on the Perryville and Evangeline equity investments, see Note 5 -"Equity Investment in Investees."  At March 31, 2006, the payable to Evangelinewas $5.4 million, and the payable to Perryville was $2.2 million.  Also, atMarch 31, 2006, the receivable from Evangeline was $0.9 million and thereceivables from Perryville and Attala were less than $0.1 million.

**Note 15 - Franchises**

Cleco Power operates under nonexclusive franchiserights granted by governmental units, such as municipalities and parishes(counties), and enforced by state regulation.  These franchises are for fixedterms, which may vary from 10 years to 50 years or more.  In the past, ClecoPower has been substantially successful in the timely renewal of franchises aseach reached the end of its term.

In August 2005,the City of Covington published a RFP to provide electric service to the cityand its approximately 5,200 customers.  Cleco Power began negotiations inNovember 2005, and the city voted unanimously to extend a 22-year franchiseagreement to Cleco Power in March 2006.  This new agreement will replace ClecoPower's existing agreement which expires in 2008.  Cleco Power's next municipalfranchise expires in 2010.

**Note 16 - Calpine Bankruptcy**

 

***Background***

Acadia is a limitedliability company whose members are wholly owned subsidiaries of Midstream andCalpine.  Each member owns a 50% membership interest in Acadia and its1,160-MW, natural gas-fired power plant near Eunice, Louisiana.  The Acadiafacility currently is operated by a Calpine subsidiary.  Acadia's entire outputwas sold through the Calpine Tolling Agreements which expire in 2022.

***Calpine Bankruptcy***

On December 20, 2005, the Calpine Debtors filedfor protection under Chapter 11 of the U.S. Bankruptcy Code in the CalpineDebtors Bankruptcy Court.  On December 21, 2005, the Calpine Debtors filed amotion (Rejection Motion) with the Calpine Debtors Bankruptcy Court seeking toreject the Calpine Tolling Agreements in addition to six other power supplycontracts with other entities.  The issue was referred to the U.S. DistrictCourt for the Southern District of New York (District Court), where on January27, 2006, a federal judge dismissed the Rejection Motion ruling that the FERC,not the bankruptcy court, has exclusive jurisdiction over the disposition ofthe energy contracts.  The Calpine Debtors have appealed the ruling of theDistrict Court to the U. S. Court of Appeals for the Second Circuit.  As of thedate of this filing, no decision has been rendered by the U. S. Court ofAppeals for the Second Circuit.

In March 2006,Acadia filed a motion (Motion to Compel) with the Calpine Debtors BankruptcyCourt to, among other things, compel CES to perform under the Calpine TollingAgreements, and to pay amounts due under such agreements since the commencementof the Calpine Debtors' bankruptcy cases.  On March 15, 2006, Acadia and CESexecuted an amendment to each of the Calpine Tolling Agreements, whichpermitted Acadia to suspend its obligations under the Calpine TollingAgreements.  The amendments were approved by the Calpine Debtors BankruptcyCourt on March 22, 2006, and Acadia's obligations under the Calpine TollingAgreements were suspended as of that date.  Acadia's request for payment ofpost-petition amounts owed under the Calpine Tolling Agreements, as set forthin the Motion to Compel, is scheduled to be heard by the Calpine DebtorsBankruptcy Court on May 24, 2006.

Acadia has invoiced CES for obligations performedunder the Calpine Tolling Agreements totaling $3.5 million related topre-petition bankruptcy claims, $2.0 million for post-petition claims throughDecember 31, 2005, and $16.3 million for post-petition claims for the three monthsended March 31, 2006. Acadia has recorded a reserve for uncollectible accountsof $21.8 million at March 31, 2006.  CES has failed to make any

33
****
payments onamounts invoiced by Acadia since Calpine filed for bankruptcy protection.  Thereserve for uncollectible accounts excludes the $2.8 million draw, made by APHin February 2006, against the $15.0 million letter of credit issued by Calpine.

On April 7, 2006,Acadia signed a short-term agreement with a third-party power marketer to sellAcadia's output while continuing to explore its long-term options for thefacility. 

**ITEM 2.**   MANAGEMENT'S DISCUSSION ANDANALYSIS 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, 2005, and Cleco Corporation's and ClecoPower's Condensed Financial Statements contained in this Form 10-Q.  The informationincluded therein is essential to understanding the following discussion andanalysis.  Below is information concerning the consolidated results ofoperations of Cleco for the three months ended March 31, 2006, and March 31,2005.

**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 operates amerchant generation station, invests in a joint venture that owns and operatesa merchant generation station, and owns and operates transmission interconnectionfacilities.

While Managementbelieves that Cleco remains a strong company, Cleco continues to focus onseveral near-term challenges.  An overview of significant factors affectingCleco Power and Midstream are fully described below.

***Cleco Power***

Many factors affect the opportunities, challenges,and risks of Cleco Power's primary business of selling electricity.  Thesefactors include the presence of a stable regulatory environment, which includesrecovery of costs and maintaining a favorable return on equity, to achieveenergy sales growth while containing costs, and to recover costs related togrowing demand and rising fuel prices and increasingly stringent environmentalstandards.  In addition, Cleco Power continues to focus on resolving itslong-term capacity needs and constructing within its projected costs (includingfinancing) a new solid-fuel generating unit which should help stabilizecustomer fuel costs.

In June 2005, Cleco Power made selections from itsRFPs.  Cleco Power's selections included plans to construct a solid-fuelpower plant at its Rodemacher facility (Rodemacher Unit 3) and two powerpurchase agreements with third party suppliers.  The two power purchaseagreements were executed in August 2005 and certified by the LPSC in November2005.  One of the two power purchase agreement contracts, executed in August2005, was with CES and was to provide 200 MW of capacity in 2006; the other iswith Williams and provides 500 MW of capacity annually from 2006 through 2009. On March 22, 2006, the Calpine Debtors Bankruptcy Court approved the mutualtermination of the contract between Cleco Power and CES to supply 200 MW ofcapacity in 2006.  The court's actions stemmed from CES's request to reject theCalpine Tolling Agreements for the Acadia plant.  Cleco Power has replaced theCES contract with other economy energy contracts for 2006.  For additionalinformation, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 16 - Calpine Bankruptcy."  In September 2005, after completion of theevaluation of potential construction contractors, Cleco Power entered into anEPC contract with Shaw Constructors, Inc. (Shaw) to construct Rodemacher Unit3.  Cleco Power expects to execute an amended and restated EPC contract withShaw by the end of May 2006.  The total project cost, including carrying costsduring construction, is estimated at $1.0 billion.  On February 22, 2006, theLPSC approved Cleco Power's plans to build Rodemacher Unit 3, and on March 17,2006, the project received approval from the Board of Directors of Cleco Corporationand the Board of Managers of Cleco Power.  On February 23, 2006, the final airpermit was issued by the Louisiana Department of Environmental Quality (LDEQ),and on March 14, 2006, the final water discharge permit was issued by the LDEQ. Approval of other environmental permit applications is pending.  Site preparationactivities have begun under a limited scope until the amended and restated EPCcontract is executed.  Cleco Power anticipates the plant will be operational inthe fourth quarter of 2009.

Cleco Powercontinues to evaluate a range of power supply options for 2007 and beyond.  Assuch, Cleco Power has begun to update its IRP to look at future sources ofsupply and transmission needs.  In February 2006, Cleco Power issued a RFP for aminimum of 250 MW up to 450 MW to meet its 2007 capacity and energyrequirements.  The options selected in this RFP will be filed for certificationwith the LPSC later this year, and the contracts will commence on January 1,2007.  For additional information on this RFP,see "- Financial Condition - Regulatory Matters - Generation RFP."

On August 29,2005, Hurricane Katrina hit the coast of Louisiana and Mississippi, causingcatastrophic damage to the Gulf Coast region, including portions of ClecoPower's service territory.  On September 24, 2005, Hurricane Rita made landfalland hit all of Cleco Power's service territory, including the area north ofLake Pontchartrain, which was devastated by Hurricane Katrina 27 days earlier. Storm 

34
****
 

restoration costs from Hurricanes Katrina and Rita currently areestimated to total $159.0 million, a decrease from the original estimate of$161.8 million filed with the LPSC.  On February 22, 2006, the LPSC approved aninterim rate increase of $23.4 million annually for a ten-year period torecover approximately $161.8 million of storm restoration costs.  For additionalinformation, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 3 - Regulatory Assets and Liabilities."

Cleco Power isexploring the potential reimbursement of storm restoration costs from the U.S. government,as well as securitization of costs, to reduce the amount to be recovered fromcustomers.  In addition, Cleco Power is exploring the possibility of financingthe storm restoration costs with tax-exempt bonds through the GulfOpportunities Zone Act of 2005.  Cleco Power cannot predict the likelihood thatany reimbursement from the U.S. government, securitization of costs, or anyother financing will be approved, and if approved, the likelihood that any suchfinancing can be consummated.

Cleco Power's 1996earnings review settlement with the LPSC, subsequent amendments, and two approvedone-year extensions, set Cleco Power's rates until September 30, 2006.  OnDecember 19, 2005, Cleco Power filed an application with the LPSC to extend thecurrent RSP through the in-service date of the Rodemacher Unit 3 power plant.  Theapplication is being considered by the LPSC.  Preliminary testimony of the LPSCStaff consultants supports the extension, with several modifications, throughthe Rodemacher Unit 3 in-service date.  For additional information on theproposed RSP, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 7 - Electric Customer Credits."

Cleco Power'scustomers' costs are expected to remain elevated for the foreseeable future, inrelation to the past, due to the increased cost of natural gas used as fuel forgeneration and the increased cost of purchased power, also driven by naturalgas prices, both recovered through a fuel cost adjustment on customer bills. Although the cost of fuel and purchased power is recovered from customersthrough the fuel adjustment billing mechanism, Cleco Power expects to incurhigher uncollectible customer bill amounts and higher franchise taxes, as longas higher natural gas prices persist.

***Midstream***

One of the more significant factors currentlyaffecting Midstream comes as a result of the December 20, 2005, bankruptcy filingof the Calpine Debtors.  Although there are many uncertainties surrounding theCalpine bankruptcy and its effect on agreements with Acadia, Midstream isprepared to protect its interests in Calpine's bankruptcy proceedings and willcontinue to actively work to realize the value of the Acadia plant, boththrough marketing its output and by optimizing the asset itself, if necessary. For additional information on the Calpine bankruptcy, see Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 16 - Calpine Bankruptcy."

In addition to the opportunities and challengesmentioned above, Cleco continues to assess the ongoing credit condition of theEvangeline Tolling Agreement counterparty, as Midstream's merchant energy businessis heavily dependent on the performance of this tolling agreement.  

***Comparison of theThree Months Ended March 31, 2006 and 2005***

**Cleco Consolidated**

** **

FOR THE THREE MONTHS ENDED MARCH  31,

** **

FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**2006**

2005

VARIANCE

CHANGE

Operating revenue, net

**$  223,418**

   $  172,116

   $     51,302

        29.81 %

Operating expenses

**197,445**

      156,308

       (41,137)

      (26.32)%

Operating income 

**$    25,973**

   $    15,808

   $     10,165

        64.30 %

Interest income

**$      2,492**

   $         966

   $       1,526

     157.97 %

Equity income from investees 

**$          373**

   $      9,919

   $    (9,546)

      (96.24)%

Interest charges

**$    10,949**

   $    11,802

   $          853

          7.23 %

Net income applicable to common stock

**$    11,679**

   $      8,966

   $       2,713

        30.26 %

Consolidated net income applicable tocommon stock increased $2.7 million, or 30.3%, in the first quarter of 2006compared to the first quarter of 2005 primarily due to increased Cleco Powerand corporate earnings.  Partially offsetting this increase were decreasedearnings at Midstream.

Operating revenue increased $51.3million, or 29.8%, in the first quarter of 2006 compared to the same period of2005 largely as a result of higher fuel cost recovery revenue at Cleco Power.  

Operating expenses increased $41.1million, or 26.3%, in the first quarter of 2006 compared to the first quarterof 2005 primarily due to increased costs and volumes of power purchased forutility customers.  

Interest income increased $1.5million, or 158.0%, in the first quarter of 2006 compared to the same period of2005 largely as a result of higher rates and a higher average investmentbalance.

Equity income from investees decreased$9.5 million, or 96.2%, in the first quarter of 2006 compared to the same periodof 2005 primarily due to decreased equity earnings at APH and Evangeline, partiallyoffset by APH's drawdown against Calpine's letter of credit. 

Interest charges decreased $0.9million, or 7.2%, in the first quarter of 2006 compared to the same period of2005 primarily due to the repayment of Cleco Corporation senior notes in June2005, partially offset by new issuances of senior notes at Cleco Power.

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

**Cleco Power**

Cleco Power's net income applicable to member'sequity in the first quarter of 2006 increased $6.3 million, or 82.3%, comparedto the first quarter of 2005.  Contributing factors include:
-  	higher base revenue,
-  favorable customer credit adjustments, 
-  lower other operations and maintenance expenses, and higherinterest income.

 

35
****These were partially offset by:-  higher depreciation expense and 
-  higher interest charges. 

             	FOR THE THREE MONTHS ENDED MARCH  31,

         	FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2006**

              2005

       VARIANCE

CHANGE

Operating revenue

     Base

** $   67,898**

   $    66,790

   $       1,108

          1.66 %

     Fuel cost recovery

** 143,091**

        96,041

        47,050

        48.99 %

     Electric customer credits

**     4,382**

             (218)

           4,600

                      *

     Other operations

**     6,549**

           7,080

             (531)

        (7.50)%

     Affiliate revenue

**          12**

                   8

                   4

        50.00 %

     Intercompany revenue

**        500**

              487

                 13

          2.67 %

          Operating revenue, net

** 222,432**

      170,188

        52,244

        30.70 %

Operating expenses

     Fuel used for electric generation -  recoverable

**   46,151**

        48,101

           1,950

          4.05 %

     Power purchased for utility customers -  recoverable

**   96,967**

        46,114

       (50,853)

   (110.28)%

     Non-recoverable fuel and power  purchased

**     6,029**

           5,047

             (982)

      (19.46)%

     Other operations

**   16,242**

        20,349

           4,107

        20.18 %

     Maintenance

**     5,347**

           8,545

           3,198

        37.43 %

     Depreciation

**   15,225**

        14,396

             (829)

        (5.76)%

     Taxes other than income taxes

**     9,309**

           9,584

              275

          2.87 %

               Total operating expenses

**  195,270**

      152,136

       (43,134)

      (28.35)%

Operating income

** $   27,162**

   $    18,052

   $       9,110

        50.47 %

Interest income

** $     2,336**

   $         612

   $       1,724

     281.70 %

Interest charges

** $     8,979**

   $      7,187

   $    (1,792)

      (24.93)%

Federal and state income taxes

** $     7,057**

   $      4,674

   $    (2,383)

      (50.98)%

Net income 

** $   13,873**

   $      7,609

   $       6,264

        82.32 %

*    Not meaningful

 

                  FOR THE	THREE MONTHS ENDED MARCH  31,

  (MILLION kWh)

**              2006**

              2005

         FAVORABLE/	(UNFAVORABLE)

Electric sales

     Residential

**        750**

              790

             (5.06)%

     Commercial

**        407**

              406

               0.25 %

     Industrial

**        692**

              681

               1.62 %

     Other retail

**        131**

              136

             (3.68)%

     Unbilled

**         (82)**

               (93)

             11.83 %

               Total retail

**     1,898**

           1,920

             (1.15)%

     Sales for resale

**        236**

              140

             68.57 %

Total retail and wholesale customer sales

**     2,134**

           2,060

               3.59 %

 

                  FOR THE	THREE MONTHS ENDED MARCH  31,

  (THOUSANDS)

**              2006**

              2005

         FAVORABLE/	(UNFAVORABLE)

Electric sales

     Residential

** $ 30,340**

   $   31,552

             (3.84)%

     Commercial

**   16,946**

        16,813

               0.79 %

     Industrial

**   13,383**

        13,298

               0.64 %

     Other retail

**     5,497**

           5,668

             (3.02)%

     Unbilled

**    (2,508)**

         (3,108)

             19.31 %

               Total retail

**   63,658**

        64,223

             (0.88)%

     Sales for resale

**     4,240**

           2,567

             65.17 %

Total retail and wholesale customer sales

** $ 67,898**

   $   66,790

               1.66 %

ClecoPower's residential customers' demand for electricity largely is affected byweather.  Weather generally is measured in cooling degree-days and heatingdegree-days.  A cooling degree-day is an indication of the likelihood that aconsumer will use air conditioning, while a heating degree-day is an indicationof the likelihood that a consumer will use heating.  An increase in heatingdegree-days does not produce the same increase in revenue as an increase incooling degree-days, because alternative heating sources are more available.  Normalheating degree-days and cooling degree-days are calculated for a month byseparately calculating the average actual heating and cooling degree-days forthat month over a period of 30 years.

The following chart shows howcooling and heating degree-days varied from normal conditions and from theprior period.  Cleco Power uses temperature data collected by the NationalOceanic and Atmospheric Administration to determine degree-days.

      FOR THE THREE  MONTHS ENDED MARCH 31,

                         2006  CHANGE

**              2006**

            2005

      	NORMAL

  PRIOR	YEAR

        	NORMAL

Heating degree-days

**        688**

             689

             977

       (0.15)%

     (29.58)%

Cooling degree-days

**        110**

               94

               70

       17.02 %

       57.14 %

 

***Base***

Base revenue during the first quarter of 2006 increased$1.1 million, or 1.7%, compared to the same period in 2005.  The increase primarilywas due to sales related to fixed-price power being provided to a new wholesalecustomer beginning in January 2006 and higher sales to two municipal customers.

Cleco Power currently is providing service orwill begin providing service to expansions of current customers' operations, aswell as services to new commercial and new industrial customers.  The additionof 33 MWs is expected to increase base revenue in late 2006 and early 2007.

As mentioned above, Cleco Power began sellingfixed-priced power to a new 30-MW wholesale customer on January 1, 2006.  As aresult of the fixed-price contract, the new customer is expected to increasebase revenue while potentially diluting earnings in years 2006, 2007, and2008.  In years 2009 through 2012, Cleco Power anticipates earnings accretion relatedto this contract.  For additional information on Cleco's energy commodityactivities, see Item 3, "Quantitative and Qualitative Disclosures about MarketRisk - Risk Overview - Commodity Price Risks."

For information on the effects of future energysales on Cleco Power's financial condition, results of operations, and cashflows, see "Risk Factors - Energy Sales" in the Registrants' Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

***Fuel Cost Recovery***

Fuel cost recoveryrevenue billed to customers during the first quarter of 2006 compared to thesame period in 2005 increased $47.1 million, or 49.0%, primarily due to highercosts of power purchased and fuel used for electric generation.  In addition,increased volumes of power purchased increased fuel cost recovery revenue.  Partiallyoffsetting this increase was the absence in 2006 of favorable fuel surchargeadjustments from rate orders received related to fuel transportation chargesduring the first quarter of 2005.  Changes in fuel 

36
****
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 95% 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 will 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 first quarterof 2006 decreased $4.6 million compared to the same period in 2005.  This decreasein electric customer credits largely is the result of favorable adjustmentsmade during the first quarter of 2006 related to current and prior RSP filingperiods.  The potential refunds associated with the RSP are based on resultsfor each 12-month period ended September 30.  For additional information on theaccrual of electric customer credits, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 7 - Electric Customer Credits."

***Other Operations***

Other operations revenue decreased $0.5 million,or 7.5%, in the first quarter of 2006 compared to the first quarter of 2005primarily due to a $1.9 million net mark-to-market loss from economic hedgetransactions related to fixed-price power being provided to a new wholesalecustomer, partially offset by a $1.4 million increase in transmission revenue,customer fees, timber sales, and pole attachment revenue.  For information onCleco's energy commodity activities, see Item 3, "Quantitative and QualitativeDisclosures about Market Risk - Risk Overview - Commodity Price Risks."

***Operating Expenses***

Operating expenses increased $43.1 million, or 28.4%,in the first quarter of 2006 compared to the same period of 2005.  Fuel usedfor electric generation decreased $2.0 million, or 4.1%, primarily due to lowervolumes of fuel used as compared to the same period of 2005, net of thedeferral of costs to be collected from customers through the fuel adjustmentclause.  Power purchased for utility customers increased $50.9 million, or 110.3%,largely due to higher costs and volumes of purchased power.  Fuel used forelectric generation and power purchased for utility customers generally areinfluenced by natural gas prices.  However, other factors such as unscheduledoutages, unusual maintenance or repairs, or other developments may affect fuelused for electric generation and power purchased for utility customers.  Non-recoverablefuel and power purchased increased $1.0 million, or 19.5%, primarily due to powerand fuel purchases associated with fixed-price power that is being provided toa new wholesale customer.  This increase was partially offset by lower capacitypayments made during 2006 as a result of the expiration of certain 2005 powerpurchase agreements and the mutually agreed upon termination of the 2006 CES contract. Other operations expense decreased $4.1 million, or 20.2%, primarily due to the$3.5 million recognition of previously recorded storm restoration expenses as aregulatory asset as a result of the LPSC's February 22, 2006, approval of ClecoPower's request to recover these storm restoration costs.  Maintenance expensesduring the first quarter of 2006 decreased $3.2 million, or 37.4%, compared to thesame period of 2005 primarily due to the $3.0 million recognition of previouslyrecorded storm restoration expenses as a regulatory asset as a result of theLPSC's February 22, 2006, approval of Cleco Power's request to recover thesestorm restoration costs.  Also contributing to the decrease was less generatingstation maintenance work performed during the first quarter of 2006.  Foradditional information on storm restoration costs, see Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 3 - Regulatory Assets and Liabilities."

***Interest Income***

Interest incomeincreased $1.7 million, or 281.7%, during the first quarter of 2006 compared tothe same period of 2005 primarily due to higher rates and a higher averageinvestment balance.

***Interest Charges***

Interest chargesincreased $1.8 million, or 24.9%, during the first quarter of 2006 compared tothe same period of 2005 primarily due to higher debt balances as a result of newissuances of senior notes in the third and fourth quarters of 2005.

***Income Taxes***

Income tax expenseincreased $2.4 million, or 51.0%, during the first quarter of 2006 compared tothe same period of 2005.  Cleco Power's effective income tax rate decreased from38.1% to 33.7% during the first quarter of 2006 compared to the same period of2005 mainly due to the flow through of reduced state income tax expense relatedto Cleco Power's 2004 tax return that was filed in February 2006.  The decreasewas offset by increased deferred tax expense for the carry forward of the 2005state net operating loss resulting from casualty losses related to HurricanesKatrina and Rita.  Generally, the LPSC requires that Cleco Power flow through impactsof state income taxes to current earnings; however, the LPSC foundnormalization for state taxes related to storm deductions to be moreappropriate due to the size of such deductions.  Tax rates also were affectedby the relative size of pre-tax income related to these items.  Pre-tax incomeduring the first quarter of 2006 increased $8.6 million compared to the sameperiod of 2005.

37
****
**Midstream**

Midstream's net income applicable to member'sequity for the first quarter of 2006 decreased $5.8 million, or 212.1%, comparedto the first quarter of 2005.  Factors affecting Midstream during the first quarterof 2006 are described below.

                                           	FOR THE THREE MONTHS ENDED MARCH 31,

          	FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2006**

              2005

VARIANCE

CHANGE

Operating revenue

     Other operations

** $            4**

   $            12

   $             (8)

        (66.67)%

     Affiliate revenue

**     1,050**

           1,493

             (443)

        (29.67)%

          Operating revenue

**     1,054**

           1,505

             (451)

        (29.97)%

Operating expenses

     Other operations

**     1,125**

    

           2,188

           1,063

          48.58 %

     Maintenance

**        502**

               671

              169

          25.19 %

     Depreciation

**          78**

                 80

                   2

             2.50 %

     Taxes other than income taxes

**          57**

               122

                 65

          53.28 %

               Total operating expenses

**     1,762**

           3,061

           1,299

          42.44 %

Operating loss

** $      (708)**

   $     (1,556)

   $           848

          54.50 %

Equity income from investees

** $         398**

   $        9,919

   $     (9,521)

        (95.99)%

Interest charges

** $      4,231**

   $        3,480

   $        (751)

        (21.58)%

Federal and state income tax (benefit) expense	

**  $   (1,542)**

   $        1,991

   $        3,533

      177.45	%

Loss from discontinued operations	

**  $         (87)**

   $        (134)

   $             47

          35.07 %

Net (loss) income 

** $   (3,087)**

   $        2,755

   $     (5,842)

      (212.05)%

*** ***

***Operating Revenue***

Operating revenue decreased $0.5 million, or30.0%, in the first quarter of 2006 compared to the first quarter of 2005.  Thedecrease largely was due to the absence of affiliate revenue from Perryville asa result of the sale of the Perryville facility on June 30, 2005.

***Operating Expenses***

Operating expenses decreased $1.3 million, or42.4%, in the first quarter of 2006 compared to the first quarter of 2005.  Thedecrease largely was due to differences in expense recognition related toshare-based compensation as a result of the adoption of SFAS No. 123R in thefirst quarter of 2006 as compared to recognition pursuant to APB Opinion No. 25in 2005.  Also contributing to the decrease was lower annual incentivecompensation expense, lower professional fees, and lower other miscellaneous expenses.

***Equity Income fromInvestees***

Equity income frominvestees decreased $9.5 million, or 96.0%, in the first quarter of 2006compared to the first quarter of 2005.  The decrease was due to an $8.3 milliondecrease in equity earnings at APH and a $1.6 million decrease at Evangeline.  Thedecrease in earnings at APH primarily was due to reserve for uncollectibleamounts relating to the Calpine Tolling Agreements attributable to the Calpinebankruptcy filing, partially offset by APH's $2.8 million drawdown against the$15.0 million letter of credit issued by Calpine.  Acadiahas invoiced CES for obligations performed under the Calpine Tolling Agreementstotaling $3.5 million related topre-petition bankruptcy claims, $2.0 million for post-petition claims throughDecember 31, 2005, and $16.3 million for post-petition claims for the three monthsended March 31, 2006. Acadia has recorded a reserve for uncollectible accountsof $21.8 million at March 31, 2006.  The decrease at Evangeline primarilywas due to higher gas and turbine maintenance expenses, as well as increasedheat rate penalties.  These decreases were partially offset by increased equityearnings at Attala and Perryville.  Earnings of $0.2 million at Attala were theresult of its acquisition of transmission assets and the subsequentcommencement of interconnection services operations in January 2006.  The recognitionof $0.2 million of earnings at Perryville was the result of the reintegrationof Perryville financial results on Cleco Corporation's Consolidated Statementsof Income.  For additional information on Evangeline and Acadia, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 5 - Equity Investmentin Investees" and for additional information on Calpine's bankruptcy, see Note 16- "Calpine Bankruptcy."

***Interest Charges***

Interest charges increased $0.8 million, or 21.6%,during the first quarter of 2006 compared to the same period of 2005 primarilydue to higher interest rates at APH.

***Income Taxes***

Income tax expense decreased$3.5 million, or 177.5%, during the first quarter of 2006 compared to the sameperiod of 2005.  Midstream's effective income tax rate decreased from 40.8% to 34.0%during the first quarter of 2006 compared to the same period of 2005.  Taxrates largely were affected by the $9.4 million decrease in pre-tax income for2006 compared to the same period in 2005 and the recognition of the qualifiedproduction activities tax deduction in 2005 under The American Jobs CreationAct of 2004.  Midstream does not qualify for this deduction in 2006 due to itstax loss during the period.  The tax rate also decreased as a result of the taxcontingency reserve accrual during the first quarter of 2006. 

**FINANCIAL CONDITION**

**Liquidity and CapitalResources**

**General Considerations andCredit-Related Risks**

***Credit Ratings andCounterparties***

On April 5, 2006,Moody's placed Evangeline's Senior Secured Debt Rating of B1 under review forpossible upgrade.  This review was prompted by a review for possible upgrade ofThe Williams Companies, Inc. on April 4,2006.  Fundamental to the rating of Evangeline is the fact that The Williams Companies,Inc. guarantees the payments of its subsidiary, Williams, under a long-termtolling agreement between Williams and Evangeline that expires in 2020.  Thistolling agreement is the principal source of cash flow for the Evangelineproject.

On March 1, 2006, Moody'swithdrew the ratings of Calpine and several of its wholly owned subsidiariesdue to 

38
****
Calpine's filing of a voluntary petition for protection under federalbankruptcy law on December 20, 2005.

With respect to any openpower or gas hedging positions that Cleco may initiate in the future, Cleco Corporationmay be required to provide credit support (or pay liquidated damages).  Theamount Cleco Corporation may be required to pay at any point in the future isdependent on changes in the market price of power and gas, the changes in openpower and gas positions, and changes in the amount counterparties owe ClecoCorporation.  Changes in any of these factors could cause the amount ofrequested credit support to increase or decrease.  For additional information,as well as a discussion of other factors affecting Cleco's financial conditionrelating to its credit ratings, the credit ratings of its counterparties, andother credit-related risks, please read "Management's Discussion and Analysisof Financial Condition and Results of Operations - Financial Condition -Liquidity and Capital Resources - General Considerations and Credit-RelatedRisks - Credit Ratings and Counterparties" in the Registrants' Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

***Debt***

Cleco Corporation and Cleco Power entered into newcredit facilities in April 2005.  If Cleco Corporation were to default undercovenants in its various credit facilities, Cleco Corporation would be unableto borrow additional funds under the credit facilities.  If Cleco Corporation'scredit rating were to be downgraded one level below investment grade, ClecoCorporation would be required to pay fees and interest totaling 0.375% higherthan the current level for its $150.0 million facility.  The same downgrade atCleco Power would require Cleco Power to pay fees and interest totaling 0.65%higher on its $125.0 million credit facility.  At March 31, 2006, Cleco Corporationand Cleco Power were in compliance with the covenants in their credit facilities.

***Cleco Consolidated***

At March 31, 2006, and December 31, 2005, Cleco'slong-term debt outstanding was $649.6 million.  Cleco had no short-term debtoutstanding at March 31, 2006, or December 31, 2005.

At March 31, 2006, andDecember 31, 2005, Cleco had a working capital surplus of $102.8 million and $140.4million, respectively.  The $37.6 million decrease in working capital is aresult of a decrease in current assets of $64.2 million and a decrease incurrent liabilities of $26.6 million.  The decrease in current assets is mainlydue to a decrease in temporary cash investments primarily from the payment ofstorm restoration costs, a decrease in customer accounts receivables due to seasonallylower utility bills, and payments received for higher billing months, and adecrease in risk management assets due to lower value of Cleco's open gashedging positions.  This was partially offset by an increase in fuel oil inventoryand an increase in margin deposits due to a decrease in the value of ClecoPower's open futures contracts.  The decrease in current liabilities is mainlydue to a decrease in accounts payable from the payment of storm restorationcosts, partially offset by increases in accumulated current deferred taxes andrisk management liabilities due to lower value of Cleco's open gas hedgingpositions.

Cash and cash equivalentsavailable at March 31, 2006, were $137.4 million combined with $257.0 millionfacility capacity ($132.0 million from Cleco Corporation and $125.0 millionfrom Cleco Power) for total liquidity of $394.4 million.  Cash and cashequivalents decreased $81.7 million, when compared to December 31, 2005,largely due to payment of storm restoration costs, payment of dividends, fueloil inventory purchases, higher margin deposit requirements, and expendituresfor capital additions to property, plant, and equipment.  These payments werepartially offset by cash received from ongoing operations, collections ofoutstanding customer accounts, and from routine working capital fluctuations. 

 ***Cleco Corporation(Holding Company Level)***

Cleco Corporation had no short-term debtoutstanding at March 31, 2006, or December 31, 2005.  At March 31, 2006, andDecember 31, 2005, Cleco Corporation had $100.0 million of long-term debtoutstanding related to its 7.00% senior notes, due May 1, 2008.

Cleco Corporation has a revolving five-yearcredit facility with a maximum capacity of $150.0 million that matures in2010.  At March 31, 2006, off-balance sheet commitments reduced availableborrowings by $18.0 million, leaving available capacity of $132.0 million.  Formore information about these commitments, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 8 - Litigation and Other Commitments andContingencies - Off-Balance Sheet Commitments."  An uncommitted line of creditwith a bank in an amount up to $10.0 million also is available to support ClecoCorporation's working capital needs.  This line of credit also is available toCleco Power.

Cash and cash equivalents available at March 31,2006, were $21.4 million, combined with $132.0 million facility capacity fortotal liquidity of $153.4 million.  Cash and cash equivalents decreased $14.4million, when compared to December 31, 2005, largely due to the payment of dividends.

If Cleco Power were to default under its creditfacility, Cleco Corporation would be considered in default under its current creditfacility.  The bonds issued by Evangeline are non-recourse to Cleco Corporation,and a default on these bonds would not be considered a default under Cleco Corporation'scredit facility.

***Cleco Power***

At March 31, 2006, and December 31, 2005, ClecoPower's long-term debt outstanding was $549.6 million.  Cleco Power had noshort-term debt outstanding at March 31, 2006, or December 31, 2005.  

Cleco Power has a revolving five-year creditfacility with a maximum capacity of $125.0 million that matures in 2010.  AtMarch 31, 2006, no amounts were outstanding under this facility.  Anuncommitted line of credit with a bank in an amount up 

39
****
to $10.0 million also isavailable to support Cleco Power's working capital needs.  This line of creditalso is available to Cleco Corporation.

Cash and cash equivalents available at March 31,2006, were $116.0 million, combined with $125.0 million facility capacity fortotal liquidity of $241.0 million.  Cash and cash equivalents decreased $67.4million, when compared to December 31, 2005, primarily due to payment of stormrestoration costs, fuel oil inventory purchases, higher margin depositrequirements, and expenditures for capital additions to property, plant, andequipment.  This was partially offset by cash received from on-going operations,collections of outstanding customer accounts, and from routine working capitalfluctuations.  

On February 22, 2006, the LPSC approved ClecoPower's plans to build Rodemacher Unit 3, and on March 17, 2006, the projectreceived approval from the Board of Directors of Cleco Corporation and theBoard of Managers of Cleco Power.  Terms of the LPSC approval included provisionsthat Cleco Power collect from customers 75% of the carrying costs of capitalduring the construction phase of the unit.  In addition to this recovery ofcarrying costs, Cleco Power plans to fund the construction costs related to RodemacherUnit 3 by utilizing cash on hand, available funds from its credit facility, theissuance of long-term debt, and equity contributions from Cleco Corporation.

On March 30, 2006, Cleco Power filed a shelfregistration statement with the SEC, allowing for the issuance of up to $600.0million of debt securities.  On April 13, 2006, this registration statement wasdeclared effective by the SEC.  Cleco Power expects to use proceeds fromofferings of debt securities under the registration statement for generalcorporate purposes, including payment of remaining storm restoration costs andthe construction of Rodemacher Unit 3.

***Midstream***

Midstream had no short-term debt outstanding at March31, 2006, or December 31, 2005.

At March 31, 2006, and December 31, 2005, Perryvillehad no short-term or long-term debt outstanding.  

Evangeline, deconsolidated and no longer reportedin Cleco Corporation's consolidated results, had no short-term debt outstandingat March 31, 2006, and December 31, 2005.  Evangeline did have $180.9 millionand $184.7 million of long-term debt outstanding at March 31, 2006, andDecember 31, 2005, respectively, in the form of 8.82% Senior Secured Bonds due2019.  In addition, Evangeline had $7.4 million and $7.1 million of long-termdebt due within one year at March 31, 2006, and December 31, 2005, respectively,relating to these bonds.  The bonds issued by Evangeline are non-recourse toCleco Corporation.  For information on the deconsolidation of Evangeline, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 5 -Equity Investment in Investees."

***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 March 31, 2006, andDecember 31, 2005, $25.7 million and $35.7 million of cash, respectively, wererestricted under various agreements.  At March 31, 2006, the $25.7 million ofrestricted cash consisted of $0.1 million under the Diversified Landsmitigation escrow agreement and $25.6 million under the Evangeline seniorsecured bond indenture.  The restricted cash at Evangeline is not included inCleco Corporation's Condensed Consolidated Balance Sheets at March 31, 2006,due to the deconsolidation of Evangeline in 2004.

***Contractual Obligations andOther Commitments***

For information regarding Cleco's ContractualObligations and Other Commitments, please read "Management's Discussion andAnalysis of Financial Condition and Results of Operations - Financial Condition- Liquidity and Capital Resources - Cash Generation and Cash Requirements -ContractualObligations and Other Commitments" in the Registrants' Combined Annual Reporton Form 10-K for the fiscal year ended December 31, 2005.

***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 hasbeen determined that Cleco's affiliates are able to perform these obligationsunder their contracts and that it is not probable that payments by Cleco willbe required.  Some of these commitments reduce borrowings available to ClecoCorporation under its credit facility pursuant to the terms of the creditfacility.  Cleco's off-balance sheet commitments as of March 31, 2006, aresummarized in the following table, and a discussion of the off-balance sheetcommitments follows the table.  The discussion should be read in conjunctionwith the table to understand the impact of the off-balance sheet commitments onCleco's financial condition.

40
****
AT MARCH 31, 2006

      	REDUCTIONS TO THE

AMOUNT AVAILABLE
TO BE DRAWN ONFACE
** **

 NET

CLECO CORPORATION'S
(THOUSANDS)
AMOUNT
REDUCTIONS

        	AMOUNT

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

**            $ 277,400**

** $  135,000**

**            $ 142,400**

**         $        328**

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 

**                      727**

**             -**

**                 727**

**                   727**

Cleco Corporation guarantee issued to Entergy  Mississippi, Inc. on behalf of Attala

**                      500**

**             -**

**                 500**

**                   500**

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

**                      525**

**             -**

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 14,008**

**             -**

**                 14,008**

**                        -**

     Total

**            $ 309,560**

** $  135,000**

**            $ 174,560**

**         $   17,955**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance indemnity, representation,and warranty obligations under the Sale Agreement, the Power PurchaseAgreement, and other ancillary agreements related to the sale of the Perryvillefacility.  As of March 31, 2006, the aggregate guarantee of $277.4 million islimited to $142.4 million (other than with respect to the indemnification ofenvironmental matters, to which there is no limit) due to the performance ofsome of the underlying obligations that were guaranteed.  The discounted probability-weightedliability under the guarantees and indemnifications as of March 31, 2006, was $0.3million, resulting in a corresponding reduction in the available credit underCleco's credit facility, which was determined in accordance with the facility'sdefinition of a contingent obligation.  The contingent obligation reduces theamount available under the credit agreements by an amount equal to thereasonably anticipated liability in respect of the contingent obligation asdetermined in good faith if the total amount of indebtedness outstanding,including such contingent obligations, exceeds certain thresholds.  Foradditional information on this guarantee, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 9 - Disclosures about Guarantees."

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 lawsuit against the purchaserand Cleco Energy (related to the price charged for certain natural gas sales byCleco Energy).  After an initial investigation, Management believes that thismatter will not have a material impact on Cleco's financial condition, resultsof operations, or cash flows.  

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.  Clecoexpects Evangeline to be able to meet its obligations under the tollingagreement and does not expect Cleco Corporation to be required to make paymentsto the counterparty.  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 of transmission assets by Attala, includingAttala's obligations to pay the purchase price for the assets and to indemnifythe seller.  The maximum amount payable under the guarantee is $6.9 million. On January 20, 2006, Cleco completed the purchase of the transmission assets,and the guarantee was reduced to $0.7 million.  In addition, on January 20,2006, Cleco Corporation provided a $0.5 million guarantee to Entergy Mississippi,Inc. for Attala's obligations under the Interconnection Agreement.

The State of Louisiana allows employers of certainfinancial net worth to self-insure their workers' compensation benefits.  ClecoPower applied to the Louisiana Office of Workers' Compensation for acertificate of self-insurance.  The State of Louisiana required Cleco Power topost a $0.5 million letter of credit, an amount equal to 110 percent of the averagelosses over the previous three years, as surety.

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 March 31, 2006, Cleco Power's 50%exposure for this obligation was approximately $14.0 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:

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                                                                             	AT MARCH 31, 2006

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

** $  159,035**

** $     727**

** $         -**

** $  101,400**

** $ 56,908**

Standby letters of credit

**    15,525**

**        525**

**             -**

**             -**

**   15,000**

     Total commercial commitments

** $  174,560**

** $ 1,252**

** $         -**

** $  101,400**

** $ 71,908**

 

**RegulatoryMatters**

***Wholesale Rates of Cleco***

For a discussion of the wholesale rates of Cleco,please read "Management's Discussion and Analysis of Financial Condition andResults of Operations - Financial Condition - Liquidity and Capital Resources -Regulatory Matters - Wholesale Rates of Cleco" in the Registrants' Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

***Retail Rates of Cleco Power***

On February 22, 2006, the LPSC approved an interimrate increase to recover Cleco Power's storm restoration costs incurred forHurricanes Katrina and Rita.  The interim rate increase became effective uponthe beginning of actual construction on Rodemacher Unit 3 (Phase I) and will remainin effect until the LPSC completes a review to verify and approve the totalamount of storm restoration costs to be recovered (Phase II).  As part of thisapproval, the LPSC required that effective during the interim Phase I recoveryperiod, any earnings above the current 12.25% allowed return on equity becredited against outstanding Hurricanes Katrina and Rita storm restorationcosts, rather than being shared 50/50 between shareholders and customers.  Thecredits against storm restoration costs will continue as long as interim relieffor storm costs is in place and until the actual amount of storm costs areverified and approved by the LPSC, expected in early 2007.

For additional information on other regulatoryaspects of retail rates concerning Cleco Power, please read "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -Financial Condition - Liquidity and Capital Resources - Regulatory Matters -Retail Rates of Cleco Power" in the Registrants' Combined Annual Report on Form10-K for the fiscal year ended December 31, 2005.

***Wholesale ElectricMarkets***

For a discussion of regulatory aspects ofwholesale electric markets affecting Cleco, please read "Management's Discussionand Analysis of Financial Condition and Results of Operations - FinancialCondition - Liquidity and Capital Resources - Regulatory Matters - MarketRestructuring - Wholesale Electric Markets" in the Registrants' Combined AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

***GenerationRFP***

In February 2006, Cleco Power issued a RFP for aminimum of 250 MW up to 450 MW to meet its 2007 capacity and energyrequirements.  A short-list of bidders was selected on March 24, 2006.  ClecoPower currently is negotiating with these bidders and expects to file the powerpurchase agreements relating to this RFP with the LPSC for certification laterthis year.

For additional information on Cleco Power'sgeneration RFPs, please read "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Financial Condition - Liquidity andCapital Resources - Regulatory Matters - Generation RFP" in the Registrants'Combined Annual Report on Form 10-K for the fiscal year ended December 31,2005.

***Rodemacher Unit 3***

After the evaluation of potential constructioncontractors, Cleco Power entered into an EPC contract for Rodemacher Unit 3with Shaw Contractors, Inc. (Shaw), effective August 1, 2005.  Under thestructure of the contract, Shaw has initiated design of the Rodemacher 3 unitand has begun procurement of the major equipment.  Shaw, under notice by ClecoPower, has entered into several major equipment subcontracts during the firstquarter of 2006 covering approximately 70% of the major engineered equipment,including two circulating fluidized bed boilers and a 600-MW steam turbine. The estimated lump sum price for the EPC contract is expected to be $785.0 million. Cleco also will be liable for labor costs above certain estimates and subjectto reduction to the initial three months schedule-related liquidated damages,up to a combined maximum of $15.0 million.  Cleco Power expects to finalizenegotiations and execute an amended and restated EPC contract with Shaw by theend of May 2006.  Applications for all of the environmental permits were filed,and the necessary permits to initiate construction were received in the firstquarter of 2006.  Shaw has begun site preparation activities.  Upon executionof an amended and restated EPC contract, the full notice to start constructionis expected to be issued.

The EPC contract allows for termination at ClecoPower's sole discretion or if certain milestones, approvals, or other typicalcommercial terms and conditions are not met.  Under additional terms of the EPCcontract, Shaw provided a $17.1 million letter of credit to Cleco Power uponexecution of the contract.  Upon issuance of the notice to start construction,this letter of credit will be increased to $58.9 million.  In addition to theletter of credit, Shaw also posted a $200.0 million payment and performancebond in favor of Cleco Power in support of its performance obligations underthe EPC contract.  

***Lignite Deferral***

For a discussion of Cleco Power's deferred lignitemining expenditures, please read "Management's Discussion and 

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Analysis ofFinancial Condition and Results of Operations - Financial Condition - Liquidityand Capital Resources - Regulatory Matters - Other Matters - Lignite Deferral"in the Registrants' Combined Annual Report on Form 10-K for the fiscal yearended December 31, 2005.

Cleco Power defers lignite miningcosts above 98% of the previous mining contract's projected costs (the benchmarkprice).  The benchmark price uses the GDP-IPD index as a proxy for the numerousescalators in the previous contract.  However, the GDP-IPD index does not appropriatelyreflect the increase in mining costs caused by sharp increases in diesel fueland electricity costs associated with the mining operation.  If mitigatingstrategies to correct the disconnect between the GDP-IPD index and actualmining costs are not implemented, then Cleco Power could be required to recognizean expense for future amounts instead of deferring them.  Cleco Power also couldbe required to expense a portion of the current deferred amount.  Mitigatingstrategies include, but are not limited to, obtaining regulatory approval forreplacing the current GDP-IPD index with a more representative benchmark price escalation. Management anticipates filing for regulatory approval by the end of the secondquarter of 2006.  Currently, Management expects the mitigating strategies to beimplemented, and current and future deferrals are expected to be collected.  

At March 31, 2006, and December 31, 2005, ClecoPower had $16.6 million and $15.1 million, respectively, in deferred costs remaining. Included in the deferred cost balance is interest totaling $2.1 million as of March31, 2006.

***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, 2005. 

In August 2005,the City of Covington published a RFP to provide electric service to the cityand its approximately 5,200 customers.  Cleco Power began negotiations inNovember 2005, and the city voted unanimously to extend a 22-year franchiseagreement to Cleco Power in March 2006.  This new agreement will replace ClecoPower's existing agreement which expires in 2008.  Cleco Power's next municipalfranchise expires in 2010.

***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 withthese revisions, reinterpretations and requirements.  If Cleco fails to complywith these revisions, reinterpretations and requirements, it could be subjectto civil or criminal liabilities and fines.  

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, 2005.

***Recent AccountingStandards***

For a discussion of recent accounting standards,see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 6 -Recent Accounting Standards" of this form 10-Q, which discussion isincorporated herein 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 thefinancial statements of Cleco Corporation's segments or to Cleco as aconsolidated entity.  The financial statements contained in this reportare prepared in accordance with accounting principles generally accepted in theUnited States of America, which require Cleco to make estimates and assumptions. Estimates and assumptions about future events and their effects cannot be madewith certainty.  Management bases its current estimates and assumptions onhistorical experience and on various other factors that are believed to bereasonable under the circumstances.  On an ongoing basis, these estimatesand assumptions are evaluated and, if necessary, adjustments are made whenwarranted by new or updated information or by a change in circumstances orenvironment.  Actual results may differ significantly from these estimatesunder different assumptions or conditions.  In addition to the discussionabout stock based compensation below, see "Management's Discussion and Analysisof Financial Condition and Results of Operations - Critical Accounting Policies"in the Registrant's Combined Annual Report on Form 10-K for the fiscal yearended December 31, 2005.

On January 1, 2006, Cleco adoptedSFAS No. 123R, which requires expensing stock-based compensation granted toemployees at the fair value of the instruments on the date of grant.  Prior tothe adoption of SFAS No. 123R, Cleco accounted for its equity compensationusing the intrinsic value method as described in APB Opinion No. 25.  The fairvalue method as described in SFAS No. 123R requires Management to, among otherthings, estimate service-based forfeiture rates, calculate volatility of Clecocommon stock as it relates to a pre-defined peer group, determine appropriateservice periods and choose appropriate valuation models.  These estimates couldaffect both the amount of expense recognized and the timing of therecognition.  For the three months ended March 31, 2006, Cleco recognizedpre-tax compensation expense of $1.2 million and expects to record pre-taxcompensation expense of $4.7 million for the full year 2006.  If future 

43
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grantsare consistent with historical grants, then the full year 2006 expense would beindicative of future expense recognition.  For additional information onstock-based compensation, see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 1 - Summary ofSignificant Accounting Policies - Stock-Based Compensation" and Note 6 - "RecentAccounting Standards."

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

Set forth below is information concerning theresults of operations of Cleco Power for the three months ended March 31, 2006,and March 31, 2005.  The following narrative analysis should be read incombination with Cleco Power's Unaudited Condensed Financial Statements and theNotes 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) and Item 3 (Defaults upon Senior Securities).  Pursuantto the General Instructions, Cleco Power has included an explanation of thereasons for material changes in the amount of revenue and expense items ofCleco Power between the first quarter 2006 and the first quarter of 2005.  Referenceis made to Management's Discussion and Analysis of Financial Condition andResults of Operations in Item 7 of the Registrants' Combined Annual Report onForm 10-K for the fiscal year ended December 31, 2005.

For anexplanation of material changes in the amount of revenue and expense items of ClecoPower between the first quarter of 2006 and the first quarter of 2005, see "-Results of Operations - Comparison of the Three Months Ended March 31, 2006,and 2005 - Cleco Power" of this Form 10-Q,which discussion is incorporated herein by reference.

**ITEM 3.**      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK
****
***Risk Overview***

Market riskinherent in Cleco's market risk-sensitive instruments and positions includes potential changes arising from changes ininterest rates and the commodity market prices of power and natural gas in theindustry on different energy exchanges.  Cleco is subject to market riskassociated with economic hedges relating to open gas contracts.  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."

Cleco uses SFAS No. 133 to determine whether themarket risk-sensitive instruments and positions are required to bemarked-to-market.  Generally, Cleco Power's market risk-sensitive instrumentsand positions qualify for the normal-purchase, normal-sale exception tomark-to-market accounting of SFAS No. 133, as modified by SFAS No. 149, sinceCleco Power generally takes physical delivery and the instruments and positionsare used to satisfy customer requirements.  From time to time, Cleco could havepositions that are required to be marked-to-market, because they do not meetthe normal-purchase, normal-sale exception of SFAS No. 133.  Any positions formarketing and trading purposes that do not meet the exemptions of SFAS No. 133are marked-to-market, and the results are recorded in income.

Cleco's exposureto market risk, as discussed below, represents an estimate of possible changesin the fair value or future earnings that would occur, assuming possible futuremovements in the interest rates and commodity prices of power and natural gas. Management's views on market risk are not necessarily indicative of actualresults, nor do they represent the maximum possible gains or losses.  The viewsdo represent, within the parameters disclosed, what Management estimates mayhappen.

Cleco monitorscredit risk exposure through review of counterparty credit quality,corporate-wide aggregate counterparty credit exposure and corporate-wideaggregate counterparty concentration levels.  Cleco actively manages theserisks by establishing appropriate credit and concentration limits ontransactions 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 variouscounterparties that authorize the netting of financial buys and sells and contractpayments to mitigate credit risk for transactions entered into for riskmanagement purposes.

**Interest Rate Risks**

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.  Calculations of thechanges in fair market value and interest expense of the debt securities aremade over a one-year period.

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% change in the average interestrate applicable to such debt.  Sensitivity to changes in interest rates forvariable-rate obligations is computed by assuming a 1% change in the currentinterest rate applicable to such debt.

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As of March 31, 2006, Cleco had no long-term orshort-term variable-rate debt.

**Commodity Price Risks**

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

Cleco's financialpositions that are not used to meet the power demands of customers, consideredspeculative positions, are marked-to-market as required by SFAS No. 133 withthe resulting gain or loss recorded on the income statement as a component ofoperating revenue, net.  During 2005, Cleco Power entered into certainfinancial hedge transactions it considers economic hedges to mitigate the riskassociated with fixed-price power to be provided to a wholesale customerthrough December 2010.  These transactions are derivatives as defined by SFASNo. 133 but do not meet the accounting criteria to be considered hedges.  Thesetransactions are marked-to-market with the resulting gain or loss recorded onthe income statement as a component of operating revenue, net.  At March 31,2006, the positions had a mark-to-market value of $3.4 million, which is down$1.9 million from the mark-to-market value of $5.3 million at December 31, 2005. In addition, the positions resulted in a realized loss of $0.1 million duringthe first quarter of 2006.  Cleco Power anticipates additional realized lossesin future periods as gas or power is purchased to meet contractualobligations.  In light of these economic hedge transactions, volatility innatural gas prices will likely cause fluctuations in the market value of opengas positions and ultimately in Cleco Power's future earnings.

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, and mitigate thevolatility in customer fuel costs.  The change in positions could result in increasedvolatility in the marked-to-market amounts for the financial positions.  Thesepositions are marked-to-market with the resulting gain or loss recorded on thebalance sheet as a component of theaccumulated deferred fuel asset or liability and a component of the riskmanagement assets or liabilities.  When these positions close, actual gains orlosses will be included in the fuel adjustment clause and reflected on customers' bills.  Basedon market prices at March 31, 2006, the net mark-to-market impact related tothese positions was a loss of $17.5 million.

Cleco utilizes a VAR model to assess the marketrisk of its trading portfolios, including derivative financial instruments.  VARrepresents the potential loss in fair values for an instrument from adversechanges in market factors for a specified 

period of time andconfidence level.  The VAR is calculated daily, using a closed formcalculation, assuming a holding period of one day, with a 95% confidence levelfor natural gas and power positions.  Total volatility is based on historical,implied market, and current cash volatility assessments.

Based on these assumptions, the high, low, andaverage VAR for the first three months of 2006, as well as the VAR at March 31,2006, and December 31, 2005, is summarized below:
 
**FOR  THE THREE MONTHS ENDED  MARCH 31, 2006**

   AT MARCH 31,

  AT DECEMBER 31,

(THOUSANDS)

**           HIGH**

** **

**          LOW**

** **

**      AVERAGE**

**                 2006**

           2005

Cleco Power

** $ 575.2**

** $ 442.0**

** $ 532.1**

**$     533.2**

   $         442.0

All openpositions were transacted by Cleco Power.  The increase in VAR at March 31, 2006,compared to December 31, 2005, is due to Cleco Power's economic hedgingactivity.  Under Cleco's VAR model, changes in market value of open positionsin excess of $0.2 million over Cleco's estimated VAR are material.  During thefirst three months of 2006, there were no such negative occurrences.

***ClecoPower***

Please refer to "- Risk Overview" above for adiscussion of market risk inherent in Cleco Power's market risk-sensitive instruments.

Please refer to "- Interest Rate Risks" above for adiscussion of how Cleco Power monitors its mix of fixed- and variable-rate debtobligations and the manner of calculating changes in fair market value and interestexpense of its debt obligations.  

As of March 31, 2006, Cleco Power had no long-term or short-term variable-rate debt.  

Please refer to "-Commodity Price Risks" above for a discussion of controls, transactions, VAR,and market value maturities associated with Cleco Power's energy commodityactivities. 

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**ITEM 4.**       CONTROLSAND PROCEDURES
 
***Evaluation of DisclosureControls and Procedures***

In accordance with Rules 13a-15 and 15d-15 underthe Securities Exchange Act of 1934, theRegistrants' management has evaluated, as of the end of the periodcovered by this report, with thesupervision and participation of the Registrants' chief executive officer andchief financial officer, the effectiveness of the Registrants' disclosurecontrols and procedures as defined by Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934 (DisclosureControls).  Based on that evaluation, such officers concluded that theRegistrants' disclosure controls were effective as of the date of that evaluation.

During theRegistrants' first fiscal quarter of 2006, there have been no changes in theRegistrants' internal control over financial reporting (as such term is definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected,or are reasonably likely to materially affect, the Registrants' internalcontrol over financial reporting.

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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." 

**CLECO****POWER**

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

**ITEM 1A.    **RISKFACTORS

**Purchased Power**

***Nonperformance of Cleco Power's power purchaseagreements and transmission constraints could have a material adverse impact onCleco Power's results of operations, financial condition, and cash flows.***

Cleco Power does not supply all of its customers'power requirements from the generation facilities it owns and must purchaseadditional energy and capacity from the wholesale power market.  During 2005,Cleco Power met approximately 49% of its energy needs with purchased power.  Twopower purchase agreements with Williams and CES provided approximately 29.6% ofCleco Power's capacity needs in 2005.  In January 2006, Cleco Power begana new four-year, 500-MW contract with Williams and a new one-year, 200-MWcontract with CES.  In March 2006, the Calpine Debtors Bankruptcy Courtapproved the mutual termination of the agreement with CES in connection withthe bankruptcy proceedings of its parent company.  Cleco Power has replaced theCES contract with other economy energy contracts for 2006.  If these providersof additional energy or capacity do not perform under their respectivecontracts, Cleco Power would have to replace these supply sources withalternate market options, which may not be on as favorable terms and conditionsand could increase the ultimate cost of power to its customers. 

Because of Cleco Power's location on thetransmission grid, Cleco Power relies on two main suppliers of electric transmission when accessing external powermarkets. At times, constraints limit the amount of purchased power thesetransmission providers can deliver into Cleco Power's service territory.  Thesecapacity and/or power purchase contracts, as well as spot market powerpurchases, may be affected by these transmission constraints.  If the amount ofpurchased power actually delivered into Cleco were less than the amount ofpower contracted for delivery, then Cleco Power might rely on its owngeneration facilities to meet customer demand.  Cleco Power's incrementalgeneration cost, at that time, could be higher than the cost to purchase powerfrom the wholesale power market, therefore increasing its customers' ultimatecost.  In addition, the LPSC may not allow Cleco Power to recover itsincremental generation cost.  These unrecovered costs could be substantial. 

For a discussionof other risk factors, please read Item 1A, "Risk Factors" in the Registrants'Combined Annual Report on Form 10-K for the fiscal year ended December 31,2005.

**ITEM 2. **   UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS 
 
***Cleco Purchases of Equity Securities***

During the quarter ended March 31, 2006, 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.
**47
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**ITEM 6.**    EXHIBITS 

**Cleco Corporation**

10(a)

Table of 2006 Base  Salaries and Bonuses for the Named Executive Officers of the Company (incorporated  by reference to Exhibit 10.1 of Form 8-K (file no.   1-15759), filed February 2, 2006) 

10(b)

Table of Cycle 13  (2003-2005) LTIP Payouts for the Named Executive Officers of the Company  (incorporated by reference to Exhibit 10.2 of Form 8-K (file no. 1-15759),  filed February 2, 2006) 

10(c)

Table of Additional  Awards for the Named Executive Officers of the Company (incorporated by  reference to Exhibit 10.3 of Form 8-K (file no. 1-15759), filed February 2,  2006) 

10(d)

Amended 2006  compensation information to include the grant of stock options to CEO  (incorporated by reference to Form 8-K (file no. 1-15759), filed February 17,  2006 

10(e)

First Amendment to  Rights Agreement (incorporated by reference to Exhibit 4.1 of Form 8-K (file  no. 1-15759), filed March 2, 2006 

12(a)

Computation of Ratios  of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and  Preferred Stock Dividends for the three- and twelve-month periods ended March  31, 2006, for Cleco Corporation 

31(a)

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

12(b)

Computation of Ratios  of Earnings to Fixed Charges for the three- and twelve-month periods ended March  31, 2006, for Cleco Power 

31(b)

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

48
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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:  May 4, 2006
****
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:  May 4, 2006
****** |