----

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

__________________

**FORM 10-Q**

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

**For the quarterly period ended September 30, 2005**Or

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

__________________

**Commissionfile number 1-15759**

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

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

__________________

**Commissionfile number 1-05663**

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

| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                                     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|
| **Louisiana***(State or other jurisdiction of incorporation or organization)*                                                                                                                                                                                                                                                                                                                                                         | **72-0244480*******(I.R.S. Employer Identification No.) * |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                                     |
| **2030  Donahue Ferry Road, Pineville, Louisiana***(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                          | **71360-5226***(Zip Code) *                               |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                                     |
| **Registrant's telephone number, including area code:  (318)  484-7400**                                                                                                                                                                                                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether the Registrants: (1) have filed all reports required to  be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the Registrants were  required to file such reports) and (2) have been subject to such filing  requirements for the past 90 days.  Yes   x       No __ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether Cleco Corporation is 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                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Indicate  by check mark whether Cleco Corporation is a shell company (as defined in  Rule 12b-2 of the Exchange Act)  Yes           No         x                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Indicate  by check mark whether Cleco Power LLC is a shell company (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 October 31, 2005 |
|--------------------|--------------------------------|-----------------------------------------|
|                    |                                |                                         |
| Cleco  Corporation | Common  Stock, $1.00 Par Value | 49,949,211                              |

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

----

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

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

TABLE OF CONTENTS

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

2

----

GLOSSARY OF TERMS

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

| ABBREVIATION OR ACRONYM      | DEFINITION                                                                                                                                                                                                                         |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1935 FPA                     | 1935 Federal Power Act                                                                                                                                                                                                             |
| 401(k) Plan                  | Cleco Power 401(k)  Savings and Investment Plan                                                                                                                                                                                    |
| APB                          | Accounting Principles  Board                                                                                                                                                                                                       |
| APB Opinion No. 18           | The Equity Method of  Accounting for Investments in Common Stock                                                                                                                                                                   |
| APB Opinion No. 20           | Accounting Changes                                                                                                                                                                                                                 |
| APB Opinion No. 25           | Accounting for Stock  Issued to Employees                                                                                                                                                                                          |
| APB Opinion No. 29           | Accounting for  Nonmonetary Transactions                                                                                                                                                                                           |
| APH                          | Acadia Power Holdings  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                                 |
| APP                          | Acadia Power Partners,  LLC and its 1,160-MW combined-cycle, natural gas-fired power plant near  Eunice, Louisiana, 50% owned by APH and 50% owned by Calpine                                                                      |
| Attala                       | Attala Transmission  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                                   |
| Calpine                      | Calpine Corporation                                                                                                                                                                                                                |
| Calpine Tolling Agreements   | Capacity Sale and Tolling Agreements between APP and CES                                                                                                                                                                           |
| CES                          | Calpine Energy  Services, L.P.                                                                                                                                                                                                     |
| CAH                          | Calpine Acadia  Holdings LLC, a subsidiary of Calpine                                                                                                                                                                              |
| Cleco Energy                 | Cleco Energy LLC, a  wholly owned subsidiary of Midstream                                                                                                                                                                          |
| Diversified Lands            | Diversified Lands LLC, a wholly owned subsidiary of Cleco  Innovations LLC, a wholly owned subsidiary of Cleco Corporation                                                                                                         |
| EITF                         | Emerging Issues Task Force of the FASB                                                                                                                                                                                             |
| EITF No. 04-10               | Applying Paragraph 19  of FASB Statement No. 131, Disclosures about Segments of an Enterprise and  Related Information, in Determining Whether to Aggregate Operating Segments  That Do Not Meet the Quantitative Thresholds       |
| EITF No. 04-13               | Accounting for  Purchases and Sales of Inventory with the Same Counterparty                                                                                                                                                        |
| EITF No. 05-6                | Determining the  Amortization Period for Leasehold Improvements                                                                                                                                                                    |
| Entergy                      | Entergy Corporation                                                                                                                                                                                                                |
| Entergy Gulf States          | Entergy Gulf States, Inc.                                                                                                                                                                                                          |
| Entergy Louisiana            | Entergy Louisiana,  Inc.                                                                                                                                                                                                           |
| Entergy Services             | Entergy Services, Inc., as agent for Entergy Louisiana  and Entergy Gulf States                                                                                                                                                    |
| EPA                          | Environmental  Protection Agency                                                                                                                                                                                                   |
| ESOP                         | Cleco Corporation Employee Stock Ownership Plan                                                                                                                                                                                    |
| ESPP                         | Cleco Corporation Employee Stock Purchase Plan                                                                                                                                                                                     |
| Evangeline                   | Cleco Evangeline LLC, a wholly owned subsidiary of  Midstream, and its 775-MW combined-cycle, natural gas-fired power plant  located in Evangeline Parish, Louisiana                                                               |
| Evangeline Tolling Agreement | Capacity Sale and Tolling Agreement between Evangeline  and Williams                                                                                                                                                               |
| FASB                         | Financial Accounting Standards Board                                                                                                                                                                                               |
| FERC                         | Federal Energy Regulatory Commission                                                                                                                                                                                               |
| FIN                          | FASB Interpretation No.                                                                                                                                                                                                            |
| FIN 45                       | Guarantor's Accounting and Disclosure Requirements for  Guarantees, Including Indirect Guarantees of Indebtedness to Others                                                                                                        |
| FIN 46                       | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51                                                                                                                            |
| FIN 46R                      | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)                                                                                                    |
| FIN 46R-5                    | Implicit Variable Interests under FASB Statement  Interpretation No. 46 (revised December 2003), Consolidation of Variable  Interest Entities                                                                                      |
| FIN 47                       | Accounting for Conditional Asset Retirement Obligations -  an interpretation of FASB Statement No. 143                                                                                                                             |
| FSP                          | FASB Staff Position                                                                                                                                                                                                                |
| FSP APB No. 18-1             | Accounting by an Investor for Its Proportionate Share of  Accumulated Other Comprehensive Income of an Investee Accounted for under the  Equity Method in Accordance with APB Opinion No. 18 upon a Loss of  Significant Influence |
| FSP FAS No. 13-1             | Accounting for Rental Costs Incurred during a  Construction Period                                                                                                                                                                 |
| FSP FAS No. 106-2            | FASB Staff Position Accounting and Disclosure  Requirements Related to the Medicare Prescription Drug, Improvement and  Modernization Act of 2003                                                                                  |
| GDP-IPD                      | Gross Domestic Product - Implicit Price Deflator                                                                                                                                                                                   |
| IRP                          | Integrated Resource Planning                                                                                                                                                                                                       |
| 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

 
3
ABBREVIATION OR ACRONYMDEFINITION
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 

 
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

 
PEH

Perryville Energy Holdings LLC, a wholly owned subsidiary  of Midstream

 
Perryville

Perryville Energy Partners, L.L.C., a wholly owned  subsidiary of PEH

 
Perryville and PEH Bankruptcy Court

U.S. Bankruptcy Court for the Western District of  Louisiana, Alexandria Division

 
Perryville Tolling Agreement

Capacity Sale and Tolling Agreement between Perryville  and MAEM

 
Power Purchase Agreement

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

 
PRP

Potentially responsible party

 
PUHCA

Public Utility Holding Company Act of 1935

 
PURPA

Public Utility Regulatory Policies Act of 1978

 
Registrant(s)

Cleco Corporation and Cleco Power

 
RFP

Request for Proposal

 
RTO

Regional Transmission Organization

 
Sale Agreement

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

 
SEC

Securities and Exchange Commission

 
Senior Loan Agreement

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

 
SERP

Cleco Corporation Supplemental Executive Retirement Plan

 
SESCO

San Angelo Electric Service Company

 
SFAS

Statement of Financial Accounting Standards

 
SFAS No. 3

Reporting Accounting Changes in Interim Financial  Statements

 
SFAS No. 123

Accounting for Stock-Based Compensation

 
SFAS No. 123R

Share-Based Payment

 
SFAS No. 131

Disclosures about Segments of an Enterprise and  Related Information

 
SFAS No. 133

Accounting for Derivative Instruments and Hedging  Activities

 
SFAS No. 143

Accounting for Asset Retirement Obligations

 
SFAS No. 144

Accounting for the Impairment or Disposal of  Long-Lived Assets

 
SFAS No. 149

Amendment of Statement 133 on Derivative Instruments and  Hedging Activities

 
SFAS No. 154

Accounting Changes and Error Corrections

 
SOP 90-7

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

 
SO2

Sulfur dioxide

 
SPP

Southwest Power Pool

 
Subordinated Loan Agreement

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

 
Support Group

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

 
SWEPCO

Southwestern Electric Power Company

 
VAR

Value-at-risk

 
Westar

Westar Energy, Inc.

 
Williams

Williams Power Company, Inc.

 
4

DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS

This report includes "forward-looking statements"about future events, circumstances, and results.  All statements other thanstatements of historical fact included in this report are forward-lookingstatements.  Although the Registrants believe that the expectations reflectedin such forward-looking statements are reasonable, such forward-lookingstatements are based on numerous assumptions (some of which may prove to beincorrect) and are subject to risks and uncertainties that could cause theactual results to differ materially from the Registrants' expectations.  Inaddition to any assumptions and other factors referred to specifically inconnection with these forward-looking statements, the following list identifiessome of the factors that could cause the Registrants' actual results to differmaterially from those contemplated in any of the Registrants' forward-lookingstatements:
-  Factors affecting utility operations, such as unusual weatherconditions or other natural phenomena; catastrophic weather-related damage(such as hurricanes); unscheduled generation outages; unusual maintenance orrepairs; unanticipated changes to fuel costs, cost of and reliance on naturalgas as a component of Cleco's generation fuel mix and their impact oncompetition and franchises, fuel supply costs or availability constraints dueto higher demand, shortages, transportation problems or other developments;environmental incidents; or power transmission system constraints; 
-  Cleco Power's ability to construct, operate, and maintain, withinits projected costs (including project financing), a proposed 600-MW solid-fuelpower plant in addition to any other self-build projects identified in its RFPand IRP processes; 
-  Nonperformance by and creditworthiness of counterparties undertolling, power purchase, and energy service agreements, or the restructuring ofthose agreements, including possible termination; 
-  Increased competition in power markets, including effects ofindustry restructuring or deregulation, transmission system operation oradministration, transmission reliability standards, retail wheeling, wholesalecompetition, retail competition, or cogeneration; 
-  Regulatory factors such as changes in rate-setting policies,recovery of investments made under traditional regulation, the frequency andtiming of rate increases or decreases, the results of periodic fuel audits, theresults of the RFP and IRP processes, the timely recovery of storm restorationcosts, and the formation of RTOs;  
-  Cleco's ability to develop and execute on a point of viewregarding prices of electricity, natural gas, and other energy-related commodities; 
-  Financial or regulatory accounting principles or policies imposedby the FASB, the SEC, the Public Company Accounting Oversight Board, the FERC,the LPSC or similar entities with regulatory or accounting oversight; 
-  Economic conditions, including inflation rates, monetaryfluctuations, related growth and/or down-sizing of businesses in Cleco'sservice area, and ability of customers to continue paying for higher fuelcharges; 
-  Credit ratings of Cleco Corporation, Cleco Power, and Evangeline; 
-  Changing market conditions and a variety of other factorsassociated with physical energy, financial transactions, and energy serviceactivities, including, but not limited to, price, basis, credit, liquidity,volatility, capacity, transmission, interest rates, and warranty risks; 
-  Acts of terrorism; 
-  Availability or cost of capital resulting from changes in Cleco'sbusiness or financial condition, interest rates, and securities ratings ormarket perceptions of the electric utility industry and energy-relatedindustries; 
-  Employee work force factors, including work stoppages and changesin key executives; 
-  Legal, environmental, and regulatory delays and other obstaclesassociated with mergers, acquisitions, capital projects, reorganizations, orinvestments in joint ventures; 
-  Costs and other effects of legal and administrative proceedings,settlements, investigations, claims and other matters; and 
-  Changes in federal, state, or local legislative requirements,such as the adoption of the Energy Policy Act of 2005, and changes in tax lawsor 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 SEPTEMBER 30,

(THOUSANDS,    EXCEPT SHARE AND PER SHARE AMOUNTS)

**                      2005**

** **

                      2004

**Operating revenue**

     Electric operations

** $   267,958**

   $         219,747

     Other operations

**         14,240**

                   8,610

     Affiliate revenue

**           1,758**

                   2,377

          Gross operating revenue

**       283,956**

              230,734

               Electric customer credits

**             (300)**

                  (1,344)

          Operating revenue, net

**       283,656**

              229,390

**Operating expenses**

     Fuel used for electric generation

**         54,665**

                 60,380

     Power purchased for utility customers

**       125,190**

                 79,586

     Other operations

**         22,724**

                 19,165

     Maintenance

**           9,723**

                 11,803

     Depreciation

**         15,182**

                 14,507

     Taxes other than income taxes

**         10,938**

                 10,587

          Total operating expenses

**       238,422**

              196,028

**Operating income**

**         45,234**

                 33,362

Interest income

**           1,136**

                       607

Allowance for other funds used during  construction

**              325**

                       976

Equity income from investees

**         25,249**

                 23,056

Other income

**           2,626**

                       171

Other expense

**             (861)**

                  (2,246)

**Interest charges**

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

**           9,535**

                 12,063

     Allowance for borrowed funds used during  construction

**             (108)**

                     (326)

          Total interest charges

**           9,427**

                 11,737

**Income from continuing operations before  income taxes**

**         64,282**

                 44,189

Federal and state income tax expense    

**         21,948**

                 16,500

**Income from continuing operations**

**         42,334**

                 27,689

**Discontinued operations**

     Loss from discontinued operations, net of  tax

**               (25)**

                        (35)

     Loss on disposal of segment, net of tax

**                   -**

                     (271)

          Total loss from discontinued operations

**               (25)**

                     (306)

**Net income**

**         42,309**

                 27,383

Preferred dividends requirements, net

**              451**

                       468

**Net income applicable to common stock**

** $      41,858**

   $              26,915

Average shares of common stock outstanding

     Basic

** 49,548,835**

        47,114,330

     Diluted

** 51,714,320**

        49,342,187

**Basic earnings (loss) per share**

**                   **

     From continuing operations

** $          0.82**

   $                  0.56

     From discontinued operations

** $                -**

   $               (0.01)

     Net income applicable to common stock

** $          0.82**

   $                  0.55

**Diluted earnings (loss) per share**

     From continuing operations

** $          0.82**

   $                  0.56

     From discontinued operations

** $                -**

   $               (0.01)

     Net income applicable to common stock

** $          0.82**

   $                  0.55

**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 SEPTEMBER 30,

(THOUSANDS)

**                         2005**

** **

                      2004

Net income 

** $       42,309**

   $           27,383

Other comprehensive income, net of tax:

     Net unrealized (loss) income from limited  partnership (net of tax (benefit) expense of $(47) in 2005 and $27 in 2004)

**                 (76)**

                         44

     Net unrealized income (loss) from  available-for-sale securities (net of tax expense (benefit) of $23 in 2005  and $(12) in 2004)

**                  37**

                       (19)

Other comprehensive (loss) income    

**                 (39)**

                         25

**Comprehensive income, net of tax**

** $       42,270**

   $           27,408

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

8

CLECO CORPORATION

Condensed Consolidated Statementsof Income (Unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(THOUSANDS,    EXCEPT SHARE AND PER SHARE AMOUNTS)

**                      2005**

** **

                      2004

**Operating revenue**

     Electric operations

** $   614,670**

   $         545,417

     Tolling operations

**                   -**

                 10,255

     Other operations

**         29,493**

                 22,505

     Affiliate revenue

**           6,488**

                   5,361

          Gross operating revenue

**       650,651**

              583,538

               Electric customer credits

**             (771)**

               (21,177)

          Operating revenue, net

**       649,880**

              562,361

**Operating expenses**

     Fuel used for electric generation

**       117,139**

              110,230

     Power purchased for utility customers

**       268,206**

              206,490

     Other operations

**         66,215**

                 60,389

     Maintenance

**         32,848**

                 31,306

     Depreciation

**         45,059**

                 45,150

     Taxes other than income taxes

**         30,646**

                 30,335

     Gain on sales of assets

**         (2,207)**

                            -

          Total operating expenses

**       557,906**

              483,900

**Operating income**

**         91,974**

                 78,461

Interest income

**           2,987**

                   3,012

Allowance for other funds used during  construction

**           2,104**

                   2,702

Equity income from investees

**         46,121**

                 40,660

Other income

**           3,445**

                       479

Other expense

**         (1,652)**

                  (2,869)

**Interest charges**

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

**         32,584**

                 41,077

     Allowance for borrowed funds used during  construction

**             (702)**

                     (896)

          Total interest charges

**         31,882**

                 40,181

I**ncome from continuing operations before  income taxes**

**       113,097**

                 82,264

Federal and state income tax expense    

**         40,490**

                 29,950

**Income from continuing operations**

**         72,607**

                 52,314

**Discontinued operations**

     Loss from discontinued operations, net of  tax

**             (230)**

                     (165)

     Loss on disposal of segment, net of tax

**                   -**

                     (271)

          Total loss from discontinued operations

**             (230)**

                     (436)

**Net income**

**         72,377**

                 51,878

Preferred dividends requirements, net

**           1,374**

                   1,745

**Net income applicable to common stock**

** $       71,003**

   $              50,133

Average shares of common stock outstanding

     Basic

** 49,443,912**

        47,031,650

     Diluted

** 51,625,000**

        47,108,952

**Basic earnings (loss) per share**

**                   **

     From continuing operations

** $            1.41**

   $                  1.05

     From discontinued operations

** $         (0.01)**

   $               (0.01)

     Net income applicable to common stock

** $            1.40**

   $                  1.04

**Diluted earnings (loss) per share**

     From continuing operations

** $            1.41**

   $                  1.05

     From discontinued operations

** $         (0.01)**

   $               (0.01)

     Net income applicable to common stock

** $            1.40**

   $                  1.04

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

** $          0.675**

   $                0.675

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

9

CLECO CORPORATION

Condensed Consolidated Statementsof Comprehensive Income (Unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**                      2005**

** **

                      2004

Net income 

** $     72,377**

   $           51,878

Other comprehensive income, net of tax:

     Net unrealized (loss) income from limited  partnership (net of tax (benefit) expense of $(27) in 2005 and $76 in 2004)

**              (43)**

                      121

     Net unrealized loss from available-for-sale  securities (net of tax benefit of $14 in 2005 and $4 in 2004)

**              (22)**

                          (6)

Other comprehensive (loss) income    

**              (65)**

                      115

**Comprehensive income, net of tax**

** $     72,312**

   $           51,993

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

10

CLECO CORPORATION

Condensed Consolidated BalanceSheets (Unaudited)

(THOUSANDS)

**AT SEPTEMBER 30, 2005**

** **

   AT DECEMBER 31, 2004

**Assets**

     Current assets

          Cash and  cash equivalents

**    $         37,339**

   $              123,787

          Customer accounts  receivable (less allowance for doubtful accounts of $750 in 2005 and $506 in  2004)

**               55,516**

                     34,468

          Accounts  receivable - affiliate

**                 1,937**

                        2,276

          Other  accounts receivable 

**               30,981**

                     23,562

          Unbilled  revenue

**               19,142**

                     17,256

          Fuel  inventory, at average cost

**               16,651**

                     21,132

          Material and  supplies inventory, at average cost

**                 9,761**

                     16,609

          Risk  management assets

**               35,281**

                              84

          Accumulated  deferred federal and state income taxes, net

**                         -**

                        4,767

          Accumulated  deferred fuel

**               14,157**

                     13,997

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

**               20,462**

                     19,170

          Margin  deposits

**                         -**

                        5,159

          Prepayments

**                 9,881**

                        4,023

          Other  current assets

**                 1,619**

                        1,476

               Total  current assets

**             252,727**

                   287,766

     Property, plant  and equipment

          Property,  plant and equipment

**         1,801,579**

               1,733,970

          Accumulated  depreciation

**           (791,955)**

                 (781,925)

          Net  property, plant and equipment

**         1,009,624**

                   952,045

          Construction  work in progress

**             174,162**

                   108,000

               Total  property, plant and equipment, net

**         1,183,786**

               1,060,045

     Equity investment  in investees

**             332,027**

                   314,284

     Prepayments

**                 6,078**

                        6,568

     Restricted cash    

**                      86**

                              93

     Regulatory assets  and liabilities - deferred taxes, net  

**               88,771**

                     92,864

     Regulatory assets  - other

**               45,830**

                     26,327

     Other deferred  charges

**               52,555**

                     49,116

   **       Total assets**

**    $   1,961,860**

   $          1,837,063

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

                          

(Continued on nextpage)

11

CLECO CORPORATION

Condensed Consolidated BalanceSheets (Unaudited) (Continued)

(THOUSANDS)

**AT SEPTEMBER 30, 2005**

** **

   AT DECEMBER 31, 2004

**Liabilities and shareholders' equity**

**   Liabilities**

          Current  liabilities

               Long-term  debt due within one year

**    $         40,000**

   $              160,000

               Accounts  payable

**             203,813**

                     75,770

               Accrued  payroll

**                 2,005**

                        2,693

               Accounts  payable - affiliate

**               28,506**

                     18,634

               Customer  deposits

**               23,494**

                     22,654

               Provision  for rate refund

**                 7,927**

                     23,951

               Taxes  accrued

**               45,917**

                     16,323

               Interest  accrued

**                 7,498**

                        9,572

               Margin  deposits

**               17,673**

                                 -

               Accumulated  deferred federal and state income taxes, net

**                 3,991**

                                 -

               Other  current liabilities

**                 8,181**

                        8,080

          Total  current liabilities

**             389,005**

                   337,677

     Deferred credits

          Accumulated  deferred federal and state income taxes, net

**             380,830**

                   368,846

          Accumulated  deferred investment tax credits

**               16,049**

                     17,303

          Other  deferred credits

**             108,940**

                   101,621

               Total  deferred credits

**             505,819**

                   487,770

     Long-term debt,  net 

**             460,363**

                   450,552

               Total  liabilities

**         1,355,187**

               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 218,420  and 234,160 shares at           September 30, 2005 and December 31, 2004, respectively

**               21,842**

                     23,416

          Deferred  compensation related to preferred stock held by ESOP

**               (1,862)**

                      (4,190)

          Total  preferred stock not subject to mandatory redemption

**               19,980**

                     19,226

     Common  shareholders' equity

          Common  stock, $1 par value, authorized 100,000,000 shares, issued 49,996,049 and 49,667,861  shares at September 30, 2005 and           December 31, 2004, respectively

**               49,996**

                     49,668

          Premium on  common stock

**             200,577**

                   194,055

          Retained  earnings

**             345,375**

                   308,003

          Unearned  compensation

**               (5,184)**

                      (5,733)

          Treasury  stock, at cost, 37,769 and 44,275 shares at September 30, 2005 and December  31, 2004, respectively

**                   (738)**

                          (887)

          Accumulated  other comprehensive loss

**               (3,333)**

                      (3,268)

               Total  common shareholders' equity

**             586,693**

                   541,838

                   Total  shareholders' equity

**             606,673**

                   561,064

**Total liabilities and shareholders' equity**

**    $   1,961,860**

   $          1,837,063

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

12

CLECO CORPORATION

Condensed Consolidated Statementsof Cash Flows (Unaudited)

    FOR THE NINE    MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**                            2005**

** **

                      2004

**Operating  activities**

     Net income    

**    $       72,377**

   $            51,878

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

          Loss on  disposal of segment, net of tax

**                       -**

                       271

          Depreciation  and amortization

**             47,091**

                 47,859

          Gain on sale  of property, plant and equipment

**             (2,207)**

                            -

          Provision for  doubtful accounts

**               1,342**

                       900

          Return on equity  investment in investee

**             24,451**

                 19,603

          Income from  equity investments

**           (44,475)**

               (40,872)

          Unearned/deferred  compensation expense

**               5,158**

                  (1,551)

          Employee  stock ownership plan expense

**                  693**

                       499

          Allowance for  other funds used during construction

**             (2,104)**

                  (2,702)

          Amortization  of investment tax credits

**             (1,253)**

                  (1,284)

          Net deferred  income taxes 

**             24,739**

                 18,608

          Deferred fuel  costs 

**           (42,621)**

               (17,620)

          Impairment of  long-lived assets

**                       -**

                   1,100

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

**                (531)**

                     (951)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**           (49,057)**

               (12,935)

               Accounts  and notes receivable, affiliate 

**                  338**

               (15,101)

               Unbilled  revenue

**             (1,886)**

                   1,816

               Fuel,  materials and supplies inventory

**               6,730**

                     (963)

               Prepayments

**             (5,317)**

                  (1,036)

               Accounts  payable

**             43,495**

               (15,104)

               Accounts  and notes payable, affiliate

**               9,872**

                 29,276

               Accrued  payroll

**                (689)**

                   1,630

               Customer  deposits

**               4,064**

                   3,837

               Long-term  receivable

**                       -**

                  (2,206)

               Regulatory  assets and liabilities, net

**             (5,160)**

                       445

               Other  deferred accounts

**               2,100**

                 37,459

               Retainage  payable

**                  231**

                  (7,625)

               Taxes  accrued

**             28,549**

                 62,262

               Interest  accrued

**             (1,342)**

                  (3,776)

               Margin  deposits

**             29,527**

                       761

               Other,  net

**                  747**

                   1,388

          Net cash  provided by operating activities

**           144,862**

              155,866

**Investing  activities**

     Additions to  property, plant and equipment

**           (92,315)**

               (58,540)

     Allowance for  other funds used during construction

**               2,104**

                   2,702

     Proceeds from sale  of property, plant and equipment

**               2,792**

                       228

     Proceeds from  disposal of segment

**                       -**

                       786

     Return of equity  investment in investee

**               2,891**

                   8,091

     Investment in cost  method investments

**             (1,385)**

                  (4,100)

     Equity investment  in investee

**                  (20)**

                            -

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

**             (1,545)**

                  (3,931)

     Transfer of cash  from restricted accounts

**                      7**

                 10,178

          Net cash used  in investing activities

**           (87,471)**

               (44,586)

**Financing  activities**

     Exercise of  options to common stock

**               2,157**

                       249

     Change in short-term  debt, net

**                       -**

               (67,750)

     Retirement of  long-term obligations

**         (200,070)**

                  (2,489)

     Issuance of  long-term debt

**             90,000**

                            -

     Deferred financing  costs

**             (2,026)**

                  (1,576)

     Change in ESOP  trust 

**               1,636**

                   1,753

     Dividends paid on  preferred stock

**             (1,904)**

                  (2,339)

     Dividends paid on  common stock 

**           (33,632)**

               (32,059)

          Net cash used  in financing activities

**         (143,839)**

             (104,211)

**Net (decrease) increase  in cash and cash equivalents**

**           (86,448)**

                   7,069

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

**           123,787**

                 95,381

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

**    $       37,339**

   $           102,450

**Supplementary cash  flow information**

     Interest paid    

**    $       31,847**

   $             43,544

     Income taxes paid (received)

**    $         6,061**

   $          (42,056)

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

     Issuance of  treasury stock - LTICP and ESOP plans

**    $            149**

   $              1,784

     Issuance of common  stock - LTICP/ESOP/ESPP 1

**    $         2,692**

   $              4,261

     Accrued additions  to property, plant and equipment not reported above

**    $       75,853**

   $                      -

1     Includes conversion of preferred stock to common  stock 

**    $         1,574**

   $              1,905

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

13

PART I - FINANCIAL INFORMATION

**ITEM 1.**    CONDENSEDFINANCIAL STATEMENTS

**Cleco Power**

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

14

CLECO POWER

Condensed Statements of Income(Unaudited)

    FOR THE THREE    MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**                         2005**

** **

                      2004

**Operating revenue**

** **

     Electric  operations

**    $   267,958**

   $         219,747

     Other operations

**           14,113**

                   8,473

     Affiliate revenue

**                498**

                       463

          Gross  operating revenue

**         282,569**

              228,683

               Electric  customer credits

**               (300)**

                  (1,344)

          Operating  revenue, net

**         282,269**

              227,339

**Operating expenses**

     Fuel used for  electric generation

**           54,665**

                 60,380

     Power purchased  for utility customers

**         125,190**

                 79,586

     Other operations

**           22,264**

                 17,669

     Maintenance

**             8,948**

                 10,697

     Depreciation

**           14,765**

                 14,201

     Taxes other than  income taxes

**           10,424**

                 10,172

          Total  operating expenses

**         236,256**

              192,705

**Operating income**

**           46,013**

                 34,634

Interest income

**             1,089**

                       587

Allowance for other  funds used during construction

**                325**

                       976

Other income

**                161**

                         70

Other expense

**               (397)**

                  (2,657)

**Interest charges**

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

**             7,274**

                   7,694

     Allowance for  borrowed funds used during construction

**               (108)**

                     (326)

          Total  interest charges

**             7,166**

                   7,368

**Income before income taxes**

**           40,025**

                 26,242

Federal and state  income taxes

**           12,842**

                   9,450

**Net income**

**    $     27,183**

   $            16,792

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

15

CLECO POWER

Condensed Statements of Income(Unaudited)

   FOR THE NINE    MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**                         2005**

** **

                      2004

**Operating revenue**

** **

     Electric  operations

**    $   614,670**

   $         545,417

     Other operations

**           29,228**

                 22,266

     Affiliate revenue

**             1,489**

                   1,412

          Gross  operating revenue

**         645,387**

              569,095

               Electric  customer credits

**               (771)**

               (21,177)

          Operating  revenue, net

**         644,616**

              547,918

**Operating expenses**

     Fuel used for  electric generation

**         117,139**

              110,230

     Power purchased  for utility customers

**         268,206**

              206,490

     Other operations

**           61,614**

                 52,885

     Maintenance

**           30,298**

                 27,691

     Depreciation

**           43,824**

                 42,317

     Taxes other than  income taxes

**           28,666**

                 28,644

     Gain on sales of  assets

**           (2,207)**

                            -

          Total  operating expenses

**         547,540**

              468,257

**Operating income**

**           97,076**

                 79,661

Interest income

**             2,233**

                   2,787

Allowance for other  funds used during construction

**             2,104**

                   2,702

Other income

**                917**

                       213

Other expense

**           (1,243)**

                  (3,599)

**Interest charges**

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

**           21,373**

                 21,921

     Allowance for  borrowed funds used during construction

**               (702)**

                     (896)

          Total  interest charges

**           20,671**

                 21,025

**Income before income taxes**

**           80,416**

                 60,739

Federal and state  income taxes

**           28,299**

                 22,044

**Net income**

**    $     52,117**

   $            38,695

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

16

CLECO POWER

Condensed Balance Sheets(Unaudited)

(THOUSANDS)

**AT SEPTEMBER 30, 2005**

** **

   AT DECEMBER 31, 2004

**Assets**

** **

     Utility plant and equipment

          Property, plant and equipment

**    $   1,787,518**

   $            1,721,752

          Accumulated depreciation

**           (785,721)**

                   (776,925)

          Net property, plant and equipment

**         1,001,797**

                     944,827

          Construction work in progress

**             173,683**

                     106,368

               Total utility plant, net

**         1,175,480**

                 1,051,195

     Current assets

          Cash and cash equivalents

**               15,427**

                       54,113

          Customer accounts receivable (less  allowance for doubtful accounts of $708 in 2005 and $506 in 2004)

**               55,558**

                       34,468

          Other accounts receivable

**               28,786**

                       21,460

          Accounts receivable - affiliate

**               24,200**

                          5,208

          Unbilled revenue

**               19,142**

                       17,256

          Fuel inventory, at average cost

**               16,651**

                       21,132

          Material and supplies inventory, at  average cost

**                 9,761**

                       16,609

          Margin deposits

**                         -**

                          5,159

          Risk management assets

**               35,281**

                                84

          Prepayments

**                 9,165**

                          2,897

          Accumulated deferred fuel

**               14,157**

                       13,997

          Accumulated deferred federal and state  income taxes, net

**                         -**

                          4,247

          Cash surrender value of life insurance  policies

**                 5,011**

                          4,880

          Other current assets

**                 1,256**

                             464

               Total current assets

**             234,395**

                     201,974

     Prepayments

**                 6,078**

                          6,568

     Regulatory assets and liabilities - deferred  taxes, net

**               88,771**

                       92,864

     Regulatory assets - other

**               45,830**

                       26,327

     Other deferred charges

**               49,964**

                       46,460

**Total assets**

**    $   1,600,518**

   $            1,425,388

**Liabilities and member's equity**

     Member's equity

**    $      452,674**

   $               453,457

     Long-term debt

**             360,363**

                     350,552

          Total capitalization

**             813,037**

                     804,009

Current liabilities

     Long-term debt due within one year

**               40,000**

                       60,000

     Accounts payable

**             195,853**

                       68,630

     Accounts payable - affiliate

**                 3,502**

                          8,075

     Customer deposits

**               23,494**

                       22,637

     Provision for rate refund

**                 7,927**

                       23,951

     Taxes accrued

**               22,532**

                       20,709

     Interest accrued

**                 4,467**

                          7,621

     Margin deposits

**               17,673**

                                   -

     Accumulated deferred federal and state  income taxes, net

**                 8,814**

                                   -

     Other current liabilities

**                 5,388**

                          6,253

               Total current liabilities

**             329,650**

                     217,876

Deferred credits

     Accumulated deferred federal and state  income taxes, net

**             387,535**

                     339,060

     Accumulated deferred investment tax credits

**               16,049**

                       17,303

     Other deferred credits

**               54,247**

                       47,140

               Total deferred credits

**             457,831**

                     403,503

**Total liabilities and member's equity**

**    $   1,600,518**

   $          1,425,388

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

17

CLECO POWER

Statements of Cash Flows(Unaudited)

    FOR THE NINE    MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**                         2005**

** **

                      2004

**Operating activities**

     Net income

**    $     52,117**

   $            38,695

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

          Depreciation  and amortization

**           45,077**

                 43,859

          Gain on sale  of property, plant and equipment

**           (2,207)**

                            -

          Provision  for doubtful accounts

**             1,300**

                       900

          Unearned/deferred  compensation expense

**             1,603**

                     (558)

          Allowance  for other funds used during construction

**           (2,104)**

                  (2,702)

          Amortization  of investment tax credits

**           (1,253)**

                  (1,284)

          Net deferred  income taxes

**           66,103**

                   5,829

          Deferred  fuel costs 

**         (42,621)**

               (17,620)

          Cash  surrender value of company-owned life insurance

**               (285)**

                     (349)

          Changes in  assets and liabilities:

               Accounts  receivable, net

**         (48,964)**

               (17,308)

               Accounts  and notes receivable, affiliate

**         (18,139)**

                 12,136

               Unbilled  revenue

**           (1,886)**

                  (1,125)

               Fuel,  materials and supplies inventory

**             6,730**

                     (944)

               Prepayments

**           (5,727)**

                     (109)

               Accounts  payable

**           42,193**

               (15,602)

               Accounts  and notes payable, affiliate

**           (6,686)**

               (14,743)

               Accrued  payroll

**               (243)**

                   1,112

               Customer  deposits

**             4,082**

                   3,837

               Regulatory  assets and liabilities, net

**           (5,160)**

                       445

               Other  deferred accounts

**                186**

                 30,250

               Retainage  payable

**                231**

                            -

               Taxes  accrued

**             1,823**

                 32,654

               Interest  accrued

**           (2,423)**

                  (3,460)

               Margin  deposits

**           29,527**

                       761

               Other,  net

**               (358)**

                       269

          Net cash  provided by operating activities

**         112,916**

                 94,943

**Investing activities**

     Additions to  property, plant and equipment

**         (91,622)**

               (57,550)

     Allowance for  other funds used during construction

**             2,104**

                   2,702

     Proceeds from  sale of property, plant and equipment

**             2,792**

                       228

     Cash surrender  value of company-owned life insurance

**               (629)**

                     (493)

          Net cash  used in investing activities

**         (87,355)**

               (55,113)

**Financing activities**

     Retirement of  long-term obligations

**       (100,070)**

                        (30)

     Issuance of  long-term debt

**           90,000**

                            -

     Deferred  financing costs

**           (1,277)**

                     (719)

     Distribution to  parent

**         (59,900)**

               (27,900)

     Distribution from  parent

**             7,000**

                            -

          Net cash  used in financing activities

**         (64,247)**

               (28,649)

**Net (decrease) increase in cash and cash  equivalents**

**         (38,686)**

                 11,181

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

**           54,113**

                 70,990

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

**    $     15,427**

   $            82,171

**Supplementary cash flow information**

     Interest paid    

**    $     22,896**

   $            25,809

     Income taxes paid    

**    $       7,143**

   $              7,790

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

     Accrued additions  to property, plant and equipment not reported above

**    $     75,853**

     $                     -

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

18

Index to Applicable Notes to the UnauditedCondensed Financial Statements of Registrants

    Note 1

    Summary of Significant  Accounting Policies

    Cleco Corporation and  Cleco Power

Note 2

Reclassifications

Cleco Corporation and  Cleco Power

Note 3

Disclosures  about Segments

Cleco Corporation    

Note 4

Restricted    Cash

Cleco Corporation    

Note 5

Equity Investment in Investees

Cleco Corporation    

Note 6

Recent Accounting Standards

Cleco Corporation and  Cleco Power

Note 7

Accrual of Electric Customer Credits

Cleco Corporation and  Cleco Power

Note 8

Litigation and Other  Commitments and Contingencies

Cleco Corporation and  Cleco Power

Note 9

Disclosures about  Guarantees

Cleco Corporation and  Cleco Power

Note 10

Debt

Cleco Corporation and  Cleco Power

Note 11

Variable Interest  Entities

Cleco Corporation    

Note 12

Pension Plan and  Employee Benefits

Cleco Corporation and  Cleco Power

Note 13

Perryville

Cleco Corporation

Note 14

Discontinued Operations  and Dispositions

Cleco Corporation    

Note 15

Income Taxes

Cleco Corporation and  Cleco Power

Note 16

Deferred Fuel and Purchased  Power Costs

Cleco Corporation and  Cleco Power

Note 17

Affiliate Transactions

Cleco Corporation

Note 18

Franchise

Cleco Corporation and Cleco  Power

Note 19

Storm Restoration

Cleco Corporation and  Cleco Power

Note 20

Subsequent Event

Cleco Corporation

19

Notes to the Unaudited Condensed FinancialStatements
**Note 1 - Summary of Significant AccountingPolicies**

***Principles of Consolidation***

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

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

The financial results of Perryville and PEH areincluded in Cleco Corporation's consolidated results through January 27, 2004. However, generally accepted accounting principles preclude consolidation ofmajority-owned subsidiaries where control does not rest with the majorityowners.  Cleco is utilizing the cost method to account for its investment inPerryville and PEH.  The cost method requires Cleco to present the net assetsof Perryville and PEH at January 27, 2004, as an investment and not recognizeany income or loss from Perryville or PEH in Cleco's results of operationsduring the reorganization period.  As of September 30, 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.  For information relating to the bankruptcy of Perryville and PEH andtheir plan of reorganization, see Note 13 - "Perryville" and Note 20 - "SubsequentEvent."

***Basis of Presentation***

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

The year-end condensed consolidated balance sheetdata was derived from audited financial statements, but does not include alldisclosures required by generally acceptedaccounting principles.  The unaudited financial information included in thecondensed financial statements of Cleco Corporation and Cleco Power reflects alladjustments of a normal recurring nature which are, in the opinion of the managementof Cleco Corporation and Cleco Power, as the case may be, necessary for a fair statementof the financial position and the results of operations for the interim periods. Information for interim periods is affected by seasonal variations in sales,rate changes, timing of fuel expense recovery and other factors, and is notindicative necessarily of the results that may be expected for the full fiscalyear.  For more information on recent accounting standards and their effect onfinancial results, see Note 6 - "Recent Accounting Standards."

***Risk Management***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positions includes the potential change arisingfrom changes in interest rates and the commodity market prices of power andnatural gas in the industry on different energy exchanges.  Cleco's TradingRisk Management Policy authorizes the use of various derivative instruments,including exchange traded futures and options contracts, forward purchase andsales contracts, and swap transactions, to reduce exposure to fluctuations inthe price of power and natural gas.  Generally, Cleco Power's marketrisk-sensitive instruments and positions qualify for the normal-purchase,normal-sale exception to mark-to-market accounting of SFAS No. 133, as modifiedby SFAS No. 149, since Cleco Power generally takes physical delivery and theinstruments and positions are used to satisfy customer requirements.  ClecoPower has entered into certain financial hedge transactions it considerseconomic hedges to mitigate the risk associated with the fixed-price power thatwill be provided to a new wholesale customer, through December 2010.  Theeconomic hedges cover 97.8% of the estimated daily peak hour power sales to themunicipal customer.  These transactions do not meet the criteria of accountinghedge treatment; therefore, the positions are marked-to-market with theresulting gain or loss recorded on the income statement as a component of operatingrevenue, net.  At September 30, 2005, there was a net mark-to-market gain of$4.4 million related to these economic hedge transactions.  

Cleco Power has entered into other positions tomitigate some of the volatility in fuel costs passed on to customers.  Thesepositions are marked-to-market with the resulting gain or loss recorded on thebalance sheet as a component of the accumulated deferred fuel asset orliability and a component of risk management assets or liabilities.  When thesepositions close, actual gains or losses will be included in fuel expense andreflected on customer bills as a component of the fuel cost adjustment.  Basedon market prices at September 30, 2005, the net mark-to-market impact relatingto these positions was a gain of $33.6 million.  

Any positions entered into for marketing andtrading purposes do not meet the exemptions of SFAS No. 133, and the 

20

netmark-to-market of those positions is recorded in income.  There were nospeculative positions at September 30, 2005 and December 31, 2004.  

Cleco maintains a master netting agreement policyand 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 andcontract payments to mitigate credit risk for transactions entered into for riskmanagement purposes.

***Earnings per Share***

Earnings per share is calculated utilizing the"two-class" method by dividing earnings allocated to common shareholders by theweighted average number of common shares outstanding during the period.  Thetable below shows the calculation of basic and diluted earnings per share. 
 
    FOR THE    THREE MONTHS ENDED SEPTEMBER 30,

**              2005**

              2004

  (THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

**INCOME**

**                SHARES**

**PER  SHARE     AMOUNT**

                     INCOME

               SHARES

PER SHARE        AMOUNT

Net income from continuing operations

** $    42,334**

   $        27,689

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

**               11**

                      12

Deduct:  participating preferred stock dividends

**             451**

                   485

Deduct:  amount allocated to participating  preferred

**          1,193**

                   727

**Basic earnings (loss) per share**

Net income from continuing operations available to  common shareholders

** $    40,679**

** $    0.82**

   $        26,465

   $        0.56

Loss from discontinued operations

**             (25)**

**             -**

                  (306)

            (0.01)

Total basic net income applicable to common stock

** $    40,654**

**   49,548,835**

** $    0.82**

   $        26,159

      47,114,330

   $        0.55

**Effect of Dilutive Securities**

Add:  stock option grants

**                  -**

**      149,602**

                         -

              24,806

Add:  restricted stock (LTICP)

**                  -**

**        13,577**

                         -

              45,206

Add:  Convertible ESOP preferred stock

**          1,644**

** 2,002,306**

                1,212

        2,157,845

**Diluted earnings (loss) per share**

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

**  $    42,323**
 
**  $    0.82**

   $        27,677

 

   $        0.56

Loss from discontinued operations

**             (25)**

**             -**

                  (306)

            (0.01)

Total diluted net income applicable to common  stock

** $    42,298**

**   51,714,320**

** $    0.82**

   $        27,371

      49,342,187

   $        0.55

 

 FOR THE NINE MONTHS    ENDED SEPTEMBER 30,

**              2005**

              2004

(THOUSANDS, EXCEPT SHARE    AND PER SHARE AMOUNTS)

**                INCOME**

**                SHARES**

** PER  SHAREAMOUNT**

                      INCOME

                   SHARES

   PER SHAREAMOUNT

Net income from continuing operations

** $    72,607**

   $        52,314

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

**               35**

                      35

Deduct:  participating preferred stock dividends

**          1,386**

                1,810

Deduct:  amount allocated to participating preferred

**          1,509**

                   843

**Basic earnings (loss) per share**

Net income from continuing operations available  to common shareholders

** $    69,677**

**                  **

** $    1.41**

   $        49,626

   $        1.05

Loss from discontinued operations

**           (230)**

**      (0.01)**

                  (436)

            (0.01)

Total basic net income applicable to common stock

** $    69,447**

**   49,443,912**

** $    1.40**

   $        49,190

      47,031,650

   $        1.04

**Effect of Dilutive Securities**

Add:  stock option grants

**      113,518**

              32,686

Add:  restricted stock (LTICP)

**        13,024**

              44,616

Add:  Convertible ESOP preferred stock

**          2,895**

** 2,054,546**

                         -

                          -

**Diluted earnings (loss) per share**

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

**      $    72,572**

 

**  $    1.41**

       $        49,626

                               

   $        1.05

Loss from discontinued operations

**           (230)**

**      (0.01)**

                  (436)

            (0.01)

Total diluted net income applicable to common  stock

** $    72,342**

**   51,625,000**

** $    1.40**

   $        49,190

      47,108,952

   $        1.04
 
21

Stock optiongrants excluded from the computation of diluted earnings per share due to the strikeprice being higher than the average market price were as follows:   

** **

                     FOR THE THREE MONTHS ENDED SEPTEMBER  30,

**                 2005**

                   2004

 

**             ****STRIKE PRICE**

**                AVERAGE    MARKET PRICE**

**             SHARES**

                  STRIKE PRICE

             AVERAGE        MARKET PRICE

                   SHARES

Stock option grants excluded

** $ 22.69 - $24.25**

**    $    22.66**

**    136,934**

   $  17.75 - $24.25

          $      17.51

            942,869

 

** **

                        FOR THE NINE MONTHS ENDED SEPTEMBER 30,

**                 2005**

                   2004

 

**                  STRIKE PRICE**

**           AVERAGE   MARKET PRICE**

**                 SHARES**

                      STRIKE PRICE

      AVERAGE        MARKET PRICE

                   SHARES

Stock option grants excluded

** $ 21.88 - $24.25**

**    $    21.35**

**    331,968**

   $  18.13 - $24.25

          $      17.95

            927,869

Convertible ESOPpreferred stock shares of 2,217,270 were not included in the computation ofdiluted earnings per share for the nine months ended September 30, 2004, becausethe effects would have been anti-dilutive.

***Stock-Based Compensation***

At September 30, 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,excluding officers and general managers, of Cleco Corporation and itssubsidiaries may choose to participate in the ESPP and purchase a limitedamount of common stock at a discount through a stock option agreement.  APBOpinion No. 25 and related interpretations are applied in accounting for ClecoCorporation's stock-based compensation plans.  Therefore, no stock-basedemployee compensation is reflected in the Cleco Corporation CondensedConsolidated Statements of Income for the three and nine months ended September30, 2005, or 2004, other than for restricted stock grants, as all compensatory stockoptions granted had an exercise price equal to the fair market value of commonstock on the date of the grant and ESPP options are considered noncompensatory. 

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

FOR THE THREE MONTHS ENDED    SEPTEMBER 30,

FOR THE NINE MONTHS ENDED    SEPTEMBER 30,

(THOUSANDS)

**                     2005**

                      2004

**                     2005**

                       2004

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

**     $   1,778**

         $          (320)

**     $   5,044**

         $      (1,511)

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

**     $      607**

         $          (152)

**     $   1,603**

         $          (558)
Cleco grants to employees two types of restrictedstock with market and performance objectives.  The first type, target shares,can be voted, and employees receive dividends on the shares prior to the lapseof the restrictions.  The second type, opportunity shares, is not issued toemployees until the market and performance objectives have been met; therefore,these shares cannot be voted, nor do employees receive dividends on the shares priorto the lapse of the restrictions.  Both types of these grants require thesatisfaction of the service requirement, as well as the achievement of one ormore market-based or performance-based objectives in order to obtain vesting. However, if certain events occur, such as retirement after age 55 or terminationas part of a plan of reorganization prior to the end of the service period, thenemployees would vest in a pro-rata number of target and opportunity shares.  AtSeptember 30, 2005, the number of target and opportunity restricted sharespreviously granted for which restrictions had not lapsed totaled 682,340. Cleco also grants to employees and directors restricted stock with only aservice period requirement.  These grants require the satisfaction of apre-determined service period in order for the shares to vest.  During thevesting period, the employees and directors can vote and receive dividends onthe shares.  At September 30, 2005, the number of shares of restricted stockpreviously granted with only a service period requirement for which the periodhad not ended was 73,347.
Net income and net income per common share forCleco and net income for Cleco Power would approximate the pro forma amounts shownin the following tables if the compensation expense for these plans wasrecognized in compliance with SFAS No. 123.  The income tax gross-up related tothe shares of restricted stock granted under the LTICP is not included in thepro forma amounts as shown below since its treatment is the same under APBOpinion No. 25 and SFAS No. 123.

22
******
***Cleco***

FOR THE THREE MONTHS ENDED    SEPTEMBER 30,

FOR THE NINE MONTHS ENDED    SEPTEMBER 30,

(THOUSANDS, EXCEPT PER SHARE    AMOUNTS)

**                     2005**

                      2004

**                     2005**

                      2004

Net income applicable to common stock, as  reported

**     $ 41,858**

         $     26,915

**     $ 71,003**

         $     50,133

Add:  stock-based employee compensation expense  recognized (reversed) and included in reported net income applicable to common    stock, net of related tax effects
**827**    (198)**2,057**    (1,134)
Deduct:  total stock-based employee compensation  expense determined under the fair value based  method of all awards, net of related tax effects

**             238**

                       593

**          1,188**

                   1,744

Pro forma net income applicable to common stock

**     $ 42,447**

         $     26,124

**     $ 71,872**

         $     47,255

Earnings per share:

     Basic - as reported

**     $      0.82**

         $          0.55

**     $      1.40**

         $          1.04

     Basic - pro forma

**     $      0.83**

         $          0.54

**     $      1.42**

         $          0.99

     Diluted - as reported

**     $      0.82**

         $          0.55

**     $      1.40**

         $          1.04

     Diluted - pro forma

**     $      0.83**

         $          0.54

**     $      1.41**

         $          0.99
***Cleco Power***
FOR THE THREE MONTHS ENDED    SEPTEMBER 30,

FOR THE NINE MONTHS ENDED    SEPTEMBER 30,

(THOUSANDS, EXCEPT PER SHARE    AMOUNTS)

**                     2005**

                      2004

**                     2005**

                      2004

Net income, as reported

**     $ 27,183**

         $     16,792

**     $ 52,117**

         $     38,695

Add:  stock-based employee compensation expense (reversed)  recognized and included in reported net income, net of related tax effects
**     248**    (164)**588**    (509)
Deduct:  total stock-based employee compensation  expense determined under the fair value based method of all awards, net of  related tax effects

**             187**

                       199

**             576**

                       597

Pro forma net income 

**     $ 27,244**

         $     16,429

**     $ 52,129**

         $     37,589
The effects of applyingSFAS No. 123 in this pro forma disclosure are not necessarily indicative offuture amounts.  SFAS No. 123 is not applicable to awards prior to 1995.  ClecoCorporation anticipates making awards in the future under its stock-basedcompensation plans.
**Note 2 - Reclassifications**

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

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

**Note 3 - Disclosures about Segments**

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

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

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

23

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

**                  CLECO**

** **

** **

** **

** **

** **

** **

** **

** **

2005     (THOUSANDS)

**                POWER**

** **

**           MIDSTREAM**

** **

**                  OTHER**

** **

**               ELIMINATIONS**

** **

**CONSOLIDATED**

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

**$     267,958**

** $                -**

** $               -**

**        $                 -**

** $      267,958**

     Other operations

**      14,113**

**               53**

**              76**

**                    (2)**

**       14,240**

     Electric customer credits

**          (300)**

**                 -**

**                -**

**                      -**

**           (300)**

Affiliate revenue

**               7**

**         1,053**

**            698**

**                      -**

**         1,758**

Intercompany revenue

**           491**

**               43**

**      14,023**

**           (14,557)**

**                 -**

Operating revenue, net

**$     282,269**

** $       1,149**

** $    14,797**

**        $   (14,559)**

** $      283,656**

Depreciation expense

**$       14,765**

** $            78**

** $         339**

**        $                -**

** $        15,182**

Interest charges

**$         7,166**

** $       3,938**

** $      2,262**

**        $     (3,939)**

** $          9,427**

Interest income

**$         1,089**

** $               -**

** $      3,986**

**        $     (3,939)**

** $          1,136**

Equity income from investees

**$                 -**

** $     25,121**

** $         128**

**        $                -**

** $        25,249**

Federal and state income tax expense    

**$       12,842**

** $       8,612**

** $         531**

**        $           (37)**

** $        21,948**

Segment profit from continuing operations, net

**$       27,183**

** $     13,153**

** $      1,998**

**        $                -**

** $        42,334**

Loss from discontinued operations, net of tax

**                -**

**             (25)**

**                -**

**                      -**

**             (25)**

Segment profit (1)

**$       27,183**

** $      13,128**

** $      1,998**

**        $                -**

** $        42,309**

Additions to long-lived assets    

**$     123,453**

** $                -**

** $         230**

**        $                -**

** $      123,683**

Segment assets

**$  1,600,518**

** $    349,138**

** $  568,643**

**        $  (556,439)**

** $   1,961,860**

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

**Segment    profit**
 
** **

**        $      42,309**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**                (451)**

** **

** **

**Net income applicable to common stock**

** **

**        $      41,858**

** **

** **

 

                  CLECO

2004    (THOUSANDS)

                 POWER

         MIDSTREAM

                  OTHER

                 ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $     219,747

   $                  -

   $                  -

            $                    -

   $       219,747

     Other operations

              8,473

                    70

                       1

                               66

                 8,610

     Electric customer credits

             (1,344)

                       -

                       -

                                  -

               (1,344)

Affiliate revenue

                       7

              1,365

              1,005

                                  -

                 2,377

Intercompany revenue

                  456

                       -

            10,853

                     (11,309)

                          -

Operating revenue, net

   $     227,339

   $          1,435

   $        11,859

            $        (11,243)

   $       229,390

Depreciation expense

   $       14,201

   $               80

   $             226

            $                    -

   $         14,507

Interest charges

   $         7,368

   $          3,207

   $          4,353

            $          (3,191)

   $         11,737

Interest income

   $            587

   $                  -

   $          3,222

            $          (3,202)

   $              607

Equity income from investees

   $                 -

   $        23,061

   $              (5)

            $                    -

   $         23,056

Federal and state income tax expense (benefit)

   $         9,450

   $          7,524 

   $          (452)

            $               (22)

   $         16,500

Segment profit (loss) from continuing operations,  net

   $       16,792

   $        11,673

   $          (776)

            $                    -

   $         27,689

Loss from discontinued operations, net of tax

                       -

                (306)

                       -

                                  -

                   (306)

Segment profit (loss) (1)

   $       16,792

   $        11,367

   $          (776)

            $                    -

   $         27,383

Additions to long-lived assets    

   $       18,383

   $            (96)

   $             492

            $                    -

   $         18,779

Segment assets

   $  1,417,446

   $      363,563

   $      562,968

            $      (541,658)

   $    1,802,319

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

Segment profit

** **

            $           27,383

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                           (468)

** **

** **

Net income applicable to common stock

** **

            $           26,915

** **

** **

 

  24

**SEGMENTINFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30,**

**                  CLECO**

** **

** **

** **

** **

** **

** **

** **

** **

2005    (THOUSANDS)

**                POWER**

** **

**           MIDSTREAM**

** **

**                  OTHER**

** **

**               ELIMINATIONS**

** **

**CONSOLIDATED**

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

**$     614,670**

** $                 -**

** $               -**

**        $                  -**

** $       614,670**

     Other operations

**      29,228**

**               93**

**            177**

**                    (5)**

**       29,493**

     Electric customer credits

**          (771)**

**                 -**

**                -**

**                      -**

**           (771)**

Affiliate revenue

**             22**

**         4,069**

**        2,397**

**                      -**

**         6,488**

Intercompany revenue

**        1,467**

**               42**

**      36,278**

**           (37,787)**

**                 -**

Operating revenue, net

**$     644,616**

** $        4,204**

** $    38,852**

**        $    (37,792)**

** $       649,880**

Depreciation expense

**$       43,824**

** $           237**

** $         998**

**        $                -**

** $         45,059**

Interest charges

**$       20,671**

** $      11,171**

** $    11,112**

**        $    (11,072)**

** $         31,882**

Interest income

**$         2,233**

** $                -**

** $    11,811**

**        $    (11,057)**

** $           2,987**

Equity income from investees

**$                 -**

** $      46,088**

** $           33**

**        $                -**

** $         46,121**

Federal and state income tax expense (benefit)

**$       28,299**

** $      13,112**

** $       (881)**

**        $           (40)**

** $            40,490**

Segment profit from continuing operations, net

**$       52,117**

** $      19,625**

** $         865**

**        $                -**

** $         72,607**

Loss from discontinued operations, net of tax

**                -**

**           (230)**

**                -**

**                      -**

**           (230)**

Segment profit (1)

**$       52,117**

** $      19,395**

** $         865**

**        $               -**

** $         72,377**

Additions to long-lived assets    

**$     167,474**

** $               8**

** $         685**

**        $                 -**

** $       168,167**

Segment assets

**$  1,600,518**

** $    349,138**

** $  568,643**

**        $  (556,439)**

** $    1,961,860**

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

**Segment profit**

** **

**        $      72,377**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**             (1,374)**

** **

** **

**Net income applicable to common stock**

** **

**        $      71,003**

** **

** **

 

                  CLECO

2004    (THOUSANDS)

                 POWER

         MIDSTREAM

                  OTHER

                 ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $    545,417

   $                  -

   $                  -

            $                    -

   $       545,417

     Tolling operations

                       -

            10,255

                       -

                                  -

              10,255

     Other operations

            22,266

                    99

                  158

                             (18)

              22,505

     Electric customer credits

          (21,177)

                       -

                       -

                                  -

             (21,177)

Affiliate revenue

                    15

              3,153

              2,193

                                  -

                 5,361

Intercompany revenue

              1,397

                    12

            29,752

                     (31,161)

                          -

Operating revenue, net

   $    547,918

   $       13,519

   $       32,103

            $       (31,179)

   $       562,361

Depreciation expense

   $      42,317

   $         2,117

   $            716

            $                   -

   $         45,150

Interest charges

   $      21,025

   $       14,396

   $       13,935

            $         (9,175)

   $         40,181

Interest income

   $        2,787

   $              49

   $         9,339

            $         (9,163)

   $           3,012

Equity income from investees

   $                -

   $       40,872

   $         (212)

            $                   -

   $         40,660

Federal and state income tax expense (benefit)

   $      22,044

   $       10,979

   $      (2,955)

            $            (118)

   $         29,950

Segment profit (loss) from continuing operations,  net

   $      38,695

   $       16,700

   $      (3,081)

            $                   -

   $         52,314

Income from discontinued operations, net of tax

                       -

                (436)

                       -

                                  -

                   (436)

Segment profit (loss) (1)

   $      38,695

   $       16,264

   $      (3,081)

            $                   -

   $         51,878

Additions to long-lived assets    

   $      57,550

   $         (136)

   $         1,126

            $                   -

   $         58,540

Segment assets

   $ 1,417,446

   $     363,563

   $     562,968

                  (541,658)

   $    1,802,319

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

Segment profit

** **

            $         51,878

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                       (1,745)

** **

** **

Net income applicable to common stock

** **

            $         50,133

** **

** **

25
****
**Note 4 - Restricted Cash**

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.

**Note 5 - Equity Investment inInvestees**

Equity investment in investees representsMidstream's $254.5 million investment in APP, owned 50% by APH and 50% byCalpine; its $78.9 million investment in Evangeline, owned 100% by Midstream;and $0.2 million of minimal other Cleco equity investments.  Midstream'sportion of earnings from APP and Evangeline is included in the equityinvestments of each company.  APP earned $13.6 million and $38.4 million forthe three and nine months ended September 30, 2005, respectively.  APH receivespriority cash distributions and earnings as its consideration for therestructuring of one of the Calpine Tolling Agreements in May 2003.  APH alsoreceives cash payments from APP's tolling counterparty, subject to certain conditions,in relation to the restructuring of one of the Calpine Tolling Agreements inAugust 2005.  These cash payments are recorded as a component of other incomeon Cleco Corporation's Condensed Consolidated Statements of Income.  For moreinformation about this restructuring, see the discussion below.  Midstream'sequity investment earnings from APP were $8.5 million and $24.5 million for thethree and nine months ended September 30, 2005, respectively.  In accordancewith FIN 46R, Cleco deconsolidated Evangeline from its consolidated financialstatements effective April 1, 2004.  Equity investment earnings from Evangelinewere $16.6 million and $21.6 million for the three and nine months ended September30, 2005, respectively.  For the three and nine months ended September 30,2005, no significant earnings or losses were recorded for the other equity investments.

Significant terms of the August 2005 restructuringof one of the Calpine Tolling Agreements are summarized below:
-  APH terminated $25.0 million in letters of credit posted byCalpine in favor of APH pursuant to the tolling agreements, which letters ofcredit were due to expire by the end of 2006.  A $15.0 million letter of creditwill remain in place for the life of the Calpine Tolling Agreements through2022. 
-  CES will pay reduced prices to APP under one of the CalpineTolling Agreements. 
-  APH will receive cash payments from CES through 2022.  Thesepayments enhance the cash distributions available to APH.  In addition, in theevent of a CES default under the Calpine Tolling Agreements, these payments areguaranteed by CAH and APP.  Under the current arrangement, in the event thatCES defaults in making such cash payments and CAH defaults under its guarantee,APH will receive guaranteed and priority annual cash payments from APP totaling$19.0 million through 2011 and $21.0 million thereafter through 2022.  Thecurrent arrangement was effective as of July 1, 2005 and prorated for years2005 and 2022. 

***APP***

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

**AT SEPTEMBER 30,**

** **

   AT DECEMBER 31,

(THOUSANDS)

**                      2005**

** **

                       2004

Contributed assets (cash and land)

**   $  250,612**

     $       250,612

Net income (inception to date)

**         98,586**

                 74,135

Capitalized interest and other (inception to  date)

**         19,469**

                 19,469

     Less: Cash distributions (inception to date)

**       114,128**

                 87,232

          Total equity investment in investee

**   $  254,539**

     $       256,984

Midstream's equity, as reported on thebalance sheet of APP at September 30, 2005, was $285.2 million.  The differenceof $30.7 million between the equity investment in investee of $254.5 million asshown in the table above and Midstream's equity includes $19.5 million ofinterest capitalized on funds contributed to APP.  It also includes other miscellaneouscharges related to the construction of the APP facility, offset by $50.2million which represents the difference between the accounting treatments usedby the partnership entities to record the allocation of termination agreement income. Cash distributions to date of $114.1 million were used to pay interest andrepay principal on debt issued by Cleco Corporation relating to thisinvestment.  For the nine months ended September 30, 2005, APH had received allof its $14.0 million annual priority cash distributions and its $1.3 millionannual 2005 prorated cash payment.

The following tables contain summarized financialinformation for APP.

**AT SEPTEMBER 30,**

   AT DECEMBER 31,    

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$      11,803**

   $            13,929

Property, plant and equipment, net

**       453,354**

               462,654

Other assets

**           9,930**

                    7,632

     Total assets

**$    475,087**

   $          484,215

Current liabilities

**$        1,329**

   $              9,070

Partners' capital

**       473,758**

               475,145

     Total liabilities and partners' capital

**$    475,087**

   $          484,215

 

            FOR THE THREE MONTHS ENDED                                    SEPTEMBER 30,

               FOR THE    NINE MONTHS ENDED                                   SEPTEMBER 30,

(THOUSANDS)

**                    2005**

                   2004

**                    2005**

                  2004

Total revenue

** $   17,790**

   $        16,041

** $   54,342**

   $        54,883

Total operating expenses

**         4,239**

                7,697

**       15,984**

             26,156

Other income 

**              25**

                         -

**              47**

                        -

     Net income

** $   13,576**

   $          8,344

** $   38,405**

   $        28,727

 Income tax expense and interest chargesrecorded on APH's financial statements related to Midstream's 50% ownership interestin APP were $2.2 million and $4.0 million, and $5.3 million and $11.4 million,for the three and nine months ended September 30, 2005, respectively.

Income tax expense and interest charges recorded onAPH's financial statements related to Midstream's 50% ownership interest in APPwere $0.6 million and $3.3 million, and 

26

$3.7 million and $9.7 million, for thethree and nine months ended September 30, 2004, respectively.

***Evangeline***

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

**AT SEPTEMBER****30,**

** **

**  **AT DECEMBER 31,

(THOUSANDS)

**                      2005**

** **

                      2004

Contributed assets (cash)

**   $    43,580**

     $          43,580

Net income (inception to date)

**       125,153**

               103,527

     Less:  Cash distributions (inception to  date)

**         89,843**

                 89,843

          Total equity investment in investee

**   $    78,890**

     $          57,264

 The following tables contain summarizedfinancial information for Evangeline.

**AT SEPTEMBER 30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$      19,598**

   $            17,721

Accounts receivable - affiliate

**         14,775**

                    5,819

Property, plant and equipment, net

**       194,891**

               198,053

Other assets

**         43,831**

                 42,502

     Total assets

**$    273,095**

   $          264,095

Current liabilities

**$      14,211**

   $            13,334

Accounts payable - affiliate

**              654**

                    2,624

Long-term debt

**       184,716**

               191,820

Other liabilities

**         57,517**

                 53,018

Member's equity

**         15,997**

                    3,299

     Total liabilities and member's equity

**$    273,095**

   $          264,095

 

            FOR THE THREE MONTHS ENDED                                    SEPTEMBER 30,

               FOR THE    NINE MONTHS ENDED                                   SEPTEMBER 30,

(THOUSANDS)

**                    2005**

                   2004

**                   2005**

                  2004

Operating revenue

** $   26,538**

   $        27,084

** $   48,243**

   $        49,135

Operating expenses

**         4,559**

                3,022

**       10,118**

               9,058

Depreciation

**         1,298**

                1,404

**         3,887**

               4,217

Interest charges

**         4,313**

                4,484

**       13,061**

             13,399

Other income

**            233**

                      69

**            532**

                   165

Other expense

**              17**

                        7

**              73**

                     21

Federal and state income taxes    

**                 -**

                         -

**                 -**

                   528

Net income

** $   16,584**

   $        18,236

** $   21,636**

   $        22,077

Income tax expense recorded on Midstream'sfinancial statements related to Midstream's 100% ownership interest inEvangeline was $6.6 million and $8.9 million for the three and nine monthsended September 30, 2005, respectively.

Income tax expense, not reflected in the chartabove, recorded on Midstream's financial statements related to Midstream's 100%ownership interest in Evangeline was $7.2 million and $8.5 million for thethree and nine months ended September 30, 2004, respectively.

**Note 6 - Recent Accounting Standards**

Cleco and Cleco Power adopted, or will adopt, therecent accounting standards listed below on their respective effective dates.

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

On December 16, 2004, SFAS No.123R was issued, which provides expensing and disclosure requirements forstock-based compensation.  This statement will require all equity instruments,including stock options, to be expensed at their fair value and supersedes APBOpinion No. 25 and SFAS No. 123 which allowed companies to use the intrinsicvalue method.  Currently, Cleco utilizes the intrinsic value method as describedin APB Opinion No. 25.  SFAS No. 123R also prohibits reversing previouslyrecognized stock-based compensation expense, if the forfeiture of theinstruments was due to the failure of a market-based performance measure.  Mostof Cleco's stock-based compensation contains market-based performance measures. On April 14, 2005, the SEC extended the effective date of this statement frominterim periods beginning after June 15, 2005, to the first fiscal yearbeginning after June 15, 2005.  For Cleco, the extension means that SFAS No.123R will be implemented effective January 1, 2006.  Cleco currently expects tochoose the modified prospective method of transition which requires a companyto prospectively recognize compensation expense calculated pursuant to SFAS No.123R for all non-vested stock-based compensation outstanding on the date ofadoption.  Cleco expects to record pre-tax compensation expense ofapproximately $2.3 million annually upon adoption of SFAS No. 123R.  See Note 1- "Summary of Significant Accounting Policies - Stock-Based Compensation," foradditional information concerning Cleco's stock-based compensation.

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

On March 30, 2005, the FASB issued FIN 47 which isan interpretation of SFAS No. 143.  FIN 47 requires an asset retirementobligation which is conditional on a future event, to be recorded, even if theevent has not yet occurred.  The obligation to perform the asset retirement isunconditional even though uncertainty exists as to the timing and method of settlementdue to the existence of a conditional event.  This interpretation is effectivefor fiscal years ending after December 15, 2005.  Retrospective application forthe year 2005 interim 

27

periods is permitted but not required.  Additionalrecognition of the obligation caused by the adoption of FIN 47 will be recordedas a cumulative effect due to a change in accounting principle.  Clecocurrently is evaluating the impact of FIN 47.

On June 1, 2005, the FASB issued SFAS No. 154 whichdescribes the reporting and disclosures of accounting changes and error correctionsby replacing APB Opinion No. 20 and SFAS No. 3.  A change from one accountingprinciple to another, unless otherwise stated in a specific accountingpronouncement, will require retrospective application.  Retrospectiveapplication will require all periods presented to be restated as if the newprinciple had been in effect during the respective time period and reflect acumulative effect adjustment to the opening balance of the appropriate balancesheet accounts for prior periods which are not presented.  Changes in accountingestimates should be accounted for in the period of change and subsequentperiods affected by the change.  Errors in financial statements of a priorperiod shall be reported as prior-period adjustments.  SFAS No. 154 is effectivefor accounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005; therefore, management is unable to estimate the impactthis statement will have on the financial condition or results of operations ofthe Registrants.

On June 29, 2005, the FASB ratified the consensusin EITF No. 05-6 which specifies the amortization period of leasehold improvements. EITF No. 05-6 states that leasehold improvements should be amortized over thelesser of (i) the leasehold improvements' useful life or (ii) a period that reflectsrenewals that are reasonably assured upon acquisition of the leaseholdimprovements.  This EITF is effective on a prospective basis for leaseholdimprovements acquired in periods beginning after June 29, 2005.  Cleco has notacquired any leasehold improvements since the EITF's effective date.

On July 12, 2005, the FASB issued FSP APB No. 18-1that requires, for investments accounted for using the equity method, an investor'sproportionate share of an investee's equity adjustments for other comprehensiveincome to be offset against the carrying value of the investment at the timesignificant influence is lost.  Any accumulated other comprehensive incomeadjustment that would cause the investment account to drop below zero should berecorded in income.  This FSP is effective in the first reporting periodbeginning after July 12, 2005.  Currently, management does not expect theadoption of this FSP to have an impact on the financial condition or results ofoperations of the Registrants.

On September 15, 2005, the FASB ratified EITF No.04-13 which provides guidance on accounting for purchases and sales of inventorywith the same counterparty.  If certain criteria are met, purchases and salesof inventory with the same counterparty should be accounted for at fair valueas required by APB Opinion No. 29.  Entities are required to apply this EITF tonew arrangements entered into during reporting periods beginning after March15, 2006.  Management currently is evaluating the impact this EITF could haveon the financial condition or results of operations of the Registrants.

On October 6, 2005, the FASB issued FSP FAS No.13-1 which provides guidance on the accounting treatment of land and buildingleases during periods of construction.  Land and building operating lease costsincurred during a construction period shall be recognized as rental expense andnot capitalized as a cost of the constructed asset.  This FSP is effective forreporting periods beginning after December 15, 2005, and applies to all rentalcosts incurred after the effective date.  The adoption of this FSP is notanticipated to significantly impact the financial condition or the results ofoperations of the Registrants.

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

Cleco's reported earnings for the three monthsended September 30, 2005, and 2004, reflect accruals of $0.3 million and $1.3million, respectively, within Cleco Power for electric customer credits that areexpected to be refunded to customers under terms of an earnings reviewsettlement reached with the LPSC in 1996.  Reported earnings for the ninemonths ended September 30, 2005, and 2004, include accruals of $0.8 million and$21.2 million, respectively.  The amount recorded in the nine months endedSeptember 30, 2004, also includes the accrual of credits relating to ClecoPower's 2001-2002 fuel audit settlement.

The 1996 LPSC settlement, subsequent amendments,and an approved one-year extension, set Cleco Power's rates until September 30,2005.  On September 14, 2005, the LPSC approved an additional one-yearextension of Cleco Power's rate stabilization plan to September 30, 2006.  Thesubsequent amendments and one-year extensions have not changed the terms of theoriginal 1996 settlement.  As part of the settlement, Cleco Power is allowed toretain all regulated earnings up to a 12.25% return on equity and to shareequally with customers, as credits on their bills, all regulated earnings between12.25% and 13% return on equity.  All regulated earnings above a 13% return onequity are credited to customers.  This effectively allows Cleco Power the opportunityto realize a regulatory rate of return up to 12.625%.  The amount of creditsdue customers, if any, is determined by Cleco Power and the LPSC annually,based on results for each 12-month period ended September 30.  The 1996 LPSCsettlement provides for such credits to be made on customers' bills the followingsummer.

Credits due to customers relating to ClecoPower's 2001-2002 fuel audit settlement were included on customer bills in thefirst quarter of 2005.  The LPSC has not yet issued its preliminary report forthe cycles ended September 30, 2002, 2003, or 2004, for which Cleco Power hasmade the requisite filings.  Cleco Power anticipated the completion of the reviewsfor the cycles ended September 30, 2002, 2003, and 2004 by the end of 2005. However, due to the current focus on issues relating to Hurricanes Katrina andRita, and the related impact on the LPSC's schedule, completion of thesereviews now are expected to extend into 2006.

ClecoPower's Balance Sheets at September 30, 2005, and December 31, 2004, reflectthe following accruals for 

28

estimated customer credits relating to the 12-month cycles ended September 30,2002 through September 30, 2005.

**AT SEPTEMBER****30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Provision for rate refund

**$         7,927**

   $            23,951

Other deferred credits

**           2,933**

                    1,962

     Total customer credits

**$       10,860**

   $            25,913

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

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

As stated above, Cleco Power's current ratestabilization plan was extended to September 30, 2006.  The extension of thecurrent rate stabilization plan allows Cleco Power additional time to evaluatedifferent rate design options relating to its solid-fuel power plant constructionproposal.  Cleco Power expects to file a proposed rate plan with the LPSC bythe first quarter of 2006 to replace the extended rate stabilization plan. 

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

***Securities Litigation***

On April 18, 2003, a Shareholder's DerivativeComplaint was filed by a shareholder of Westar, in the U.S. District Court forthe District of Kansas.  The defendants named in the complaint were Westar, itsBoard of Directors, its former Chief Executive Officer, President and Chairman,and Cleco Corporation.  The complaint alleged violations of Section 14(a) ofthe Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, and,in addition, breaches of fiduciary duties owed to Westar, and/or for aiding andabetting such breaches.  The complaint asserted that Cleco Corporation aidedand abetted the director defendants' breaches of fiduciary duties by engagingin round-trip trades with Westar.  The complaint sought the award ofunspecified compensatory damages against the defendants and the plaintiff'scosts and disbursements of the lawsuit.  The complaint was amended, but theclaims against Cleco Corporation did not change substantively.  On May 31,2005, a settlement agreement was finalized between the parties.  The settlementwas approved by the court on September 1, 2005, despite an objection by oneshareholder to provisions in the settlement releasing Westar's outside counseland investment advisors.  Subsequent to the aforementioned hearing, the sameobjecting shareholder filed a motion requesting that the court reconsider itsapproval.  The court has not yet conducted a hearing regarding this motion.  Ifapproved in its current form, the final settlement is not expected to have amaterial impact on Cleco's financial condition, results of operations, or cashflows, due to the settlement releasing Cleco from any liability.

***Other Litigation***

On June 22, 2005, the City of Alexandria,Louisiana, a current municipal customer of Cleco Power and referred to in thisnote as (the City), filed a lawsuit, in Ninth Judicial District Court, againstCleco Corporation, Cleco Power and certain other subsidiaries allegingunspecified damages as a result of certain sales made to the City, revenuederived by Cleco using the City's power generating facilities under contractswith the City, and other alleged improper conduct, including, withoutlimitation, allegations that Cleco fraudulently mishandled the management ofthe City's power requirements under the contracts.  The lawsuit was removed to,and currently is pending in the U.S. District Court Western District,Louisiana.  Cleco previously was in discussions with the City to perform anaudit of these disputed transactions; however, the City and Cleco could notagree on the process by which the audit would be conducted.  Managementbelieves that the dispute will not have a material adverse effect on theRegistrants' financial condition, results of operations, or cash flows.

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

29

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.  Cleco'soff-balance sheet commitments as of September 30, 2005, are summarized in thefollowing table, and a discussion of the off-balance sheet commitments isdetailed in the explanations following the table.  The discussion should beread in conjunction with the table to understand the impact of the off-balancesheet commitments on Cleco's financial condition.

   AT SEPTEMBER 30, 2005

          REDUCTIONS TO THE

          AMOUNT AVAILABLE

           TO    BE DRAWN ON

                 FACE

** **

NET

CLECO CORPORATION'S

(THOUSANDS)

            AMOUNT

REDUCTIONS

AMOUNT

               CREDIT FACILITY

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

**            $ 277,400**

** $  135,000**

**            $ 142,400**

**         $        328**

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

**                   1,400**

**             **

**                   1,400**

**                1,400**

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

**                 15,000**

**             **

**                 15,000**

**              15,000**

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

**                   6,688**

**             **

**                   6,688**

**                6,688**

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

**                      525**

**             **

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 17,148**

**             **

**                 17,148**

**                        -**

     Total

**            $ 318,161**

** $  135,000**

**            $ 183,161**

**         $   23,416**
Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance, indemnity,representation, and warranty obligations under the Sale Agreement, the PowerPurchase Agreement, and other ancillary agreements related to the sale.  As of September30, 2005, the aggregate guarantee of $277.4 million is limited to $142.4million (other than with respect to the indemnification of environmental mattersto which there is no limit) due to the performance of some of the underlying obligations that wereguaranteed.  The $0.3 million reduction in the available credit under Cleco'scredit facility was determined in accordance with the facility's definition ofa contingent obligation.  The contingent obligation reduces the amountavailable under the credit agreements by an amount equal to the reasonably anticipatedliability in respect of the contingent obligation as determined in good faithif the total amount of indebtedness outstanding, including such contingentobligations, exceeds certain thresholds.  This required an estimate of theprobability, amount and timing of a payment by Cleco pursuant to thisguarantee.  For additional information on this guarantee, see Note 9 -"Disclosures about Guarantees."
Previously, if Perryville was unable to makeprincipal payments to its lenders, Cleco Corporation would be required to pay amountson behalf of Perryville under a cash collateral order issued by the Perryvilleand PEH Bankruptcy Court.  As of September 30, 2005, Perryville had paid alloutstanding amounts under its Senior Loan Agreement; accordingly, ClecoCorporation has no remaining obligation under the guarantee.  This guarantee terminatedin September 2005 upon termination of Perryville's cash collateral order.  Forinformation on the cash collateral order, bankruptcy filings of the MirantDebtors, Perryville and PEH, and their related impacts on the Senior LoanAgreement, see Note 13 - "Perryville."

In November 2004, Cleco completed the sale ofsubstantially all of the assets of Cleco Energy.  Cleco Corporation providedguarantees to the buyers of Cleco Energy's assets for the payment andperformance of the indemnity obligations of Cleco Energy.  The aggregate amountof the guarantees is $1.4 million.  The purchaser of Cleco Energy's assets has invokedits indemnification provisions pursuant to the purchase and sale agreement thatCleco guaranteed, as a result of a recently filed lawsuit against the purchaserand Cleco Energy (related to the price charged for certain natural gas sales byCleco Energy).  After an initial investigation, management believes this matterwill not have a material impact on Cleco's financial condition, results ofoperations, or cash flows.  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.  This agreementprovides for the acquisition of transmission assets by Attala, includingAttala's obligations to pay the purchase price for the assets and to indemnifythe seller.  The maximum amount payable under the guarantee is $6.7 million(subject to certain purchase price adjustments).

30

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

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 September 30, 2005, Cleco Power's 50%exposure for this obligation was approximately $17.1 million.  The lignitemining contract is in place until 2011 and does not affect the amount ClecoCorporation can borrow under its credit facility.

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

              AT SEPTEMBER 30, 2005

                                 AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

                   NET

                MORE

            AMOUNT

     LESS    THAN

             THAN

(THOUSANDS)

   COMMITTED

       ONE YEAR

      1-3 YEARS

      4-5 YEARS

         5 YEARS

Guarantees

   $ 167,636

   $      6,688

   $               -

   $ 101,400

   $   59,548

Standby letters of credit

        15,525

              525

                    -

                    -

        15,000

     Total commercial commitments

   $ 183,161

   $      7,213

   $               -

   $ 101,400

   $   74,548

***CES***

On August 9, 2005, APP and Calpine executed agreementswith CES to settle their dispute over the availability of transmission capacityat the Acadia plant under the Calpine Tolling Agreements.

Significant terms of the settlement are summarizedbelow:
-  APP and CES have agreed to release all claims related to electrictransmission constraints external to the APP power project.  CES also hasagreed that the Calpine Tolling Agreements allocate all risks of transmissionconstraints external to the APP power project to CES.
-  APH terminated $25.0 million in letters of credit posted byCalpine in favor of APH pursuant to the Calpine Tolling Agreements, which lettersof credit were due to expire by the end of 2006.  A $15.0 million letter ofcredit will remain in place for the life of the Calpine Tolling Agreementsthrough 2022.
-  CES will pay reduced prices to APP under one of the Calpine TollingAgreements.
-  APH will receive cash payments from CES through 2022.  Thesepayments enhance the cash distributions available to APH and are recorded as acomponent of other income on Cleco Corporation's Condensed ConsolidatedStatements of Income.  In addition, in the event of a CES default under the CalpineTolling Agreements, these payments are guaranteed by CAH and APP.  A $14.0million priority distribution to APH was established when CES entered into thesecond APP tolling agreement in May 2003. Under the current arrangement, in theevent that CES defaults in making such cash payments and CAH defaults under itsguarantee, APH will receive guaranteed and priority annual cash payments fromAPP totaling $19.0 million through 2011 and $21.0 million thereafter through2022.  The current arrangement was effective as of July 1, 2005 and proratedfor years 2005 and 2022.
-  The net effect of the settlement agreement will be to reduce Cleco's pre-tax cash distributions from APP by approximately $0.5 millionannually as long as CES performs under the Calpine Tolling Agreements.   

***APP***

During a detailed review of the gas and electric meteringat the Acadia plant, a potential electric metering error was discovered whereby,APP unknowingly generated excess power to its electric interconnections.  APPhas made a claim against Cleco Power for the delivery of the excess generationfor which it has not received compensation.  Cleco Power has evaluated theclaim and communicated to APP that to the extent any unmetered power wasgenerated, Entergy received the predominant benefit of that power, andtherefore APP's claim, if any, is primarily against Entergy rather than ClecoPower.  Cleco Power has not yet received a response from APP or Entergy.

***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 identifyadditional PRPs.  It is likely that Cleco Power, together with other PRPs, willbe required to contribute to the past and future cost of the investigation andremediation of the site.  The ultimate cost of remediation of the site, ClecoPower's share of such cost, and the timing of any additional accrual that ClecoPower may be required to make in connection with this matter cannot beestimated at this time.  However, management believes that the outcome of thesite remediation will not have a 

31
******
 

material adverse impact on the Registrants'financial condition, results of operations, or cash flows.

***EPA***

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

***Other Contingencies***

On June 6, 2005, the Louisiana EnvironmentalAction Network and the Austin Civil War Roundtable filed a notice of intent tosue Dolet Hills Lignite Company.  Dolet Hills Lignite Company is a wholly ownedsubsidiary of SWEPCO and operates the mine which supplies the lignite used inthe Dolet Hills power plant, which is 50% owned by Cleco Power.  The two groupsclaim that Dolet Hills Lignite Company is violating certain sections of theClean Water Act.  While no suit has been filed to date, on August 4, 2005, theLouisiana Department of Environmental Quality issued a compliance order andnotice of potential penalty to Dolet Hills Lignite Company for excursions oftheir wastewater discharge permit issued pursuant to the Clean Water Act.

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 credit watchfor possible downgrade below investment grade, failure to make requiredpayments, and failure to maintain a certain debt-to-equity ratio.  The amountof the additional security required to be provided by Cleco Power to Williamsin the event of a Cleco Power ratings trigger is $5.0 million under thiscontract.  The capacity and energy contract between Cleco Power and Williams expireson December 31, 2005.

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

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

***Risks andUncertainties***

**Cleco**

Cleco Corporation could be subject to possibleadverse consequences if any of Cleco's remaining counterparties fail to performtheir obligation under their respective tolling agreements or if ClecoCorporation or its affiliates are not in compliance with loan agreements orbond indentures.  Cleco's remaining tolling counterparties are Williams and CES. The following list is not all-inclusive, but represents examples of possibleadverse consequences resulting from the nonperformance of Cleco's Tolling Agreementcounterparties and certain defaults resulting from noncompliance with debt covenantagreements or bond indentures:
-  Cleco's financial condition and results of operations may beadversely affected by the tolling counterparties' failure to pay amounts due toCleco and may not be consistent with historical and projected results.
-  Cleco may not be able to enter into agreements in replacement ofits existing tolling agreements on terms as favorable as its existing agreementsor at all.
-  Cleco would be required to test any long-lived generation assetfor impairment.  If Cleco determined that an impairment existed, the assetwould be written down to its fair market value, which could materially adverselyaffect Cleco's results of operations and financial condition.
-  Possible acceleration of Cleco's project-level debt; in particular,under provisions of the bonds issued by Evangeline, the bondholders have theright to demand the entire outstanding principal amount ($191.8 million at September30, 2005) and interest to be immediately due and payable upon a default underthe Evangeline Tolling Agreement.  As of September 30, 2005, Cleco was notaware of any such default by Williams.  If the bondholders were to exercisethis right, Evangeline might, among other things, refinance the bonds, pay offthe bonds with other borrowings or the proceeds of issuances of additionaldebt, or cause Evangeline to seek protection under federal bankruptcy laws.  Inaddition, the trustee of the bonds could foreclose on the mortgage and assumeownership of the plant.  Any alternative financing would likely be on lessfavorable terms than the existing terms.  The bonds issued by Evangeline arenonrecourse to Cleco Corporation.

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

32

**Cleco Power**

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

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

**Note 9 - Disclosures about Guarantees**

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

Guarantees and indemnifications were issued inconnection with the sale of the generation assets to Entergy Louisiana byPerryville.  These guarantees and indemnifications fall within the recognitionscope of FIN 45 because they relate to the past performance, indemnity,representation, and warranty obligations of the disposed assets and alsocontain provisions requiring payment for potential damages.  The potential lengthof these liabilities range from a five-year life to an indefinite life.  Eachindemnification and guarantee was assigned a probability and an estimate ofpotential damages.  The maximum aggregate potential damages under theguarantees and indemnifications are $42.4 million (excluding maximum aggregatepotential damages of $100.0 million for discharge of project debt discussed inmore detail below and the indemnification of environmental matters to whichthere is no limit).  On June 30, 2005, Perryville paid all interest andprincipal owed under the Senior Loan Agreement, and on July 19, 2005, itexercised offset rights against MAI to satisfy its obligations of $98.7 millionunder the Subordinated Loan Agreement.  As a result, it is unlikely that ClecoCorporation will have any other liabilities which would give rise to indemnityclaims against Perryville and trigger any actual obligation under the $100.0million portion of the guarantee which terminates on June 30, 2010.  Thediscounted probability-weighted liability under the guarantees andindemnifications as of September 30, 2005, was $0.3 million.  For additionalinformation on the sale of the generation assets of Perryville, see Note 13 -"Perryville."

Guarantees and indemnifications were issued inconnection with the asset sales of Cleco Energy's oil and gasproperties and natural gas pipelines.  These guarantees and indemnificationsfall within the recognition scope of FIN 45, because they relate to the pastperformance obligations of the disposed assets and also contain provisionsrequiring payment for potential damages.  The potential liabilities expire eitherafter a two- or five-year life.  Each indemnification and guarantee wasassigned probabilities and estimates of potential damages.  The maximumaggregate potential payment under the guarantees and indemnifications is $1.2million.  The discounted probability-weighted liability under the guaranteesand indemnifications as of September 30, 2005, was $0.1 million.  The buyers ofthe Cleco Energy assets would be entitled to amounts under the guarantees and indemnificationsdue to breach or default of performance of Cleco Energy under their respectivesale agreements.  Cleco Corporation has guaranteed Cleco Energy'sindemnification 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.  The purchaser of Cleco Energy's assetshas invoked its indemnification provisions pursuant to the purchase and saleagreement that Cleco guaranteed, as a result of a recently filed lawsuitagainst the purchaser and Cleco Energy (related to the price charged forcertain natural gas sales by Cleco Energy).  After an initial investigation,management believes that this matter will not have a material impact on Cleco'sfinancial condition, results of operations, or cash flows.  For additionalinformation on the sales of Cleco Energy assets, see Note 14 - "DiscontinuedOperations and Dispositions."

In its bylaws, Cleco Corporation has agreed toindemnify directors, officers, agents and employees who are made a party to apending or completed suit, arbitration, investigation, or other 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 

 

33

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 September 30, 2005, Cleco's long-term debtoutstanding was $460.4 million, compared to $450.6 million at December 31,2004.  The $9.8 million increase was primarily the result of the issuance byCleco Power of $50.0 million of 4.95% Senior Notes, due July 15, 2015, offsetpartially by the classification of $40.0 million of medium-term notes asshort-term debt (long-term debt due within one year) based on their maturitydates. 

During the first nine months of 2005, Cleco alsorepaid $100.0 million of Cleco Corporation's 8.75% Senior Notes and $60.0 millionof Cleco Power's Series X, 9.5% First Mortgage Bonds, both at maturity.  Thesetwo issues were classified as long-term debt due within one year; therefore,the repayment did not affect the total amount of long-term debt recorded.  Therepayments were funded by available cash and new borrowings, aided by interimborrowings from credit facilities.

Cleco had no short-term debt outstanding atSeptember 30, 2005, or December 31, 2004.

Cash and cashequivalents available at September 30, 2005, were $37.3 million combined with $251.6million total facility capacity for total liquidity of $288.9 million.  Cashand cash equivalents at September 30, 2005, decreased $86.4 million, whencompared to December 31, 2004, due to repayment of long-term debt, payment ofdividends, expenditures for capital additions to property, plant and equipment,both routine and for storm restoration.  These payments were partially offsetby cash received from the issuance of long-term debt, from on-going operations,and from routine working capital fluctuations.

Evangeline, deconsolidated and no longerreported in Cleco Corporation's consolidated results, had no short-term debtoutstanding at September 30, 2005.  Evangeline had $184.7 million and $191.8million of long-term debt outstanding at September 30, 2005, and December 31,2004, respectively, in the form of 8.82% Senior Secured Bonds due in 2019.  Inaddition, Evangeline had $7.1 million and $6.0 million of long-term debt duewithin one year at September 30, 2005, and December 31, 2004, respectively,relating to these bonds.  The bonds issued by Evangeline are non-recourse toCleco Corporation.

***Cleco Power***

At September 30, 2005, Cleco Power's long-termdebt outstanding was $360.4 million, compared to $350.6 million at December 31,2004.  The $9.8 million increase was primarily the result of the issuance byCleco Power of $50.0 million of 4.95% Senior Notes, due July 15, 2015, offsetpartially by the classification of $40.0 million of medium-term notes asshort-term debt (long-term debt due within one year) based on their maturitydates. 

During the first nine months of 2005, Cleco Poweralso repaid $60.0 million of Series X, 9.5% First Mortgage Bonds, at maturity. This issue was classified as long-term debt due within one year; therefore, therepayment did not affect the total amount of long-term debt recorded.  Therepayment was funded by available cash and the new borrowings by Cleco Power mentionedabove, aided by interim borrowings from Cleco Power's credit facility.

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

Cash and cash equivalents available at September 30,2005, were $15.4 million, which when combined with $125.0 million remaining facilitycapacity totaled $140.4 million.  Cash and cash equivalents at September 30,2005, decreased $38.7 million, when compared to December 31, 2004, due to repayment of long-term debt, payment of dividends toCleco Corporation, and expenditures for capital additions to property, plantand equipment, both routine and for storm restoration.  These payments werepartially offset by cash received from the issuance of long-term debt, fromon-going operations, and from routine working capital fluctuations.

***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 replaced itsthen existing $150.0 million, three-year credit facility with a $150.0 million,five-year facility.  This facility provides for working capital and otherneeds.  Cleco Corporation's borrowing costs under this facility are equal toLIBOR plus 0.875%, including facility fees.  At September 30, 2005, therewas no debt outstanding under the facility.  Cleco Corporation's borrowing costsunder the prior facility were equal to LIBOR plus 1.225%.

On April 25, 2005, Cleco Power replaced itsexisting $125.0 million, 364-day credit facility with a $125.0 million,five-year facility.  This facility provides for working capital and other needs. Cleco Power's initial borrowing cost under this facility is equal to LIBOR plus0.600%, including facility fees.  At September 30, 2005, there was no debtoutstanding under this facility.  Cleco Power's borrowing costs under the priorfacility were equal to LIBOR plus 1.0%, including facility fees. 

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

34

**Note 11 - Variable Interest Entities**

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

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

Since its inception, Cleco has had 100% ownershipand voting interest of Evangeline.  All of the capacity and output of the powerplant has been tolled to Williams which pays Evangeline certain fixed andvariable amounts.  At September 30, 2005, Evangeline had assets with a bookvalue of approximately $273.1 million and liabilities of $257.1 million.  Forthe three and nine months ended September 30, 2005, Evangeline had operatingrevenue of $26.5 million and $48.2 million, respectively and operating expenses(including depreciation) of $5.9 million and $14.0 million, respectively. Cleco's current assessment of its maximum exposure to loss at September 30, 2005,consists of its equity investment of $78.9 million.

**Note 12 - Pension Plan andEmployee 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 nine monthsended September 30, 2005.  During 2005, a contribution is not expected to be requiredby funding regulations.  A discretionary contribution may be made during thefourth quarter of 2005; however, the decision by management to make a contributionand the amount, if any, has not been determined.  Cleco Power is considered theplan sponsor, and 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 and nine months ended September 30, 2005, and 2004 areas follows:

                      PENSION BENEFITS

                       OTHER BENEFITS

                        FOR THE THREE MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**             2005**

               2004

**              2005**

             2004

Components of periodic benefit costs

** **

     Service cost

**            $    1,718**

** **

   $       1,368

** $     654**

   $         533

     Interest cost    

**    3,339**

** **

            3,045

**         594**

              620

     Expected return on plan assets

**   (4,593)**

** **

          (4,345)

**             -**

                   -

     Amortization of transition obligation  (asset)

**            -**

** **

                   (9)

**             -**

                97

     Prior period service cost amortization

**        246**

** **

               246

**       (188)**

                   -

     Net loss amortization

**        265**

** **

                (87)

**         304**

              248

     Net periodic benefit cost

**$     975**

** **

   $          218

** $  1,364**

   $     1,498

 

                      PENSION BENEFITS

                       OTHER BENEFITS

                         FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(THOUSANDS)

**             2005**

               2004

**              2005**

             2004

Components of periodic benefit costs

** **

     Service cost

**            $    5,115**

** **

   $       4,564

** $  1,962**

   $     1,725

     Interest cost    

**    9,993**

** **

            9,482

**     1,783**

          1,799

     Expected return on plan assets

**(13,776)**

** **

        (13,057)

**             -**

                   -

     Amortization of transition obligation  (asset)

**            -**

** **

                (27)

**             -**

              292

     Prior period service cost amortization

**        739**

** **

               739

**       (567)**

                   -

     Net loss amortization

**        773**

** **

                  48

**         913**

              630

     Net periodic benefit cost

**$  2,844**

** **

   $       1,749

** $  4,091**

   $     4,446

Since Cleco Power is the plan sponsor andthe related trust holds the assets, the prepaid benefit cost of the pensionplan is reflected at Cleco Power.  The liability of Cleco Corporation's othersubsidiaries is transferred, with a like amount of assets, to Cleco Powermonthly.  The expense of the pension plan related to Cleco Corporation's othersubsidiaries for the three and nine months ended September 30, 2005, was $0.6million and $1.7 million, respectively.  The expense of the pension plan relatedto Cleco Corporation's other subsidiaries for the three and nine months ended September30, 2004, was $0.6 million and $1.6 million, respectively.

Cleco Corporation is the plan sponsor for the otherbenefits.  There are no assets set aside in a trust, and the liabilities arereported on the individual subsidiaries' financial statements.  The expenserelated to other benefits reflected on Cleco Power's statement of income forthe three and nine months ended September 30, 2005, was $1.2 million and $3.5million, respectively.  The expense related to other benefits reflected onCleco Power's statement of income for the three and nine months ended September30, 2004, was $1.2 million and $3.8 million, respectively.

Certain key executives and key managers are coveredby a SERP.  The SERP is a non-qualified, non-contributory, defined benefit pensionplan.  Benefits under the plan reflect an employee's years of service, age atretirement, and the sum of the highest base salary paid out of the last fivecalendar years and the average of the three highest bonuses paid during thelast 60 months prior to retirement, reduced by benefits 

35

received from any other defined benefit pension plan.  Cleco Corporation doesnot fund the SERP liability, but instead pays for current benefits out of thegeneral funds available.  Cleco Power has formed a Rabbi Trust designated asthe beneficiary for life insurance policies issued on the SERP participants.  Proceedsfrom the life insurance policies are expected to be used to pay SERPparticipants' life insurance benefits, as well as future SERP payments.  However,since this is a non-qualified plan, the assets of the trust could be used tosatisfy general creditors of Cleco Power in the event of insolvency.  Nocontributions to the SERP were made during the nine months ended September 30,2005, and 2004.  Cleco Power is considered the plan sponsor and Support Groupis considered the plan administrator.

The components of the net SERP cost are as follows:

            FOR THE THREE MONTHS ENDED                                    SEPTEMBER 30,

               FOR THE    NINE MONTHS ENDED                                   SEPTEMBER 30,

(THOUSANDS)

**                    2005**

                   2004

**                   2005**

                  2004

Components of periodic benefit costs

 

 

 

 

Service cost

** $         320**

   $              272

** $        961**

   $              693

Interest cost

**            348**

                   222

**         1,042**

                   873

Prior period service cost amortization

**              13**

                      13

**              40**

                     40

Net loss amortization

**            174**

                      46

**            522**

                   353

Net periodic benefit cost

**  $         855**

   $              553

**  $     2,565**

   $          1,959

The SERP has no assets, and liabilities arereported on the individual subsidiaries' financial statements.  The expense relatedto the SERP reflected on Cleco Power's statements of income for the three and ninemonths ended September 30, 2005, was $0.3 million and $0.8 million,respectively.  The expense related to the SERP reflected on Cleco Power's statementsof income for the three and nine months ended September 30, 2004, was $0.2million and $0.6 million, respectively.  

Most employees are eligible to participate in a401(k) savings and investment plan.  Cleco Corporation makes matchingcontributions to 401(k) Plan participants by allocating shares of convertiblepreferred stock held by the ESOP.  Compensation expense related to the 401(k)Plan is based upon the value of shares of preferred stock allocated to ESOPparticipants and the amount of interest incurred by the ESOP, less dividends onunallocated shares held by the ESOP.  At September 30, 2005, and 2004, the ESOPhad allocated to employees 182,799 and 175,995 preferred shares, respectively.

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

FOR THE THREE MONTHS ENDED    SEPTEMBER 30,

(THOUSANDS)

**                            2005**

                       2004

401(k) Plan expense

**        $        227**

$            191

Dividend requirements to ESOP on convertible  preferred stock

**        $        451**

$            486    

Interest incurred by ESOP on its indebtedness

**        $          43**

$              86

Company contributions to ESOP

**        $             -**

$                 -

 

  FOR THE NINE MONTHS    ENDED SEPTEMBER 30,

(THOUSANDS)

**                            2005**

                       2004

401(k) Plan expense

**        $        983**

          $           541

Dividend requirements to ESOP on convertible  preferred stock

**        $     1,386**

          $        1,810

Interest incurred by ESOP on its indebtedness

**        $        128**

          $           258

Company contributions to ESOP

**        $             -**

          $                -

Cleco Power is the plan sponsor for the401(k) Plan.  The expense of the 401(k) Plan related to Cleco Corporation'sother subsidiaries for the three and nine months ended September 30, 2005, was lessthan $0.1 million and $0.3 million, respectively.  The expense of the 401(k) Planrelated to Cleco Corporation's other subsidiaries for the three and nine monthsended September 30, 2004, was less than $0.1 million and $0.2 million,respectively.  The expense related to the dividend requirements of the ESOP onconvertible preferred stock is reflected on Cleco Corporation's income statementfor the three and nine months ended September 30, 2005 and 2004. 

**Note 13 - Perryville**

***Background***

Perryville owned and operated a 718-MW naturalgas-fired power plant near Perryville, Louisiana.  The Perryville facilityconsisted of approximately 562 MW of combined-cycle capacity and approximately156 MW of peaking capacity.  In July 2001, Perryville began operating under thePerryville Tolling Agreement, a 21-year capacity and energy sale agreement foruse of Perryville's entire capacity, with MAEM, a subsidiary of Mirant.  Underthe terms of the Perryville Tolling Agreement, MAEM had the right to supplynatural gas to fuel the Perryville facility, and it was exclusively entitled toall of the capacity and energy output from the facility.  Perryville wasobligated to provide energy conversion services, within specified performanceparameters, when requested by MAEM.  The agreement required MAEM to payPerryville various capacity reservation and fixed operations and maintenancefees, the amounts of which depended upon the type of capacity and ultimateperformance achieved by the facility.  In addition to the capacity reservationand fixed operating and maintenance payments from MAEM, Perryville was entitledto collect and MAEM was obligated to pay amounts associated with variableoperating and maintenance expenses based on MAEM's dispatch of the facilityunder the Perryville Tolling Agreement.  Payments received from MAEM under thePerryville Tolling Agreement were Perryville's only source of revenue.  Mirantand MAI provided limited guarantees that supported MAEM's obligations under thePerryville Tolling Agreement.

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

On July 14, 2003, the Mirant Debtors filed forprotection under Chapter 11 of the U.S. Bankruptcy Code in the Mirant DebtorsBankruptcy Court.  The Perryville Tolling Agreement was rejected pursuant tosection 365 of the U.S. Bankruptcy Code as of September 15, 2003, in accordancewith a motion by the Mirant Debtors that was granted by the Mirant Debtors 

36

Bankruptcy Court.  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***

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

Subject to the terms and conditions therein, theMirant Settlement Agreement provides that Perryville's claims in Mirant'sbankruptcy cases are allowed in the amount of $207.0 million.  On July 19,2005, this amount was reduced, pursuant to the Mirant Settlement Agreement, to$108.3 million when Perryville elected to offset its $98.7 million claim (theSubordinated Debt Claim) against MAI with MAI's $98.7 million claim against Perryville. The $98.7 million claim is reflected in other income in "- Financial Results"below.  

As allowed by the Mirant Settlement Agreement, Perryvillesold its claims of $108.3 million against MAEM and Mirant in August 2005 to variousparties at 76.5% of the face amount of these claims.  The pre-tax net proceedsfrom this sale were $81.2 million.  These amounts are reflected in other incomeand other expense, as applicable, in "- Financial Results" below.  Forinformation concerning cash distributions made to Cleco Corporation, see Note20 - "Subsequent Event."

***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.

On July 29, 2005, Perryville and PEH filed adisclosure statement for a joint plan of reorganization to the Perryville andPEH Bankruptcy Court.  An amended disclosure statement was filed by Perryvilleand PEH on August 25, 2005.  The Perryville and PEH Bankruptcy Court approvedthe First Amended Disclosure Statement on August 30, 2005. 

On September 28, 2005, the Perryville and PEH BankruptcyCourt confirmed the First Amended Joint Plan of Reorganization under Chapter 11of the Bankruptcy Code (the Plan) proposed by Perryville and PEH.  Forinformation concerning the effective date of the Plan, see Note 20 - "SubsequentEvent."

***Sale of the PerryvilleFacility***

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

On June 30, 2005, Perryville used $131.0 million ofthe proceeds from the sale of the generating assets to Entergy Louisiana torepay all principal and interest owed under the Senior Loan Agreement.

Cleco Corporation provided a limited guarantee toEntergy Louisiana and Entergy Gulf States for Perryville's performance,indemnity, representation, and warranty obligations under the Sale Agreement,the Power Purchase Agreement, and other ancillary agreements related to thesale.  As of September 30, 2005, the aggregate guarantee of $277.4 million islimited to $142.4 million.  For additional information on this guarantee, seeNote 9 - "Disclosures about Guarantees."

***PerryvilleOperations***

Perryville has retained ownership of itstransmission interconnection equipment, which had a net investment value of $7.8million as of September 30, 2005.  The transmission assets, comprised primarilyof transformers and interconnection equipment, provide transmission service forEntergy Louisiana to interconnect and deliver the output of the Perryvillegenerating assets to the Entergy transmission grid.  Perryville will providetransmission and interconnection service to Entergy Louisiana under a cost ofservice based tariff accepted for filing by the FERC, subject to hearing andrefund by order issued on March 22, 2005.  On May 25, 2005, Perryville andEntergy Louisiana jointly filed an offer of settlement to reflect the settlementin principle negotiated with the FERC Staff.  The settlement, approved by theFERC on August 3, 2005, resolved all issues which concern the Perryvillecost-of-service transmission rate.  Under the terms of the settlement, Perryvillewill charge Entergy Louisiana a monthly interconnect service charge ofapproximately $1.0 million annually.  The settlement also required Perryvilleto make an informational filing with the FERC showing the actual operation andmaintenance, general and administrative costs, and the actual property taxes incurredduring the calendar year periods 2006 through 2008 to operate the InterconnectFacilities and to provide Interconnect Services to Entergy Louisiana.

37

***FinancialResults***

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 September30, 2005, this investment had a negative cost basis of approximately $35.9million, which is included in other deferred credits on Cleco Corporation'sConsolidated Balance Sheet.  For information concerning the effective date ofthe plan of reorganization of Perryville and PEH, see Note 20 - "SubsequentEvent."

The following tables contain the consolidated summarizedfinancial information for Perryville and PEH which has been prepared inconformity with SOP 90-7.  This statement requires a segregation of liabilitiessubject to compromise by the Perryville and PEH Bankruptcy Court as of thebankruptcy filing date and identification of all transactions and events thatare associated directly with the reorganization.  Liabilities subject 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    SEPTEMBER 30,

(THOUSANDS)

**                         2005**

** **

                      2004

Operating revenue

**      $         264**

      $             4,416

Operating expenses

**            1,041**

                   4,243

Interest charges

**                    -**

                   2,096

Interest income

**                601**

                         44

Other income

**        206,950**

                            -

Other expense

**          27,129**

                            6

Federal and state  income tax expense (benefit)

**          69,123**

                  (1,023)

Net income (loss)

**      $ 110,522**

      $             (862)

 

**FOR THE NINE MONTHS    ENDED SEPTEMBER 30,**

FOR THE NINE MONTHS    ENDED SEPTEMBER 30,

(THOUSANDS)

**               2005**

** **

PRE-PETITION(1)

POST-PETITION(2)

             2004

Operating revenue

**$ 10,052**

** **

   $           72

   $    11,099

 $    11,171

Operating expenses

**    11,779**

** **

          2,373

         11,215

        13,588

Interest charges

**      5,460**

** **

             458

            5,500

          5,958

Gain on disposal  of generating assets

**    10,110**

** **

                   -

                     -

                   -

Interest income

**         728**

** **

                10

                  99

              109

Other income

**  206,950**

** **

                   -

                     -

                   -

Other expense

**    27,135**

** **

                  4

                  19

                23

Federal and state  income tax expense (benefit)

**    70,594**

** **

        (1,058)

          (2,425)

         (3,483)

Net income (loss)

**$ 112,872**

** **

   $   (1,695)

   $     (3,111)

 $     (4,806)

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

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

 

**AT SEPTEMBER 30,**

   AT DECEMBER 31,

(THOUSANDS)

**                       2005**

                       2004

Current assets

**$     121,824**

   $            18,462

Accounts receivable-affiliate

**         13,731**

                 12,815

Property, plant and equipment, net

**                   -**

               161,748

Net investment in direct financing lease

**           7,796**

                             -

Other assets

**           5,328**

                 29,920

     Total assets

**$     148,679**

   $          222,945

Current liabilities

**$       39,817**

   $              2,052

Pre-petition secured liability

**                   -**

               127,552

Accounts payable-affiliate

**                 17**

                       377

Liabilities subject to compromise    (1)

**           3,328**

               102,008

Deferred credits

**               328**

                          24

Member's equity

**       105,189**

                  (9,068)

     Total liabilities and member's equity

**$     148,679**

   $          222,945

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

               Unsecured debt

**$                  -**

   $            98,650

               Accounts payable-affiliate

**           1,266**

                       960

               Accounts payable

**           1,129**

                    1,435

               Current deferred taxes

**               165**

                       208

               Long-term deferred taxes

**               768**

                       755

                        Total

**$         3,328**

   $          102,008

Perryville and PEH routinely engage inaffiliate transactions with other entities within Cleco in the ordinary courseof business.  As a result of its bankruptcy filings, Perryville and PEH areprecluded from paying dividends to equity holders and making payments on anypre-bankruptcy filing accounts or notes payable that are due and owing to anyother entity within Cleco (pre-petition accounts payable-affiliate, which was $1.3million as of September 30, 2005) and other creditors during the pendency ofthe bankruptcy case.  For information concerning the effective date of the planof reorganization of Perryville and PEH and cash distributions made to ClecoCorporation, see Note 20 - "Subsequent Event."

**Note 14 - Discontinued Operations and Dispositions**

***Cleco Energy***

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

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

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."

38

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."  Priorperiod results have been reclassified from income from continuing operations todiscontinued operations.

           FOR THE THREE MONTHS ENDED                                           SEPTEMBER 30,

               FOR THE    NINE MONTHS ENDED                                   SEPTEMBER 30,

(THOUSANDS)

**                    2005**

                   2004

**                   2005**

                  2004

Operating revenue, net

**  $             -**

   $        13,037

**  $               -**

   $          44,270

Pre-tax loss

**             (37)**

                    (41)

**           (344)**

                 (187)

Federal and state income tax benefit

**             (12)**

                       (6)

**           (114)**

                    (22)

Operating loss,  net of tax 

**             (25)**

                    (35)

**           (230)**

                 (165)

Loss on disposal, net of tax benefit of $146

**                 -**

                  (271)

**                 -**

                 (271)

Total

** $        (25)**

   $          (306)

** $       (230)**

   $            (436)

**Note 15 - Income Taxes**

Cleco Corporation's effective income tax rate forthe three months ended September 30, 2005, was 34.1% compared to 37.3% for thesame period in 2004.  Cleco Power's effective income tax rate for the threemonths ended September 30, 2005, was 32.1% compared to 36.0% for the sameperiod in 2004.  The decreases in the effective income tax rates are mainly dueto the LPSC requirement to flow through to current earnings the state taxbenefit derived from the casualty losses related to Hurricanes Katrina and Rita,the recognition of the qualified production activities tax deduction in 2005under The American Jobs Creation Act of 2004, and a non-taxable benefit relatedto company-owned life insurance policies on certain officers and/or keymanagers.  Also contributing to the lower rates for the third quarter is theflow through of reduced state income tax expense from amended returns for ClecoPower.  Tax rates also were affected by the relative size of pre-tax income relatedto these items.

Cleco Corporation's effective income tax rate forthe first nine months of 2005 was 35.8% compared to 36.4% for the same periodin 2004.  Cleco Power's effective income tax rate for the first nine months of2005 was 35.2% compared to 36.3% for the same period in 2004.  The decreases inthe effective income tax rates are mainly due to the LPSC requirement to flowthrough to current earnings the state tax benefit derived from the casualtylosses related to Hurricanes Katrina and Rita.  The decrease in state taxexpense was partially offset by a 2004 true-up of estimated taxes based on the2003 tax return and a 2005 increase in the accrual of tax contingencyreserves.  Tax rates also were affected by the relative size of pre-tax income relatedto these items.  

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

The cost of fuel usedfor electric generation and the cost of power purchased for utility customersare recovered through the LPSC-established fuel adjustment clause which enablesCleco Power to pass on to its customers substantially all such charges.  Approximately92% of Cleco Power's total fuel cost is regulated by the LPSC, while theremainder is regulated by the FERC.  Deferred fuel and purchased power costs recordedat September 30, 2005, and December 31, 2004, were under-recoveries of $14.2million and $14.0 million, respectively, and are scheduled to be collected fromcustomers in future months.  Under-recovery of fuel and purchased power costs throughthe summer months is typical.  Increased fuel and purchased power costs incurredto meet additional seasonal demand generally are recovered from customers insubsequent months.  The $14.0 million under-recovered amount reported atDecember 31, 2004, included favorable surcharge adjustments representing fuelcosts not collected in prior periods and the reversal of gas transportationcharges recorded in 2002 as a result of the settlement of Cleco Power's2001-2002 fuel audit.  The $14.2 million under-recovered costs reported atSeptember 30, 2005, would have been higher due to increased natural gas andpurchased power costs but were reduced by a $33.6 million favorable increase inthe market value of open gas hedge positions and $6.7 million of realized gainson gas hedge positions.  Recovery of these increased costs have resulted inhigher customer bills.

**Note 17 - Affiliate Transactions**

Cleco has affiliate balances that were noteliminated as of September 30, 2005.  The balances were not eliminated due tothe deconsolidation of Evangeline and Perryville.  For information on thesedeconsolidations, see Note 1 - "Summary of Significant Accounting Policies -Principles of Consolidation."  At September 30, 2005, Cleco Corporation had anaffiliate payable to Evangeline of $14.8 million and a payable to Perryville of$6.0 million.  These amounts represent the balances over 30 days old andbearing interest.

**Note 18 - Franchise**

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

39

**Note 19  - Storm Restoration**

In late August and September, 2005, Cleco Power'sdistribution and transmission systems sustained substantial damage from two separatehurricanes. 

On August 29, 2005, Hurricane Katrina made landfallin southeastern Louisiana as a Category 4 storm, knocking out power to approximately87,000 of Cleco Power's electric customers located primarily in St. Tammany andWashington parishes on the north shore of Lake Pontchartrain. 

Work continues to restore the system to thecondition it was in prior to Hurricane Katrina.  Cleco Power's current estimateof the cost of restoration for Hurricane Katrina is $115.0 million. 

On September 24,2005, Hurricane Rita made landfall in southwestern Louisiana as a Category 3storm, affecting power delivery to approximately 136,000 of Cleco Power's electriccustomers in all of Cleco Power's service territory, including the area northof Lake Pontchartrain, which was devastated by Hurricane Katrina just 27 daysearlier.  The current estimate of the cost of restoration for Hurricane Rita is$50.0 million.  

The damage to equipment from Hurricane Katrinarequired extensive replacement, rather than repair, of existing assets.  Therefore,the balance sheets of Cleco and Cleco Power reflect the capitalization of approximately82% of the $105.3 million in restoration costs recorded at September 30, 2005,or $86.7 million. Approximately $3.9 million of the repair-related restorationcost was offset against a reserve for storm damage, and the remaining $14.7million was recorded as a regulatory asset, with the approval of the LPSC.

The restoration effort for Hurricane Rita resultedin the capitalization of approximately 83% of the $25.2 million in restorationcosts recorded at September 30, 2005, or $20.8 million.  The balance of thecosts, $4.4 million, also was recorded as a regulatory asset, with the approvalof the LPSC.  All storm-related amounts deferred as a regulatory asset will beamortized over a ten-year period beginning in October 2005.

Based on provisions of proposed legislationcurrently being debated by the U.S. Senate, there is the potential for reimbursementof a portion of Hurricane Katrina-related costs by the U.S. government.  ClecoPower cannot predict the likelihood that any reimbursement from the U.S.government ultimately will be approved.  Other recovery options are beinganalyzed including a customer surcharge.  Absent any direct recovery, expensesare expected to be approximately $13.0 million higher per year beginning in2006, because of higher financing costs, increased depreciation, andamortization of deferred restoration costs.

**Note 20 - Subsequent Event**

On September 28, 2005, the Perryville and PEHBankruptcy Court confirmed the First Amended Joint Plan of Reorganization underChapter 11 of the Bankruptcy Code (the Plan) proposed by Perryville and PEH. An order confirming the Plan was entered by the Bankruptcy Court on September28, 2005, and the order became final on October 10, 2005.  The conditions tothe effectiveness of the Plan were satisfied, and the Plan became effective as ofOctober 11, 2005 (the Effective Date).  Perryville and PEH anticipatecompleting their bankruptcy process in the fourth quarter of 2005.

As of October 18, 2005, all allowed pre-petitionclaims ($2.2 million) against Perryville and PEH were paid in full in accordancewith the Plan.  In addition, cash distributions of $90.0 million weredividended to Cleco Corporation following the reorganization of Perryville andPEH.  These paymentsto Cleco Corporation represented a net settlement of intercompany payables, resultingprimarily from income tax allocations and dividends.  Except for distributionsmade to creditors and equity holders under the Plan, the title to all assets ofPerryville and PEH will vest with the reorganized Perryville and PEH free andclear of all liens, claims, causes of action, interests, security interests andother encumbrances and without further order of the Bankruptcy Court as of theEffective Date.  In addition, the reorganized Perryville and PEH may operatetheir businesses and use, acquire and dispose of their assets free of any restrictionsof the Bankruptcy Code.

The financial results of Perryville and PEH wereincluded in Cleco's consolidated financial results through January 27, 2004. From that date, Cleco has been 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 investment andnot recognize any income or loss from Perryville or PEH in Cleco's results ofoperations during the reorganization period.  On the Effective Date, thefinancial results of Perryville and PEH will be reintegrated with Cleco'sconsolidated financial results.  

40

**ITEM 2.**    MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

**RESULTS OF OPERATIONS**

***Overview***

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

Whilemanagement believes that Cleco remains a fundamentally strong company, Clecocontinues to focus on several near-term challenges.  An overview of factorsaffecting Cleco Power and Midstream are more fully described below.

***Cleco Power***

Many factors affect the opportunities, challenges,and risks of Cleco Power's primary business of selling electricity.  These factorsinclude the ability to maintain a stable regulatory environment, which includesmaintaining a favorable return on equity, to achieve energy sales growth while containingcosts, and to recover costs related to growing demand and increasingly morestringent environmental standards.  In addition, Cleco Power continues to focuson resolving its long-term capacity needs and obtaining LPSC approval of theconstruction of a new solid-fuel generating unit which should help stabilizecustomer costs.

In June 2005, Cleco Power made selections from itslong-term and short-term RFPs.  Cleco Power's selections included plans toconstruct a solid-fuel power plant and negotiate two power purchase agreementswith third party suppliers.  The two power purchase agreements were executed onAugust 1, 2005.  LPSC approval of the two power purchase agreements is expectedduring the fourth quarter of 2005.  However, Cleco Power continues to evaluatea range of generation supply options for 2006 and beyond.  As such, Cleco has begunto update its IRP to look at future sources of supply along with transmissionprojects.  Possible sources of supply could include long-term power purchases,acquisition of additional generation facilities, self-build proposals, and reconfigurationof its existing generation facilities.  Cleco Power may not be able to obtainpurchased power or generation facilities on terms comparable to those in itscurrent power purchase agreements.  In addition, recovery of any additionalamounts it may pay under new power purchase agreements, in obtaining newgeneration facilities, in reconfiguring existing generation facilities or otherwiseas a result of the expiration of its existing power purchase agreements wouldrequire LPSC approval.  Such additional amounts could be substantial.  For additional information on Cleco Power's IRPprocess and its preliminary selections from its RFPs, see "- FinancialCondition - Regulatory Matters - Generation RFP."****

On August 29, 2005,Hurricane Katrina hit the coast of Louisiana and Mississippi, causingcatastrophic damage to the Gulf South region, including portions of ClecoPower's service territory.  Cleco Power sustained significant damage to itsdistribution and transmission facilities.  Cleco Power had approximately 87,000customers (out of approximately 265,000 customers) without power immediatelyfollowing the hurricane.  Four weeks after the storm, power had been restoredto all who could receive service.  On September 24, 2005, Hurricane Rita madelandfall and hit all of Cleco's service territory, including the area north ofLake Pontchartrain, which was devastated by Hurricane Katrina 27 days earlier. Cleco Power had approximately 136,000 customers without power immediatelyfollowing this hurricane.  Within two weeks, service was restored to almost allcustomers, with the exception of customers in remote areas of Cleco Power'srural service territory.  Cleco Power requested and has received regulatory approvalfrom the LPSC to create a regulatory asset that represents incremental, non-capitalizedrestoration costs incurred as a result of Hurricanes Katrina and Rita.  Thisregulatory asset will be amortized over a ten-year period beginning in October2005.  Cleco Power believes it has sufficient liquidity to meet its currentobligations and to fund restoration efforts from a combination of cash on handand available capacity under its revolving credit facilities.  For additionalinformation on the financial impact of Hurricanes Katrina and Rita, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 19 - Storm Restoration."

Cleco Power's 1996earnings review settlement with the LPSC, subsequent amendments, and anapproved one-year extension, set Cleco Power's rates until September 30, 2005. On September 14, 2005, the LPSC approved an additional one-year extension ofCleco Power's rate stabilization plan to September 30, 2006.  This recentlyapproved extension of the rate stabilization plan will allow Cleco Poweradditional time to evaluate different rate design options relating to itssolid-fuel power plant construction proposal.  Upon expiration of the existingplan, possible rate stabilization plan options include seeking anotherextension, combining an extension request with a generation certificate of publicconvenience and 

41

necessity application, seeking a new rate case, or allowing the current plan toexpire and continue under current rates until the LPSC orders a review of ClecoPower's rates.  For additional information on the current rate stabilizationplan, see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note7 - Accrual of Electric Customer Credits."

Cleco Power'scustomer costs are expected to remain high for the foreseeable future due tothe increased cost of natural gas used as fuel for generation and the increasedcost of purchased power, driven by natural gas prices, both recovered through afuel cost adjustment to customer bills.  Although the cost of fuel andpurchased power is recovered from customers through the fuel adjustment billingmechanism, Cleco Power expects to incur higher expenses in the future relatingto the charge-off of uncollectible customer utility bills, as long as highernatural gas prices persist.

Cleco is subjectto federal, state, and local laws and regulations governing the protection ofthe environment.  Violations of these laws and regulations may result insubstantial fines and penalties.  Environmental requirements continue to increaseas a result of new legislation, administrative actions, and judicial interpretations. Therefore, precise future effects of existing and potential requirements aredifficult to determine.  For additionalinformation on environmental standards, see "- Financial Condition - RegulatoryMatters - Environmental Matters."****

***Midstream***

While Cleco Power has always been Cleco's corebusiness and primary source of revenue, Cleco began to expand its merchantenergy business in the late 1990s.  As a result of a perceived near-termsurplus of generating capacity, Cleco re-evaluated its merchant energy businessstrategy, scaled back the expansion of this business and focused on maximizingthe value of its existing merchant energy assets.  Cleco has made substantialprogress on these efforts.  On June 30, 2005, Cleco completed the sale of thePerryville facility and on October 11, 2005, Perryville and PEH receivedapproval to emerge from bankruptcy.  For additional information on Perryville,see Item 1, "Notes to the Unaudited Condensed Financial Statements - Note 13 -Perryville" and Note 20 - "Subsequent Event."

In addition tothe opportunities and challenges mentioned above, Cleco currently is assessingthe ongoing credit condition of APP and Evangeline Tolling Agreementcounterparties, as its merchant energy business is heavily dependent on theperformance of the APP and Evangeline tolling agreements.  The credit ratingsof the parent companies of the tolling agreement counterparties, The WilliamsCompanies, Inc. and Calpine, which provide guarantees of their affiliates'performance obligations, are below investment grade.  Failure of the counterpartiesto perform under their respective tolling agreements likely would have amaterial adverse impact on Cleco's financial condition, results of operations,and cash flows.  On August 9, 2005, APP and Calpine executed agreements withCES to settle their dispute over the availability of transmission capacity atthe Acadia plant under the Calpine Tolling Agreements.  Foradditional information on the significant terms of this settlement, see Item 1,"Notes to the Unaudited Condensed Financial Statements - Note 8 - Litigationand Other Commitments and Contingencies - CES."

***Deconsolidation ofEvangeline***

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

***DiscontinuedOperations and Dispositions***

In June 2004,management decided to sell substantially all of Cleco Energy's assets anddiscontinue Cleco Energy's natural gas marketing, pipeline, and productionoperations after the sale.  On September 15, 2004, Cleco Energy completed thesale of its oil and gas production properties and on November 16, 2004,completed the sale of its natural gas pipeline and marketing operations.  Priorto the sale of Cleco Energy's assets, and in accordance with SFAS No. 144, theproperty, plant and equipment of Cleco Energy were classified as held for saleon Cleco Corporation's Consolidated Balance Sheet, and the related operationswere classified as discontinued on Cleco Corporation's Consolidated Statementsof Income.  For additional information on SFAS No. 144 and the discontinuedoperations and sale of Cleco Energy's assets, see Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 14 - Discontinued Operationsand Dispositions." 

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

**Cleco Consolidated**

** **

    FOR THE    THREE MONTHS ENDED SEPTEMBER 30,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

             CHANGE

Operating revenue, net

**$ 283,656**

   $  229,390

   $    54,266

      23.66 %

Operating expenses

**238,422**

      196,028

       (42,394)

    (21.63)%

Operating income 

**$   45,234**

   $    33,362

   $    11,872

      35.59 %

Equity income from investees    

**$   25,249**

   $    23,056

   $      2,193

        9.51 %

Other income

**$     2,626**

   $         171

   $      2,455

                   *

Other expense

**$        861**

   $      2,246

   $      1,385

      61.67 %

Interest charges

**$     9,427**

   $    11,738

   $      2,311

      19.69 %

Net income applicable to common stock

**$   41,858**

   $    26,915

   $    14,943

      55.52 %

*    Not meaningful

42

Consolidated net income applicableto common stock increased $14.9 million, or 55.5%, in the third quarter of 2005compared to the third quarter of 2004 primarily due to increased earnings fromCleco Power and Midstream.

Operating revenue increased $54.3million, or 23.7%, in the third quarter of 2005 compared to the same period of2004 largely as a result of higher base and fuel cost recovery revenue at ClecoPower.  Also contributing to the increase in operating revenue was a $4.4million net mark-to-market gain from wholesale hedging transactions at ClecoPower.

Operating expenses increased $42.4million, or 21.6%, in the third quarter of 2005 compared to the third quarterof 2004 primarily due to increased costs of power purchased for utilitycustomers and higher other operations expense at Cleco Power.

Equity income from investeesincreased $2.2 million, or 9.5%, in the third quarter of 2005 compared to thesame period of 2004 due to increased equity earnings at APH, partially offsetby decreased equity earnings at Evangeline. 

Other income increased $2.5million in the third quarter of 2005 compared to the same period of 2004primarily due to benefits related to life insurance policies on certain officersand/or key managers and payments received by APH as a result of the settlement agreementbetween APP and CES. 

Other expense decreased $1.4million, or 61.7%, in the third quarter of 2005 compared to the same period of2004 primarily due to the 2004 reclassification of expenses at Cleco Powerrelated to the 2001-2002 fuel audit.

Interest charges decreased $2.3million, or 19.7%, in the third quarter of 2005 compared to the same period of2004 primarily due to the repayment of Senior Notes in June 2005.

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 third quarter of 2005 increased $10.4 million, or 61.9%, comparedto the third quarter of 2004.  Contributing factors include:
-  higher base revenue,
-  lower customer refund credits,
-  higher other operations revenue, 
-  lower capacity payments, 
-  lower maintenance expense, and
-  lower other expense.

These were partially offset byhigher other operations expense.

         FOR THE THREE MONTHS ENDED SEPTEMBER 30,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

              CHANGE

Operating revenue

     Base

** $    95,070**

   $     91,125

   $          3,945

          4.33 %

     Fuel cost recovery

** 172,888**

      128,622

        44,266

        34.42 %

     Electric customer credits

**       (300)**

         (1,344)

           1,044

        77.68 %

     Other operations

**   14,113**

           8,473

           5,640

        66.56 %

     Affiliate revenue

**            7**

                   7

                    -

                      -

     Intercompany revenue

**        491**

              456

                 35

          7.68 %

          Operating revenue, net

** 282,269**

      227,339

        54,930

        24.16 %

Operating expenses

     Fuel used for electric generation -  recoverable

**   53,982**

        59,856

           5,874

           9.81%

     Power purchased for utility customers -  recoverable

**  118,654**

        68,772

       (49,882)

      (72.53)%

     Non-recoverable fuel and power  purchased

**     7,219**

        11,338

           4,119

        36.33 %

     Other operations

**   22,264**

        17,669

         (4,595)

      (26.01)%

     Maintenance

**     8,948**

        10,697

           1,749

        16.35 %

     Depreciation

**   14,765**

        14,201

             (564)

        (3.97)%

     Taxes other than income taxes

**   10,424**

        10,172

             (252)

        (2.48)%

               Total operating expenses

**  236,256**

      192,705

       (43,551)

      (22.60)%

Operating income

** $   46,013**

   $    34,634

   $      11,379

        32.85 %

Other expense

** $        397**

   $      2,657

   $        2,260

        85.06 %

Federal and state income taxes

** $   12,842**

   $      9,450

   $     (3,392)

      (35.89)%

Net income 

** $   27,183**

   $    16,792

   $     10,391

        61.88 %

*    Not meaningful

 

          FOR THE    THREE MONTHS ENDED SEPTEMBER  30,

(MILLION  kWh)

**              2005**

                  2004

         FAVORABLE/        (UNFAVORABLE)

Electric sales

     Residential

**     1,155**

           1,107

               4.34 %

     Commercial

**        540**

              537

               0.56 %

     Industrial

**        760**

              736

               3.26 %

     Other retail

**        174**

              169

               2.96 %

     Unbilled

**         (74)**

               (16)

        (362.50)%

               Total retail

**     2,555**

           2,533

               0.87 %

     Sales for resale

**        203**

              139

             46.04 %

Total retail and wholesale customer sales

**     2,758**

           2,672

               3.22 %

 

          FOR THE    THREE MONTHS ENDED SEPTEMBER  30,

(THOUSANDS)

**                  2005**

                  2004

         FAVORABLE/        (UNFAVORABLE)

Electric sales

     Residential

** $ 52,287**

   $   50,411

               3.72 %

     Commercial

**   18,720**

        18,740

             (0.11)%

     Industrial

**   13,903**

        13,653

               1.83 %

     Other retail

**     6,082**

           6,031

               0.85 %

     Unbilled

**    (2,493)**

             (519)

        (380.35)%

               Total retail

**   88,499**

        88,316

               0.21 %

     Sales for resale

**     6,571**

           2,809

          133.93 %

Total retail and wholesale customer sales

** $ 95,070**

   $   91,125

               4.33 %

 ClecoPower's residential customers' demand for electricity largely is affected byweather.  Weather generally is measured in cooling degree-days and heatingdegree-days.  A cooling degree-day is an indication of the likelihood that aconsumer will use air conditioning, while a heating degree-day is an indicationof the likelihood that a consumer will use heating.  An increase in heatingdegree-days does not produce 

43

the same increase in revenue as an increase incooling degree-days, because alternative heating sources are more available.  Normalheating degree-days and cooling degree-days are calculated for a month byseparately calculating the average actual heating and cooling degree-days forthat month over a period of 30 years.

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

FOR THE THREE MONTHS ENDED    SEPTEMBER 30,

**                            2005**

                         2004

**Cooling degree-days**

     Increase (decrease) from normal

**            17.23%**

                  (6.58)%

     Increase (decrease) from prior year

**            21.18%**

                  (0.07)%

***Base***

Base revenue during the third quarter of 2005 increased$3.9 million, or 4.3%, compared to the same period in 2004.  The increase wasprimarily due to higher retail and wholesale customer kWh sales, largely fromunusually warm weather and higher sales to two municipal customers.  Partiallyoffsetting this increase was lost revenue due to extended storm outages.

Cleco Power currently is providing service orwill begin providing service to expansions of current customers' operations, aswell as services to new commercial and new industrial customers.  The newservices and expansions are expected to increase base revenue in years 2005,2006, and 2007.

During the first quarter of 2006, Cleco Power isexpected to begin providing services to sell fixed-priced power to a newwholesale customer.  As a result of the fixed-price contract, the new customeris expected to increase base revenue while potentially diluting earnings inyears 2006, 2007, and 2008.  In years 2009 through 2012, Cleco Poweranticipates earnings accretion related to this contract.

Cleco Power's commercial and industrialcustomers' demand for electricity is affected less by the weather and primarilyis dependent upon the strength of the economy and by the demand for the customers'products compared to their ability to produce the products economically.  Threeof Cleco Power's customers who manufacture paper products, such as newsprintand corrugated packaging, are experiencing a downturn in their markets.  ClecoPower expects decreased base revenue from these customers, which currentlycontribute $19.8 million to Cleco Power's base revenue annually, as a result ofthe downturn.

***Fuel Cost Recovery***

Fuel cost recoveryrevenue billed to customers during the third quarter of 2005 compared to thesame period in 2004 increased $44.3 million, or 34.4%, primarily due to highercosts of power purchased and fuel used for electric generation.  In addition,increased volumes of fuel used for electric generation increased fuel costrecovery revenue.  Changes in fuel costs historically have not significantlyaffected Cleco Power's net income.  Generally, fuel and purchased powerexpenses are recovered through the LPSC-established fuel adjustment clause,which enables Cleco Power to pass on to its customers substantially all suchcharges.  Approximately 92% of Cleco Power's total fuel cost is regulated bythe LPSC, while the remainder is regulated by the FERC.  Recovery of fuel adjustmentclause costs is subject to refund until monthly approval is received from theLPSC; however, all amounts are subject to a periodic fuel audit by the LPSC.  Afuel audit is required to be performed not less than every other year.  ClecoPower anticipates the next fuel audit to cover 2003 and 2004; however, any futureaudit could include prior periods with the exception of January 2001 throughDecember 2002, which were periods covered in Cleco Power's 2001-2002 fuel audit.

***Electric Customer Credits***

Electric customer credits during the third quarterof 2005 decreased $1.0 million, or 77.7%, compared to the same period in 2004. This decrease in electric customer credits is primarily due to lower accrualsfor the current rate stabilization plan filing period.  Lower accruals wereprimarily the result of higher operating expenses.  The potential refundsassociated with the rate stabilization plan are based on results for each12-month period ended September 30.  For additional information on the accrualof electric customer credits, see Item 1, "Notes to the Unaudited CondensedFinancial Statements - Note 7 - Accrual of Electric Customer Credits."

***Other Operations***

Other operations revenue increased $5.6 million,or 66.6%, in the third quarter of 2005 compared to the third quarter of 2004primarily due to a $4.4 million net mark-to-market gain from economic hedgetransactions related to fixed-price power that will be provided to a newwholesale customer in January 2006 and $1.2 million from higher transmissionservice revenue.  Cleco Power anticipates that a large portion of thesemark-to-market gains will be offset by losses in future periods.  These timingdifferences relate to the fixed-price wholesale contract that will commence inJanuary 2006, as discussed above.  In light of these economic hedgetransactions, volatility in natural gas prices will likely cause fluctuation inCleco Power's future earnings.

***Operating Expenses***

Operating expenses increased $43.6 million, or 22.6%,in the third quarter of 2005 compared to the same period of 2004.  Fuel usedfor electric generation decreased $5.9 million, or 9.8%, primarily due to deferredfuel costs, partially offset by an increase in the cost and volumes of fuelused as compared to the same period of 2004.  Power purchased for utility customersincreased $49.9 million, or 72.5%, largely due to higher costs of purchasedpower.  Fuel used for electric generation and power purchased for utilitycustomers generally are influenced by natural gas prices.  However, other factorssuch as unscheduled outages, unusual maintenance or 

44

repairs, or other developments may affect fuel used for electric generation andpower purchased for utility customers.  Non-recoverable fuel and powerpurchased decreased $4.1 million, or 36.3%, primarily due to lower capacitypayments made during 2005 as a result of the expiration of certain power purchaseagreements.  Other operations expense increased $4.6 million, or 26.0%, due to $3.8million of higher incentive compensation and payroll expense and $1.8 millionin higher professional fees.  Partially offsetting these increases in otheroperations expense was $1.0 million of lower property and liability insurancecosts.  Maintenance expenses during the third quarter of 2005 decreased $1.7million, or 16.4%, compared to the same period of 2004 primarily due to less generatingstation and transmission substation maintenance work performed during the thirdquarter of 2005.

On July 6, 2005, Cleco Power received a letterfrom Union Pacific Corporation (Union Pacific) notifying it that a force majeureevent requiring maintenance on Union Pacific's rail lines is expected to resultin a 15% to 20% reduction in the amount of contracted deliveries of PowderRiver Basin coal to Cleco Power's Rodemacher coal generating facility from June2005 through November 2005.  As a result of this notification, and itspotential impact on Cleco Power's current coal inventory levels and forecastedgeneration for the duration of this delivery reduction, Cleco Power initiatedan evaluation of methods for minimizing any reduction in energy output due to reducedcoal deliveries by Union Pacific.  Thus far, Cleco Power has been able tominimize the adverse impact to its fuel and purchased power costs by obtainingcoal from other sources, and believes that it will be able to continue to minimizeany adverse impact to its fuel and purchased power costs.  However, the amountof generation capability supplied by the Rodemacher facility could be reduced,thereby requiring Cleco Power to obtain additional power purchases from otherpotentially higher cost generation resources in the market.

Management anticipates other operations expenseto be higher in 2006 due to a change in Cleco's matching contribution to the401(k) Plan.  The increased costs will result from plan participants beingallocated shares of common stock in lieu of convertible preferred stock.  The remainingunallocated ESOP preferred shares are expected to be expended in early 2006.

***Other Expense***

Other expensedecreased $2.3 million, or 85.1%, in the third quarter of 2005 compared to the thirdquarter of 2004 primarily due to the 2004 reclassification of legal feesassociated with the settlement of Cleco Power's 2001-2002 fuel audit.

***Income Taxes***

Income tax expenseincreased $3.4 million, or 35.9%, during the third quarter of 2005 compared tothe same period of 2004.  Cleco Power's effective income tax rate decreased from36.0% to 32.1% during the third quarter of 2005 compared to the same period of2004, largely due to the LPSC requirement to flow through to current earningsthe state tax benefit derived from the casualty losses related to HurricanesKatrina and Rita.  Also contributing to the lower rate for the third quarter of2005 is recognition of the qualified production activities tax deduction in2005 under The American Jobs Creation Act of 2004.  Tax rates also wereaffected by the relative size of pre-tax income related to these items. Pre-tax income during the third quarter of 2005 increased $13.8 million comparedto the same period of 2004.

**Midstream**

Midstream's net income applicable to member'sequity for the third quarter of 2005 increased $1.8 million, or 15.5%, comparedto the third quarter of 2004.  Factors affecting Midstream during the third quarterof 2005 are described below.

                                       FOR THE THREE MONTHS ENDED SEPTEMBER 30,

              FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

        VARIANCE

                 CHANGE

Operating revenue

     Other operations

** $          53**

   $            70

   $          (17)

        (24.29)%

     Affiliate revenue

**     1,053**

           1,365

             (312)

        (22.86)%

     Intercompany revenue

**          43**

                    -

                 43

                        *

          Operating revenue

**     1,149**

           1,435

             (286)

        (19.93)%

Operating expenses

     Other operations

**     1,226**

    

           1,336

              110

             8.23 %

     Maintenance

**        429**

               620

              191

          30.81 %

     Depreciation

**          78**

                 80

                   2

             2.50 %

     Taxes other than income taxes

**          62**

                 49

               (13)

        (26.53)%

               Total operating expenses

**     1,795**

           2,085

              290

          13.91 %

Operating loss

** $     (646)**

   $        (650)

   $               4

             0.62 %

Equity income from investees

** $  25,121**

   $      23,061

   $        2,060

             8.93 %

Other income

** $    1,250**

   $               -

   $        1,250

                        *

Interest charges

** $    3,938**

   $        3,207

   $        (731)

        (22.79)%

Federal and state income tax expense    

**  $    8,612**

   $        7,524

   $     (1,088)

        (14.46)%

Loss from discontinued operations    

**  $       (25)**

   $        (306)

   $           281

          91.83 %

Net income 

** $  13,128**

   $      11,367

   $        1,761

          15.49 %

*    Not meaningful

***Equity Income fromInvestees***

Equity income from investees increased $2.1 million,or 8.9%, in the third quarter of 2005 compared to the third quarter of 2004. The increase was largely due to a $3.7 million increase from equity earnings atAPH partially offset by a $1.6 million decrease at Evangeline.  The decrease atEvangeline was primarily due to higher gas and turbine maintenance expenses andlower revenue due to lower plant capacity, as well as increased heat ratepenalties.  The increase in earnings at APH was primarily due to lower outageexpenses during the third quarter of 2005.  For additional information onEvangeline and APP, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 5 - Equity Investment in Investees."

***Other Income***

Other incomeincreased $1.3 million during the third quarter of 2005 compared to the sameperiod of 2004 primarily due to cash payments received by APH from CES as aresult of the settlement of a dispute over the availability of transmission

45

capacity at APP.  For additional information on the significant terms of thissettlement, see Item 1, "Notes to the Unaudited Condensed Financial Statements- Note 8 - Litigation and Other Commitments and Contingencies - CES."

***Interest Charges***

Interest charges increased $0.7 million, or 22.8%,during the third quarter of 2005 compared to the same period of 2004 primarilydue to higher interest rates at APH.

***Income Taxes***

Income tax expenseincreased $1.1 million, or 14.5%, during the third quarter of 2005 compared tothe same period of 2004.  Midstream's effective income tax rate increased from 39.2%to 39.6% during the third quarter of 2005 compared to the same period of 2004primarily due to a 2005 increase in the accrual of tax contingency reserves.  Taxrates also were affected by the relative size of pre-tax income related to thisitem.  Pre-tax income during the third quarter of 2005 increased $2.6 millioncompared to the same period of 2004.

***Comparison of the Nine Months Ended September 30, 2005 and 2004***

**Cleco Consolidated**

** **

          FOR THE NINE MONTHS ENDED SEPTEMBER 30,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

             CHANGE

Operating revenue, net

**$ 649,880**

   $ 562,361

   $   87,519

      15.56 %

Operating expenses

**557,906**

      483,900

       (74,006)

     (15.29)%

Operating income 

**$   91,974**

   $   78,461

   $   13,513

      17.22 %

Equity income from investees

**$   46,121**

   $   40,660

   $     5,461

      13.43 %

Other income

**$     3,445**

   $        479

   $     2,966

   619.21 %

Other expense

**$     1,652**

   $     2,869

   $     1,217

      42.42 %

Interest charges

**$   31,882**

   $   40,181

   $     8,299

      20.65 %

Net income applicable to common stock

**$   71,003**

   $   50,133

   $   20,870

      41.63 %

Consolidated net income applicable tocommon stock increased $20.9 million, or 41.6%, in the first nine months of2005 compared to the first nine months of 2004 primarily due to increasedearnings from Cleco Power and Midstream.  Also contributing to the increase wasthe absence in 2005 of corporate legal and consulting fees associated withCleco Power's 2001-2002 fuel audit.

Operating revenue increased $87.5million, or 15.6%, in the first nine months of 2005 compared to the same periodof 2004 largely as a result of higher fuel cost recovery revenue at Cleco Powerand the absence in 2005 of the effects of the settlement of Cleco Power's2001-2002 fuel audit.  Partially offsetting these increases was the change inthe reporting of tolling operations revenue at Evangeline beginning in thesecond quarter of 2004 in accordance with FIN 46R.

Operating expenses increased $74.0million, or 15.3%, in the first nine months of 2005 compared to the first nine monthsof 2004 primarily due to increased costs of fuel used for electric generation andpower purchased for utility customers, increased volumes of fuel used forelectric generation, and higher other operations and maintenance expenses atCleco Power.  Partially offsetting these increases were the effects of the deconsolidationof Evangeline from Cleco and the sale of certain distribution assets at ClecoPower.

Equity income from investeesincreased $5.5 million, or 13.4%, in the first nine months of 2005 compared tothe same period of 2004 primarily due to the change in reporting for Evangelineeffective April 1, 2004, in accordance with FIN 46R.  Also contributing to theincrease were higher equity earnings at APH and Evangeline.

Other income increased $3.0million, or 619.2%, compared to the first nine months of 2004 primarily due to benefitsrelated to life insurance policies on certain officers and/or key managers and paymentsreceived by APH as a result of the settlement agreement between APP and CES.

Other expense decreased $1.2 million,or 42.4%, compared to the first nine months of 2004 primarily due to expensesat Cleco Power related to the 2001-2002 fuel audit.

Interest charges decreased $8.3million, or 20.7%, compared to the first nine months of 2004 primarily due tothe effects of the deconsolidation of Evangeline from Cleco's consolidated resultseffective April 1, 2004. 

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

**Cleco Power**

Cleco Power's net income applicable to member'sequity in the first nine months of 2005 increased $13.4 million, or 34.7%,compared to the first nine months of 2004.  Contributing factors include:
-  lower customer refund credits, 
-  higher other operations revenue,
-  lower capacity payments,
-  gain on the sale of certain distribution assets, 
-  higher other income, and
-  lower other expense.

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

46
 
            FOR THE NINE MONTHS ENDED SEPTEMBER 30,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2005**

              2004

       VARIANCE

              CHANGE

Operating revenue

     Base

**$   244,514**

   $ 244,812

   $        (298)

        (0.12)%

     Fuel cost recovery

**370,156**

      300,605

        69,551

        23.14 %

     Electric customer credits

**       (771)**

       (21,177)

        20,406

        96.36 %

     Other operations

**   29,228**

        22,266

           6,962

        31.27 %

     Affiliate revenue

**          22**

                 15

                   7

        46.67 %

     Intercompany revenue

**     1,467**

           1,397

                 70

          5.01 %

          Operating revenue, net

**644,616**

      547,918

        96,698

        17.65 %

Operating expenses

     Fuel used for electric generation -  recoverable

**115,333**

      108,546

         (6,787)

        (6.25)%

     Power purchased for utility customers -  recoverable

**252,514**

      185,215

       (67,299)

      (36.34)%

     Non-recoverable fuel and power  purchased

**   17,498**

        22,959

           5,461

        23.79 %

     Other operations

**   61,614**

        52,885

         (8,729)

      (16.51)%

     Maintenance

**   30,298**

        27,691

         (2,607)

        (9.41)%

     Depreciation

**   43,824**

        42,317

         (1,507)

        (3.56)%

     Taxes other than income taxes

**   28,666**

        28,644

               (22)

        (0.08)%

     Gain on sales of assets

**    (2,207)**

                    -

           2,207

                      *

               Total operating expenses

**547,540**

      468,257

       (79,283)

      (16.93)%

Operating income

**$   97,076**

   $    79,661

   $     17,415

        21.86 %

Other income

**$        917**

   $         213

   $          704

     330.52 %

Other expense

**$     1,243**

   $      3,599

   $       2,356

        65.46 %

Federal and state income taxes

**$   28,299**

   $    22,044

   $    (6,255)

      (28.38)%

Net income 

**$   52,117**

   $    38,695

   $     13,422

        34.69 %

*    Not  meaningful

 

             FOR THE    NINE MONTHS ENDED SEPTEMBER  30,

(Million kWh)

**              2005**

              2004

         FAVORABLE/ (UNFAVORABLE)

Electric sales

     Residential

**     2,696**

           2,696

                           -

     Commercial

**     1,383**

           1,392

             (0.65)%

     Industrial

**     2,146**

           2,157

             (0.51)%

     Other retail

**        454**

              445

               2.02 %

     Unbilled

**          56**

                 34

             64.71 %

               Total retail

**     6,735**

           6,724

               0.16 %

     Sales for resale

**        409**

              502

           (18.53)%

Total retail and wholesale customer sales

**     7,144**

           7,226

             (1.13)%

 

             FOR THE    NINE MONTHS ENDED SEPTEMBER  30,

(THOUSANDS)

**  ****           2005**

              2004

         FAVORABLE/        (UNFAVORABLE)

Electric sales

     Residential

**$ 118,865**

   $ 118,915

             (0.04)%

     Commercial

**   52,553**

        52,730

             (0.34)%

     Industrial

**   40,526**

        41,077

             (1.34)%

     Other retail

**   17,436**

        17,260

               1.02 %

     Unbilled

**     1,886**

           1,125

             67.64 %

               Total retail

**231,266**

      231,107

               0.07 %

     Sales for resale

**   13,248**

        13,705

             (3.34)%

Total retail and wholesale customer sales

**$244,514**

   $ 244,812

             (0.12)%

Thefollowing chart shows how cooling and heating degree-days varied from normalconditions and from the prior period.  Cleco Power uses temperature datacollected by the National Oceanic and Atmospheric Administration to determinecooling and heating degree-days.

FOR THE NINE MONTHS ENDED    SEPTEMBER 30,

**                         2005**

                         2004

**Cooling degree-days**

     Increase (decrease) from  normal

**         14.16 %**

                  (3.07)%

     Increase (decrease) from prior year

**         14.82 %**

                  (0.59)%

**Heating degree-days**

     Decrease from normal

**       (30.21)%**

                  (7.22)%

     Decrease from prior year

**       (21.32)%**

               (20.34)%

***Base***

Base revenue during the first nine months of 2005 decreased$0.3 million, or 0.1%, compared to the same period in 2004.  The decrease wasprimarily due to lost revenue from extended storm-related outages.  In addition,the absence in 2005 of favorable fuel surcharge adjustments that were includedin the Fuel Adjustment Clause Report filed by Cleco Power in June 2004, the May2004 expiration of a contract with a municipal customer, and unusually warmwinter weather also decreased base revenue.  Partially offsetting thesedecreases were higher sales to two municipal customers and warmer summer weather. For information on the anticipated effects of changes in revenue fromindustrial and wholesale customers, see "- Comparison of the Three Months EndedSeptember 30, 2005 and 2004 - Cleco Power - Base."

***Fuel Cost Recovery***

Fuel cost recovery revenue billed to customersduring the first nine months of 2005 compared to the same period in 2004 increased$69.6 million, or 23.1%, 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 2005 alsoincreased fuel cost recovery revenue.  Also contributing to the increase wasthe absence in 2005 of a 2004 reversal of estimates recorded in conjunctionwith Cleco Power's 2001-2002 fuel audit settlement.  For information on ClecoPower's ability to recover fuel and purchase power costs, see "- Comparison ofthe Three Months Ended September 30, 2005 and 2004 - Cleco Power - Fuel Cost Recovery."

***Electric CustomerCredits***

Electric customer credits during the first nine monthsof 2005 decreased $20.4 million, or 96.4%, compared to the same period in2004.  This decrease in electric customer credits is primarily due to theabsence in 2005 of a $16.0 million accrual made in June 2004 related to ClecoPower's 2001-2002 fuel audit, a $1.7 million accrual made in June 2004 relatedto a surcharge adjustment that was included in the Fuel Adjustment Clausereport filed by Cleco Power in June 2004, and $2.7 million of lower accrualsfor the current rate stabilization plan filing period.  Lower accruals wereprimarily the result of higher operating expenses.  The potential refundsassociated 

47

with the rate stabilization plan are based on results for each12-month period ended September 30.  For additional information on the accrualof electric customer credits, see Item 1, "Notes to the Unaudited CondensedFinancial Statements - Note 7 - Accrual of Electric Customer Credits."

***Other Operations***

Other operations revenue increased $7.0 million,or 31.3%, in the first nine months of 2005 compared to the first nine months of2004 primarily due to a $4.4 million net mark-to-market gain from economichedge transactions related to fixed-price power that will be provided to a newwholesale customer in January 2006, a $1.8 million increase in transmission servicerevenue, and a $0.8 million increase from customer fees, timber sales, and SO2emission allowance proceeds.  For additional information on theanticipated effects of changes in other operations revenue related to economichedge positions, see "- Comparison of the Three Months Ended September 30, 2005and 2004 - Cleco Power - Other Operations." 

***Operating Expenses***

Operating expenses increased $79.3 million, or 16.9%,in the first nine months of 2005 compared to the same period of 2004.  Fuelused for electric generation increased $6.8 million, or 6.3%, primarily as aresult of higher cost and volumes of fuel used for electric generation.  Alsocontributing to this increase were the absences in 2005 of a 2004 reversal offuel expenses related to gas transportation charges recorded as a result of ClecoPower's 2001-2002 fuel audit and favorable surcharge adjustments that wereincluded in the Fuel Adjustment Clause Report filed by Cleco Power in June2004.  Power purchased for utility customers increased $67.3 million, or 36.3%,largely due to increased costs of purchased power.  Fuel used for electricgeneration and power purchased for utility customers generally are influencedby natural gas prices.  However, other factors such as unscheduled outages, unusualmaintenance or repairs, or other developments may affect fuel used for electricgeneration and power purchased for utility customers.  Non-recoverable fuel andpower purchased decreased $5.5 million, or 23.8%, primarily due to lowercapacity payments made during 2005 as a result of the expiration of certainpower purchase agreements.  Other operations expense increased $8.7 million, or16.5%, primarily due to higher incentive compensation and payroll expense.  Maintenanceexpenses during the first nine months of 2005 increased $2.6 million, or 9.4%,compared to the same period of 2004 primarily due to a scheduled major outageon one of Cleco Power's gas units during the spring of 2005.  Depreciation expenseincreased $1.5 million, or 3.6%, as a result of normal recurring additions tofixed assets.  Gain on sales of assets increased $2.2 million during the first ninemonths of 2005 compared to the same period of 2004 largely as a result of thesale of distribution assets resulting from the town of Franklinton's electionnot to renew its franchise agreement with Cleco Power.  For additionalinformation, see "- Financial Condition - Regulatory Matters - Franchises." Forinformation on Union Pacific's reduction of coal deliveries to Cleco Powerduring June 2005 through November 2005, see "- Comparison of the Three MonthsEnded September 30, 2005 and 2004 - Cleco Power - Operating Expenses."  Foradditional information on the anticipated effects of changes in otheroperations expense as a result of Cleco's matching contribution to the 401(k)Plan, see "- Comparison of the Three Months Ended September 30, 2005 and 2004 -Cleco Power - Operating Expenses."

***Other Income***

Other income increased $0.7 million, or 330.5%,during the first nine months of 2005 compared to the same period of 2004primarily due to a $0.4 benefit related to life insurance policies on certainofficers and/or key managers and $0.3 million of other miscellaneous income.

***Other Expense***

Other expense decreased $2.4 million, or 65.5%,during the first nine months of 2005 compared to the same period of 2004primarily due to legal fees associated with the settlement of Cleco Power's2001-2002 fuel audit.

***IncomeTaxes***

Income tax expense increased $6.3 million, or 28.4%,during the first nine months of 2005 compared to the same period of 2004. Cleco Power's effective income tax rate decreased from 36.3% to 35.2% duringthe first nine months of 2005 compared to the same period of 2004 largely dueto the LPSC requirement to flow through to current earnings the state taxbenefit derived from the casualty losses related to Hurricanes Katrina andRita.  The decrease in state tax expense was partially offset by a 2004 true-upof estimated taxes based on the 2003 tax return and a 2005 increase in theaccrual of tax contingency reserves.  Tax rates also were affected by therelative size of pre-tax income related to these items.  Pre-tax income duringthe first nine months of 2005 increased $19.7 million compared to the same periodof 2004.  Cleco Power is expected to maintain a reduced effective income taxrate for the remainder of 2005, assuming the FASB exposure draft related toaccounting for uncertain tax positions does not require an increase in taxcontingency reserves prior to year end.

***Midstream***

Midstream's net income applicable to member'sequity for the first nine months of 2005 increased $3.1 million, or 19.3%,compared to the first nine months of 2004.  Factors affecting Midstream duringthe first nine months of 2005 are described below.

***Perryville***

The deconsolidation of Perryville and PEH fromCleco in connection with their bankruptcy filings affected Midstream's earningsfor the first nine months of 2005 compared to the first nine months of 2004,since no income or loss was recognized in Midstream's consolidated financialstatements subsequent to the bankruptcy filing on January 28, 2004. Consequently, 

48

the chart below does not reflect operating results for Perryvilleand PEH for the first nine months of 2005 as compared to operating results throughJanuary 27, 2004, for the first nine months of 2004.  On October 11, 2005, theFirst Amended Joint Plan of Reorganization under Chapter 11 of the BankruptcyCode became effective and the financial results of Perryville and PEH will bereintegrated with Cleco's consolidated financial results as of that date.  Forfinancial results and additional information on Perryville, see Item 1, "Notesto the Unaudited Condensed Financial Statements - Note 13 - Perryville" andNote 20 - "Subsequent Event."

***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 firstnine months of 2005 on the equity income from investees' line as compared tobeing reported on various line items for the first three months of 2004.  Foradditional information on FIN 46R and the deconsolidation of Evangeline, seeItem 1, "Notes to the Unaudited Condensed Financial Statements - Note 1 -Summary of Significant Accounting Policies - Principles of Consolidation" andNote 11 - "Variable Interest Entities."

***Cleco Energy***

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

 

                                          FOR THE NINE MONTHS ENDED SEPTEMBER 30,

              FAVORABLE/(UNFAVORALBE)

(THOUSANDS)

**              2005**

              2004

        VARIANCE

                 CHANGE

Operating revenue

     Tolling operations

** $            -**

   $    10,255

  $    (10,255)

                        *

     Other operations

**          93**

                 99

                  (6)

           (6.06)%

     Affiliate revenue

**     4,069**

           3,153

              916

          29.05 %

     Intercompany revenue

**          42**

                 12

                 30

        250.00 %

          Operating revenue

**     4,204**

         13,519

         (9,315)

        (68.90)%

Operating expenses

     Other operations

**     5,349**

    

           7,314

           1,965

          26.87 %

     Maintenance

**     1,765**

           2,705

              940

          34.75 %

     Depreciation

**        237**

           2,117

           1,880

          88.80 %

     Taxes other than income taxes

**        253**

               202

               (51)

        (25.25)%

               Total operating expenses

**     7,604**

         12,338

           4,734

          38.37 %

Operating (loss) income 

** $ (3,400)**

   $      1,181

   $   (4,581)

                        *

Equity income from investees

** $ 46,088**

   $    40,872

   $      5,216

          12.76 %

Other income

** $   1,250**

   $              -

   $      1,250

                        *

Interest charges

** $ 11,171**

   $    14,396

   $      3,225

          22.40 %

Federal and state income tax expense    

**  $ 13,112**

   $    10,979

   $   (2,133)

        (19.43)%

Loss from discontinued operations    

**  $    (230)**

   $      (436)

   $         206

          47.25 %

Net income 

** $ 19,395**

   $    16,264

    $      3,131

          19.25 %

*    Not meaningful

***Tolling Operations***

Tolling operations revenue decreased $10.3 millionin the first nine months of 2005 compared to the first nine months of 2004. The decrease was due to a $10.2 million decrease as a result of Cleco'saccounting for Evangeline on the equity method in accordance with FIN 46R and a$0.1 million decrease as a result of the bankruptcy filings of the Mirant Debtors,MAEM's rejection of the Perryville Tolling Agreement, the subsequent bankruptcyfilings of Perryville and PEH, and their subsequent deconsolidation fromCleco's consolidated results.

***Affiliate******Revenue***

Affiliate revenue increased $0.9 million, or 29.1%,in the first nine months of 2005 compared to the first nine months of 2004. The increase was primarily due to affiliate transactions with Evangeline,Perryville, and PEH that no longer are eliminated as a result of those companies'deconsolidation from Cleco.

***Operating Expenses***

Operating expenses decreased $4.7 million, or 38.4%,in the first nine months of 2005 compared to the same period of 2004.  The decreasewas largely due to a $3.7 million decrease at Evangeline and a $2.2 milliondecrease at Perryville and PEH as a result of their deconsolidation fromCleco's consolidated results.  These decreases were partially offset by $0.8million of higher incentive compensation benefits and $0.4 million of higherother miscellaneous expenses.

***Equity Income fromInvestees***

Equity income from investees increased $5.2million, or 12.8%, for the first nine months of 2005 compared to the first 

49

ninemonths of 2004.  The increase was largely due to a $0.4 million increase atEvangeline as a result of the change in reportingfor Evangeline effective April 1, 2004, and a $4.8 million increase in equityearnings at APH primarily due to fewer outages during 2005.  These increaseswere partially offset by APP's heat rate settlement with CES.  For additionalinformation on Evangeline and APP, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 5 - Equity Investment in Investees" andfor additional information on APP's heat rate settlement, see "Note 8 -Litigation and Other Commitments and Contingencies - CES."

***Other Income***

Other income increased $1.3 million during thefirst nine months of 2005 compared to the same period of 2004 primarily due tocash payments received by APH from CES as a result of the settlement of adispute over the availability of transmission capacity at APP.  For additionalinformation on the significant terms of this settlement, see Item 1, "Notes tothe Unaudited Condensed Financial Statements - Note 8 - Litigation and OtherCommitments and Contingencies - CES."

***Interest Charges***

Interest charges decreased $3.2 million, or 22.4%,during the first nine months of 2005 compared to the same period of 2004.  Thedecrease was primarily due to a $4.4 million decrease at Evangeline and a $0.5million decrease at Perryville and PEH as a result of their deconsolidationfrom Cleco's consolidated results.  This decrease was partially offset by a $1.7million increase at APH as a result of higher interest rates.

***Income Taxes***

Income tax expense increased $2.1 million, or 19.4%,during the first nine months of 2005 compared to the same period of 2004.  Midstream'seffective income tax rate increased from 39.7% to 40.1% during the first nine monthsof 2005 compared to the same period of 2004 primarily due to a 2005 increase inthe accrual of tax contingency reserves.  Tax rates also were affected by therelative size of pre-tax income related to this item.  Pre-tax income duringthe first nine months of 2005 increased $5.1 million compared to the sameperiod of 2004.

***DiscontinuedOperations, Net of Tax***

Discontinued operations, net of tax increased $0.2million, or 47.3%, in the first nine months of 2005 compared to the first ninemonths of 2004.  The increase was primarily due to the 2005 absences of animpairment charge recorded at Cleco Energy during the second quarter of 2004and a loss on disposal from the sale of Cleco Energy's oil and gas productionproperties in the third quarter of 2004.  Partially offsetting these increaseswere the 2005 absence of income from the 2004 sale of substantially all ofCleco Energy's assets and miscellaneous expenses incurred in 2005 related tothe sale of those assets.  For additional information on the discontinuedoperations and sale of Cleco Energy's assets, see Item 1, "Notes to the UnauditedCondensed Financial Statements - Note 14 - Discontinued Operations andDispositions."

**FINANCIAL CONDITION**

**Liquidity and CapitalResources**

**General Considerations andCredit-Related Risks**

***Credit Ratings andCounterparties***

On October 10, 2005, Moody's Investors Servicechanged the rating outlook for Cleco Corporation from negative to stable.  Accordingto Moody's, the change in the rating outlook primarily reflects the improvedfinancial profile of the consolidated company, a modestly lower business riskprofile associated with its merchant generation investments, including thecompleted exit from the Perryville facility and sale of related claims.  For adiscussion of certain factors affecting Cleco's financial condition relating toits credit ratings, the credit ratings of its counterparties, and othercredit-related risks, please read "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Financial Condition - Liquidityand Capital Resources - General Considerations and Credit-Related Risks -Credit Ratings and Counterparties" in the Registrants' Combined Annual Reporton Form 10-K for the fiscal year ended December 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 gas hedgingpositions that Cleco may initiate in the future, Cleco Corporation may berequired 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 below, Cleco Corporation and ClecoPower entered into new credit facilities in April 2005.  If Cleco Corporationwere to default under covenants in its credit facility, it would be unable toborrow additional funds under the credit facility.  If Cleco Corporation'scredit rating, as determined by outside rating agencies, were to be downgradedone level below investment grade, fees and interest under the facility wouldincrease by 0.375% from the current levels.  The same downgrade at Cleco Powerwould result in a 0.65% increase in fees and interest from current levels underits facility.  At September 30, 2005, Cleco Corporation and Cleco Power were incompliance with the covenants in their credit facilities.

***Cleco***

At September 30, 2005, Cleco's long-term debtoutstanding was $460.4 million, compared to $450.6 million at December 31,2004.  The $9.8 million increase was primarily the result of the issuance by ClecoPower of $50.0 million of 4.95% Senior

50

 Notes, due July 15, 2015, offsetpartially by the classification of $40.0 million of medium-term notes asshort-term debt (long-term debt due within one year) based on their maturitydates. 

During the first nine months of 2005, Cleco alsorepaid $100.0 million of Cleco Corporation's 8.75% Senior Notes and $60.0 millionof Cleco Power's Series X, 9.5% First Mortgage Bonds, both at maturity. Thesetwo issues were classified as long-term debt due within one year; therefore,the repayment did not affect the total amount of long-term debt recorded.  Therepayments were funded by available cash and new borrowings by Cleco Power. 

Cleco had no short-term debt outstanding atSeptember 30, 2005, or December 31, 2004.  For additional information, see "-Cleco Corporation (Holding Company Level)," "- Cleco Power," and "- Midstream"below.

At September 30, 2005, and December 31, 2004,Cleco had working capital deficits of $136.3 million and $49.9 million,respectively.  The $86.4 million increase in the deficit during the first ninemonths of 2005 was due to an increase in current liabilities of $51.3 million, alongwith a decrease in current assets of $35.1 million.  The decrease in currentassets was largely due to a decrease in cash, which was partially offset byincreases in accounts receivable and risk management assets.  The decrease incash was due to the paydown of corporate debt, as well as storm restorationcosts related to Hurricane Katrina.  The accounts receivable and riskmanagement asset increases were attributable to higher utility bills and themark-to-market gain related to economic wholesale hedging transactions for anew wholesale customer.  The increase in current liabilities was primarily dueto increases in the accruals for storm restoration and for power and gas purchases,an increase in income taxes mainly resulting from the gain on the sale of theMirant claims, and lower margin requirements due to an increase in value of ClecoPower's open futures contracts.  Partially offsetting the increases were a decreasein long-term debt due within one year due to repayment of $160.0 million ofdebt at maturity, a decrease in the rate refund provision, mainly due to theabsence of the fuel audit settlement from 2004, and a decrease in income taxesdue to the deduction of storm restoration costs.

Cash and cash equivalentsavailable at September 30, 2005, were $37.3 million combined with $251.6million total facility capacity for total liquidity of $288.9 million.  Cashand cash equivalents decreased $86.4 million, when compared to December 31, 2004,due to repayment of long-term debt, payment of dividends, and expenditures forcapital additions to property, plant and equipment, both routine and for stormrestoration.  These payments were partially offset by cash received from theissuance of long-term debt, from on-going operations, and from routine workingcapital fluctuations.

Cleco has developed a planfor payment of storm restoration costs related to Hurricanes Katrina and Rita,as well as for initial development costs of its solid-fuel power plantself-build proposal.  For information on the current plan, see "- Cleco Power"below.

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 of securities underCleco's shelf registration statements, will be adequate to fund normal ongoingcapital expenditures, working capital, and debt service requirements for theforeseeable future.

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

Cleco Corporation had no short-term debtoutstanding at September 30, 2005, or December 31, 2004.  Cleco Corporationrepaid $100.0 million of its 8.75% Senior Notes on June 1, 2005, with cash onhand 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 toLIBOR plus 0.875%, including facility fees.  Cleco Corporation's borrowing costsunder the prior facility were equal to LIBOR plus 1.225%, and the weightedaverage cost of borrowings was 3.795%.  As of September 30, 2005, the $150.0million facility was reduced by $23.4 million in off-balance sheet commitments,leaving approximately $126.6 million available for borrowing.  For moreinformation about these commitments, see "- Off-Balance Sheet Commitments"below.  On May 10, 2005, Cleco renewed an uncommitted line of credit.  The lineof credit was increased from $5.0 million to $10.0 million and is available tosupport Cleco's working capital needs.  This line of credit is available toeither Cleco Corporation or Cleco Power.

Cash and cash equivalents available at September30, 2005, were $21.9 million, which combined with $126.6 million facilitycapacity, for total liquidity at Cleco Corporation of $148.5 million.  Cash andcash equivalents decreased $47.8 million, when compared to December 31, 2004,largely due to the repayment of the 8.75% Senior Notes discussed above.

If Cleco Power were in default under its creditfacility, Cleco Corporation would be considered in default under its credit facility. However, the 8.82% Senior Secured Bonds due 2019 issued by Evangeline arenon-recourse to Cleco Corporation, and a default on these bonds would not beconsidered a default under Cleco Corporation's credit facility.

***Cleco Power***

At September 30, 2005, Cleco Power's long-termdebt outstanding was $360.4 million, compared to $350.6 million at December 31,2004. The $9.8 million increase was primarily the result of the issuance byCleco Power in July 2005 of $50.0 million of 4.95% Senior Notes, due July 15,2015, offset partially by the classification of $40.0 million of medium-termnotes as short-term debt (long-term debt due within one year) based on theirmaturity dates. 

During the first nine months of 2005,Cleco Power also repaid $60.0 million of Series X, 9.5% First Mortgage Bonds,at maturity.  This issue was classified as long-term debt due in one year; therefore,the repayment did not affect the total amount of long-term debt recorded.  Therepayment was 

51

funded by available cash and the new borrowings by Cleco Power mentionedabove, aided by interim borrowings from Cleco Power's credit facility.

At September 30, 2005, and December 31, 2004,Cleco Power had no short-term debt outstanding. 

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 September 30, 2005, there was no debt outstandingunder Cleco Power's $125.0 million, five-year facility.  Cleco Power'sborrowing costs under the prior facility were equal to LIBOR plus 1.0%,including facility fees.  On May 10, 2005, Cleco renewed an uncommitted line ofcredit.  The line of credit was increased from $5.0 million to $10.0 millionand is available to support Cleco Power's working capital needs.  This line ofcredit is available to either Cleco Power or Cleco Corporation.

Cash and cash equivalents available at September30, 2005, were $15.4 million, which when combined with $125.0 million remainingfacility capacity totaled $140.4 million.  Cash and cash equivalents decreased$38.7 million, when compared to December 31, 2004, due to repayment of long-term debt, payment of dividends toCleco Corporation, and expenditures for capital additions to property, plantand equipment, both routine and for storm restoration.  These payments werepartially offset by cash received from the issuance of long-term debt, fromon-going operations, and from routine working capital fluctuations.

Cleco Power is exploring U.S. Governmentreimbursement and customer surcharges to fund storm restoration costs. Absent such cost recovery, Cleco Power plans to fund storm costs as well asongoing development work related to the self-build proposal by utilizing cash onhand, available funds from its credit facility, the issuance of long-term debt,and equity contributions from Cleco Corporation.

***Midstream***

There was no short-term debt at Midstream at September30, 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 September 30, 2005,Perryville had no short-term or long-term debt outstanding.  On June 30, 2005,Perryville paid the outstanding principal and interest of $131.0 million underthe Senior Loan Agreement.  On July 19, 2005, Perryville elected to offset its$98.7 million Subordinated Debt Claim against MAI with MAI's $98.7 millionclaim against Perryville.  

Evangeline, also deconsolidated and no longerreported in Cleco Corporation's consolidated results, had no short-term debt outstandingat September 30, 2005.  Evangeline had $184.7 million and $191.8 million oflong-term debt outstanding at September 30, 2005, and December 31, 2004, respectively,in the form of 8.82% Senior Secured Bonds due in 2019.  In addition, Evangelinehad $7.1 million and $6.0 million of long-term debt due within one year atSeptember 30, 2005, and December 31, 2004, respectively, relating to thesebonds.  The bonds issued by Evangeline are non-recourse to Cleco Corporation. For information on the deconsolidation of Evangeline, see "Results ofOperations - 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 September 30, 2005,and December 31, 2004, $33.6 million and $35.8 million of cash, respectively,was restricted under various agreements.  For additional information onrestricted cash, see Item 1, "Notes to the Unaudited Condensed FinancialStatements - Note 4 - Restricted Cash."

At September 30, 2005, the $33.6 million of restrictedcash consisted of $0.1 million under the Diversified Lands mitigation escrowagreement and $33.5 million under the Evangeline senior secured bondindenture.  On July 8, 2005, approximately $1.8 million of the $2.1 million ofrestricted cash for Perryville was released by the Perryville lenders, and onSeptember 28, 2005, the remaining cash was released.  The restricted cash at Evangelineis not included in Cleco Corporation's Condensed Consolidated Balance Sheets atSeptember 30, 2005, due to the deconsolidation of Evangeline in 2004.

***Contractual Obligations andOther Commitments***

For information regarding Cleco's ContractualObligations and Other Commitments, please read "Management's Discussion andAnalysis of Financial Condition and Results of Operations - Financial Condition- Liquidity and Capital Resources - Cash Generation and Cash Requirements -Contractual Obligations and Other Commitments" in the Registrants' CombinedAnnual Report on Form 10-K for the fiscal year ended December 31, 2004.

***Off-Balance SheetCommitments***

Cleco Corporation and Cleco Power have enteredinto various off-balance sheet commitments, in the form of guarantees andstandby letters of credit, in order to facilitate their activities and theactivities of Cleco Corporation's subsidiaries and equity investees(affiliates).  Cleco Corporation entered into these off-balance sheet commitmentsin order to entice desired counterparties to contract with its affiliates byproviding some measure of credit assurance to the counterparty in the eventCleco's affiliates do not fulfill certain contractual obligations.  If ClecoCorporation had not provided the off-balance sheet commitments, the desiredcounterparties may not have contracted with Cleco's affiliates, or may havecontracted 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 

52

probable that payments by Cleco will be required.  Some of these commitments reducethe amount of the credit facility available to Cleco Corporation by an amountdefined by the credit facility.  Cleco's off-balance sheet commitments as ofSeptember 30, 2005 are summarized in the following table and a discussion ofthe off-balance sheet commitments is detailed in the explanations following thetable.  The discussion should be read in conjunction with the table tounderstand the impact of the off-balance sheet commitments on Cleco's financialcondition.

   AT SEPTEMBER 30, 2005

          REDUCTIONS TO THE

          AMOUNT AVAILABLE

               TO BE DRAWN ON

                 FACE

** **

                   NET

CLECO CORPORATION'S
(THOUSANDS)

            AMOUNT

REDUCTIONS

        AMOUNT

           CREDIT    FACILITY

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

**            $ 277,400**

** $  135,000**

**            $ 142,400**

**         $        328**

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

**                   1,400**

**             **

**                   1,400**

**                1,400**

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

**                 15,000**

**             **

**                 15,000**

**              15,000**

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

**                   6,688**

**             **

**                   6,688**

**                6,688**

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

**                      525**

**             **

**                      525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**                 17,148**

**             **

**                 17,148**

**                        -**

     Total

**            $ 318,161**

** $  135,000**

**            $ 183,161**

**         $   23,416**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance indemnity,representation, and warranty obligations under the Sale Agreement, the PowerPurchase Agreement, and other ancillary agreements related to the sale.  As of September30, 2005, the aggregate guarantee of $277.4 million is limited to $142.4million (other than with respect to the indemnification of environmental mattersto which there is no limit) due to the performance of some of the underlying obligations that wereguaranteed.  The $0.3 million reduction in the available credit under Cleco'scredit facility was determined in accordance with the facility's definition ofa contingent obligation.  The contingent obligation reduces the amountavailable under the credit agreements by an amount equal to the reasonably anticipatedliability in respect of the contingent obligation as determined in good faithif the total amount of indebtedness outstanding, including such contingentobligations, exceeds certain thresholds.  This required an estimate of theprobability, amount and timing of a payment by Cleco pursuant to thisguarantee.  For additional information on this guarantee, see Item 1, "Notes tothe Unaudited Condensed Financial Statements - Note 9 - Disclosures about Guarantees."

Previously, if Perryville was unable to makeprincipal payments to its lenders, Cleco Corporation would be required to pay amountson behalf of Perryville under a cash collateral order issued by the Perryvilleand PEH Bankruptcy Court.  As of September 30, 2005, Perryville had paid all outstandingamounts under its Senior Loan Agreement; accordingly, Cleco Corporation has noremaining obligation under the guarantee.  This guarantee terminated inSeptember 2005 upon termination of Perryville's cash collateral order.  Forinformation on the cash collateral order, bankruptcy filings of the MirantDebtors, Perryville and PEH, and their related impacts on the Senior LoanAgreement, see Item 1, "Notes to the Unaudited Condensed Financial Statements -Note 13 - Perryville."

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

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

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

The State of Louisiana allows employers of certainfinancial net worth to self-insure their workers' compensation benefits.  ClecoPower applied to the Louisiana Office of Workers' 

53

Compensation for a certificate of self-insurance. The State of Louisiana required Cleco Power to post a $0.5 million letter of credit assurety in an amount equal to 110 percent of the average losses over theprevious three years.

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 September 30, 2005, Cleco Power's 50%exposure for this obligation was approximately $17.1 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 discussed above:

                                                                         AT SEPTEMBER 30, 2005

                                 AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

                   NET

                MORE

            AMOUNT

     LESS    THAN

                 THAN

(THOUSANDS)

   COMMITTED

       ONE YEAR

      1-3 YEARS

      4-5 YEARS

         5 YEARS

Guarantees

** $  167,636**

** $ 6,688**

** $         -**

** $  101,400**

** $ 59,548**

Standby letters of credit

**    15,525**

**        525**

**             -**

**             -**

**   15,000**

     Total commercial commitments

** $  183,161**

** $ 7,213**

** $         -**

** $  101,400**

** $ 74,548**

**RegulatoryMatters**

***Wholesale Rates of Cleco***

Cleco Power's wholesale sales are regulated by theFERC via cost-based and market-based tariffs.  Both Evangeline and APP have receivedapproval by FERC to use market-based rates based on Cleco Power's initialrequest to FERC in 1999 for market-based rates and Cleco Power's demonstrationof its lack of market power.  Cleco Power updates its filing every three years todemonstrate its lack of market power.  These tariffs including the associatedcodes of conduct accompanying them are updated periodically to comply with FERCdirectives.  Such an update was completed in December 2003 for each entity tocomply with FERC's requirement to amend market-based rates to add "marketbehavior rules" to the codes of conduct.  Contracts utilizing market-basedtariffs do not require prior approval by FERC, but are reported each quarterpursuant to FERC's requirement for reporting of sales by authorized power marketers.

The FERC issued an order in April 2004 revisingthe methodology to be used in assessing whether a jurisdictional electricutility has generation market power.  The revised methodology requires a utilityto pass two screening tests.  The Pivotal Supplier test assesses availablemarket capacity during peak conditions, and the Market Share test assessesavailable market capacity during off-peak seasonal conditions.  Such determinationsare required of all FERC-jurisdictional electric utilities as a condition forsecuring and/or retaining approval to sell electricity in wholesale markets atmarket-based rates.  Among other things, the April 2004 Order required Cleco,on behalf of each of its authorized power marketing entities, Cleco Power,Evangeline, Marketing & Trading, and APP to file an updated generationmarket power study using the revised methodology.  For companies that faileither screening test, evidence may then be presented to FERC to rebut themarket power presumption, including (i) performing a third and more rigoroustest (the Delivered Price Test or DPT); (ii) filing a mitigation proposal toeliminate the presumed market power; or (iii) voluntarily adopting cost-basedrates for wholesale sales.  Cleco Power submitted its compliance filing underthe revised methodology on December 21, 2004, indicating it passed all therevised tests except for the Market Share test in Cleco Power's control areafor three of the four seasonal periods.  On May 25, 2005, the FERC issuedan order stating that it will institute a proceeding under Section 206 ofthe Federal Power Act to determine whether Cleco Power, Evangeline, and APP maycontinue to charge market-based rates for wholesale power in specifiedgeographic areas.  The FERC authorizes wholesale power sales at market-basedrates if, among other things, the seller and its energy affiliates do not have,or have adequately mitigated, market power in generation.  The agency states inits order that a Section 206 proceeding will be instituted because amarket power analysis filed by Cleco indicates that certain "screens"implemented by the agency were not satisfied in specified geographic markets,creating a rebuttable presumption that Cleco Power, Evangeline, and APP maypossess market power.  The order, among other things, directed that within60 days Cleco must (i) file a DPT analysis, which is a detailedeconomic evaluation of market power; (ii) file a mitigation proposal toeliminate Cleco's ability to exercise market power; or (iii) inform theagency that Cleco will adopt cost-based rates for power sales within ClecoPower's control area.  All filing deadlines associated with the FERC Order ofMay 25, 2005, regarding Cleco's market-based sale tariff were met.  As a resultof the Section 206 proceeding, Cleco could be subject to refunds onwholesale sales as of 60 days following the publishing of the agency'sorder in the Federal Register.  

On October 21, 2005, the FERC terminated theSection 206 investigation initiated on May 25, 2005, determining that Cleco haddemonstrated a lack of market power in Cleco Power's control area, thuspermitting Cleco Power, Evangeline, and APP to continue to use market-basedrates for wholesale sales.  In the same Order, and without changing itsprevious conditional determination that Cleco Power lacks market-power in theLouisiana Energy and Power Authority (LEPA) and Lafayette control areas, theFERC instituted a new proceeding under Section 206.  The FERC initiated thisnew Section 206 proceeding due to an oversight by Cleco Power in filing previouslyrequested information supporting Cleco 

54

Power's lack of market power in theLafayette and LEPA control areas.  On October 27, 2005, the FERC requested informationthat was filed along with Cleco Power's position supporting termination by theFERC of this new Section 206 proceeding.  

On September 16, 2005, the FERC issued a Noticeof Inquiry inviting comments on reforming FERC's pro forma open access transmissiontariff (OATT) to ensure the provision of transmission service is reasonable andnot unduly discriminatory or preferential.  The FERC is seeking responses to aseries of specific questions which could be incorporated into the revisedOATT.  The FERC's potential changes to the OATT could have a material effect onthe revenue and methodology implementing transmission service offered andreceived by Cleco's retail and wholesale transmission and energy customers. The magnitude of the impact on revenue and offered service will not be knownuntil the FERC issues a final order, which is expected in 2006.

***Retail Rates of Cleco Power***

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

***Wholesale ElectricMarkets***

The Energy Policy Act of 1992 (1992 Act)significantly changed U.S. energy policy, including rules and regulationsgoverning the electric utility industry.  The 1992 Act allows the FERC, on acase-by-case basis and with certain restrictions, to order wholesaletransmission access and to order electric utilities to expand theirtransmission systems.  The 1992 Act prohibits FERC-ordered retail wheeling,such as opening up electric utility transmission systems to allow customerchoice of energy suppliers at the retail level, including "sham" wholesaletransactions.  Further, under the 1992 Act, any FERC transmission orderrequiring a transmitting utility to provide wholesale transmission servicesmust include provisions that permit the utility to recover from the FERC applicantall of the costs incurred in connection with the transmission services,including any enlargement of the transmission system and any associatedservices.

In addition, the 1992 Act revised the 1935 FPAto permit utilities, including registered holding companies, as well asnon-utilities, to form "exempt wholesale generators" without the principalrestrictions of the 1935 FPA.  Under prior law, independent power producersgenerally were required to adopt inefficient and complex ownership structuresto avoid pervasive regulation under the 1935 FPA.

The newly enacted Energy Policy Act of 2005(2005 Act) made important changes to improve reliability, promote investment inelectric facilities, streamline electric generation, and improve wholesalecompetition, in addition to other changes.  Some of the most significantchanges affecting the electric industry include tax incentives for improvingenergy efficiency, developing innovative technologies, and climate change. This 2005 Act will provide a comprehensive platform of reforms to achieve afoundation for competitive wholesale markets which will be implemented over thenext year with effects on the electric industry that are yet to be identified. Cleco is in the process of identifying the impact of the 2005 Act on itsoperations.

In 1999, the FERC issued Order No. 2000,which established a general framework for all transmission-owning entities inthe nation to voluntarily place their transmission facilities under the controlof an appropriate RTO.  Although participation is voluntary, the FERC has madeit clear that any jurisdictional entity not participating in an RTO likely willbe subject to further regulatory directives.  These directives could take theform of review and/or denial of market-based rates for wholesale power sales. In July 2001, the FERC issued orders stating its intention to form fourregional RTOs covering the Northeast, Southeast, Midwest, and West.  The FERClater relaxed its mandate to form the four RTOs, but continued to insist uponthe large regional RTO model.  Since 2001, many transmission-owning entitiesand system operators have been trying to interpret and implement FERC'sdirectives by attempting to organize and/or join acceptable RTOs.  On February10, 2004, FERC gave its approval of SPP's application for RTO recognition witha number of conditions that SPP must meet before it would receive final FERC-approvedRTO status.  On October 1, 2004, FERC granted SPP status as an RTO. 

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

55

For additionalinformation on other regulatory aspects of wholesale electric markets affectingCleco, please read "Management's Discussion and Analysis of Financial Conditionand Results of Operations - Financial Condition - Liquidity and CapitalResources - Regulatory Matters - Market Restructuring - Wholesale ElectricMarkets" in the Registrants' Combined Annual Report on Form 10-K for the fiscalyear ended December 31, 2004.

***National Energy Policy***

The Energy Policy Act of 2005 was signed into lawon August 8, 2005.  Some of the areas addressed in the new energy legislationthat could affect Cleco include:
-  accelerated tax depreciation for transmission and distribution linesand pollution control facilities,
-  extension of tax credits for renewable energy resources, 
-  investment credit for projects using advanced coal-basedelectricity generation technologies,
-  provisions to create a mandatory reliability organization, 
-  provisions to make electric reliability rules mandatory on allusers, owners, and operators of the nation's transmission system,
-  provisions to encourage investment in transmission infrastructure, 
-  provisions to streamline the federal permitting process fortransmission projects,
-  provisions that would defer the recognition of gains on the saleof transmission assets to a FERC-approved RTO or Independent System Operator, 
-  provisions to offer all customer classes the option of a time-basedrate schedule (time of use metering),
-  FERC's actions concerning integrated utility market power, 
-  limited backstop transmission citing authority for FERC, 
-  reform of PURPA's mandatory purchase obligation, and 
-  repeal of PUHCA, which eliminates significant federal restrictionson the scope, structure, and ownership of electric and gas utility companies. 

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

***GenerationRFP***

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

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

In June 2005, Cleco Power made selections fromits long-term and short-term RFPs and announced plans to (i)  construct a proposed600-MW solid-fuel power plant at its Rodemacher power station near Boyce,Louisiana; (ii)  negotiate a one-year power purchase agreement with CES providing200 MW of capacity in 2006; and (iii)  negotiate a four-year power purchaseagreement with Williams providing 500 MW of capacity from 2006 through 2009. Cleco Power filed an application seeking approval and certification of its planwith the LPSC in July 2005 (the CCN filing).  The two power purchase agreementswere executed on August 1, 2005.  LPSC approval of the two power purchaseagreements is expected during the fourth quarter of 2005, while approval andcertification to construct the solid-fuel power plant is expected during thefirst quarter of 2006.  The approval and certification process also willaddress cost recovery aspects of the solid-fuel plant, as well as financingapprovals for the estimated $1.0 billion cost of the project.  As of September30, 2005, Cleco Power has spent approximately $6.6 million on preliminary projectdevelopment.  If LPSC approval of the project is not received, the $6.6 millionand any amounts incurred subsequent to September 30, 2005 will be expensed.  Foradditional information on Cleco Power's self-build option, see "- Self-Build Proposal"below.  During the intervention filing period, ten interested parties have intervenedin Cleco Power's CCN filing.  The CCN filing requested that the LPSC issue Certificatesof Public Convenience and Necessity which will find Cleco Power's selectionsfrom its RFPs to be in the public interest and authorize it to construct andcontract for such generation resources or self-build options.  On August 3,2005, the LPSC established a procedural schedule related to the self-build optionwith a March 15, 2006 date for the LPSC to take action.  Consistent with the provisionof the LPSC's General Order of September 1983 and as it relates to the above-mentionedselection to construct a solid-fuel power plant, Cleco Power recently completedthe feasibility, engineering and environmental studies, and other relatedactivities required to fully develop its self-build option.

On September 14, 2005, Cleco Power received LPSCapproval of a one-year extension of its current rate stabilization plan toSeptember 30, 2006.  The extension is part of Cleco Power's overall strategy tosecure lower, more stable, fuel costs for its customers, while seeking approvaland certification of its selections from its long-term and short-term RFPs.  ClecoPower expects to file a proposed rate plan in the first quarter of 2006 toreplace the extended rate stabilization plan.

56

***Self-Build Proposal***

Cleco Power's self-build proposal, as discussedabove, provides for construction and operation of a proposed 600-MW solid-fuelpower plant at Cleco Power's existing Rodemacher power plant site.  The solid-fuelunit will utilize circulating fluidized bed (CFB) technology and primarily willbe fueled by petroleum coke, but also will be capable of burning other fuelsincluding lignite and coal.  If constructed, the unit is expected to be on-lineby mid-2009.  On September 21, 2005, after completion of the evaluation ofpotential construction contractors, Cleco Power entered into an engineering, procurementand construction (EPC) contract with Shaw Constructors, Inc. (Shaw) toconstruct the CFB power plant.  The EPC contract was effective August 1, 2005,and allows for termination at Cleco Power's sole discretion, or otherwise ifcertain milestones or approvals are not met, as well as other typical commercialterms and conditions.  Under the terms of the EPC contract, in the event ClecoPower does not maintain a senior unsecured credit rating of either:  (i)  Baa3or better from Moody's Investors Service or BBB- or better from Standard &Poor's, Cleco Power will be required to provide a letter of credit to Shaw in theamount of $20.0 million.  In the event of further downgrade to both of itscredit ratings to:  (i)  Ba2 or below from Moody's Investors Service, and (ii) BB or below from Standard & Poor's, Cleco Power will be required to providean additional $15.0 million letter of credit to Shaw for a total of $35.0million.  Under additional terms of the EPC contract, Shaw provided a letter ofcredit to Cleco Power upon execution of the contract in an amount equal to 2.5%of the target price of the contract.  Upon issuance of the notice to startconstruction, this letter of credit will be increased to 7.5%.  Cleco Powerwill retain 7.5% of all payments made to Shaw as retainage until substantialcompletion of the project is performed.  The cost of the EPC contract will be finalizedafter negotiations with major equipment suppliers to the project are completed. Shaw expects to enter into several of these major equipment subcontracts throughoutthe fourth quarter of 2005 and the first quarter of 2006.  The total projectcost including carrying costs during construction is estimated at $1.0billion.  The tentative schedule calls for construction to begin in the firstquarter of 2006 pending approval of the CCN filing and certain environmental permitapplications.  Applications for all of the environmental permits have beenfiled, and those necessary to be received prior to beginning the construction ofthe facility are expected to be received during the first quarter of 2006.  Theremaining other environmental permits are expected to be received during thesecond quarter of 2006.

***Lignite Deferral***

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

Asmore fully described in the Registrants' Combined Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004, Cleco Power defers lignite miningcosts above 98% of the previous mining contract's projected costs (the benchmarkprice).  The benchmark price uses the GDP-IPD index as a proxy for the numerousescalators in the previous contract.  The GDP-IPD index does not appropriatelyreflect the increase in mining costs caused by the sharp increase in dieselfuel and electricity used in the mining operation.  If mitigating strategies tocorrect the disconnect between the GDP-IPD index and actual mining costs arenot implemented, then Cleco Power could be required to recognize an expense forfuture amounts instead of deferring them.  Cleco Power also could be requiredto expense a portion of the currently deferred amount.  Mitigating strategiesinclude, but are not limited to, obtaining regulatory approval for replacingthe current GDP-IPD index with a more representative benchmark price escalation. Management anticipates filing for regulatory approval by the end of the fourthquarter of 2005.  Currently, management is expecting the mitigating strategiesto be implemented and current and future deferrals are expected to becollected.  As of September 30, 2005, Cleco Power had remaining deferredcosts and interest of $13.1 million relating to its lignite mining contract. Cleco Power recorded a deferral of $0.5 million and $1.7 million of thesemining costs for the three and nine months periods ending September 30, 2005, respectively,including $0.2 million and $0.5 million, respectively in interest.

***Franchises***

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

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

Cleco Power's next municipal franchise expires in2008.  In August 2005, the municipality's council published a request forproposal to provide electric service.  Cleco Power was the only utility companythat met the proposal deadline.  Cleco Power will begin negotiations inNovember 2005 with a fully executed agreement expected to follow by the end ofthe first quarter of 2006.  Competing power cooperatives actively areattempting to gain dual franchises in several municipalities currently servedby Cleco Power.  A dual franchise arrangement would limit a new provider fromproviding service to Cleco Power's existing customers; however, the existingand new power provider could compete for new customers.  In 

57

March 2005, onesuch cooperative did obtain a limited dual franchise.  The granting of a dualmunicipal franchise to a competing power cooperative does not reduce current Cleco Power earnings, since existing customers do not have an option to changeelectric service providers under existing LPSC regulations.  However, it couldreduce 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.  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.  Louisiana must evaluate the provisions of CAMR and make changes tothe SIP by September 2006 to incorporate these requirements.  Cleco has begunthe process of evaluating the potential impacts to its generating resources.

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

***Recent AccountingStandards***

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

**CRITICAL ACCOUNTING POLICIES**

Cleco's critical accounting policies include thoseaccounting policies that are both important to Cleco's financial condition andresults of operations and those that require management to make difficult,subjective, or complex judgments about future events, which could result in amaterial impact to the financial statements of Cleco Corporation's segments orto Cleco as a consolidated entity.  The financial statements contained in thisreport are prepared in accordance with accounting principles generally acceptedin the United States of America, which require Cleco to make estimates andassumptions.  Estimates and assumptions about future events and their effectscannot be made with certainty.  Management bases its current estimates andassumptions on historical experience and on various other factors that arebelieved to 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 and nine months ended September30, 2005, and September 30, 2004.  The following narrative analysis should beread in combination with Cleco Power's Unaudited Condensed Financial Statementsand the Notes contained in this Form 10-Q.

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

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For anexplanation of material changes in the amount of revenue and expense items ofCleco Power between the third quarter of 2005 and the third quarter of 2004,see "- Results of Operations - Comparison of the Three Months Ended September30, 2005 and 2004 - Cleco Power" of thisForm 10-Q, which discussion is incorporated herein by reference.

For anexplanation of material changes in the amount of revenue and expense items ofCleco Power between the first nine months of 2005 and the first nine months of2004, see "- Results of Operations - Comparison of the Nine Months Ended September30, 2005 and 2004 - Cleco Power" of this Form 10-Q, which discussion isincorporated herein by reference.

**ITEM 3. **      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK OF CLECO CORPORATION

***Cleco***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positions includes potential changes arisingfrom changes in interest rates and the commodity market prices of power andnatural gas in the industry on different energy exchanges.  Cleco Power usesSFAS No. 133 to determine whether the market risk-sensitive instruments andpositions are required to be marked-to-market.  Generally, Cleco Power's marketrisk-sensitive instruments and positions qualify for the normal-purchase,normal-sale exception to mark-to-market accounting of SFAS No. 133, as modifiedby SFAS No. 149, since Cleco Power generally takes physical delivery and theinstruments and positions are used to satisfy customer requirements.  From timeto time, Cleco Power could have positions that are required to bemarked-to-market, because they do not meet the exceptions of SFAS No. 133 anddo not qualify for hedge accounting treatment.  Cleco Power has entered intocertain transactions it considers economic hedges to mitigate the riskassociated with a new wholesale customer that do not meet the criteria ofaccounting hedge treatment.  These positions are marked-to-market with thoseresults recorded in income.  Cleco Power has entered into other positions tomitigate some of the volatility in fuel costs passed on to customers.  Thesepositions are marked-to-market, with the resulting gain or loss recorded on thebalance sheet as a component of the accumulated deferred fuel asset orliability and a component of risk management assets or liabilities.  When thesepositions close, actual gains or losses will be included in the fuel adjustmentclause and reflected on customers' bills.  Any positions for marketing andtrading purposes that do not meet the exemptions of SFAS No. 133 aremarked-to-market and the results are recorded in income.  

Cleco also is subject to market risk associatedwith its remaining tolling agreement counterparties.  For additional informationconcerning Cleco's market risk associated with its remaining counterparties,see Item 2, "Management's Discussion and Analysis of Financial Condition andResults of Operations - Financial Condition - Liquidity and Capital Resources -General Considerations and Credit Related Risks" and Item 1, "Notes to theUnaudited Condensed Financial Statements - Note 5 - Equity Investment inInvestees" and - Note 8 - "Litigation and Other Commitments and Contingencies -Risks and Uncertainties."

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

Cleco monitors credit risk exposure through reviewof counterparty credit quality, corporate-wide aggregate counterparty creditexposure and corporate-wide aggregatecounterparty concentration levels.  Cleco actively manages these risks byestablishing appropriate credit and concentration limits on transactions withcounterparties and requiring contractual guarantees, cash deposits or lettersof credit from counterparties or their affiliates, as deemed necessary.  ClecoPower has agreements in place with various counterparties that authorize thenetting of financial buys and sells and contract payments to mitigate creditrisk for transactions entered into for risk management purposes.

**Interest Rate Risks**

Cleco monitors its mix of fixed- and variable-ratedebt obligations in light of changing market conditions and from time to timemay alter that mix by, for example, refinancing balances outstanding under itsvariable-rate credit facility with fixed-rate debt.  The calculations of thechanges in fair market value and interest expense of the debt securities aremade over a one-year period.

Sensitivity to changes in interest rates for fixed-rateobligations is computed by calculating the current fair market value using anet present value model based upon a 1% change in the average interest rateapplicable to such debt.  Sensitivity to changes in interest rates forvariable-rate obligations is computed by assuming a 1% change in the currentinterest rate applicable to such debt.

As of September 30, 2005, there was novariable-rate debt at Cleco or Cleco Power.

**Commodity Price Risks**

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

59

established and monitored by the RiskManagement Committee.

Cleco Power's financial positions that are not usedto meet the power demands of customers are marked-to-market as required by SFASNo. 133 with the resulting gain or loss recorded on the income statement as acomponent of operating revenue, net.  There were no speculative positions at September30, 2005, and December 31, 2004; therefore, no mark-to-market amounts relatedto such positions were recorded on the income statement or balance sheet.

During June 2005, Cleco Power entered into certain financialhedge transactions it considers economic hedges to mitigate the risk associatedwith the fixed-price power that will be provided to a new wholesale customer, throughDecember 2010.  At September 30, 2005, there was a net mark-to-market gain of $4.4million related to these economic hedge transactions.  This gain was recordedon the income statement as a component of operating revenue, net.  Cleco Poweranticipates that a large portion of these mark-to-market gains will be offset bylosses in future periods.  These timing differences relate to a fixed-pricewholesale contract that will commence in January 2006.  In light of theseeconomic hedge transactions, volatility in natural gas prices will likely causefluctuation in Cleco Power's future earnings.

Cleco Power provides fuel for generation andpurchases power to meet the power demands of customers.  Cleco Power hasentered into positions to mitigate some of the volatility in fuel costs passedon to customers as encouraged by an LPSC order.  In December 2004, Cleco Powerimplemented a fuel stabilization policy (which was filed with the LPSC) totarget higher levels of minimum hedging percentages.  This LPSC order couldresult in larger volatility in the marked-to-market amounts for the financialpositions to mitigate fuel cost volatility for Cleco Power customers.  These 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 a componentof risk management assets or liabilities.  Based on market prices at September 30,2005, the net mark-to-market impact related to these positions was a gain of $33.6million.

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

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

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

(THOUSANDS)

**                HIGH**

** **

**       LOW**

** **

**   AVERAGE**

Cleco Power

**     $ 448.8**

** $ 403.2**

** $ 437.5**

Consolidated

**     $ 448.8**

** $ 403.2**

** $ 437.5**

 

**FOR****THE NINE    MONTHS ENDED SEPTEMBER 30, 2005**

(THOUSANDS)

**                HIGH**

** **

**          LOW**

** **

**   AVERAGE**

Cleco Power

**     $ 448.8**

** $       -**

** $ 150.5**

Consolidated

**     $ 448.8**

** $       -**

** $ 150.5**

 

**AT SEPTEMBER 30,**

** **

   AT DECEMBER 31,

(THOUSANDS)

**                      2005**

** **

                       2004

Cleco Power

**        $  448.8**

             $              -

Consolidated

**        $  448.8**

             $              -

**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 third fiscal quarter of2005, there have been no changes in the Registrants' internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) 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 Other Commitmentsand Contingencies - Securities Litigation," "- Other Litigation," and "-SESCO", Note 13 - "Perryville - Mirant Bankruptcy and MAEM's Rejection of thePerryville Tolling Agreement," "- Perryville Tolling Agreement AdministrativeExpense and Damage Claims," "- Perryville Bankruptcy," "- Sale of thePerryville Facility," and Note 20 - "Subsequent Event."

**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 September 30, 2005, noneof Cleco Corporation's equity securities registered pursuant to Section 12 ofthe Securities Exchange Act of 1934 was purchased by or on behalf of ClecoCorporation or any of its "affiliated purchasers," as defined in Rule10b-18(a)(3) under the Securities Exchange Act of 1934.

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**ITEM 6. **   EXHIBITS
**Cleco Corporation**

10(a)

Acadia Power Partners,  LLC - First Amendment to Second Amended and Restated Limited Liability  Company Agreement dated August 9, 2005 

10(c)

Notice and Acceptance  of Grant of Restricted Stock and Allocation of Opportunity Shares  

10(d)

Summary of Director  Compensation, Benefits and Policies (incorporated by reference to Exhibit  10.1 of Form 8-K (file no. 1-15754), filed July 28, 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-, nine-, and twelve-month periods  ended September 30, 2005, for Cleco Corporation 

31(a)

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

32(a)

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

99(a)

Perryville Energy  Partners, L.L.C. and Perryville Energy Holdings LLC - Debtors' First Amended  Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code effective  October 11, 2005

**Cleco Power**

4(a)

Form of Seventh  Supplemental Indenture, dated as of July 6, 2005, between Cleco Power LLC and  the Bank of New York Trust Company, N.A. (incorporated by reference to  Exhibit 4.1 of Form 8-K (file no. 1-05663), filed July 6, 2005) 

10(b)

401(k) Savings and  Investment Plan, Amended and Restated, effective October 1, 2005  (incorporated by reference to Exhibit 10.8 of Form S-8 (registration  statement no. 333-127496), filed August 12, 2005) 

10(e)

401(k) Savings and  Investment Plan, Stock Trust Agreement, Amendment Number 3, effective October  1, 2005 

12(b)

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

31(b)

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

32(b)

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

62

SIGNATURE

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

          

**CLECO  CORPORATION**

(Registrant) 

By:   /s/ R. Russell Davis                                           

          R. Russell Davis

          Vice President and Chief Accounting  Officer

Date:  November 2, 2005

63

SIGNATURE

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

**CLECO  POWER LLC**

(Registrant) 

By:   /s/ R. Russell Davis                                                 

          R. Russell Davis

          Vice President and Chief Accounting  Officer

Date:  November 2, 2005

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