<PAGE>   1
                                                                      Exhibit 13


                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                For the years ended December 31,
                                          -----------------------------------------------------------------------------
                                              1997            1996            1995            1994            1993
                                          -------------   -------------   -------------   -------------   -------------
                                            (In thousands, except per share amounts, ratios and operating statistics)
<S>                                       <C>             <C>             <C>             <C>             <C>
FINANCIAL DATA
Statements of Income Data Operating
  revenues(1)...........................   $  456,245      $  437,121      $  396,227      $  381,482      $  384,308
  Net income............................   $   52,519      $   52,135      $   48,703      $   45,043      $   41,812
  Net income applicable to common
     stock..............................   $   50,402      $   50,061      $   46,651      $   43,017      $   39,827
  Basic earnings per average common
     share(2)...........................   $     2.24      $     2.23      $     2.08      $     1.92      $     1.78
  Diluted earnings per average common
     share(2)...........................   $     2.18      $     2.16      $     2.02      $     1.86      $     1.73
  Cash dividends paid per common
     share..............................   $     1.57      $     1.53      $     1.49      $     1.45      $     1.41
Ratio of earnings to fixed charges......        3.74X           3.70x           3.49x           3.35x           3.30x
Ratio of earnings to combined fixed
  charges and preferred stock
  dividends.............................        3.41X           3.36x           3.17x           3.02x           2.96x
Balance Sheet Data (at end of period)
  Total assets..........................   $1,361,044      $1,321,771      $1,226,034      $1,178,191      $1,161,635
  Long-term obligations and redeemable
     preferred stock, net...............   $  372,017      $  347,231      $  367,432      $  343,509      $  358,329
OPERATING STATISTICS
Electric sales -- regular
  system customers
  (million kwh)
  Residential...........................        2,838           2,723           2,763           2,532           2,470
  Commercial............................        1,393           1,338           1,265           1,180           1,109
  Industrial............................        2,467           2,369           2,227           2,030           2,005
  Other retail..........................          533             526             502             487             463
  Sales for resale......................          311             291             360             210             175
                                           ----------      ----------      ----------      ----------      ----------
  Total sales to regular customers......        7,542           7,247           7,117           6,439           6,222
Short-term energy sales to other
  utilities.............................          157             330              68             174             266
                                           ----------      ----------      ----------      ----------      ----------
  Total electric sales..................        7,699           7,577           7,185           6,613           6,488
                                           ==========      ==========      ==========      ==========      ==========
System peak
  (thousand kilowatts)..................        1,560           1,500           1,473           1,310           1,346
Electric customers......................      238,061         224,703         220,923         217,568         212,559
</TABLE>

---------------

(1) Certain prior-period amounts have been reclassified to conform with the
    presentation shown in the current year's financial statements. These
    classifications had no effect on net income applicable to common stock or
    common shareholders' equity.

(2) Earnings per average common share for prior periods have been restated to
    reflect adoption of SFAS No. 128, "Earnings per Share."

                                        1
<PAGE>   2

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

INDUSTRY DEVELOPMENTS

     Forces driving increased competition in the electric utility industry
involve complex economic and legislative factors. These factors have resulted in
the introduction of federal and state legislation and other regulatory
initiatives that are likely to produce even greater competition at both the
wholesale and retail levels in the future. The Louisiana Public Service
Commission (LPSC) is investigating whether retail choice is in the best interest
of Louisiana electric utility customers. The Company and a number of parties,
including the other Louisiana electric utilities, certain power marketing
companies and various associations representing industry and consumers,
participated in electric industry restructuring testimony before the LPSC during
1997. Also during 1997, the Louisiana legislature deferred any action regarding
restructuring of the electric utility industry within the State. We expect the
debate relating to customer choice and other related issues to continue in
legislative and regulatory bodies in 1998. At this time, we cannot predict
whether any legislation or regulation will be enacted or adopted during 1998
and, if enacted or adopted, what form such legislation or regulation would take.

     In general, Louisiana enjoys relatively low rates for electricity. Industry
restructuring presents the possibility that rates could move closer to the
national average, meaning possible higher prices for Louisiana's small
consumers. With this in mind, we favor a plan that would protect the rates of
small consumers and allow retail choice no later than the year 2000, primarily
for larger commercial and industrial class customers. In the meantime, we
recognize the need to resolve issues to create a level playing field for all
energy suppliers. The increasingly competitive environment presents
opportunities to compete for electric supply to new customers, as well as the
risk of losing existing customers. We believe the Company is a reliable,
low-cost provider of electricity and as such, is currently positioned to compete
effectively in a restructured electric marketplace.

JOINT VENTURE

     To better position ourselves for increased competition, we formed a joint
venture with Covenant Energy Corporation (Covenant) on October 30, 1997. The
joint venture will market electricity and natural gas services, as well as
energy management services to commercial and industrial customers and utilities
throughout the southeastern United States. The joint venture will also engage in
energy asset development projects, such as cogeneration projects, natural gas
pipelines connecting to customers' plants and potential strategic asset
acquisitions in the southeastern United States. The newly formed venture, CLECO
ENERGY, L.L.C., is headquartered in Houston, Texas. Covenant President John T.
McDougal heads the venture. We own 51% of the newly formed venture through a
subsidiary and Covenant owns the remaining 49%.

RESULTS OF OPERATIONS

EARNINGS

     1997 earnings (net income applicable to common stock) totaled $50.4
million, or $2.24 per share, an increase of $0.3 million, or $0.01 per share,
compared to 1996. Earnings increased because we sold more kilowatt-hours to our
customers, adding an additional $10.4 million in base revenues. Earnings were
negatively affected by expected increases in such nonfuel operating expenses as
depreciation and ad valorem taxes, as well as a $3 million annual base rate
reduction ordered by the LPSC.

     1996 earnings increased $3.4 million, or $0.15 per share, compared to 1995.
The growth in earnings was primarily due to increased sales of electricity to
commercial and industrial customers, offset by an increase in nonfuel operating
expenses. 1995 earnings increased $3.6 million, or $0.16 per share, compared to
1994. Results for 1995 were affected by increased electricity sales caused by
warmer-than-normal weather, which were partially offset by higher operating
expenses.

                                        2
<PAGE>   3

     Earnings for past years are not necessarily indicative of future earnings
and results. Future earnings will be affected by weather conditions, business
development programs, the overall economy of the Company's service area, the
effect of an additional $2 million rate reduction beginning January 1, 1998,
legislative and other regulatory changes and increased competition.

REVENUES

     Retail rates for residential, commercial and industrial customers and other
retail sales (about 95% of revenues) are regulated by the LPSC. Rates for
transmission and wholesale power sales are regulated by the Federal Energy
Regulatory Commission (FERC). Retail rates consist of a base rate and a fuel
rate. Base rates are designed to allow us to recover the cost of providing
service and a return (profit) on utility assets. Fuel rates fluctuate, allowing
us to recover, with no profit, the changing costs of purchased power and fuel
used to generate electricity. The following chart shows the amounts and changes
in base revenues and fuel cost recovery revenues for 1997 and 1996.

<TABLE>
<CAPTION>
                                                            1997                    1996
                                                    --------------------    --------------------
                                                       IN        Percent       In        Percent
                                                    THOUSANDS    Change     Thousands    Change
                                                    ---------    -------    ---------    -------
<S>                                                 <C>          <C>        <C>          <C>
Base (nonfuel)....................................  $278,412         3.9%   $268,006         1.9%
Fuel cost recovery................................   177,833         5.2%    169,115        26.9%
                                                    --------     -------    --------     -------
          Total revenues..........................  $456,245         4.4%   $437,121        10.3%
                                                    ========     =======    ========     =======
</TABLE>

     Base rates were reduced $3 million annually beginning November 1, 1996 by
the settlement of an earnings review conducted by the LPSC. The settlement calls
for an additional $2 million annual base rate reduction beginning January 1,
1998. For more information on the results of the LPSC earnings review, see
"Financial Condition -- Retail Rates" below. Most of the $19.1 million, or 4.4%
increase in 1997 operating revenues was due to an increase in base revenues from
an additional 4.1% growth in kilowatt-hour sales.

     Fuel cost recovery revenues collected in 1997 increased $8.7 million due to
the lack of available low-cost power on the wholesale market or the lack of
available transmission capacity to transport energy to our electric system. The
lack of available purchased power increased the need for additional generation
by our natural gas units at a higher cost. Net income is not affected by changes
in the cost of fuel and purchased power because these cost fluctuations are
currently passed on to customers through fuel cost adjustments clauses. For
information on changes in the fuel adjustment clause, see "Financial
Condition -- Retail Rates" below.

     Total operating revenues for 1996 were 10.3% higher compared to 1995. This
increase is primarily due to an increase in fuel cost recovery revenues,
resulting primarily from higher natural gas prices in effect during 1996. As the
cost of fuel increases, the amount of fuel cost recovery revenues we collect
from customers similarly increases. The 1.9% rise in base revenues was caused by
an increase in kilowatt-hour sales to commercial and industrial customers, who
are less affected by weather conditions than residential customers.

SALES

     Weather influences the demand for electricity, especially among residential
customers. A hot summer or a cold winter will increase residential customer
demand for electricity. Cooler summers and warmer winters will reduce customer
demand. Demand for electricity by commercial and industrial customers is
primarily dependent upon the strength of the economy in the service territory
and the nation, and is less affected by weather. Sales to industrial customers
are also affected by the national economy and by the worldwide demand for wood
products, since our two largest

                                        3
<PAGE>   4

customers are producers of such products. The following chart compares the
kilowatt-hour sales by customer class for 1997 and 1996.

<TABLE>
<CAPTION>
                                                 1997                  1996
                                          ------------------    ------------------
                                          MILLION    Percent    Million    Percent
                                            KWH      Change       kwh      Change
                                          -------    -------    -------    -------
<S>                                       <C>        <C>        <C>        <C>
Regular customers
  Residential...........................   2,838        4.2%     2,723       (1.4)%
  Commercial............................   1,393        4.1%     1,338        5.8%
  Industrial............................   2,467        4.1%     2,369        6.4%
  Other retail..........................     533        1.3%       526        4.8%
  Sales for resale......................     311        6.9%       291      (19.2)%
                                           -----      -----      -----      -----
Total sales to regular customers........   7,542        4.1%     7,247        1.8%
Short-term sales to other utilities.....     157      (52.4)%      330      385.3%
                                           -----      -----      -----      -----
          Total electric sales..........   7,699        1.6%     7,577        5.5%
                                           =====      =====      =====      =====
</TABLE>

     The increase in sales to residential customers during 1997 resulted from a
cooler-than-normal fall season in 1997. A milder winter during the beginning of
1997 offset the warmer summer of 1997. Sales to residential customers were also
boosted by the addition of 7,700 mostly residential customers on September 30,
1997 through the acquisition of the business of Teche Electric Cooperative, Inc.
(Teche). Sales to commercial and industrial customers grew from 1996 as a result
of customer growth and increased consumption by our largest industrial customer.

     During 1996, consumption by commercial and industrial customers was higher
than in 1995 due to customer growth and increased consumption by our largest
industrial customer. The summer weather in 1996 was milder than the summer
weather in 1995, resulting in a 1.4% decrease in residential sales.

     During the last five years, sales growth to regular customers averaged 4.6%
per year and, based on current information, is expected to range from 3% to 4%
per year during the next five years. The levels of future sales will depend upon
weather conditions, customer conservation efforts, our retail marketing and
business development programs, and the overall economy of the service area.
Issues facing the electric utility industry that could affect sales include
deregulation, retail wheeling, legislative and regulatory changes, retention of
large industrial customers, franchises and access to transmission systems.

     In 1995, we leased the England Industrial Airpark distribution system from
the industrial development authority for a 20-year period. This facility
includes a new commercial airport, industrial park, golf course and residential
village. These are all portions of the former England Air Force Base near
Alexandria, which we served prior to its closure several years ago.

     In 1995, we began providing approximately 13 megawatts of wholesale power
service to the city of St. Martinville under a five-year contract subject to the
jurisdiction of the FERC. This contract was challenged in 1993 by the previous
supplier, Louisiana Energy and Power Authority (LEPA), as well as the city of
Lafayette and the American Public Power Association, with assertions of
preferential, discriminatory and predatory pricing. An initial decision of the
FERC's presiding administrative law judge in February 1995 rejected LEPA's
arguments. Under FERC procedures, LEPA filed a brief requesting the FERC to
revise the initial decision, and this matter is still pending. The Company has
opposed LEPA's brief and management believes that the initial decision will be
upheld.

     In February 1995, we agreed to purchase Teche for a price, including the
assumption or other discharge of Teche's liabilities, of about $22.4 million.
The members of Teche overwhelmingly approved the sale at their annual meeting in
March 1995. One of the conditions necessary to the closing of the Teche
acquisition was an interim power purchase agreement with Cajun Electric Power
Cooperative, Inc. (Cajun), Teche's former wholesale power supplier. Cajun has
been

                                        4
<PAGE>   5

involved in bankruptcy proceedings since 1995. An interim agreement, acceptable
to Cajun's bankruptcy trustee and the Rural Utilities Service, was reached in
September 1997. We consummated the purchase of Teche on September 30, 1997.

     In 1996, we signed a contract to serve a new industrial port on the Red
River at Natchitoches. This port is a development resulting from a federal
project which has made the Red River navigable from where it joins with the
Mississippi River to near Shreveport. The Red River runs through our service
territory in central and western Louisiana and provides a water transportation
connection to the world via the Mississippi River and the Gulf of Mexico.

FUEL AND PURCHASED POWER

     Changes in fuel and purchased power expenses reflect fluctuations in
generation mix, fuel costs, availability of economy power and deferral of
expenses for recovery from customers through fuel adjustment clauses in
subsequent months. The following table shows the amount and changes in fuel and
purchased power expenses for 1997 and 1996.

<TABLE>
<CAPTION>
                                                   1997                    1996
                                           --------------------    --------------------
                                              IN        Percent       In        Percent
                                           THOUSANDS    Change     Thousands    Change
                                           ---------    -------    ---------    -------
<S>                                        <C>          <C>        <C>          <C>
Fuel used for electric generation........  $136,009       17.6%    $115,642        6.8%
Power purchased..........................    44,590      (19.8)%     55,609      103.2%
                                           --------      -----     --------      -----
          Total fuel expenses............  $180,599        5.4%    $171,251       26.2%
                                           ========      =====     ========      =====
</TABLE>

     Fuel and purchased power costs increased $9.3 million in 1997. Fuel costs
used for electric generation increased over 1996 primarily as a result of the
lack of available low-cost power on the wholesale market or the lack of
available transmission capacity to transport energy to our electric system which
increased the need for additional generation by our natural gas units at a
higher fuel cost. Consequently, 1997 purchased power costs decreased compared to
1996.

     The increase in 1996 in the cost of fuel used for electric generation is
attributable primarily to the higher cost of natural gas in 1996 compared to
1995. The increase in purchased power in 1996 resulted from the increased
availability of low-cost power (generally from solid fuel generation) on the
wholesale market, primarily due to the substantial increases in natural gas
prices.

     Coal and lignite are obtained under long-term contracts. Natural gas is
purchased under short-term contracts on the spot market when prices are
advantageous. Power is purchased from other utilities when the purchase price is
less than the cost to generate and transmission capacity is available to
transport the energy to our system. During 1997, 24% of our energy requirements
were met with purchased power, compared to 33% in 1996.

     We and the joint owner of one of our electric generating units jointly
filed suit in 1997 against a joint venture and its partners who mine lignite for
the generating unit. The joint venture has filed counterclaims. The
counterclaims caused us and the joint owner to file another suit against the
joint venture's parent company. Management believes the counterclaims, if
successful, would not have a material adverse effect on our financial position
or results of operations. Normal day-to-day operations continue at the mining
facility and the jointly-owned electric generating unit.

     During 1996, we constructed natural gas pipelines at three of our power
stations where natural gas is used as a primary fuel. These pipelines increase
our access to natural gas markets and lower-cost gas supplies. The pipelines are
owned and operated by a subsidiary of the Company. Also during 1996, we
terminated contracts with our main transporter and supplier of natural gas and
replaced them with a base supply contract for approximately one-third of our
natural gas requirements. The new natural gas contracts and access to the gas
markets afforded by the pipelines are helping to maintain the competitiveness of
our generating units.

                                        5
<PAGE>   6

     The coal for one of our jointly-owned electric generating units is
transported under a long-term transportation contract with a railroad. The
railroad is experiencing operating problems, which began in 1997 and resulted in
reduced volumes delivered to the unit. Coal inventory at the unit is currently
below our desired minimum level. Based on the railroad's anticipated delivery
schedule of future coal shipments, management anticipates restoration of the
coal inventory at the unit to desired levels by July 1998.

NONFUEL OPERATING EXPENSES AND INCOME TAXES

     Changes in nonfuel operating expenses (excluding restructuring charges) for
1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                   1997                    1996
                                           --------------------    --------------------
                                              IN        Percent       In        Percent
                                           THOUSANDS    Change     Thousands    Change
                                           ---------    -------    ---------    -------
<S>                                        <C>          <C>        <C>          <C>
Other operation..........................   $ (152)      (0.2)%     $(2,994)     (4.4)%
Maintenance..............................   $ (203)      (0.9)%     $   873       3.9%
Depreciation.............................   $2,449        5.6%      $ 2,277       5.5%
Other taxes..............................   $3,827       12.9%      $   532       1.8%
Income taxes.............................   $1,575        6.0%      $   925       3.7%
                                            ------       ----       -------      ----
          Total..........................   $7,496        4.0%      $ 1,613       0.9%
                                            ======       ====       =======      ====
</TABLE>

     Total 1997 nonfuel operating expenses, excluding restructuring charges,
increased 4.0% over 1996. For more information concerning a $1.9 million
restructuring charge incurred in 1997, see "Restructuring Charge" below.
Depreciation expense increased primarily due to a full year of depreciation on
property additions associated with the Energy Control Center, and planned
additions to generation, transmission and distribution facilities. Taxes other
than income taxes increased primarily due to the expiration of the property tax
exemption discussed below.

     In 1996, total nonfuel operating expenses increased 0.9% compared to 1995.
The increase was primarily due to higher depreciation expense and federal and
state income taxes which were offset in part by a decrease in costs to operate
our electric system. Depreciation expense increased primarily due to property
additions associated with the Energy Control Center and transmission and
distribution facilities. The increase in federal and state income taxes resulted
from an increase in pretax income. Operating costs decreased as a result of
reduced co-op acquisition expenses during 1996, and a higher employee incentive
expense incurred in 1995. Maintenance expenses increased as a result of
additional upkeep to the water plant facilities at the Coughlin Power Station.

     In 1997, a ten-year property tax exemption expired on the Dolet Hills Power
Station. Taxes other than income taxes increased primarily due to our share of
the increased property taxes on this generating station.

     A number of parishes have attempted in recent years to impose franchise
fees on retail revenues earned within the unincorporated areas we serve. If the
parishes are ultimately successful, taxes other than income taxes could increase
substantially in future years.

RESTRUCTURING CHARGE

     During 1997, we reorganized our electric production staff. The primary
objective of this reorganization was to create a centralized power production
maintenance workforce. Other initiatives included improving power production
operations and providing better service to customers. As a result, approximately
30 employee positions were eliminated, resulting in a charge to earnings of
$1,891,000 ($1,248,000 on an after-tax basis), consisting mainly of voluntary
severance programs offered to eligible employees.

                                        6
<PAGE>   7

OTHER INCOME AND INTEREST EXPENSE

     "Other income (expenses), net" increased $0.9 million mainly due to
earnings from our nonregulated activities.

     In 1996, "other income (expenses), net" increased $0.2 million as a result
of lower charitable donations and other miscellaneous expenses compared to 1995.

     Interest expense for 1997 increased $0.6 million, as compared to 1996. This
increase was due to higher average outstanding balances of commercial paper and
medium-term notes during 1997 at interest rates similar to 1996, which was
partially offset by a decrease in interest on first mortgage bonds because of
the redemption in 1996 of $50 million Series Y first mortgage bonds.

     Interest expense decreased $0.2 million in 1996, as compared to 1995, due
in part to lower interest rates on short-term debt and variable-rate pollution
control bonds. During 1996, $50 million of 9 5/8% first mortgage bonds were
redeemed with proceeds from $45 million of medium-term notes issued at a
weighted average interest rate of 6.37%.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

     AFUDC represents the estimated cost of financing construction
work-in-progress and is not a current source of cash. A return on and recovery
of AFUDC is permitted by regulatory bodies in setting rates charged for utility
services. AFUDC for 1997 decreased as a result of lower balances of eligible
construction work-in-progress. AFUDC for 1996 decreased as a result of lower
average construction work-in-progress balances compared to 1995. AFUDC accounted
for 0.9% of earnings in 1997, compared to 1.5% in 1996 and 4.5% in 1995.

EARNINGS PER SHARE

     Earnings per average common share have been computed using the weighted
average number of shares of common stock outstanding during the year. Earnings
per average common share have been restated for the years 1997, 1996, and 1995
to reflect adoption of SFAS No. 128, "Earnings per Share."

FINANCIAL CONDITION
----------------------------

LIQUIDITY AND CAPITAL RESOURCES

     Financing for construction requirements and operational needs is dependent
upon the cost and availability of external funds through capital markets and
from financial institutions. Access to funds is dependent upon factors such as
general economic conditions, regulation and the Company's credit rating.

     From 1990 through 1996, we participated in a program where up to $35
million of our receivables were sold on an ongoing basis. The amount of
receivables that could have been sold any time depended upon seasonal
fluctuations in the amount of eligible receivables. In December 1996, sales of
accounts receivable were reduced to zero and the program was terminated in early
1997. To replace this short-term liquidity program, our committed bank borrowing
capacity was increased by $25 million in 1997.

     The Company has an effective shelf registration statement and all
regulatory approvals necessary to issue up to $140 million of medium-term notes.

     At December 31, 1997 and 1996, there was $34.2 million and $65.2 million,
respectively, of short-term debt outstanding in the form of commercial paper
borrowings. Short-term debt decreased as a result of the net increase in
medium-term notes outstanding in 1997. Currently, we have a $100 million
revolving credit facility, which is scheduled to continue through June 2000, and
a $25 million revolving credit facility, which is scheduled to expire in March
1998. We expect to extend

                                        7
<PAGE>   8

the term of the $25 million facility for another year prior to its scheduled
expiration date. Both credit facilities support the issuance of commercial
paper. Uncommitted lines of credit with banks totaling $20 million are available
to meet short-term working capital needs. Additionally, at December 31, 1997,
one of our nonregulated consolidated subsidiaries held $12.7 million of cash and
marketable securities.

CASH GENERATION AND CASH REQUIREMENTS

     During 1997, cash flows from our operating activities generated $117.8
million as shown in the Consolidated Statements of Cash Flows. Net cash provided
by operating activities resulted from net income, adjusted for noncash charges
to income, and changes in working capital. Net cash used in investing activities
is related to additions to utility plant, including the purchase of Teche's
assets, and changes in utility and nonutility investments. Net cash used in
financing activities resulted principally from the payment of dividends to
shareholders and the changes in short-term and long-term financing activities.

     In recent years, our construction program has consisted primarily of
enhancements to the transmission and distribution systems. Additions to utility
plant for 1997 as shown in the Consolidated Statements of Cash Flows include the
$22.4 million acquisition of the former business and property of Teche. In 1996,
we completed $10 million in additions to our Energy Control Center. Utility
expenditures, excluding AFUDC, totaled $54.1 million in 1997 and $60 million in
1996.

     Construction expenditures, excluding AFUDC, for 1998 are estimated to be
$54.9 million and for the five-year period ending 2002 are expected to total
$253 million. More than half of the planned construction in the five-year period
will support line extensions and substation upgrades to accommodate new business
and load growth. Some investment will be made to rehabilitate older
transmission, distribution and generation assets. We will also continue to
invest in technology to allow us to operate more efficiently.

     All of the construction requirements were funded internally in 1997 as
compared to 96% in 1996 and 93% in 1995. Substantially all of the construction
requirements for 1998 and for the five-year period ended 2002 are expected to be
funded internally.

     Other capital requirements in 1996 and 1995 were funded by the issuance of
debt.

     Scheduled maturities of debt and preferred stock will total about $15.3
million for 1998 and approximately $121.6 million for the five-year period
ending 2002. In 1991, we began a common stock repurchase program, and as part of
that program, up to $23 million of common stock may be repurchased in the
future. No shares of common stock were repurchased in 1997 or 1996.

     The Company has committed to provide credit support up to $10 million for
working capital and electricity or natural gas commodity positions for CLECO
ENERGY, L.L.C. Commitments for asset development projects will be made as they
occur up to $5 million per year for the next five years.

RETAIL RATES

     Retail rates regulated by the LPSC account for 95% of our 1997 revenues.
Fuel costs and monthly fuel adjustment billing factors are subject to audit by
the LPSC. In the past, we have sought increases in base rates to reflect the
cost of service related to plant facility additions and increases in operating
costs. If we were to request an increase in our rates and adequate rate relief
were not granted on a timely basis, our ability to attract capital at reasonable
costs to finance our operations and capital improvements might be impaired.

     The LPSC elected in 1993 to review the earnings of all electric, gas, water
and telecommunications utilities regulated by it to determine whether the
returns on equity of these companies may be higher than returns that might be
awarded in the current economic environment. In 1996, the LPSC approved a
settlement of our earnings review, providing our customers with lower
electricity rates.

                                        8
<PAGE>   9

The first rate decrease of $3 million annually was effective November 1, 1996,
with a second decrease of an additional $2 million annually effective January 1,
1998. The terms of this settlement will be effective for a five-year period.

     During the five-year period, which began November 1, 1996, a rate
stabilization plan is in place. This plan allows the Company to retain all
earnings equating to a regulatory return on equity up to and including 12.25% on
its regulated utility operations. Any earnings which result in a return on
equity over 12.25%, up to and including 13%, will be shared equally between the
Company and our customers, which effectively allows us the opportunity to
realize a regulatory rate of return of up to 12.625%. Any earnings above 13%
will be refunded fully to customers.

     During the five-year period 1997-2001, our revenues and return on equity
will be reviewed each year by the LPSC. If the Company is found to be achieving
a regulatory return on equity in any given year which requires a refund to
customers, the refund will be made in the form of billing credits during the
months of July, August and September following the evaluation period.

     During the five-year rate stabilization period, we will have the right to
apply for a rate increase if a significant event affecting our earnings would
justify it, such as regulatory or economic changes, major hurricane damage or
other unforeseen circumstances. During the period, we will also be able to
propose for LPSC consideration any revenue-neutral rate design changes we feel
appropriate, such as revenue redistribution among customer classes which may be
warranted. During the period, the LPSC may amend or modify any of the
settlement's terms should the LPSC determine changes are warranted by the public
interest.

     In November 1997, the LPSC issued an order in a generic docket which
promulgated new standards for the monthly Fuel Cost Adjustment (FCA) rate
filings of electric companies under its jurisdiction. The order adopted new
rules and procedures for the monthly FCA computation and changes in reporting of
fuel and purchased power costs to be implemented in 1998 after final LPSC
approval. Although the order narrows the types of costs that can be included in
the FCA, the changes are expected to have no effect upon our financial position
or results of operations, as costs no longer includable in the FCA will be
granted as an increase in base rates under the provisions of the order.

INFLATION AND FUEL COSTS

     The Company is a capital-intensive electric utility. As such, we are
affected by inflation since depreciation, which is based on the historical cost
of assets, will in all likelihood not fully reflect the cost of replacing
assets. Although the cost of fuel used for electric generation is a major
component of total costs, we are not currently exposed to the effects of market
fluctuations in fuel prices since fuel costs are currently recovered from
customers through fuel adjustment clauses.

YEAR 2000

     We are currently conducting an inventory and evaluation of our computers
and computer programs to see how they will be affected by the "year 2000" issue.
The issue arises in some computer systems because there is a two-digit
representation of the calendar year which is a carryover from earlier
generations of computers when data storage costs were at a premium. In this
convention, the year 1999 would be represented by "99" and the year 2000 by
"00". Computer systems using a two-digit year may improperly calculate due
dates, lead times for orders, billing calculations for late payments and
interest computations.

     Our operating systems programs and major application programs for
accounting, billing, cash management, energy control and materials management
are licensed from outside software vendors who provide periodic updates and
enhancements to their computer software. We have received and have a schedule
for installing modifications from most of these vendors, converting them to a
four-digit date, or otherwise resolving the year 2000 problem. Our other vendors
are scheduled to provide program modifications in time for us to install them by
the end of 1998. In addition, there are more than 1,100 personal computers in
use by our employees, a number of

                                        9
<PAGE>   10

computer programs unique to a single or a small group of employees, and a number
of analog devices in our communications and power station systems. We have been
conducting an inventory of the computer devices and programs used in personal
computers and analyzing whether they will need year 2000 modification and will
be in compliance by the year 2000.

     Management anticipates the remaining costs of year 2000 compliance of its
computer devices and programs will not be significant because of the nature of
our business; our operations primarily rely upon the delivery of boiler fuels,
electrical materials and supplies, the wholesale market for electricity and its
transmission, the financial markets and the banking system. To the extent that
any of these markets are seriously affected or disrupted by year 2000 issues,
our operations could be adversely affected.

ENVIRONMENTAL MATTERS

     The Company is subject to federal, state and local laws and regulations
governing the protection of the environment. Violations of these laws and
regulations may result in substantial fines and penalties. We have obtained all
material environmental permits necessary for our operations and believe we are
in substantial compliance with these permits, as well as all applicable
environmental laws and regulations. We anticipate that existing environmental
rules will not affect operations significantly, but some capital improvements
may have to be made in response to new environmental programs expected in the
next few years.

     Implementation of Phase I of the Clean Air Act will not require us to
reduce sulfur emissions at our solid-fuel generating units, which either burn
low-sulfur coal or utilize pollution control equipment. Installation of
continuous emission monitoring equipment on our generating units was completed
in 1996 at a cost of approximately $3 million. Although Phase II of the
legislation, effective in 2000, involves more stringent limits on emissions,
these requirements should not significantly affect the operation of our
generating units. However, some capital investment may be necessary in order to
comply with Phase II requirements. Capital expenditures for environmental
matters were $0.4 million in 1997 and are estimated to be $0.6 million for 1998.

REGULATORY MATTERS

     In 1996, the FERC issued rules requiring open access to utilities
transmission systems. The open access provisions require FERC-regulated electric
utilities to offer third parties access to transmission under comparable terms
and conditions as the utilities' use of their own systems. Providing unbundled
transmission services to firm-requirements customers may have significant
financial consequences to the utility industry. Providing open access for
non-firm sales may have significant effects on utility operations. Currently, we
have three wholesale full-requirements customers representing about 0.9% of our
total kilowatt-hour sales to regular customers.

     Federal and state regulators and legislators are studying potential effects
of deregulating the vertically integrated utility systems and providing retail
customers a choice of supplier. At this time, it is not possible to predict
when, if, or to what extent, retail customers will be able to choose their
electric service suppliers. The regulatory requirement to serve customers and
industry standards for reliability of electric supply have resulted in the
construction of facilities sufficient to meet peak load conditions with a margin
for reserve.

     With customer choice, above market costs associated with utility services
specifically dedicated to, or used by, departing customers (stranded costs)
would have to be paid by the departing customers, absorbed by remaining and new
customers or written off by the Company.

     The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of our regulators,
pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS 71). The effects of potential
deregulation of the industry or possible future changes in the method of rate
regulation of the Company could require the Company to discontinue the
application of SFAS 71, pursuant to Statement of Financial Accounting Standards
No. 101, "Regulated Enterprises -- Accounting for the Discontinuation of
Application of FASB Statement No. 71"

                                       10
<PAGE>   11

(SFAS 101). At December 31, 1997, the Company had recorded $52.8 million of
regulatory assets, net of regulatory liabilities, because of the regulatory
requirement to flow through the tax benefits of accelerated deductions to
current customers and an implied regulatory compact that future customers would
pay when the Company paid the additional taxes. These differences occur over the
lives of relatively long-lived assets, up to 30 years or more. Under the current
regulatory and competitive environment, the Company believes that these
regulatory assets are fully recoverable. However, if in the future, as a result
of regulatory changes or increased competition, the Company's ability to recover
these regulatory assets would not be probable, then to the extent that these
regulatory assets were determined not to be recoverable, the Company would be
required to write off or write down these assets.

     Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.

     The Emerging Issues Task Force (EITF) assists the Financial Accounting
Standards Board (FASB) in identifying emerging issues affecting financial
reporting. In 1997, the EITF reached a consensus in Issue No. 97-4:
"Deregulation of the Pricing of Electricity -- Issues Related to the Application
of SFAS No. 71 and No. 101." EITF 97-4 specified that SFAS No. 71 should be
discontinued at a date no later than when the details of a transition plan
toward the deregulation of electric rates for all or a portion of the entity
subject to such plan are known. However, other factors could cause the
discontinuation of SFAS No. 71 before that date. Additionally, EITF 97-4
establishes that regulatory assets to be recovered through cash flows derived
from another portion of the entity which continues to apply SFAS No. 71 should
not be written off, but rather, should continue to be considered regulatory
assets of the separable portion which will continue to apply SFAS No. 71.

NEW ACCOUNTING STANDARDS

     Periodically, the FASB issues Statements of Financial Accounting Standards
(SFAS). These standards reflect accounting, reporting and disclosure
requirements the Company should follow in the accumulation of financial data and
in the presentation of financial statements. The FASB, a nongovernmental
organization, is the primary source of generally accepted accounting principles
within the United States.

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" effective for fiscal years beginning after December 15, 1997. Adoption
of this statement will affect only financial statement presentation and will not
affect our financial position or results of operations.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" effective for financial statements for
periods beginning after December 15, 1997. Adoption of this statement will
affect only financial statement disclosure and will not affect our financial
position or results of operations. This Statement need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.

                                       11
<PAGE>   12

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report to Shareholders includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact included in this Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Industry Developments,"
"-- Results of Operations," "-- Financial Condition -- Liquidity and Capital
Resources," "-- Financial Condition -- Regulatory Matters" and Note K to the
Consolidated Financial Statements contain forward-looking statements. Located
elsewhere in this Report are forward-looking statements regarding sales growth,
capital expenditures, the settlement of our earnings review approved by the LPSC
in October 1996, our shelf registration statement, the effect of certain recent
FERC regulations, future legislative and regulatory changes affecting electric
utilities, and other matters. Although we believe the expectations reflected in
such forward-looking statements are reasonable, such forward-looking statements
are based on numerous assumptions (some of which may prove to be incorrect) and
are subject to risks and uncertainties which could cause the actual results to
differ materially from our expectations. Forward-looking statements have been
and will be made in written documents and oral presentations by management. Such
statements are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in our documents or
oral presentations, the words "anticipate," "estimate," "expect," "objective,"
"projection," "forecast," "goal" and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions and other
factors referred to specifically in connection with such forward-looking
statements, factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statements include, among others,
the following:

          Factors affecting utility operations such as unusual weather
     conditions; catastrophic weather-related damage; unscheduled generation
     outages; unusual maintenance or repairs; unanticipated changes to fuel
     costs, gas supply costs, or availability constraints due to higher demand,
     shortages, transportation problems or other developments; environmental
     incidents; or electric transmission or gas pipeline system constraints;

          Increased competition in the electric environment, including effects
     of: industry restructuring, transmission system operation or
     administration, retail wheeling or cogeneration;

          Regulatory factors such as unanticipated changes in rate-setting
     policies or procedures; recovery of investments made under traditional
     regulation; and the frequency and timing of rate increases;

          Financial or regulatory accounting principles or policies imposed by
     the FASB, the Securities and Exchange Commission, FERC, LPSC, or similar
     entities with regulatory or accounting oversight;

          Economic conditions, including inflation rates and monetary
     fluctuations;

          Changing market conditions and a variety of other factors associated
     with physical energy and financial trading activities, including, but not
     limited to, price, basis, credit, liquidity, volatility, capacity,
     transmission, interest rate and warranty risks;

          Availability or cost of capital resulting from changes in the Company,
     interest rates, and securities ratings or market perceptions of the
     electric utility industry and energy-related industries;

          Employee workforce factors, including changes in key executives;

          Legal and regulatory delays and other obstacles associated with
     mergers, acquisitions or investments in joint ventures;

                                       12
<PAGE>   13

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

          Changes in federal, state or local legislature requirements, such as
     changes in tax laws or rates or environmental law and regulations.

     The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of changes in actual results,
changes in assumptions or other factors affecting such statements.

                                       13
<PAGE>   14

                    CENTRAL LOUISIANA ELECTRIC COMPANY, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                             For the Years Ended December 31
                                                        ------------------------------------------
                                                            1997           1996           1995
                                                        ------------   ------------   ------------
                                                        (In thousands, except share and per share
                                                                         amounts)
<S>                                                     <C>            <C>            <C>
OPERATING REVENUES....................................     $456,245       $437,121       $396,227
Operating expenses
  Fuel used for electric generation...................      136,009        115,642        108,322
  Power purchased.....................................       44,590         55,609         27,367
  Other operation.....................................       64,618         64,770         67,764
  Restructuring charges...............................        1,891
  Maintenance.........................................       23,286         23,489         22,616
  Depreciation........................................       45,890         43,441         41,164
  Taxes other than income taxes.......................       33,422         29,595         29,063
  Federal and state income taxes......................       27,729         26,154         25,229
                                                         ----------     ----------     ----------
          Total operating expenses....................      377,435        358,700        321,525
                                                         ----------     ----------     ----------
OPERATING INCOME......................................       78,810         78,421         74,702
Interest income.......................................          427            256            219
Allowance for other funds used during construction....          620          1,134          1,912
Other income (expenses), net..........................        1,248            333             74
                                                         ----------     ----------     ----------
INCOME BEFORE INTEREST CHARGES........................       81,105         80,144         76,907
                                                         ----------     ----------     ----------
Interest charges
  Interest on debt and other..........................       27,549         27,492         27,998
  Allowance for borrowed funds used during
     construction.....................................         (169)          (590)        (1,028)
  Amortization of debt discount, premium and expense,
     net..............................................        1,206          1,107          1,234
                                                         ----------     ----------     ----------
          Total interest charges......................       28,586         28,009         28,204
                                                         ----------     ----------     ----------
NET INCOME............................................       52,519         52,135         48,703
Preferred dividend requirements, net..................        2,117          2,074          2,052
                                                         ----------     ----------     ----------
NET INCOME APPLICABLE TO COMMON STOCK.................     $ 50,402       $ 50,061       $ 46,651
                                                         ==========     ==========     ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING
  Basic...............................................   22,459,770     22,442,683     22,417,522
                                                         ==========     ==========     ==========
  Diluted.............................................   23,864,031     23,857,967     23,847,119
                                                         ==========     ==========     ==========
EARNINGS PER AVERAGE SHARE
  Basic...............................................        $2.24          $2.23          $2.08
                                                         ==========     ==========     ==========
  Diluted.............................................        $2.18          $2.16          $2.02
                                                         ==========     ==========     ==========
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK.........        $1.57          $1.53          $1.49
                                                         ==========     ==========     ==========
</TABLE>

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

                                       14
<PAGE>   15
                    CENTRAL LOUISIANA ELECTRIC COMPANY, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   At December 31
                                                              ------------------------
                                                                 1997          1996
                                                              ----------    ----------
                                                                   (In thousands)
<S>                                                           <C>           <C>
ASSETS
Utility plant (Notes A and B)
  Property, plant and equipment.............................  $1,506,949    $1,425,547
  Accumulated depreciation..................................    (518,664)     (480,486)
                                                              ----------    ----------
  Net property, plant and equipment.........................     988,285       945,061
  Construction work-in-progress.............................      37,277        49,075
                                                              ----------    ----------
        Total utility plant, net............................   1,025,562       994,136
                                                              ----------    ----------
Investments and other assets (Note D).......................       3,479         8,488
                                                              ----------    ----------
Current assets
  Cash and cash equivalents (Note A)........................      18,015        20,307
  Accounts receivable, net (Note C)
    Customer accounts receivable............................      28,822        23,145
    Other accounts receivable...............................      18,601        20,767
  Notes receivable..........................................         930
  Unbilled revenues.........................................      11,090        11,193
  Fuel inventory, at average cost...........................       8,648         9,366
  Material and supplies inventory, at average cost..........      14,413        17,029
  Other current assets......................................       1,894         2,505
                                                              ----------    ----------
        Total current assets................................     102,413       104,312
                                                              ----------    ----------
Prepayments.................................................       8,331         8,683
                                                              ----------    ----------
Regulatory assets -- deferred taxes (Note J)................     115,285       103,839
                                                              ----------    ----------
Other deferred charges......................................      29,418        28,082
                                                              ----------    ----------
Accumulated deferred federal and state income taxes (Note
  J)........................................................      76,556        74,231
                                                              ----------    ----------
        TOTAL ASSETS........................................  $1,361,044    $1,321,771
                                                              ==========    ==========
CAPITALIZATION AND LIABILITIES
Common shareholders' equity
  Common stock, $2 par value, authorized 50,000,000 shares,
    issued 22,762,754 and 22,760,154 shares at December 31,
    1997 and 1996, respectively (Note F)....................  $   45,525    $   45,520
  Premium on capital stock..................................     113,763       113,702
  Retained earnings.........................................     255,549       240,414
  Treasury stock, at cost, 299,842 and 307,577 shares at
    December 31, 1997 and 1996, respectively................      (6,086)       (6,242)
                                                              ----------    ----------
        Total common shareholders' equity...................     408,751       393,394
                                                              ----------    ----------
Preferred stock (Note H)
  Not subject to mandatory redemption.......................      30,102        30,280
  Subject to mandatory redemption...........................       6,120         6,372
Deferred compensation related to preferred stock held by
  ESOP......................................................     (18,766)      (20,751)
Long-term debt, net (Note E)................................     365,897       340,859
                                                              ----------    ----------
        Total capitalization................................     792,104       750,154
                                                              ----------    ----------
Current liabilities
  Short-term debt (Note E)..................................      34,219        65,161
  Long-term debt due within one year (Note E)...............      15,000        15,000
  Accounts payable..........................................      53,365        50,022
  Customer deposits.........................................      20,172        19,761
  Taxes accrued (Note J)....................................      12,211         5,806
  Interest accrued..........................................       7,681         7,521
  Accumulated deferred fuel.................................       2,965         2,168
  Other current liabilities.................................       5,102         3,252
                                                              ----------    ----------
        Total current liabilities...........................     150,715       168,691
                                                              ----------    ----------
Deferred credits
  Accumulated deferred federal and state income taxes
    (Note J)................................................     296,123       281,684
  Accumulated deferred investment tax credits (Note J)......      29,574        31,364
  Regulatory liabilities -- deferred taxes (Note J).........      62,468        60,058
  Other deferred credits....................................      30,060        29,820
                                                              ----------    ----------
        Total deferred credits..............................     418,225       402,926
                                                              ----------    ----------
Commitments and contingencies (Notes E, F, H, I, J and K)
        TOTAL CAPITALIZATION AND LIABILITIES................  $1,361,044    $1,321,771
                                                              ==========    ==========
</TABLE>


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


                                       15
<PAGE>   16

                    CENTRAL LOUISIANA ELECTRIC COMPANY, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              For the Years Ended December 31
                                                              --------------------------------
                                                                1997        1996        1995
                                                              --------    --------    --------
                                                                       (In thousands)
<S>                                                           <C>         <C>         <C>
OPERATING ACTIVITIES
  Net income................................................  $ 52,519    $ 52,135    $ 48,703
  Adjustments to reconcile net income to net cash provided
    by operating activities
      Depreciation and amortization.........................    47,719      44,548      42,398
      Allowance for funds used during construction..........      (789)     (1,724)     (2,940)
      Amortization of investment tax credits................    (1,790)     (1,809)     (1,814)
      Deferred income taxes.................................     2,908       3,818       2,854
      Deferred fuel costs...................................       797      (1,483)     (2,463)
      Restructuring charge..................................     1,285
      Loss on disposition of utility plant, net.............      (224)        (20)       (270)
      Changes in assets and liabilities
         Accounts receivable, net...........................    (4,441)    (26,837)     (5,928)
         Unbilled revenues..................................       103      (8,095)     (2,525)
         Fuel, material and supplies inventories............     3,334      (1,877)        611
         Accounts payable...................................     2,058      (1,065)      7,621
         Customer deposits..................................       411          36         212
         Taxes accrued......................................     6,405       3,303        (759)
         Interest accrued...................................       160      (1,388)        611
      Other, net............................................     7,321       1,251       1,343
                                                              --------    --------    --------
         Net cash provided by operating activities..........   117,776      60,793      87,654
                                                              --------    --------    --------
INVESTING ACTIVITIES
  Additions to utility plant................................   (77,525)    (64,425)    (57,839)
  Allowance for funds used during construction..............       789       1,724       2,940
  Sale of utility plant.....................................       417         482         546
  Purchase of investments...................................      (222)       (420)     (2,618)
  Sale of investments.......................................         1         807      14,278
                                                              --------    --------    --------
         Net cash used in investing activities..............   (76,540)    (61,832)    (42,693)
                                                              --------    --------    --------
FINANCING ACTIVITIES
  Issuance of common stock..................................        66         288         379
  Repurchase of common stock................................       (16)        (16)
  Redemption of preferred stock.............................      (252)       (238)       (310)
  Issuance of long-term debt................................    40,000      45,000      25,000
  Retirement of long-term debt..............................   (15,000)    (50,000)    (15,481)
  Increase (decrease) in short-term debt, net...............   (30,942)     42,099      (5,915)
  Dividends paid on common and preferred stock, net.........   (37,384)    (36,408)    (35,453)
                                                              --------    --------    --------
         Net cash provided by (used in) financing
           activities.......................................   (43,528)        725     (31,780)
                                                              --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........    (2,292)       (314)     13,181
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............    20,307      20,621       7,440
                                                              --------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $ 18,015    $ 20,307    $ 20,621
                                                              ========    ========    ========
Supplementary cash flow information
  Interest paid (net of amount capitalized).................  $ 28,770    $ 29,881    $ 27,744
                                                              ========    ========    ========
  Income taxes paid.........................................  $ 23,752    $ 20,351    $ 24,357
                                                              ========    ========    ========
</TABLE>

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

                                       16
<PAGE>   17

                    CENTRAL LOUISIANA ELECTRIC COMPANY, INC.

                     CONSOLIDATED STATEMENTS OF CHANGES IN
                          COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                             For the Years Ended December 31, 1995, 1996 and 1997
                                      -------------------------------------------------------------------
                                          Common Stock          Premium                   Treasury Stock
                                      ---------------------    on Capital     Retained   ----------------
                                        Shares      Amount       Stock        Earnings   Shares     Cost
                                      ----------    -------   ------------    --------   -------   ------
                                              (In thousands, except share and per share amounts)
<S>                                   <C>           <C>       <C>             <C>        <C>       <C>

BALANCE, JANUARY 1, 1995............  22,720,074    $45,440     $113,070      $211,198   329,433   $6,681
Redemptions of preferred stock......                                  39
Incentive stock options exercised...      25,030         50          329
Issuance of treasury stock..........                                   6                 (10,987)    (222)
Dividend requirements, preferred
  stock, net........................                                            (2,052)
Cash dividends paid, common stock,
  $1.49 per share...................                                           (33,401)
Change in unrealized holding loss on
  available-for-sale securities,
  net...............................                                               240
Net income..........................                                            48,703
                                      ----------    -------     --------      --------   -------   ------
BALANCE, DECEMBER 31, 1995..........  22,745,104     45,490      113,444       224,688   318,446    6,459
                                      ----------    -------     --------      --------   -------   ------
Redemptions of preferred stock......                                  31
Incentive stock options exercised...      15,050         30          220
Issuance of treasury stock..........                                   7                 (11,484)    (233)
Incentive shares forfeited..........                                                         615       16
Dividend requirements, preferred
  stock, net........................                                            (2,073)
Cash dividends paid, common stock,
  $1.53 per share...................                                           (34,336)
Net income..........................                                            52,135
                                      ----------    -------     --------      --------   -------   ------
BALANCE, DECEMBER 31, 1996..........  22,760,154     45,520      113,702       240,414   307,577    6,242
                                      ----------    -------     --------      --------   -------   ------
Redemptions of preferred stock......                                  18
Incentive stock options exercised...       2,600          5           38
Issuance of treasury stock..........                                   5                  (8,528)    (172)
Incentive shares forfeited..........                                                         793       16
Dividend requirements, preferred
  stock, net........................                                            (2,118)
Cash dividends paid, common stock,
  $1.57 per share...................                                           (35,266)
Net income..........................                                            52,519
                                      ----------    -------     --------      --------   -------   ------
BALANCE, DECEMBER 31, 1997..........  22,762,754    $45,525     $113,763      $255,549   299,842   $6,086
                                      ==========    =======     ========      ========   =======   ======
</TABLE>

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

                                       17
<PAGE>   18

                    CENTRAL LOUISIANA ELECTRIC COMPANY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRESENTATION AND REGULATION

     Central Louisiana Electric Company, Inc. (the Company) provides electric
service to a diversified base of residential, commercial and industrial
customers in 23 parishes of Louisiana. The Company maintains its accounts in
accordance with the Uniform System of Accounts prescribed for electric utilities
by the Federal Energy Regulatory Commission (FERC), as adopted by the Louisiana
Public Service Commission (LPSC). The Company's retail rates for residential,
commercial and industrial customers and other retail sales are regulated by the
LPSC, and its rates for transmission services and wholesale power sales are
regulated by the FERC.

     The consolidated financial statements include the accounts of the Company
and all subsidiaries in which the Company holds at least a majority interest.
Intercompany balances and transactions are eliminated in consolidation.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATION

     Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the presentation used in the 1997
consolidated financial statements. These reclassifications had no effect on net
income applicable to common stock or total common shareholders' equity.

UTILITY PLANT AND DEPRECIATION

     Utility plant is stated at the original cost of construction, which
includes certain materials, labor, payroll taxes and benefits, administrative
and general costs, and the estimated cost of funds used during construction. The
cost of repairs and minor replacements is charged as incurred to the appropriate
operating expense and clearing accounts. The cost of improvements is
capitalized. Upon retirement or disposition, the recorded cost of depreciable
plant and the cost of removal, net of salvage value, are charged to accumulated
depreciation.

     The provision for depreciation is computed using the straight-line method
at rates which will amortize the unrecovered cost of depreciable property over
its estimated useful life. Annual depreciation provisions expressed as a
percentage of average depreciable property were 3.27% for 1997, 3.21% for 1996
and 3.19% for 1995.

CASH EQUIVALENTS

     The Company considers highly liquid, marketable securities and other
similar instruments with original maturity dates of three months or less at the
time of purchase to be cash equivalents.

INCOME TAXES

     Deferred income taxes are provided at the current enacted income tax rate
on all temporary differences between tax and book bases of assets and
liabilities. The Company recognizes regulatory assets and liabilities for the
tax effect of temporary differences, which, to the extent past ratemaking
practices are continued by regulators, will be realized over the accounting
lives of the related properties.

                                       18
<PAGE>   19

INVESTMENT TAX CREDITS

     Investment tax credits which were deferred for financial statement purposes
are amortized to income over the estimated service lives of the properties which
gave rise to the credits.

DEBT EXPENSE, PREMIUM AND DISCOUNT

     Expense, premium and discount applicable to debt securities are amortized
to income ratably over the lives of the related issues. Expense and call premium
related to refinanced debt are amortized over the remaining life of the original
issue.

REVENUES AND FUEL COSTS

     Revenues from sales of electricity are recognized based upon the amount of
energy delivered. The cost of fuel is currently recovered from customers through
fuel adjustment clauses, based upon fuel costs incurred in prior months. These
adjustments are subject to audit and final determination by regulators.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

     The capitalization of AFUDC is a utility accounting practice prescribed by
the FERC and the LPSC. AFUDC represents the estimated cost of financing
construction work-in-progress. AFUDC does not represent a current source of
cash, but under regulatory practices, a return on and recovery of AFUDC is
permitted in setting rates charged for utility services. The composite AFUDC
rate, including borrowed and other funds on a combined basis, for 1997 was
13.97% on a pre-tax basis (8.59% net of tax), 13.33% on a pre-tax basis (8.20%
net of tax) for 1996, and 15.10% on a pre-tax basis (9.29% net of tax) for 1995.

DERIVATIVES

     From time to time, the Company or its subsidiaries may limit exposure to
interest rate risk or electricity or generator boiler-fuel market price risk by
using hedging transactions. In each case, the transactions reflect underlying
indebtedness or commodity requirements. No transactions are entered into for
speculative purposes. The Company did not engage in any interest rate hedges in
1997 and had no significant amounts of natural gas futures transactions
outstanding at December 31, 1997.

RECENT ACCOUNTING STANDARDS

     Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," and No. 131, "Disclosure about Segments of an Enterprise
and Related Information," are required to be implemented during the Company's
fiscal year ending December 31, 1998. These pronouncements are not expected to
have a significant effect on the Company's consolidated financial condition and
results of operations.

EARNINGS PER AVERAGE COMMON SHARE

     Earnings per average common share have been computed using the weighted
average number of shares of common stock outstanding during the year. Earnings
per average common share have been restated for the years 1997, 1996 and 1995 to
reflect the Company's adoption of SFAS No. 128, "Earnings per Share." The
following table is a reconciliation of the components in the calculation of
basic and diluted earnings per share.

                                       19
<PAGE>   20
<TABLE>
<CAPTION>
                                          For the year ended December 31
                                     (In thousands, except per share amounts)
                                        1997                              1996
                        ------------------------------------   ---------------------------
                                                       Per-
                          INCOME         SHARES       share      Income         Shares
                        (NUMERATOR)   (DENOMINATOR)   Amount   (Numerator)   (Denominator)
                        -----------   -------------   ------   -----------   -------------
<S>                     <C>           <C>             <C>      <C>           <C>
Net income............    $52,519                                $52,135
Less: preferred
 dividend
 requirements, net....     (2,117)                                (2,074)
                          -------                                -------
BASIC EPS
Income available for
 common
 shareholders.........    $50,402        22,460       $2.24      $50,061        22,443
                                                      =====
EFFECT OF DILUTIVE
 SECURITIES
Stock option grants...                        7                                     10
Convertible ESOP
 preferred stock......      1,646         1,397                    1,549         1,405
                          -------        ------                  -------        ------
DILUTED EPS
Income available to
 common shareholders +
 assumed
 conversions..........    $52,048        23,864       $2.18      $51,610        23,858
                          =======        ======       =====      =======        ======

<CAPTION>
                               For the year ended December 31
                          (In thousands, except per share amounts)
                         1996                    1995
                        ------   ------------------------------------
                         Per-                                   Per-
                        share      Income         Shares       share
                        Amount   (Numerator)   (Denominator)   Amount
                        ------   -----------   -------------   ------
<S>                     <C>      <C>           <C>             <C>
Net income............             $48,703
Less: preferred
 dividend
 requirements, net....              (2,052)
                                   -------
BASIC EPS
Income available for
 common
 shareholders.........  $2.23      $46,651        22,418       $2.08
                        =====                                  =====
EFFECT OF DILUTIVE
 SECURITIES
Stock option grants...                                13
Convertible ESOP
 preferred stock......               1,483         1,416
                                   -------        ------
DILUTED EPS
Income available to
 common shareholders +
 assumed
 conversions..........  $2.16      $48,134        23,847       $2.02
                        =====      =======        ======       =====
</TABLE>

NOTE B -- JOINTLY OWNED GENERATING UNITS

     Two electric generating units operated by the Company are jointly owned
with other utilities. The Company's proportionate share of operation and
maintenance expenses associated with these two units is reflected in the
financial statements.

<TABLE>
<CAPTION>
                                                                At December 31, 1997
                                                              -------------------------
                                                              Rodemacher    Dolet Hills
                                                               Unit #2        Unit #1
                                                              ----------    -----------
                                                                 (Dollar amounts in
                                                                     thousands)
<S>                                                           <C>           <C>
Percentage of ownership.....................................        30%            50%
Utility plant in service....................................   $82,251       $272,618
Accumulated depreciation....................................   $39,155       $ 95,312
Unit capability (thousand kilowatts)........................     523.0          650.0
Share of capability (thousand kilowatts)....................     156.9          325.0
</TABLE>

NOTE C -- RECEIVABLES

     During 1996, the Company participated in a program in which it sold an
ownership interest in certain types of accounts receivable and unbilled
revenues. A maximum of $35 million of receivables could be sold at any time and
new receivables were sold as previously sold receivables were collected. The
Company discontinued selling receivables in late 1996 and terminated its
participation in the program in early 1997.

<TABLE>
<CAPTION>
                                          For the year ended
                                             December 31
                                          ------------------
                                           1997       1996
                                          -------    -------
                                            (In thousands)
<S>                                       <C>        <C>
Receivables sold but not collected (at
  year-end).............................  $     0    $     0
Average amount of receivables sold......  $     0    $33,706
Costs charged to operating expense......  $     0    $ 1,911
Receivables subject to repurchase (at
  year-end).............................  $     0    $     0
Accumulated provision for uncollectible
  accounts (at year-end)................  $   684    $   681
</TABLE>

                                       20
<PAGE>   21

NOTE D -- FAIR VALUE OF FINANCIAL INSTRUMENTS

     The amounts reflected in the financial statements at December 31, 1997 and
1996 for cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximate fair value because of their short-term nature. The
fair value of investments at December 31, 1997 and 1996 is estimated based on
quoted market prices for these or similar investments. The fair value of the
Company's long-term debt and nonconvertible preferred stock is estimated based
upon the quoted market price for the same or similar issues or by a discounted
present value analysis of future cash flows using current rates obtainable by
the Company for debt and preferred stock with similar maturities. The fair value
of convertible preferred stock is estimated assuming its conversion into common
stock at the market price per common share at December 31, 1997 and 1996, with
proceeds from the sale of the common stock used to repay the principal balance
of the Company's loan to the ESOP.

<TABLE>
<CAPTION>
                                                                 At December 31
                                                  ---------------------------------------------
                                                          1997                    1996
                                                  ---------------------   ---------------------
                                                  CARRYING   Estimated    Carrying   Estimated
                                                   VALUE     Fair Value    Value     Fair Value
                                                  --------   ----------   --------   ----------
                                                                 (In thousands)
<S>                                               <C>        <C>          <C>        <C>
Investments.....................................  $    807    $    807    $    585    $    585
Long-term debt..................................  $381,260    $395,183    $356,260    $364,784
Preferred stock:
  Not subject to mandatory redemption...........  $ 11,336    $ 24,248    $  9,529    $ 15,889
  Subject to mandatory redemption...............  $  6,120    $  5,058    $  6,372    $  5,490
</TABLE>

NOTE E -- DEBT

     The Company has revolving credit facilities totaling $125 million. A $100
million facility, which is scheduled to continue to June 15, 2000, and a $25
million facility, which is scheduled to expire on March 19, 1998, provide for
uncollateralized borrowings at prevailing interest rates, and the $100 million
facility provides for borrowings at interest rates established by competitive
bid. Commitment fees are based upon the Company's lowest secured debt ratings
and are currently 0.10% on the $100 million facility and 0.05% on the $25
million facility. Compensating balances are not maintained in connection with
either revolving credit facility. In addition, various uncommitted borrowing
arrangements with banks total $20 million. The banks are not obligated to lend
under uncommitted arrangements, and any borrowings are made at negotiated
interest rates and are uncollateralized. No fees are paid on any of the
uncommitted arrangements, nor are compensating balances required. The weighted
average interest rate on short-term debt was 5.97% at December 31, 1997 and
5.56% at December 31, 1996.

                                       21
<PAGE>   22

     Total indebtedness for the two-year period ended December 31, 1997 was as
follows:

<TABLE>
<CAPTION>
                                                                At December 31
                                                              -------------------
                                                                1997       1996
                                                              --------   --------
                                                                (In thousands)
<S>                                                           <C>        <C>
Commercial paper, net.......................................  $ 34,219   $ 65,161
                                                              ========   ========
  Total short-term debt.....................................  $ 34,219   $ 65,161
                                                              ========   ========
First mortgage bonds Series X, 9 1/2%, due 2005.............  $ 60,000   $ 60,000
Pollution control revenue bonds, variable rate, due 2018....    61,260     61,260
Medium-term notes
  9.10%, due 1997...........................................                5,000
  9.15%, due 1997...........................................               10,000
  7.85%, due 2000...........................................    25,000     25,000
  7.55%, due 2004, callable at 100%, 2002...................    15,000     15,000
  7.50%, due 2004, callable at 100%, 2002...................    10,000     10,000
  7.00%, due 2003...........................................    10,000     10,000
  6.90%, due 1998...........................................    15,000     15,000
  5.90%, due 1999...........................................    10,000     10,000
  6.55%, due 2003...........................................    15,000     15,000
  6.33%, due 2002...........................................    25,000     25,000
  5.78%, due 2001...........................................    10,000     10,000
  6.20%, due 2006...........................................    15,000     15,000
  6.42%, due 2001...........................................    15,000     15,000
  6.95%, due 2006...........................................    10,000     10,000
  6.53%, due 2007...........................................    10,000     10,000
  6.32%, due 2006...........................................    15,000     15,000
  6.28%, due 2008, putable at 100%, 1999....................    20,000     20,000
  7.50%, due 2007...........................................    15,000
  7.00%, due 2007...........................................    25,000
                                                              --------   --------
          Total long-term debt..............................  $381,260   $356,260
Amount due within one year..................................   (15,000)   (15,000)
Unamortized premium and discount, net.......................      (363)      (401)
                                                              --------   --------
     Total long-term debt, net..............................  $365,897   $340,859
                                                              ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                 1998      1999      2000      2001      2002     Thereafter
                                -------   -------   -------   -------   -------   ----------
                                                       (In thousands)
<S>                             <C>       <C>       <C>       <C>       <C>       <C>
Amounts payable under long-
  term debt agreements........  $15,000   $30,000   $25,000   $25,000   $25,000    $261,260
                                =======   =======   =======   =======   =======    ========
</TABLE>

NOTE F -- COMMON STOCK

     In association with incentive compensation plans in effect during the
three-year period ended December 31, 1997, certain officers and key employees
were awarded shares of restricted common stock. The cost of the restricted stock
awards, as measured by the market value of the common stock at the time of the
grant, is recorded as compensation expense during the periods in which the
restrictions lapse. Had the Company accounted for the value of these awards
after 1994 using an estimate of their "fair value," including the effects of
historical volatility of the market price, rather than their "intrinsic value,"
additional compensation expense of $57,512, $104,272 and $42,154 would have been
recorded for the years 1997, 1996 and 1995, respectively.

     The Company makes no charge to expense with respect to the granting of
options. At December 31, 1997, all options were exercisable. The number of
shares of restricted stock previously granted for which restrictions had not
lapsed totaled 50,946 shares.

                                       22
<PAGE>   23

     Changes in incentive shares for the three-year period ended December 31,
1997 were as follows:

<TABLE>
<CAPTION>
                                                     Incentive Shares
                                      ----------------------------------------------
                                      Option Price     Unexercised     Available for
                                       per Share      Option Shares    Future Grants
                                      ------------    -------------    -------------
<S>                                   <C>             <C>              <C>
Balance, January 1, 1995............                      59,230          757,431
                                                         -------          -------
Options exercised...................     $14.75          (18,230)
                                         $16.78           (6,800)
Restricted stock granted............                                      (11,186)
                                                         -------          -------
Balance, December 31, 1995..........                      34,200          746,245
                                                         -------          -------
Options exercised...................     $14.75           (1,250)
                                         $16.78          (13,800)
Options lapsed......................     $14.75             (750)
Restricted stock granted............                                      (12,751)
Restricted stock forfeited..........                                          615
Incentive stock awarded.............                                       (2,258)
                                                         -------          -------
Balance, December 31, 1996..........                      18,400          731,851
                                         ------          -------          -------
Options exercised...................     $16.78           (2,600)
Restricted stock granted............                                      (20,904)
Restricted stock forfeited..........                                          793
Incentive stock awarded.............                                       (3,701)
                                                         -------          -------
BALANCE, DECEMBER 31, 1997..........                      15,800          708,039
                                                         =======          =======
</TABLE>

     The Company's charter and various debt agreements to which the Company is a
party contain covenants which restrict the amount of retained earnings that may
be distributed as dividends to common shareholders. The most restrictive
covenant requires that common shareholders' equity be not less than 35% of total
capitalization, including short-term debt. At December 31, 1997, approximately
$114.3 million of retained earnings was not restricted.

NOTE G -- SUPPLEMENTARY PROFIT AND LOSS INFORMATION

<TABLE>
<CAPTION>
                                                              For the years ended December 31
                                                              --------------------------------
                                                                1997        1996        1995
                                                              --------    --------    --------
                                                                       (In thousands)
<S>                                                           <C>         <C>         <C>
Operating revenue derived from one customer.................  $36,260     $33,359     $28,695
                                                              =======     =======     =======
Other taxes included in the consolidated income
  statements................................................  $33,422     $29,595     $29,063
Other taxes capitalized to plant............................    1,325       1,049       1,010
                                                              -------     -------     -------
Total other taxes...........................................  $34,747     $30,644     $30,073
                                                              =======     =======     =======
Other taxes consist of:
  Parish and municipal property.............................  $21,436     $16,302     $15,868
  State and municipal franchise.............................   10,204      10,434      10,072
  Other.....................................................    3,107       3,908       4,133
                                                              -------     -------     -------
Total other taxes...........................................  $34,747     $30,644     $30,073
                                                              =======     =======     =======
</TABLE>

NOTE H -- PREFERRED STOCK

     In connection with the establishment of the ESOP, the Company sold 300,000
shares of 8.125% convertible preferred stock to the ESOP. Each share of
preferred stock is convertible into 4.8 shares of common stock. The amount of
total capitalization reflected in the consolidated financial statements has been
reduced by an amount of deferred compensation expense related to the shares of
convertible preferred stock which have not yet been allocated to ESOP
participants. The amount

                                       23
<PAGE>   24

shown in the consolidated financial statements for preferred dividend
requirements in 1997, 1996 and 1995 has been reduced by $587,000, $658,000 and
$716,000, respectively, to reflect the benefit of the income tax deduction for
dividend requirements on unallocated shares held by the ESOP.

     Upon involuntary liquidation, preferred shareholders are entitled to
receive par value for shares held before any distribution is made to common
shareholders. Upon voluntary liquidation, preferred shareholders are entitled to
receive the redemption price per share applicable at the time such liquidation
occurs plus any accrued dividends.

     Information about the components of preferred stock capitalization is as
follows:

<TABLE>
<CAPTION>
                                           Balance               Balance               BALANCE               BALANCE
                                           Jan. 1,              Dec. 31,              DEC. 31,              DEC. 31,
                                            1995      Change      1995      Change      1996      CHANGE      1997
                                          ---------   -------   ---------   -------   ---------   -------   ---------
                                                             (In thousands, except share amounts)
<S>                                       <C>         <C>       <C>         <C>       <C>         <C>       <C>
CUMULATIVE PREFERRED STOCK, $100 par
  value
  NOT SUBJECT TO MANDATORY REDEMPTION
    4.50%...............................  $   1,029             $   1,029             $   1,029             $   1,029
    Convertible, Series of 1991,
      variable rate.....................     29,719   $  (229)     29,490   $  (239)     29,251   $  (178)     29,073
                                          ---------   -------   ---------   -------   ---------   -------   ---------
                                          $  30,748   $  (229)  $  30,519   $  (239)  $  30,280   $  (178)  $  30,102
                                          =========   =======   =========   =======   =========   =======   =========
  SUBJECT TO MANDATORY REDEMPTION
    4.50%, Series of 1955...............  $     440   $   (40)  $     400   $   (40)  $     360   $   (40)  $     320
    4.65%, Series of 1964...............      3,360      (140)      3,220      (140)      3,080      (140)      2,940
    4.75%, Series of 1965...............      3,120      (130)      2,990       (58)      2,932       (72)      2,860
                                          ---------   -------   ---------   -------   ---------   -------   ---------
                                          $   6,920   $  (310)  $   6,610   $  (238)  $   6,372   $  (252)  $   6,120
                                          =========   =======   =========   =======   =========   =======   =========
  Deferred compensation related to
    convertible preferred stock held by
    the ESOP............................  $ (24,404)  $ 1,809   $ (22,595)  $ 1,844   $ (20,751)  $ 1,985   $ (18,766)
                                          =========   =======   =========   =======   =========   =======   =========
CUMULATIVE PREFERRED STOCK,
  $100 par value
  Number of Shares
    Authorized..........................  1,416,800    (2,700)  1,414,100    (1,975)  1,412,125    (2,125)  1,410,000
    Issued and Outstanding..............    376,676    (5,389)    371,287    (4,768)    366,519    (4,301)    362,218
                                          =========   =======   =========   =======   =========   =======   =========
CUMULATIVE PREFERRED STOCK,
  $25 par value
  Number of Shares Authorized (None
    outstanding)........................  3,000,000             3,000,000             3,000,000             3,000,000
                                          =========             =========             =========             =========
</TABLE>

     Preferred stock, other than the convertible preferred stock held by the
ESOP, is redeemable at the Company's option, subject to 30 days' prior written
notice to holders. Preferred stock subject to mandatory redemption is redeemable
annually through sinking funds or purchase funds at prices of not more than $100
per share until all shares have been redeemed. The convertible preferred stock
is redeemable at any time at the Company's option. If the Company were to elect
to redeem the convertible preferred shares, shareholders may elect to receive
the optional redemption price or

                                       24
<PAGE>   25

convert the preferred shares into common stock. The redemption provisions for
the various series of preferred stock are shown in the following table.

<TABLE>
<CAPTION>
                                       Optional Redemption        Mandatory Redemption
                                       -------------------    ----------------------------
                                              Price              Number of         Price
               Series                       per Share         Shares Annually    per Share
               ------                       ---------         ---------------    ---------
<S>                                    <C>                    <C>                <C>
4.50%................................         $101
4.50%, Series of 1955................         $102                   400           $100
4.65%, Series of 1964................         $102                 1,400*          $100
4.75%, Series of 1965................         $100                 1,300*          $100
Convertible, Series of 1991
  Through March 31, 1998.............        $103.25
  Thereafter.........................   $102.4375 to $100
</TABLE>

* The Company is required to offer holders of the Series of 1964 the opportunity
  to redeem 1,400 shares each year and holders of the Series of 1965 the
  opportunity to redeem 1,300 shares each year. Only shares actually tendered,
  if any, are required to be redeemed.

NOTE I -- PENSION PLAN AND EMPLOYEE BENEFITS

     Substantially all employees are covered by a noncontributory, defined
benefit pension plan. Benefits under the plan reflect an employee's years of
service, age at retirement and highest total average compensation for any
consecutive five calendar years during the last ten years of employment with the
Company. The Company's policy is to fund contributions to the employee pension
plan based upon actuarial computations utilizing the projected unit credit
method, subject to the Internal Revenue Service's full funding limitation. No
contributions to the pension plan were required during the three-year period
ended December 31, 1997.

<TABLE>
<CAPTION>
                                                      For the years ended December 31
                                                     ---------------------------------
                                                       1997         1996        1995
                                                     ---------    --------    --------
                                                              (In thousands)
<S>                                                  <C>          <C>         <C>
Service costs for benefits earned during the
  period...........................................  $  2,984     $ 3,010     $ 2,498
Interest costs on projected benefit obligation.....     7,288       6,768       6,542
Actual gain on assets..............................   (10,290)     (9,572)     (8,920)
Net amortization and deferral......................      (970)     (1,037)     (1,037)
                                                     --------     -------     -------
Net pension benefit cost...........................  $   (988)    $  (831)    $  (917)
                                                     ========     =======     =======
Actuarial assumptions
  Weighted average discount rate...................      7.00%       7.50%       7.00%
  Rate of increase in future compensation..........      5.00%       5.00%       5.00%
  Rate of return on plan assets....................      9.50%       9.50%       9.50%
</TABLE>

     Employee pension plan assets are invested in the Company's common stock,
other publicly traded domestic common stocks, U.S. government, federal agency
and corporate obligations, an international equity fund, commercial real estate
funds and pooled temporary investments.

                                       25
<PAGE>   26

     The employee pension plan's funded status as determined by the actuary at
December 31, 1997 and 1996 is presented in the following table.

<TABLE>
<CAPTION>
                                                                1997         1996
                                                              ---------    --------
                                                                 (In thousands)
<S>                                                           <C>          <C>
Actuarial present value of benefit obligation
  Vested benefits...........................................  $ (91,000)   $(77,769)
  Nonvested benefits........................................     (7,927)     (3,648)
                                                              ---------    --------
  Accumulated benefit obligation............................    (98,927)    (81,417)
  Effect of projected future compensation levels............    (24,155)    (16,307)
                                                              ---------    --------
Projected benefit obligation for service rendered to date...   (123,082)    (97,724)
Plan assets at fair market value............................    163,574     138,672
                                                              ---------    --------
Plan assets in excess of projected benefit obligation.......     40,492      40,948
Unamortized transition asset................................     (7,943)     (9,261)
Unrecognized net gain.......................................    (26,101)    (26,226)
                                                              ---------    --------
Prepaid pension asset.......................................  $   6,448    $  5,461
                                                              =========    ========
</TABLE>

     Effective January 1, 1998, the Company changed the method of calculating
fair market value of assets to reflect the difference between actual and
projected appreciation for the current year ratably over five years. Also, on
January 1, 1998, the Company increased the crediting rates for each year of
service but limited the maximum number of years of service credited to 35.

     Substantially all employees are eligible to participate in a savings and
investment plan (401(k) Plan). The Company makes matching contributions to
401(k) Plan participants by allocating shares of convertible preferred 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 ESOP participants and the
amount of interest incurred by the ESOP, less dividends on unallocated shares
held by the ESOP. At December 31, 1997 and 1996, the ESOP had allocated to
employees 109,668 and 90,905 shares, respectively.

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

<TABLE>
<CAPTION>
                                                         For the years ended December 31
                                                         --------------------------------
                                                           1997        1996        1995
                                                         --------    --------    --------
                                                                  (In thousands)
<S>                                                      <C>         <C>         <C>
401(k) Plan expense....................................   $1,453      $1,490      $1,542
                                                          ------      ------      ------
Dividend requirements to ESOP on convertible preferred
  stock................................................   $2,367      $2,378      $2,396
                                                          ------      ------      ------
Interest incurred by ESOP on its indebtedness..........   $1,604      $1,746      $1,905
                                                          ------      ------      ------
Company contributions to ESOP..........................   $1,235      $1,239      $1,071
                                                          ------      ------      ------
</TABLE>

     The Company's retirees and their dependents are eligible to receive health,
dental and life insurance benefits. The Company recognizes the expected cost of
these benefits during the periods in which the benefits are earned.

                                       26
<PAGE>   27

     The components of net postretirement benefit cost for 1997, 1996 and 1995
were as follows:

<TABLE>
<CAPTION>
                                                          1997      1996      1995
                                                         ------    ------    ------
                                                               (In thousands)
<S>                                                      <C>       <C>       <C>
Service costs for benefits earned......................  $  601    $  596    $  639
Interest costs.........................................   1,034       934     1,066
Amortization of transition obligation..................     513       513       513
Amortization of net loss...............................     (82)
                                                         ------    ------    ------
Net postretirement benefit cost........................  $2,066    $2,043    $2,218
                                                         ======    ======    ======
</TABLE>

     The financial status of the postretirement benefit plan at December 31,
1997 and 1996, as determined by the actuary, is presented in the following
table.

<TABLE>
<CAPTION>
                                                               1997       1996
                                                              -------    -------
                                                                (In thousands)
<S>                                                           <C>        <C>
Accumulated benefit obligation
  Retirees..................................................  $ 8,807    $ 8,169
  Fully eligible participants...............................    3,411      2,581
  Other active participants.................................    3,161      2,591
                                                              -------    -------
Total accumulated benefit obligation........................   15,379     13,341
Unamortized transition obligation...........................   (7,700)    (8,213)
Unrecognized gain...........................................    1,676      3,005
                                                              -------    -------
Accrued unfunded postretirement benefit liability...........  $ 9,355    $ 8,133
                                                              =======    =======
</TABLE>

     The assumed health care cost trend rate used to measure the expected cost
of benefits was 9.5% in 1997, declining to 5.5% by 2008 and remaining at 5.5%
thereafter. The initial health care cost trend rate was reduced from 10% in 1996
to 9.5% in 1997 and resulted in an unrecognized gain. If the health care cost
trend rate assumptions were increased by 1%, the accumulated benefit obligation
would be $15.7 million at December 31, 1997, and the aggregate of the service
and interest cost components of the net periodic cost of health care benefits
would be $1.7 million annually. The weighted average assumed discount rate used
to measure the accumulated benefit obligation in 1997 was changed from 7.5% to
7.25% and resulted in a minimal unrecognized gain. The weighted average assumed
discount rate used to measure the accumulated benefit obligation in 1996 was
changed from 7% to 7.5% and, together with a decrease in per capita claims cost,
resulted in an unrecognized gain.

                                       27
<PAGE>   28

NOTE J -- INCOME TAX EXPENSE

     Federal income tax expense is less than the amount computed by applying the
statutory federal rate to book income before tax as follows:

<TABLE>
<CAPTION>
                                                  For the years ended December 31
                                        ---------------------------------------------------
                                             1997              1996              1995
                                        ---------------   ---------------   ---------------
                                        AMOUNT      %     Amount      %     Amount      %
                                        -------   -----   -------   -----   -------   -----
                                                   (In thousands, except for %)
<S>                                     <C>       <C>     <C>       <C>     <C>       <C>
Book income before tax................  $80,248   100.0   $78,289   100.0   $73,932   100.0
Tax at statutory rate on book income
  before tax..........................  $28,087    35.0   $27,401    35.0   $25,876    35.0
Increase (decrease):
  Tax effect of AFUDC.................     (276)   (0.3)     (185)   (0.2)   (1,029)   (1.4)
  Amortization of investment tax
     credits..........................   (1,790)   (2.2)   (1,809)   (2.3)   (1,814)   (2.5)
  Tax effect of prior-year tax
     benefits not deferred............      978     1.2       921     1.1       900     1.2
  Other, net..........................   (2,645)   (3.3)   (3,296)   (4.2)   (1,435)   (1.9)
                                        -------   -----   -------   -----   -------   -----
Total federal income tax expense......   24,354    30.4    23,032    29.4    22,498    30.4
                                        -------   -----   -------   -----   -------   -----
Current state income tax expense......    3,375     4.2     3,122     4.0     2,731     3.7
                                        -------   -----   -------   -----   -------   -----
Total federal and state income tax
  expense.............................  $27,729    34.6   $26,154    33.4   $25,229    34.1
                                        =======   =====   =======   =====   =======   =====
</TABLE>

     Information about current and deferred income tax expense is as follows:

<TABLE>
<CAPTION>
                                                       1997       1996       1995
                                                      -------    -------    -------
                                                             (In thousands)
<S>                                                   <C>        <C>        <C>
Current federal income tax expense..................  $23,236    $21,023    $21,458
Deferred federal income tax expense.................    2,908      3,818      2,854
Amortization of accumulated deferred investment tax
  credits...........................................   (1,790)    (1,809)    (1,814)
                                                      -------    -------    -------
Total federal income tax expense....................   24,354     23,032     22,498
Current state income tax expense....................    3,375      3,122      2,731
                                                      -------    -------    -------
Total federal and state income tax expense..........  $27,729    $26,154    $25,229
                                                      =======    =======    =======
Deferred federal income tax expense attributable to:
  Depreciation......................................  $ 2,733    $ 4,834    $ 3,746
  Storm damages.....................................     (332)        70        (15)
  Asset basis differences...........................   (1,707)       425     (1,213)
  Employee benefits.................................      321       (504)      (558)
  Fuel costs........................................      790       (481)       890
  Reacquired debt...................................    1,037       (238)      (288)
  Other.............................................       66       (288)       292
                                                      -------    -------    -------
  Total deferred federal income tax expense.........  $ 2,908    $ 3,818    $ 2,854
                                                      =======    =======    =======
</TABLE>

                                       28
<PAGE>   29

     The balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 1997 and 1996 was comprised of the tax effect of the
following:

<TABLE>
<CAPTION>
                                                1997                    1996
                                        --------------------    --------------------
                                         ASSET     Liability     Asset     Liability
                                        -------    ---------    -------    ---------
                                                       (In thousands)
<S>                                     <C>        <C>          <C>        <C>
Depreciation and property basis
  differences.........................  $ 6,978    $132,491     $ 6,851    $129,710
Allowance for funds used during
  construction........................               40,608                  41,564
Investment tax credits................   18,498                  19,617
FASB 109 adjustments..................   42,614     112,562      38,897     101,287
Postretirement benefits other than
  pension.............................    3,266                   3,007
Other.................................    5,200      10,462       5,859       9,123
                                        -------    --------     -------    --------
Accumulated deferred federal and state
  income taxes........................  $76,556    $296,123     $74,231    $281,684
                                        =======    ========     =======    ========
</TABLE>

     Regulatory assets recorded for deferred taxes at December 31, 1997 and 1996
were $115.3 million and $103.8 million, respectively. Regulatory liabilities
recorded for deferred taxes at December 31, 1997 and 1996 were $62.5 million and
$60.1 million, respectively. Regulatory assets and liabilities will be realized
over the accounting lives of the related properties to the extent past
ratemaking practices are continued by regulators.

NOTE K -- COMMITMENTS AND CONTINGENCIES

     Construction expenditures for 1998 are estimated to be $54.9 million,
excluding AFUDC, and for the five-year period ending 2002 are expected to total
$253 million, excluding AFUDC. Scheduled maturities of debt and preferred stock
will total approximately $15.3 million for 1998 and approximately $121.6 million
for the five-year period ending 2002.

     The Company has entered into various long-term contracts for the
procurement of coal and lignite to fuel certain of its generating stations.
These contracts contain provisions for price changes, minimum purchase levels
and other financial commitments. The Company purchases, as an additional fuel
source for generation, natural gas under short-term contracts on the spot
market.

     The Company and another utility filed suit against a joint venture and its
partners who mine lignite for one of the Company's jointly-owned electric
generating units. The joint venture has filed counterclaims. The counterclaims
resulted in the filing of another suit by the Company and the other utility
against the joint venture's parent company. Management believes the
counterclaims, if successful, would not have a material adverse effect on the
Company's financial position or results of operations. Normal day-to-day
operations continue at the mining facility and the Company's electric generating
unit.

     The coal for one of the Company's jointly-owned electric generating units
is transported under a long-term transportation contract with a railroad. The
railroad is overcoming operating problems, which began in 1997 and resulted in
reduced volumes delivered to the unit. Coal inventory at the unit is currently
below the Company's desired minimum level. Based on the railroad's anticipated
delivery schedule of future coal shipments, management anticipates restoration
of the coal inventory at the unit to desired levels by July 1998.

     The Company has accrued for liabilities to third parties, environmental
claims, employee medical benefits, storm damages and deductibles under insurance
policies which it maintains on major properties, primarily generating stations
and transmission substations. Consistent with regulatory treatment, annual
charges to operating expense to provide a reserve for future storm

                                       29
<PAGE>   30

damages are based upon the average amount of noncapital, uninsured storm damages
experienced by the Company during the previous five years.

     The Company has committed to provide credit support up to $10 million for
working capital and electricity or natural gas commodity positions for CLECO
ENERGY, L.L.C. Commitments for asset development projects will be made as they
occur up to $5 million per year for the next five years.

     The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of its regulators,
pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS 71). The effects of potential
deregulation of the industry or possible future changes in the method of rate
regulation of the Company could require the Company to discontinue the
application of SFAS 71, pursuant to Statement of Financial Accounting Standards
No. 101, "Regulated Enterprises -- Accounting for the Discontinuation of
Application of FASB Statement No. 71" (SFAS 101). At December 31, 1997, the
Company recorded $52.8 million of regulatory assets, net of regulatory
liabilities, because of the regulatory requirement to flow through the tax
benefits of accelerated deductions to current customers and an implied
regulatory compact that future customers would pay when the Company paid the
additional taxes. These differences occur over the lives of relatively
long-lived assets, up to 30 years or more. Under the current regulatory and
competitive environment, the Company believes that these regulatory assets are
fully recoverable. However, if in the future, as a result of regulatory changes
or increased competition, its ability to recover these regulatory assets would
not be probable, then to the extent that such regulatory assets were determined
not to be recoverable, it would be required to write off or write down such
assets.

     Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.

     The Emerging Issues Task Force (EITF) assists the Financial Accounting
Standards Board (FASB) in identifying emerging issues affecting financial
reporting. In 1997, the EITF reached a consensus in Issue No. 97-4:
"Deregulation of the Pricing of Electricity -- Issues Related to the Application
of SFAS No. 71 and No. 101." EITF 97-4 specified that SFAS No. 71 should be
discontinued at a date no later than when the details of a transition plan
toward the deregulation of electric rates for all or a portion of the entity
subject to such plan are known. However, other factors could cause the
discontinuation of SFAS No. 71 before that date. Additionally, EITF 97-4
establishes that regulatory assets to be recovered through cash flows derived
from another portion of the entity which continues to apply SFAS No. 71 should
not be written off, but rather, should continue to be considered regulatory
assets of the separable portion which will continue to apply SFAS No. 71.

                                       30
<PAGE>   31

NOTE L -- MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED)

     Quarterly information for 1997 and 1996 is shown in the following table.

<TABLE>
<CAPTION>
                                                                    1997
                                             ----------------------------------------------------
                                               1ST           2ND            3RD            4TH
                                             QUARTER       QUARTER        QUARTER        QUARTER
                                             -------       --------       --------       --------
                                                  (In thousands, except per share amounts)
<S>                                          <C>           <C>            <C>            <C>
Operating revenues.........................  $97,668       $105,324       $138,099       $115,154
Operating income...........................  $14,798       $ 18,459       $ 28,624       $ 16,929
Net income applicable to common stock......  $ 7,002       $ 10,744       $ 22,360       $ 10,296
Basic earnings per average common
  share(2).................................  $  0.31       $   0.48       $   1.00       $   0.45
Diluted earnings per average common
  share(2).................................  $  0.31       $   0.47       $   0.95       $   0.45
Dividends paid per common share............  $ 0.385       $  0.395       $  0.395       $  0.395
Market price per share
  High.....................................  $    28       $     28 1/8   $     28 7/16  $     33 1/8
  Low......................................  $    26       $     24 3/4   $     25 13/16 $     25 9/16
</TABLE>

<TABLE>
<CAPTION>
                                                                     1996
                                              ----------------------------------------------------
                                                1st           2nd            3rd            4th
                                              Quarter       Quarter        Quarter        Quarter
                                              -------       --------       --------       -------
                                                    (In thousands, except per share amounts)
<S>                                           <C>           <C>            <C>            <C>
Operating revenues(1).......................  $99,042       $113,303       $130,477       $94,299
Operating income............................  $16,747       $ 21,566       $ 27,190       $12,918
Net income applicable to common stock.......  $ 9,516       $ 14,026       $ 20,379       $ 6,140
Basic earnings per average common share(2)..  $  0.42       $   0.63       $   0.91       $  0.27
Diluted earnings per average common
  share(2)..................................  $  0.41       $   0.61       $   0.87       $  0.27
Dividends paid per common share.............  $ 0.375       $  0.385       $  0.385       $ 0.385
Market price per share
  High......................................  $    27 3/4   $     27 3/8   $     27 1/4   $    29 1/4
  Low.......................................  $    25 3/8   $     25 1/8   $     25 3/8   $    26 1/8
</TABLE>

---------------

(1) Certain prior-period amounts have been reclassified to conform with the
    presentation shown in the current year's financial statements. These
    classifications had no effect on net income applicable to common stock or
    common shareholders' equity.

(2) Earnings per average common share have been restated to reflect the
    Company's adoption of SFAS No. 128, "Earnings per Share."

     The Company's common stock is listed for trading on the New York and
Pacific stock exchanges under the ticker symbol "CNL." The Company's preferred
stock is not listed on any stock exchange. On December 31, 1997, the Company had
11,088 common and 174 preferred shareholders, as determined from the records of
the transfer agent.

     On January 23, 1998, the Company's Board of Directors declared a quarterly
dividend of 39 1/2 cents per share, payable February 15, 1998, to common
shareholders of record on February 2, 1998. Preferred dividends were also
declared, payable March 1, 1998, to preferred shareholders of record on February
15, 1998.

                                       31
<PAGE>   32

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Central Louisiana Electric Company, Inc.

     We have audited the accompanying consolidated balance sheets of Central
Louisiana Electric Company, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of income, cash flows and changes in common
shareholders' equity for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Central Louisiana Electric Company, Inc. as of December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.

New Orleans, Louisiana
January 27, 1998

                                       32