**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 quarterlyperiod ended March 31, 2005Or

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

__________________

**Commissionfile number 1-15759**

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

| ** **                                                                                  | ** **                                           |
|---------------------------------------------------------------------------------------------|------------------------------------------------------|
| **Louisiana***(State or other jurisdiction of incorporation or organization)*               | **72-1445282***(I.R.S. Employer Identification No.)* |
| ** **                                                                                  | ** **                                           |
| **2030 Donahue Ferry Road, Pineville, Louisiana***(Address of principal executive offices)* | **71360-5226***(Zip Code)*                           |
| ** **                                                                                  | ** **                                           |
| **Registrant's telephone number, including area code:  (318)  484-7400**               |
| ** **                                                                                  |

__________________

**Commissionfile number 1-05663**

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

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

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

| Registrant         | Description  of Class          | Shares  Outstanding at April 30, 2005 |
|--------------------|--------------------------------|---------------------------------------|
|                    |                                |                                       |
| Cleco  Corporation | Common  Stock, $1.00 Par Value | 49,893,333                            |

**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                                                                                                               |                          16 |
| ITEM 2.                                                | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                                               |                          35 |
| ITEM 3.                                                | Quantitative and  Qualitative Disclosures About Market Risk of Cleco Corporation                                                                                     |                          44 |
| ITEM 4.                                           | Controls and  Procedures                                                                                                                                        |                          45  |
|                                                        |                                                                                                                                                                      |  |
| **PART II**                                            | **Other Information**                                                                                                                                                |  |
| ITEM 1.                                                | Legal Proceedings                                                                                                                                                    |                          46 |
| ITEM 2.                                                | Unregistered Sales of  Equity Securities and Use of Proceeds                                                                                                         |                          46 |
| ITEM 3.                                                | Defaults Upon Senior  Securities                                                                                                                                     |                          46 |
| ITEM 6.                                                | Exhibits                                                                                                                                                             |                          47 |
|                                                        | Signatures                                                                                                                                                           |                          48 |
|                                                        |                                                                                                                                                                      |  |  |

2

----

GLOSSARY OF TERMS

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

| Abbreviation or  Acronym     | Definition                                                                                                                                                                                                                   |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 401(k) Plan                  | Cleco Power 401(k)  Savings and Investment Plan                                                                                                                                                                              |
| APB                          | Accounting Principles  Board                                                                                                                                                                                                 |
| APB Opinion No. 25           | Accounting for Stock  Issued to Employees                                                                                                                                                                                    |
| APH                          | Acadia Power Holdings  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                           |
| APP                          | Acadia Power Partners  LLC and its 1,160-MW combined-cycle, natural gas-fired power plant near  Eunice, Louisiana, 50% owned by APH and 50% owned by Calpine                                                                 |
| ARB No. 43                   | Restatement and  Revision of Accounting Research Bulletins                                                                                                                                                                   |
| Attala                       | Attala Transmission  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                             |
| Calpine                      | Calpine Corporation                                                                                                                                                                                                          |
| Calpine Tolling Agreements   | Capacity Sale and Tolling Agreements between APP and CES                                                                                                                                                                     |
| CES                          | Calpine Energy  Services, L.P.                                                                                                                                                                                               |
| Cleco Energy                 | Cleco Energy LLC, a  wholly owned subsidiary of Midstream                                                                                                                                                                    |
| Diversified Lands            | Diversified Lands LLC, a wholly owned subsidiary of Cleco  Innovations LLC, a wholly owned subsidiary of Cleco Corporation                                                                                                   |
| Dynegy                       | Dynegy Power  Marketing, Inc.                                                                                                                                                                                                |
| EITF                         | Emerging Issues Task Force of the FASB                                                                                                                                                                                       |
| EITF No. 04-10               | Applying Paragraph 19  of FASB Statement No. 131, Disclosures about Segments of an Enterprise and  Related Information, in Determining Whether to Aggregate Operating Segments  That Do Not Meet the Quantitative Thresholds |
| Entergy                      | Entergy Corporation                                                                                                                                                                                                          |
| Entergy Gulf States          | Entergy Gulf States, Inc.                                                                                                                                                                                                    |
| Entergy Louisiana            | Entergy Louisiana,  Inc.                                                                                                                                                                                                     |
| Entergy Services             | Entergy Services, Inc., as agent for Entergy Louisiana  and Entergy Gulf States                                                                                                                                              |
| EPA                          | Environmental  Protection Agency                                                                                                                                                                                             |
| ESOP                         | Cleco Corporation Employee Stock Ownership Plan                                                                                                                                                                              |
| ESPP                         | Cleco Corporation Employee Stock Purchase Plan                                                                                                                                                                               |
| Evangeline                   | Cleco Evangeline LLC, a wholly owned subsidiary of  Midstream, and its 775-MW combined-cycle, natural gas-fired power plant  located in Evangeline Parish, Louisiana                                                         |
| Evangeline Tolling Agreement | Capacity Sale and Tolling Agreement between Evangeline  and Williams                                                                                                                                                         |
| FASB                         | Financial Accounting Standards Board                                                                                                                                                                                         |
| FERC                         | Federal Energy Regulatory Commission                                                                                                                                                                                         |
| FIN                          | FASB Interpretation No.                                                                                                                                                                                                      |
| FIN 45                       | Guarantor's Accounting and Disclosure Requirements for  Guarantees, Including Indirect Guarantees of Indebtedness to Others                                                                                                  |
| FIN 46                       | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51                                                                                                                      |
| FIN 46R                      | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)                                                                                              |
| FIN 46R-5                    | Implicit Variable Interests under FASB Statement  Interpretation No. 46 (revised December 2003), Consolidation of Variable  Interest Entities                                                                                |
| FIN 47                       | Accounting for Conditional Asset Retirement Obligations -  an interpretation of FASB Statement No. 143                                                                                                                       |
| FSP SFAS No. 106-2           | FASB Staff Position Accounting and Disclosure  Requirements Related to the Medicare Prescription Drug, Improvement and  Modernization Act of 2003                                                                            |
| FSP SFAS No. 109-1           | FASB Staff Position Application of SFAS No. 109 to the  Tax Deduction on Qualified Production Activities provided by the American  Jobs Creation Act of 2004                                                                 |
| FSP SFAS No. 131-a           | Determining Whether Operating Segments Have "Similar  Economic Characteristics" under Paragraph 17 of FASB Statement No. 131, Disclosures  about Segments of an Enterprise and Related Information                 |
| IRP                          | Integrated Resource Planning                                                                                                                                                                                                 |
| KBC                          | KBC Bank N.V.                                                                                                                                                                                                                |
| kWh                          | Kilowatt-hour(s) as applicable                                                                                                                                                                                               |
| LIBOR                        | London Inter-Bank Offer Rate                                                                                                                                                                                                 |
| Lignite Mining Agreement     | Dolet Hills Mine Lignite Mining Agreement, dated as of  May 31, 2001                                                                                                                                                         |
| LPSC                         | Louisiana Public Service Commission                                                                                                                                                                                          |
| LTICP                        | Cleco Corporation Long-Term Incentive Compensation Plan                                                                                                                                                                      |
| MAEM                         | Mirant Americas Energy  Marketing, LP                                                                                                                                                                                        |  
MAI

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

 
Marketing & Trading

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

 
Midstream

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

 
Mirant

Mirant Corporation

 
Mirant Debtors

Mirant, MAEM, MAI, and certain other Mirant subsidiaries

 
Mirant Debtors Bankruptcy Court

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

 
3

Abbreviation or  Acronym

Definition

MW

Megawatt(s) as applicable

 
Not meaningful

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

 
NOx

Nitrogen oxides

 
NSR

New Source Review

 
PEH

Perryville Energy Holdings LLC, a wholly owned subsidiary  of Midstream

 
Perryville

Perryville Energy Partners, L.L.C., a wholly owned  subsidiary of PEH, and its 718-MW, natural gas-fired power plant near  Perryville, Louisiana 

 
Perryville Tolling Agreement

Capacity Sale and Tolling Agreement between Perryville  and MAEM

 
Power Purchase Agreement

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

 
PRP

Potentially responsible party

 
PUHCA

Public Utility Holding Company Act of 1935

 
Registrant(s)

Cleco Corporation and Cleco Power

 
RFP

Request for Proposal

 
RTO

Regional Transmission Organization

 
Sale Agreement

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

 
SEC

Securities and Exchange Commission

 
Senior Loan Agreement

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

 
SERP

Cleco Corporation Supplemental Executive Retirement Plan

 
SESCO

San Angelo Electric Service Company

 
SFAS

Statement of Financial Accounting Standards

 
SFAS No. 123

Accounting for Stock-Based Compensation

 
SFAS No. 123R

Share-Based Payment

 
SFAS No. 131

Disclosures about Segments of an Enterprise and  Related Information

 
SFAS No. 133

Accounting for Derivative Instruments and Hedging  Activities

 
SFAS No. 143

Accounting for Asset Retirement Obligations

 
SFAS No. 144

Accounting for the Impairment or Disposal of  Long-Lived Assets

 
SFAS No. 149

Amendment of Statement 133 on Derivative Instruments and  Hedging Activities

 
SFAS No. 151

Inventory costs - an amendment of ARB No. 43, Chapter 4

 
SOP 90-7

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

 
SO2

Sulfur dioxide

 
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

 
Tolling Agreements

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

 
VAR

Value-at-risk

 
Westar

Westar Energy, Inc., a Kansas corporation

 
Williams

Williams Power Company, Inc.

 
4

DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS

This report includes "forward-looking statements"about future events, circumstances, and results.  All statements other thanstatements of historical fact included in this report are forward-lookingstatements.  Although the Registrants believe that the expectations reflectedin such forward-looking statements are reasonable, such forward-lookingstatements are based on numerous assumptions (some of which may prove to beincorrect) and are subject to risks and uncertainties that could cause theactual results to differ materially from the Registrants' expectations.  Inaddition to any assumptions and other factors referred to specifically inconnection with these forward-looking statements, the following list identifiessome of the factors that could cause the Registrants' actual results to differmaterially from those contemplated in any of the Registrants' forward-lookingstatements:
-  Factorsaffecting utility operations, such as unusual weather conditions or othernatural phenomena; catastrophic weather-related damage; unscheduled generationoutages; unusual maintenance or repairs; unanticipated changes to fuel costs,cost of and reliance on natural gas as a component of Cleco's generation fuelmix and their impact on competition and franchises, fuel supply costs oravailability constraints due to higher demand, shortages, transportationproblems or other developments; environmental incidents; or power transmissionsystem constraints; 
-  Completingthe pending sale of the Perryville facility; 
-  Outcomeof the bankruptcy process of Perryville and PEH; 
-  Resolutionof damage claims asserted against the Mirant Debtors in their bankruptcyproceedings as a result of the rejection of the Perryville Tolling Agreement; 
-  Nonperformanceby and creditworthiness of counterparties under tolling, power purchase, andenergy service agreements, or the restructuring of those agreements, includingpossible termination; 
-  Actionby Calpine or its affiliates with respect to the Calpine Tolling Agreements,including, without limitation, reduction of payments under the Calpine TollingAgreements, unwinding of Calpine's interest in APP, termination of the CalpineTolling Agreements or litigation against Cleco, resulting from CES's disputewith APP under the Calpine Tolling Agreements including arbitration proceedings; 
-  Increasedcompetition in power markets, including effects of industry restructuring orderegulation, transmission system operation or administration, transmissionreliability standards, retail wheeling, wholesale competition, retailcompetition, or cogeneration; 
-  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 the RFP and IRPprocesses, the formation of RTOs and the implementation of Standard MarketDesign (which is intended to enhance wholesale energy competition); 
-  Cleco'sability to develop and execute on a point of view regarding prices ofelectricity, natural gas, and other energy-related commodities; 
-  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 inflation rates and monetary fluctuations, and relatedgrowth in Cleco's service area; 
-  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 changes in taxlaws or rates, regulating policies or environmental laws and regulations. 

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

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

5

PARTI - FINANCIAL INFORMATION

 

**ITEM 1.**    CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

**Cleco Corporation**

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

6

CLECO CORPORATION

 

Condensed Consolidated Statementsof Income (Unaudited)

   FOR THE    THREE MONTHS ENDED MARCH 31,

(THOUSANDS,    EXCEPT SHARE AND PER SHARE AMOUNTS)

**                      2005**

** **

                      2004

**Operating revenue**

     Electric operations

** $   162,831**

   $         149,379

     Tolling operations

**                   -**

                 10,255

     Other operations

**           7,151**

                   6,905

     Intercompany revenue

**           2,352**

                       831

          Gross operating revenue

**       172,334**

              167,370

               Electric customer credits

**             (218)**

                     (721)

          Operating revenue, net

**       172,116**

              166,649

**Operating expenses**

     Fuel used for electric generation

**         48,748**

                 30,143

     Power purchased for utility customers

**         50,514**

                 55,109

     Other operations

**         22,376**

                 19,488

     Maintenance

**           9,471**

                   8,608

     Depreciation

**         14,771**

                 16,210

     Taxes other than income taxes

**         10,428**

                   9,981

          Total operating expenses

**       156,308**

              139,539

**Operating income**

**         15,808**

                 27,110

Interest income

**              966**

                       374

Allowance for other funds used during  construction

**              948**

                       842

Equity income from investees

**           9,919**

                   8,658

Other income

**              293**

                         94

Other expense

**             (562)**

                     (474)

Income before interest charges

**         27,372**

                 36,604

**Interest charges**

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

**         12,118**

                 17,918

     Allowance for borrowed funds used during  construction

**             (316)**

                     (282)

          Total interest charges

**         11,802**

                 17,636

**Income from continuing operations before  income taxes**

**         15,570**

                 18,968

Federal and state income tax expense    

**           5,995**

                   5,530

**Income from continuing operations**

**           9,575**

                 13,438

     (Loss) income from discontinued operations,  net of tax

**             (134)**

                       158

**Net income**

**           9,441**

                 13,596

Preferred dividends requirements, net

**              475**

                       499

**Net income applicable to common stock**

** $       8,966**

   $            13,097

Average shares of common stock outstanding

     Basic

** 49,292,849**

        46,916,535

     Diluted

** 49,373,623**

        46,985,106

**Basic earnings per share**

**                   **

     From continuing operations

** $          0.18**

   $                 0.27

     From discontinued operations

** $                -**

   $                       -

     Net income applicable to common stock

** $          0.18**

   $                 0.27

**Diluted earnings per share**

     From continuing operations

** $          0.18**

   $                 0.27

     From discontinued operations

** $                -**

   $                       -

     Net income applicable to common stock

** $          0.18**

   $                 0.27

**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)

**                      2005**

** **

                      2004

Net income 

** $       9,441**

   $           13,596

Other comprehensive income, net of tax:

     Net unrealized income from limited  partnership (net of tax expense of $27 in 2005 and $30 in 2004)

**                44**

                         48

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

**              (59)**

                         13

Comprehensive (loss) income    

**              (15)**

                         61

**Comprehensive income, net of tax**

** $       9,426**

   $           13,657

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

8

CLECO CORPORATION

 

Condensed Consolidated BalanceSheets (Unaudited)

(THOUSANDS)

**      AT MARCH 31, 2005**

** **

   AT DECEMBER 31, 2004

**Assets**

     Current assets

          Cash and  cash equivalents

** $      109,425**

   $              123,787

          Customer  accounts receivable (less allowance for doubtful accounts of $647 in 2005 and  $506 in 2004)

**            28,425**

                     34,468

          Accounts  receivable - affiliate

**              4,153**

                        2,276

          Other  accounts receivable 

**            24,943**

                     23,562

          Unbilled  revenue

**            14,149**

                     17,256

          Fuel  inventory, at average cost

**            21,931**

                     21,132

          Material and  supplies inventory, at average cost

**            16,681**

                     16,609

          Risk  management asset

**              8,471**

                              84

          Accumulated  deferred federal and state income taxes, net

**              4,117**

                        4,767

          Accumulated  deferred fuel

**                      -**

                     13,997

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

**            18,640**

                     19,170

          Margin  deposits

**                      -**

                        5,159

          Prepayments

**              3,142**

                        4,023

          Other  current assets

**              1,521**

                        1,476

               Total  current assets

**          255,598**

                   287,766

     Property, plant  and equipment

          Property,  plant and equipment

**      1,772,640**

               1,733,970

          Accumulated  depreciation

**        (795,244)**

                 (781,925)

          Net  property, plant and equipment

**          977,396**

                   952,045

          Construction  work in progress

**            86,888**

                   108,000

               Total  property, plant and equipment, net

**      1,064,284**

               1,060,045

     Equity investment  in investees

**          310,829**

                   314,284

     Prepayments

**              6,543**

                        6,568

     Restricted cash    

**                   93**

                              93

     Regulatory assets  and liabilities - deferred taxes, net  

**            92,131**

                     92,864

     Regulatory assets  - other

**            26,713**

                     26,327

     Other deferred  charges

**            48,695**

                     49,116

    **      Total assets**

** $   1,804,886**

   $          1,837,063

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, 2005**

** **

   AT DECEMBER  31, 2004

**Liabilities and shareholders' equity**

**   Liabilities**

          Current  liabilities

               Short-term  debt

** $        25,000**

   $                            -

               Long-term  debt due within one year

**          100,000**

                   160,000

               Accounts  payable

**            49,097**

                     75,770

               Accrued  payroll

**              4,052**

                        2,693

               Accounts  payable - affiliate

**            28,140**

                     18,634

               Customer  deposits

**            23,059**

                     22,654

               Provision  for rate refund

**              7,927**

                     23,951

               Taxes  accrued

**            13,381**

                     16,323

               Interest  accrued

**              9,796**

                        9,572

               Accumulated  deferred fuel

**              1,386**

                                 -

               Margin  deposits

**              3,643**

                                 -

               Other  current liabilities

**              7,229**

                        8,080

          Total  current liabilities

**          272,710**

                   337,677

     Deferred credits

          Accumulated  deferred federal and state income taxes, net

**          371,442**

                   368,846

          Accumulated  deferred investment tax credits

**            16,885**

                     17,303

          Other  deferred credits

**          105,477**

                   101,621

               Total  deferred credits

**          493,804**

                   487,770

     Long-term debt,  net 

**          475,567**

                   450,552

               Total  liabilities

**      1,242,081**

               1,275,999

Commitments and  Contingencies (Note 8)

**Shareholders' equity**

          Preferred  stock

          Not subject  to mandatory redemption, $100 par value, authorized 1,491,900 shares, issued 226,870  and 234,160 shares at March 31, 2005 and December 31, 2004,  respectively

**            22,687**

                     23,416

          Deferred  compensation related to preferred stock held by ESOP

**            (2,409)**

                      (4,190)

               Total preferred  stock not subject to mandatory redemption

**            20,278**

                     19,226

     Common  shareholders' equity

          Common  stock, $1 par value, authorized 100,000,000 shares, issued 49,859,159 and 49,667,861  shares at March 31, 2005 and           December 31, 2004, respectively

**            49,859**

                     49,668

          Premium on  common stock

**          195,802**

                   194,055

          Retained  earnings

**          305,796**

                   308,003

          Unearned  compensation

**            (4,778)**

                      (5,733)

          Treasury  stock, at cost 43,091 and 44,275 shares at March 31, 2005 and December 31, 2004,  respectively

**                (869)**

                          (887)

          Accumulated  other comprehensive loss

**            (3,283)**

                      (3,268)

               Total  common shareholders' equity

**          542,527**

                   541,838

                   Total  shareholders' equity

**          562,805**

                   561,064

**Total liabilities and shareholders' equity**

** $   1,804,886**

   $          1,837,063

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)

**                     2005**

** **

                      2004

**Operating  activities**

     Net income    

** $      9,441**

   $            13,596

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

          Depreciation  and amortization

**        15,461**

                 17,332

          Provision for  doubtful accounts

**             375**

                       346

          Return on  equity investment in investee

**          8,273**

                    8,658

          Income from  equity investments

**         (9,919)**

                  (8,638)

          Unearned  compensation expense

**          1,425**

                  (2,076)

          Allowance for  other funds used during construction

**            (948)**

                     (842)

          Amortization  of investment tax credits

**            (418)**

                     (428)

          Net deferred  income taxes 

**          4,123**

                   3,145

          Deferred fuel  costs 

**          4,862**

                        (69)

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

**              (66)**

                     (436)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**       (11,736)**

                   5,382

               Accounts  and notes receivable, affiliate 

**         (1,878)**

               (13,970)

               Unbilled  revenue

**          3,108**

                   4,712

               Fuel,  materials and supplies inventory

**            (871)**

                     (240)

               Prepayments

**             945**

                   3,156

               Accounts  payable

**       (26,190)**

               (31,462)

               Accounts  and notes payable, affiliate

**          9,507**

                 13,572

               Accrued  payroll

**          1,359**

                   1,358

               Customer  deposits

**             405**

                       297

               Long-term  receivable

**                  -**

                  (2,206)

               Regulatory  assets and liabilities, net

**             322**

                       832

               Other  deferred accounts

**          4,002**

                 11,735

               Retainage  payable

**              (40)**

                  (7,463)

               Taxes  accrued

**         (2,943)**

                   6,671

               Interest  accrued

**             780**

                  (3,332)

               Margin  deposits

**          8,802**

                   1,188

               Other,  net

**          1,189**

                   1,571

          Net cash  provided by operating activities

**        19,370**

                 22,389

**Investing  activities**

     Additions to  property, plant and equipment

**       (18,664)**

               (20,821)

     Allowance for  other funds used during construction

**             948**

                       842

     Proceeds from sale  of property, plant and equipment

**               57**

                         34

     Return of equity  investment in investee

**          5,102**

                   3,642

     Investment in cost  method investments

**         (1,385)**

                            -

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

**                  -**

                  (2,559)

     Transfer of cash  from restricted accounts

**                  -**

                 10,178

          Net cash used  in investing activities

**       (13,942)**

                  (8,684)

**Financing  activities**

     Conversion of  options to common stock

**             726**

                       136

     Change in  short-term debt, net

**        25,000**

               (17,750)

     Retirement of  long-term obligations

**       (60,000)**

                  (2,460)

     Issuance of  long-term debt

**        25,000**

                            -

     Change in ESOP  trust 

**          1,636**

                   1,753

     Dividends paid on  preferred stock

**            (979)**

                            -

     Dividends paid on  common stock 

**       (11,173)**

               (10,657)

          Net cash used  in financing activities

**       (19,790)**

               (28,978)

**Net decrease in  cash and cash equivalents**

**       (14,362)**

               (15,273)

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

**      123,787**

                 95,381

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

** $  109,425**

   $             80,108

**Supplementary cash  flow information**

     Interest paid    

** $    10,482**

   $             19,893

     Income taxes  paid/(received)

** $      7,451**

   $          (25,827)

**Supplementary  noncash financing activities**

Issuance of treasury  stock - LTICP and ESOP plans

**        $           15**

   $              1,914

Issuance of common  stock - LTICP/ESOP/ESPP 1

** $      1,853**

   $              1,648

1     Amount reported for 2005 includes conversion of preferred stock to common  stock of $729

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, 2004.  For more information on the basis ofpresentation, see "Notes to the Unaudited Condensed Financial Statements - Note1 - Summary of Significant Accounting Policies - Basis of Presentation."

12

CLECO POWER

 

Condensed Statements of Income(Unaudited)

   FOR THE THREE    MONTHS ENDED MARCH 31,

(THOUSANDS)

**                      2005**

** **

                      2004

**Operating revenue**

** **

     Electric  operations

** $   162,831**

   $         149,379

     Other operations

**           7,080**

                   6,861

     Affiliate revenue

**              495**

                       490

          Gross  operating revenue

**       170,406**

              156,730

               Electric  customer credits

**             (218)**

                     (721)

          Operating  revenue, net

**       170,188**

              156,009

**Operating expenses**

     Fuel used for  electric generation

**         48,748**

                 30,143

     Power purchased  for utility customers

**         50,514**

                 55,109

     Other operations

**         20,349**

                 15,886

     Maintenance

**           8,545**

                   6,974

     Depreciation

**         14,396**

                 14,006

     Taxes other than  income taxes

**           9,584**

                   9,216

          Total  operating expenses

**       152,136**

              131,334

**Operating income**

**         18,052**

                 24,675

Interest income

**              612**

                       258

Allowance for other  funds used during construction

**              948**

                       842

Other income

**              303**

                         65

Other expense

**             (445)**

                     (535)

Income before interest  charges

**         19,470**

                 25,305

**Interest charges**

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

**           7,503**

                   7,646

     Allowance for  borrowed funds used during construction

**             (316)**

                     (282)

          Total  interest charges

**           7,187**

                   7,364

**Income before income taxes**

**         12,283**

                 17,941

Federal and state  income taxes

**           4,674**

                   5,936

**Net income**

** $       7,609**

   $            12,005

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

13

CLECO POWER

 

Condensed Balance Sheets(Unaudited)

(THOUSANDS)

**        AT MARCH 31, 2005**

** **

   AT DECEMBER 31, 2004

**Assets**

** **

     Utility plant and equipment

          Property, plant and equipment

** $    1,760,416**

   $            1,721,752

          Accumulated depreciation

**          (789,869)**

                   (776,925)

          Net property, plant and equipment

**           970,547**

                     944,827

          Construction work in progress

**             85,000**

                     106,368

               Total utility plant, net

**        1,055,547**

                 1,051,195

     Current assets

          Cash and cash equivalents

**             31,554**

                       54,113

          Customer accounts receivable (less  allowance for doubtful accounts of $647 in 2005 and $506 in 2004)

**             28,425**

                       34,468

          Other accounts receivable

**             22,991**

                       21,460

          Accounts receivable - affiliate

**               1,533**

                          5,208

          Unbilled revenue

**             14,149**

                       17,256

          Fuel inventory, at average cost

**             21,931**

                       21,132

          Material and supplies inventory, at  average cost

**             16,681**

                       16,609

          Margin deposits

**                       -**

                          5,159

          Risk management assets

**               8,471**

                                84

          Prepayments

**               2,292**

                          2,897

          Accumulated deferred fuel

**                       -**

                       13,997

          Accumulated deferred federal and state  income taxes, net

**               4,160**

                          4,247

          Cash surrender value of life insurance  policies

**               4,394**

                          4,880

          Other current assets

**                  600**

                             464

               Total current assets

**           157,181**

                     201,974

     Prepayments

**               6,543**

                          6,568

     Regulatory assets and liabilities - deferred  taxes, net

**             92,131**

                       92,864

     Regulatory assets - other

**             26,713**

                       26,327

Other deferred charges

**             46,213**

                       46,460

**Total assets**

** $    1,384,328**

   $            1,425,388

**Liabilities and member's equity**

     Member's equity

** $       448,767**

   $                453,457

     Long-term debt

**           375,567**

                     350,552

          Total capitalization

**           824,334**

                     804,009

Current liabilities

     Short-term debt

**             25,000**

                                   -

     Long-term debt due within one year

**                       -**

                       60,000

     Accounts payable

**             45,525**

                       68,630

     Accounts payable - affiliate

**             14,998**

                          8,075

     Customer deposits

**             23,059**

                       22,637

     Provision for rate refund

**               7,927**

                       23,951

     Taxes accrued

**             21,178**

                       20,709

     Interest accrued

**               3,612**

                          7,621

     Accumulated deferred fuel    

**               1,386**

                                   -

     Margin deposits

**               3,643**

                                   -

     Other current liabilities

**               5,645**

                          6,253

               Total current liabilities

**           151,973**

                     217,876

Deferred credits

     Accumulated deferred federal and state  income taxes, net

**           339,545**

                     339,060

     Accumulated deferred investment tax credits

**             16,885**

                       17,303

     Other deferred credits

**             51,591**

                       47,140

               Total deferred credits

**           408,021**

                     403,503

**Total liabilities and member's equity**

** $    1,384,328**

   $            1,425,388

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)

**                      2005**

** **

                      2004

**Operating activities**

     Net income

** $       7,609**

   $            12,005

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

          Depreciation  and amortization

**         14,907**

                 14,509

          Provision  for doubtful accounts

**              375**

                       300

          Unearned  compensation expense

**              691**

                     (686)

          Allowance  for other funds used during construction

**             (948)**

                     (842)

          Amortization  of investment tax credits

**             (418)**

                     (428)

          Net deferred  income taxes

**           1,657**

                   1,453

          Deferred  fuel costs 

**           4,862**

                        (69)

          Cash  surrender value of company-owned life insurance

**             (110)**

                     (114)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**       (11,887)**

                   1,619

               Accounts  and notes receivable, affiliate

**           3,674**

                 14,252

               Unbilled  revenue

**           3,108**

                   2,714

               Fuel,  materials and supplies inventory

**             (871)**

                     (222)

               Prepayments

**              671**

                       353

               Accounts  payable

**       (23,105)**

               (30,246)

               Accounts  and notes payable, affiliate

**           6,325**

               (20,104)

               Accrued  payroll

**              992**

                       931

               Customer  deposits

**              423**

                       298

               Regulatory  assets and liabilities, net

**              322**

                       832

               Other  deferred accounts

**           3,087**

                   7,492

               Retainage  payable

**               (40)**

                            -

               Taxes  accrued

**              469**

                 10,474

               Interest  accrued

**         (3,454)**

                  (3,241)

               Margin  deposits

**           8,802**

                   1,189

               Other,  net

**                 (3)**

                       925

          Net cash  provided by operating activities

**         17,138**

                 13,394

**Investing activities**

     Additions to  property, plant and equipment

**       (18,402)**

               (20,526)

     Allowance for  other funds used during construction

**              948**

                       842

     Proceeds from  sale of property, plant and equipment

**                57**

                         34

          Net cash  used in investing activities

**       (17,397)**

               (19,650)

**Financing activities**

     Change in  short-term debt, net

**         25,000**

                            -

     Retirement of  long-term obligations

**       (60,000)**

                            -

     Issuance of  long-term debt

**         25,000**

                            -

     Distribution to  parent

**       (12,300)**

               (11,100)

          Net cash  used in financing activities

**       (22,300)**

               (11,100)

**Net decrease in cash and cash equivalents**

**       (22,559)**

               (17,356)

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

**         54,113**

                 70,990

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

** $     31,554**

   $            53,634

**Supplementary cash flow information**

     Interest paid    

** $     10,482**

   $            10,469

     Income taxes paid  (received)

** $       4,793**

   $           (2,835)

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

Disclosures  about Segments

Cleco Corporation    

Note 4

Restricted    Cash

Cleco Corporation    

Note 5

Equity Investment in Investees

Cleco Corporation    

Note 6

Recent Accounting Standards

Cleco Corporation and  Cleco Power

Note 7

Accrual of Electric Customer Credits

Cleco Corporation and  Cleco Power

Note 8

Litigation and Other  Commitments and Contingencies

Cleco Corporation and  Cleco Power

Note 9

Disclosures about  Guarantees

Cleco Corporation and  Cleco Power

Note 10

Debt

Cleco Corporation and  Cleco Power

Note 11

Variable Interest  Entities

Cleco Corporation    

Note 12

Pension Plan and  Employee Benefits

Cleco Corporation and  Cleco Power

Note 13

Perryville

Cleco Corporation

Note 14

Discontinued  Operations and Dispositions

Cleco Corporation    

Note 15

Income Taxes

Cleco Corporation and  Cleco Power

Note 16

Deferred Fuel and Purchased  Power Costs

Cleco Corporation and  Cleco Power

Note 17

Affiliate Transactions

Cleco Corporation

16

Notes to the Unaudited Condensed FinancialStatements

**Note 1 - Summary of Significant AccountingPolicies**
 

***Principles of Consolidation***

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

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

The financial results of Perryville and PEH areincluded in Cleco Corporation's consolidated results through January 27, 2004. However, generally accepted accounting principles require that any entity thatfiles for protection under the U.S. Bankruptcy Code, whether solvent orinsolvent, whose financial statements previously were consolidated with thoseof its parent must be deconsolidated prospectively from the parent andpresented on the cost method.  The cost method requires Cleco to present thenet assets of Perryville and PEH at January 27, 2004, as an investment and notrecognize any income or loss from Perryville or PEH in Cleco's results ofoperations during the reorganization period.  As of March 31, 2005, this investmenthad a negative cost basis of approximately $35.9 million, which is included inother deferred credits on Cleco Corporation's Condensed Consolidated BalanceSheet.  When Perryville's bankruptcy proceedings are concluded, the subsequentaccounting treatment will be determined based upon the applicable facts andcircumstances existing at such time, including the terms of any plan ofreorganization or liquidation.  For additional information on the deconsolidationof Perryville, see Note 13 - "Perryville."

***Basis of Presentation***

The condensed consolidated financial statements ofCleco Corporation and Cleco Power have been prepared pursuant to the rules andregulations of the SEC.  Certain information and note disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to such rules andregulations, 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 reflect all adjustments of a normalrecurring nature which are, in the opinion of the management of Cleco Corporationand Cleco Power, as the case may be, necessary for a fair presentation of thefinancial position and the results of operations for the interim periods.  Informationfor interim periods is affected by seasonal variations in sales, rate changes,timing of fuel expense recovery and other factors, and is not indicativenecessarily of the results that may be expected for the full fiscal year.

***Stock-Based Compensation***

At March 31, 2005, Cleco Corporation had twostock-based compensation plans:  the LTICP and the ESPP.  Options or restrictedshares of stock, known as non-vested stock as defined by SFAS No. 123, may begranted to certain officers, key employees, or directors of Cleco Corporationand its subsidiaries pursuant to the LTICP.  Substantially all employees, excludingofficers and general managers, of Cleco Corporation and its subsidiaries maychoose to participate in the ESPP and purchase a limited amount of common stockat a discount through a stock option agreement.  APB Opinion No. 25 and relatedinterpretations are applied in accounting for Cleco Corporation's stock-basedcompensation plans.  Therefore, no stock-based employee compensation isreflected in the Cleco Corporation Condensed Consolidated Statements of Incomefor the three months ended March 31, 2005, or 2004, other than for restrictedstock grants, as all compensatory stock options granted had an exercise priceequal to the fair market value of common stock on the date of the grant andESPP options are considered noncompensatory.  

The fair market value of restricted stock asdetermined on the measurement date is recorded as compensation expense duringthe service periods, generally threeyears, in which the restrictions lapse and if obtainment of vesting requirementsis probable.  During the three months ended March 31, 2005, Cleco reported pre-taxcompensation costs of $1.2 million, including $0.6 million recorded by ClecoPower, for shares of restricted stock granted under the LTICP.  During the threemonths ended March 31, 2004, Cleco reported a reduction in pre-tax compensationcost of $2.2 million, including $0.7 million recorded by Cleco Power, for sharesof restricted stock.  Cleco grants to employees two types of restricted stockwith market and performance objectives.  The first type, target shares, can bevoted, and employees receive dividends on the shares prior to the lapse of therestrictions.  The second type, opportunity shares, is not issued to employeesuntil the market and performance objectives have been met; therefore, theseshares cannot be voted, nor do employees receive  

17

dividends on the shares prior to the lapse of the restrictions.  Both types ofthese 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.  At March 31, 2005, the number of target andopportunity restricted shares previously granted for which restrictions had notlapsed totaled 826,492.  Cleco also grants to employees and directors restrictedstock with only a service period requirement.  These grants require thesatisfaction of a pre-determined service period in order for the shares tovest.  During the vesting period, the employees and directors can vote andreceive dividends on the shares.  At March 31, 2005, the number of shares ofrestricted stock previously granted with only a service period requirement forwhich the period had not ended was 71,046.

Cleco Corporation is not required to recognizecompensation expense for stock options issued pursuant to the LTICP and ESPPbut recognizes expense related to restricted stock pursuant to APB Opinion No.25.  

***Cleco***

Net income and net income per common share forCleco would approximate the pro forma amounts shown in the following table, ifthe compensation expense for these plans was recognized in compliance with SFASNo. 123.
 
   FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS,    EXCEPT PER SHARE AMOUNTS)

**                     2005**

** **

                      2004

Net income applicable to common stock, as  reported

**     $    8,966**

         $      13,097

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

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

**             710**

                  (1,329)

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

**             509**

                       563

Pro forma net income applicable to common stock

**     $    9,167**

         $      11,205

Earnings per share:

     Basic - as reported

**     $      0.18**

         $          0.27

     Basic - pro forma

**     $      0.18**

         $          0.23

     Diluted - as reported

**     $      0.18**

         $          0.27

     Diluted - pro forma

**     $      0.18**

         $          0.23

***Cleco Power***

Net income for Cleco Power would approximate thepro forma amounts in the following table, if the compensation expense for theseplans was recognized in compliance with SFAS No. 123.
 
   FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**                     2005**

** **

                      2004

Net income, as reported

**     $   7,609**

         $     12,005

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

     net income, net of related tax effects

**             372**

                     (448)

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

**             172**

                       198

Pro forma net income 

**     $   7,809**

         $     11,359
The effects of applying SFAS No. 123 in thisproforma disclosure are not necessarily indicative of future amounts.  SFAS No.123 is not applicable to awards prior to 1995.  Cleco Corporation anticipatesmaking awards in the future under its stock-based compensation plans.
**Note 2 - Reclassifications**

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

On May 19, 2004, the FASB issued FSP SFAS No. 106-2which required companies that provide post-retirement prescription drugbenefits which are "actuarially equivalent" to Medicare Part D to reflect thefederal subsidy in their calculations of the post-retirement liability andcurrent expense. Cleco adopted this standard effective July 1, 2004, andelected retroactive application to January 1, 2004. The effect of thisretroactive application was a reduction in benefit costs, resulting in anincrease of $0.2 million in Cleco Corporation's net income applicable to commonstock and in Cleco Power's net income for the quarter ended March 31, 2004.Cleco Corporation's condensed consolidated statements of income and ClecoPower's condensed statements of income for the three months ended March 31,2004, include this retroactive increase.  

**Note 3 - Disclosures aboutSegments**

Cleco's reportable segments are based on itsmethod of internal reporting, which disaggregates business units by first-tier

18

subsidiary.  Reportable segments were determined by applying SFAS No. 131.  Cleco'sreportable segments are Cleco Power, Midstream, and Other.  The Other segmentconsists of the holding company, a shared services subsidiary, and aninvestment subsidiary.  The Other segment subsidiaries operate within Louisianaand Delaware.

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

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

SEGMENT INFORMATION FOR THEQUARTER ENDED MARCH 31,

** **

** **

** **

** **

** **

** **

**UNALLOCATED**
** **

** **

** **

** **

** **

** **

** **

** **

**                           ITEMS,**

** **

** **

**              CLECO**

** **

** **

** **

** **

** **

**RECLASSIFICATIONS**

** **

** **

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 (loss) to consolidated profit:**

**Segment profit**

** **

**        $        9,441**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**                 (475)**

** **

** **

**Net income applicable to common stock**

** **

**        $        8,966**

** **

** **

** **

             UNALLOCATED

                            ITEMS,

CLECO
RECLASSIFICATIONS
2004     (THOUSANDS)

                 POWER

         MIDSTREAM

                  OTHER

         &    ELIMINATIONS

CONSOLIDATED
Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $     149,379

   $                  -

   $                  -

            $                    -

   $       149,379

     Tolling operations

                       -

            10,255

                       -

                                  -

              10,255

     Other operations

              6,861

                       2

                    74

                             (32)

                 6,905

     Electric customer credits

                (721)

                       -

                       -

                                  -

                   (721)

Affiliate revenue

                       -

                  468

                  363

                                  -

                    831

Intercompany revenue

                  490

                    11

              8,864

                       (9,365)

                          -

Operating revenue, net

   $    156,009

   $       10,736

   $         9,301

            $         (9,397)

   $       166,649

Depreciation expense

   $      14,006

   $         1,955

   $            249

            $                         

   $         16,210

Interest charges

   $        7,364

   $         8,233

   $         5,012

            $         (2,973)

   $         17,636

Interest income

   $           258

   $              49

   $         3,040

            $         (2,973)

   $              374

Equity income from investees

   $                -

   $         8,658

   $                 -

            $                   -

   $           8,658

Federal and state income tax expense (benefit)

   $        5,936

   $         1,406

   $       (1,771)

            $              (41)

   $           5,530

Segment profit (loss) from continuing operations,  net

   $      12,005

   $         2,201

   $          (768)

            $                    -

   $         13,438

Income from discontinued operations, net of tax

                       -

                  158

                       -

                                  -

                    158

Segment profit (loss) (1)

   $      12,005

   $         2,359

   $          (768)

            $                    -

   $         13,596

Additions to long-lived assets    

   $      20,526

   $                 -

   $             295

            $                    -

   $         20,821

Segment assets

   $ 1,349,109

   $     354,922

   $      618,147

            $      (573,532)

   $    1,748,646

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

Segment profit

** **

            $           13,596

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                           (499)

** **

** **

Net income applicable to common stock

** **

            $           13,097

** **

** **

19

**Note 4 - Restricted Cash**

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.  At March 31, 2005, andDecember 31, 2004, $0.1 million of cash was restricted under the DiversifiedLands mitigation escrow agreement.  At March 31, 2005, a total of $26.8 millionof cash was restricted under various agreements, including $24.7 million underthe Evangeline senior secured bond indenture and $2.0 million under anagreement with the lenders for Perryville.  These amounts for Evangeline andPerryville are not included in Cleco Corporation's Condensed ConsolidatedBalance Sheets at March 31, 2005, due to the deconsolidation of Perryville andEvangeline in 2004.

**Note 5 - Equity Investment inInvestees**

Equity investment in investees represents primarilyMidstream's $251.9 million investment in APP, owned 50% by APH and 50% byCalpine; and its $58.9 million investment in Evangeline, owned 100% byMidstream.  Midstream's portion of earnings from APP and Evangeline areincluded in the equity investments of each company.  APP earned $13.0 millionfor the three months ended March 31, 2005.  APH receives priority cashdistributions and earnings as its consideration for the May 2003 restructuringof the Calpine Tolling Agreements.  Midstream's equity investment earnings fromAPP were $8.2 million (including $3.5 million of priority earnings) for thethree months ended March 31, 2005.  In accordance with FIN 46R, Cleco wasrequired to deconsolidate Evangeline from its consolidated financial statementseffective April 1, 2004.  Equity investment earnings from Evangeline were $1.6million for the three months ended March 31, 2005.  For the three months ended March31, 2005, no material earnings or losses were recorded for the other equityinvestments.

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

(THOUSANDS)

**                 AT MARCH 31, 2005**

Contributed assets (cash and land)

**            $   250,612**

Net income (inception to date)

**                   82,408**

Capitalized interest and other (inception to  date)

**                   19,469**

     Less: Cash distributions (inception to date)

**                 100,607**

          Total equity investment in investee

**            $   251,882**

Midstream's equity, as reported on thebalance sheet of APP at March 31, 2005, was $283.0 million.  The difference of$31.1 million between the equity investment in investee of $251.9 million asshown in the table above and Midstream's equity includes $19.5 million ofinterest capitalized on funds contributed to APP.  It also includes othermiscellaneous charges related to the construction of the APP facility, offsetby $50.6 million which represents the difference between the accountingtreatments used by the partnership entities to record the allocation oftermination agreement income.  Cash distributions to date of $100.6 millionwere used to pay interest and repay principal on debt at Cleco Corporationrelating to this investment.  For the three months ended March 31, 2005, APHreceived $10.6 million of its $14.0 million annual priority cashdistributions.  In addition, Cleco has credit support available in the event CESand Calpine fail to fulfill their obligations under either tolling agreement.  Calpinehad posted letters of credit totaling $40.0 million as of March 31, 2005.  Theseletters of credit have various expiration terms, of which $13.0 million willexpire on May 9, 2006, $12.0 million will expire on December 31, 2006, and $15.0million will remain in effect for the duration of the tolling agreements.  The followingtables contain unaudited summarized financial information for APP.

**          AT MARCH 31,**

   AT DECEMBER 31,    

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$      13,470**

   $            13,929

Property, plant and equipment, net

**       459,166**

               462,654

Other assets

**           7,979**

                    7,632

     Total assets

**$    480,615**

   $          484,215

Current liabilities

**$        8,578**

   $              9,070

Partners' capital

**       472,037**

               475,145

     Total liabilities and partners' capital

**$    480,615**

   $          484,215

 

** **

            AT MARCH 31,

(THOUSANDS)

**                       2005**

                       2004

Total revenue

** $     18,630**

   $            19,280

Total operating expenses

**           5,597**

                    5,553

Other income 

**                10**

                             -

     Net income

** $     13,043**

   $            13,727

Income tax expense and interest charges recordedon APH's financial statements related to Midstream's 50% ownership interest in APPwere $1.7 million and $3.5 million, and $2.0 million and $3.4 million, for the threemonths ended March 31, 2005, and March 31, 2004, respectively.

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

(THOUSANDS)

**                  AT MARCH 31, 2005**

Contributed assets (cash)

**            $      43,580**

Net income (inception to date)

**                  105,174**

     Less:  Cash distributions (inception to  date)

**                    89,844**

          Total equity investment in investee

**            $      58,910**

The following tables contain unaudited summarizedfinancial information for Evangeline.

**          AT MARCH 31,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$        8,939**

   $            17,721

Accounts receivable - affiliate

**           7,260**

                    5,819

Property, plant and equipment, net

**       196,947**

               198,053

Other assets

**         44,763**

                 42,502

     Total assets

**$    257,909**

   $          264,095

Current liabilities

**$        8,322**

   $            13,334

Accounts payable - affiliate

**           2,697**

                    2,624

Long-term debt

**       188,268**

               191,820

Other liabilities

**         54,469**

                 53,018

Member's equity

**           4,153**

                    3,299

     Total liabilities and member's equity

**$    257,909**

   $          264,095

 20

** **

**          AT MARCH 31,**

(THOUSANDS)

**                       2005**

                       2004

Operating revenue

** $       9,717**

   $            10,191

Operating expenses

**           2,510**

                    3,101

Depreciation

**           1,294**

                    1,407

Interest charges

**           4,398**

                    4,402

Other income

**              135**

                          59

Other expense

**                  3**

                            4

Federal and state income taxes    

**                   -**

                       528

Net income

** $       1,647**

   $                  808

Income tax expense recorded onMidstream's financial statements related to Midstream's 100% ownership interestin Evangeline was $0.8 million for the three months ended March 31, 2005.

**Note 6 - Recent Accounting Standards**

Cleco and Cleco Power adopted, or will adopt, the recentaccounting standards listed below, if applicable, on their respective effectivedates.

On September 30, 2004, EITF No. 04-10 was issuedwhich clarifies the aggregation of segments which do not meet the quantitativethresholds contained in SFAS No. 131.  This consensus allows companies toaggregate segments, which do not meet quantitative thresholds, if theaggregation is consistent with the objective of SFAS No. 131; the segments havesimilar economic characteristics; and the segments have a majority of severaloperational and regulatory characteristics.  In November 2004, the effectivedate of EITF No. 04-10 was changed in order to coincide with the effective dateof an in-process FASB Staff Position on determining whether two segments have similareconomic characteristics.  The proposed FASB Staff Position, FSP SFAS No.131-a, was issued March 3, 2005, with the comment period ending April 18,2005.  The effective date for EITF No. 04-10 will be determined when the FASBissues the final FSP.  Restatement of comparative prior periods is required. Cleco currently is evaluating the impact of EITF No. 04-10 and the proposed FSPSFAS No. 131-a on the SFAS No. 131 disclosures.

On November 24, 2004, SFAS No. 151 was issued, whichrequires abnormal amounts of idle facility expense, freight, handling costs andspoilage to be recognized as a current expense, not as a component of inventorycosts.  It also requires a company to use the normal capacity of a productionfacility in the allocation of fixed production overheads to the costs ofconversion.  This statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005, and will be applied prospectively. Adoption of this statement is not expected to have a material impact to the financialcondition or results of operations of the Registrants.

On December 16, 2004, SFAS No. 123R was issued, whichprovides expensing and disclosure requirements for stock-based compensation. This statement will require all equity instruments, including stock options, tobe expensed at their fair value and supersedes APB Opinion No. 25 and SFAS No.123 which allowed companies to use the intrinsic value method.  Currently,Cleco utilizes the intrinsic value method as described in APB Opinion No. 25.  SFASNo. 123R also prohibits reversing previously recognized stock-based compensationexpense, if the forfeiture of the instruments was due to the failure of amarket-based performance measure.  Most of Cleco's stock-based compensationcontains a market-based performance measure.  On April 14, 2005, the SECextended the effective date of this statement from interim periods beginningafter June 15, 2005, to the first fiscal year beginning after June 15, 2005. For Cleco, the extension means that SFAS No. 123R will be implemented effectiveJanuary 1, 2006.  Cleco currently expects to choose the modified prospectivemethod of transition which requires a company to recognize compensation expensecalculated pursuant to SFAS No. 123R for all non-vested stock-basedcompensation outstanding on the date of adoption prospectively.  If futurestock-based awards and assumptions are consistent with historical awards and assumptions,Cleco expects to record pre-tax compensation expense of approximately $2.6 millionannually.  See Note 1 - "Summary of Significant Accounting Policies - Stock-BasedCompensation," for additional information concerning Cleco's stock-basedcompensation.

On December 21, 2004, the FASB issued FSP SFAS No.109-1 relating to the American Jobs Creation Act of 2004.  This pronouncementrequires companies to treat the deduction relating to qualified productionactivities income, such as electric generation, as a permanent item rather thana rate reduction.  This treatment is estimated to reduce income tax expense forthe year 2005 by $0.7 million at Cleco and by $0.5 million at Cleco Power.  Theultimate deduction and effect on income tax expense will depend on a variety offactors such as, but not limited to, the amount of income allocated to productionactivities and the amount of taxable income.  

On March 3, 2005, the FASB issued FIN 46R-5 whichprovides a clarification to FIN 46R.  When assessing the primary beneficiary ofa variable interest entity, a company must consider implicit variable interestsalong with explicit variable interests.  An implicit variable interest is similarto an explicit interest, except the variability is indirectly absorbed or received,for instance through a third party, rather than directly from the variable interestentity.  FIN 46R-5 is effective in the first reporting period beginning afterMarch 3, 2005.  Cleco currently is evaluating the impact of this pronouncement.

On March 30, 2005, the FASB issued FIN 47 which isan interpretation of SFAS No. 143.  FIN 47 requires entities with an assetretirement obligation which is conditional on a future event to record an assetretirement obligation, even if the event has not yet occurred.  The obligationto perform the asset retirement is unconditional even though uncertainty existsas to the timing and method of settlement due to the existence of a conditionalevent.  This interpretation is effective for fiscal years ending after December15, 2005.  Retrospective application for the year 2005 interim periods ispermitted but not required.  Additional recognition of obligation caused by theadoption of FIN 47 will be recorded as a cumulative effect due to a change inaccounting principle.  Cleco currently is evaluating the impact of FIN 47.

21

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

Cleco'sreported earnings for the three months ended March 31, 2005, and 2004, reflectaccruals of $0.2 million and $0.7 million, respectively, within Cleco Power forelectric customer credits that are expected to be required under terms of anearnings review settlement reached with the LPSC in 1996.

The 1996 LPSC settlement, subsequent amendments,and an approved one-year extension, set Cleco Power's rates until September 30,2005.  The subsequent amendments and one-year extension have not changed theterms of the original 1996 settlement.  As part of the settlement, Cleco Poweris allowed to retain all regulated earnings up to a 12.25% return on equity,and to share equally with customers, as credits on their bills, all regulatedearnings between 12.25% and 13% return on equity.  All regulated earnings abovea 13% return on equity are credited to customers.  This effectively allowsCleco Power the opportunity to realize a regulatory rate of return up to12.625%.  The amount of credits due customers, if any, is determined by theLPSC annually 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 has not yet issued its preliminaryreport for the cycles ended September 30, 2002, 2003, or 2004, for which ClecoPower has made the requisite filings.  The filings for the cycles endedSeptember 30, 2002, and 2003, also were pending final settlement of the fueland trading practices audit and settlement of a related lawsuit filed in St.Landry Parish.  The fuel audit settlement has been approved by the LPSC and therelated St. Landry Parish lawsuit was dismissed at a settlement hearing onNovember 15, 2004.  Cleco Power anticipates the completion of the reviews forthe cycles ended September 30, 2002, 2003, and 2004 by the third quarter of2005.

As stated above, the current rate stabilizationplan sets Cleco Power's allowed return on equity until September 30, 2005. Possible future rate stabilization plan options include seeking a short-termextension, combining an extension request with a generation certificate ofpublic convenience and necessity application, seeking a new rate case, orallowing the current plan to expire and continuing under current rates untilthe LPSC orders a review of Cleco Power's rates.  Management is unable topredict what Cleco Power's allowed return on equity will be after September 30,2005.

ClecoPower's Balance Sheets at March 31, 2005, and December 31, 2004, reflect accrualsof $10.3 million and $25.9 million, respectively, for estimated electriccustomer credits relating to the 12-month cycles ended September 30, 2002,through September 30, 2005 and the fuel audit.  The $15.6 million decrease wasprimarily the result of a refund of $16.0 million of credits to customersrelating to the settlement of the fuel audit, offset partially by additionalaccruals recorded for the current rate stabilization plan period.  Of the $10.3million of customer credits recorded at March 31, 2005, $7.9 million of creditsrelate to the 12-month cycles ended September 30, 2002, through September 30,2004, are reported under the line provision for rate refund on Cleco'sCondensed Consolidated Balance Sheet, and reflect amounts due currently.  Theremaining $2.4 million of customer credits recorded at March 31, 2005, arereported under the line item other deferred credits on Cleco's CondensedConsolidated Balance Sheet and are not currently due.  Of the $25.9 million ofcustomer credits recorded at December 31, 2004, $23.9 million of credits arereported under the line item provision for rate refund on Cleco's CondensedConsolidated Balance Sheet, $7.9 million relate to the 12-month cycles ended September30, 2002, through September 30, 2004, and $16.0 million relate to the fuelaudit, and reflect amounts due currently.  The remaining $2.0 million ofcustomer credits recorded at December 31, 2004, are reported under the lineitem other deferred credits on Cleco's Condensed Consolidated Balance Sheet,and are not currently due.

All customercredits were recorded as a reduction in revenue due to the nature of the credits.  The accruals are based upon the original1996 settlement, the resolution of the fuel audit and annual issues as agreedbetween Cleco and the LPSC, and Cleco's assessment of issues that remain outstanding.

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

***Securities Litigation***

On November 22, 2002, a lawsuit was filed in theNinth Judicial District Court, Parish of Rapides, State of Louisiana, on behalfof a class of persons or entities who purchased Cleco Corporation's commonstock during a specified period of time, hereinafter referenced as the ClassPeriod.  Cleco Corporation refers to this lawsuit as the Securities Litigation. In the Securities Litigation, the plaintiff alleges that Cleco Corporation issueda number of materially false and misleading statements during the Class Period,among other purposes, in order to cause the price of Cleco Corporation's stockto rise artificially.  The plaintiff alleges that, during the Class Period,Cleco Corporation failed to disclose the existence of the round-trip tradesthat Cleco Corporation disclosed in its Quarterly Report on Form 10-Q for thequarterly period ended September 30, 2002.  The plaintiff also alleges thatCleco Corporation's financial information was not prepared in conformity withgenerally accepted accounting principles during the Class Period.  ClecoCorporation removed the lawsuit to the United States District Court for theWestern District of Louisiana.  In May 2003, the lawsuit was dismissed withoutprejudice, allowing the plaintiff to re-file the lawsuit subject to certainstipulations and restrictions.  On November 12, 2003, the plaintiff again filedsuit in the Ninth Judicial District Court, Parish of Rapides, State ofLouisiana.  Cleco Corporation again removed the suit to the United StatesDistrict Court for the Western District of Louisiana and moved that the suit bedismissed pursuant to federal law.  On March 19, 2004, the United StatesDistrict Court heard oral arguments on Cleco Corporation's Motion to Dismissand the plaintiff's Motion to Remand.  On April 9, 2004, the court denied theplaintiff's Motion to Remand and granted Cleco Corporation's Motion to Dismiss,dismissing this matter with prejudice.  The plaintiff filed an appeal with the

22

United States Fifth Circuit Court of Appeals (the Appellate Court) on May 14,2004.  On March 14, 2005, the Appellate Court affirmed the district court'sdismissal of the lawsuit.  The plaintiff has failed to ask the Appellate Courtfor a rehearing.  The plaintiff's sole remaining course of action is to requestreview of the case by the U.S. Supreme Court.

On April 18, 2003, a Shareholder's DerivativeComplaint was filed by a shareholder of Westar, in the United States DistrictCourt for the District of Kansas.  The defendants named in the complaint were Westar,its Board of Directors, its former Chief Executive Officer, President andChairman, and Cleco Corporation.  The complaint alleged violations of Section14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgatedthereunder, and, in addition, breaches of fiduciary duties owed to Westar,and/or for aiding and abetting such breaches.  The complaint asserted thatCleco Corporation aided and abetted the director defendants' breaches of fiduciaryduties by engaging in round-trip trades with Westar.  The complaint sought theaward of unspecified compensatory damages against the defendants and theplaintiff's costs and disbursements of the lawsuit.  The complaint was amended,but the claims against Cleco Corporation did not change substantively.  OnApril 15, 2005, Westar announced that it had agreed in principle to settle allmatters of the lawsuit, including any claims involving Cleco.  Theagreement in principle had no impact on Cleco's financial condition, results ofoperations, or cash flows.

***Other Litigation***

Cleco is involved in regulatory, environmental,and legal 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 current informationand, as necessary, provides accruals for probable liabilities on the eventualdisposition of these matters.  Cleco's management believes that the dispositionof these matters will not have a material adverse effect on the Registrants'financial condition, results of operations, or cash flows.

***Off-Balance SheetCommitments***

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

The off-balance sheet commitments are notrecognized on Cleco's Condensed Consolidated Balance Sheets because it has beendetermined that Cleco's affiliates are able to perform these obligations undertheir contracts and that it is not probable that payments by Cleco will berequired.  Some of these commitments reduce the amount of the credit facilityavailable to Cleco Corporation by an amount defined by the credit facility.  Thefollowing table shows off-balance sheet commitments grouped by the affiliate onwhose behalf each commitment was made.  The table also shows the face amount ofthe commitment, applicable reductions, the resulting net amount of thecommitment, and associated reductions in Cleco Corporation's ability to draw onits credit facility at March 31, 2005.  A discussion of the off-balance sheetcommitments is detailed in the explanations following the table.  The discussionshould be read in conjunction with the table to understand the impact of theoff-balance sheet commitments on Cleco's financial condition.
 
          AT MARCH 31, 2005

          REDUCTIONS TO THE

      AMOUNT    AVAILABLE

          TO    BE DRAWN ON

                 FACE

 

               NET

CLECO CORPORATION'S
SUBSIDIARIES/AFFILIATES (THOUSANDS)

            AMOUNT

   REDUCTIONS

            AMOUNT

               CREDIT FACILITY

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

**            $ 277,400**

** $         -**

**            $ 277,400**

**         $        328**

Cleco Corporation obligation under Perryville's  debt service reserve

**                   7,352**

**     6,871**

**                      481**

**                   481**

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

**                   1,400**

**             -**

**                   1,400**

**                1,400**

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

**                 15,000**

**             -**

**                 15,000**

**              15,000**

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

**                   6,688**

**             -**

**                   6,688**

**                6,688**

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

**                      525**

**             -**

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 20,489**

**             -**

**                 20,489**

**                        -**

     Total

**            $ 328,854**

** $ 6,871**

**            $ 321,983**

**         $   23,897**
 
Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  The aggregate guarantee of $277.4 million islimited based on the following amounts and events:  (i) $42.4 million relatingto the Power Purchase Agreement, other ancillary agreements, and certainpre-closing liabilities associated with the Sale 

23

Agreement; and (ii) $235.0million with respect to the Sale Agreement arising from Perryville's failure topay, perform, or discharge the Senior Loan Agreement debt, Subordinated LoanAgreement debt and any other liabilities arising from the Senior LoanAgreement.  The $235.0 million portion of the guarantee described above isreduced to $100.0 million when the Senior Loan Agreement is paid.  In addition,if the Perryville and PEH Bankruptcy Court enters an order terminating theautomatic stay, Entergy Louisiana would have the right to terminate the saletransaction and would be entitled to liquidated damages of $10.0 million fromPerryville.  These potential liquidated damage obligations have been guaranteedby Cleco Corporation, in the event they are not paid by Perryville, and areincluded in the $42.4 million portion of the guarantee described above.  The$0.3 million reduction in the available credit was determined in accordancewith Cleco's credit facilities' definition of a contingent obligation.  Thecontingent obligation reduces the amount available under the credit agreementsby an amount equal to the reasonably anticipated liability in respect of thecontingent obligation as determined in good faith if the total amount ofindebtedness outstanding, including such contingent obligations, exceedscertain thresholds.  This required an estimate of the probability, amount andtiming of a payment by Cleco pursuant to this guarantee.  

If Perryville is unable to make principal paymentsto its lenders, Cleco Corporation will be required to pay up to $0.5 million onbehalf of Perryville under a cash collateral order issued by the Perryville andPEH Bankruptcy Court.  As of March 31, 2005, Cleco Corporation had paid thequarterly principal payments due by Perryville in the amount of $6.9 million asrequired by the Perryville and PEH Bankruptcy Court.  In addition, if ClecoCorporation's long-term senior unsecured debt is rated below BBB- by Standard& Poor's or Baa3 by Moody's, Cleco Corporation will be required to post aletter of credit in an amount up to $0.5 million.  For information on the cashcollateral order, bankruptcy filings of the Mirant Debtors, Perryville and PEH,and their related impacts on the Senior Loan Agreement, see Note 13 -"Perryville." 

In November 2004, Cleco completed the sale ofsubstantially all of the assets of Cleco Energy.  Cleco Corporation providedguarantees to the buyers of the disposal groups of Cleco Energy for the paymentand performance of the indemnity obligations of Cleco Energy.  Theaggregate amount of the guarantees is $1.4 million.  As a result of arecently filed lawsuit (related to the price charged for natural gas sales)against Cleco Energy and the purchaser of Cleco Energy's assets, the purchaserhas invoked its indemnification provisions pursuant to the purchase and saleagreement that Cleco guaranteed.  Cleco is investigating the claim and cannot currently estimate the outcome. For information on the sale of Cleco Energy'sassets, see Note 14 - "Discontinued Operations and Dispositions."

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

On March 16, 2005, Cleco Corporation issued aguarantee to Central Mississippi Generating Company LLC for Attala'sobligations and liabilities under the purchase and sale agreement betweenCentral Mississippi Generating Company LLC and Attala providing for theacquisition by Attala of transmission assets, including Attala's obligations topay the purchase price for the assets and to indemnify the seller.  The maximumamount payable under the guarantee is $6.7 million (subject to certain purchaseprice adjustments).

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

As part of the Lignite Mining Agreement enteredinto in 2001, Cleco Power and SWEPCO, joint owners of Dolet Hills, have agreedto pay the lignite miner's loan and lease principal obligations when due, ifthe lignite miner does not have sufficient funds or credit to pay.  Any amountspaid on behalf of the miner would be credited by the lignite miner against thenext invoice for lignite delivered.  At March 31, 2005, Cleco Power's 50%exposure for this obligation was approximately $20.5 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:
 
                         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

   $ 306,458

   $ 284,569

   $               -

   $      1,400

   $   20,489

Standby letters of credit

        15,525

              525

                    -

                    -

        15,000

     Total commercial commitments

   $ 321,983

   $ 285,094

   $               -

   $      1,400

   $   35,489

24

***CES***

In a series of written notices commencing in May2004, CES notified APP that CES was invoking certain rights regarding disputeresolution under the Calpine Tolling Agreements between CES and APP and requestedthat APP conduct a simultaneous capacity test of both Power Blocks of the APP electricgeneration facility in the manner specified within the notices.  CES notified APPthat it may withhold up to one-half of the monthly payments due APP under the CalpineTolling Agreements and may take other action, including, without limitation,(i) unwinding Calpine's interest in APP, (ii) terminating the CalpineTolling Agreements, (iii) asserting claims against Cleco Power for allegedlyflawed interconnection studies, and/or (iv) seeking reimbursement for thealleged overpayment of capacity fees from August 2003.  CES indicated that thedispute is primarily based upon transmission constraints that, according toallegations by CES, limit the ability of CES to deliver APP's capacity andenergy to the wholesale market.  On September 27, 2004, CES sent a letterto APP claiming to be a notice of default under the Calpine Tolling Agreements. In the letter, CES claimed that APP's refusal to conduct the requestedsimultaneous capacity test was a default under the Calpine Tolling Agreements.  AlthoughCES did not expressly so state, Cleco believed that CES might attempt to usethe test results as an alleged basis to reduce its monthly payments to APP underthe Calpine Tolling Agreements.  APP performed the requested simultaneous testunder protest on October 12, 2004, while reserving all of its rights toassert that such capacity test is not required by the testing provisions of theCalpine Tolling Agreements and does not entitle CES to any reduction in itsmonthly capacity payments to APP.  Standard capacity test results werecomparable to previous tests and were within the parameters of the CalpineTolling Agreements.  Supplemental capacity testing was suspended due to a minormechanical problem with one of the Power Blocks.  Since the test, CES has sentletters to Cleco Corporation, Cleco Power and APP requesting that each entitymaintain, preserve and in some instances, produce records specified in theletters relating to the test.  The Calpine Tolling Agreements allow CES and APPthe right, under current conditions, to require up to four capacity tests inany given contract year.  Cleco can give no assurance as to the results of anysuch testing in the future.  Through April 2005, CES has continued to remitfull payment (other than the periodic withholding of disputed billing amounts)of the monthly tolling fees to APP.

On March 8, 2005, APP received a letter from CES requestinga refund of approximately $2.3 million.  CES claims natural gas metering errorshave caused errors in calculating the heat rate performance of APP's facilityfrom January 2003 through July 2004.  During APP's review of the CES claims, arelated and possible equivalent electric metering error, which also affects theheat rate calculation, in favor of APP was discovered.  APP is reviewing allrelated information, including its electric interconnection agreement withCleco Power.  APP plans to resolve this dispute, including a refund ifnecessary, in 2005.  APP has not recorded a contingent liability related tothis matter.  Cleco Corporation's 50% share of such cost, and the timing of anyaccrual that APP may be required to make in connection with this matter cannotbe estimated at this time.

Under the Calpine Tolling Agreements, bindingarbitration is a means of resolving the dispute.  In letters dated April 12, 2005and May 3, 2005, CES informed APH that they intend to initiate bindingarbitration proceedings pursuant to the Calpine Tolling Agreements, unlessresolution of matters described in the letters can be reached.  The letters state that CES intends to invoke arbitration underthe Calpine Tolling Agreements due to the failure of meetings between seniorofficers of APP and CES to produce resolution of issues regarding transmissionconstraints that, according to CES's allegations, limit its ability to deliver APP'scapacity and energy to the wholesale market and impact reservation and fixed operationsand maintenance payments under the Calpine Tolling Agreements.  Under theCalpine Tolling Agreements, which contain procedures regarding arbitration, thearbitrator is to be selected by APP and CES.  As of the date of this filing,CES has not invoked arbitration.

If CES were to fail to perform its obligationsunder the tolling agreements, it could have a material adverse impact on Cleco'sresults of operations, financial condition and cash flow.  In addition, APP maynot be able to enter into agreements in replacement of the existing tollingagreements on terms as favorable as its existing agreements or at all.

***SESCO***

In October 2003, the Texas Commission on EnvironmentalQuality notified Cleco Power that it had been identified as a PRP for the SESCOfacility in San Angelo, Texas.  The facility operated as a transformerrepair and recycling facility from the 1930s until 2003, and both soil andgroundwater contamination exist at the site and in surrounding areas.  Based oninitial available information, Cleco Power accrued a minimal amount for itspotential liability for the site in November 2003.  The investigation ofSESCO's historical records is still ongoing.  Additional work is beingconducted by a group of PRPs, including Cleco Power, at the direction of theTexas Commission of Environmental Quality to maintain the site and to identify additionalPRPs.  It is likely that Cleco Power together with other PRPs will be requiredto contribute to the past and future cost of the investigation and remediationof the site.  The ultimate cost of remediation of the site, Cleco Power's shareof such cost, and the timing of any additional accrual that Cleco Power may berequired to make in connection with this matter cannot be estimated at thistime.  However, management believes that the outcome of the site remediationwill not have a material adverse impact on the Registrants' financial condition,results of operations, or cash flows.

***EPA***

In February 2005, Cleco Power received notices fromthe EPA requesting certain information relating to the Rodemacher Power Stationand the Dolet Hills Power Station as authorized by Section 114 of the Clean AirAct.  The apparent purpose of the investigation is to determine whether ClecoPower has complied with applicable NSR and New Source Performance Standardsrequirements in connection with capital 

25

expenditures, modifications, oroperational changes Cleco Power has made at these facilities.  Cleco Power hascompleted its response to the initial data request.  It is unknown at this timewhen the EPA will take further action, if any, as a result of the informationto be provided by Cleco Power and if any such action would have a material adverseimpact on the Registrants' financial condition, results of operations, or cashflows.

***OtherContingencies***

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

The City of Alexandria, Louisiana (a current municipalcustomer of Cleco Power) has requested an audit of certain transactions to determineif it has been invoiced properly pursuant to the contractual arrangements forsales made to the city and revenue derived from city generating facilities.  TheCity of Alexandria and Cleco have not yet agreed on the procedure by which theaudit will be conducted.  Management believes that the resolution of this auditwill not have a material adverse impact on the Registrants' financialcondition, results of operations, or cash flows.

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

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

***Risks and Uncertainties***

**Cleco**

Cleco Corporation could be subject to possibleadverse consequences if any of Cleco's remaining counterparties fail to performtheir obligation under their respective tolling agreements or if ClecoCorporation or its affiliates are not in compliance with loan agreements orbond indentures.  Cleco's remaining tolling counterparties are Williams and CES. The following list is not all-inclusive, but represents examples of possibleadverse consequences resulting from the nonperformance of Cleco's tollingcounterparties and certain defaults resulting from noncompliance with debtcovenant agreements or bond indentures:
-  Cleco'sfinancial condition and results of operations may be adversely affected by thetolling counterparties' failure to pay amounts due to Cleco and may not beconsistent with historical and projected results.
-  Clecomay not be able to enter into agreements in replacement of its existing tollingagreements on terms as favorable as their existing agreements or at all. 
-  Clecowould be required to test any long-lived generation asset for impairment if thetolling counterparty defaulted under the related tolling agreement.  If Clecodetermined that an impairment existed, the asset would be written down to itsfair market value, which could materially adversely affect Cleco's results ofoperations and financial condition.
-  Possibleacceleration of Cleco's project-level debt, in particular under provisions ofthe bonds issued by Evangeline, the bondholders have the right to demand theentire outstanding principal amount ($194.8 million at March 31, 2005) andinterest to be immediately due and payable upon a default under the EvangelineTolling Agreement.  As of March 31, 2005, Cleco was not aware of any suchdefault by Williams.  If the bondholders were to exercise this right,Evangeline might, among other things, refinance the bonds, pay off the bondswith other borrowings or the proceeds of issuances of additional debt, or causeEvangeline to seek protection under federal bankruptcy laws.  In addition, thetrustee of the bonds could foreclose on the mortgage and assume ownership ofthe plant.  Any alternative financing would likely be on less favorable termsthan the existing terms.  The bonds issued by Evangeline are nonrecourse toCleco Corporation.

The outstanding amount ($126.2 million atMarch 31, 2005) due under the Senior Loan Agreement related to the Perryvillefacility was deemed accelerated upon the bankruptcy filings by Perryville andPEH.  As a result of the bankruptcy cases and by virtue of the automatic stayunder the U.S. Bankruptcy Code, the lenders' ability to exercise their remediesunder the Senior Loan Agreement, including, but not limited to, their abilityto foreclose on the mortgage or assume ownership of the Perryville facility,are significantly limited and would require approval of the Perryville and PEH BankruptcyCourt.  For additional information on the Senior Loan Agreement and bankruptcy filings,see Note 13 - "Perryville."

If the pending sale of the Perryville power stationto Entergy Louisiana were not to be consummated by December 31, 2005, thePower Purchase Agreement would terminate.  If this were to occur, Cleco wouldneed to seek an alternative purchaser of the facility or its generation, orallow Perryville and PEH's Senior Loan Agreement and other obligations to beresolved in their bankruptcy proceedings. Any of these alternatives couldresult in Cleco receiving significantly less value for the Perryville PowerStation and its generation than anticipated, as well as possibly cause Cleco torecord additional losses on its investment and under certain circumstances requireCleco to pay $10.0 million in liquidated 

26

damages to Entergy Louisiana.  Foradditional information on the pending sale of the Perryville power station, seeNote 13 - "Perryville."

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, the credit rating of ClecoCorporation's subsidiaries, the cash flows from routine operations and thecredit ratings of project counterparties.  If Cleco Corporation's credit ratingwere to be downgraded by Moody's or by Standard & Poor's, Cleco Corporationwould be required to pay additional fees and higher interest rates under itsbank 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 and marketers to supplement its generation at times ofrelatively high demand or when the purchase price of power is less than its owncost of generation.  Because of its location on the transmission grid, ClecoPower relies on one main supplier of electric transmission, and at times constraintslimit the amount of purchased power it can deliver into and/or through its system.

Financing for operational needs and constructionrequirements is dependent upon the cost and availability of external funds fromcapital markets and financial institutions.  Access to funds is dependent uponfactors such as general economic conditions, regulatory authorizations and policies,Cleco Corporation's credit rating, Cleco Power's credit rating, the cash flowsfrom routine operations and the credit ratings of project counterparties.  IfCleco Power's credit rating were to be downgraded by Moody's or by Standard& Poor's, Cleco Power would be required to pay additional fees and higher interestrates 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 asset sales of Cleco Energy's oil and gas properties andnatural gas pipelines.  These guarantees and indemnifications fall within therecognition scope of FIN 45 because they relate to the past performanceobligations of the disposed assets and also contain provisions requiringpayment for potential damages.  The potential liabilities expire either after atwo- or five-year life.  Each indemnification and guarantee was assignedprobabilities and estimates of potential damages.  The maximum aggregatepotential payment under the guarantees and indemnifications is $1.2 million. The discounted probability-weighted liability under the guarantees andindemnifications as of March 31, 2005, 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.  Maximum potentialpayments under the Cleco Corporation guarantees are $1.4 million but are notwithin the recognition scope of FIN 45.  For additional information on thesales of Cleco Energy assets, see Note 14 - "Discontinued Operations andDispositions."

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 of inclusionarises as the result of acts conducted in the discharge of their officialcapacity.  Cleco Corporation has purchased various insurance policies to reducethe risks associated with the indemnification.  In its Operating Agreement (OperatingAgreement of Cleco Power LLC, dated December 13, 2000, amended October 24,2003), Cleco Power provides for the same indemnifications as described abovewith respect to its managers, officers, agents and employees.

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

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

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

**Note 10 - Debt**

***Cleco***

At March 31, 2005, Cleco had $50.0 million ofoutstanding new debt, $25.0 million of which was short-term and $25.0 millionof which was long-term, with a weighted average interest rate of 3.6125%.  AtDecember 31, 2004, Cleco had no outstanding short-term debt.

27

***ClecoPower***

At March 31, 2005, Cleco Power had outstanding newdebt of $50.0 million, $25.0 million of which was short-term and $25.0 millionof which was long-term, with a weighted average interest rate of 3.6125% comparedto no outstanding short-term debt at December 31, 2004.  On March 15, 2005,Cleco Power redeemed $60.0 million of First Mortgage Bonds, Series X, 9.5% atmaturity.

***Credit Facilities***

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

On April 25, 2005, Cleco Corporation enteredinto a revolving five-year credit facility totaling $150.0 million.  The commitmentfees for this facility are based upon Cleco Corporation's highest unsecureddebt ratings and are currently 0.20%.  This facility provides for workingcapital and other needs.  If Cleco Power defaults under the Cleco Power facility,then Cleco Corporation would be considered in default under the ClecoCorporation facility.  Off-balance sheet commitments entered into by Cleco withthird parties for certain types of transactions between those parties andCleco's subsidiaries, other than Cleco Power, reduce the amount of creditavailable to Cleco Corporation under the facility by an amount equal to thestated or determinable amount of the primary obligation.  

On April 25, 2005, Cleco Power entered into arevolving five-year credit facility totaling $125.0 million.  This facilitywill provide for working capital and other needs.  Commitment fees are basedupon Cleco Power's highest unsecured debt rating and are currently 0.125%. 

**Note 11 - VariableInterest Entities**

Cleco has adopted the provisions of FIN 46R on itsscheduled effective dates.  Through a review of contracts, equity interests andother contractual relationships, Cleco hasdetermined that it is not the primary beneficiary of Evangeline, which is considereda variable interest entity.

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

Since its inception, Cleco has had 100% ownershipand voting interest of Evangeline.  All of the capacity and output of the powerplant has been tolled to Williams which pays Evangeline certain fixed andvariable amounts.  At March 31, 2005, Evangeline had assets with a book valueof approximately $257.9 million and liabilities of $253.8 million.  For thethree months ended March 31, 2005, Evangeline had operating revenue of $9.7million and operating expenses (including depreciation) of $3.8 million. Cleco's current assessment of its maximum exposure to loss at March 31, 2005,consists of its equity investment of $58.9 million.

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

Most employees are covered by a noncontributory,defined benefit pension plan.  Benefits under the plan reflect an employee'syears of service, age at retirement, and highest total average compensation forany consecutive five calendar years during the last 10 years of employment withCleco Corporation.  Cleco Corporation's policy is to base its contributions tothe employee pension plan upon actuarial computations utilizing the projectedunit credit method, subject to the Internal Revenue Service's full fundinglimitation.  No contributions to the pension plan were made for the threemonths ended March 31, 2005.  Currently, a contribution required by fundingregulations is not expected during 2005.  A discretionary contribution may bemade during 2005; however, the decision to make a contribution and the amount,if any, has not been determined.  Cleco Power is considered the plan sponsorand Support 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, 2005, are as follows:

                  PENSION    BENEFITS

                       OTHER BENEFITS

                                FOR THE THREE MONTHS ENDED MARCH 31,

(THOUSANDS)

**             2005**

               2004

                 **2005**

             2004

Components of periodic benefit costs

** **

     Service cost

**            $    1,756**

** **

   $       1,598

** $     654**

   $         596

     Interest cost    

**    3,364**

** **

            3,218

**         594**

              589

     Expected return on plan assets

**(4,595)**

** **

          (4,356)

**             -**

                   -

     Amortization of transition obligation  (asset)

**            -**

** **

                   (9)

**             -**

                98

     Prior period service cost amortization

**        246**

** **

               246

**       (188)**

                   -

     Net loss amortization

**        287**

** **

                  68

**         304**

              191

     Net periodic benefit cost

**$  1,058**

** **

   $          765

** $  1,364**

   $     1,474

Certain key executives and key managers arecovered by a 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 

28

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, 2005, and 2004.  Cleco Poweris considered the plan sponsor and Support Group is considered the plan administrator.

The components of the net SERP cost are as follows:

** **

          SERP BENEFITS

  FOR THE THREE    MONTHS ENDED MARCH 31,

(THOUSANDS)

**                       2005**

                       2004

Components of periodic benefit costs

Service cost

** $           261**

   $                  210

Interest cost

**              318**

                       325

Prior period service cost amortization

**                13**

                          13

Net loss amortization

**              131**

                       154

Net periodic benefit cost

** $           723**

   $                  702

Most employees are eligible toparticipate in a 401(k) savings and investment plan.  Cleco Corporation makesmatching contributions to 401(k) Plan participants by allocating shares ofconvertible preferred stock held by the ESOP.  Compensation expense related tothe 401(k) Plan is based upon the value of shares of preferred stock allocatedto ESOP participants and the amount of interest incurred by the ESOP, lessdividends on unallocated shares held by the ESOP.  At March 31, 2005, and 2004,the ESOP had allocated to employees 191,248 and 184,100 preferred shares,respectively.

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

   FOR THE THREE    MONTHS ENDED MARCH 31,

(THOUSANDS)

**                       2005**

                       2004

401(k) Plan expense

**      $      202**

          $            145

Dividend requirements to ESOP on convertible  preferred stock

**      $      484**

          $            525    

Interest incurred by ESOP on its indebtedness

**      $        45**

          $              88

Company contributions to ESOP

**      $           -**

          $                 -

**Note 13 - Perryville**

***Background***

Perryville owns and operates a 718-MW naturalgas-fired power plant near Perryville, Louisiana.  The Perryville facilityconsists of approximately 562 MW of combined-cycle capacity and approximately156 MW of peaking capacity.  In July 2001, Perryville began operating under thePerryville Tolling Agreement, a 21-year capacity and energy sale agreement foruse of Perryville's entire capacity, with MAEM, a subsidiary of Mirant.  Underthe terms of the Perryville Tolling Agreement, MAEM had the right to supplynatural gas to fuel the Perryville facility, and it was exclusively entitled toall of the capacity and energy output from the facility.  Perryville wasobligated to provide energy conversion services, within specified performance parameters,when requested by MAEM.  The agreement required MAEM to pay Perryville variouscapacity reservation and fixed operations and maintenance fees, the amounts ofwhich depended upon the type of capacity and ultimate performance achieved bythe facility.  In addition to the capacity reservation and fixed operating andmaintenance payments from MAEM, Perryville was entitled to collect and MAEM wasobligated to pay amounts associated with variable operating and maintenanceexpenses based on MAEM's dispatch of the facility under the Perryville TollingAgreement.  Payments received from MAEM under the Perryville Tolling Agreementwere Perryville's only source of revenue.  Mirant and MAI provided limitedguarantees that supported MAEM's obligations under the Perryville TollingAgreement.

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

On July 14, 2003, the Mirant Debtors filed forprotection under Chapter 11 of the U.S. Bankruptcy Code in the Mirant DebtorsBankruptcy Court.  On August 29, 2003, the Mirant Debtors filed a motion withthe U.S. Bankruptcy Court pursuant to section 365 of the U.S. Bankruptcy Codeseeking authority to reject the Perryville Tolling Agreement.  The MirantDebtors have asserted that the Perryville Tolling Agreement was rejected as ofSeptember 15, 2003.  Upon the rejection of the Perryville Tolling Agreement,MAEM's rights and obligations under such agreement were terminated.

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

Upon MAEM's rejection of the Perryville TollingAgreement, MAEM's rights and obligations under this agreement were terminated. On December 3, 2003, Perryville filed a motion in the Mirant Debtors BankruptcyCourt seeking allowance and immediate payment of an administrative expenseclaim in the amount of approximately $7.2 million.  This administrative expenseclaim arises out of post-petition services performed by Perryville under thePerryville Tolling Agreement prior to its rejection by MAEM.  Currently, thereis no hearing date scheduled with respect to this claim, and Perryville'smotion is still pending before the Mirant Debtors Bankruptcy Court.  OnDecember 15, 2003, Perryville filed damage claims against MAEM due to therejection of the Perryville Tolling Agreement and against Mirant and MAI undertheir respective limited guarantees.  During 2004, the Mirant Debtors filedvarious objections to the damage claims asserted by Perryville.  In theseobjections, the Mirant Debtors requested that the Mirant Debtors BankruptcyCourt disallow, or in the alternative, reduce the unpaid amounts owed toPerryville.  In July 2004, the Mirant Debtors Bankruptcy Court approved aMediation and Abatement Order stipulating the provisions for selection of amediator, as well as a tentative schedule for mediation.  Mediation wasconducted in August 2004, using a neutral party to facilitate negotiations ofall damage claims.  The mediation terminated without reaching a settlement onany of the damage claims.  In November 2004, the Mirant Debtors BankruptcyCourt approved a scheduling order to litigate Perryville's administrativeexpense claim and MAEM claim.  

29

Discovery exchange and pre-trial efforts forboth parties for the administrative expense and the MAEM claim were completedin late February 2005.  The efforts provided for exchange of informationbetween the Mirant Debtors and Perryville and for proceeding with expert andother witness depositions or rebuttals.  

On March 18, 2005, Perryville and the MirantDebtors reached an agreement in principle to settle all claims related to therejection of the Perryville Tolling Agreement and the administrative expenseclaim.  The settlement is subject to, and conditioned upon:  (a)  execution ofdefinitive settlement documents in a form acceptable to Perryville and theMirant Debtors, and (b)  approval of the settlement by the Perryville and PEH BankruptcyCourt and the Mirant Debtors Bankruptcy Court.  The material terms of the agreementin principle are generally as follows:  (i)  Perryville shall have an allowedunsecured claim against MAEM in the Mirant Debtors' Chapter 11 case in theamount of $207.0 million based upon MAEM's rejection of the Perryville TollingAgreement;  (ii)  Perryville shall have an allowed unsecured claim againstMirant in the Mirant Debtors' Chapter 11 case in the amount of $177.2 millionbased upon Mirant's limited guarantee of MAEM's obligations under the PerryvilleTolling Agreement;  (iii)  Perryville shall have an allowed claim against MAIin the Mirant Debtors' Chapter 11 case in the amount of $98.7 million basedupon MAI's limited guarantee of MAEM's obligations under the Perryville TollingAgreement, subject to Perryville's rights of set off described more fullybelow;  (iv)  MAI shall have an allowed unsecured claim against Perryville inPerryville's Chapter 11 case in the amount of $98.7 million;  (v)  Perryvilleshall not oppose substantive consolidation of the Mirant Debtors in the MirantDebtors' Chapter 11 case;  (vi)  if the Mirant Debtors are substantivelyconsolidated in the Mirant Debtors' Chapter 11 case, Perryville's allowedclaims against Mirant and MAI shall be subsumed within Perryville's underlyingallowed $207.0 million claim against MAEM, and the rights of set off describedbelow shall be preserved;  (vii)  if the Mirant Debtors are not substantively consolidatedin the Mirant Debtors' Chapter 11 case, Perryville's aggregate recovery on allof its allowed claims in the Mirant Debtors' Chapter 11 case will be limited tothe amount of Perryville's $207.0 million allowed claim against MAEM;  (viii)  Perryvilleshall support any plan of reorganization proposed by Mirant in the MirantDebtors' Chapter 11 case, provided that such plan does not materially diminishPerryville's recovery as set forth in Mirant's plan of reorganization filed onJanuary 19, 2005 (the Mirant Plan); and (ix)  upon confirmation andeffectiveness of the Mirant Debtors' Chapter 11 Plan of Reorganization, (thePlan), MAI's allowed claim against Perryville in Perryville's Chapter 11 caseof $98.7 million shall be set off against Perryville's $98.7 million allowedclaim against MAI in the Mirant Debtors' Chapter 11 case, provided that thesale of Perryville's power plant pursuant to the Sale Agreement, as amended,closes prior to confirmation and effectiveness of the Mirant Plan or Perryvilleelects, at its option, to effectuate the foregoing set off notwithstanding thatthe sale does not close prior to confirmation and effectiveness of the MirantPlan; provided, further that if (a)  the foregoing set off is effectuated,Perryville's $207.0 million claim against MAEM in the Mirant Debtors' Chapter11 case shall be reduced dollar-for-dollar, Perryville's $98.7 million claimagainst MAI in the Mirant Debtors' Chapter 11 case shall be deemed satisfied infull; and (b)  Perryville elects not to effectuate such set off, MAI's allowedclaim in Perryville's Chapter 11 case shall be satisfied in accordance with theagreement of the parties; and (c)  Perryville's administrative claim shall bedeemed satisfied in full by virtue of the prior post-petition payments made byMAEM to Perryville. 

The current draft of the Mirant Plan proposes a 60%payout to the Perryville and PEH class of creditors.

***Perryville Bankruptcy***

On January 28, 2004, to facilitate an orderlysales process, Perryville and PEH filed voluntary petitions in the Perryvilleand PEH Bankruptcy Court for protection under Chapter 11 of the U.S. BankruptcyCode.  Neither Cleco Corporation nor any of its other subsidiaries wereincluded in the filings.  Perryville and PEH are debtors and debtors inpossession and are continuing to operate their business under the U.S.Bankruptcy Code.  Based upon the Perryville and PEH Bankruptcy Court'sapproval, Perryville and PEH will use existing cash sourced from restrictedcash accounts held in the debtor-in-possession accounts (DIP Accounts) and operatingrevenue from the Power Purchase Agreement to maintain operations at the Perryvillefacility.  On February 3, 2004, the Perryville and PEH Bankruptcy Court approvedthe use by Perryville and PEH, on an interim basis, of approximately $0.6million of cash collateral in the restricted cash accounts (Cash Collateral) tomaintain and operate their business; provide the lenders adequate protection;and reimburse the lenders for certain expenses incurred through February 12,2004.

On February 26, 2004, the Perryville and PEH BankruptcyCourt entered a final cash collateral order (Cash Collateral Order).  The CashCollateral Order provided for the transfer of up to $6.1 million (subject tocertain adjustments) of additional restricted cash to the DIP Accounts forpost-petition expenses, including routine operations and maintenance, inventory,goods and services, costs reasonably necessary to obtain regulatory approvaland other necessary approvals in connection with the Power Purchase Agreementand Sale Agreement, adequate protection payments, professional fees andexpenses, and certain pre-petition expenses of the lenders for professionalservices.  Revenue from the Power Purchase Agreement also is deposited into theDIP Accounts to provide additional cash for Perryville's use.  The Cash CollateralOrder stipulated payment of quarterly interest and principal payments under theSenior Loan Agreement, set forth provisions for early termination events, andalso granted a replacement lien to the lenders.  In the event Perryville cannotpay its quarterly principal payments, Cleco Corporation, if demanded byPerryville, is obligated under its guarantee to pay up to $0.5 million of thesepayments in the future.  As of March 31, 2005, Cleco Corporation has paid $6.9million of principal payments on behalf of Perryville.  The Cash 

30

CollateralOrder also stipulated that the lenders shall not take any action to delay theclosing of the Sale Agreement, shall support the Sale Agreement, and shallrefrain from seeking relief of the automatic stay under the U.S. BankruptcyCode for as long as the order is in effect.  Subject to the occurrence of theearly termination events set forth therein, the Cash Collateral Order, asamended, terminates on the earlier of December 31, 2005, or payment byPerryville of all amounts (other than the amount of default interest waivedunder the Cash Collateral Order) due and payable under the Senior LoanAgreement.  On May 25, 2004, Perryville also received approval from thePerryville and PEH Bankruptcy Court to extend the exclusivity period to September24, 2004, during which time the debtors may file a plan of reorganization.  Theperiod within which the debtors may solicit acceptances thereof was extended toNovember 23, 2004.  On September 22, 2004, the Perryville and PEH BankruptcyCourt approved a second extension of the exclusivity period to March 31, 2005. The period within which the debtors may solicit acceptance of a plan ofreorganization was extended until May 30, 2005.  On March 23, 2005, thePerryville and PEH Bankruptcy Court approved a third extension of theexclusivity period to October 17, 2005.  The period within which the debtorsmay solicit acceptance of a plan of reorganization was extended to December 16,2005.

***Perryville's SeniorLoan Agreement***

The outstanding amounts due under the Senior LoanAgreement were deemed accelerated upon the bankruptcy filings by Perryville andPEH.  As a result of the commencement of these bankruptcy cases and by virtueof the automatic stay under the U.S. Bankruptcy Code, the lenders' ability toexercise their remedies under the Senior Loan Agreement, including, but notlimited to, their ability to foreclose on the mortgage or assume ownership ofthe Perryville facility, are limited significantly and would require approvalof the Perryville and PEH Bankruptcy Court.  As of March 31, 2005, theoutstanding principal of the Senior Loan Agreement was $126.2 million.  As aresult of these bankruptcy filings, the assets and liabilities of Perryvilleand PEH were deconsolidated from Cleco with the Senior Loan Agreementclassified as a pre-petition secured liability on Perryville's balance sheet.  Perryville'sSenior Loan Agreement is nonrecourse to Cleco Corporation other than (i) thebalance remaining under a guarantee for a portion of the current year's debtservice requirement, which at March 31, 2005, was $0.5 million and (ii) apossible conditional guarantee described below in "- Perryville's SubordinatedLoan Agreement."  The default on the Senior Loan Agreement resulting from thebankruptcy filings by Perryville and PEH has had no impact on any other creditfacility or financing arrangement of Cleco Corporation or its othersubsidiaries.  For additional information on the deconsolidation of Perryville,see "- Financial Results" below.

***Perryville'sSubordinated Loan Agreement***

As a result of the Mirant Debtors' bankruptcy andMAEM's failure to make payments under the Perryville Tolling Agreement, allobligations of Perryville to make principal and interest payments under theSubordinated Loan Agreement, as well as the accrual of additional interest,have been suspended indefinitely.  As of March 31, 2005, the amount outstandingunder the Subordinated Loan Agreement was $98.7 million.

To the extent there are obligations owed byPerryville to MAI under the Subordinated Loan Agreement, Perryville may (subjectto the provisions of the U.S. Bankruptcy Code), but is not required to, electto exercise a right of set off of any amounts due under the Subordinated LoanAgreement against Perryville's damage claims against MAI's limited guarantee insupport of MAEM's obligations.  MAI has waived any such right of set off.  Pursuantto the Senior Loan Agreement, in connection with Perryville exercising a rightof set off and receiving cash distributions, Perryville would be obligated toprepay its obligations under the Senior Loan Agreement in an amount equal tothe present value of all recoveries that otherwise would be payable to Perryvilleby the Mirant Debtors with respect to the amount of set off under any plans ofbankruptcy proceedings for the Mirant Debtors or scheduled distributions tocreditors involving the Mirant Debtors were the right of set off not invoked.  Insuch event and prior to receiving cash distributions, Perryville also would berequired to cause Cleco Corporation to provide credit support in the form of aguarantee of Perryville's prepayment obligation in an amount equal to 50% ofthe amount to be set off, not to exceed $50.0 million.  This credit supportmust be provided in the form of a letter of credit if Cleco Corporation doesnot have or maintain an investment grade credit rating while the obligation isoutstanding.  Failure by Cleco Corporation to provide the credit support couldtrigger the lenders' authority to waive Perryville's right of set off.  To theextent that Perryville waives its right of set off and set off is nevertheless effectuateddespite Perryville's and MAI's waiver of their rights of set off, Perryville isrequired to prepay to its lenders an amount equal to 25% of any amount set off. The extent to which Perryville can exercise any set off right, which it mayhave under the relevant documents or otherwise, is subject to the approvals ofthe U.S. Bankruptcy Code, Mirant Debtors Bankruptcy Court, and Perryville andPEH Bankruptcy Court.  In addition, the rights of the lenders under the SeniorLoan Agreement to enforce the obligations of Perryville to provide collateralsupport should it elect to set off are subject to approval of the Perryvilleand PEH Bankruptcy Court.

***Pending Sale of thePerryville Facility***

On January 28, 2004, Perryville entered into theSale Agreement to sell its 718-MW power plant to Entergy Louisiana.  The SaleAgreement provides for conditions customary to closing, including requisiteregulatory approvals by the FERC, LPSC, and SEC, as well as other requiredconsents, notices, and compliance with covenants, representations, andwarranties.  On April 23, 2004, the Perryville and PEH Bankruptcy Courtapproved the Sale Agreement between Perryville and Entergy Louisiana whicheffectively became non-appealable ten days thereafter.  The approval authorizedthe sale of substantially all of Perryville's operating assets to EntergyLouisiana free 

31

and clear of all liens, claims and encumbrances and assumedliabilities under the Sale Agreement.  If certain conditions to closing are notsatisfied or waived on or before September 30, 2005, the Sale Agreement may beterminated.  Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  The aggregate guarantee of $277.4 million islimited based on the following amounts and events:  (i) $42.4 million relatingto the Power Purchase Agreement, other ancillary agreements, and certain pre-closingliabilities associated with the Sale Agreement, and (ii) $235.0 million withrespect to the Sale Agreement arising from Perryville's failure to pay,perform, or discharge the Senior Loan Agreement debt, Subordinated LoanAgreement debt and any other liabilities arising from the Senior Loan Agreement. The $235.0 million portion of the guarantee described above is reduced to$100.0 million when the Senior Loan Agreement is paid.

Pursuant to the terms of the Sale Agreement,Perryville had agreed to sell its operating assets and property to EntergyLouisiana for $170.0 million (subject to certain adjustments).  In order toexpedite regulatory approval of the Sale Agreement, Perryville and Entergy Louisianaagreed to pursue restructuring the Sale Agreement by removing thetransmission-related and certain interconnection facilities (Jurisdictional Assets)from the Sale Agreement and instead provide for the maintenance of these assetsby Entergy Louisiana under a maintenance agreement.  Removingthe Jurisdictional Assets from the Sale Agreement in such a manner (AlternativeStructure) eliminated the requirement to obtain FERC approval under Section 203of the Federal Power Act.  On October 6, 2004, the FERC granted the requested DeclaratoryOrder stipulating the FERC does not have jurisdiction over the sale in the formof the Alternative Structure.  Effective October 21, 2004, Perryville andEntergy Louisiana amended the Sale Agreement to restructure the transaction inthe form of the Alternative Structure.  The Alternative Structure reduced theoriginal $170.0 million sale price by $7.9 million and allowed PEP to retainthe Jurisdictional Assets and provide transmission service to EntergyLouisiana.  The Jurisdictional Assets, comprised primarily of transformers andinterconnection equipment, are expected to provide transmission service forEntergy Louisiana to interconnect and deliver the output of the Perryvillegenerating assets to the Entergy transmission grid.  On March 22, 2005, theFERC accepted (subject to certain conditions) the cost of service tariff andother ancillary agreements filed by Perryville.  These agreements will be effectiveupon consummation of the Sale Agreement.

The amendments to the Sale Agreement extend thedate for which either party may terminate the sale under the Sale Agreement toDecember 31, 2005.  On December 8, 2004, the amended Sale Agreement in the formof the Alternative Structure was approved by the Perryville and PEH BankruptcyCourt.  On April 20, 2005, the LPSC approved the Entergy Louisiana purchase ofthe Perryville facility under the provisions of the Sale Agreement; the finalorder approving the Sale Agreement is expected to be issued in May 2005.

The assets to be sold to Entergy Louisiana do not includePerryville's claims against the Mirant Debtors or any other cash-related assetsof Perryville.  It is anticipated that the proceeds from the sale to EntergyLouisiana will be sufficient to pay the Senior Loan Agreement and all current obligationsof Perryville and PEH.  The sale to Entergy Louisiana, which is expected to becompleted by the third quarter of 2005, is contingent upon obtaining necessary final,non-appealable approvals from the LPSC and the SEC; a final inspection byEntergy Louisiana and its ability to recover all of its costs in acquiring thePerryville power plant through base rates, fuel adjustment charges or othersuch rates or regulatory treatment as deemed acceptable to Entergy Louisiana inits sole discretion; and satisfaction of other customary closing conditions. If the Perryville and PEH Bankruptcy Court enters an order terminating theautomatic stay, then Entergy Louisiana would have the right to terminate thesale transaction and would be entitled to liquidated damages of $10.0 millionfrom Perryville.  These potential liquidated damage obligations have beenguaranteed by Cleco Corporation, in the event they are not paid by Perryvilleand are included in the $42.4 million portion of the guarantee described above.

Also, on January 28, 2004, Entergy Services signedthe Power Purchase Agreement to purchase the output of the Perryville plantthrough the earlier of (i) the closing or termination of the sale to EntergyLouisiana or (ii) December 31, 2004.  Entergy Services also had the option toextend the Power Purchase Agreement through September 30, 2005; however, thePower Purchase Agreement automatically terminates upon termination of the SaleAgreement.  On September 20, 2004, Entergy Services and Perryville amended thePower Purchase Agreement to lengthen the term of the extension in the agreementto December 31, 2005.  The LPSC approved the extension of the Power PurchaseAgreement on November 10, 2004.  On November 12, 2004, Entergy Servicesprovided the necessary notice provisions under the Purchase Power Agreement andextended the agreement through the latter of (i) December 31, 2005, or (ii) theclosing or termination of the Sale Agreement.  The Power Purchase Agreementprovides that Entergy Services will make certain payments to Perryville andwill supply natural gas to the Perryville facility and is exclusively entitledto all capacity and energy output from the facility.  Under the Power PurchaseAgreement, Perryville is obligated to provide energy conversion services,within specified performance parameters, when requested by Entergy Services.  Existingpersonnel will continue to operate the facility through the closing of the saleto Entergy Louisiana.  Perryville received necessary approvals of the PowerPurchase Agreement from the Perryville and PEH Bankruptcy Court and beganoperating under the agreement on February 17, 2004.  Based on the terms of theamended Power Purchase Agreement, and in conjunction with use of the restrictedcash, Perryville is anticipated to have sufficient funds to maintain itsoperations through December 31, 2005.

32

***Financial Results***

The financial results of Perryville and PEH areincluded in Cleco Corporation's condensed consolidated results through January27, 2004.  However, generally accepted accounting principles precludeconsolidation of majority-owned subsidiaries where control does not rest withthe majority owners.  Cleco is utilizing the cost method to account for itsinvestment in Perryville and PEH.  The cost method requires Cleco to presentthe net assets of Perryville and PEH at January 27, 2004, as an investmentand not recognize any income or loss from Perryville or PEH in ClecoCorporation's results of operations during the reorganization period.  As of March 31,2005, this investment had a negative cost basis of approximately $35.9 million,which is included in other deferred credits on Cleco Corporation's ConsolidatedBalance Sheet.  When Perryville's bankruptcy proceedings are concluded, thesubsequent accounting treatment will be determined based upon the applicablefacts and circumstances existing at such time, including the terms of any planof reorganization or liquidation.

The following tables for Perryville and PEH containthe unaudited consolidated summarized financial information which has been preparedin conformity with SOP 90-7.  This statement requires a segregation ofliabilities subject to compromise by the Perryville and PEH Bankruptcy Court asof the bankruptcy filing date and identification of all transactions and eventsthat are associated directly with the reorganization.  Liabilities subject tocompromise include pre-petition unsecured claims, which may be settled atamounts which differ from those recorded in the Perryville and PEH consolidatedfinancial statements.

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

FOR THE THREE MONTHS    ENDED MARCH 31,

UNAUDITED (THOUSANDS)

**               2005**

** **

Pre-petition(1)

POST-PETITION(2)

             2004

Operating revenue

**$   4,779**

** **

   $           72

   $       2,274

 $      2,346

Operating expenses

**      5,210**

** **

          2,373

            2,685

          5,058

Interest charges

**      2,586**

** **

             458

            1,120

          1,578

Other income

**           60**

** **

                10

                  20

                30

Other expense

**             3**

** **

                  4

                    2

                   6

Federal and state  income tax benefit

**    (1,138)**

** **

        (1,059)

              (581)

         (1,640)

Net loss

**$****(1,822****)**

** **

   $   (1,694)

   $         (932)

 $     (2,626)

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

(2)  January 28, 2004 -  March 31, 2004

 

**           AT MARCH 31,**

   AT DECEMBER 31,

UNAUDITED (THOUSANDS)

**                       2005**

                       2004

Current assets

**$       12,437**

   $            18,462

Accounts receivable-affiliate

**         20,880**

                 12,815

Property, plant and equipment, net

**       160,128**

               161,748

Other assets

**         28,782**

                 29,920

     Total assets

**$     222,227**

   $           222,945

Current liabilities

**$         3,037**

   $               2,052

Pre-petition secured liability

**       126,167**

               127,552

Accounts payable-affiliate

**               496**

                       377

Liabilities subject to compromise    (1)

**       102,008**

               102,008

Deferred credits

**                 24**

                          24

Long-term debt, net

**                   -**

                             -

Member's equity

**          (9,505)**

                  (9,068)

     Total liabilities and member's equity

**$     222,227**

   $          222,945

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

               Unsecured debt

**$       98,650**

   $            98,650

               Accounts payable-affiliate

**               960**

                       960

               Accounts payable

**           1,435**

                    1,435

               Current deferred taxes

**               208**

                       208

               Long-term deferred taxes

**               755**

                       755

                        Total

**$     102,008**

   $          102,008

Cleco has assessed the liquidity positionof Perryville and PEH as a result of the bankruptcy filings and anticipatesthat Perryville can continue to fund its operating activities and capitalrequirements for the foreseeable future.  However, the ability of Perryville tocontinue as a going concern is dependent upon its ability to perform under thePower Purchase Agreement, to complete the sale of its facility to Entergy Louisiana,and to perform under an interconnection agreement.  As a result of the bankruptcyfilings and related events, there are no assurances that the carrying value ofassets will be realized or that liabilities will be liquidated or settled forthe amounts recorded.

Perryville and PEH routinely engage in affiliatetransactions with other entities within Cleco in the ordinary course of business. As a result of its bankruptcy filings, Perryville and PEH are precluded frompaying dividends to equity holders and making payments on any pre-bankruptcyfiling accounts or notes payable that are due and owing to any other entitywithin Cleco (pre-petition accounts payable-affiliate, which was $1.0 millionas of March 31, 2005) and other creditors during the pendency of the bankruptcycase.

**Note 14 - Discontinued Operations and Dispositions**

***Cleco Energy***

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

On September 15, 2004, Cleco Energy completed thesale of the second disposal group for a gross sales price of $0.8 million(subject to certain adjustments).  

33

On November 16, 2004, Cleco Energy completed thesale of its first disposal group consisting of the natural gas pipeline andmarketing operations for a gross sales price of $9.1 million (subject tocertain adjustments).  During the first quarter of 2005, settlement adjustmentsrelated to the disposal of the assets were recorded.

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

The following table summarizes the operatingresults and settlement adjustments that have been classified as discontinuedoperations on Cleco Corporation's Consolidated Statements of Income and arereported in the Midstream segment in Note 3 - "Disclosures About Segments." Prior period results have been reclassified from income from continuing operationsto discontinued operations.

   FOR THE THREE    MONTHS ENDED MARCH 31,

DISCONTINUED OPERATIONS (THOUSANDS)

**                       2005**

** **

                       2004

Operating revenue, net

** $                -**

   $            17,065

Pre-tax (loss) income

**             (199)**

                       280

Federal and state income tax (benefit) expense

**               (65)**

                       122

(Loss) income from discontinued operations,net of tax    

**             (134)**

                       158

**Note 15 - Income Taxes**

Cleco Corporation's effective income tax rate forthe first quarter of 2005 was 38.5% compared to 29.2% for the same period in2004.  The effective rate increased primarily due to a decrease in netfavorable permanent differences between book and tax income.  The decrease innet favorable permanent differences is related to the 2004 true up of estimatedtaxes based on the 2003 tax return, as well as the 2004 release of taxcontingency reserves related to a favorable state settlement.  In addition, inthe first quarter of 2005 an increase in the accrual of tax contingencyreserves affected the effective income tax rate.  Tax rates also were affectedby the relative size of pre-tax income to the permanent differences andadjustments to tax contingency reserves.  Pre-tax income during the firstquarter of 2005 decreased $3.4 million compared to the same period of 2004.

Cleco Power's effective income taxrate for the first quarter of 2005 was 38.1% compared to 33.1% for the sameperiod in 2004.  The increase is largely due to an adjustment recorded in thefirst quarter of 2004 to reflect the actual 2003 federal tax return filed inearly 2004.

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

The cost of fuel used for electric generation andthe cost of power purchased for utility customers are recovered through theLPSC-established fuel adjustment clause which enables Cleco Power to pass on toits customers substantially all such charges.  Approximately 96% of ClecoPower's total fuel cost is regulated by the LPSC, while the remainder isregulated by the FERC.  Deferred fuel and purchased power costs recorded at March31, 2005, and December 31, 2004, were an over-recovery of $1.4 million and an under-recoveryof $14.0 million, respectively, and are scheduled to be credited to or collectedfrom customers in future months.  Included in the $14.0 million under-recoveredamount reported at December 31, 2004, are favorable surcharge adjustmentsrepresenting fuel costs not collected in prior periods and the reversal of gastransportation charges recorded in 2002 as a result of the settlement of ClecoPower's 2001-2002 fuel audit.  The $15.4 million increase in deferred fuel andpurchased power costs for the quarter ended March 31, 2005, was primarily theresult of mark-to-market gains recorded on open fuel positions and thecollection of previously under-recovered fuel costs.

**Note 17 - Affiliate Transactions**

Cleco has affiliate balances that were noteliminated as of March 31, 2005.  The balances were not eliminated due to thedeconsolidation of Evangeline and Perryville.  For information on thesedeconsolidations, see Note 1 - "Summary of Significant Accounting Policies -Principles of Consolidation."  At March 31, 2005, the payable to Evangeline was$7.3 million, and the payable to Perryville was $6.0 million.  These amountsrepresent the balances over 30 days old and bearing interest.  Interest expenserelated to these affiliate balances for the three months ended March 31, 2005,and 2004 was $47,925 and $10,993, respectively.

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

The following discussion and analysis should beread in combination with the Registrants' Combined Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004, and Cleco Corporation's and ClecoPower's Unaudited Condensed Financial Statements contained in this Form 10-Q.  Theinformation included therein is essential to understanding the followingdiscussion and analysis.  Below is information concerning the consolidatedresults of operations of Cleco for the three months ended March 31, 2005, and March31, 2004.

**RESULTS OF OPERATIONS**

***Overview***

Cleco is a regional energy services holdingcompany that conducts substantially all of its business operations through itstwo principal operating business segments:
-  ClecoPower, an integrated electric utility services subsidiary regulated by the LPSCand the FERC, among other regulators, which also engages in energy managementactivities, and
-  Midstream,a merchant energy subsidiary that owns and operates merchant generationstations and invests in joint ventures that own and operate merchant generationstations.

While Cleco Power has always been Cleco'score business and primary source of revenue, Cleco began to expand its merchantenergy business in the late 1990s.  Since the latter half of 2001, there hasbeen significant contraction in the availability of capital for participants inthe merchant energy sector.  This has been due to a range of factors, includinguncertainty arising from the collapse of Enron Corporation and a perceivednear-term surplus of electric generating capacity.  These factors havecontinued through 2004 and 2005, and as a result have caused Cleco tore-evaluate its merchant energy business strategy.  Cleco has since scaled backthe expansion of its merchant energy business and has begun to focus onmaximizing the value of its existing merchant energy assets.  Cleco has madesubstantial progress on these efforts and in January 2004, signed an agreementto sell the Perryville facility.  To facilitate an orderly sales process,Perryville and PEH filed voluntary petitions for bankruptcy protection inJanuary 2004.  As a result of these bankruptcy filings, Perryville and PEH wereprospectively deconsolidated from Cleco.  For additional information onPerryville, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 13 - Perryville."

While management believes thatCleco remains a fundamentally strong company, Cleco continues to face the followingnear-term challenges: 
-  resolving Cleco Power's long-term capacity needs, 
-  renewing,extending, or replacing Cleco Power's rate plan,
-  assessingongoing credit condition of APP and Evangeline Tolling Agreementcounterparties, 
-  completingthe sale of the Perryville facility and resolving the damage claims assertedagainst the Mirant Debtors in their bankruptcy proceedings as a result of therejection of the Perryville Tolling Agreement, and
-  resolvingthe ongoing dispute with CES under the Calpine Tolling Agreements.

Cleco Power is evaluating a range ofgeneration supply options for 2006 and beyond, including sources of long-term powerpurchases, acquiring additional generation facilities, self-build proposals,and reconfiguring certain of its existing generation facilities.  Cleco Powermay not be able to obtain purchased power or generation facilities on termscomparable to those in its current power purchase agreements.  In addition,recovery of any additional amounts it may pay under new power purchaseagreements, in obtaining new generation facilities, in reconfiguring existinggeneration facilities or otherwise as a result of the expiration of itsexisting power purchase agreements would require LPSC approval.  Suchadditional amounts could be substantial.  For additional information on ClecoPower's IRP process and its current solicitations to identify existing or newgeneration resources, see "- Financial Condition - Regulatory Matters - GenerationRFP."

Cleco Power's current rate stabilization planexpires in September 2005.  Cleco Power currently has ongoing both short- andlong-term generation supply RFPs that will have a direct impact on ClecoPower's decision to seek an extension of the rate stabilization plan.  Based onthe timeline for the RFPs, management anticipates making a decision by June2005 or earlier.  Possible rate stabilization plan options include seeking ashort-term extension, combining an extension request with a generationcertificate of public convenience and necessity application, seeking a new ratecase, or allowing the current plan to expire and continuing under current ratesuntil the LPSC orders a review of Cleco Power's rates.

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

Since May 2004, CES has made various allegations regardingthe Calpine Tolling Agreements and notified APP that it may, among otherthings, withhold up to one-half of monthly payments due, unwind its interest inAPP, terminate the Calpine Tolling Agreements, assert specified claims againstCleco Power or seek specified reimbursements for alleged overpayments.  Inletters datedApril 12, 2005 and May 3, 2005, CES informed APH that it intends to initiate binding arbitrationproceedings against APP under the Calpine Tolling 

35

Agreements.  For additional information on the ongoing dispute with CES under the Calpine TollingAgreements, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 8 - Litigation and Other Commitments and Contingencies - CES."

***Deconsolidation ofEvangeline***

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

***DiscontinuedOperations and Dispositions***

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

***Comparison of the Three Months Ended March 31, 2005and 2004***

**Cleco Consolidated**

** **

               FOR THE THREE MONTHS ENDED MARCH  31,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

             CHANGE

Operating revenue, net

**$ 172,116**

   $  166,649

   $        5,467

        3.28 %

Operating expenses

**156,308**

      139,539

       (16,769)

    (12.02)%

Operating income 

**$   15,808**

   $    27,110

   $   (11,302)

    (41.69)%

Equity income from investees

**$     9,919**

   $      8,658

   $        1,261

      14.56 %

Interest charges

**$   11,802**

   $    17,636

   $        5,834

      33.08 %

Net income applicable to common stock

**$     8,966**

   $    13,097

   $     (4,131)

    (31.54)%

Consolidated net income applicableto common stock decreased $4.1 million, or 31.5%, in the first quarter of 2005compared to the first quarter of 2004 primarily due to decreased earnings fromCleco Power.

Operating revenue increased $5.5million, or 3.3%, in the first quarter of 2005 compared to the same period of2004 largely as a result of higher fuel cost recovery revenue at Cleco Power,partially offset by the change in the reporting of tolling operations revenueat Evangeline beginning in the second quarter of 2004 in accordance with FIN46R.

Operating expenses increased $16.8million, or 12.0%, in the first quarter of 2005 compared to the first quarterof 2004 primarily due to increased cost and volumes of fuel used for electricgeneration and higher other operations and maintenance expenses at Cleco Power.

Equity income from investeesincreased $1.3 million, or 14.6%, in the first quarter of 2005 compared to thesame period of 2004 primarily due to the change in reporting for Evangelineeffective April 1, 2004 in accordance with FIN 46R, partially offset bydecreased equity earnings at APH.  

Interest charges decreased $5.8 million,or 33.1%, compared to the first quarter of 2004 primarily due to the effects ofthe deconsolidation of Evangeline from Cleco's consolidated results. 

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

**Cleco Power**

Cleco Power's net income applicable to member'sequity in the first quarter of 2005 decreased $4.4 million, or 36.6%, comparedto the first quarter of 2004.  Contributing factors include:
-  lower base revenue and 
-  higherother operations and maintenance expenses.

These werepartially offset by:
-  favorablefuel surcharge adjustments and
-  lowercustomer refund credits.

36

                 FOR THE THREE MONTHS ENDED MARCH  31,

        FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

              CHANGE

Operating revenue

     Base

** $    66,790**

   $   68,889

   $    (2,099)

        (3.05)%

     Fuel cost recovery

**   96,041**

        80,490

        15,551

        19.32 %

     Electric customer credits

**       (218)**

             (721)

              503

        69.76 %

     Other operations

**     7,080**

           6,861

              219

          3.19 %

     Affiliate revenue

**            8**

                    -

                   8

                      *

     Intercompany revenue

**        487**

              490

                  (3)

        (0.61)%

          Operating revenue, net

** 170,188**

      156,009

        14,179

          9.09 %

Operating expenses

     Fuel used for electric generation -  recoverable

**   48,101**

        29,636

       (18,465)

      (62.31)%

     Power purchased for utility customers -  recoverable

**   46,114**

        50,847

           4,733

          9.31 %

     Non-recoverable fuel and power  purchased

**     5,047**

           4,769

             (278)

        (5.83)%

     Other operations

**   20,349**

        15,886

         (4,463)

      (28.09)%

     Maintenance

**     8,545**

           6,974

         (1,571)

      (22.53)%

     Depreciation

**   14,396**

        14,006

             (390)

        (2.78)%

     Taxes other than income taxes

**     9,584**

           9,216

             (368)

        (3.99)%

               Total operating expenses

**  152,136**

      131,334

       (20,802)

      (15.84)%

Operating income

** $    18,052**

   $    24,675

   $    (6,623)

      (26.84)%

Federal and state income taxes

** $      4,674**

   $      5,936

   $       1,262

        21.26 %

Net income 

** $      7,609**

   $    12,005

   $    (4,396)

      (36.62)%

*    Not meaningful
 
 

                  FOR THE    THREE MONTHS ENDED    MARCH 31,

(Million kWh)

**              2005**

                     2004

         FAVORABLE/    (UNFAVORABLE)

Electric sales

     Residential

**        790**

              822

             (3.89)%

     Commercial

**        406**

              406

                           -

     Industrial

**        681**

              660

               3.18 %

     Other retail

**        136**

              134

               1.49 %

     Unbilled

**         (93)**

               (82)

           (13.41)%

               Total retail

**     1,920**

           1,940

             (1.03)%

     Sales for resale

**        140**

              187

           (25.13)%

Total retail and wholesale customer sales

**     2,060**

           2,127

             (3.15)%

Short-term sales to other utilities and energy  marketers

**          45**

                 67

           (32.84)%

               Total electric sales

**     2,105**

           2,194

             (4.06)%

 

                  FOR THE    THREE MONTHS ENDED    MARCH 31,

(THOUSANDS)

**              2005**

              2004

         FAVORABLE/    (UNFAVORABLE)

Electric sales

     Residential

** $ 31,552**

   $   32,340

             (2.44)%

     Commercial

**   16,813**

        16,777

               0.21 %

     Industrial

**   13,298**

        12,855

               3.45 %

     Other retail

**     5,668**

           5,549

               2.14 %

     Unbilled

**    (3,108)**

         (2,714)

           (14.52)%

               Total retail

** $ 64,223**

   $   64,807

             (0.90)%

     Sales for resale

**     2,567**

           4,082

           (37.11)%

Total retail and wholesale customer sales

** $ 66,790**

   $   68,889

             (3.05)%

Short-term sales to other utilities and energy  marketers

**     1,388**

           2,668

           (47.98)%

               Total electric sales

** $ 68,178**

   $   71,557

             (4.72)%

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

The following chart shows howcooling 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 cooling and heating degree-days.

      FOR THE THREE MONTHS ENDED MARCH 31,

                         2005    CHANGE

**              2005**

            2004

      NORMAL

    PRIOR YEAR

            NORMAL

Heating degree-days

**        689**

             857

             959

       (19.6)%

       (28.2)%

Cooling degree-days

**          94**

               87

               67

            8.0 %

         40.3 %

***Base***

Base revenue during the first quarter of 2005 decreased$2.1 million, or 3.1%, compared to the same period in 2004.  The decrease wasprimarily due to lower volumes of retail and wholesale customer kWh sales,primarily from unusually warm winter weather and the May 2004 expiration of acontract with a municipal customer.  Revenue from this municipal customer duringthe first quarter of 2004 amounted to $1.0 million.

In September 2004, Cleco Power executed a newwholesale agreement to begin providing load-following service to a newwholesale customer by committing generation to follow the moment-by-momentchanges in the wholesale customer's load.  The service is dependent upon thecustomer reserving firm transmission.  This customer increased base revenue inthe first quarter of 2005 by $0.1 million and is projected to increase total 2005base revenue by approximately $0.7 million.

In June 2004, Cleco Power began serving a newindustrial customer.  Additionally, during the first quarter of 2005 ClecoPower began providing service to an expansion of a current customer'soperation, as well as service to two new industrial customers.  During thethird quarter of 2005, Cleco Power is expected to begin providing service toanother new industrial customer.  The expansion and new services increased baserevenue in the first quarter of 2005 by $0.2 million and are projected to increasetotal 2005 base revenue by approximately $1.4 million and future annual baserevenue, contingent upon contract retention, by approximately $2.8 million.

During the first quarter of 2006, Cleco Power isexpected to begin providing service to an expansion of an existing customer,and in the second quarter of 2006, Cleco Power is expected to begin providingservice to another new industrial customer.  The expansion and the new customerare expected to increase 2006 base revenue by approximately $0.6 million andfuture annual base revenue, contingent upon contract retention, by $1.2million.

37

***Fuel Cost Recovery***

Fuel cost recovery revenue billed to customersduring the first quarter of 2005 compared to the same period in 2004 increased$15.6 million, or 19.3%, primarily due to higher costs of power purchased andfuel used for electric generation.  In addition, higher volumes of fuel usedfor electric generation and favorable fuel surcharge adjustments from rateorders received related to fuel transportation charges during the first quarterof 2005 also increased fuel cost recovery revenue.  Changes in fuel costshistorically have not significantly affected Cleco Power's net income. Generally, fuel and purchased power expenses are recovered through the LPSC-establishedfuel adjustment clause, which enables Cleco Power to pass on to its customerssubstantially all such charges.  Approximately 96% of Cleco Power's total fuelcost is regulated by the LPSC, while the remainder is regulated by the FERC.  Recoveryof fuel adjustment clause costs is subject to refund until monthly approval isreceived from the LPSC; however, all amounts are subject to a periodic fuelaudit by the LPSC.  A fuel audit is required to be performed not less thanevery other year.  Cleco Power anticipates the next fuel audit to cover 2003and 2004; however, any future audit could include prior periods with theexception of January 2001 through December 2002, which were periods covered inCleco Power's recent fuel audit.

***Electric Customer Credits***

Electric customer credits during the first quarterof 2005 decreased $0.5 million, or 69.8%, compared to the same period in 2004. This decrease in electric customer credits is the result of a reduction in the2005 accruals for the rate refund based on anticipated results for the 12-monthperiod ended September 30, 2005.  The potential refunds associated with therate stabilization plan are based on results for each 12-month period endedSeptember 30.  For additional information on the accrual of electric customercredits, see Item 1, "Notes to the Unaudited Condensed Financial Statements -Note 7 - Accrual of Electric Customer Credits."

***OperatingExpenses***

Operating expenses increased $20.8 million, or 15.8%,in the first quarter of 2005 compared to the same period of 2004.  Fuel usedfor electric generation increased $18.5 million, or 62.3%, primarily as aresult of higher cost and volumes of fuel used for electric generation.  Powerpurchased for utility customers decreased $4.7 million, or 9.3%, largely due toa decrease in volumes of purchased power.  These decreases in volumes werelargely a result of the expiration of one of Cleco Power's power purchaseagreements in December 2004 and reduced kWh sales.  Fuel used for electricgeneration and power purchased for utility customers generally are influencedby natural gas prices.  However, other factors such as unscheduled outages,unusual maintenance or repairs, or other developments may affect fuel used forelectric generation and power purchased for utility customers.  Otheroperations expense increased $4.5 million, or 28.1%, primarily due to $4.0million of higher incentive compensation and payroll expense, $0.3 million of higherproperty and liability insurance costs, $0.3 million of higher pension andretirement benefit costs, and $0.6 million of higher other miscellaneousexpenses.  Partially offsetting other operations expense was a $0.7 millionadjustment recorded in the first quarter of 2005 to reflect recovery of legalexpenses associated with the fuel audit as provided for in the General Order.  Maintenanceexpenses during the first quarter of 2005 increased $1.6 million, or 22.5%,compared to the same period of 2004 primarily due to additional generatingstation and transmission substation maintenance work performed during 2005.

***Income Taxes***

Income tax expense decreased $1.3 million, or 21.3%,during the first quarter of 2005 compared to the same period of 2004.  ClecoPower's effective income tax rate increased from 33.1% to 38.1% during the firstquarter of 2005 compared to the same period of 2004, largely due to anadjustment recorded in the first quarter of 2004 to reflect the actual 2003federal tax return filed in early 2004.  Tax rates also were affected by therelative size of pre-tax income to this item.  Pre-tax income during the firstquarter of 2005 decreased $5.7 million compared to the same period of 2004.

***Midstream***

Midstream's net income applicable to member'sequity for the first quarter of 2005 increased $0.4 million, or 16.8%, comparedto the first quarter of 2004.  Factors affecting Midstream during the firstquarter of 2005 are described below.

***Perryville***

The deconsolidation of Perryville and PEH fromCleco in connection with their bankruptcy filings affected Midstream's earningsfor the first quarter of 2005 compared to the first quarter of 2004, since noincome or loss was recognized in Midstream's consolidated financial statementssubsequent to the bankruptcy filing on January 28, 2004.  Consequently, thechart below does not reflect operating results for Perryville and PEH for the firstquarter of 2005 as compared to income through January 27, 2004, for the firstquarter of 2004.  For financial results and additional information onPerryville, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 13 - Perryville."

***Evangeline***

In accordance with FIN 46R, Cleco was required todeconsolidate Evangeline from its condensed consolidated financial statementsand begin reporting its investment in Evangeline on the equity method ofaccounting.  As a result, effective March 31, 2004, the assets and liabilitiesof Evangeline no longer are reported on Cleco Corporation's Condensed ConsolidatedBalance Sheet, but instead are represented by one line item corresponding toCleco's equity investment in Evangeline.  Effective April 1, 2004, Evangelinerevenue and expenses are netted and reported as equity income from investees onCleco Corporation's Condensed Consolidated Statements of Income.  Consequently,the following chart reflects net operating results for Evangeline for the firstquarter 

38

of 2005 on the equity income from investees' line as compared to beingreported on various line items for the first quarter of 2004.  For additionalinformation on FIN 46R and the deconsolidation of Evangeline, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 1 - Summary ofSignificant Accounting Policies - Principles of Consolidation" and Note 11 -"Variable Interest Entities."

***ClecoEnergy***

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

                                               FOR THE THREE MONTHS ENDED MARCH 31,

              FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

        VARIANCE

                 CHANGE

Operating revenue

     Tolling operations

** $           -**

   $    10,255

   $  (10,255)

                        *

     Other operations

**          12**

                    2

                 10

        500.00 %

     Affiliate revenue

**     1,493**

               468

           1,025

        219.02 %

     Intercompany revenue

**             -**

                 11

               (11)

                        *

          Operating revenue, net

**     1,505**

         10,736

         (9,231)

        (85.98)%

Operating expenses

     Purchases for energy operations

**             -**

               220

              220

                        *

     Other operations

**     2,188**

    

           3,963

           1,775

          44.79 %

     Maintenance

**        671**

           1,528

              857

          56.09 %

     Depreciation

**          80**

           1,955

           1,875

          95.91 %

     Restructuring charge

**             -**

             (161)

             (161)

                        *

     Taxes other than income taxes

**        122**

                 87

               (35)

        (40.23)%

               Total operating expenses

**     3,061**

           7,592

           4,531

          59.68 %

Operating (loss) income 

** $ (1,556)**

   $       3,144

   $     (4,700)

                        *

Equity income from investees

** $    9,919**

   $       8,658

   $        1,261

          14.56 %

Interest charges

** $    3,480**

   $       8,233

   $        4,753

          57.73 %

Federal and state income tax expense    

**  $    1,991**

   $       1,406

   $        (585)

        (41.61)%

(Loss) income from discontinued operations    

**  $    (134)**

   $          158

   $        (292)

                        *

Net income 

** $    2,755**

   $       2,359

   $           396

          16.79 %

*    Not meaningful

***Tolling Operations***

Tolling operations revenue decreased $10.3 millionin the first quarter of 2005 compared to the first quarter of 2004.  Thedecrease was largely due to a $10.2 million decrease as a result of Cleco'saccounting for Evangeline on the equity method in accordance with FIN 46R.  Inaddition, tolling operations revenue decreased $0.1 million as a result of thebankruptcy filings of the Mirant Debtors, MAEM's rejection of the PerryvilleTolling Agreement, the subsequent bankruptcy filings of Perryville and PEH, andtheir subsequent deconsolidation from Cleco's consolidated results.

***Affiliate Revenue***

Affiliate revenue increased $1.0 million, or219.0%, in the first quarter of 2005 compared to the first quarter of 2004. The increase was primarily due to affiliate transactions with Evangeline,Perryville, and PEH that no longer are eliminated as a result of thosecompanies' deconsolidation from Cleco.

***OperatingExpenses***

Operating expenses decreased $4.5 million, or 59.7%,in the first quarter of 2005 compared to 2004.  The decrease was largely due toa $4.5 million decrease at Evangeline and a $2.4 million decrease at Perryvilleand PEH as a result of their deconsolidation from Cleco's consolidatedresults.  These decreases were partially offset by $1.3 million of higher incentivecompensation benefits and higher professional fees and $1.1 million of higherother miscellaneous expenses.

***EquityIncome from Investees***

Equity income from investees increased $1.3million, or 14.6%, for 2005 compared to the first quarter of 2004.  The increasewas largely due to a $1.6 million increase at Evangeline as a result of the change in reporting for Evangeline effectiveApril 1, 2004, in accordance with FIN 46R.  This increase was partially offsetby a $0.3 million decrease in equity earnings at APH.  For additional informationon Evangeline and APP, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 5 - Equity Investment in Investees."

***Interest Charges***

Interest charges decreased $4.8 million, or 57.7%,during the first quarter of 2005 compared to the same period of 2004.  Thedecrease was primarily due to a $4.4 million decrease at Evangeline and a $0.4million decrease at Perryville and PEH as a result of their deconsolidationfrom Cleco's consolidated results.

***IncomeTaxes***

Income tax expense increased $0.6 million, or 41.6%,during the first quarter of 2005 compared to the same period of 2004. Midstream's effective income tax rate increased from 39.0% to 40.8% during thefirst quarter of 2005 compared to the same period of 2004 primarily due to anincrease in the accrual of tax contingency reserves.

39

**FINANCIAL CONDITION**

**Liquidity and CapitalResources**

**General Considerations andCredit-Related Risks**

***Credit Ratings andCounterparties***

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

As more fully described in the Registrants'Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2004,with respect to any open power or gastrading positions that Cleco may initiate in the future, Cleco Corporation maybe required to provide credit support (or pay liquidated damages).  The amountCleco Corporation may be required to pay at any point in the future isdependent on changes in the market price of power and gas, the changes in theopen power and gas positions, and changes in the amount counterparties oweCleco Corporation.  Changes in any of these factors could cause the amount ofrequested credit support to increase or decrease.

***Debt***

As discussed further below, Cleco Corporation andCleco Power entered into new credit facilities in April 2005.  If ClecoCorporation were to default under covenants in its credit facility, ClecoCorporation would be unable to borrow additional funds under the credit facility. If Cleco Corporation's credit rating, as determined by outside rating agencies,were to be downgraded one level below investment grade, Cleco Corporation wouldbe required to pay fees and interest, totaling 0.375% higher than the currentlevel for its new $150.0 million credit facility.  The same downgrade at ClecoPower would require Cleco Power to pay fees and interest, totaling 0.65%higher, on its new $125.0 million credit facility.  At March 31, 2005, ClecoCorporation and Cleco Power were in compliance with the covenants in their creditfacilities then in effect.

***Cleco***

Short-term debt at Cleco increased by $25.0 millionat March 31, 2005, compared to December 31, 2004, primarily due to the fundingof the maturity of $60.0 million of long-term debt at Cleco Power.  Changes inshort-term debt are more fully described below.  Long-term debt at Clecodecreased by $35.0 million at March 31, 2005, compared to December 31, 2004,due to the repayment of $60.0 million of first mortgage bonds at maturity byCleco Power, partially offset by $25.0 million in long-term debt issued duringthe first quarter.  For additional information, see "- Cleco Corporation(Holding Company Level)," "- Cleco Power," and "- Midstream" below and Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 13 - Perryville."

At March 31, 2005 and December 31, 2004, Clecohad a working capital deficit of $17.1 million and $49.9 million, respectively. This deficit occurred primarily from an increase in current liabilitiesresulting from the reclassification during the quarter ended June 30, 2004 ofCleco Corporation's $100.0 million of 8.75% Senior Notes, due June 1, 2005,from long-term debt to long-term debt due within one year, resulting in aworking capital deficit of $97.5 million reported for the quarter ended June30, 2004.  This deficit decreased to $49.9 million at December 31, 2004, primarilyfrom an increase in cash retained from operations, partially offset by otherroutine working capital fluctuations.  Cleco expects to repay all of the debt referredto above with cash on hand or to refinance a portion with new borrowings.  The$32.8 million decrease in the deficit during the first quarter of 2005 was dueto a net decrease in accounts payable, due to payment of accrued propertytaxes, which decreased current liabilities, partially offset by a decrease inmargin deposits and accumulated deferred fuel, which decreased current assets.

Cash and cash equivalentsavailable at March 31, 2005, were $109.4 million combined with $176.1 millionfacility capacity ($101.1 million from Cleco Corporation and $75.0 million fromCleco Power) for total liquidity of $285.5 million.  Cash and cash equivalents decreased$14.4 million, when compared to December 31, 2004, due to the repayment oflong-term debt, payment of dividends, routine additions of property, plant andequipment, and routine working capital fluctuations.

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

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

Cleco Corporation had no short-term debtoutstanding at March 31, 2005, or December 31, 2004.  Cleco Corporation has $100.0million of long-term debt due within one year relating to its 8.75% SeniorNotes, due June 1, 2005.  Cleco Corporation expects to repay this debt withcash on hand and cash from new borrowings.  

On April 25, 2005, Cleco Corporation replacedits then existing $150.0 million, three-year credit facility with a $150.0 million,five-year facility.  This facility provides for working capital and otherneeds.  Cleco Corporation's borrowing costs under this facility are equal to LIBORplus 0.875%, including facility fees.  Cleco Corporation's borrowing costsunder the prior facility at March 31, 2005, were equal to LIBOR plus 1.225%,and the weighted average cost of borrowings was 2.5125%.  The facility containsa covenant generally limiting Cleco's aggregate secured and unsecured debt,including borrowings under the facility, to $425.0 million, which may have theeffect of reducing availability under the facility in some circumstances.  Asof  March 31, 2005, approximately 

40

$101.4 million was available for borrowingunder the facility.  An uncommitted line of credit with a bank in an amount upto $5.0 million also remains available to support Cleco's working capitalneeds.  This line of credit is available to either Cleco Corporation or ClecoPower.

Cash and cash equivalents available at March 31,2005, were $77.8 million, which combined with $101.1 million facility capacity,for total liquidity of $178.9 million.  Cash and cash equivalents increased $8.2million, when compared to December 31, 2004, largely due to the distributionsfrom affiliates.

If Cleco Power were to default under its creditfacility, Cleco Corporation would be considered in default under its current creditfacility.  Perryville's default on the Senior Loan Agreement, as describedbelow under "- Midstream" and in Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 13 - Perryville," is not considered a default under ClecoCorporation's credit facility, although the Senior Loan Agreement iscollateralized by Cleco Corporation's membership interest in Perryville.  Inaddition, the bonds issued by Evangeline are non-recourse to Cleco Corporation,and a default on the bonds would not be considered a default under Cleco Corporation'scredit facility.

Cleco Corporation provides a limited guaranteeto pay interest and principal under the Senior Loan Agreement should Perryvillebe unable to pay its debt service.  At March 31, 2005, the amount guaranteedwas $0.5 million.  Cleco Corporation also provided a limited guarantee of $277.4million to Entergy Louisiana and Entergy Gulf States for Perryville's performanceobligations under the Sale Agreement, the Power Purchase Agreement, and otherancillary agreements related to the pending sale of the Perryville facility. For information on these agreements and related guarantees, see Item 1, "Notesto the Unaudited Condensed Financial Statements - Note 13 - Perryville."

***Cleco Power***

There was $25.0 million in short-term debtoutstanding at Cleco Power at March 31, 2005, compared to none at December 31,2004.  Cleco Power repaid $60.0 million of Series X, 9.5% First Mortgage Bonds,due March 15, 2005, with a combination of accumulated funds and short-termdebt.

On April 25, 2005, Cleco Power replaced itsexisting $125.0 million, 364-day credit facility with a $125.0 million, five-yearfacility.  This facility provides for working capital and other needs.  ClecoPower's initial borrowing cost under this facility is equal to LIBOR plus 0.600%,including facility fees.  At March 31, 2005, there was $25.0 million inshort-term debt outstanding under Cleco Power's $125.0 million, 364-day facility. Cleco Power's borrowing costs under the prior facility at March 31, 2005, wereequal to LIBOR plus 1.0%, including facility fees, and the weighted averagecost of borrowing was 3.6125%.  An uncommitted line of credit with a bank in anamount up to $5.0 million also remains available to support Cleco Power'sworking capital needs.  This line of credit is available to either Cleco Poweror Cleco Corporation.

Cash and cash equivalents available at March 31,2005, were $31.6 million, which combined with $75.0 million remaining facilitycapacity totaled $106.6 million.  Cash and cash equivalents decreased $22.6million, when compared to December 31, 2004, due to the repayment of long-termdebt, dividends paid to Cleco Corporation, routine additions to property, plantand equipment, and routine working capital fluctuations.

***Midstream***

There was no short-term debt at Midstream at March31, 2005, or December 31, 2004.  

As a result of the deconsolidation of Perryvilleand PEH, the assets and liabilities of Perryville and PEH no longer arereported in Cleco Corporation's consolidated results.  At March 31, 2005,Perryville had short-term debt outstanding of $126.2 million in the form of theSenior Loan Agreement and long-term debt outstanding of $98.7 million in theform of the Subordinated Loan Agreement.  The interest rate on the Senior LoanAgreement at March 31, 2005, was 6.5% and was based on the prime rate plus aspread of 0.75%.  As a result of the Mirant Debtors' bankruptcy and MAEM'sfailure to make payments under the Perryville Tolling Agreement, allobligations of Perryville to make principal and interest payments under the SubordinatedLoan Agreement, as well as the accrual of additional interest, have beensuspended indefinitely.  For additional information on Perryville's Senior andSubordinated Loan Agreements, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 13 - Perryville."

Evangeline, also deconsolidated and no longerreported in Cleco Corporation's consolidated results, had no short-term debtoutstanding at March 31, 2005.  Evangeline did have $194.8 million and $197.8million of long-term debt outstanding at March 31, 2005, and December 31, 2004,respectively, in the form of 8.82% Senior Secured Bonds due in 2019.  In addition,Evangeline had $6.6 million of long-term debt due within one year at March 31,2005, relating to these bonds.  The bonds issued by Evangeline are non-recourseto Cleco Corporation.  For information on the deconsolidation of Evangeline,see "Results of Operations - Deconsolidation of Evangeline."

***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, 2005, andDecember 31, 2004, $0.1 million of cash was restricted.  For additional informationon restricted cash, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 4 - Restricted Cash."

At March 31, 2005, $2.0 million also wasrestricted under an agreement with the lenders for Perryville, and an additional$24.7 million was restricted under the Evangeline senior secured bondindenture.  These amounts are not included in Cleco Corporation's CondensedConsolidated Balance Sheets 

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at March 31, 2005, due to the deconsolidation ofPerryville and Evangeline in 2004.

***ContractualObligations and Other Commitments***

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

***Off-Balance Sheet Commitments***

Cleco has entered into various off-balance sheetcommitments, in the form of guarantees and a standby letter of credit, in orderto facilitate the activities of its subsidiaries and equity investees.  Forinformation on Cleco's off-balance sheet commitments, see Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 8 - Litigation and OtherCommitments and Contingencies - Off-Balance Sheet Commitments."

**Regulatory Matters**

***Retail Rates of Cleco Power***

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

***Wholesale ElectricMarkets***

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, 2004,

***Generation RFP***

In 2003, Cleco Power issued an RFP for up to 750 MWof generation supply to replace existing power purchase agreements withWilliams and Dynegy that expired in 2004 or will expire in 2005.  There were nowinning proposals selected from the RFP.  On May 13, 2004, Cleco Power signed aone-year contract to purchase 500 MW of capacity and energy from CES beginningin January 2005.  The contract with CES was approved and certified by the LPSC inNovember 2004.  Cleco Power anticipates that the 500 MW supplied by CES willfill the shortfall left by the Williams and Dynegy contracts that expired atthe end of 2004.

Cleco Power continues to evaluate its long-termcapacity needs through its IRP process and is seeking new proposals for up to1,000 MW of capacity and energy to replace existing contracts and toaccommodate load growth, as well as up to 800 MW of capacity to replace oldernatural gas-fired units.  Cleco Power made an informational filing with theLPSC on April 15, 2004, and issued the final RFP on August 31, 2004. Indicative bid proposals were received on October 29, 2004, and a short list ofbidders was selected in February 2005.  Cleco Power selected winning bidders inApril 2005 and expects to file its choices for LPSC approval as early as June2005.  These filings will request that the LPSC issue Certificates of PublicConvenience and Necessity which will find Cleco Power's decisions to be in thepublic interest and authorize it to purchase, construct and/or contract forgeneration resources.  The LPSC's order governing such certificate applicationsrequires the scheduling of a public hearing and a commission decision within120 days of the filing date; however, it is Cleco Power's expectation that the120-day period could be extended for applications involving asset purchases orself-build options.  Consistent with the provision of the LPSC's General Orderof September 1983, Cleco Power is engaged in feasibility, engineering andenvironmental studies, site acquisition, and related activities required tofully develop its self-build proposals to meet its obligations to providelow-cost, reliable services to its customers.  Cleco Power provided itsconstruction cost estimates and fully-defined project scope and performancedata for its self-build options to the LPSC on October 27, 2004.  Cleco Poweris prepared to meet its needs for capacity, reliability, and fuel diversity byimplementing its self-build resource options as bid into the RFP should theyprove to offer better alternatives than the market resources also bid into theRFP.  This evaluation is being done with oversight from the LPSC and the RFPindependent monitor.

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

***Lignite Deferral***

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

As more fully described in theRegistrants' Combined Annual Report on Form 10-K for the fiscal year ended December31, 2004, Cleco Power defers lignite mining costs above 98% of the previousmining contract's projected costs.  As of 

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March 31, 2005, Cleco Power hadremaining deferred costs and interest of $12.2 million relating to its lignitemining contract.  Cleco Power recorded a deferral of $0.8 million of these miningcosts in the first quarter of 2005, including $0.1 million in interest. Management expects Cleco Power to recover the amount deferred.

***Franchises***

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

Cleco Power's franchise with the town ofFranklinton, and its approximately 1,850 customers, was up for renewal in April2003.  Franklinton elected not to renew its franchise agreement with ClecoPower, and a ten-year franchise was granted to a competing cooperative inDecember 2003.  Cleco Power expects to continue to serve these customers until thereis an equitable transfer of the distribution assets.  At December 31, 2004, areview for potential impairment of these assets was performed.  Impairmentcharges were not recognized on these assets because the expected sales pricewas above the carrying value.  On February 23, 2005, the LPSC reviewed anindependent third party appraisal of these assets and ordered that thedistribution system's fair market value was $2.3 million.  Cleco Power is nowin the process of closing the sale and transferring service to the newprovider.  

Cleco Power's next municipal franchise expires in2008.  Competing power cooperatives are actively attempting to gain dualfranchises in several municipalities currently served by Cleco Power.  A dualfranchise arrangement would limit a new provider from providing service toexisting customers; however, the existing and new power provider could competefor new customers.  In March 2005, one such cooperative did obtain a limiteddual franchise.  The granting of a dual municipal franchise to a competingpower cooperative does not reduce current Cleco Power earnings, since existingcustomers do not have an option to change electric service providers underexisting LPSC regulations, but could reduce future customer and load growth.

***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.  

On March 10, 2005, the EPAAdministrator signed the Clean Air Interstate Rule (CAIR) which obligatescertain states to address the interstate transport of certain pollutants.  CAIRcovers 28 eastern states, including Louisiana, and the District of Columbia.  Itis anticipated that the EPA will publish these regulations in the near future.  CAIRprovides a federal framework requiring the states to reduce emissions of SO2and NOx. The EPA anticipates that the states will achieve this primarily byreducing emissions from the power generation sector.  Louisiana must evaluatethe provisions of CAIR and make changes to the StateImplementation Plan (SIP) to incorporate these requirements within 18 months ofpromulgation.  Cleco has begun the process of evaluating the potential impactsto its generating resources.  

On March 15, 2005, the EPA issuedfinal rules regulating mercury emissions from electric utility boilers.  TheClean Air Mercury Rule (CAMR) establishes "standards of performance" limitingmercury emissions from new and existing coal-fired power plants and creates amarket-based cap-and-trade program that will reduce utility emissions ofmercury in two distinct phases.  The first phase cap is 38 tons, and emissionswill be reduced by taking advantage of "co-benefit" mercury reductions achievedby reducing SO2 and NOx emissions under the CAIR.  In the secondphase, due in 2018, coal-fired power plants will reduce emissions to 15 tonsupon full implementation.  Louisiana must evaluate the provisions of CAMR andmake changes to the SIP to incorporate these requirements within 18 months ofpromulgation.  Cleco has begun the process of evaluating the potential impactsto its generating resources.

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

***Recent Accounting Standards***

For a discussion of recent accounting standards,see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 6 - RecentAccounting Standards."

**CRITICAL ACCOUNTING POLICIES**

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

43

be reasonable under the circumstances.  On an ongoing basis, theseestimates and assumptions are evaluated and, if necessary, adjustments are madewhen warranted by new or updated information or by a change in circumstances orenvironment.  Actual results may differ significantly from these estimatesunder different assumptions or conditions.  For a discussion of criticalaccounting policies, see "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Critical Accounting Policies" in theRegistrant's Combined Annual Report on Form 10-K for the fiscal year endedDecember 31, 2004.

**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, 2005,and March 31, 2004.  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 of 2005 and the first quarter of 2004.  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, 2004.

For anexplanation of material changes in the amount of revenue and expense items ofCleco Power between the first quarter of 2005 and the first quarter of 2004,see "Management's Discussion and Analysis of Financial Condition andResult of Operations - Results of Operations - Comparison of the Three MonthsEnded March 31, 2005 and 2004 - Cleco Power"of this Form 10-Q, which discussion is incorporated herein by reference.

**ITEM 3.**    QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK OF CLECO CORPORATION

 

***Cleco***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positionsincludes potential changes arising from changes in interest rates and thecommodity price of power and natural gas traded in the industry on differentenergy exchanges.  Cleco Power 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 Powercould have positions that are required to be marked-to-market, because they donot meet the exceptions of SFAS No. 133 and do not qualify for hedge accountingtreatment.  The positions for marketing and trading purposes do not meet theexemptions of SFAS No. 133, and the net mark-to-market of those positions is recordedin income.  Cleco Power has entered into other positions to mitigate some ofthe volatility in fuel costs passed on to customers.  These positions aremarked-to-market, with the resulting gain or loss recorded on the balance sheetas a component of the accumulated deferred fuel asset or liability and acomponent of the risk management asset or liability.  When these positionsclose, actual gains or losses will be included in the fuel adjustment clauseand reflected on customers' bills.

Cleco also issubject to market risk associated with its remaining tolling agreementcounterparties.  For additional information concerning Cleco's market riskassociated with its remaining counterparties, see Item 2, "Management's Discussionand Analysis of Financial Condition and Results of Operations - FinancialCondition - Liquidity and Capital Resources - General Considerations and CreditRelated Risks" and Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 13 - Perryville."

Cleco'sexposure to market risk, as discussed below, represents an estimate of possiblechanges in the fair value or future earnings that would occur, assumingpossible future movements in the interest rates and commodity prices of powerand natural gas.  Management's views on market risk are not necessarilyindicative of actual results, nor do they represent the maximum possible gainsor losses.  The views do represent, within the parameters disclosed, what managementestimates may happen.

Cleco monitors credit risk exposure through review of counterparty creditquality, corporate-wide aggregate counterparty credit exposure andcorporate-wide aggregate counterparty concentration levels.  Cleco activelymanages these risks by establishing appropriate credit and concentration limitson transactions with counterparties and requiring contractual guarantees, cashdeposits or letters of credit from counterparties or their affiliates, asdeemed necessary.  Cleco Power has agreements in place with variouscounterparties that authorize the netting of financial buys and sells and contractpayments to mitigate credit risk.

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**Interest Rate Risks**

Cleco has entered into various fixed- and variable-ratedebt obligations.  The calculations of the changes in fair market value andinterest expense of the debt securities are made over a one-year period.

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

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

As of March 31, 2005, the carrying value of thevariable-rate debt of Cleco and Cleco Power was $50.0 million, whichapproximates fair market value.  Each 1.0% change in the average interest ratesapplicable to such debt would result in a change of $0.5 million in the pre-taxearnings of Cleco and Cleco Power.

At March 31, 2005, Cleco Corporation had two $50.0million fixed-to-floating interest rate swaps involving Cleco Corporation's8.75% Senior Notes.  Each 1.0% increase or decrease in the average interestrates applicable to the swaps would result in a corresponding decrease orincrease, respectively, of approximately $1.0 million in Cleco's pre-tax earnings.

The interest rateswaps referred to above were entered into on February 20, 2004, and May 3,2004, respectively.  Under the swaps, the 8.75% fixed-rate on its Senior Noteswas swapped for floating rate exposure based on the six-month LIBOR on the lastday of each calculation period, plus agreed upon spreads of 6.615% and 6.03%,respectively, on the $50.0 million notional amounts associated with each of theswaps.  A net settlement amount is paid semi-annually on June 1 and December1.  The fixed-rate debt matures and the interest rate swaps terminate on June1, 2005.

**Commodity Price Risks**

Management believes Cleco has controls in place tominimize the risks involved in financial and energy commodity activities. Independent controls over energy commodity functions consist of a back office(accounting), a middle office (risk management), regulatory compliance staff,as well as, oversight by a risk management committee comprised of officers andmanagers, and a daily risk report that shows VAR and current 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 Power's financial positions that are not usedto meet the power demands of customers are marked-to-market as required by SFASNo. 133.  There were no speculative positions at March 31, 2005, and December31, 2004; therefore, no mark-to-market amounts related to these positions wererecorded on the income statement or balance sheet.

Cleco Power provides fuel for generation and purchasespower to meet the power demands of customers.  Cleco Power has entered intopositions to mitigate some of the volatility in fuel costs passed on tocustomers as encouraged by an LPSC order.  In December 2004, Cleco Power implementeda fuel stabilization policy (which was filed with the LPSC) to target higherlevels of minimum hedging percentages.  This LPSC order could result in largervolatility in the marked-to-market amounts for the financial positions to mitigatefuel cost volatility for Cleco Power customers.  These positions aremarked-to-market with the resulting gain or loss recorded on the balance sheetas a component of the accumulated deferred fuel asset or liability and acomponent of the risk management asset or liability.  Based on market prices atMarch 31, 2005, the net mark-to-market impact related to these positions was a gainof $8.4 million.

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

As a result of Cleco's decision to no longer engagein speculative trading activities, there was no VAR at March 31, 2005, or December31, 2004.

**ITEM 4.**       CONTROLSAND PROCEDURES

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

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

During the Registrants' first fiscal quarter of 2005,there have been no changes to the Registrants' internal control over financialreporting that have materially affected or are reasonably likely to materiallyaffect the Registrants' internal control 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," "-CES," and "- SESCO", Note 13 - "Perryville - Mirant Bankruptcy and MAEM'sRejection of the Perryville Tolling Agreement," "- Perryville Tolling AgreementAdministrative Expense and Damage Claims," "- Perryville Bankruptcy," "-Perryville's Senior Loan Agreement," "- Perryville's Subordinated LoanAgreement" and "- Pending Sale of the Perryville Facility."

**CLECO POWER**

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

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

***Cleco Purchases of Equity Securities***

During the quarter ended March 31, 2005, none ofCleco Corporation's equity securities registered pursuant to Section 12 of theSecurities Exchange Act of 1934 was purchased by or on behalf of ClecoCorporation or any of its "affiliated purchasers," as defined in Rule 10b-18(a)(3)under the Securities Exchange Act of 1934.

**ITEM3. **   DEFAULTS UPON SENIOR SECURITIES

***Cleco***

The bankruptcy filings by the Mirant Debtors,MAEM's failure to remit amounts due under the Perryville Tolling Agreement, andMAEM's rejection of the Perryville Tolling Agreement were events of defaultunder the Senior Loan Agreement, and as of March 31, 2005, have not beencured.  Upon the bankruptcy filings by Perryville and PEH on January 28, 2004,the outstanding amounts ($126.2 million at March 31, 2005) under the SeniorLoan Agreement were deemed accelerated.  As a result of the commencement of thePerryville and PEH bankruptcy cases and by virtue of the automatic stay underthe U.S. Bankruptcy Code, the lenders' ability to exercise their remedies underthe Senior Loan Agreement is limited significantly and would require approvalof the Perryville and PEH Bankruptcy Court.  For additional informationregarding the default, see Part I, Item 1, "Notes to the Unaudited CondensedFinancial Statements - Note 13 - Perryville," which is incorporated herein byreference.

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**ITEM 6.**    EXHIBITS  

**Cleco Corporation**

10(a)

2000 Long-Term  Incentive Compensation Plan, Amendment No. 1, effective as of December 12,  2003 

10(b)

2000 Long-Term  Incentive Compensation Plan, Amendment No. 3, dated January 28, 2005 

10(c)

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

11

Computation of  Earnings per Common Share for the three months ended March 31, 2005 

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, 2005, for Cleco Corporation 

31(a)

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

32(a)

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

**Cleco Power**

10(d)

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

12(b)

Computation of Ratios  of Earnings to Fixed Charges for the three- and twelve-month periods ended  March 31, 2005, for Cleco Power 

31(b)

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

32(b)

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

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SIGNATURE

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

           

**CLECO  CORPORATION**

(Registrant) 

By:   /s/ R. Russell Davis                                           

          R. Russell Davis

          Vice President and Controller

          (Principal Accounting Officer)

Date: May 3, 2005

 

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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  POWER LLC**

(Registrant) 

By:   /s/ R. Russell Davis                                                 

          R. Russell Davis

          Vice President and Controller

          (Principal Accounting Officer)

Date: May 3, 2005

 

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