**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

__________________

**FORM 10-K**

**[X]  ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended December 31, 2004Or

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

__________________

**Commissionfile number 1-15759**

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

| ** **                                                                                                             | ** **                                           |
|------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| **Louisiana***(State or other jurisdiction of incorporation or organization)*                                          | **72-1445282***(I.R.S. Employer Identification No.)* |
| ** **                                                                                                             | ** **                                           |
| **2030 Donahue Ferry Road, Pineville, Louisiana***(Address of principal executive offices)*                            | **71360-5226***(Zip Code)*                           |
| ** **                                                                                                             | ** **                                           |
| **Registrant's telephone number, including area code:  (318)  484-7400**                                          |
| ** **                                                                                                             |
| **Securities registered pursuant to Section 12(b) of the Act:**                                                        |
| ** **                                                                                                             |
| **Title  of each class**                                                                                               |                                                      | **Name  of each exchange on which registered** |
| Common Stock, $1.00 par value, and associated rights to purchase Preferred Stock                                  |                                                      | New York Stock Exchange |
|                                                                                                                        |                                                      |  |
| **Securities registered pursuant to Section 12(g) of the Act:**                                                        |
|                                                                                                                        |                                                      |
| **Title  of each class**                                                                                               |
| 4.50% Cumulative Preferred Stock, $100 Par ValueConvertible Cumulative Preferred Stock, $100 Par Value, Series of 1991 |
|                                                                                                                        |                                                      |  |  |

__________________

**Commissionfile number 0-01272**

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

| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** **                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| **Louisiana***(State or other jurisdiction of incorporation or organization)*                                                                                                                                                                                                                                                                                                                                                                   | **72-0244480***(I.R.S. Employer Identification No.)* |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** **                                           |
| **2030 Donahue  Ferry Road, Pineville, Louisiana***(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                                    | **71360-5226***(Zip Code)*                           |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** **                                           |
| **Registrant's telephone number, including area code:  (318)  484-7400**                                                                                                                                                                                                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Securities registered pursuant to Section 12(b) of the Act:**                                                                                                                                                                                                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Title  of each class**                                                                                                                                                                                                                                                                                                                                                                                                                        | ** **                                           | **Name  of each exchange on which registered** |
| 6.52% Medium-Term Notes due 2009                                                                                                                                                                                                                                                                                                                                                                                                                |                                                      | New York Stock Exchange |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                      |  |
| **Securities registered pursuant to Section 12(g) of the Act:**                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                      |
| **Title  of each class**                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Membership Interests                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **Cleco  Power LLC, a wholly owned subsidiary of Cleco Corporation, meets the  conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K  and is therefore filing this Form 10-K with the reduced disclosure format.**                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate  by check mark whether the Registrants: (1) have filed all reports required to  be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the Registrants were  required to file such reports) and (2) have been subject to such filing  requirements for the past 90 days.  Yes   x       No __ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate  by check mark if disclosure of delinquent filers pursuant to Item 405 of  Regulation S-K is not contained herein, and will not be contained, to the  best of each of the Registrant's knowledge, in definitive proxy or  information statements incorporated by reference in Part III of this Form  10-K or any amendment to this Form 10-K.     x                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate  by check mark whether Cleco Corporation is an accelerated filer (as defined  in Rule 12b-2 of the Exchange Act)  Yes   x       No ___                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate  by check mark whether Cleco Power LLC is an accelerated filer (as defined in  Rule 12b-2 of the Exchange Act)  Yes            No   x                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                      |  |  |

    The aggregatemarket value of the Cleco Corporation voting stock held by non-affiliates was $789,494,234as of the last business day of the Registrant's most recently completed secondfiscal quarter, based on a price of $17.98 per common share, the closing priceof Cleco Corporation's common stock as reported on the New York Stock Exchangeon such date.  Cleco Corporation's Cumulative Preferred Stock is not listed onany national securities exchange, nor are prices for the Cumulative PreferredStock quoted on any national automated quotation system; therefore, its marketvalue is not readily determinable and is not included in the foregoing amount.

    As ofFebruary 1, 2005, there were 49,254,122 shares outstanding of ClecoCorporation's Common Stock, par value $1.00 per share.  As of February 1, 2005,all of Cleco Power's Membership Interests were owned by Cleco Corporation.

**DOCUMENTS INCORPORATED BY REFERENCE**

    Portionsof Cleco Corporation's definitive Proxy Statement relating to its AnnualMeeting of Shareholders to be held on May 5, 2005, are incorporated byreference into Part III herein.

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

    This report should be read in itsentirety as it pertains to each respective Registrant.  The Notes to theFinancial Statements for the Registrants are combined.

TABLE OF CONTENTS

|                                                        |                   PAGE                                                          |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| GLOSSARYOF    TERMS                                    |                            3       |
| DISCLOSURE REGARDING  FORWARD-LOOKING STATEMENTS  |                            6  |
|                                                        |                                                                                                                                                                      |  |
| **PART I**                                             |                                                                                                                                                                      |  |
| ITEM 1.                                                | Business                                                                                                                                                             |  |
|                                                        |      General                                                                                                                                     |                            7 |
|                                                        |      Operations                                                                                                                                  |                            8 |
|                                                        |      Regulatory  Matters, Industry Developments, and Franchises                                                                                  |                          12 |
|                                                        |      Environmental  Matters                                                                                                                      |                          14 |
| ITEM 2.                                                | Properties                                                                                                                                                           |                          16 |
| ITEM 3.                                                | Legal Proceedings                                                                                                                                                    |                          17 |
| ITEM 4.                                                | Submission of Matters  to a Vote of Security Holders                                                                                                                 |                          18 |
|                                                        | Executive Officers of  the Registrants                                                                                                                          |                          18  |
|                                                        |                                                                                                                                                                      |  |
| **PART II**                                            |                                                                                                                                                                      |  |
| ITEM 5.                                                | Market for Registrants'  Common Equity, Related Stockholder Matters and Cleco Corporation's Purchases  of Equity Securities                                          |                          20 |
| ITEM 6.                                                | Selected Financial  Data                                                                                                                                             |                          21 |
| ITEM 7.                                                | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                                               |                          22 |
| ITEM 7A.                                               | Quantitative and  Qualitative Disclosures About Market Risk                                                                                                          |                          51 |
| ITEM 8.                                                | Financial Statements  and Supplementary Data                                                                                                                         |                          56 |
| ITEM 9.                                                | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                                                                                |                       111 |
| ITEM 9A.                                               | Controls and  Procedures                                                                                                                                             |                       111 |
| ITEM 9B.                                          | Other Information                                                                                                                                               |                          111  |
|                                                        |                                                                                                                                                                      |  |
| **PART III**                                           |                                                                                                                                                                      |  |
| ITEM 10.                                               | Directors and  Executive Officers                                                                                                                                    |                       112 |
| ITEM 11.                                               | Executive Compensation                                                                                                                                               |                       112 |
| ITEM 12.                                               | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters                                                                      |                       113 |
| ITEM 13.                                               | Certain Relationships  and Related Transactions                                                                                                                      |                       113 |
| ITEM 14.                                          | Principal Accountant  Fees and Services                                                                                                                         |                          114  |
|                                                        |                                                                                                                                                                      |  |
| **PART IV**                                            |                                                                                                                                                                      |  |
| ITEM 15.                                               | Exhibits and Financial  Statement Schedules                                                                                                                          |                       115 |
|                                                        | Signatures                                                                                                                                                           |                       120 |
|                                                        |                                                                                                                                                                      |  |  |

2

----

GLOSSARY OF TERMS

References in this filing, including allitems in Parts I, II, III, and IV, to "Cleco" mean Cleco Corporation and itssubsidiaries, including Cleco Power, and references to "Cleco Power" mean ClecoPower LLC, unless the context clearly indicates otherwise.  Additional abbreviationsor acronyms used in this filing, including all items in Part I, II, III, and IVare defined below:

| Abbreviation or  Acronym     | Definition                                                                                                                                                                                                                   |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1935 FPA                     | 1935 Federal Power Act                                                                                                                                                                                                       |
| 401(k) Plan                  | Cleco Power 401(k)  Savings and Investment Plan                                                                                                                                                                              |
| Acadia                       | Acadia Power Partners  LLC and its 1,160-MW combined-cycle, natural gas-fired power plant near  Eunice, Louisiana, 50% owned by APH and 50% owned by Calpine                                                                 |
| AFUDC                        | Allowance for Funds  Used During Construction                                                                                                                                                                                |
| APB                          | Accounting Principles  Board                                                                                                                                                                                                 |
| APB Opinion No. 18           | The Equity Method of  Accounting for Investments in Common Stock                                                                                                                                                             |
| APB Opinion No. 25           | Accounting for Stock  Issued to Employees                                                                                                                                                                                    |
| APB Opinion No. 29           | Accounting for  Nonmonetary Transactions                                                                                                                                                                                     |
| APH                          | Acadia Power Holdings  LLC, a wholly owned subsidiary of Midstream                                                                                                                                                           |
| Aquila Energy                | Aquila Energy  Marketing Corporation                                                                                                                                                                                         |
| Aquila Tolling Agreement     | Capacity Sale and  Tolling Agreement between Acadia and Aquila Energy                                                                                                                                                        |
| ARB                          | Accounting Research  Bulletin                                                                                                                                                                                                |
| ARB No. 43                   | Restatement and  Revision of Accounting Research Bulletins                                                                                                                                                                   |
| ARB No. 51                   | Consolidated Financial  Statements                                                                                                                                                                                           |
| Calpine                      | Calpine Corporation                                                                                                                                                                                                          |
| Calpine Tolling Agreements   | Capacity Sale and Tolling Agreements between Acadia and  CES                                                                                                                                                                 |
| CES                          | Calpine Energy  Services, L.P.                                                                                                                                                                                               |
| CLE Intrastate               | CLE Intrastate Pipeline Company LLC, a wholly owned  subsidiary of Midstream                                                                                                                                                 |
| Cleco Energy                 | Cleco Energy LLC, a  wholly owned subsidiary of Midstream                                                                                                                                                                    |
| Compliance Plan              | The three-year plan included in the Consent Agreement in  FERC Docket IN03-1-000                                                                                                                                             |
| Consent Agreement            | Stipulation and Consent Agreement, dated as of July 25, 2003,  between Cleco and the FERC Staff                                                                                                                              |
| Diversified Lands            | Diversified Lands LLC, a wholly owned subsidiary of Cleco  Innovations LLC, a wholly owned subsidiary of Cleco Corporation                                                                                                   |
| Dynegy                       | Dynegy Power  Marketing, Inc.                                                                                                                                                                                                |
| EITF                         | Emerging Issues Task Force of the FASB                                                                                                                                                                                       |
| EITF No. 03-6                | Participating Securities and the Two-Class Method under  FASB Statement No. 128, Earnings per Share                                                                                                                          |
| EITF No. 03-13               | Applying the  Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the  Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report  Discontinued Operations                               |
| EITF No. 04-8                | Accounting Issues Related to Certain Features on  Contingently Convertible Debt and the Effect on Diluted Earnings per Share                                                                                                 |
| EITF No. 04-10               | Applying Paragraph 19  of FASB Statement No. 131, Disclosures about Segments of an Enterprise and  Related Information, in Determining Whether to Aggregate Operating Segments  That Do Not Meet the Quantitative Thresholds |
| EITF No. 98-10               | Accounting for Contracts Involved in Energy Trading and Risk  Management Activities                                                                                                                                          |
| Entergy                      | Entergy Corporation                                                                                                                                                                                                          |
| Entergy Gulf States          | Entergy Gulf States, Inc.                                                                                                                                                                                                    |
| Entergy Louisiana            | Entergy Louisiana,  Inc.                                                                                                                                                                                                     |
| Entergy Services             | Entergy Services, Inc., as agent for Entergy Louisiana  and Entergy Gulf States                                                                                                                                              |
| EPA                          | Environmental  Protection Agency                                                                                                                                                                                             |
| ESOP                         | Cleco Corporation Employee Stock Ownership Plan                                                                                                                                                                              |
| ESPP                         | Cleco Corporation Employee Stock Purchase Plan                                                                                                                                                                               |
| Evangeline                   | Cleco Evangeline LLC, a wholly owned subsidiary of  Midstream, and its 775-MW combined-cycle, natural gas-fired power plant  located in Evangeline Parish, Louisiana                                                         |
| Evangeline Tolling Agreement | Capacity Sale and Tolling Agreement between Evangeline  and Williams                                                                                                                                                         |
| FASB                         | Financial Accounting Standards Board                                                                                                                                                                                         |
| FERC                         | Federal Energy Regulatory Commission                                                                                                                                                                                         |
| FIN                          | FASB Interpretation No.                                                                                                                                                                                                      |
| FIN 45                       | Guarantor's Accounting and Disclosure Requirements for  Guarantees, Including Indirect Guarantees of Indebtedness to Others                                                                                                  |
| FIN 46                       | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51                                                                                                                      |
| FIN 46R                      | Consolidation of Variable Interest Entities - an  Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)                                                                                              |
| FSP SFAS No. 109-1           | FASB Staff Position Application of SFAS No. 109 to the  Tax Deduction on Qualified Production Activities provided by the American  Jobs Creation Act of 2004                                                                 |
| FSP SFAS No. 109-2           | FASB Staff Position Accounting and Disclosure Guidance  for the Foreign Earnings Repatriation Provision within the American Jobs  Creation Act of 2004                                                                       |
| FSP SFAS No. 106-1           | FASB Staff Position Accounting and Disclosure  Requirements Related to the Medicare Prescription Drug, Improvement and  Modernization Act of 2003                                                                            |

3

----

| Abbreviation or  Acronym | Definition                                                                                                                                                              |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| FSP SFAS No. 106-2       | FASB Staff Position Accounting and Disclosure  Requirements Related to the Medicare Prescription Drug, Improvement and  Modernization Act of 2003                       |
| Generation Services      | Cleco Generation Services LLC, a wholly owned subsidiary  of Midstream                                                                                                  |
| IRP                      | Integrated Resource Planning                                                                                                                                            |
| KBC                      | KBC Bank N.V.                                                                                                                                                           |
| kWh                      | Kilowatt-hour(s) as applicable                                                                                                                                          |
| LDEQ                     | Louisiana Department of Environmental Quality                                                                                                                           |
| LIBOR                    | London Inter-Bank Offer Rate                                                                                                                                            |
| Lignite Mining Agreement | Dolet Hills Mine Lignite Mining Agreement, dated as of  May 31, 2001                                                                                                    |
| LPSC                     | Louisiana Public Service Commission                                                                                                                                     |
| LTICP                    | Cleco Corporation Long-Term Incentive Compensation Plan                                                                                                                 |
| LTP                      | Long-term program parts, shop repairs, and scheduled  outage services contract, dated September 2, 1999, between Evangeline and  Siemens Westinghouse Power Corporation |
| MAEM                     | Mirant Americas Energy  Marketing, LP                                                                                                                                   |  
MAI

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

 
Marketing & Trading

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

 
Midstream

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

 
Mirant

Mirant Corporation

 
Mirant Debtors

Mirant, MAEM, MAI, and certain other Mirant subsidiaries

 
Mirant Debtors Bankruptcy Court

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

 
MMBtu

Million British thermal units

 
Modified LTP Agreement

Long-term program contract, dated December 23, 2003,  between Evangeline and Siemens Westinghouse Power Corporation

 
MW

Megawatt(s) as applicable

 
MWh

Megawatt-hour(s) as applicable

 
Not meaningful

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

 
NOx

Nitrogen oxides

 
NSR

New Source Review

 
PEH

Perryville Energy Holdings LLC, a wholly owned subsidiary  of Midstream

 
Perryville

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

 
Perryville and PEH Bankruptcy Court

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

 
Perryville Tolling Agreement

Capacity Sale and Tolling Agreement between Perryville  and MAEM

 
PJM

Pennsylvania - New Jersey - Maryland interconnection

 
Power Purchase Agreement

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

 
PRP

Potentially responsible party

 
PUHCA

Public Utility Holding Company Act of 1935

 
PURPA

Public Utility Regulatory Policies Act of 1978

 
Registrant(s)

Cleco Corporation and Cleco Power

 
RFP

Request for Proposal

 
RTO

Regional Transmission Organization

 
Sale Agreement

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

 
SEC

Securities and Exchange Commission

 
Senior Loan Agreement

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

 
SERP

Cleco Corporation Supplemental Executive Retirement Plan

 
SESCO

San Angelo Electric Service Company

 
SFAS

Statement of Financial Accounting Standards

 
SFAS No. 13

Accounting for Leases

 
SFAS No. 29

Determining Contingent Rentals

 
SFAS No. 58

Capitalization of Interest Cost in Financial Statements  That Include Investments Accounted for by the Equity Method

 
SFAS No. 71

Accounting for the Effects of Certain Types of Regulation

 
SFAS No. 87

Employers' Accounting for Pensions

 
SFAS No. 94

Consolidation of All Majority Owned Subsidiaries

 
SFAS No. 95

Statement of Cash Flows

 
SFAS No. 106

Employers' Accounting for Postretirement Benefits Other  Than Pensions

 
SFAS No. 109

Accounting for Income Taxes

 
SFAS No. 123

Accounting for Stock-Based Compensation

 
SFAS No. 123(R)

Share-Based Payment

 
SFAS No. 128

Earnings per Share (revised 2004)

 
SFAS No. 131

Disclosures about Segments of an Enterprise and  Related Information

 
SFAS No. 132

Employers' Disclosures about Pensions and Other  Postretirement Benefits (revised 2003)

 
SFAS No. 133

Accounting for Derivative Instruments and Hedging  Activities

 
SFAS No. 143

Accounting for Asset Retirement Obligations

 
4

    Abbreviation or  Acronym

    Definition

 
SFAS No. 144

Accounting for the Impairment or Disposal of  Long-Lived Assets

 
SFAS No. 149

Amendment of Statement 133 on Derivative  Instruments and Hedging Activities

 
SFAS No. 151

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

 
SFAS No. 152

Accounting for Real Estate Time-Sharing Transactions - an  amendment of FASB Statements No. 66 and 67

 
SFAS No. 153

Exchanges of Nonmonetary Assets - an amendment of APB  Opinion No. 29

 
SOP 90-7

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

 
SPP

Southwest Power Pool

 
SO2

Sulfur dioxide

 
Subordinated Loan Agreement

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

 
SWEPCO

Southwestern Electric Power Company

 
Support Group

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

 
Teche

Teche Electric Cooperative, Inc.

 
Tolling Agreements

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

 
Utility Group

Cleco Utility Group Inc. (predecessor to Cleco Power)

 
VAR

Value-at-risk

 
Westar

Westar Energy, Inc., a Kansas corporation

 
Williams

Williams Power Company, Inc.

 
5
****
DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS

This report includes "forward-looking statements"about future events, circumstances, and results.  All statements other thanstatements of historical fact included in this report are forward-lookingstatements.  Although the Registrants believe that the expectations reflectedin such forward-looking statements are reasonable, such forward-lookingstatements are based on numerous assumptions (some of which may prove to beincorrect) and are subject to risks and uncertainties that could cause theactual results to differ materially from the Registrants' expectations.  Inaddition to any assumptions and other factors referred to specifically inconnection with theseforward-looking statements, the following list identifies some of the factorsthat could cause the Registrants' actual results to differ materially fromthose contemplated in any of the Registrants' forward-looking statements:
-  Factorsaffecting utility operations, such as unusual weather conditions or othernatural phenomena; catastrophic weather-related damage; unscheduled generationoutages; unusual maintenance or repairs; unanticipated changes to fuel costs,cost of and reliance on natural gas as a component of Cleco's generation fuelmix and their impact on competition and franchises, fuel supply costs oravailability constraints due to higher demand, shortages, transportationproblems or other developments; environmental incidents; or power transmissionsystem constraints;
-  Completingthe pending sale of the Perryville facility;
-  Outcomeof the bankruptcy process of Perryville and PEH;
-  Resolutionof damage claims asserted against the Mirant Debtors in their bankruptcyproceedings as a result of the rejection of the Perryville Tolling Agreement;
-  Nonperformanceby and creditworthiness of counterparties under tolling, power purchase, andenergy service agreements, or the restructuring of those agreements, includingpossible termination;
-  Actionby Calpine or its affiliates with respect to the Calpine Tolling Agreements,including, without limitation, reduction of payments under the Calpine TollingAgreements, unwinding of Calpine's interest in Acadia, termination of theCalpine Tolling Agreements or litigation against Cleco, resulting from CES'sdispute with Acadia under the Calpine Tolling Agreements;
-  Increasedcompetition in power markets, including effects of industry restructuring orderegulation, transmission system operation or administration, transmissionreliability standards, retail wheeling, wholesale competition, retailcompetition, or cogeneration;  Regulatoryfactors such as unanticipated changes in rate-setting policies, recovery ofinvestments made under traditional regulation, the frequency and timing of rateincreases, the results of periodic fuel audits, the results of the RFP and IRPprocesses, the formation of RTOs and the implementation of Standard MarketDesign (which is intended to enhance wholesale energy competition);
-  Cleco'sability to develop and execute on a point of view regarding prices ofelectricity, natural gas, and other energy-related commodities;
-  Financialor regulatory accounting principles or policies imposed by the FASB, the SEC,the Public Company Accounting Oversight Board, the FERC, the LPSC or similarentities with regulatory or accounting oversight;
-  Economicconditions, including inflation rates and monetary fluctuations, and relatedgrowth in Cleco's service area;
-  Creditratings of Cleco Corporation, Cleco Power, and Evangeline;
-  Changingmarket conditions and a variety of other factors associated with physicalenergy, financial transactions, and energy service activities, including, butnot limited to, price, basis, credit, liquidity, volatility, capacity,transmission, interest rates, and warranty risks;
-  Actsof terrorism;
-  Availabilityor cost of capital resulting from changes in Cleco's business or financialcondition, interest rates, and securities ratings or market perceptions of theelectric utility industry and energy-related industries;
-  Employeework force factors, including work stoppages and changes in key executives;
-  Legal,environmental, and regulatory delays and other obstacles associated withmergers, acquisitions, capital projects, reorganizations, or investments injoint ventures;
-  Costsand other effects of legal and administrative proceedings, settlements,investigations, claims and other matters; and"
-  Changesin federal, state, or local legislative requirements, such as changes in taxlaws or rates, regulating policies or environmental laws and regulations. 

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

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

6

PARTI

**ITEM 1.**    BUSINESS

**GENERAL**

Cleco Corporation was incorporated on October 30,1998, under the laws of the State of Louisiana.  Cleco Corporation holdsinvestments in several subsidiaries, including Cleco Power and Midstream, whichare its operating businesssegments.  Cleco Corporation, subject to certain limited exceptions, is exemptfrom regulation as a public utility holding company pursuant to Section 3(a)(1)of PUHCA.

Cleco Power's predecessor was incorporated on January 2,1935, under the laws of the State of Louisiana.  Cleco Power was organized onDecember 12, 2000.  Cleco Power is an electric utility regulated by the LPSCand the FERC, among other regulators, which determine the rates Cleco Power cancharge its customers.  Cleco Power serves approximately 265,000 customers in 103communities in central and southeastern Louisiana.  Cleco Power's operationsare described below in the consolidated description of Cleco's businesssegments.

Midstream, organized on September 4, 1998, underthe laws of the State of Louisiana, is a merchant energy subsidiary that ownsand operates merchant generation stations and invests in joint ventures thatown and operate merchant generation stations.  On January 28, 2004, Perryvilleentered into an agreement to sell its 718-MW power plant to Entergy Louisiana. As part of the sales process, Perryville and PEH filed voluntary petitions inthe Perryville and PEH Bankruptcy Court for protection under Chapter 11 of theU.S. Bankruptcy Code.  Perryville and PEH are debtors and debtors inpossession, and are continuing to operate their business under the U.S.Bankruptcy Code.  For additional information on the bankruptcy filings and thepending sale of the Perryville facility, see Part II, Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 26- Perryville."  In June 2004, management decided to sell substantially all ofthe assets of Cleco Energy and discontinue Cleco Energy's natural gasmarketing, pipeline, and production operations after the sale.  On September15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties, and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  For additional information on the discontinuedoperations and sale of Cleco Energy'sassets, see Part II, Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

At December 31, 2004, Cleco employed 1,165 people. Cleco's mailing address is P.O. Box 5000, Pineville, Louisiana 71361-5000, andits telephone number is (318) 484-7400.  Cleco's homepage on the Internetis located at http://www.cleco.com.  Cleco Corporation's and Cleco Power'sAnnual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports onForm 8-K and other filings with the SEC are available, free of charge, throughCleco's website after those reports or filings are electronically filed with orfurnished to the SEC.  Cleco's corporate governance guidelines, code ofbusiness conduct and ethics and the charters of its board of directors' audit,compensation, executive, nominating/governance and qualified legal compliancecommittees are available on its website and available in print to anyshareholder upon request.  Cleco's filings also can be obtained at the SEC'sPublic Reference Room at 450 Fifth Street NW, Washington, DC 20549.  Informationon the operation of the Public Reference Room may be obtained by calling theSEC at 1-800-SEC-0330.  Cleco's electronically filed reports also can beobtained on the SEC's Internet site located at http://www.sec.gov.  Informationon Cleco's website or any other website is not incorporated by reference intothis Report and does not constitute a part of this Report.

At December 31, 2004, Cleco Power employed 843 people. Cleco Power's mailing address is P.O. Box 5000, Pineville, Louisiana,71361-5000, and its telephone number is (318) 484-7400.

Cleco Power meets the conditions specified inGeneral Instructions I(1)(a) and (b) to Form 10-K and therefore is permitted touse the reduced disclosure format for wholly owned subsidiaries of reportingcompanies.  Accordingly, Cleco Power has omitted from this Report theinformation called for by Item 4 (Submission of Matters to a Vote of SecurityHolders) of Part I of Form 10-K, the following Part II items of Form 10-K:  Item6 (Selected Financial Data) and Item 7 (Management's Discussion and Analysis ofFinancial Condition and Results of Operations); and the following Part IIIitems of Form 10-K:  Item 10 (Directors and Executive Officers), Item 11 (ExecutiveCompensation), Item 12 (Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters), and Item 13 (Certain Relationshipsand Related Transactions).

7
****
**OPERATIONS**

**Cleco Power**

**Segment Financial Information**

Financial results of the Cleco Power segment foryears 2004, 2003, and 2002 are presented below. 

(THOUSANDS)

**                   2004**

                   2003

                   2002

Revenue

** **

     Electric operations

**$     718,151**

   $      676,002

   $      568,102

     Energy trading, net

**                3**

                   626

                  (752)

     Other operations

**       30,162**

             30,013

             29,331

     Electric customer credits

**     (20,889)**

              (1,562)

              (2,900)

     Affiliate revenue

**              22**

                         -

                         -

     Intercompany revenue

**         1,860**

                2,209

                1,708

Operating revenue, net

**$     729,309**

   $      707,288

   $      595,489

Depreciation expense

**$       56,731**

   $        54,084

   $        52,233

Interest charges

**$       28,445**

   $        28,774

   $        29,091

Interest income

**$         3,561**

   $          1,335

   $             933

Federal and state income taxes

**$       27,691**

   $        29,846

   $        32,172

Segment profit 

**$       52,202**

   $        57,008

   $        59,574

Additions to long-lived assets    

**$       78,700**

   $        68,507

   $        87,321

Segment assets

**$  1,425,388**

   $   1,378,916

   $   1,338,445

**Certain Factors Affecting Cleco Power**

As an electric utility, Cleco Power is affected,to varying degrees, by a number of factors influencing the electric utilityindustry in general.  These factors include, among others, an increasinglycompetitive business environment, the cost of compliance with environmental regulations,and changes in the federal and state regulation of generation, transmission,and the sale of electricity.  For a discussion of various regulatory changesand competitive forces affecting Cleco Power and other electric utilities, see"- Regulatory Matters, Industry Developments, and Franchises - Franchises" andPart II, Item 7, "Management's Discussion and Analysis of Financial Conditionand Results of Operations - Financial Condition - Market Restructuring."  For adiscussion of significant factors affecting Cleco Power's financial conditionand results of operations, see Part II, Item 7, "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Results of Operations - ClecoPower - Significant Factors Affecting Cleco Power."

**Power Generation**

Cleco Power operates and either owns or has anownership interest in three steam electric generating stations and one gasturbine.  As of December 31, 2004, Cleco Power'saggregate net electric generating capacity was 1,359 MW.  The following tablesets forth certain information with respect to Cleco Power's generatingfacilities: 

GENERATING STATION

   GENERATING 

               UNIT #

         YEAR OF              INITIAL     OPERATION

          NET    CAPACITY        (MW)

          TYPE    OF FUEL

                    USED FOR

          GENERATION(1)

Franklin Gas Turbine

                         

            1973

              7

                          gas

Teche Power Station

                   1

            1953

            23

                          gas

                   2

            1956

           48

                          gas

                   3

            1971

         359

gas/oil (standby)

Rodemacher Power Station

                   1

            1975

         440

gas/oil (standby)

                   2

            1982

        157(2)

                 coal/gas

Dolet Hills Power Station

                   1

            1986

        325(3)

                     lignite

     Total generating capability

     1,359

(1)  When oilis used on a standby basis, capacity may be reduced.

(2)  RepresentsCleco Power's 30% ownership interest in the capacity of Rodemacher Unit 2, a523-MW generating unit.

(3)  RepresentsCleco Power's 50% ownership interest in the capacity of Dolet Hills Unit 1, a650-MW generating unit.

Thefollowing table sets forth the amounts of power generated by Cleco Power forthe years indicated.

PERIOD

      THOUSAND              MWh

               PERCENT OF TOTAL                ENERGY  REQUIREMENTS

2004

**     4,820**

**                       46.3**

2003

           5,044

                                    49.6

2002

           5,405

                                    54.6

2001

           5,536

                                    59.7

2000

           6,254

                                    65.8

**Fuel and Purchased Power**

Changes infuel and purchased power expenses reflect fluctuations in types and pricing of fuelused for electric generation, fuel handling costs, availability of economicalpower for purchase, and deferral of expenses for recovery from customers throughthe fuel adjustment clause in subsequent months.

Thefollowing table sets forth the percentages of power generated from variousfuels at Cleco Power's electric generating plants, the cost of fuel used per MWhattributable to each such fuel, and the weighted average fuel cost per MWh.

                   LIGNITE

                  COAL  

                         GAS

                 FUEL OIL

                 WEIGHTED

YEAR

      COST PER MWh

            PERCENT OF            GENERATION

      COST PER MWh

         PERCENT OF        GENERATION

      COST PER MWh

         PERCENT OF            GENERATION

      COST PER MWh

            PERCENT OF            GENERATION

                   AVERAGE        COST PER MWh

**2004**

**        $        17.19**

**           48.5**

**        $      17.45**

**           19.8**

**        $      72.33**

**           30.3**

**        $      72.13**

**             1.4**

**        $         34.76**

2003

     $        16.72

                   47.1

$      16.25

                   17.3

$      60.79

                   34.8

$      71.78

                     0.8

            $         32.42

2002

$        16.25

                   43.1

$      14.82

                   16.6

$      38.94

                   40.3

$      58.99

                          *

            $         25.17

2001

$        17.35

                   40.9

$      15.19

                   14.4

$      51.70

                   42.9

$      57.76

                     1.8

            $         32.50

2000

$        15.56

                   37.0

$      15.07

                   16.8

$      46.78

                   45.7

$      43.18

                     0.5

             $         29.88

*    Less than 1/10  of one percent

8
******
*Power Purchases*

When the marketprice of power is more economical than self-generation of power or when ClecoPower needs power to supplement its own electric generation, and when transmissioncapacity is available, Cleco Power purchases power from energy marketingcompanies or neighboring utilities.  These purchases are made from thewholesale power market in the form of generation capacity and/or energy.  Portionsof Cleco Power's capacity and power purchases through 2004 were made at fixedprices, and the remainder made approximately at prevailing market prices.

The following table sets forth the average costand amounts of power purchased by Cleco Power on the wholesale market.

PERIOD

                 COST

       PER MWh

      THOUSAND              MWh

               PERCENT OF TOTAL        ENERGY REQUIREMENTS

**2004**

** $       42.36**

**     5,592**

**                        53.7**

2003

   $       37.81

           5,134

                                     50.4

2002

   $       27.52

           4,482

                                     45.4

2001

   $       29.56

           3,739

                                     40.3

2000

   $       35.19

           3,255

                                     34.2

During 2004, 53.7% of Cleco Power'senergy requirements were met with purchased power, up from 50.4% in 2003.  Theprimary factors causing the increase in power purchases in 2004 as compared to2003 were the lower price of purchased power compared to the incremental costof Cleco Power's generation of power, higher customer demand, and additional powerrequirements to fulfill energy management services contracts that commenced inMay 2003.  For information on Cleco Power'sability to pass on to its customers substantially all of its fuel and purchasedpower expenses, see "- Regulatory Matters, Industry Developments, and Franchises- Rates."

During 2004, ClecoPower obtained approximately 35% of its annual capacity from powercontracts with Williams and Dynegy.  Thesecontracts expired on December 31, 2004 except for 100 MW of capacity thatexpires in December 2005 under the contract with Williams.  In addition,Cleco's wholesale contract to purchase 81 MW of capacity from the City of Rustonexpired in May 2004.  In May 2004, Cleco Power signed a one-year contract topurchase 500 MW of capacity from CES starting in January 2005.  The contractwas approved and certified by the LPSC in November 2004.  This CES short-termpower contract will be primarily sourced from Acadia, which islocated in Cleco Power's control area, and is expected to minimize transmissionrisk.  Cleco Power also has a long-termcontract under which it purchases 20 MW of power from the Sabine RiverAuthority, which operates a hydroelectric generating plant.  In addition, ClecoPower has a wholesale power contract with the City of Natchitoches for 54 MW ofcapacity that expires in December 2009.

Management expects to meet its native load demand in2005 with Cleco Power's own generation capacity and the contracts with Williamsand CES.  Beyond 2005, Cleco Power continues to evaluate longer term capacityrequirements through its IRP team (as discussed below) and a long-term RFPissued in August 2004.  A one-year alternate solicitation for up to 645 MW tomeet 2006 requirements was issued in January 2005.  The bids from thissolicitation will be assessed both as separate alternatives to the long-termRFP and in combination with the RFP.  Cleco Power expects the evaluation andselection timeline for the 2006 solicitation to parallel that of the 2004 RFP.

During 2003, Cleco Power created an IRP team toevaluate generation supply options.  IRP is a process to evaluate resources inorder to provide reliable and flexible generation services to electriccustomers at the lowest reasonable cost.  A full range of options is beinganalyzed including power purchases, fuel conversion, repowering projects, assetacquisitions, additional transmission infrastructure, cogeneration, plantretirements, and mothballing of existing assets.  The process considersoperational and economical features, such as construction, operating and fuelcosts, fuel diversity, reliability, ease of dispatch, environmental impact, andother factors of risk.  The IRP team has developed a framework for evaluatingproposed options to optimize service for Cleco's customers' needs and reduceand stabilize their fuel cost without sacrificing reliability.  Any viablegeneration alternative must then be validated through an LPSC-sanctioned solicitationRFP process.  For additional information on Cleco Power's RFPs, see Part II,Item 7, "Management's Discussion and Analysis of Financial Condition andResults of Operations - Results of Operations - Cleco Power - SignificantFactors Affecting Cleco Power - Fuel and purchased power are primarily affectedby the following factors."

Because of its location on the transmissiongrid, Cleco Power relies on one main supplier of electric transmission, and attimes, constraints limit the amount of purchased power it can deliver into and/orthrough its system.  The power contracts described above may be affected bythese transmission constraints.

*Natural Gas Supply*

During 2004,Cleco Power purchased a total of 17,271,000 MMBtu of natural gas for thegeneration of electricity.  The annual and average per-day quantities of gaspurchased by Cleco Power from each supplier are shown in the table below. 

NATURAL GAS SUPPLIER

                    2004          PURCHASES               (MMBtu)

          AVERAGE  AMOUNT          PURCHASED PER DAY                             (MMBtu)

               PERCENT

              OF  TOTAL

              GAS  USED

Crosstex LIG

** 5,482,000**

                         15,000

                    31.7

BP Energy

** 2,479,000**

                           6,800

                    14.4

Cinergy Marketing & Trading

** 2,249,000**

                           6,200

                    13.0

Occidental Energy Marketing

** 1,581,000**

                           4,300

                      9.2

Chevron Texaco

** 1,552,000**

                           4,200

                      9.0

Others

** 3,928,000**

                         10,800

                    22.7

     Total

**   17,271,000**

                         47,300

                 100.0

ClecoPower owns the natural gas pipelines and interconnections at its Rodemacher andTeche power stations.  This allows it to access various natural gas supplymarkets, which helps to maintain a more economical fuel supply for ClecoPower's customers.

Natural gaswas available without interruption throughout 2004.  Cleco Power expects tocontinue to meet its natural gas 

9
****
requirements with purchases on the spot marketthrough daily, monthly, and seasonal contracts with various natural gas suppliers. However, future supplies to Cleco Power remain vulnerable to disruptions due to weather events and transportation delays.  Largeindustrial users of natural gas, including electric utilities, generally havelow priority among gas users in the event pipeline suppliers are forced tocurtail deliveries due to inadequate supplies.  As a result, prices mayincrease rapidly in response to temporary supply interruptions.  Currently,Cleco Power anticipates that its diverse supply options and alternative fuelcapability, combined with its solid-fuel generation resources, are adequate tomeet its fuel needs during any temporary interruption of natural gas supplies.

*Coal and Lignite Supply*

Cleco Poweruses coal for generation at Rodemacher Unit 2.  The majority of the coal forRodemacher Unit 2 is purchased from mines in Wyoming from Kennecott EnergyCompany (Kennecott).  In July 2004, Cleco Power entered into a new two-yearagreement with Kennecott that established fixed pricing through December 31,2006, for the majority of Cleco Power's coal needs.  Cleco Power will purchase additionalcoal from other suppliers in 2005.  Coal is transported to Rodemacher Unit 2under a long-term contract which expires in December 2005.  Terms fortransporting coal beyond 2005 are currently under negotiation.  Cleco Powerleases railcars to transport its coal under two long-term leases.  One of therailcar leases expires in March 2017 and the other expires in March 2021.

Cleco Poweruses lignite for generation at the Dolet Hills power station.  Substantiallyall of the lignite used to fuel Dolet Hills is obtained under two long-termagreements.  Cleco Power and SWEPCO, each a 50% owner of Dolet Hills, haveacquired an undivided 50% interest in the other's leased and owned lignitereserves in northwestern Louisiana.  In May 2001, Cleco Power and SWEPCOentered into a long-term agreement with annual renewals through 2011 with DoletHills Lignite Company, LLC (DHLC), a wholly owned subsidiary of SWEPCO, for themining and delivery of such lignite reserves.  These reserves are expected toprovide a substantial portion of the Dolet Hills' unit's fuel requirementsthroughout the life of the contract with DHLC.

Additionally,Cleco Power and SWEPCO have entered into an agreement which expires in 2011with Red River Mining Company to purchase lignite.  Cleco Power's minimumannual purchase requirement of lignite under this agreement is 550,000 tons.  Thelignite price under the contract is a base price per MMBtu, subject toescalation, plus certain "pass-through" costs.  DHLC provides all of thelignite in excess of the 550,000 tons base commitment.  Generally, thelignite price under the DHLC mining agreement equals the cost of production(subject to certain adjustments).  For information regarding deferred miningcosts and obligations associated with the DHLC mining agreement see, Part II,Item 8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 3 - Regulatory Assets and Liabilities - Deferred Mining Costs"and Note 16 - "Litigation and Other Commitments and Contingencies - Off-BalanceSheet Commitments."

Thecontinuous supply of coal and lignite may be subject to interruption due toadverse weather conditions or other factors that may disrupt mining operationsor transportation.  At December 31, 2004, Cleco Power's coal inventory at RodemacherUnit 2 was approximately 177,000 tons (about an 81-day supply), and ClecoPower's lignite inventory at Dolet Hills was approximately 121,000 tons (abouta 20-day supply).

*Oil Supply*

Cleco Powerstores fuel oil as an alternative fuel source at Rodemacher and Teche powerstations.  The Rodemacher power station has storage capacity for an approximate95-day supply and the Teche power station has storage capacity for anapproximate 28-day supply.  However, in accordance with Cleco Power's currentfuel oil inventory practices, Cleco Power had approximately a 70-day totalsupply of fuel oil stored at these generating stations at December 31, 2004.  During2004, approximately 4.9 million gallons of fuel oil were burned, producing 69,000MWh of energy. 

**Sales**

Cleco Power isa public utility engaged principally in the generation, transmission,distribution, and sale of electricity within Louisiana.  For furtherinformation regarding Cleco Power's generating stations and its transmissionand distribution facilities, see "- Power Generation" above and Item 2,"Properties - Cleco Power."

ClecoPower's 2004 and 2003 system peak demand both occurred in August and were 1,940MW and 1,990 MW, respectively.  Sales and system peak demand are affected byweather and are highest during the summer air-conditioning and winter heatingseasons.  In 2004, Cleco Power experienced relatively normal summer and winterweather patterns.  For additional information on the effects of weather on demand,see Part II, Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Results of Operations - Cleco Power -Significant Factors Affecting Cleco Power - Revenue is primarily affected bythe following factors."  For information on the financial effects of seasonaldemand on Cleco Power's quarterly operating results, see Part II, Item 8,"Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 28 - Miscellaneous Financial Information (Unaudited)."

In 2004, ClecoPower met the capacity margin requirements of 12% established by the SPP.  Capacitymargin is the net capacity resources (either owned or purchased) less nativeload demand divided by net capacity resources.  Each year, members of the SPPsubmit forecasted native load demand and the forecasted mix of net capacityresources to meet this demand.  If capacity margin requirements are not met,the SPP can require that more capacity be supplied in subsequent years.  ClecoPower's actual capacity margin for 2004 was 19.9%, while in 2003 it was 17.1%. Cleco Power anticipates a 13.1% capacity margin for 2005 with expectations thatits power purchase contracts with Williams and CES

10
****
 will allow it to meetcapacity reserve margin requirements in 2005.  For additional information onCleco Power's power contracts and its evaluation of other supply options, seePart II, Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Financial Condition - Generation RFP."

**Energy Trading**

For informationon energy trading and the decision to discontinue speculative tradingactivities within Cleco Power, see Part II, Item 7, "Management's Discussionand Analysis of Financial Condition and Results of Operations - Results of Operations - ClecoPower" and Item 7A, "Quantitative and Qualitative Disclosures About Market Risk- Cleco Power."

Foradditional information on Cleco Power's operations, see Part II, Item 7,"Management's Discussion and Analysis of Financial Condition and Results ofOperations - Results of Operations - Cleco Power's Results of Operations - Yearended December 31, 2004, Compared to Year ended December 31, 2003," and "-Financial Condition - Cash Generation and Cash Requirements - Cleco PowerConstruction."

**Midstream**

Financialresults of the Midstream segment for years 2004, 2003, and 2002 are presentedbelow. 

(THOUSANDS)

**              2004**

              2003

              2002

Revenue

** **

     Tolling operations

**$      10,255**

   $      98,726

   $     90,260

     Energy trading, net

**             -**

         (2,844)

           2,345

     Energy operations

**          53**

              556

           1,436

     Other operations

**          62**

              691

           4,652

     Affiliate revenue

**     4,474**

                    -

                    -

     Intercompany revenue

**        285**

              168

              257

Operating revenue, net

**$      15,129**

   $      97,297

   $     98,950

Depreciation expense

**$        2,197**

   $      21,168

   $     14,545

Impairments of long-lived assets

**$               -**

   $    147,993

   $               -

Interest charges

**$      17,764**

   $      38,753

   $     31,212

Interest income

**$             49**

   $           624

   $          440

Equity income from investees

**$      47,538**

   $      31,649

   $     16,204

Federal and state income tax expense (benefit)

**$      12,022**

   $   (49,250)

   $     10,161

Segment profit (loss) from continuing operations,  net

**$      17,829**

   $   (80,152)

   $     23,158

Income (loss) from discontinued operations,including gain on disposal, net of tax

**$             70**

   $     (5,161)

   $    (8,498)

Segment profit (loss) 

**$      17,899**

   $   (85,313)

   $     14,660

(Adjustments of) additions to long-lived assets

**$        (142)**

   $        4,843

   $     98,064

Segment assets

**$    328,512**

   $    790,660

   $   978,947

As ofDecember 31, 2004, Midstream wholly and directly owned seven limited liabilitycompanies that operated mainly in Louisiana and Texas:
-  Evangeline,which owns and operates a 775-MW combined-cycle natural gas-fired power plant. 
-  APH, which owns 50% of Acadia, a 1,160-MWcombined-cycle natural gas-fired power plant.
-  PEH, which owns 100% of Perryville, a 718-MWnatural gas-fired power plant consisting of a 156-MW simple-cycle unit and a562-MW combined-cycle unit.  For additional information on the pending sale of Perryville,see Part II, Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 26 - Perryville."
-  Generation Services, which offers power stationoperations and maintenance services.  Its main customers are Evangeline and Perryville. 
-  CLE Intrastate, which owns a natural gasinterconnection that allows Evangeline to access the natural gas supply market. 
-  Marketing & Trading, which provided energymanagement services prior to May 2003.
-  Cleco Energy, which managednatural gas pipelines, natural gas production, and natural gas procurement inTexas and Louisiana prior to the sale of substantially all of its assets in2004.  For additional information on the sale of Cleco Energy's assets,see Part II, Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 17 - Discontinued Operations and Dispositions." 

Thefollowing table sets forth certain information with respect to Midstream'soperating generating facilities.

GENERATING STATION

GENERATING

         UNIT #

COMMENCEMENT OF

           COMMERCIAL

               OPERATION

                NET    CAPACITY           (MW)

   TYPE OF FUEL

        USED FOR          GENERATION

Evangeline

                6

                      2000

            264

                 gas

                7

                      2000

            511

                 gas

Perryville

                1

                      2002

            562(1)

                 gas

                2

                      2001

            156(1)

                 gas

Acadia

                1

                      2002

            290(2)

                 gas

                2

                      2002

            290(2)

                 gas

     Total generating capability

        2,073

(1)      Committed to be sold.

(2)      Represents APH's 50% ownership  interest in the capacity of Acadia.

Midstreamcompetes against regional and national companies that own and operate merchant power stations.  Priorto the sale of Cleco Energy's assets, Cleco Energy competed against regionalgas transportation and gas marketing companies.  Prior to May 2003, Marketing& Trading competed against regional energy management and marketing companies.

Evangeline'scapacity is dedicated to one customer, Williams, which is the counterparty tothe Evangeline Tolling Agreement.  Acadia's capacity also is dedicated to onecustomer, CES, which is the counterparty to the Calpine Tolling Agreements.  Priorto a restructuring of the tolling arrangement at Acadia that occurred in May2003, Acadia's capacity was dedicated to CES and Aquila Energy.  Each tollingagreement gives the tolling counterparty the right to own, dispatch andmarket all of the electric generation capacity of the respective facility.  TheCalpine Tolling Agreements expire in 2022, and the Evangeline Tolling Agreementexpires in 2020.  Under each tolling agreement, the tolling counterparty isresponsible for providing its own natural gas to the facility and paysEvangeline and Acadia a fixed fee and a variable fee for operating andmaintaining the facility.  For information

11
****
concerning an ongoing dispute with CES under the Calpine Tolling Agreements, see Part II, Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 16 - Litigation and Other Commitmentsand Contingencies - CES."

Prior to September 15, 2003, Perryville'scapacity was dedicated to one customer, MAEM, which was the counterparty to thePerryville Tolling Agreement.  However, on August 29, 2003, in connection withMirant's Chapter 11 bankruptcy filing, MAEM rejected the Perryville TollingAgreement effective September 15, 2003, and no longer has rights and obligationsunder the agreement.  Perryville has asserted damage claims in the bankruptcyprocess against the Mirant Debtors as a result of the rejection of thePerryville Tolling Agreement.  On January 28, 2004, Perryville entered into anagreement to sell its 718-MW power plant to Entergy Louisiana and entered intoa power purchase agreement with Entergy Services.  To facilitate an orderlysales process, Perryville and PEH filed voluntary petitions in the BankruptcyCourt for protection under Chapter 11 of the U.S. Bankruptcy Code.  Foradditional information on the above tolling agreements and related transactions,risks and uncertainties, see Part II, Item 7, "Management's Discussion andAnalysis of Financial Condition and Results of Operations - Results of Operations- Midstream - Significant Factors Affecting Midstream - Revenue is primarilyaffected by the following factors," and "- Financial Condition - Liquidity andCapital Resources - General Considerations and Credit-Related Risks."  Foradditional information on the rejection of the Perryville Tolling Agreement,the pending sale of Perryville and the related bankruptcy, see Part II, Item 8,"Financial Statements and Supplementary Data - Notes to the Financial Statements- Note 26 - Perryville."

Prior to thesale of Cleco Energy's assets, Cleco Energy's revenue was driven primarily bynatural gas throughput on its pipelines and the demand for natural gas, whichin turn was influenced by the weather and the number of power stations,industrial plants, and commercial and residential customers who used naturalgas within its region.

CLEIntrastate's revenue is generated primarily from a monthly reservation fee paidby Evangeline for access to the Columbia Gulf interconnect and from a transportationfee that varies depending on the amount of gas transported through theinterconnect for use by Evangeline.

Prior to May2003, Marketing & Trading primarily provided energy management services toseveral municipalities and, prior to the fourth quarter of 2002, marketed andtraded wholesale natural gas and power.  In 2002, Cleco assessed itsspeculative trading strategy and determined, in light of market conditions andother factors, that Marketing & Trading would discontinue speculativetrading activities.  As of September 4, 2003, Marketing & Trading hadclosed all forward trading positions.

At December31, 2004, Midstream and its subsidiaries employed 50 people: 46 withinGeneration Services, three at Midstream, and one at Cleco Energy.

For additionalinformation on Midstream's operations, see Part II, Item 7, "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -Results of Operations - Midstream," and "- Financial Condition - CashGeneration and Cash Requirements - Midstream Construction and Investment inSubsidiaries."

**DiscontinuedOperations and Dispositions**

In June 2004,management decided to sell substantially all of Cleco Energy's assets and discontinue Cleco Energy'snatural gas marketing, pipeline, and production operations after the sale.  OnSeptember 15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  For additional information on the discontinuedoperations and sale of Cleco Energy's assets, see Part II, Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 17- Discontinued Operations and Dispositions."

**REGULATORY MATTERS, INDUSTRY DEVELOPMENTS,AND FRANCHISES**

**Rates**

Cleco Power'selectric operations are subject to the jurisdiction of the LPSC with respect toretail rates, standards of service, accounting and other matters.  Cleco Poweralso is subject to the jurisdiction of the FERC with respect to rates forwholesale service, interconnectionswith other utilities, and the transmission of power.  Periodically, Cleco Powerhas sought and received from both the LPSC and the FERC increases in base ratesto cover increases in operating costs and costs associated with additions togeneration, transmission, and distribution facilities.

ClecoPower's electric rates include a fuel and purchased power cost adjustmentclause that enables it to adjust rates for monthly fluctuations in the cost offuel and purchased power.  Revenuefrom certain off-system sales to other utilities and energy marketing companiesare passed on to customers through a reduction in fuel cost adjustment billingfactors.  Fuel costs and fuel adjustment billing factors are approved by theLPSC and the FERC.  In July 2004, Cleco Power reached a settlement with theLPSC on a periodic fuel audit covering 2001 and 2002.  For additionalinformation on this fuel audit and the related settlement, see Part II, Item8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 16 - Litigation and Other Commitments and Contingencies -Fuel Audit."

ClecoPower's current rate stabilization plan with the LPSC, which governs itsregulatory return on equity, expires in September 2005.  For additional information on Cleco Power's retail rates,including Cleco Power's rate stabilization plan, see Part II, Item 7,"Management's Discussion and Analysis of Financial Condition and Results ofOperations - Financial Condition - Retail Rates of Cleco Power."

12
****
**Franchises**

Cleco Power operates under nonexclusive franchiserights granted by governmental units, such as municipalities and parishes (counties),and enforced by state regulation.  These franchises are for fixed terms, whichmay vary from 10 years to 50 years or more.  In the past, Cleco Power has beensubstantially successful in the timely renewal of franchises as each reachedthe end of its term.

Cleco Power's franchise with the town ofFranklinton, and its approximately 1,850 customers, was up for renewal in April2003.  Franklinton elected not to renew its franchise agreement with ClecoPower, electing to take service from another provider.  As a result, a ten-yearfranchise was granted to a competing cooperative in December 2003.  Cleco Powerexpects to continue to serve these customers until there is an equitabletransfer of the distribution assets.  Cleco Power and the new provider couldnot agree on the valuation of the distribution assets, which created the needfor an independent assessment.  On February 23, 2005, the LPSC reviewed anindependent third party appraisal of these assets and, by vote, ordered thatthe distribution system's fair market value was $2.3 million.  Cleco Power isnow in the process of closing the sale and transferring service to the newprovider.  At December 31, 2004, a review for potential impairment of theseassets was performed.  Impairment charges were not recognized on these assetsbecause the expected sales price was above the carrying value.  Cleco Power'snext municipal franchise expires in 2008.

The LPSC is evaluating how franchise fees arebilled by utilities.  Cleco Power historically has included franchise fees inits cost of service in establishing base rates.  The LPSC has informally consideredwhether these franchise fees should be billed as separate line items only tothe municipal customers affected, rather than included in base rates. Management does not believe this billing issue will adversely affect ClecoPower.

A number of parishes have attempted in recent yearsto impose franchise fees on retail revenue earned within the unincorporatedareas Cleco Power serves.  If the parishes are ultimately successful, ClecoPower believes that the new franchise tax paid to the parishes would be passedon to the affected customers and would not increase tax expense, based on currentand proposed LPSC regulations.

Competing power cooperatives are activelyattempting to gain dual franchises in several municipalities.  A dual franchisearrangement would allow the existing and new power provider to compete for newcustomers; however, existing customers would have to remain with the current provider. These attempts have been unsuccessful to date.  The granting of a municipalfranchise to a competing electric utility would not reduce current Cleco Powerearnings, since existing customers would not have an option to change electricservice providers under existing LPSC regulations, but could reduce future customerand load growth.

**IndustryDevelopments**

For information on industry developments, see PartII, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition -Regulatory Matters - Market Restructuring."

**Wholesale Electric Competition**

For a discussion of wholesale electric competition,see Part II, Item 7, "Management's Discussion and Analysis of Financial Conditionand Results of Operations - Financial Condition - Wholesale Electric Markets."

**Retail Electric Competition**

For a discussion of retail electric competition,see Part II, Item 7, "Management's Discussion and Analysis of Financial Conditionand Results of Operations - Financial Condition - Market Restructuring - RetailElectric Markets."

**Legislative and Regulatory Changes and Matters**

Various federal and state legislative andregulatory bodies are considering a number of issues that could shape thefuture of the electric utility industry.  Such issues include, among others:
-  deregulationof retail electricity sales;
-  theability of electric utilities to recover stranded costs;
-  therepeal or modification of PUHCA;
-  therepeal or modification of PURPA;
-  the unbundling of vertically integrated electric utilitycompanies into separate business segments or companies (e.g., generation,transmission, distribution, and retail energy service);
-  therole of electric utilities, independent power producers and competitive biddingin the purchase, construction and operation of new generating capacity;
-  thepricing of transmission service on an electric utility's transmission system; 
-  FERC'sassessment of market power and utilities' ability to buy generation assets; 
-  mandatorytransmission reliability standards;
-  theauthority of the FERC to exercise power of eminent domain; 
-  increasingrequirements for renewable energy sources;
-  comprehensivemulti-emissions environmental legislation; and
-  theorganization of and participation in RTOs.

The Registrants are unable, at this time,to predict the outcome of such issues or effects on their financial position,results of operations, or cash flows.

For information on certain regulatory matters andregulatory accounting affecting Cleco, see Part II, Item 7, "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -Financial Condition - Regulatory Matters."

13
****
**ENVIRONMENTAL MATTERS**

***Environmental Quality***

Cleco is subject to federal, state, and local lawsand regulations governing the protection of the environment.  Violations ofthese laws and regulations may result in substantial fines and penalties.  Clecohas obtained all environmental permits necessary for its operations, andmanagement believes Cleco is in substantial compliance with these permits, aswell as all applicable environmental laws and regulations.  Environmental requirementscontinue to increase as a result of new legislation, administrative actions,and judicial interpretations.  Therefore, the precise future effects ofexisting and potential requirements are difficult to determine.  During 2004,Cleco's capital expenditures related to environmental compliance were $1.0million at Cleco Power and Evangeline.  Expenditures related to environmentalcompliance are estimated to total $2.0 million in 2005.  The following tablelists capital expenditures for environmental matters by subsidiary. 

SUBSIDIARY (THOUSANDS)

**              ENVIRONMENTALCAPITAL        EXPENDITURES FOR                                  2004**

                      PROJECTEDENVIRONMENTAL                          CAPITAL         EXPENDITURES FOR                          2005

Cleco Power

**           $      742**

                  $     1,273

Evangeline 

**                   266**

                            645

Acadia

**                        -**

                            130(1)

     Total

**           $   1,008**

                  $     2,048

(1)  Represents APH's 50% portion of Acadia

** **

*Air Quality*

The state of Louisiana regulates air emissionsfrom each of Cleco's generating units through the Air Quality regulations ofthe LDEQ.  In addition, the LDEQ implements certain programs initiallyestablished by the federal EPA.  The LDEQ establishes standards of performanceor requires permits for certain generating units in Louisiana.  All of Cleco'sgenerating units are subject to these requirements.

The federal Clean Air Act established aregulatory program to address the effects of acid rain and imposed restrictionson SO2 emissions from certain generating units.  The Clean Air Actrequires that certain generating stations, such as those owned by Cleco Powerand Midstream, must hold a regulatory "allowance" for each ton of SO2emittedbeginning in the year 2000.  The EPA is required to allocate a set number ofallowances to each affected unit based on its historic emissions.  As of December31, 2004, Cleco Power and Midstream had sufficient allowances for 2004 operationsand expect to have sufficient allowances for 2005 operations.

The Clean Air Act requires the EPA to revise NOxemission limits for existing coal-fired boilers.  In November 1996, the EPAfinalized rules lowering the NOx emission rate for certain boilers, includingRodemacher Unit 2 and Dolet Hills, which are partially owned by Cleco Power.  Underthis rule, Rodemacher Unit 2 and Dolet Hills would have had to meet this new emissionrate by January 1, 2000.  The rule also allowed an "early elect" option toachieve compliance with a less restrictive NOx limit beginning no later thanJanuary 1, 1997.  Cleco Power exercised this option in December 1996.  Earlyelection protects Cleco Power from any further reductions in the NOx permittedemission rate until 2008.  Rodemacher Unit 2 and Dolet Hills have been incompliance with the NOx early election limits since their inception and areexpected to continue to be in compliance in 2005 without undergoing significantcapital improvements.  Significant future reductions in NOx emission limits mayrequire modification of burners or other capital improvements at one or both ofthe units.

NOx emissions from the Evangeline, Perryville,and Acadia generating units fall well within EPA limits, as these units use acombination of natural gas as a fuel, modern turbine technology, and selectivecatalytic reduction technology that reduces NOx emissions to minimal levels.

In January 2004, the EPA issued proposed rulesregulating mercury emissions from electric utility boilers.  The proposed rulesoffer two possible approaches for the new regulations - a unit specific MaximumAchievable Control Technology (MACT) approach or a cap-and-trade program formercury emission reductions.  The regulations are expected to be finalized inMarch 2005 (subject to further extensions) and compliance requirements could berequired as early as December 2007.  Because the regulations have not beenfinalized, the impact to Cleco can not be determined at this time.

On December 17, 2003, the EPA proposed theInterstate Air Quality Rule, which obligates states to address the interstatetransport of pollutants.  The EPA has proposed to require certain upwindstates, including Louisiana, to revise their State Implementation Plans to reduceSO2 and NOx.  The first phase of emissions reductions would beimplemented by 2010, with the second phase by 2015.  A supplemental proposal renamedthis proposed rule, the Clean Air Interstate Rule (CAIR).  This supplementalnotice of proposed rulemaking contained further discussions on establishingstate level emission budgets, state reporting requirements and StateImplementation Plan approvability, proposed model cap-and-trade rules, and amore thorough discussion of how CAIR interacts with the existing Clean Air Act. The EPA intends to produce final rules by March 2005.

Multi-pollutant legislation currently is pending inCongress.  Cleco supports the concept of a comprehensive national strategy to reduceemissions of multiple pollutants from electric utilities.  Cleco will continueto monitor the development of new legislative and regulatory requirements andtheir potential impacts.  While it is unknown at this time what the final outcomeof these regulations will be, any capital and operating costs of additionalpollution control equipment that may be required could materially adverselyaffect future results of operations, cash flows, and possibly financial condition,unless such costs could be recovered through regulated rates or future marketprices for energy. 

In June 2004, Cleco received a Notice of CorrectedViolation associated with the initial inspection by the LDEQ of Perryville'sRisk Management Plan.  The two issues noted by the LDEQ inspector werecorrected at the time of the inspection, and no further action by the LDEQ isanticipated.

14
****
In February 2005, Cleco Power received notices thatthe EPA is investigating the Rodemacher and Dolet Hills power plants through requestsfor data as authorized by Section 114 of the Clean Air Act.  The apparent purposeof the investigation is to determine whether Cleco Power has complied withapplicable EPA NSR and New Source Performance Standards (NSPS) requirements inconnection with capital expenditures, modifications, or operational changesCleco Power has made at these facilities.  Regulated by the EPA, NSR requireselectric utilities to undergo pre-construction review for environmentalcontrols if new generating units are built and also applies if existing unitsare modified by making "non-routine" physical or operational changes thatresult in a significant increase in emissions of a regulated pollutant.  NSPSare federal standards adopted by the EPA to regulate air emissions by manytypes of industrial facilities.  The standards are intended to promote use ofthe best air pollution control technologies.  Cleco Power's response to theinitial data request is expected to be completed by May 2005.  It is unknown atthis time when the EPA will take further action, if any, as a result of theinformation to be provided by Cleco Power and if any such action would have amaterial adverse impact on the Registrants' financial condition, results ofoperations, or cash flows.

*Water Quality*

Cleco has received from the EPA and LDEQ permitsrequired under the Clean Water Act for water discharges from its six generatingstations.  Water discharge permits have fixed dates of expiration, and Clecoapplies for renewal of these permits within the applicable time periods.  TheLDEQ has been delegated the National Pollutant Discharge Elimination System(NPDES) program and issues a single Louisiana Pollution Discharge EliminationSystem (LPDES) permit in lieu of the separate federal and state permits.  Asolder NPDES permits are renewed, they will become LPDES permits.  Cleco Power'sTeche power plant permit renewal was issued by the LDEQ on December 29, 2004.  Currently,Cleco Power's Rodemacher power plant's LPDES permit is pending before the LDEQand is expected to be issued by mid-2005.

The federal Clean Water Act contains provisionsrequiring the EPA to evaluate all bodies of water within its jurisdiction todetermine if they meet water quality standards and to establish a program tobring non-compliant bodies of water into compliance with the standards.  InOctober 1999, the EPA received a federal court order to develop and implementTotal Maximum Daily Loading (TMDL) for all impacted streams in Louisiana.  TheEPA has released TMDLs for copper, oxygen-demanding substances, and nutrientson certain water bodies, none of which have had a material impact on Cleco.  InApril 2005, the EPA is expected to re-issue a draft mercury TMDL forLouisiana's coastal bays and gulf waters which may impact Cleco's generatingfacilities.  Cleco continues to monitor the development of TMDL limitations andassess any potential impacts to its operations.

Another new regulatory program, Section 316(b)of the Clean Water Act, which deals with minimizing adverse environmentalimpacts to all aquatic species due to water intake structures, may require somecapital improvements to several of Cleco's generating stations.  Theregulations were published in February 2004 and only apply to existingfacilities.  These regulations establish requirements applicable to thelocation, design, construction, and capacity of cooling water intakestructures.  Cleco anticipates that any new requirements will be established asthe facilities go through the LPDES permit renewal process and will be establishedon a site-specific basis.  LDEQ implementation of this regulation is in theinitial development stages, so capital and operating costs for implementingthese regulations are not known at the present time.

*Solid Waste Disposal*

The Solid Waste Division of the LDEQ has adoptedregulations and a permitting system for the management and disposal of solidwaste generated by power stations.  Cleco has received all required permitsfrom the LDEQ for the on-site disposal of solid waste from its generatingstations.  Cleco is in the process of renewing the solid waste permits for theRodemacher and Dolet Hills solid waste units and upgrading them according tothe Solid Waste Regulations.  These upgrades are expected to be minor in natureand not result in substantial costs to Cleco.

*Hazardous WasteGeneration*

Cleco produces certain wastes that are classifiedas hazardous at its six generating stations and at other locations.  The HazardousWaste Division of the LDEQ regulates these wastes and has issued identificationnumbers to the sites where such wastes are generated.  Cleco does not treat,store long-term, or dispose of these wastes on-site; therefore, no permits arerequired.  All hazardous wastes produced by Cleco are disposed of at federallypermitted hazardous waste disposal sites.

*Toxic SubstancesControl Act (TSCA)*

Section 6(e) of TSCA directs the EPA to regulatethe marketing, disposal, manufacturing, processing, distribution in commerce,and use of polychlorinated biphenyls (PCBs).  Cleco continues to operatedielectric equipment containing PCBs under TSCA.  Once the equipment reachesthe end of its usefulness, the EPA regulations mandate handling and disposal ofthe equipment and fluids containing PCBs.  Within these regulations, thehandling and disposal is only allowed through EPA approved and permittedfacilities.

In October 2003, the Texas Commission onEnvironmental Quality notified Cleco Power that it had been identified as a PRPfor the SESCO facility in San Angelo, Texas.  The facility operated as a transformerrepair and scrapping facility from the 1930s until 2003, and both soil andgroundwater contamination exist at the site and in surrounding areas.  Based onits then-available information, Cleco Power accrued a minimal amount for itspotential liability for the site in November 2003.  In September 2004, ClecoPower received documentation indicating that it may have sent a greater numberof transformers to SESCO for repair, refurbishing and/or recycling than

15
****
previously believed.  The investigation of SESCO's historical records is stillongoing.  The results of the continued investigation could show that ClecoPower's dealings with SESCO were more extensive than current documentationindicates.  Additional investigations are being conducted by a group of PRPs todetermine what additional remediation activities are required at the site andto identify all PRPs.  It is likely that Cleco Power together with other PRPswill be required to contribute to the past and future cost of the investigationand remediation of the site.  The ultimate cost of remediation of the site,Cleco Power's share of such cost, and the timing of any accrual that ClecoPower may be required to make in connection with this matter cannot beestimated at this time.  However, management believes that the outcome of thesite remediation will not have a material adverse impact on the Registrants' financialcondition, results of operations, or cash flows.

*Toxics ReleaseInventory*

The Toxics Release Inventory (TRI) is a part ofthe Emergency Planning and Community Right to Know Act administered by the EPA. The TRI requires an annual report from industrial facilities on about 650substances that they release into air, water, and land.  The TRI rankscompanies based on how much of a particular substance they release on a stateand parish (county) level.  Cleco was exempt from the reporting requirements ofthe TRI until the EPA added seven new industry groups, including electricutility facilities, to the TRI in May 1997.  Annual reports are due to the EPAon July 1 following the reporting year-end.  Cleco has submitted timely TRI reportson its activities, and the TRI rankings are available to the public.  Therankings do not result in any federal or state penalties and, in management'sestimation, have not caused significant adverse public perceptions of Cleco.  Managementis aware of the potential adverse effects and is continuing to monitor the TRIprocess.  Management currently is taking steps, such as increasing therecycling of fly ash at Dolet Hills, to protect the environment and to protectagainst possible negative public perceptions of Cleco as a result of the TRI.

*Electric and MagneticFields*

The possibility that exposure to electric and magneticfields (EMFs) emanating from electric power lines, household appliances, andother electric devices may result in adverse health effects or damage to theenvironment has been a subject of some public attention.  Cleco Power fundsscientific research on EMFs through various organizations.  To date, there areno definitive results, but research is continuing.  Lawsuits alleging that thepresence or use of electric power transmission and distribution lines has anadverse effect on health and/or property values have arisen in several statesagainst electric utilities and others.  Cleco Power is not a party in anylawsuits related to EMFs.

**Customers**

No customer accounted for 10% or more of Cleco'sconsolidated revenue or Cleco Power's revenue in 2004, 2003, or 2002.  Additionalinformation regarding Cleco's sales and revenues is set forth in Part II, Item7, "Management's Discussion and Analysis of Financial Condition and Results ofOperations - Results of Operations."

**Construction and Financing**

For information on Cleco's construction program,financing and related matters, see Part II, Item 7, "Management's Discussionand Analysis of Financial Condition and Results of Operations - FinancialCondition - Cash Generation and Cash Requirements."

**ITEM 2**     PROPERTIES

**CLECO POWER**

All of Cleco Power's electric generating stationsand all other electric operating properties are located in the state of Louisiana. Cleco Power considers all of its properties to be well maintained, in goodoperating condition, and suitable for their intended purposes.  For informationon Cleco Power's generating facilities, see Item 1, "Business - Operations -Cleco Power - Power Generation."

**Electric Generating Stations**

As of December 31, 2004, Cleco Power either ownedor had an ownership interest in three steam electric generating stations andone gas turbine with a combined electric net generating capacity of 1,359 MW.  Foradditional information on Cleco Power's generating facilities, see Item 1, "Business- Operations - Cleco Power - Power Generation."

**Electric Substations**

As of December 31, 2004, Cleco Power owned 70 activetransmission substations and 222 active distribution substations.

**Electric Lines**

As of December 31, 2004, Cleco Power'stransmission system consisted of approximately 67 circuit miles of 500 kiloVolt(kV) lines; 461 circuit miles of 230 kV lines; 661 circuit miles of 138 kVlines; and 21 circuit miles of 69 kV lines.  Cleco Power's distribution systemconsisted of approximately 3,347 circuit miles of 34.5 kV lines and 7,855circuit miles of other lines.

**General Properties**

Cleco Power owns various properties, which includea headquarters office building, regional offices, service centers, telecommunicationsequipment, and other general-purpose facilities.

16
****
**Title**

Cleco Power's electric generating plants and certainother principal properties are owned in fee.  Electric transmission and distributionlines are located either on private rights-of-way or along streets or highwaysby public consent.

Substantially all of Cleco Power's property,plant and equipment are subject to a lien securing obligations of Cleco Powerunder an Indenture of Mortgage, which does not impair the use of suchproperties in the operation of its business.

**MIDSTREAM**

Midstream considers all of its properties to bewell maintained, in good operating condition, and suitable for their intendedpurposes.  For information on Midstream's generating facilities, see Item 1, "Business- Operations - Midstream."

**Electric Generation**

As of December 31, 2004, Midstream owned two steamelectric generating stations, Evangeline and Perryville and had a 50% ownershipinterest in an additional station, Acadia.  For additional information onMidstream's generating facilities, see Item 1, "Business - Operations -Midstream."  For information on Perryville's pending sale and the bankruptcy filingsto facilitate this sale, see Part II, Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

**Title**

Midstream's assets are owned in fee, includingMidstream's portion of Acadia.  Evangeline and Perryville are subject to lienssecuring obligations under Indentures of Mortgage, which do not impair the useof such properties in the operation of their businesses.  The bankruptcyfilings by Perryville and PEH caused Perryville to be in default of theIndenture of Mortgage.  

**ITEM 3.**    LEGALPROCEEDINGS

**CLECO**

For information on legal proceedings affectingCleco, see Part II, Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements -Note 16 - Litigation and Other Commitments and Contingencies - SecuritiesLitigation," "- Other Litigation," "- Fuel Audit," "- Gas Put Options and GasTransportation Charge," and "- SESCO"," Note 19 - "Review of TradingActivities," Note 26 - "Perryville - Mirant Bankruptcy and MAEM's Rejection ofthe Perryville Tolling Agreement," "- Perryville Tolling Agreement AdministrativeExpense and Damage Claims," "- Perryville Bankruptcy," "- Perryville's SeniorLoan Agreement," "- Perryville's Subordinated Loan Agreement" and "- PendingSale of the Perryville Facility."

**CLECO POWER**

For information on legal proceedings affectingCleco Power, see Part II, Item 8,"Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 16 - Litigation and Other Commitments and Contingencies - OtherLitigation," "- Fuel Audit," "- Gas Put Options and Gas Transportation Charge,""- SESCO," and Note 19 - "Review of Trading Activities."

17
****
**ITEM 4. **      SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

**CLECO**

There were no matters submitted to a vote ofsecurity holders of Cleco during the fourth quarter of 2004.

**CLECO POWER**

The information called for by Item 4 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).

***Executive Officers of the Registrants***

The names of the executive officers of Cleco andcertain subsidiaries, their positions held, five-year employment history, ages,and years of service as of December 31, 2004, are presented below.  Executiveofficers are appointed annually to serve for the ensuing year or until theirsuccessors have been appointed. 

NAME OF EXECUTIVE

POSITION AND FIVE-YEAR EMPLOYMENT HISTORY

**David M. Eppler**

     Cleco Corporation

President and Chief Executive Officer since April 2000; President and Chief  Operating Officer from January 1999 to April 2000. 

     Cleco Power 

Chief Executive Officer since October 2003;  President and Chief Executive Officer from April 2000 to October 2003; President  and Chief Operating Officer from January 1999 to April 2000.  (Age 54; 23  years of service) 

Cleco has announced that Mr. Eppler will  retire effective June 2005 or later in the year if necessary to facilitate an  orderly management transition. 

**Michael H. Madison**

     Cleco Power 

President and Chief Operating Officer since  October 2003; State President, Louisiana-Arkansas with American Electric  Power from June 2000 to September 2003; President of SWEPCO and Chairman of  the AEP/SWEPCO operating company board from May 1998 to June 2000.  (Age 56; 1 year of service) 

**Dilek Samil**

     Cleco Corporation

     Cleco Power  

Executive Vice President and Chief  Financial Officer since April 2004; Senior Vice President Finance and Chief  Financial Officer from October 2001 to April 2004; Vice President of Special  Projects, FPL Group, Inc., from June 2000 to October 2001; Vice President of  Finance, FPL Energy, from September 1999 to June 2000.  (Age 49; 3 years of  service)

**R. O'Neal Chadwick, Jr.**

     Cleco Corporation

     Cleco Power 

Senior Vice President and General Counsel  since January 2004; Senior Vice President, General Counsel, and Corporate  Secretary from April 2003 to January 2004; Senior Vice President and General  Counsel from October 2002 to April 2003; Vice President Legal Affairs from  April 2002 to October 2002; Manager Legal Services from September 2000 to  April 2002; Attorney Supervisor from May 2000 to September 2000; Assistant  General Counsel of Entergy Services from February 1999 to May 2000.  (Age 44;  5 years of service) 

**Samuel H. Charlton III**

     Midstream 

Senior Vice President and Chief Operating  Officer since March 2003; Vice President from October 2002 to March 2003;  Senior Vice President Asset Management from December 2000 to October 2002;  President and Chief Executive Officer of Cleco Energy since September 1999.(Age 59; 7 years of service)

 
**Catherine C. Powell**

     Cleco Corporation

     Cleco Power 

Senior Vice President Corporate Services  since May 2003; Senior Vice President Employee and Corporate Services from  July 1997 to May 2003.  (Age 49; 14 years of service) 

Ms. Powell will resign mid-year 2005 or  later in the year if necessary to facilitate an orderly management transition. 

**George W. Bausewine**

     Cleco Corporation 

     Cleco Power 

Vice President Regulatory and Rates since  October 2002; Vice President Strategic and Regulatory Affairs from August 2000  to October 2002; General Manager Sales and Marketing from February 1998 to August  2000.  (Age 49; 19 years of service)

**Anthony L. Bunting**

     Cleco Power

Vice President Customer Services and Energy  Delivery since October 2004; acting General Manager Human Resources from  August 2003 to October 2004; General Manager Customer Care from December 2001  to August 2003; General Manager Distribution Operations from July 2001 to  December 2001; General Manager Customer Care from April 1999 to July 2001.   (Age 45; 13 years of service) 

 
**Stephen M. Carter**

     Cleco Power 

Vice President Regulated Generation since  April 2003; General Manager Regulated Generation from October 2002 to April  2003; Plant Superintendent - Dolet Hills Power Station from September 2000 to  October 2002; Operations and Maintenance Supervisor - Dolet Hills Power  Station from August 1998 to September 2000.  (Age 45; 16 years of service) 

**R. Russell Davis**

     Cleco Corporation

     Cleco Power 

Vice President and Controller since July  2000; Corporate Controller from June 2000 to July 2000; Controller of Central  and South West Services, Inc., a subsidiary service company of Central and  South West Corporation (CSW) and Controller of CSW's four U.S. electric  utility operating companies from 1994 to June 2000.  (Age 48; 5 years of  service) 

**Jeffrey W. Hall**

     Cleco Power 

Vice President Governmental and Community  Affairs since October 2004; Vice President Customer Services from August 2000  to October 2004; Vice President Retail Energy Services from July 1997 to August  2000.  (Age 53; 24 years of service) 

18
****
    Name of Executive

Position and Five-Year Employment History

 
**Mark H. Segura**

     Cleco Power  

Vice President Transmission and  Distribution Services since October 2004; Vice President Energy Transmission  and Distribution from December 2002 to October 2004; Vice President  Distribution Services from October 2002 to December 2002; Senior Vice  President Utility Operations from May 1999 to October 2002.  (Age 46; 20  years of service) 

**William G. Fontenot**

     Midstream 

Chief Restructuring Officer of Perryville  since April 2004; General Manager Contracts and Analysis from December 2002  to April 2004; Vice President Strategy and Corporate Development from October  2002 to December 2002; Senior Vice President Commercial Operations from March  2002 to October 2002; Vice President Marketing & Trading and Chief  Operating Officer from December 1999 to March 2002.(Age 41; 19 years of service) 

**Michiele A. Shaw**

     Cleco Corporation

     Cleco Power  

Vice President Human Resources,  Communications, and Ethics since October 2002; Vice President Human Resources  and Organizational Development from April 2002 to October 2002; General  Manager of Employee and Organizational Planning and Development from July  2000 to April 2002; Self-employed at Shaw Consulting from 1989 to July 2000.   (Age 54; 4 years of service) 

Ms. Shaw retired effective February 1, 2005. 

**Kathleen F. Nolen**

     Cleco Corporation

     Cleco Power  

Treasurer since December 2000; Assistant  Corporate Secretary since July 2003; Assistant Treasurer from May 1999 to  December 2000.(Age 44; 21 years of service) 

 
**Judy P. Miller**

     Cleco Corporation

     Cleco Power  

Corporate Secretary since January 2004;  Assistant Controller from June 2000 to January 2004; Acting Controller from  February 2000 to June 2000; Manager - Internal Audit from May 1998 to  February 2000.  (Age 47; 20 years of service) 

 
**Charles M. Murray**

     Cleco Corporation

     Cleco Power 

Assistant Controller since January 2004; Manager,  Financial Reporting/SEC Compliance and Non-regulated Accounting from January  2003 to January 2004; Business Manager/Director Non-regulated Accounting from  October 2002 to January 2003; General Manager Finance & Administration  Midstream from August 2000 to October 2002; Business Manager Midstream from  May 1998 to August 2000.   (Age 44; 19 years of service) 

 
**Janice M. Mount**

     Cleco Corporation 

     Cleco Power  

Assistant Corporate Secretary since July  2003; Director of Board Services from March 2003 to July 2003; Team Leader  Executive Support Services from August 2000 to March 2003; Executive  Assistant from May 1998 to August 2000.  (Age 61; 20 years of service) 

 
On January 28, 2004, Perryville entered into anagreement to sell its 718-MW power plant to Entergy Louisiana.  As part of thesales process, Perryville and PEH filed voluntary petitions in the Perryvilleand PEH Bankruptcy Court for protection under Chapter 11 of the U.S. BankruptcyCode.  Mr. Eppler, Ms. Samil, Mr. Charlton, Mr. Murray and Mr. Fontenot are orhave been managers of Perryville and/or PEH within the two years preceding thevoluntary bankruptcy filing.  For more information regarding the pending saleof the Perryville facility and the related bankruptcy filing, see Part II, Item8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 26 - Perryville."

19
****
  PART II

 

**ITEM 5.**    MARKET FOR REGISTRANTS' COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND CLECO CORPORATION'S    PURCHASES OF EQUITY SECURITIES

**CLECO CORPORATION**

Cleco Corporation's common stock is listed fortrading on the New York Stock Exchange (NYSE).  For information on the high andlow sales prices for Cleco Corporation's common stock as reported on the NYSEComposite Tape and dividends paid per share during each calendar quarter of 2004and 2003, see Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 28 - Miscellaneous Financial Information(Unaudited)."  During the quarter ended December 31, 2004, none of Cleco Corporation'sequity securities registered pursuant to Section 12 of the Securities ExchangeAct of 1934 was purchased by or on behalf of Cleco Corporation or any of its"affiliated purchasers," as defined in Rule 10b-18(a)(3) under the SecuritiesExchange Act of 1934.  For information on Cleco Corporation's common stockrepurchase program, see Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 7 - Common Stock - Common StockRepurchase Program."

Subject to the prior rights of the holders ofthe respective series of Cleco Corporation's preferred stock, such dividends asdetermined by the Board of Directors of Cleco Corporation may be declared andpaid on the common stock from time to time out of funds legally available.  Theprovisions of Cleco Corporation's charter applicable to preferred stock andcertain provisions contained in the debt instruments of Cleco under certaincircumstances restrict the amount of retained earnings available for thepayment of dividends by Cleco Corporation.  The most restrictive covenantrequires Cleco Corporation's total indebtedness to be less than or equal to 65%of total capitalization.  At December 31, 2004, approximately $217.7 million ofretained earnings were unrestricted.  On January 28, 2005, Cleco Corporation'sBoard of Directors declared a quarterly dividend of $0.225 per share payable onFebruary 15, 2005, to common shareholders of record on February 7, 2005.

As of February 28, 2005, there were 8,283 holdersof record of Cleco Corporation's common stock, and the closing price of ClecoCorporation's common stock as reported on the NYSE Composite Tape was $20.29per share.

**CLECO POWER**

There is no market for Cleco Power's membership interests. All of Cleco Power's outstanding membership interests are owned by ClecoCorporation.  Distributions on Cleco Power's membership interests are paid whenand if declared by Cleco Power's Board of Managers.  Cleco Power's currentcredit agreement contains restrictions on its ability to pay cash distributionson its membership interests.  Any future distributions also may be restrictedby any credit or loan agreements that Cleco Power may enter into from time totime.

Some provisions in Cleco Power's debtinstruments restrict the amount of equity available for distribution to ClecoCorporation by Cleco Power under specified circumstances.  The most restrictivecovenant requires Cleco Power's total indebtedness to be less than or equal to 65%of total capitalization.  At December 31, 2004, approximately $232.4 million ofmember's equity were unrestricted.

The following table shows the distributions paidby Cleco Power to Cleco Corporation during 2002, 2003, and 2004:

DISTRIBUTION/DIVIDEND AMOUNT

DATE PAID

$16.9 million

February 15, 2002

$14.1 million

May 15, 2002

$20.3 million

November 15, 2002

$14.6 million

February 15, 2003

$15.9 million

May 15, 2003

$13.9 million

November 15, 2003

$11.1 million

February 15, 2004

$11.8 million

May 15, 2004

$  5.0 million

August 15, 2004

$16.8 million

November 15, 2004

20
****
**ITEM 6.**    SELECTED FINANCIAL DATA
****
**CLECO**

The information set forth below should be read inconjunction with the Consolidated Financial Statements and the related Notes inItem 8, "Financial Statements and Supplementary Data."

In accordance with FIN 46R, Cleco was requiredto deconsolidate Evangeline from its consolidated financial statements andbegin reporting its investment in Evangeline on the equity method ofaccounting.  As a result, effective March 31, 2004, the assets and liabilitiesof Evangeline no longer are reported on Cleco Corporation's ConsolidatedBalance Sheet, but instead are represented by one line item corresponding toCleco's equity investment in Evangeline.  Effective April 1, 2004, Evangelinerevenue and expenses are netted and reported as equity income from investees onCleco Corporation's Consolidated Statements of Operations.  For additional informationon FIN 46R and the deconsolidation of Evangeline, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 13- Equity Investment in Investees" and Note 29 - "Variable Interest Entities."

The deconsolidation of Perryville and PEH fromCleco in connection with their bankruptcy filings affected Midstream's earningsfor 2004 compared to 2003, since no income or loss was recognized inMidstream's consolidated financial statements subsequent to the bankruptcyfiling on January 28, 2004.  For additional information on Perryville, see Item8, Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 26 - Perryville."

***Five-Year Selected Financial Data (Unaudited)***

(THOUSANDS, EXCEPT PER SHARE, PERCENTAGES, AND  RATIOS)

**                    2004**

                   2003

                   2002

                   2001

                   2000

Operating revenue (excluding intercompany  revenue)

     Cleco Power

**$       727,449**

   $      705,079

   $        593,781

   $        622,722

   $        622,790

     Midstream

**       14,844**

              97,129

              98,693

              64,791

              44,709

     Other

**         3,524**

                1,244

                      57

                    113

                      70

          Total

**$       745,817**

   $       803,452

   $        692,531

   $        687,626

   $        667,569

Income (loss) from continuing operations before  income taxes

**$       101,983**

   $      (51,185)

   $        120,038

   $        113,657

   $        103,453

Net income (loss) applicable to common stock

**$         63,973**

   $      (36,790)

   $          70,003

   $          68,362

   $          63,112

Basic earnings (loss) per share from continuing  operations

**$             1.33**

   $          (0.68)

   $              1.65

   $              1.57

   $              1.44

Basic earnings (loss) per share applicable to  common stock

**$             1.33**

   $          (0.79)

   $              1.47

   $              1.47

   $              1.36

Diluted earnings (loss) per share from continuing  operations

**$             1.32**

   $          (0.68)

   $              1.65

   $              1.56

   $              1.44

Diluted earnings (loss) per share applicable to  common stock

**$             1.32**

   $          (0.79)

   $              1.47

   $              1.47

   $              1.36

Total capitalization

     Common shareholders' equity

**      53.56 %**

            34.27 %

           38.83 %

           43.36 %

           40.81 %

     Preferred stock

**        1.90 %**

              1.33 %

              1.21 %

              1.41 %

              1.33 %

     Long-term debt

**      44.54 %**

           64.40 %

           59.96 %

           55.23 %

           57.86 %

     Preferred stock

**$         19,226**

   $         18,717

   $         17,508

   $          15,988

   $         15,096

     Long-term debt

**$       450,552**

   $       907,058

   $       868,684

   $        626,778

   $       659,134

Total assets

**$    1,837,063**

   $    2,159,426

   $    2,344,556

   $     1,767,890

   $    1,750,356

Cash dividends paid per common share

**$           0.900**

   $           0.900

   $           0.895

   $            0.870

   $           0.845

**CLECO POWER**

The information called for by Item 6 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(a) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).
** **
21
****
**ITEM 7.  **  MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**OVERVIEW**

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

While Cleco Power has always been Cleco'score business and primary source of revenue, Cleco began to expand its merchantenergy business in the late 1990s.  As of December 31, 2004, Cleco owned all orpart of three merchant generation facilities with a net capacity of 2,073 MW.  Inconnection with building the facilities, the subsidiaries of Cleco that ownedthe respective facilities entered into long-term tolling agreements.  With thedownturn in the wholesale energy market, Cleco pulled back from its plans tocontinue expanding its merchant energy business and has focused on maximizingthe value of its merchant energy assets.  During 2003, Cleco was successful inrestructuring the Acadia Tolling Agreements to eliminate a parental guaranteeand credit risk associated with the Aquila Energy counterparty, and to increasethe amount of credit support that could be drawn on in case of a default by theremaining tolling agreement counterparty, CES.  In addition, in January 2004,Cleco signed an agreement to sell the Perryville facility.  To facilitate anorderly sales process, Perryville and PEH filed voluntary petitions forbankruptcy protection in January 2004.  As a result of these bankruptcy filings,Perryville and PEH were prospectively deconsolidated from Cleco.

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

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

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

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

In a series of written notices commencing in May2004, CES notified Acadia that it was invoking certain rights regarding disputeresolution under the Calpine Tolling Agreements and claimed that Acadia'srefusal to conduct a capacity test was a default under the Calpine TollingAgreements.  For additional information on the ongoing dispute with CES underthe Calpine Tolling Agreements, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 16 - Litigationand Other Commitments and Contingencies - CES."

**Deconsolidation ofEvangeline**

In accordancewith FIN 46R, Cleco was required to deconsolidate Evangeline from itsconsolidated financial statements and begin reporting its investment inEvangeline on the equity method of accounting.  As a result, effective March31, 2004, the assets and liabilities of Evangeline no longer are reported onCleco Corporation's Consolidated Balance Sheet, but instead are represented byone line item corresponding to Cleco's equity investment in Evangeline. Effective April 1, 2004, Evangeline revenue and expenses are netted andreported as equity income from investees on Cleco Corporation's Consolidated

22
****
Statements of Operations.  For additional information on FIN 46R and thedeconsolidation of Evangeline, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 13 - EquityInvestment in Investees" and Note 29 - "Variable Interest Entities."

**Discontinued Operationsand Dispositions**

In June 2004, management decided to sellsubstantially all of Cleco Energy's assets and discontinue Cleco Energy'snatural gas marketing, pipeline, and production operations after the sale.  OnSeptember 15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  Prior to the sale of Cleco Energy's assets,and in accordance with SFAS No. 144, the property, plant and equipment of ClecoEnergy were classified as held for sale on Cleco Corporation's ConsolidatedBalance Sheet, and the related operations were classified as discontinued onCleco Corporation's Consolidated Statement of Operations.  For additionalinformation on SFAS No. 144 and the discontinued operations and sale of ClecoEnergy's assets, see Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

**Reclassifications**

Certain reclassifications have been made to the2003 and 2002 consolidated financial statements to conform them to thepresentation used in the 2004 consolidated financial statements.  Thesereclassifications had no effect on net income applicable to common stock ortotal common shareholders' equity.

**Affiliate Transactions**

Cleco affiliates have in place service agreementswith each other to provide access to professional services and goods offered byaffiliates.  For information on affiliate goods and services, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 25- Affiliate Transactions."

**RESULTS OF OPERATIONS**

**Cleco Consolidated Results of Operations - Year ended December 31, 2004, Compared toYear ended December 31, 2003**

** **

                      FOR THE YEAR ENDED DECEMBER   31,

** **

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2004**

              2003

       VARIANCE

          change

Operating revenue, net

**$   745,817**

   $    803,452

   $   (57,635)

       (7.17)%

Operating expenses

**644,679**

      814,999

      170,320

      20.90 %

Operating income (loss)

**$   101,138**

   $   (11,547)

   $   112,685

                    *

Equity income from investees

**$     47,538**

   $      31,649

   $     15,889

      50.20 %

Interest charges

**$     52,206**

   $      70,789

   $     18,583

      26.25 %

Income (loss) from continuing operations

**$     66,119**

   $   (29,768)

   $     95,887

                    *

Income (loss) from discontinued operations, net

**$            70**

   $     (5,161)

   $       5,231

                    *

Net income (loss) applicable to common stock

**$     63,973**

   $   (36,790)

   $   100,763

                    *

*    Not meaningful

Consolidated net income applicable tocommon stock in 2004 was $64.0 million, significantly above the $36.8 millionloss recorded in 2003.  The increase of $100.8 million was primarily due to increasedearnings at Midstream resulting from the $148.0 million impairment chargesrecorded at Perryville in 2003.  The increase was partially offset by reducedearnings at Cleco Power.

Operating revenue, net decreased $57.6 million, or 7.2%,in 2004 compared to 2003, largely as a result of the change in the reporting oftolling operations revenue at Evangeline beginning in the second quarter of2004 in accordance with FIN 46R and the bankruptcy filings of the MirantDebtors, MAEM's rejection of the Perryville Tolling Agreement, the subsequentbankruptcy filings of Perryville and PEH, and their subsequent deconsolidationfrom Cleco's consolidated results.  Also contributing to the decrease inoperating revenue, net were theeffects of the settlement of Cleco Power's 2001-2002 fuelaudit.  Partially offsetting these decreases were higher base and fuel costrecovery revenue at Cleco Power in 2004.

Operating expenses decreased $170.3 million, or 20.9%,in 2004 compared to 2003 primarily due to the $148.0 million impairment chargesrecorded at Perryville in 2003 and the effects of the deconsolidation ofPerryville, PEH, and Evangeline from Cleco's consolidated results.  Partiallyoffsetting these decreases were higher net recoverable fuel and power purchasedexpenses at Cleco Power in 2004. 

Equity income from investees increased $15.9 million,or 50.2%, in 2004 compared to 2003, primarily due to the change in reportingfor Evangeline effective April 1, 2004 in accordance with FIN 46R, partiallyoffset by decreased equity earnings at Acadia.  Interest charges decreased$18.6 million, or 26.3%, compared to 2003, primarily due to the effects of thedeconsolidation of Perryville, PEH, and Evangeline from Cleco's consolidated results.

Results of operations for Cleco Power andMidstream are more fully described below.

23
****
**CLECO POWER**

**Significant Factors Affecting Cleco Power**

***Revenue is primarily affected by the followingfactors:***

Retail rates for residential, commercial, andindustrial customers and other retail sales are regulated by the LPSC.  Retailrates consist of a base rate and a fuel rate.  Base rates are designed to allowrecovery of the cost of providing service and a return on utility assets.  Fuelrates fluctuate since they facilitate recovery of, with no profit, the costs ofpurchased power and fuel used to generate electricity.  Rates for transmissionservice and wholesale power sales are regulated by the FERC.  An LPSC-approvedrate stabilization plan is in place through September 2005.  This planeffectively allows Cleco Power the opportunity to realize a regulatory rate ofreturn of up to 12.625%.  As part of the rate stabilization plan, the LPSCannually reviews revenue and return on equity.  A new plan may be ordered bythe LPSC upon expiration of the existing plan, or the existing plan may beextended with or without modification; however, the LPSC may compel a rateproceeding as part of any scenario.  Cleco Power currently has ongoing bothshort- and long-term generation supply RFPs that will have a direct impact onCleco Power's decision to seek an extension of the rate stabilization plan. Based on the timeline for the RFPs, management anticipates making such adecision by June 2005 or earlier.  Possible rate stabilization plan options includeseeking a short-term extension, combining an extension request with ageneration certificate of public convenience and necessity application, seekinga new rate case, or allowing the current plan to expire and continue undercurrent rates until the LPSC orders a review of Cleco Power's rates.

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

Cleco Power's commercial and industrialcustomers' demand for electricity is affected less by the weather and primarilyis dependent upon their self-generation of electricity, if any, the strength ofthe economy, and by the demand for the customers' products compared to their abilityto produce the products economically.  Cleco Power's two largest customersmanufacture wood products, such as newsprint, cardboard, corrugated packaging,and kraft paper. 

Kilowatt-hour sales to retail electric customershave grown an average of 2.1% annually over the last five years and areexpected to grow from 0.5% to 2.0% per year during the next five years.  Thegrowth of future sales will depend upon factors such as weather conditions, naturalgas prices, customer conservation efforts, retail marketing and business developmentprograms, and the economy of Cleco Power's service area.  Some of the issuesfacing the electric utility industry that could affect sales include:
-  deregulation;
-  retailwheeling (the transmission of power directly to a retail customer, as opposedto transmission via the interconnected transmission facilities of one or moreintermediate facilities);
-  possibletransfer of transmission facilities to an RTO;
-  otherlegislative and regulatory changes;
-  costof power impacted by the price of natural gas;
-  retentionof large industrial customers and municipal franchises;
-  changesin electric rates compared to customers' ability to pay; and
-  accessto transmission systems.

For additional primary areas subject topotential energy legislation that could affect Cleco, see "- Financial Condition- Wholesale Electric Markets."

***Fuel and purchasedpower are primarily affected by the following factors:***

Changes in fuel and purchased power expensesreflect fluctuations in types and pricing of fuel used for electric generation,fuel handling costs, availability of economical power for purchase, anddeferral of expenses for recovery, from customers through the fuel adjustmentclause in subsequent months.  In comparison to other regional suppliers, Cleco Powerdepends more on natural gas.  Cleco Power's reliance on natural gas as acomponent of its fuel mix could impact future earnings as a result of retail competition, wholesale competition, andif retail choice emerges.  

Changes in fuel costs historically have notsignificantly affected Cleco Power's net income.  Generally, fuel and purchasedpower expenses are recovered through the LPSC-established fuel adjustmentclause, which enables Cleco Power to pass on to customers substantially allsuch charges.  Approximately 94% of Cleco Power's total fuel cost is regulatedby the LPSC, while the remainder is regulated by the FERC.  Recovery of fueladjustment clause costs is subject to refund until monthly approval is receivedfrom the LPSC; however, all amounts are subject to a periodic fuel audit by theLPSC.  A fuel audit is required to be performed not less than every otheryear.  Cleco Power anticipates the next fuel audit to cover 2003 and 2004;however, any future audit could include prior periods with the exception ofJanuary 2001 through December 2002, which were periods covered in Cleco Power'srecent fuel audit.

Cleco Power obtains coal and lignite throughlong-term contracts and through the spot market.  Natural gas is purchasedunder short-term contracts and through the spot market.  Cleco Power alsoobtains capacity from power contracts.  If the counterparties under ClecoPower's power purchase 

24
****
agreements were to fail to provide power to Cleco Powerin accordance with those agreements, Cleco Power would have to obtainreplacement power at then prevailing market prices to meet its customers'demands.  The power market can be volatile, and the prices at which Cleco Powerwould obtain replacement power could be higher than the prices Cleco Power paysunder the power purchase agreements.  The LPSC may not allow Cleco Power torecover, through an increase in its rates or through fuel adjustment costs,part or all of any additional amounts Cleco Power may pay in order to obtainreplacement power.  If this occurred, Cleco Power'sfinancial condition and results of operations could be materially adverselyaffected.  In May 2004, Cleco Power signeda one-year contract to purchase 500 MW of capacity from CES starting in January2005.  In addition, Cleco Power has a 100 MW contract with Williams expiring inDecember 2005.  Cleco Power continues to evaluate longer term capacityrequirements through its IRP team and a long-term RFP issued in August 2004.  Foradditional information on the IRP process, see Part 1, Item 1, "Business -Operations - Cleco Power - Fuel and Purchased Power - Power Purchases" and forinformation on Cleco Power's RFPs, see "- Financial Condition - RegulatoryMatters - Generation RFP."  In addition to the power obtained under thesecontracts, Cleco Power purchases power from energy marketing companies and neighboringutilities to supplement its generation at times of relatively high demand orwhen the purchase price of the power is less than Cleco Power's cost ofgeneration or other existing power agreements.  However, transmission capacitymust be available to transport this purchased power to Cleco Power's system.  During2004, 53.7% of Cleco Power's energy requirements were met with purchased power,up from 50.4% in 2003 and 45.4% in 2002.  The primary factors causing ClecoPower's purchased power to increase over these periods were the price ofpurchased power compared to the incremental cost of Cleco Power's generation ofpower, higher customer demand, and additional power required to fulfill energymanagement services contracts.

In futureyears, depending on the outcome of the IRP process, Cleco Power's power plants may not be able to supply enoughpower to meet its growing native load.  Because of its location on thetransmission grid, Cleco Powerrelies on one main supplier of electric transmission, and at times constraintslimit the amount of purchased power it can deliver into and/or through itssystem.  The power contracts described above may be affected by thesetransmission constraints.

***Other expenses areprimarily affected by the following factors:***

The majority of other expenses includes otheroperations, maintenance, depreciation, and taxes other than income taxes.  Otheroperations expenses are affected by, among other things, the cost of employeebenefits, insurance expenses, and the costs associated with energy delivery andcustomer service.  Maintenance expenses associated with Cleco Power's plantsgenerally depend upon their physical characteristics, as well as the effectivenessof their preventive maintenance programs.  Depreciation expense primarily isaffected by the cost of the facility in service, the time the facility wasplaced in service, and the estimated useful life of the facility.  Taxes otherthan income taxes generally are affected by payroll taxes and ad valorem taxes.

**Cleco Power's Results of Operations -Year ended December 31, 2004,Compared to Year ended December 31, 2003**

Cleco Power's net income applicable to member'sequity for 2004 decreased $4.8 million or 8.4%, compared to 2003.  Contributingfactors include:
-  higher customer refund credits,
-  higherother operations expense,
-  higherdepreciation expense, and
-  lowerother income.

These werepartially offset by:
-  favorable fuel surcharge adjustments,
-  higherbase revenue from customer sales,
-  lowermaintenance expense,
-  lowerother expense, and
-  higherinterest income.

The aggregation of fuel cost recoveryrevenue, fuel used for electric generation-recoverable, and power purchased forutility customers-recoverable, as shown in the following chart significantlyincreased in 2004 compared to the same period in 2003.  However, changes inthese items do not significantly impact net income, since fluctuations infuel-related costs generally are recovered through fuel cost recovery revenuevia Cleco Power's fuel cost adjustment process.

25
****

FOR THE YEAR ENDED DECEMBER 31,

         FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**              2004**

              2003

       VARIANCE

            Change

Operating revenue

     Base

**$     318,033**

   $     311,979

   $        6,054

          1.94 %

     Fuel cost recovery

**               400,118**

      364,023

        36,095

          9.92 %

     Electric customer credits

**                (20,889)**

         (1,562)

       (19,327)

                      *

     Energy trading, net

**                          3**

              626

             (623)

      (99.52)%

     Other operations

**                 30,162**

        30,013

              149

          0.50 %

     Affiliate revenue

**                        22**

                    -

                 22

                      *

     Intercompany revenue

**                   1,860**

           2,209

             (349)

      (15.80)%

          Operating revenue, net

**               729,309**

      707,288

        22,021

          3.11 %

Operating expenses

     Fuel used for electric generation - recoverable

**               151,910**

      161,690

           9,780

          6.05 %

     Power purchased for utility customers -  recoverable 

**               241,421**

      201,556

       (39,865)

      (19.78)%

     Non-recoverable fuel and power  purchased

**                 28,083**

        31,314

           3,231

        10.32 %

     Other operations

**                 73,969**

        62,742

       (11,227)

      (17.89)%

     Maintenance

**                 36,329**

        44,542

           8,213

        18.44 %

     Depreciation

**                 56,731**

        54,084

         (2,647)

        (4.89)%

     Restructuring charge

**                           -**

             (315)

             (315)

                      *

     Taxes other than income taxes

**                 36,735**

        37,062

              327

          0.88 %

               Total operating expenses

**               625,178**

      592,675

       (32,503)

        (5.48)%

Operating income

**$      104,131**

   $     114,613

   $    (10,482)

        (9.15)%

Interest income

**$          3,561**

   $         1,335

   $         2,226

     166.74 %

Other income

**$          2,265**

   $         4,714

   $      (2,449)

      (51.95)%

Other expense

**$          5,342**

   $         7,775

   $         2,433

        31.29 %

Federal and state income taxes

**$        27,691**

   $       29,846

   $         2,155

          7.22 %

Net income 

**$        52,202**

   $       57,008

   $      (4,806)

        (8.43)%

*    Not meaningful

 

                 FOR THE YEAR ENDED  DECEMBER 31,

           FAVORABLE/

(MILLION     kWh)

**              2004**

              2003

    (UNFAVORABLE)

Electric sales

     Residential

**     3,507**

           3,429

               2.27 %

     Commercial

**     1,854**

           1,781

               4.10 %

     Industrial

**     2,902**

           2,786

               4.16 %

     Other retail

**        597**

              595

               0.34 %

     Unbilled

**           (3)**

                 39

                           *

               Total retail

**     8,857**

           8,630

               2.63 %

     Sales for resale

**     1,057**

           1,066

             (0.84)%

Total retail and wholesale customer sales

**     9,914**

           9,696

               2.25 %

Short-term sales to other utilities and energy  marketers

**        280**

              195

             43.59 %

               Total electric sales

**   10,194**

           9,891

               3.06 %

*    Not meaningful

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

                    FOR THE YEAR ENDED                              DECEMBER 31,

**                2004**

               2003

**Cooling degree-days**

     Increase (decrease) from normal

**      4.00 %**

        (2.27)%

     Increase (decrease) from prior year

**      6.45 %**

        (5.99)%

**Heating degree-days**

     (Decrease) increase from normal

**    (9.91)%**

          7.76 %

     (Decrease) increase from prior year

** (15.95)%**

          0.10 %

***Base***

Base revenue during 2004 increased $6.1 million,or 1.9%, compared to the same period in 2003.  The increase was primarily dueto higher volumes of retail and wholesale customer kWh sales, a renegotiatedcontract for additional ancillary services with a municipal customer, favorablefuel surcharge adjustments that were included in the Fuel Adjustment ClauseReport filed by Cleco Power in June 2004, and energy management service feesfrom contracts that commenced in May 2003.  Partially offsetting theseincreases in base revenue was the expiration of a contract with a municipalcustomer.

In June 2004, Cleco Power began serving a newindustrial customer.  The new service increased 2004 base revenue by $0.1million and is projected to increase future base revenue, contingent uponcontract retention, by approximately $0.8 million.

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

Additionally, during the first quarter of 2005Cleco Power is expected to begin providing service to an expansion of a currentcustomer's operation, as well as service to two new industrial customers. During the third quarter of 2005, Cleco Power is expected to begin providingservice to another new industrial customer.  The expansion and new services areprojected to increase 2005 base revenue by approximately $1.7 million andfuture base revenue, contingent upon contract retention, by approximately $2.9million.

During the first quarter of 2006, Cleco Power isexpected to begin providing service to an expansion of an existing customer,and in the second quarter of 2006, Cleco Power is expected to begin providingservice to another new industrial customer.  The expansion and the new customerare expected to increase 2006 base revenue by approximately $1.0 million and futurebase revenue, contingent upon contract retention, by $1.2 million.

***Fuel Cost Recovery***

Fuel cost recoveryrevenue billed to customers during 2004 compared to the same period in 2003increased $36.1 million, or 9.9%, primarily due to fuel costs from energymanagement contracts that commenced in May 2003, higher cost and volumes ofpurchased power, and the reversal of estimates previously recorded inconjunction with issues covered by the LPSC fuel audit settlement.  Partiallyoffsetting these increases in fuel cost recovery revenue was thereclassification of certain revenues from a municipal customer.  Forinformation on Cleco Power's ability to recover fuel and purchased power costs,see "- Significant Factors Affecting Cleco Power - Fuel and purchased power areprimarily affected by the following factors," above.

 

26
****
***Electric CustomerCredits***

Electric customer credits during 2004 increased $19.3million compared to the same period in 2003.  This increase in electriccustomer credits is primarily a result of the settlement of Cleco Power's2001-2002 fuel audit and higher accruals for the current rate stabilizationplan filing period.  For additional information on the accrual for electriccustomer credits, see Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 12 - Accrual of Electric Customer Credits."

***Operating Expenses***

Operating expenses increased $32.5 million, or 5.5%,in 2004 compared to the same period of 2003.  Fuel used for electric generationdecreased $9.8 million, or 6.1%, primarily as a result of lower volumes of fuelused for electric generation.  Also contributing to the decrease in fuel usedfor electric generation was the settlement of Cleco Power's 2001-2002 fuelaudit and favorable surcharge adjustments that were included in the FuelAdjustment Clause Report filed by Cleco Power in June 2004.  Power purchasedfor utility customers increased $39.9 million, or 19.8%, largely due to anincrease in the average per unit cost and volumes of purchased power.  Increasedvolumes of power purchased were largely attributable to higher customer demandand additional amounts required to fulfill energy management services contractsthat commenced in May 2003.  Fuel used for electric generation and powerpurchased for utility customers generally are influenced by natural gasprices.  However, other factors such as unscheduled outages, unusualmaintenance or repairs, or other developments may affect fuel used for electricgeneration and power purchased for utility customers.  Non-recoverable fuel andpower purchased decreased $3.2 million, or 10.3%, in 2004 as compared to 2003,primarily as a result of lower capacity payments during 2004.  Other operationsexpense increased $11.2 million, or 17.9%, primarily due to the 2003 reversalof incentive compensation benefits resulting from the failure to meettarget performance measures, higher consulting and audit fees, predominantly from testingrequired by Section 404 of the Sarbanes-Oxley Act of 2002, higher property andliability insurance costs, higher economic development incentives, and adjustmentsrelated to generating facility joint billing costs.  These increases in otheroperations expense were partially offset by lower pension and retirementbenefit costs.  Maintenance expenses during 2004 decreased $8.2 million, or 18.4%,compared to 2003 primarily due to decreased expenditures for Cleco Power'stransmission and distribution reliability initiative, production activities, andrestoration efforts associated with Tropical Storm Bill, which were incurredduring 2003.  Partially offsetting this decrease was additional generatingstation and transmission substation maintenance work performed during 2004.  Depreciationexpense increased $2.6 million, or 4.9%, in 2004 as compared to 2003 largely asa result of normal recurring additions to fixed assets.

On December 16, 2004, FASB issued SFAS No. 123(R)which provides expensing and disclosure requirements for stock-based compensation. For information on the anticipated effects of potential additional operatingexpenses from this recent accounting standard, see Item 8, "Financial Statementsand Supplementary Data - Notes to the Financial Statements - Note 2 - Summaryof Significant Accounting Policies - Recent Accounting Standards."

***Interest Income***

Interest income increased $2.2 million, or 166.7%,during 2004 compared to 2003, primarily due to additional interest recorded onunder-recovered fuel costs that were included as surcharge adjustments in ClecoPower's Fuel Adjustment Clause Report filed in June 2004 and increased earningsfrom temporary investments.

***Other Income***

Other income decreased $2.4 million, or 52.0%,during 2004 compared to 2003, primarily due to less work performed by ClecoPower for Acadia during 2004.  The income from the work performed for Acadiawas offset by an equal amount of expenses as shown in "- Other Expense" below. Partially offsetting this decrease was increased income related to workperformed for other utilities by Cleco Power employees for the restoration ofpower in Gulf Coast states after Hurricanes Charley, Frances and Ivan in 2004.

***Other Expense***

Other expense decreased $2.4 million, or 31.3%,during 2004 compared to 2003, primarily due to the absence of expenses relatedto work performed by Cleco Power for Acadia in 2004 and decreased charitable donations. This decrease was partially offset by legal fees associated with the settlementof Cleco Power's 2001-2002 fuel audit and expenses related to work performed forother utilities by Cleco Power employees for the restoration of power in GulfCoast states after Hurricanes Charley, Frances and Ivan in 2004. 

***Income Taxes***

Income tax expense in 2004 decreased $2.2 million,or 7.2%, compared to 2003.  Cleco Power's effective income tax rate increasedfrom 34.4% to 34.7% in 2004 compared to 2003 as a result of an increase instate income taxes relating to a loss carryforward that was utilized during2003.  State income taxes also increased due to disallowed federal income taxdeductions for years to which losses were carried back and federal tax refundswere received.  The effective rate increase was offset by the release ofcontingency reserves related to a favorable state tax settlement.  Effective taxrates also were affected by the relative size of pre-tax income to these items. Pre-tax income during 2004 decreased $7.0 million compared to 2003.  Forinformation about assumptions and estimates underlying Cleco Power's accountingfor the effect of income taxes, see "- Critical Accounting Policies."

 

27
****
**MIDSTREAM**

**Significant Factors Affecting Midstream**

***Revenue is primarily affected by the followingfactors:***

Midstream's revenueis derived predominantly from its tolling agreements related to its generatingfacilities.  Revenue from tolling contracts generally is affected by theavailability and efficiency of the facility and the level at which it operates. Afacility's availability can be protected by providing replacement power to thetolling counterparties.  Each tolling agreement gives a tolling counterpartythe right to own, dispatch, and market all of the electric generation capacityof the respective facility.  Each tolling counterparty is responsible forproviding its own natural gas to the respective facility.  Earnings fromjointly owned power plant operations are derived from an equity investment andthey are reflected in equityincome from investees.

Prior to April 1, 2004, tolling revenue waspartially derived from a 775-MW combined-cycle, natural gas-fired power plantthrough the Evangeline Tolling Agreement.  EffectiveApril 1, 2004, revenue from Evangeline is no longer reported as tollingoperations revenue, but instead is reflected in equity income from investees. Prior to September 15, 2003, tolling revenue also was derived from a 718-MW,natural gas-fired power plant through the Perryville Tolling Agreement.  Formore information on the reporting of tolling operations revenue at Evangeline inaccordance with FIN 46R and on the termination of the Perryville TollingAgreement, see Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 29 - Variable Interest Entities and Note 26 -Perryville."  Through an investment in Acadia, equity earnings also are derivedfrom a 1,160-MW combined-cycle, natural gas-fired power plant.  Acadia's outputcurrently is sold through the Calpine Tolling Agreements.  Prior to May 2003,Acadia's output was sold through two separate tolling agreements:  one throughthe Aquila Tolling Agreement and the other through one of the Calpine TollingAgreements.  In May 2003, Acadia terminated its 580-MW 20-year tollingagreement with Aquila Energy and entered into a replacement contract with CES. For more information on the termination of the Aquila Tolling Agreement and thereplacement CES agreement, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 13 - Equity Investment inInvestees."  For additional information on Acadia, Evangeline, Perryville, andthe tolling agreements related to these facilities, see "- Financial Condition- Liquidity and Capital Resources."  Revenuefrom energy operations was, prior to May 2003, derived from energy managementservices and, prior to the fourth quarter of 2002, derived from marketing andtrading wholesale natural gas and power.

Evangeline and Acadia have certain performanceobligations under their respective tolling agreements.  Failure to performcould expose each facility to possible adverse financial penalties.  Performancerequirements include, but are not limited to, maintaining plant performancecharacteristics such as heat rate and demonstrated generation capacity at specifiedlevels and maintaining specified availability levels with a combination ofplant availability and replacement power.  Obligations under the respectivetolling agreements include, but are not limited to, maintaining various typesof insurance at specified levels, maintaining power and natural gas meteringequipment, and paying scheduled interest and principal payments on debt.  Inaddition to the performance obligations by Evangeline and Acadia, there arevarious guarantees and commitments required by Cleco Corporation.  Foradditional information on commitments by Cleco Corporation, see Item 8,"Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 16 - Litigation and Other Commitments and Contingencies -Off-Balance Sheet Commitments" and Note 22 - "Disclosures About Guarantees."

If Evangeline and Acadia fail to operate withinspecified requirements, the respective facilities may purchase replacementpower on the open market and provide it to the tolling counterparties in orderto meet contractual performance specifications.  Providing replacement powermaintains availability levels but exposes Evangeline and Acadia to powercommodity price volatility and transmission constraints.  If availabilitytargets under the tolling agreements are not met and economical purchased powerand transmission are not available, Evangeline and Acadia's financial conditionand results of operations could be materially adversely affected.

Under the Evangeline Tolling Agreement, Williamspays Evangeline a fixed fee and a variable fee for operating and maintainingthe facility.  The Evangeline Tolling Agreement is accounted for as anoperating lease.  For additional information on Cleco's operating leases, see "-Critical Accounting Policies - Midstream" and Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 14 - OperatingLeases."  Evangeline Tolling Agreement revenue correlates with the seasonalusage of the plant.  Evangeline's 2004 revenue was recognized in the followingmanner:
-  17%in the first quarter,
-  20%in the second quarter,
-  46%in the third quarter, and
-  17%in the fourth quarter.

Revenue for 2005 under the EvangelineTolling Agreement, which is reflected in equity income from investees, isanticipated to be recognized in a similar manner.  For additional information onrecognition of revenue from the Evangeline Tolling Agreement, see "- CriticalAccounting Policies - Midstream" and Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 2 - Summary of SignificantAccounting Policies - Revenue and Fuel Costs - Tolling Revenue."

Under theCalpine Tolling Agreements, CES pays Acadia a fixed fee and a variable fee foroperating and maintaining the facility.  Under each of these tollingagreements, equity investment earnings from the tolling agreements are recognizedevenly throughout the year.  For additional information on the termination ofthe Aquila Tolling Agreement, the replacement 

28
****
CES agreement, and the ongoingdispute with CES under the Calpine Tolling Agreements, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 13- Equity Investment in Investees and Note 16 - Litigation and Other Commitmentsand Contingencies - CES."

The parent companies of Cleco's remainingtolling counterparties are The Williams Companies, Inc. and Calpine.  Each ofthese entities has issued guarantees of the payment obligations of therespective tolling counterparties under the tolling agreements.  Calpine alsoissued letters of credit totaling $40.0 million which provide additional creditsupport in the event CES does not fulfill its obligations under the CalpineTolling Agreements.  Calpine letters of credit totaling $25.0 million expire bythe end of 2006.  The credit ratings of these parent companies are belowinvestment grade.  Failure by Williams or CES to perform under their respectivetolling agreements could adversely impact Cleco's results of operations,financial condition, and cash flows.

The following list discusses some possibleadverse consequences if either Williams or CES, Cleco's remaining tollingcounterparties, should fail to perform their obligations under their respectivetolling agreements, or if Cleco Corporation or its affiliates are not in compliancewith loan agreements or bond indentures:
-  Cleco'sfinancial condition, results of operations, and cash flows may be adverselyaffected by the failure of counterparties to pay amounts due and may not be consistentwith historical and projected results.
-  Clecomay not be able to enter into replacement agreements on terms as favorable asexisting agreements, or at all.
-  Clecowould be required to test any long-lived generation asset for impairment if thetolling counterparty defaulted under the related tolling agreement.  If it wasdetermined that an impairment existed, the asset would be written down to itsfair market value, which could materially adversely affect Cleco's results ofoperations and financial condition.  For more information on long-lived assets,see "- Critical Accounting Policies."
-  Possibleacceleration of Cleco's project-level debt, in particular under provisions ofthe bonds issued by Evangeline, the bondholdershave the right to demand the entire outstanding principal amount ($197.8million at December 31, 2004) plus accrued interest to be immediately due andpayable upon a default under the Evangeline Tolling Agreement by Williams.  Clecois not aware of any such default by Williams at this time.  If the bondholderswere to exercise this right, Cleco might, among other things, refinance thebonds, pay off the bonds with other borrowings or the proceeds of issuances ofadditional debt, or cause Evangeline to seek protection under federalbankruptcy laws.  In addition, the trustee of the bonds could foreclose on themortgage and assume ownership of the plant.  Any alternative financing wouldlikely be on less favorable terms than the existing terms.  The bonds issued byEvangeline are nonrecourse to Cleco Corporation.

The outstanding amount ($127.6 million atDecember 31, 2004) due under the Senior Loan Agreement related to thePerryville facility was deemed accelerated upon the bank-ruptcy filings byPerryville and PEH.  As a result of the commencement of such bankruptcy casesand by virtue of the automatic stay under the U.S. Bankruptcy Code, thelenders' ability to exercise their remedies under the Senior Loan Agreement,including, but not limited to, their ability to fore-close on the mortgage orassume ownership of the Perryville facility, are significantly limited andwould require approval of the Perryville and PEH Bankruptcy Court.  Foradditional information on the Senior Loan Agreement and bankruptcy filings, seeItem 8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 26 - Perryville."

***Expenses areprimarily affected by the following factors:***

Midstream's expenses include impairments oflong-lived assets, depreciation, maintenance, and other operations expenses.  Theimpairment charges relate to triggering events as defined by SFAS No. 144.  Depreciationexpense is affected by the cost of the facility in service, the time thefacility was placed in service, and the estimated useful life of the facility. Maintenance expenses generally depend on the physical characteristics of thefacility, the frequency and duration of the facility's operations, and theeffectiveness of preventive maintenance.  Other operating expenses mainlyrelate to administrative expenses and employee benefits.

**Midstream's Results of Operations -Year ended December 31, 2004,Compared to Year ended December 31, 2003**

Midstream's net income applicable to member'sequity for 2004 was $17.9 million, significantly above the $85.3 million lossrecorded in 2003.  Factors affecting Midstream during 2004 are described below.

***Perryville***

On January 28, 2004, Perryville reached anagreement to sell its 718-MW power plant to Entergy Louisiana and entered intothe Power Purchase Agreement to sell the output of the Perryville facility toEntergy Services.  To facilitate an orderly sales process, Perryville and PEHfiled voluntary petitions in the Perryville and PEH Bankruptcy Court forprotection under Chapter 11 of the U.S. Bankruptcy Code.  The sale of thePerryville facility is subject to various regulatory approvals and to EntergyLouisiana's ability to recover all of its costs of acquiring the Perryvillepower plant through base rates, fuel adjustment charges or other such rates orregulatory treatment as deemed solely acceptable to Entergy Louisiana.  Thesale is expected to be completed by the third quarter of 2005.  For additionalinformation on the Sale Agreement, Power Purchase Agreement, and bankruptcyfilings, see Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 26 - Perryville."

29
****
The deconsolidation of Perryville and PEH fromCleco in connection with their bankruptcy filings affected Midstream's earningsfor 2004 compared to 2003, since no income or loss was recognized inMidstream's consolidated financial statements subsequent to the bankruptcyfiling on January 28, 2004.  Consequently, the chart below does not reflectoperating results for Perryville and PEH after January 28, 2004, as compared to2003.  For additional information on Perryville, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 26- Perryville."

***Evangeline***

In accordance with FIN 46R, Cleco was required todeconsolidate Evangeline from its consolidated financial statements and beginreporting its investment in Evangeline on the equity method of accounting.  Asa result, effective March 31, 2004, the assets and liabilities of Evangeline nolonger are reported on Cleco Corporation's Consolidated Balance Sheet but insteadare represented by one line item corresponding to Cleco's equity investment inEvangeline.  Effective April 1, 2004, Evangeline revenue and expenses arenetted and reported on one line item as equity income from investees on ClecoCorporation's Consolidated Statements of Operations.  Consequently, the chartbelow reflects net operating results for Evangeline for the second, third, andfourth quarters of 2004 on the equity income from investees' line as comparedto being reported on various line items for 2003.  For additional informationon FIN 46R and the deconsolidation of Evangeline, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 29- Variable Interest Entities."

***Cleco Energy***

In June 2004, management decided to sellsubstantially all of Cleco Energy's assets and discontinue Cleco Energy'snatural gas marketing, pipeline, and production operations after the sale.  OnSeptember 15, 2004, Cleco Energy completed the sale of its oil and gas productionproperties and on November 16, 2004, completed the sale of its natural gaspipeline and marketing operations.  Prior to the sale of Cleco Energy's assetsand in accordance with SFAS No. 144, the property, plant and equipment of ClecoEnergy was classified as held for sale on Cleco Corporation's ConsolidatedBalance Sheet, and the related operations were classified as discontinued onCleco Corporation's Consolidated Statements of Operations.  Consequently, thenet operating results for Cleco Energy for 2004 and 2003 are reported asdiscontinued operations in the chart below.  For additional information on SFASNo. 144 and the discontinued operations and sale of Cleco Energy's assets, seeItem 8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 17 - Discontinued Operations and Dispositions."

                                                         FOR THE YEAR ENDED DECEMBER 31,

              FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

**2004**

              2003

         VARIANCE

             CHANGE

Operating revenue

     Tolling operations

** $   10,255**

   $      98,726

   $      (88,471)

        (89.61)%

     Energy trading, net

**             -**

          (2,844)

           2,844

                        *

     Energy operations

**          53**

               556

             (503)

        (90.47)%

     Other operations

**          62**

               691

             (629)

        (91.03)%

     Affiliate revenue

**     4,474**

                    -

           4,474

                        *

     Intercompany revenue

**        285**

               168

              117

          69.64 %

          Operating revenue, net

**   15,129**

         97,297

       (82,168)

        (84.45)%

Operating expenses

     Purchases for energy    operations

**        208**

           1,080

              872

          80.74 %

     Other operations

**     9,222**

    

         32,867

        23,645

          71.94 %

     Maintenance

**     3,314**

         15,732

        12,418

          78.93 %

     Depreciation

**     2,197**

         21,168

        18,971

          89.62 %

     Restructuring charge

**       (161)**

                 42

              203

                        *

     Impairments of long-lived assets

**             -**

      147,993

      147,993

                        *

     Taxes other than income taxes

**  282**

           365

     83

       22.74 %

               Total operating  expenses

**   15,062**

      219,247

      204,185

          93.13 %

Operating income (loss) 

** $          67**

   $   (121,950)

   $     122,017

                        *

Equity income from investees

** $   47,538**

   $        31,649

   $       15,889

          50.20 %

Other expense

** $          39**

   $             862

   $            823

          95.48 %

Interest charges

** $   17,764**

   $        38,753

   $       20,989

          54.16 %

Federal and state income tax expense (benefit)

** $   12,022**

  $     (49,250)

  $    (61,272)

   *

Income (loss) from discontinued operations,  including loss on disposal 

** $          70**

   $       (5,161)

  $        5,231

          *

Net income (loss)

** $   17,899**

   $     (85,313)

   $    103,212

                        *

*    Not meaningful

***Tolling Operations***

Tolling operations revenue decreased $88.5million, or 89.6%, in 2004 compared to 2003, largely as a result of the bankruptcyfilings of the Mirant Debtors, MAEM's rejection of the Perryville Tolling Agreement,the subsequent bankruptcy filings of Perryville and PEH, and their subsequentdeconsolidation from Cleco's consolidated results.  In addition, Cleco's accountingfor Evangeline on the equity method in accordance with FIN 46R also reducedtolling operations revenue.

***Energy Trading, Net***

Energy trading, net increased $2.8 million in 2004compared to 2003.  The increase was due to the discontinuation of Midstream'sspeculative trading activities in late 2002 as well as amounts required to bepaid in 2003 to Cleco Power under the Consent Agreement.

***Affiliate Revenue***

Affiliate revenue increased $4.5 million in 2004compared to 2003.  The increase was primarily due to affiliate transactionswith Perryville, PEH, and Evangeline that no longer are eliminated as a resultof those companies' deconsolidation from Cleco.

30
****
***OperatingExpenses***

Operating expenses decreased $204.2 million, or93.1%, in 2004 compared to 2003, primarily due to the $148.0 million impairmentcharges recorded at Perryville during 2003.  In addition, operating expensesalso decreased as a result of the deconsolidation of Perryville, PEH, andEvangeline from Cleco's consolidated results.

***Equity Income fromInvestees***

Equity income from investees increased $15.9 million,or 50.2%, for 2004 compared to 2003.  The increase was largely due to a $19.9million increase at Evangeline as a result of the changein reporting for Evangeline effective April 1, 2004, in accordance withFIN 46R.  In addition, earnings at Evangeline increased compared to 2003 as aresult of the reassessment of the useful life of the facility's combustionturbine parts and the expensing of prepaid costs under its long-term maintenanceagreement with the turbine manufacturer in 2003.  This increase was partiallyoffset by a $4.0 million decrease in equity earnings at APH as a result of lowerrevenues and higher expenses at Acadia.  Revenue at Acadia was lower as aresult of lower tolling agreement capacity payments (largely offset by priorityearnings) and outages that occurred during 2004.  Expenses were higher due to higheravailability penalties, replacement power costs, and increased maintenanceexpenses at the facility.  For additional information on Evangeline and Acadia,see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 13 - Equity Investment in Investees."

***Other Expense***

Other expense decreased$0.8 million, or 95.5%, during 2004 compared to 2003, primarily due to the 2003payment of a $0.8 million civil penalty agreed to in the Consent Agreement.  Foradditional information on the Consent Agreement, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 24- FERC Settlement."

***Interest Charges***

Interest charges decreased $21.0 million, or 54.2%,during 2004 compared to 2003, primarily due to the repayment of Midstream'scredit facility during the first quarter of 2004 and the deconsolidation of Perryville,PEH, and Evangeline from Cleco's consolidated results. 

***IncomeTaxes***

Income tax expense increased $61.3 million during2004 compared to the same period of 2003.  Midstream's effective income taxrate increased from 38.1% to 40.3% during 2004 compared to 2003 largely as aresult of a 2003 non-tax deductible civil penalty of $0.8 million paid to FERCin accordance with the Consent Agreement and a 2004 increase in the accrual oftax contingency reserves.  Effective tax rates also were affected by therelative size of pre-tax income to these items.  Pre-tax income during 2004increased $159.3 million compared to the same period of 2003.  For informationabout the assumptions and estimates underlying Midstream's accounting for theeffect of income taxes, see - "Critical Accounting Policies."

***DiscontinuedOperations, Net of Tax***

Discontinued operations, net of tax increased $5.2million during 2004 compared to 2003, primarily due to an impairment charge recordedat Cleco Energy during 2003 and a gain on disposal from the sale of ClecoEnergy's natural gas pipeline and marketing operations on November 16, 2004.  Partiallyoffsetting these increases were lower gas margins and a loss on disposal fromthe sale of Cleco Energy's oil and gas production properties on September 15,2004.  For additional information on the discontinued operations and sale of Cleco Energy's assets,see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 17 - Discontinued Operations and Dispositions."

**Cleco Consolidated Results of Operations -Year ended December 31, 2003,Compared to Year ended December 31, 2002**

                                                         FOR THE YEAR ENDED DECEMBER 31,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

              2003

              2002

       VARIANCE

          CHANGE

Operating revenue, net

   $   803,452

   $   692,531

$     110,921

        16.02 %

Operating expenses

      814,999

      530,108

    (284,891)

      (53.74)%

Operating (loss) income 

   $  (11,547)

   $   162,423

$  (173,970)

                      *

Equity income from investees

   $     31,649

   $     16,204

$       15,445

        95.32 %

Interest charges

   $     70,789

   $     60,071

$    (10,718)

      (17.84)%

(Loss) income from continuing operations

   $  (29,768)

   $     80,373

$  (110,141)

                      *

Loss from discontinued operations, net

 $    (5,161)

 $    (8,498)

$         3,337

       39.27 %

Net (loss) income applicable to common stock

   $  (36,790)

   $     70,003

$  (106,793)

                     *

*    Not meaningful

Consolidated net loss applicable tocommon stock in 2003 was $36.8 million, significantly below the $70.0 millionincome earned in 2002.  The decrease of $106.8 million was principally due to$148.0 million of impairment charges recorded at Midstream during 2003.  Alsocontributing to the decrease were higher interest expense and higher corporatelegal and consulting fees associated with the FERC and LPSC investigations ofcertain trading activities.  On July 25, 2003, the FERC approved a settlementresolving its investigation of Cleco's energy marketing and trading practices,a review of which was initially disclosed in November 2002.  The settlement includedpenalties and remedies that resulted in a $0.9 million decrease in consolidatedpre-tax net income.  For information on the trading activities, the investigations,and the settlement of the FERC's investigation, see Item 8 - "Financial Statementsand Supplementary Data - Notes to the Financial Statements - Note 16 -Litigation and Other Commitments and Contingencies - Fuel Audit," and "- GasPut Options and Gas Transportation Charge," - Note 19 - "Review of TradingActivities," and Note 24 - "FERC Settlement."

31
****
Operating revenue, net increased $110.9 million, or16.0%, in 2003 compared to 2002, largely as a result of higher base, fuel costrecovery, and transmission revenues from utility customer sales, and highertolling revenue from commencement of full commercial operation of thePerryville facility in the third quarter of 2002.  Partially offsetting theseincreases were lower trading margins and lower other operations revenue.

Operating expenses increased $284.9 million, or53.7%, in 2003 compared to 2002, primarily due to the $148.0 millionimpairments of long-lived assets at Perryville.  Also contributing to thisincrease were higher prices for natural gas purchased for fuel generation, increaseddepreciation expense at Perryville and Evangeline, and increased otheroperations and maintenance expenses at Perryville, Evangeline, and Cleco Power. These increases in operating expenses were partially offset by the absence in2003 of organizational restructuring expenses recognized in 2002.

Equity income from investees increased $15.4million, or 95.3%, in 2003 compared to 2002, primarily as a result of thecommencement of full commercial operation of the Acadia facility in August 2002.  Interest charges increased $10.7 million, or 17.8%,compared to 2002, primarily due to the cessation of capitalizinginterest-related expenses associated with the Perryville facility and Acadiaonce these facilities commenced commercial operation and higher interest rates.

Results of operations for Cleco Power andMidstream are more fully described below.

**Cleco Power's Results of Operations -Year ended December 31, 2003,Compared to Year ended December 31, 2002**

Cleco Power's net income applicable to member'sequity for 2003 decreased $2.6 million, or 4.3%, compared to 2002.  Contributingfactors include:
-  highercapacity payments, 
-  highermaintenance expense, and
-  higherdepreciation expense.

These were partially offset by:
-  higherbase revenue from customer sales and energy management services,
-  lowerlosses from energy trading,
-  highertransmission revenue,
-  lowerelectric customer credits, and
-  theabsence of an organizational restructuring charge in 2003.
 
                           FOR THE YEAR ENDED DECEMBER 31,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

              2003

              2002

       VARIANCE

CHANGE
Operating revenue

     Base

   $   311,979

   $   305,383

   $        6,596

          2.16 %

     Fuel cost recovery

      364,023

      262,719

      101,304

        38.56 %

     Electric customer credits

         (1,562)

         (2,900)

           1,338

        46.14 %

     Energy trading, net

              626

             (752)

           1,378

                      *

     Other operations

        30,013

        29,331

              682

          2.33 %

     Intercompany revenue

           2,209

           1,708

              501

        29.33 %

          Operating revenue, net

      707,288

      595,489

      111,799

        18.77 %

Operating expenses

     Fuel used for electric generation -  recoverable

      161,690

      136,346

       (25,344)

      (18.59)%

     Power purchased for utility customers -  recoverable

      201,556

      127,782

       (73,774)

      (57.73)%

     Non-recoverable fuel and power  purchased

        31,314

        25,544

         (5,770)

      (22.59)%

     Other operations

        62,742

        62,794

                 52

          0.08 %

     Maintenance

        44,542

        28,170

       (16,372)

      (58.12)%

     Depreciation

        54,084

        52,233

         (1,851)

        (3.54)%

     Restructuring charge

             (315)

           8,099

           8,414

                      *

     Taxes other than income taxes

        37,062

        36,892

             (170)

        (0.46)%

               Total operating expenses

      592,675

      477,860

    (114,815)

      (24.03)%

Operating income

   $   114,613

   $   117,629

   $     (3,016)

        (2.56)%

Other expense

   $       7,775

   $       4,122

   $     (3,653)

      (88.62)%

Federal and state income taxes

   $     29,846

   $     32,172

   $        2,326

          7.23 %

Net income 

   $     57,008

   $     59,574

   $     (2,566)

        (4.31)%

*    Not meaningful

 

                            FOR THE YEAR ENDED  DECEMBER 31,

(Million kWh)

              2003

              2002

         FAVORABLE/

    (UNFAVORABLE)

Electric sales

     Residential

           3,429

           3,400

               0.85 %

     Commercial

           1,781

           1,722

               3.43 %

     Industrial

           2,786

           2,756

               1.09 %

     Other retail

              595

              593

               0.34 %

     Unbilled

                 39

                 30

             30.00 %

               Total retail

           8,630

           8,501

               1.52 %

     Sales for resale

           1,066

              715

             49.09 %

Total retail and wholesale customer sales

           9,696

           9,216

               5.21 %

Short-term sales to other utilities and energy  marketers

              195

              386

           (49.48)%

               Total electric sales

           9,891

           9,602

               3.01 %

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

                   FOR THE YEAR ENDED                             DECEMBER 31,

               2003

               2002

**Cooling degree-days**

** **

     (Decrease) increase from normal

        (2.27)%

          3.96 %

     (Decrease) increase from prior year

        (5.99)%

          5.13 %

**Heating degree-days**

     Increase from normal

          7.76 %

          7.65 %

     Increase from prior year

          0.10 %

        13.11 %

32
****
***Base***

Base revenue during 2003 increased $6.6 million,or 2.2%, compared to the same period in 2002.  The increase was primarily due to slightly higher volumes of retail and wholesale customer kWhsales.  Base revenue also increased approximately $1.1 million as a result ofenergy management services contracts that commenced in May 2003.

***Fuel Cost Recovery***

Fuel cost recovery revenue billed to customers during2003 compared to the same period in 2002 increased $101.3 million, or 38.6%,primarily as a result of an increase of 37.2% in the average per unit cost ofpower purchased from the energy market in 2003 compared to 2002 and a 25.6%increase in the average per unit cost of fuel used for electric generation.  Theincrease in fuel used for electric generation is primarily the result of highernatural gas prices.  The increase in the per unit cost of purchased power wasinfluenced by higher natural gas prices, as well as other market factors.  Forinformation on Cleco Power's ability to recover fuel and purchase power costs,see "- Significant Factors Affecting Cleco Power - Fuel and purchased power areprimarily affected by the following factors."

***Electric Customer Credits***

Electriccustomer credits during 2003 decreased $1.3 million, or 46.1%, compared to thesame period in 2002.  This decrease in electric customer credits is aresult of the revised estimate of the accruals for the rate refund based onactual results for the 12-month period ended September 30, 2003.  The potentialrefunds are based on results for each 12-month period ended September 30.  Foradditional information on the accrual for electric customer credits, see Item8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 12 - Accrual of Electric Customer Credits."

***Energy Trading, Net***

Decreases in power and gas volumes from 2002 to2003 were directly related to the discontinuation of speculative tradingactivities in the fourth quarter of 2002.  Most of Cleco Power's exposure tothe market was mitigated in the summer of 2002 by transactions entered intospecifically to offset open positions.  Volumes and associated revenue wereaffected by these positions during 2003.

Generally, Cleco Power's energy tradingtransactions are considered non-hedging derivatives under SFAS No. 133, asamended, which requires that the transactions be reported at fair market valueor "mark-to-market."  The chart below presents the components of energytrading, net.

                                                   FOR  THE YEAR ENDED DECEMBER 31,

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

             2003

              2002

       VARIANCE

          CHANGE

Energy trading margins

   $        136

   $        (153)

   $         289

                   *

Mark-to-market

             490

             (599)

           1,089

                   *

     Energy trading, net

   $        626

   $        (752)

   $      1,378

                   *

*    Not meaningful

Energy trading, net increased $1.4million in 2003 compared to the same period in 2002.  This increase wasprimarily a result of amounts required to be paid to Cleco Power pursuant tothe Consent Agreement and a negative adjustment for premiums on certain gas putoptions recorded in the third quarter of 2002.  In addition, Cleco Power'sefforts to mitigate most of its exposure to the market following the discontinuationof speculative trading activities in the fourth quarter of 2002 and volatilityin power and natural gas prices contributed to the fluctuations between each period. For additional information on the Consent Agreement and FERC settlement, seeItem 8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 24 - FERC Settlement."

***Operating Expenses***

Operating expenses increased $114.8 million, or24.0%, in 2003 compared to the same period of 2002.  Fuel used for electricgeneration increased $25.3 million, or 18.6%, primarily due to an increase inthe average per unit equivalent cost of fuel from $25.17 per MWh in 2002 to$32.30 per MWh in 2003.  Power purchased for utility customers increased $73.8million, or 57.7%, largely due to an increase in the average per unit cost andvolumes of purchased power.  The increase in power purchased for utilitycustomers was partially offset by a $1.1 million decrease resulting frompayments received under the Consent Agreement.  For additional information onthe Consent Agreement and the FERC settlement, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 24- FERC Settlement."  Non-recoverable fuel and power purchased increased $5.8million, or 22.6%, primarily as a result of higher capacity payments madeduring 2003.  Increases in fuel used for electric generation and powerpurchased for utility customers both were influenced significantly by highernatural gas prices.  As a result, total system cost increased from $26.22 perMWh in 2002 to $35.04 per MWh in 2003.  Maintenance expense during 2003 increased$16.4 million, or 58.1%, compared to 2002.  The primary reasons for this increasewere higher maintenance expenses from Cleco Power's transmission and distributionreliability initiative, production activities, restorationefforts associated with Tropical Storm Bill, and the amortization of deferred expensesrelated to Hurricane Lili and Tropical Storm Isidore.  Depreciation expenseincreased $1.9 million, or 3.5%, as a result of normal recurring additions tofixed assets.  Restructuring charge decreased $8.4 million during 2003 comparedto 2002 as a result of the absence of an organizational restructuring in 2003. The restructuring charge credit of $0.3 million for the year ended December 31,2003, represents adjustments made during 2003 to 2002 original estimatedamounts.  For additional information on the restructuring charge, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 20- Restructuring Charge."

33
****
***Other Expense***

Other expense increased $3.7 million, or 88.6%,during 2003 compared to 2002, primarily due to increased donations, increasedcommunity project involvement, and payments made to community action agenciesto assist low-income customers.  Also contributing to the increase in otherexpenses were higher expenses related to work performed by Cleco Poweremployees for the restoration of power along the east coast after HurricaneIsabel in 2003.

***Income Taxes***

Income tax expense in 2003 decreased $2.3 million,or 7.2%, compared to 2002.  The decrease was primarily due to lower taxable incomecompared to the same period of 2002.  For information about assumptions andestimates underlying Cleco Power's accounting for the effect of income taxes,see - "Critical Accounting Policies."

**Midstream's Results of Operations -Year ended December 31, 2003,Compared to Year ended December 31, 2002**

Midstream's net loss applicable to member's equityfor 2003 was $85.3 million, significantly below the $14.7 million earned in2002.  Contributing factors include:
-  impairmentsof long-lived assets,
-  lowermargins from energy trading, 
-  lowerother operations revenue,
-  higherother operations expense,
-  highermaintenance expense,
-  higherdepreciation expense, and
-  higherinterest charges.

These were partially offset by:
-  highertolling revenue,
-  theabsence of an organizational restructuring charge in 2003, and
-  higherequity income from investees.

                                                      FOR  THE YEAR ENDED DECEMBER 31,

             FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

              2003

              2002

       VARIANCE

CHANGE
Operating revenue

     Tolling operations

   $     98,726

   $     90,260

   $         8,466

           9.38 %

     Energy trading, net

         (2,844)

           2,345

         (5,189)

                     *

     Energy operations

              556

           1,436

             (880)

      (61.28)%

     Other operations

              691

           4,652

         (3,961)

      (85.15)%

     Intercompany revenue

              168

              257

               (89)

       (34.63)%

          Operating revenue, net

        97,297

        98,950

         (1,653)

         (1.67)%

Operating expenses

     Purchases for energy operations

           1,080

              859

             (221)

      (25.73)%

     Other operations

        32,867

        24,240

         (8,627)

      (35.59)%

     Maintenance

        15,732

           8,889

         (6,843)

      (76.98)%

     Depreciation

        21,168

        14,545

         (6,623)

      (45.53)%

     Restructuring charge

                 42

           1,364

           1,322

        96.92 %

     Impairments of long-lived assets

      147,993

                    -

    (147,993)

                     *

     Taxes other than income taxes

              365

           1,067

              702

        65.79 %

               Total operating expenses

      219,247

        50,964

    (168,283)

                     *

Operating (loss) income

   $ (121,950)

   $    47,986

   $  (169,936)

                     *

Equity income from investees

   $      31,649

   $    16,204

   $      15,445

        95.32 %

Other expense

   $           862

   $         123

   $        (739)

                     *

Interest charges

   $      38,753

   $    31,212

   $     (7,541)

      (24.16)%

Federal and state income tax (benefit) expense

   $    (49,250)

   $    10,161

   $      59,411

                     *

Loss from discontinued operations    

   $      (5,161)

   $    (8,498)

   $        3,337

        39.27 %

Net (loss) income 

   $    (85,313)

   $    14,660

   $   (99,973)

                     *

*    Not meaningful

***Tolling Operations***

Tolling operations revenue increased $8.5 million,or 9.4%, in 2003 compared to 2002, primarily due to the Perryville facilitycommencing full commercial operation in the third quarter of 2002.  Thisincrease was partially offset by decreased generation from the Evangeline facility,which was dispatched less frequently in 2003 compared to 2002.

***Energy Trading, Net***

Decreases in power and gas volumes and tradingmargins from 2002 to 2003 were directly related to the discontinuation ofMidstream's speculative trading activities in the fourth quarter of 2002.  Mostof Midstream's exposure to the market from positions opened prior to the changein its speculative trading strategy was mitigated in the fourth quarter of 2002by transactions entered into specifically to offset open positions.  Volumesand associated revenue were affected by these positions during 2003.  As ofSeptember 4, 2003, Marketing & Trading had closed all forward trading positions.

Generally, Midstream's energy tradingtransactions are considered non-hedging derivatives under SFAS No. 133, asamended, which requires that the transactions be reported at fair market valueor "mark-to-market."  The chart below presents the components of energytrading, net.

34
** **
                                                  FOR  THE YEAR ENDED DECEMBER 31,

           FAVORABLE/(UNFAVORABLE)

(THOUSANDS)

            2003

              2002

       VARIANCE

            CHANGE

Energy trading margins

   $   (3,217)

   $      2,838

   $    (6,055)

                   *

Mark-to-market

             373

             (493)

              866

                   *

     Energy trading, net

   $   (2,844)

   $      2,345

   $    (5,189)

                   *

*       Not meaningful

Energy trading, net decreased $5.2million in 2003 compared to 2002.  The decrease was primarily due to the discontinuationof Midstream's speculative trading activities in late 2002, as well as amountsrequired to be paid to Cleco Power under the Consent Agreement.  For additionalinformation on the Consent Agreement and FERC settlement, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 24- FERC Settlement."

***Energy Operations***

The $0.9 million, or 61.3%, decrease in energyoperations revenue during 2003 compared to 2002 was primarily due to Marketing& Trading's termination of its energy management services contracts in May2003.

***Other Operations***

Other operations revenue decreased $4.0 million,or 85.2%, in 2003 compared to 2002, primarily due to a change in the accountingtreatment of Midstream's power plant operations, maintenance, and engineeringservices that were provided to Perryville.  Prior to Midstream's purchase ofMirant's 50% ownership interest in Perryville in June 2002, revenue from theseservices was included in other operations revenue since Perryville was a50%-owned joint venture, which did not require elimination of this activity.  Subsequentto the acquisition, Perryville's assets, liabilities, revenue, and expenseswere accounted for on a consolidated basis effective July 2002.  As a result ofthis change in accounting treatment, all revenue associated with Midstream'splant operations for Perryville was included in intercompany revenue and waseliminated.

***Operating Expenses***

Charges of $148.0 million for impairments oflong-lived assets were the principal cause of the significant increase in totaloperating expenses.  For additional information on these charges, see Item 8,"Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 23 - Impairments of Long-Lived Assets."

Other operations expense increased $8.6 million,or 35.6%, during 2003 compared to 2002, primarily due to increased expenses associatedwith the commencement of the Perryville facility's full commercial operation inthe third quarter of 2002.  Additionally, $15.7 million of reserves wererecorded at Perryville in 2003, to reflect potentially uncollectible MAEMreceivables, as a result of Mirant and certain of its affiliates filing avoluntary petition for reorganization under Chapter 11 of the U.S. BankruptcyCode on July 14, 2003, and the related rejection of the Perryville TollingAgreement.  For additional information on Mirant's bankruptcy and the rejectionof the tolling agreement, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 26 - Perryville."  Partiallyoffsetting these increases were decreased other operations expense thatresulted primarily from reduced Midstream participation in wholesale energymarkets (including wholesale generation asset development, project analytics,energy marketing and trading activities, and power plant engineering services).

Maintenance expenses increased $6.8 million, or 77.0%,in 2003 compared to 2002, primarily due to the commencement of the Perryvillefacility's full commercial operation in the third quarter of 2002 and increasedexpenses at Evangeline due to earlier-than-planned replacement of combustionturbine parts and certain repairs on the combustion turbines under the LTPAgreement.  In addition, a fourth quarter 2003 settlement entered into underthe Modified LTP Agreement increased maintenance expense as a result ofexpensing prepaid costs under the previous long-term maintenance agreement.  The$6.6 million, or 45.5%, increase in depreciation expense was largely due to a$3.5 million increase at Perryville following the completion of construction ofthe Perryville facility in the third quarter of 2002, partially offset by lowerdepreciation expense as a result of the asset impairment charges recorded in2003.  Adding to the increase in depreciation expense was a $3.4 millionincrease at Evangeline following design changes to certain combustion turbineparts as provided under the LTP Agreement and reassessment of the useful lifeof combustion turbine parts.  Restructuring charge decreased $1.3 million, or96.9%, during 2003 compared to 2002 as a result of the absence of anorganizational restructuring in 2003.  The $0.7 million, or 65.8%, decrease intaxes other than income taxes during 2003 compared to 2002, was primarily theresult of state franchise tax adjustments made during 2003 that related to 2002and decreased payroll taxes as a result of the transfer of employees to otheraffiliates.

***Equity Income from Investees***

Equity income from investees increased $15.4million, or 95.3%, for 2003 compared to 2002, primarily due to increased equityearnings at APH as a result of Acadia beginning full commercial operation inAugust 2002.  For additional information on Acadia, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 13- Equity Investment in Investees."

***Other Expense***

Other expense increased $0.7 million during 2003compared to 2002, primarily due to the 2003 payment of a $0.8 million civilpenalty agreed to in the Consent Agreement.  For additional information on theConsent Agreement, see Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 24 - FERC Settlement."

***Interest Charges***

Interest charges increased $7.5 million, or 24.2%,during 2003 compared to 2002, primarily due to a change in the treatment ofinterest-related expenses associated with Midstream's asset constructionactivity.  Prior to the third quarter of 2002 

 

35
** **
commencement of commercialoperation at Perryville and Acadia, interest related to these projects wascapitalized in accordance with SFAS No. 58.  Partially offsetting this increasein interest charges was the suspension of interest accruals and payments onPerryville's subordinated debt to Mirant as a result of Mirant's bankruptcy andMAEM's subsequent failure to remit pre-petition amounts under the PerryvilleTolling Agreement.

***Income Taxes***

Income tax accruals provided a net tax benefit of$49.3 million for 2003, a decrease of $59.4 million in net tax expense whencompared to 2002.  The decrease was largely due to a loss recognized byMidstream as a result of impairment charges recorded in 2003.  For informationabout the assumptions and estimates underlying Midstream's accounting for theeffect of income taxes, see - "Critical Accounting Policies."

***DiscontinuedOperations, Net of Tax***

Discontinued operations, net of tax increased $3.3million, or 39.3%, during 2003 compared to 2002, primarily due to higher gasmargins.  Partially offsetting this increase was an impairment charge recorded onCleco Energy's proved oil and natural gas reserves during 2003.

**CLECO POWER LLC - NARRATIVE ANALYSIS OFRESULTS OF OPERATIONS**

For anarrative analysis of the results of operations explaining the reasons formaterial changes in the amount of revenue and expense items of Cleco Powerbetween the year ended December 31, 2004, and the year ended December 31, 2003,see "Results of Operations - Cleco Power's Results of Operations - Yearended December 31, 2004, Compared to Year ended December 31, 2003."

For anarrative analysis of the results of operations explaining the reasons formaterial changes in the amount of revenue and expense items of Cleco Powerbetween the year ended December 31, 2003, and the year ended December 31, 2002,see "Results of Operations - Cleco Power's Results of Operations - Yearended December 31, 2003, Compared to Year ended December 31, 2002."

The narrative analyses referenced above shouldbe read in combination with Cleco Power's Financial Statements and the Notes containedin this Form 10-K.

**CRITICAL ACCOUNTING POLICIES**

Cleco's critical accounting policies include thoseaccounting policies that are both important to Cleco's financial condition andresults of operations and those that require management to make difficult,subjective, or complex judgments about future events, which could result in amaterial impact to the financial statements of Cleco Corporation's segments orto Cleco as a consolidated entity.  The financial statements contained in thisreport are prepared in accordance with accounting principles generally acceptedin the United States of America, which require Cleco to make estimates andassumptions.  Estimates and assumptions about future events and their effectscannot be made with certainty.  Management bases its current estimates andassumptions on historical experience and on various other factors that are believedto be reasonable under the circumstances.  On an ongoing basis, these estimatesand assumptions are evaluated and, if necessary, adjustments are made whenwarranted by new or updated information or by a change in circumstances orenvironment.  Actual results may differ significantly from these estimatesunder different assumptions or conditions.  For additional information onCleco's accounting policies see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 2 - Summary of SignificantAccounting Policies."

Cleco believes that the following are the mostsignificant critical accounting policies for the Company:
-  Clecoaccounts for pensions and other postretirement benefits under SFAS No. 87 andSFAS No. 106.  To determine assets, liabilities, income, and expense relatingto pension and other postretirement benefits, management must make assumptionsabout future trends.  Assumptions and estimates include, but are not limitedto, discount rate, expected return on plan assets, future rate of compensationincreases, and medical inflation trend rates.  These assumptions are reviewedand updated on an annual basis.  Changes in the rates from year to year andnewly enacted laws could have a material effect on Cleco's financial conditionand results of operations by changing the recorded assets, liabilities, income,expense, or required funding of the pension plan obligation.  One component ofpension expense is the expected return on plan assets.  It is an assumedpercentage return on the market-related value of plan assets.  Themarket-related value of plan assets differs from the fair value of plan assetsby the amount of deferred asset gains or losses.  Actual asset returns thatdiffer from the expected return on plan assets are deferred and recognized inthe market-related value of assets on a straight-line basis over a five-yearperiod.  This approach to amortization of gains and losses has the effect of reducingthe volatility of pension expense attributable to investment returns.  Overtime, it is not expected to reduce or increase the pension expense relative toan approach that immediately recognizes losses and gains.  As a result of the annualreview of assumptions, Cleco has decided to reduce the expected return on planassets from 8.7% to 8.5%, to update the mortality table, and to reduce thediscount rate from 6.0% to 5.75%.  The cumulative effect of these threeassumption changes is expected to increase 2005 expense by approximately $1.6million as compared to using the assumptions used to calculate expense in2004.  Similar assumptions are used to calculate both required and discretionarycontributions.  In 2004 and 2003, Cleco Power made discretionary contributionsof $14.0 million and $2.9 million, respectively.  Future discretionary contributionsmay be made depending on changes in assumptions, the ability to utilize thecontribution as a tax deduction and requirements concerning 

 

36
****
recognizing aminimum pension liability.  Currently, Cleco Power does not expect to makerequired contributions for approximately ten years.  However, the ten-year timeperiod may be shortened by a decrease in discount rates, changes in lawsconcerning the calculation, or a significant downturn in the return on thepension plan investments.  For additional information on pensions and otherpostretirement benefits, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 9 - Pension Plan and EmployeeBenefits."
-  Clecoaccounts for income taxes under SFAS No. 109.  Under this method, income taxexpense and related balance sheet amounts are comprised of a "current" portionand a "deferred" portion.  The current portion represents Cleco's estimate ofthe income taxes payable or receivable for the current year.  The deferredportion represents Cleco's estimate of the future income tax effects of eventsthat have been recognized in the financial statements or income tax returns inthe current or prior years.  Cleco makes assumptions and estimates when itrecords income taxes, such as its ability to deduct items on its tax returns,the timing of the deduction, and the effect of regulation by the LPSC on incometaxes.  Cleco's income tax expense and related assets and liabilities could beaffected by its assumptions and estimates, changes in such assumptions andestimates, and by ultimate resolution of assumptions and estimates with taxingauthorities.  The actual results may differ from the estimated results based onthese assumptions and may have a material effect on Cleco's results ofoperations.  For additional information about Cleco Corporation's income taxes,see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 10 - Income Taxes."
-  ClecoCorporation consolidates entities as required by ARB No. 51, as amended by SFASNo. 94, and interpreted by FIN 46R.  Generally, a parent consolidates entitiesin which it controls, either directly or indirectly, the majority of the votinginterest in an entity.  Additionally, a parent could be required to consolidatean entity in which it does not control a majority voting interest if the subsidiaryis a variable interest entity and contains certain criteria in FIN 46R.  Anentity is a variable interest entity if it lacks the ability to finance itsactivities without support from other parties; if its owners lack controllingfinancial interest in the entity; or if the entity either conducts substantiallyall of its activities with or on behalf of an investor or if voting rights aredisproportional to risks and rewards.  While consolidation or deconsolidationwill not affect net income applicable to common shareholders, it may affectspecific line items within the income statement, such as revenue, specificexpense line items, and income from equity investees.  Consolidation ordeconsolidation of an entity will affect specific balance sheet items such asproperty, plant and equipment and long-term debt, which will cause changes intotal assets and total liabilities.  Shareholders' equity should not beaffected by consolidation or deconsolidation of entities.
-  Partof the compensation employees and directors receive is in the form of equityinstruments.  The instruments may take the form of restricted stock, stockoptions or other types of equity instruments as described in the plans.  Clecorecognizes expense related to equity instruments granted to employees anddirectors using the intrinsic value method as described in APB Opinion No. 25,not using the fair value method as described in SFAS No. 123.  Recordingcompensation expense using the intrinsic value method described in APB OpinionNo. 25 requires management to estimate the probability of instruments vestingand the number of instruments that vest.  The probability assessment andestimate of the number of instruments requires management to evaluate therelative total return to Cleco shareholders as compared to a peer group, growthin net income and return of investment over a three-year period.  Changes inestimates could cause significant changes in net income.  For additionalinformation on stock-based compensation, see Item 8, "Financial Statements andSupplemental Data - Notes to the Financial Statements - Note 2 - Summary ofSignificant Accounting Policies - Stock-Based Compensation."

***Cleco Power***

SFAS No. 71 determines how to account for actionsby regulators that control the price an entity can charge its customers.  ClecoPower's prices are regulated by the LPSC and the FERC.  By determining whatcosts can be recovered by Cleco Power through the price it charges itscustomers, regulatory assets and liabilities are recognized.  Future changes madeby the regulatory bodies could have a material impact on the operations andfinancial condition of Cleco Power.  Below are three areas that could bematerially impacted by future actions of regulators.
-  The LPSC determines the ability of Cleco Power to recover prudent costs incurred indeveloping long-lived assets.  If the LPSC were to rule that the cost ofcurrent or future long-lived assets was imprudent and not recoverable, ClecoPower could be required to write down the imprudent cost and incur a correspondingimpairment loss.  At December 31, 2004, the carrying value of Cleco Power'slong-lived assets was $1.1 billion.  Currently, Cleco Power has concluded thatnone of its long-lived assets are impaired.
-  ClecoPower has concluded it is probable that regulatory assets can be recovered fromratepayers in future rates.  At December 31, 2004, Cleco Power had $133.2million in regulatory assets, net of regulatory liabilities.  Actions by theLPSC could limit the recovery of these regulatory assets, causing Cleco Powerto record a loss on some or all of the regulatory assets.  For additional informationon the LPSC and regulatory assets, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 2 - Summary ofSignificant     37 

Accounting Policies - Regulation," Note 3 - "Regulatory Assets andLiabilities," and "- Financial Condition - Regulatory Matters - LigniteDeferral."
-  The LPSC determines the amount and type of fuel and purchased power costs thatCleco Power can charge customers through the fuel adjustment clause.  Changesin the determination of allowable costs already incurred by Cleco Power couldcause material changes in fuel revenue.  In 2004, the LPSC accepted asettlement relating to its fuel audit that required Cleco Power to refund $16.0million to customers in 2005.  This refund was made to customers in February2005.  For more information about the settlement see, Item 8, "Financial Statementsand Supplementary Data - Notes to the Financial Statements - Note 16 -Litigation and Other Commitments and Contingencies - Fuel Audit."  For theyears ended December 31, 2004, 2003, and 2002, Cleco Power reported fuelrevenue of $400.1 million, $364.0 million, and $262.7 million, respectively.  Foradditional information on the LPSC and the fuel adjustment clause, see "-Financial Condition - Regulatory Matters - Retail Rates of Cleco Power," "-Results of Operations - Cleco Power - Significant Factors Affecting Cleco Power- Fuel and purchased power are primarily affected by the following factors." 

***Midstream***

Generally, Midstream is most affected by marketconditions and changes in contract counterparty credit ratings and financialcondition.  The most important are listed below.
-  Midstreamrecords income from Evangeline as income from an equity investment and accountsfor the Evangeline Tolling Agreement as an operating lease.  If the tollingagreement were to be modified to the extent that it would make lease accountingno longer appropriate, future results could materially differ from thosecurrently reported.  Under current lease accounting rules, over the first 10years of the tolling agreement, Evangeline will recognize revenue that will notbe billed and collected until the last 10 years of the tolling agreement.  If leaseaccounting were to cease, the revenue would be recognized as billed, causingthe revenue recognized in the first 10 years to be lower than it would havebeen under lease accounting.  As of December 31, 2004, Evangeline had recorded$18.1 million in revenue that will not be billed and collected until the last10 years of the tolling agreement, beginning in the year 2010.  If the tollingagreement is modified substantially, the $18.1 million may not be collectible,and Evangeline may be required to incur a loss of some or all of the $18.1 million. For additional information on the tolling agreement, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 14- Operating Leases."
-  Certaintriggering events could cause Midstream to determine that its long-lived assetsmay be impaired according to SFAS No. 144.  Triggering events include, but arenot limited to, a significant decrease in the market value of long-livedassets, significant changes in a tolling agreement counterparty's financialcondition, a significant change in legal factors, such as adverse changes inenvironmental laws, or a current operating or cash flow loss combined with aprojection of continued losses in the future.  Any impairment calculated pursuantto SFAS No. 144 is subject to many assumptions and estimations.  Managementmust make assumptions about expected future cash flows, long-term interestrates, and estimations about the probability of the occurrence ornon-occurrence of future events.  Differences between the estimate made at aparticular balance sheet date and actual events could cause material adjustmentsto an impairment charge.  At December 31, 2004, Midstream had $2.3 million inlong-lived assets.  Additionally, two equity method accounting entities,Evangeline and Acadia, had long-lived assets of $198.1 million and $462.7million, respectively.  If the carrying value of a long-lived asset could notbe recovered through cash flows relating to that long-lived asset, the assetwould be written down to its fair market value, resulting in an impairmentcharge.  During 2004, Midstream recorded impairment charges of $1.1 millionrelating to the Cleco Energy proved oil and natural gas reserves.  During 2003,Midstream recorded impairment charges of $148.0 million relating to thePerryville power plant and $8.3 million relating to the Cleco Energy gas assetsand proved oil and natural gas reserves.  Impairment charges at Cleco Energyfor years 2004 and 2003 are reported as discontinued operations on ClecoCorporation's Consolidated Statements of Operations.  For additional informationon the impairment charges, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 23 - Impairments of Long-LivedAssets."
-  Whenthe bankruptcy proceedings of Perryville and PEH are concluded and they emergefrom bankruptcy, the subsequent accounting treatment will be determined basedupon the applicable facts and circumstances existing at such time.  The likelyresults should include Perryville and PEH being reconsolidated on a retroactivebasis from the bankruptcy filing date of January 28, 2004, with ClecoCorporation consolidated results of operations.  For additional information onPerryville, see Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 26 - Perryville."

38
****
**FINANCIAL CONDITION**

**Liquidity and CapitalResources**

**General Considerations andCredit-Related Risks**

***Credit Ratings andCounterparties***

Financing for operational needs and constructionrequirements is dependent upon the cost and availability of external funds fromcapital markets and financial institutions.  Access to funds is dependent uponfactors such as general economic conditions, regulatory authorizations andpolicies, Cleco Corporation's credit rating, the credit rating of ClecoCorporation's subsidiaries, the cash flows from routine operations, and thecredit ratings of project counterparties.  At December 31, 2004, Moody's ratingof Cleco Corporation's senior unsecured debt was Baa3, the rating of ClecoPower's senior unsecured debt was Baa1, and the rating of Cleco Power's seniorsecured debt was A3.  Moody's ratings outlook for Cleco Corporation is negativeand the ratings outlook for Cleco Power is stable.  There were no changes byMoody's to the credit ratings of Cleco Corporation or Cleco Power during 2004. At December 31, 2004, Standard & Poor's Ratings Services rated the seniorunsecured debt of Cleco Corporation at BBB- and Cleco Power at BBB, and ratedCleco Power's senior secured debt at BBB+.  Standard & Poor's outlook forthe ratings is negative due to continued uncertainties surrounding Cleco'smerchant energy activities.  If Cleco Corporation or Cleco Power's creditrating were to be further downgraded by Moody's or downgraded by Standard &Poor's, Cleco Corporation or Cleco Power would be required to pay additionalfees and higher interest rates under their bank credit and other debtagreements.

The parent companies of Cleco's remaining tollingcounterparties are The Williams Companies, Inc. and Calpine.  Each of these entitieshas issued guarantees of the payment obligations of the respective tollingcounterparties under the tolling agreements.  The credit ratings of theseparent companies are below investment grade.  On November 8, 2004, Moody'supgraded its rating of the senior unsecured debt of The Williams Companies,Inc. to B1 from B3 and the rating on its senior secured debt to Ba3 from B2.  Moody'srating of the senior unsecured debt of Calpine is Caa1 and did not change in 2004. Moody's outlook for both The Williams Companies, Inc. and Calpine is stable.  Becauseof this improved credit quality of The Williams Companies, Inc., on November18, 2004, Moody's revised its rating for Evangeline's senior secured bonds toB1 from B3 and noted the outlook as stable.  Cleco notes that these credit ratingsare not recommendations to buy, sell, or hold securities and may be subject torevision or withdrawal at any time by the assigning rating agency.  Each ratingshould be evaluated independently of any other rating.  For information onpossible consequences resulting from failure of Cleco's counterparties toperform their obligations under the tolling agreements and recent eventsrelating to the tolling agreements, see "- Results of Operations - Midstream -Significant Factors Affecting Midstream - Revenue is primarily affected by thefollowing factors."

With respectto any open power or gas trading positions that Cleco may initiate in thefuture, Cleco Corporation may be required to provide credit support (or payliquidated damages).  The amount Cleco Corporation may be required to pay atany point in the future is dependent on changes in the market price of powerand gas, the changes in the open power and gas positions, and changes in theamount counterparties owe Cleco Corporation.  Changes in any of these factorscould cause the amount of requested credit support to increase or decrease.

***Perryville***

The Mirant Debtors filed a voluntary petition forreorganization under Chapter 11 of the U.S. Bankruptcy Code on July 14, 2003.  Thisbankruptcy has significant financial, operational, and business impacts onCleco, the most significant of which is related to the Perryville TollingAgreement, the Senior Loan Agreement at Perryville for which KBC acts as agent,and the Subordinated Loan Agreement.  For information regarding the effects ofthe Mirant Debtors' bankruptcy, MAEM's rejection of the Perryville TollingAgreement, and Perryville facility operation subsequent to the rejection of thePerryville Tolling Agreement, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 26 - Perryville" and "- Debt -Midstream" below.

***Debt***

At December 31, 2004, Cleco had no short-term debtoutstanding in the form of bank loans, compared to $200.8 million outstandingat December 31, 2003.  Cleco does have $160.0 million of long-term debt duewithin one year at December 31, 2004.  For information on Cleco's long-termdebt, see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 6 - Debt."

If Cleco Corporation were to default undercovenants in its various credit facilities, Cleco Corporation would be unableto borrow additional funds under the credit facilities.  If Cleco Corporation'scredit rating, as determined by outside rating agencies, were to be downgradedone level below investment grade, Cleco Corporation would be required to payfees and interest, totaling 0.5% higher than the current level for its $150.0million credit facility.  The same downgrade at Cleco Power would require ClecoPower to pay fees and interest, totaling 1.0% higher, on its $125.0 millioncredit facility.  At December 31, 2004, Cleco Corporation was in compliancewith the covenants in its credit facilities.

***Cleco***

Short-term debt at Cleco decreased by $200.8million at December 31, 2004, compared to December 31, 2003, primarily due tothe deconsolidation of Perryville and from the repayment by Cleco Corporationand Midstream of borrowings under current credit facilities. Changes inshort-term debt are more fully described below.  Long-term debt at Cleco decreasedby $456.5 million at December 31, 2004, compared to December 31, 2003,primarily due to the deconsolidation of Perryville and Evangeline and thereclassification of a portion of Cleco Corporation's and Cleco Power'slong-term debt to 

 

39
** 

long-term debt due within one year.  For additional information,see "- Cleco Corporation (Holding Company Level)," "- Cleco Power," and "-Midstream" below, Item 8, "Financial Statements and Supplementary Data - Notesto the Financial Statements - Note 13 - Equity Investment in Investees" andNote 26 - "Perryville."

At December 31, 2004, Cleco had a workingcapital deficit of $49.9 million.  This deficit occurred primarily from an increasein current liabilities resulting from the reclassification of Cleco Corporation's$100.0 million of 8.75% Senior Notes, due June 1, 2005, and Cleco Power's $60.0million of Series X, 9.5% First Mortgage Bonds, due March 15, 2005, fromlong-term debt to long-term debt due within one year.  Cleco expects to repayall of this debt with cash on hand or to refinance a portion with new borrowings. At December 31, 2003, Cleco had a working capital deficit of $86.1 million,resulting from an increase in current liabilities as the result of the reclassificationof Perryville's $133.0 million Senior Loan Agreement from long-term toshort-term debt.

The $36.2 million decrease in the deficit during2004 was due to the repayment of $67.8 million of borrowings under currentcredit facilities by Cleco Corporation and Midstream, which decreased currentliabilities, the reclassification discussed above, the deconsolidation ofEvangeline and an increase in cash retained from operations, which increasedcurrent assets.  This was partially offset by other increases and decreases inasset and liability balances. 

Cash and cash equivalentsavailable at December 31, 2004, were $123.8 million combined with $231.7 millionfacility capacity ($106.7 million from Cleco Corporation and $125.0 millionfrom Cleco Power) for total liquidity of $355.5 million.  Cash and cash equivalentsincreased $28.4 million, when compared to December 31, 2003, largely due to lessredemption of debt in 2004 and the net proceeds from the sale of 2.0 millionshares of common stock.  For information on the sale of common stock, see Item8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 7 - Common Stock."

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

Cleco Corporation had no short-term debtoutstanding at December 31, 2004, compared to $50.0 million at December 31, 2003. This decrease is due to the repayment of outstanding borrowings under ClecoCorporation's current credit facilities.  Cleco Corporation has $100.0 millionof long-term debt due within one year relating to its 8.75% Senior Notes, dueJune 1, 2005.  Cleco Corporation expects to repay this debt with cash on handand cash from new borrowings.  

On April 30, 2004, Cleco Corporation replacedits then existing $105.0 million, 364-day credit facility, which was scheduledto terminate in May 2004, with a $150.0 million, three-year facility.  Thisfacility provides for working capital and other needs.  Cleco Corporation'sborrowing costs under this facility are equal to LIBOR plus 1.50%.  ClecoCorporation's borrowing costs under the prior facility at March 31, 2004, wereequal to LIBOR plus 1.625%, and the weighted average cost of borrowings was2.8125%.  There were $50.0 million of borrowings outstanding at April 30, 2004,under the prior credit facility that was transferred to the new credit facilityupon termination of the prior facility.  This $50.0 million was repaid in Mayand June 2004, and the weighted average cost of borrowings was 2.69%.  Underthe terms of this new three-year facility, $25.0 million of the availablecapacity is restricted and will become available for use only upon therepayment of the $100.0 million outstanding balance of 8.75% Senior Notesmaturing in June 2005.  Off-balance sheet commitments reduce available borrowings by an additional $18.3 million, leaving available capacity of $106.7million.  For more information about these commitments, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 16- Litigation and Other Commitments and Contingencies - Off-Balance SheetCommitments."  An uncommitted line of credit with a bank in an amount up to $5.0million also remains available to support Cleco's working capital needs.  Thisline of credit is available to either Cleco Corporation or Cleco Power.

Cash and cash equivalents available at December31, 2004, were $69.6 million, which combined with $106.7 million facilitycapacity for total liquidity of $176.3 million.  Cash and cash equivalents increased$45.4 million, when compared to December 31, 2003, largely due to the netproceeds from the sale of 2.0 million shares of common stock and the receipt ofdividends from affiliated companies.

If Cleco Power were to default under its creditfacility, Cleco Corporation would be considered in default under its current creditfacility.  Perryville's default on the Senior Loan Agreement, as describedbelow under "- Midstream" and in Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 26 - Perryville,"is not considered a default under Cleco Corporation's creditfacility.  The bonds issued by Evangeline are non-recourse to Cleco Corporation,and a default on the bonds would not be considered a default under ClecoCorporation's credit facility.

Cleco Corporation provides a limited guaranteeto payinterest and principal under the Senior Loan Agreement should Perryville beunable to pay its debt service.  AtDecember 31, 2004, the amount guaranteed was $1.9 million.  Cleco Corporationalso provided a limited guarantee of $277.4 million to Entergy Louisiana andEntergy Gulf States for Perryville's performance obligations under the SaleAgreement, the Power Purchase Agreement, and other ancillary agreements relatedto the pending sale of the Perryville facility.  For information on theseagreements and related guarantees, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

On February 20, 2004, and May 3, 2004, ClecoCorporation entered into two separate interest rate swaps with a third-partyfinancial institution to hedge the exposure to changes in the fair value ofCleco Corporation's 8.75% Senior Notes.  For information on these interest rateswaps, see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 6 - Debt."

40
****
***Cleco Power***

There was no short-term debt outstanding at ClecoPower at December 31, 2004, or at December 31, 2003.  However, Cleco Power doeshave $60.0 million of long-term debt due within one year relating to its SeriesX, 9.5% First Mortgage Bonds, due March 15, 2005.  Cleco Power expects to repaythis debt with accumulated funds or to refinance with newborrowings in 2005. 

On April 30, 2004, Cleco Power replaced itsexisting $80.0 million, 364-day credit facility with a $125.0 million, 364-day facility. This facility provides for working capital and other needs and includes aprovision for an optional conversion to a one-year term loan.  Cleco Power's initialborrowing costunder this facility is equal to LIBOR plus 1.0%, including facility fees.  AtDecember 31, 2004, no amounts were outstanding under Cleco Power's $125.0million, 364-day facility.  Anuncommitted line of credit with a bank in an amount up to $5.0 million also remainsavailable to support Cleco Power'sworking capital needs.  This line of credit is available to either Cleco Poweror Cleco Corporation.

Cash and cash equivalents available at December31, 2004, were $54.1 million, which combined with $125.0 million facilitycapacity for a total of $179.1 million.  Cash and cash equivalents decreased $16.9million, when compared toDecember 31, 2003, due to a discretionary contribution to the employee pensionplan; investment in property, plant and equipment; distributions to ClecoCorporation; and routine working capital fluctuations.

***Midstream***

Short-term debt at Midstream decreased by $150.8million at December 31, 2004, compared to December 31, 2003,primarily due to a reduction of $133.0 million resulting from thedeconsolidation of Perryville and PEH from Cleco and a scheduled $17.8 millionrepayment of outstanding credit facility borrowings.  As a result of the deconsolidation,the assets and liabilities of Perryville and PEH no longer are reported inCleco Corporation's consolidated results.  Midstream's $36.8 million creditfacility was paid in full and expired on March 31, 2004.  The facility was usedto support Midstream's generation construction activities, and the outstandingbalances were guaranteed by Cleco Corporation on a subordinated basis. Midstream'scost of borrowing under this facility was equal to LIBOR plus 3.0%, includingcommitment fees and was 4.1875% at December 31, 2003.  Midstream's creditfacility was not renewed as management determined the facility was no longernecessary to support Midstream's activities.

As stated above, as a result of thedeconsolidation of Perryville and PEH, the assets and liabilities of Perryvilleand PEH no longer are reported in Cleco Corporation's consolidated results.  AtDecember 31, 2004, Perryville had short-term debt outstanding of $127.6 millionin the form of the Senior Loan Agreement and long-term debt outstanding of$98.7 million in the form of the Subordinated Loan Agreement.  The interestrate on the Senior Loan Agreement at December 31, 2004, was 6.0% and was basedon the prime rate plus a spread of 0.75%.  As a result of the Mirant Debtors'bankruptcy and MAEM's failure to make payments under the Perryville TollingAgreement, all obligations of Perryville to make principal and interestpayments under the Subordinated Loan Agreement, as well as the accrual of additionalinterest, have been suspended indefinitely.  For additional information onPerryville's Senior and Subordinated Loan Agreements, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 26- Perryville."

Evangeline, also deconsolidated and no longer reportedin Cleco Corporation's consolidated results, had no short-term debt outstandingat December 31, 2004.  Evangeline did have $191.8 and $197.8 million oflong-term debt outstanding at December 31, 2004, and December 31, 2003, in theform of 8.82% Senior Secured Bonds due in 2019.  In addition, Evangeline had$6.0 million of long-term debt due within one year at December 31, 2004,relating to these bonds.  The bonds issued by Evangeline are non-recourse toCleco Corporation.  For information on the deconsolidation of Evangeline, see"Overview - Deconsolidation of Evangeline."

**Cash Generation and Cash Requirements**

***Restricted Cash***

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.  At December 31, 2004,and 2003, $0.1 million and $41.3 million, respectively, of cash was restricted. For additional information on restricted cash, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 2- Summary of Significant Accounting Policies - Restricted Cash."

At December 31, 2004, $2.0 million was also restrictedunder an agreement with the lenders for Perryville, and an additional $33.7 millionwas restricted under the Evangeline senior secured bond indenture.  Theseamounts are not included in the $0.1 million amount at December 31, 2004, dueto the deconsolidation of Perryville and Evangeline in 2004.

***Net Cash Provided byOperating Activities***

Net cash provided by operating activities was $166.6million during 2004, $198.9 million in 2003, and $165.4 million in 2002.

Cash from operating activities in 2004 decreased$32.3 million from that reported in 2003, primarily due to a $14.0 milliondiscretionary cash contribution to the employee pension plan and thedeconsolidation of Perryville and PEH.  Results for 2004 included only onemonth of Perryville and PEH operations.

Net cash provided by operating activitiesincreased $33.5 million in 2003 compared to 2002, primarily from Acadia's cashdistribution in excess of book earnings in 2003 and a higher consumption ofcash for working capital needs in 2002.

41
****
***Net Cash Used inInvesting Activities***

Net cash used in investing activities was $60.6million during 2004, $55.7 million in 2003, and $201.9 million in 2002.  Netcash used in 2002 was higher than 2003 and 2004 due primarily to investment inaffiliate operations, as outlined below, and investment in new financialsoftware.

Net cash used in 2004 totaled $76.2 million fornet additions to property, plant and equipment, a $6.9 million investment incompany-/trust-owned life insurance, and a $5.5 investment in Perryville.  Thiswas offset partially by cash provided of $10.4 million from the sale of theassets of Cleco Energy, $10.2 million from the release of cash from restrictedaccounts, and $7.1 million of dividends from Acadia.

Net cash used in 2003 totaled $71.8 million fornet additions to property, plant and equipment and $2.7 million for investmentin company-/trust-owned life insurance.  This was offset partially by $12.4million cash provided from the release of cash from restricted accounts and$6.0 million of dividends from Acadia.

Net cash used in 2002 totaled $87.0 million fornet additions to property, plant and equipment; including the investment in newfinancial software noted above, $54.6 million for the purchase of Mirant's 50%ownership interest in Perryville; $39.9 million to complete the constructionand investment phases of Acadia and Perryville; and $19.4 million to meet cashrestrictions, primarily relating to Evangeline and Perryville debt.

***Net Cash Used inFinancing Activities***

Net cash used in financing activities was $77.6million during 2004 compared to $162.2 million used in 2003.  Net cash fromfinancing activities provided $138.9 million in 2002.  Net cash used infinancing activities in 2004 was less than 2003 due primarily to less cash usedto redeem outstanding debt in 2004, net of new debt issued, and additional cashprovided in 2004 from the sale of common stock, as explained below.  Cash wasprovided by financing activities in 2002 compared to cash used in the years2003 and 2004 primarily from the issuance of new debt, net of redemptions, andthe sale of common stock, as explained below.

Net cash used in 2004 totaled $70.3 million forredemption of short- and long-term debt obligations and $45.1 million forcommon and preferred dividends.  This amount was offset partially by netproceeds of $35.7 million from the sale of 2.0 million shares of common stock.

Net cash used in 2003 totaled $291.7 million forredemption of short- and long-term debt obligations and $44.3 million forcommon and preferred dividends.  This amount was offset partially by $175.0million provided from the issuance of additional long-term debt.

Net cash provided by financing activities in2002 totaled $203.5 million from the issuance of additional short- andlong-term debt and $44.3 million from the sale of additional shares of commonstock.  This amount was offset partially by cash used of $63.2 million for redemptionof long-term debt and $43.1 million for common and preferred dividends.

Cleco's 2005 expenditures for construction, investment,and debt maturity are estimated to total $365.0 million.  The $365.0 million includes$77.4 million of estimated construction expenditures, including $2.0 million atEvangeline and Perryville, and $287.6 million of estimated debt maturitypayments, including the repayment of Perryville's $127.6 million Senior LoanAgreement.  For the five-year period ending in 2009, Cleco Corporation'sexpenditures are expected to total $868.0 million, including $9.3 million ofconstruction expenditures at Evangeline and Perryville and repayment of Perryville's$127.6 million Senior Loan Agreement.  The repayment of the Senior LoanAgreement is contingent upon the sale of Perryville to Entergy Louisiana.  Forinformation on this sale and the maturities of Cleco's debt, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 26- Perryville," and - Note 6 - "Debt," respectively.

Cleco believes that its cash and cashequivalents on hand, together with cash generated from its operations,borrowings from credit facilities, and the net proceeds of any issuances underCleco's shelf registration statements, will be adequate to fund normal ongoingcapital expenditures, working capital, and debt service requirements for theforeseeable future.

***Shelf Registrations***

Cleco Corporation currently has two shelfregistration statements on file (Registration No. 333-109506 and RegistrationNo. 333-55656).  At December 31, 2004, one of these registration statementsallowed for the issuance of up to $67.0 million of common or preferred stock. On November 9, 2004, Cleco Corporation issued $2.0 million shares of commonstock in a public offering under this registration statement.  The net proceedsfrom issuance were approximately $35.7 million.  The other registrationstatement has not been declared effective by the SEC.  Cleco Power also has twoshelf registration statements on file (Registration No. 333-109507 andRegistration No. 333-052540).  At December 31, 2004, one of these registrationstatements allowed for the issuance of up to $50.0 million of debt securities. The other registration statement has not been declared effective by the SEC.

***Construction andInvestment in Subsidiaries Overview***

Cleco divides its construction and investments amongits major first-tier subsidiaries - Cleco Power and Midstream.  Cleco Power constructionconsists primarily of assets that may be included in Cleco Power's rate base,the cost of which, if considered prudent by the LPSC, is passed on to itsratepayers.  Those assets earn a rate of return authorized by the LPSC and aresubject to the rate agreement described below under "- Retail Rates of ClecoPower."  Such assets consist of improvements to Cleco Power's distributionsystem, transmission system, and generating stations.  Midstream's constructionand investment primarily consist of assets whose rate of return is largelydetermined by the market, not by regulators.  Examples of this type ofconstruction and investment include the repowering or construction ofgenerating facilities, additions to gas pipeline transmission systems, andinvestments in a joint venture engaged in owning power plants.

 

42
****
***Cleco PowerConstruction***

Cleco Power's construction expenditures totaled $78.7million in 2004, $68.5 million in 2003, and $87.3 million in 2002.  Theincrease in construction expenditures from 2003 to 2004 is primarily due toenhancements to Cleco Power's mobile radio system, an increase in new customerinstallations, and substation construction.  The decrease in constructionexpenditures from 2002 to 2003 is primarily due to higher storm restorationcosts incurred in 2002.

Cleco Power's construction expenditures, excludingAFUDC, for 2005 are estimated to be $74.6 million.  For the five-year period endingin 2009, they are expected to total $327.8 million.  About one-third of the plannedconstruction in the five-year period will support line extensions and substationupgrades to accommodate new business and load growth.  Some investment will bemade to rehabilitate older transmission, distribution, and generation assets.  Additionally,this plan assumes that Cleco Power will purchase capacity on a short-term basisto meet its needs and will not invest in additional generation assets.  Theoutcome of the IRP that currently is under way may materially impact ClecoPower's future capital requirements and earnings.  For additional informationon the IRP, see Part I, Item 1, "Business - Operations - Cleco Power - Fuel andPurchased Power - Power Purchases."

In 2004, 2003, and 2002, 100.0% of Cleco Power'sconstruction requirements was funded internally.  In 2005, 100.0% ofconstruction requirements is expected to be funded internally.  Assuming noinvestment under the IRP, for the five-year period ending 2009, 100.0% of theconstruction requirements is expected to be funded internally.

***Midstream Constructionand Investment in Subsidiaries***

Midstream's construction expenditures totaled $(0.1)million in 2004, $4.8 million in 2003, and $3.7 million in 2002.  Cash investmentsin subsidiaries, as discussed below, totaled $94.4 million in 2002.  There wereno cash investments in subsidiaries in 2004 or 2003.  Combined construction andinvestment in subsidiaries totaled $(0.1) million in 2004, $4.8 million in 2003,and $98.1 million in 2002.  The negative construction amount shown for 2004 wasthe result of adjustments to previously recorded construction costs atEvangeline prior to the deconsolidation.  In addition to the above, 2004construction expenditures for Evangeline and Perryville not included in the2004 construction amounts above due to the deconsolidation of these entities were$0.8 million and $0.1 million, respectively.

Midstream currently is participating in onejoint venture, Acadia, which is 50% owned by APH and 50% owned by Calpine.  Acadiaconstructed a 1,160-MW, combined-cycle, natural gas-fired power plant nearEunice, Louisiana, that commenced commercial operations in the summer of 2002. Total construction costs of the Acadia plant were $495.1 million.  APH capitalized$19.5 million of costs, which consist of interest and other miscellaneouscharges related to the construction of Acadia.  As of December 31, 2004,Midstream's equity in Acadia was $257.0 million.  Midstream funded its investmentin Acadia through an intercompany loan from Cleco Corporation and ClecoCorporation funded the intercompany loan through its credit facility and theissuance of long-term debt.  Midstream does not expect to obtain project-levelfinancing in 2005 for its equity interest in Acadia.  For additionalinformation regarding Acadia, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 13 - EquityInvestment in Investees."

Perryville, which was originally a joint venturewith Mirant, constructed a 718-MW natural gas-fired power plant in Perryville,Louisiana, that commenced full commercial operation in the summer of 2002.  AtDecember 31, 2004, total construction costs of the Perryville plant were $331.4million, including capitalized interest.  Nonrecourse financing was obtained inJune 2001 in the form of a construction note.  The construction note convertedto a five-year term note on October 1, 2002, after construction of thePerryville facility was complete.  On June 20, 2002, Midstream purchasedMirant's 50% ownership interest in Perryville.  In 2003, Cleco recorded a$148.0 million impairment charge against the carrying value of the Perryvillefacility.  For additional information regarding this purchase and Perryville,see Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 21 - Acquisition," Note 23 - "Impairments ofLong-Lived Assets," and Note 26 - "Perryville."

Midstream's 2005 expenditures for constructionand investment in subsidiaries are estimated to total $2.0 million.  For thefive-year period ending in 2009, they are expected to total $9.4 million.  Themajority of these expenditures will consist of routine upgrades or othercapitalized expenditures on existing generation assets at Evangeline andPerryville.

In 2004, 100.0% of Midstream's construction andinvestment in subsidiaries requirements was funded internally, compared to 100.0%in 2003 and 27.5% in 2002.  In 2005 and for the five-year period ending 2009, 100.0%of Midstream's construction and investment in subsidiaries requirements is expectedto be funded internally. 

***Other Subsidiary Construction***

Other subsidiaries had construction expendituresof $2.4 million during 2004, $1.2 million during 2003, and $5.0 million during2002.  Expenditures of $1.1 million in 2004 and $6.3 million in 2002 wereallocated to Cleco Power and Midstream, resulting in net constructionexpenditures of $1.3 million, $1.2 million, and $(1.3) million for the years2004, 2003, and 2002, respectively.  These expenditures related to theinstallation and upgrade of computer hardware and software implementation forSupport Group in order to meet the growing needs of Cleco.  Other constructionexpenditures for 2005 are estimated to total $0.9 million.  For the five-yearperiod ending 2009, they are expected to total $3.2 million.  The majority ofthe planned other construction in the five-year period will go toward upgradeof computer hardware and software for Support Group.

43
****
***Other CashRequirements***

Cleco Power and Midstream's merchant power plantsare Cleco's primary sources of internally generated funds.  These funds, alongwith the issuance of additional debt and equity in future years, will be usedfor general corporate purposes, construction, and to repay corporate debt.

***ContractualObligations and Other Commitments***

Cleco, in the course of normal businessactivities, enters into a variety of contractual obligations.  Some of theseresult in direct obligations that are reflected in the Consolidated Balance Sheetswhile others are commitments, some firm and some based on uncertainties, thatare not reflected in the consolidated financial statements.  The obligationslisted below do not include amounts for ongoing needs for which no contractualobligation existed as of December 31, 2004, and represent only amounts thatCleco was contractually obligated to meet as of December 31, 2004.

 

44
****
 

The following table summarizes the projectedfuture payments for Cleco's contractual obligations existing at December 31,2004:

                    PAYMENTS    DUE BY PERIOD

CONTRACTUAL OBLIGATIONS (THOUSANDS)

                         TOTAL

          LESS THAN            ONE YEAR

                     1-3

YEARs

                        4-5

                   YEARS

           MORE THAN

                5 YEARS

Cleco Corporation

     Long-term debt obligations    (1)

   $         229,808

   $         103,646

   $          23,829

   $        102,333

   $                     -

     Capital lease obligations    (2)

                          8

                           -

                          7

                          1

                          -

     Operating lease obligations    (3)

                     467

                        15

                     450

                          2

                          -

     Purchase obligations    (4)

                 9,012

                     212

                  8,243

                     557

                          -

     Other long-term liabilities    (5)

            186,274

                           -

               16,017

                  7,244

            163,013

          Total Cleco Corporation

   $         425,569

   $         103,873

   $          48,546

   $        110,137

   $         163,013

Cleco Power

     Long-term debt obligations    (1)

   $         603,578

   $           61,271

   $        149,746

   $          78,845

   $         313,716

     Capital lease obligations    (2)

                          -

                           -

                           -

                           -

                          -

     Operating lease obligations    (3)

               26,941

                        13

               11,895

                  4,963

               10,070

     Purchase obligations    (4)

            224,473

               51,716

             144,327

               14,090

               14,340

     Other long-term liabilities    (5)

            148,321

                           -

               41,059

               22,676

               84,586

          Total Cleco Power

   $      1,003,313

   $         113,000

   $        347,027

   $        120,574

   $         422,712

Midstream *

     Long-term debt obligations    (1)

   $                     -

   $                    -

   $                    -

   $                    -

   $                    -

     Capital lease obligations    (2)

                          -

                           -

                           -

                           -

                          -

     Operating lease obligations    (3)

                          -

                           -

                           -

                           -

                          -

     Purchase obligations    (4)

                 1,167

                           -

                  1,167

                           -

                          -

     Other long-term liabilities    (5)

                          -

                           -

                           -

                           -

                          -

          Total Midstream

   $              1,167

   $                      -

   $            1,167

   $                    -

   $                    -

Other
 
     Long-term debt obligations    (1)

   $                     -

   $                      -

   $                    -

   $                    -

   $                    -

     Capital lease obligations    (2)

                          -

                           -

                           -

                           -

                          -

     Operating lease obligations    (3)

                          -

                           -

                           -

                           -

                          -

     Purchase obligations    (4)

                 5,965

                     716

                  5,249

                           -

                          -

     Other long-term liabilities    (5)

                       41

                        22

                        19

                           -

                          -

          Total Other

   $             6,006

   $                 738

   $            5,268

   $                    -

   $                   -

Total long-term debt obligations    (1)

   $         833,386

   $          164,917

   $        173,575

   $        181,178

   $       313,716

Total capital lease obligations    (2)

   $                    8

   $                      -

   $                   7

   $                   1

   $                   -

Total operating lease obligations    (3)

   $           27,408

   $                   28

   $          12,345

   $            4,965

   $         10,070

Total purchase obligations (4)

   $         240,617

   $            52,644

   $        158,986

   $          14,647

   $         14,340

Total other long-term liabilities    (5)

   $         334,636

   $                   22

   $          57,095

   $          29,920

   $       247,599

          Total    

   $      1,436,055

   $          217,611

   $        402,008

   $        230,711

   $       585,725

(1)Long-term debt existing as ofDecember 31, 2004, is debt that has a final maturity of January 1, 2006, orlater (current maturities of long-term debt are due within one-year).  Cleco'santicipated interest payments related to long-term debt also are included inthis category.  Scheduled maturities of debt will total $160.0 million for 2005and $451.2 million for the years thereafter.  For additional information regardingCleco's long-term debt, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 6 - Debt" and "- Debt" above.

(2)Capital leases are maintained inthe ordinary course of Cleco's business activities.  These leases includeoffice equipment leases.

(3)Operating leases are maintained inthe ordinary course of Cleco's business activities.  These leases includetolling agreements and vehicle, office space, operating facilities, officeequipment, and operating equipment leases and have various terms and expirationdates from 1 to 20 years.  For additional information regarding Cleco'soperating leases, see Item 8, "Financial Statements and Supplementary Data -Notes to the Financial Statements - Note 14 - Operating Leases."

(4)Significant purchase obligationsfor Cleco are listed below:
-  FuelContracts:  To supply a portion of the fuel requirements for Cleco Power'sgenerating plants, Cleco has entered into various commitments to obtain anddeliver coal, lignite, and natural gas.  Some of these contracts containprovisions for price escalation and minimum purchase commitments.  Generally,fuel and purchased power expenses are recovered through the LPSC-establishedfuel adjustment clause, which enables Cleco Power to pass on to customerssubstantially all such charges.  For additional information regarding fuelcontracts, see Part I, Item 1, "Business - Operations - Cleco Power - Fuel andPurchased Power."
-  PowerPurchase Agreements:  Cleco Power has entered into agreements with energysuppliers for purchased power to meet system load and energy requirements,replace generation from Cleco Power owned units under maintenance and duringoutages, and meet operating reserve obligations.  In general, these contractsprovide for capacity payments, subject to meeting certain contract obligations,and energy payments based on actual power taken under the contracts.  ClecoPower also has entered into agreements to purchase transmission capacity.  Foradditional information regarding power purchase agreements, see "- RegulatoryMatters - Power Purchased" below.
-  Purchaseorders:  Cleco has entered into purchase orders in the course of normalbusiness activities.

(5)Other long-term liabilitiesprimarily consist of obligations for franchise payments, deferred compensation,facilities use, and various operating and maintenance agreements.

*Long-term debt, long-term maintenanceagreements, and various other operating and maintenance agreements related toMidstream's deconsolidated entities, Perryville and Evangeline, and its equityinvestment in Acadia are not reflected in the chart above.  For additionalinformation on these entities, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 13 - EquityInvestment in Investees," and Note 26 - "Perryville."

45
****
***Off-Balance Sheet Commitments***

Cleco has entered into various off-balance sheetcommitments, in the form of guarantees and standby letters of credit, in orderto facilitate the activities of its subsidiaries and equity investees.  Forinformation on Cleco's off-balance sheet commitments, see Item 8, "FinancialStatements and Supplementary Data - Notes to the Financial Statements - Note 16- Litigation and Other Commitments and Contingencies - Off-Balance Sheet Commitments."

***Inflation***

Annual inflation rates, as measured by the U.S.Consumer Price Index, have averaged approximately 2.18% during the three yearsended December 31, 2004.  Cleco believes inflation, at this level, does notmaterially affect its results of operations or financial position.  However,under existing regulatory practice, only the historical cost of a plant isrecoverable from customers.  As a result, Cleco Power's cash flows designed toprovide recovery of historical plant costs may not be adequate to replaceproperty, plant and equipment in future years.

**Regulatory Matters**

***Generation RFP***

In 2003, Cleco Power issued an RFP for up to 750 MWof generation supply to replace existing power purchase agreements withWilliams and Dynegy that expire in 2004 and 2005.  There were no winningproposals selected from the RFP.  On May 13, 2004, Cleco Power signed aone-year contract to purchase 500 MW of capacity and energy from CES beginningin January 2005.  The contract with CES was approved and certified by the LPSC inNovember 2004.  Cleco Power anticipates that the 500 MW supplied by CES willfill the shortfall left by the Williams and Dynegy contracts that expired atthe end of 2004.

Cleco Power continues to evaluate its long-termcapacity needs through its IRP process and is seeking new proposals for up to1,000 MW of capacity and energy to replace existing contracts and toaccommodate load growth, as well as up to 800 MW of capacity to replace oldernatural gas-fired units.  Cleco Power made an informational filing with theLPSC on April 15, 2004, and issued the final RFP on August 31, 2004. Indicative bid proposals were received on October 29, 2004, and a short list ofbidders was selected in February 2005.  Cleco Power expects winning bidders tobe selected by April 2005 and expects to file its choices for LPSC approval asearly as June 2005.  These filings will request that the LPSC issue Certificatesof Public Convenience and Necessity which will find Cleco Power's decisions tobe in the public interest and authorize it to purchase, construct and/orcontract for generation resources.  The LPSC's order governing such certificateapplications requires the scheduling of a public hearing and a commissiondecision within 120 days of the filing date; however, it is Cleco Power'sexpectation that the 120-day period could be extended for applicationsinvolving asset purchases or self-build options.  Consistent with the provisionof the LPSC's General Order of September 1983, Cleco Power is engaged infeasibility, engineering and environmental studies, site acquisition, andrelated activities required to fully develop its self-build proposals to meetits obligations to provide low-cost, reliable services to its customers.  ClecoPower provided its construction cost estimates and fully-defined project scopeand performance data for its self-build options to the LPSC on October 27,2004.  Cleco Power is prepared to meet its needs for capacity, reliability, andfuel diversity by implementing its self-build resource options as bid into theRFP should they prove to offer better alternatives than the market resources alsobid into the RFP.  This evaluation will be done with oversight from the LPSCand the RFP independent monitor.

Cleco Power issued a one-year alternate solicitationfor short-term resources that is not subject to the LPSC's General Order U-26172that requires acquisitions of generating capacity to be subject to a "markettest" in the form of an RFP.  This solicitation (for 2006 requirements) wasissued in January 2005.  The bids from this solicitation will be assessed bothas separate alternatives to the long-term RFP and in combination with the RFP. Cleco Power expects the evaluation and selection timeline for the 2006solicitation to parallel that of the 2004 RFP.

***Environmental Matters***

For information on environmental matters, see PartI, Item 1, "Business - Regulatory Matters, Industry Developments, andFranchises - Environmental Matters."

***Retail Rates of ClecoPower***

Retail rates regulated by the LPSC accounted forapproximately 96% of Cleco's consolidated 2004 revenue.  Fuel costs are passedthrough directly to customers via a monthly fuel adjustment clause, which issubject to audit by the LPSC.  In the past, Cleco Power has sought increases inbase rates to reflect the cost of service related to capital construction additionsand increases in operating costs.  If a rate increase is requested and adequaterate relief is not granted on a timely basis, the ability to attract capital atreasonable costs to finance operations and capital improvements could be impaired.

In 1996, the LPSC approved a settlement of ClecoPower's earnings review which provided customers with lower electricity rates. The terms of this settlement, referred to as the rate stabilization plan, wereto be effective for a five-year period.  The settlement period was extendeduntil September 30, 2004, under a February 1999 agreement with the LPSC.  OnMarch 18, 2004, the LPSC approved a one-year extension of the rate stabilizationplan, without modification, to September 30, 2005.

The rate stabilization plan allows Cleco Powerto retain all earnings equating to a regulatory return on equity up to andincluding 12.25% on its regulated utility operations.  Any earnings that resultin a return on equity over 12.25% and up to and including 13% will be sharedequally between Cleco Power and its customers.  Any earnings above this levelwill be fully refunded to customers.  This effectively allows Cleco 

46
****
Power theopportunity to realize a regulatory rate of return up to 12.625%.  As part ofthe rate stabilization plan, the LPSC annually reviews revenue and return onequity.  If Cleco Power is found to be achieving a regulatory return on equityabove the minimum 12.25%, the refund will be made in the form of billingcredits subsequent to an order by the LPSC.  The monitoring periods related to2002 and 2003 are under review by the LPSC Staff.  The requisite filings for thecycle ended September 30, 2004 were submitted to the LPSC on February 28,2005.  For information concerning amounts accrued by Cleco Power based on the ratestabilization plan, see Item 8, "Financial Statements and Supplementary Data -Notes to theFinancial Statements - Note 12 - Accrual of Electric Customer Credits."

As referred to above, the rate stabilization planis due to expire on September 30, 2005.  A new plan may be ordered by the LPSCupon expiration of the existing plan, or the existing plan may be extended withor without modification; however, the LPSC may compel a rate proceeding as partof any scenario.  Cleco Power currently has ongoing both short- and long-termgeneration supply RFPs that will have a direct impact on Cleco Power's decisionto seek an extension of the rate stabilization plan.  Based on the timeline forthe RFPs, management anticipates making such a decision by June 2005 or earlier. Possible rate stabilization plan options include seeking a short-term extension,combining an extension request with a generation certificate of public convenienceand necessity application, seeking a new rate case, or allowing the currentplan to expire and continue under current rates until the LPSC orders a reviewof Cleco Power's rates.

In January 2005, the LPSC opened a docket toexplore and study the rate structures of all classes of electric customersafter receiving complaints that Louisiana's utility rates are too high toattract new business to the state.  A class-by-class review of rates paid byresidential, commercial, and industrial customers may be conducted in an effortto determine if one class of customers is subsidizing rates for another.  Thetiming of this review by the LPSC has not been determined and its exploratorynature makes the potential impact from such a review unknown at this time.

***IRP***

For information on Cleco Power's IRP team and itsevaluation of generation supply options, see Part I, Item 1, "Business - Operations- Cleco Power - Fuel and Purchased Power - Power Purchases."

***Wholesale Rates of Cleco***

Cleco's wholesale rates are regulated by the FERCvia cost-based and market-based tariffs at Cleco Power and via market-basedtariffs at Evangeline, Acadia, and Perryville.  These tariffs and theassociated codes of conduct accompanying them are updated periodically tocomply with FERC directives.  Such an update was completed in December 2003 foreach entity to comply with FERC's requirement to amend market-based rates toadd "market behavior rules" to the codes of conduct.  Contracts utilizing thesetariffs do not require prior approval by FERC but are reported each quarterpursuant to FERC's requirement for reporting of sales by authorized power marketers.

Marketing & Trading's market-based rateapproval was revoked by the FERC in 2003 as part of the Consent Agreement.  Forinformation on the Consent Agreement, see Item 8,"Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 24 - FERC Settlement."

***Franchises***

For information on franchises, see Part I, Item 1,"Business - Regulatory Matters, Industry Developments, and Franchises - Franchises."

***Market Restructuring***

**Wholesale Electric Markets**

The Energy Policy Act, enacted by Congress in1992, significantly changed U.S. energy policy, including rules and regulationsgoverning the electric utility industry.  The Energy Policy Act allows theFERC, on a case-by-case basis and with certain restrictions, to order wholesaletransmission access and to order electric utilities to enlarge theirtransmission systems.  The Energy Policy Act prohibits FERC-ordered retailwheeling, such as opening up electric utility transmission systems to allowcustomer choice of energy suppliers at the retail level, including "sham"wholesale transactions.  Further, under the Energy Policy Act, any FERCtransmission order requiring a transmitting utility to provide wholesaletransmission services must include provisions that permit the utility torecover from the FERC applicant all of the costs incurred in connection withthe transmission services, including any enlargement of the transmission systemand any associated services.

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

In 1999, the FERC issued Order No. 2000, whichestablished a general framework for all transmission-owning entities in thenation to voluntarily place their transmission facilities under the control ofan appropriate RTO.  Although participation is voluntary, the FERC has made itclear that any jurisdictional entity not participating in an RTO will likely besubject to further regulatory directives.  These directives could take the formof review and/or denial of market-based rates for wholesale power sales.  InJuly 2001, the FERC issued orders stating its intention to form four regionalRTOs covering the Northeast, Southeast, Midwest, and West.  The FERC laterrelaxed its mandate to form the four RTOs, but continued to insist upon thelarge regional RTO model.  Since 2001, many transmission-owning entities andsystem operators have been trying to interpret and implement FERC's directivesby attempting to organize and/or join acceptable RTOs.  In November 2001,Entergy and Southern Company announced 

47
****
a combined effort to form a Southeastern RTO, the SeTrans; however, after numerous formation meetings, the SeTranssponsors announced their intent to withdraw their support for furtherdevelopment of that RTO.  The primary reason cited was the continued lack ofprogress from a regulatory approval standpoint, as jurisdictional authoritybetween the FERC and the states remained unclear.  Also in 2001, SPP andMidwest Independent System Operator (MISO) announced their combined effort todesign a Midwestern RTO; however, in December 2003, the MISO merged with theeastern power pool PJM, thus leaving SPP without a viable RTO partner.  OnFebruary 10, 2004, FERC gave its approval of SPP's solo application for RTOrecognition with a number of conditions specified that SPP must meet before itwould receive final FERC approval.  On October 4, 2004, SPP received an orderfrom FERC granting organizational RTO status.  On November 1, 2004, SPPmade a compliance filing stating that it has met all outstanding compliancerequirements ordered by FERC.  Cleco Power continues to monitor and/orparticipate in the development of SPP's RTO activities.  Separately and uponcessation of activity related to SeTrans, Entergy filed at FERC to makepotentially significant modifications to its Open Access Transmission Tariff.  Themodifications would incorporate a third-party entity into its transmissionoperations.  This third-party entity would then have access to pertinentinformation regarding the operation of Entergy's transmission system.  Cleco alsois monitoring developments in this proceeding.  Both the SPP and Entergyproceedings could impact the ability to transport power into and out of theCleco control area.  Cleco plans to be an active participant in these and allother proceedings affecting availability and sale of power in and around Louisiana. As with RTO developments at-large, other various parties, including severalstate commissions, utilities, and other industry participants, are participantsin the RTO and Entergy proceedings described above.

In September 2001, the LPSC issued OrderNo. U-25965, which requires Cleco Power and other transmission-owningentities in Louisiana to demonstrate why they should not be ordered to transferownership or control of the bulk transmission assets, paid for by jurisdictionalratepayers, to another entity, such as an RTO.  This order also requires thatCleco Power and the other Louisiana transmission-owning entities show cause whythe LPSC should not declare that the pricing and cost transfers required by therecommendation of the Administrative Law Judge in FERC DocketNo. RTO1-100-000 conflict with the public interest.  The order does notlimit Cleco Power's ability to participate in RTO development; however, Clecobelieves that the LPSC, absent an adequate study or sufficient evidence demonstratingthat the economic benefits to retail ratepayers of joining an RTO outweigh thecosts, will likely oppose the participation of Cleco Power and other Louisianatransmission-owning entities.  The transfer of control of Cleco Power'stransmission facilities to an RTO has the potential to materially affect theRegistrants' financial condition and results of operations.  The Registrantscannot predict the possible impact to financial earnings that may arise fromthe adoption of new transmission rates resulting from Cleco Power's possiblemembership in an RTO.

On November 24, 2003, the FERC adopted Order2004, which updates its Order 889 governing Standards of Conduct forTransmission Providers.  Cleco Power and all other transmission providers initiallywere required to comply with the order by June 2004, but FERC extended thisdeadline to September 2004.  FERC's stated intent is to broaden the definitionof an energy affiliate and apply the standards uniformly to natural gaspipelines and public utility transmission providers; to eliminate the loopholein the current regulations that does not cover a transmission provider'srelationship with energy affiliates that are not marketers or merchantaffiliates; and to ensure that transmission providers cannot extend their marketpower over transmission to other energy markets by giving their energyaffiliates preferential treatment.  Cleco Power has complied with Order 2004through implementation of its FERC compliance plan and associated trainingprogram.

The FERC issued an Order in April 2004 revisingthe methodology to be used in assessing whether a jurisdictional electricutility has generation market power.  The revised methodology requires theutility to pass two screening tests.  The Pivotal Supplier test assesses availablemarket capacity during peak conditions and the Market Share test assessesavailable market capacity during off-peak seasonal conditions.  Suchdeterminations are required of all FERC-jurisdictional electric utilities as acondition for securing and/or retaining approval to sell electricity inwholesale markets at market-based rates.  Among other things, the April 2004 Orderrequired Cleco, on behalf of each of its authorized power marketing entities,Cleco Power, Evangeline, Marketing & Trading, Perryville, and Acadia, tofile an updated generation market power study using the revised methodology. For companies that fail either screening test, evidence may then be presentedto FERC to rebut the market power presumption, including (i) performing a thirdand more rigorous test (the Delivered Price test); (ii) filing a mitigationproposal to eliminate the presumed market power; or (iii) voluntarily adoptingcost-based rates for wholesale sales.  Cleco Power submitted its compliancefiling under the revised methodology on December 21, 2004, indicating it passedall the revised tests except for the Market Share test in Cleco Power's controlarea for three of the four seasonal periods.  Cleco Power refuted the testresults in its filing, citing overly conservative input assumptions required byFERC and recent historical patterns contrary to the interim screening testresults.  Based on actions taken by FERC for other similarly situatedcompliance filings, Cleco Power believes that it will likely receive notice ofadditional proceedings under Section 206 of the FPA, at which time it wouldexpect to file a Delivered Price Test.  The purpose of a Delivered Price Testis to evaluate the level of competition in the market of interest under varioussystem conditions by determining the number and quality of Cleco Power'seffective competitors.  Upon FERC opening a Section 206 proceeding, sales madeby Cleco Power via market-based rates (approximately 3.4% in 2004) may becomesubject to refund should FERC ultimately rule that Cleco Power 

48
****
does, in fact,possess market power.  Cleco Power cannot predict, with certainty, if FERC willopen such a proceeding, the results of the Delivered Price Test, or the likelihoodrefunds would be ordered.

**Retail Electric Markets**

Cleco Power and a number of parties, includingother Louisiana electric utilities, certain power marketing companies, andvarious associations representing industry and consumers, have beenparticipating in electric industry restructuring activities before the LPSCsince 1997.  During 2000, the LPSC Staff developed a transition to competitionplan that was presented to the LPSC.  In November 2001, the LPSC directed itsstaff to monitor neighboring jurisdictions and to report back the success orfailure of those efforts 12 months after these initiatives begin.  In September2004, the LPSC reviewed a large customer retail choice pilot program studycompiled by the Louisiana State University Center for Energy Studies.  Thestudy concluded that retail customers 5 MW or larger could lower their electriccost through direct access to overbuilt regional electric markets.  The studyalso concluded that there would be minimal negative impact to remainingcustomers based on utilities' ability to avoid purchase power costs forexisting large customers.  Cleco Power filed comments on the study in January2005 stating the study's suggested savings were overstated, and the impact onremaining captive customers was understated.  The LPSC is expected to conduct atechnical conference in April 2005.  At this time, Cleco cannot predict whetherany regulation enacting a large customer pilot program or otherwise affectingCleco Power will be adopted and, if adopted, what form such legislation orregulation may take.  A potentially competitive environment presents both the opportunityto supply electricity to new customers and the risk of losing existingcustomers.  Cleco Power is striving to be positioned to compete effectivelyshould retail access be adopted at some future time in Louisiana.

In April 2002, the LPSC adopted order R-26172governing the way electric generation sources are to be solicited and testedversus self-build options of a utility.  Cleco Power conducted an RFP pursuantto this order during 2003.  In January 2004, the LPSC amended its prior orderto formally add the requirement that the soliciting utility employ anindependent monitor.  The independent monitor's role is to assure the RFPprocess is run fairly, that bidder data is treated confidentially, and that nopreference is afforded bids from affiliate companies of the utility or theutility's own self-build proposals.  For additional information on ClecoPower's RFP, see "- Regulatory Matters - Generation RFP."

Currently, the LPSC does not provide exclusiveservice territories for electric utilities under its jurisdiction.  Instead,retail service is obtained through a long-term nonexclusive franchise.  TheLPSC uses a "300-foot rule" for determining the supplier for new customers.  The"300-foot rule" requires a customer to take service from the electric utilitythat is within 300 feet of the respective customer.  If the customer is beyond300 feet from any existing utility service, they may choose their electricsupplier.  The application of this rule has led to competition with neighboringutilities for retail customers at the borders of Cleco Power's service areas.  Suchcompetition also may lead to complaints by competitors that Cleco Power hasviolated the 300-foot rule.  Several complaints have been made by cooperativecompetitors and, if the LPSC were to rule in favor of the competitors, ClecoPower may be fined.  Management does not believe any such fines would have amaterial impact on Cleco Power's financial condition.  Cleco Power alsocompetes in its service area with suppliers of alternative forms of energy,some of which may be less costly than electricity for certain applications.  ClecoPower could experience some competition for electric sales to industrialcustomers in the form of cogeneration or from independent power producers.

For information on dual franchise attempts, seePart I, Item 1, "Business - Regulatory Matters, Industry Developments, andFranchises - Franchises."

**National Energy Policy**

Congress continues to study a host of issuesrelated to energy policy.  Being unable to reach consensus on a comprehensivepolicy in 2004, introduction of energy legislation in the Congress is pendingand it remains uncertain what course of action, if any, will be taken by boththe U.S. House and Senate.  The electric section of the energy policy has beenshaped significantly by additional involvement of the FERC, the North AmericanElectric Reliability Council, and the North American Energy Standards Board sincethe summer 2003 blackout in the Midwest and Northeast.  Consequently, emphasishas shifted away from retail choice to electric system reliability and electricsystem infrastructure investment.  Other areas subject to potential energylegislation that could affect Cleco include:
-  acceleratedtax depreciation for transmission lines,
-  reductionin the cost recovery period for pollution control equipment,
-  provisionsto create a mandatory reliability organization,
-  provisionsto streamline the federal permitting process for transmission projects,
-  provisionsthat would defer the recognition of gains on the sale of transmission assets toa FERC-approved RTO or Independent System Operator ratably over an eight-yearperiod,
-  FERC'sactions concerning integrated utility market power,
-  limitedbackstop transmission citing authority for FERC,
-  reformof PURPA's mandatory purchase obligation, and
-  repealof PUHCA.

Cleco cannot predict what futurelegislation may be proposed and/or passed and what impact, if any, it may haveupon the Registrants' results of operations or financial condition.

***GasPut Options and Gas Transportation Charge***

For information concerning gas put options and gastransportation charge transactions, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 16 - Litigation and OtherCommitments and Contingencies - Gas Put Options and Gas Transportation Charge."

 

49
****
***Fuel Audit***

For information on the LPSC's fuel audit, see Item8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 16 - Litigation and Other Commitments and Contingencies -Fuel Audit."

***Review of Trading Activities***

For information on the review of certain tradingactivities by the FERC and LPSC, see Item 8, "Financial Statements andSupplementary Data - Notes to the Financial Statements - Note 19 - Review ofTrading Activities."

***Lignite Deferral***

In May 2001, Cleco Power signed a lignite contractwith the miner at the Dolet Hills mine.  As ordered by the LPSC in docketsU-21453, U-20925(SC), and U-22092(SC) (Subdocket G), retail ratepayers arereceiving fuel cost savings equal to 2% of the projected costs under theprevious mining contract through 2011.  Costs above 98% of the previous contract'sprojected costs are deferred.  Deferred costs will be recovered from retail customersthrough the fuel adjustment clause when the actual costs of the new contractare below 98% of the projected costs of the previous contract.  As of December31, 2004, Cleco Power had remaining deferred costs and interest of $11.4million relating to its lignite mining contract.  The expectation of recoveryis based upon assumptions of the future benchmark price of lignite, interestrates, inflation rates and quality and quantity of lignite mined and burned.  Amaterial change in the assumptions in subsequent years could cause managementto determine that a portion, or all, of the deferred lignite costs are notrecoverable and could result in an impairment charge.  An impairment chargealso could be recorded if the miner's cumulative actual costs do not fall belowthe 98% threshold.  Cleco Power will continue to monitor and assess therecoverability of these amounts on a periodic basis; however, managementexpects Cleco Power to recover the remaining deferred amounts.

***Power Purchased***

Cleco Power supplies a portion of its customers'electric power requirements from generation facilities owned by Cleco Power.  Purchasesof additional electric power are made from the wholesale power market in theform of generation capacity and/or purchased power to satisfy these needs.  Forinformation regarding Cleco Power's significant power purchase agreements, see"Part I, Item 1, Business - Operations - Cleco Power - Certain FactorsAffecting Cleco Power."  For additional information on Cleco Power'sidentification of existing or additional generation resources, see "- RegulatoryMatters - Generation RFP."

If the counterparties under Cleco Power's powerpurchase agreements were to fail to provide power to Cleco Power in accordancewith those agreements, Cleco Power would have to obtain replacement power atthen prevailing market prices to meet its customers' demands.  The power marketcan be volatile and the prices at which Cleco Power would obtain replacementpower could be higher than the prices Cleco Power pays under the power purchaseagreements.  The LPSC may not allow Cleco Power to recover, through an increasein its rates or through fuel adjustment costs, part or all of any additionalamounts Cleco Power may pay in order to obtain replacement power.  If this occurred,the Registrants' financial condition and results of operations could be materiallyadversely affected.

***Other***

On July 23, 2003, the FERC issued a final rulingregarding standard procedures and a standard agreement for the interconnectionof generators larger than 20 MW.  The FERC also proposed rules regardingexpedited procedures for small generators under 20 MW.  The original date ofOctober 20, 2003, for compliance with the large generator standards was extendedto January 20, 2004.  On January 8, 2004, the FERC issued a notice to clarifythe process for complying with the January 20, 2004, effective date.  The FERChas not yet set a date for compliance with the small generator standards.

Cleco Power filed and received approval during2003 to establish charges for unauthorized use of point-to-point transmissionservices, ancillary services, and transmission losses.  Customers using ClecoPower's transmission system are required to reserve capacity in order todeliver power within and across the regional power grid.  With the onset ofhigher power transactional volumes, unauthorized use had increased.  FERCapproved Cleco Power's application effective December 1, 2003, subject torevisions to the billing determinants proposed in the original filing.

**New Accounting Standards**

For discussion of new accounting standards, seeItem 8, "Financial Statements and Supplementary Data - Notes to the FinancialStatements - Note 2 - Summary ofSignificant Accounting Policies -Recent Accounting Standards."

50
****
**ITEM 7A.**  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
***Cleco***

Market risk inherent in Cleco's marketrisk-sensitive instruments and positionsincludes potential changes arising from changes in interest rates and thecommodity price of power and natural gas traded in the industry on differentenergy exchanges.  Prior to the third quarter of 2002, Cleco Power andMarketing & Trading used EITF No. 98-10 to determine whether the marketrisk-sensitive instruments and positions were required to be marked-to-market. In October 2002, the EITF rescinded EITF No. 98-10, effective the second fiscalperiod beginning after December 15, 2002.  Cleco Power currently uses SFAS No.133 to determine whether the market risk-sensitive instruments and positionsare required to be marked-to-market.  Generally, Cleco Power's marketrisk-sensitive instruments and positions qualify for the normal-purchase,normal-sale exception to mark-to-market accounting of SFAS No. 133, as modifiedby SFAS No. 149, since Cleco Power generally takes physical delivery and theinstruments and positions are used to satisfy customer requirements.  From timeto time, Cleco Power may have positions that are required to bemarked-to-market, because they do not meet the exception of SFAS No. 133, anddo not qualify for hedge accounting treatment.  The positions for marketing andtrading purposes do not meet the exemptions of SFAS No. 133 and the netmark-to-market of those positions is recorded in income.  Cleco Power has enteredinto other positions to mitigate some of the volatility in fuel costs passed onto customers.  These positions are marked-to-market, with the resulting gain orloss recorded on the balance sheet as a component of the accumulated deferredfuel asset or liability.  When these positions close, actual gains or losseswill be included in the Fuel AdjustmentClause and reflected on customers'bills.  Cleco Energy's financial positions were previously marked-to-market.

Cleco also issubject to market risk associated with its remaining tolling agreementcounterparties.  For additional information concerning Cleco's market riskassociated with its remaining counterparties, see Item 7, "Management's Discussionand Analysis of Financial Condition and Results of Operations - Financial Condition- Liquidity and Capital Resources - General Considerations and Credit RelatedRisks" and Item 8, "Financial Statements and Supplementary Data - Notes to theFinancial Statements - Note 26 - Perryville."

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

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

**Interest Rate Risks**

Cleco has entered into various fixed- andvariable-rate debt obligations.  For details, see Item 8, "Financial Statementsand Supplementary Data - Notes to the Financial Statements - Note 6 - Debt."  Thecalculations of the changes in fair market value and interest expense of thedebt securities are made over a one-year period.

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

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

As of December 31, 2004, Cleco and Cleco Power hadno short-term, variable-rate debt; therefore, each 1.0% change in the averageinterest rates applicable to such debt would result in no change in the pre-taxearnings of Cleco and Cleco Power.  At December 31, 2004, Cleco Corporation hadentered into two $50.0 million fixed-to-floating interest rate swaps involvingCleco Corporation's 8.75% Senior Notes.  Each 1.0% increase or decrease in the averageinterest rates applicable to the swaps would result in a corresponding decreaseor increase, respectively, of approximately $1.0 million in Cleco's pre-taxearnings.

The interest rate swaps referred to above wereentered into on February 20, 2004, and May 3, 2004, respectively.  Under theswaps, the 8.75% fixed-rate on its Senior Notes was swapped for floating rateexposure based on the six-month LIBOR on the last day of each calculationperiod, plus agreed upon spreads of 6.615% and 6.03%, respectively, on the$50.0 million notional amounts associated with each of the swaps.  A netsettlement amount is paid semi-annually on June 1 and December 1.  Thefixed-rate debt matures and the interest rate swaps terminate on June 1, 2005. As of December 31, 2004, Cleco Corporation had paid the swap counterparty a netsettlement amount of $0.1 million.

51
****
**Commodity Price Risks**

During the fourth quarter of 2002, Marketing &Trading and Cleco Power discontinued speculative trading activities.  As ofSeptember 4, 2003, all of Marketing & Trading's remaining positions wereclosed; therefore, no mark-to-market amount was recorded on the balance sheet. Due to the change in trading strategy, commodity price risks have been substantiallymitigated when compared to previous periods.

Management believes Cleco has controls in place tominimize the risks involved in financial activities and trading.  Independent controlsover trading consist of a back office (accounting), a middle office (riskmanagement), regulatory compliance staff, as well as, oversight by a riskmanagement committee comprised of officers, and a daily risk report that showsVAR and current market conditions.  Cleco's Board of Directors appoints themembers of the Risk Management Committee.  VAR limits are established andmonitored by the Risk Management Committee.

Cleco Power's financial positions that are not usedto meet the power demands of customers are marked-to-market as required by SFASNo. 133.  There were no speculative positions at December 31, 2004, andDecember 31, 2003; therefore, no mark-to-market amounts were recorded on theincome statement or balance sheet.

Cleco Power provides fuel for generation andpurchases power to meet the power demands of customers.  Cleco Power hasentered into positions to mitigate some of the volatility in fuel costs passedon to customers as encouraged by an LPSC order.  In December 2004, Cleco Power implementeda fuel stabilization policy (which was filed with the LPSC) to target higherlevels of minimum hedging percentages.  This LPSC order could result in largervolatility in the marked-to-market amounts for the financial positions tomitigate fuel cost volatility for Cleco Power customers.  These positions aremarked-to-market with the resulting gain or loss recorded on the balance sheetas a component of the accumulated deferred fuel asset or liability and acomponent of the risk management asset or liability.  Based on market prices atDecember 31, 2004, the net mark-to-market impact was a loss of $2.1 million.

The sale of substantiallyall of Cleco Energy's assets was completed in November 2004 and, as a result, allof Cleco Energy's trading positions were closed as of December 31, 2004.  ClecoEnergy previously provided natural gas to wholesale customers, such as municipalities,and entered into transactions to provide fixed gas prices to some of its customers. All of Cleco Energy's trades previously were marked-to-market as required bySFAS No. 133.  At December 31, 2004, no mark-to-market balance remained on thebalance sheet.

Cleco Power and Cleco Energy utilized a VAR modelto assess the market risk of their trading portfolios, including derivativefinancial instruments.  VAR represents the potential loss in fair values for aninstrument from adverse changes in market factors for a specified period oftime and confidence level.  The VAR is estimated using a historical simulationcalculated daily assuming a holding period of one day, with a 95% confidencelevel for natural gas and power positions.  Total volatility is based onhistorical cash, implied market, and current cash volatility assessments.

Based on these assumptions, the high, low, andaverage VAR for 2004, as well as the VAR at December 31, 2004, and 2003, are summarizedbelow:

**FOR  THE YEAR ENDED DECEMBER 31, 2004**

          AT DECEMBER 31,

(thousands)

**         HIGH**

** **

**        LOW**

** **

**           AVERAGE**

**        2004**

       2003

Cleco Power

** $       -**

** $      -**

**      $         -**

** ****$     ****-**

   $         -

Cleco Energy

** $ 88.6**

** $      -**

**      $  13.6**

** ****$     ****-**

   $  97.7

     Consolidated

** $ 88.6**

** $      -**

**      $  13.6**

** ****$     ****-**

   $  97.7

The decrease in VAR from December 31,2004, compared to December 31, 2003, is primarily due to a decrease in tradingactivity as a result of Cleco Energy no longer transacting for its wholesalecustomers.  Under Cleco's VAR model, changes in market value of open positionsin excess of $0.2 million over Cleco's estimated VAR are material.  During2004, there was no such excess.

Thefollowing table summarizes the market value maturities of contracts at December31, 2004.

CONTRACTUAL OBLIGATIONS (THOUSANDS)

      MATURITY     LESS THAN       ONE YEAR

      MATURITY

      1-3 YEARS

      MATURITY   OVER THREE             YEARS

            TOTAL               FAIR            VALUE

Assets

     Cleco Power

   $      6,907

   $               -

   $               -

   $      6,907

     Cleco Energy

                    -

                    -

                    -

                    -

          Consolidated

   $      6,907

   $               -

   $               -

   $      6,907

Liabilities

     Cleco Power    

   $    50,457

   $               -

   $               -

   $   50,457

     Cleco Energy

                    -

                    -

                    -

                    -

          Consolidated

   $    50,457

   $               -

   $               -

   $   50,457

For additional information on the marketvalue maturities of contracts, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 5 - Fair Value of FinancialInstruments."

***Cleco Power***

**Financial Risk Management**

Cleco Power's management believes it has controlsin place to help minimize the risks involved in financial activities and trading. Independent controls over trading consist of a back office (accounting), amiddle office (risk management), and regulatory compliance staff, as well as, oversightby a risk management committee comprised of officers. Cleco's Board ofDirectors appoints the members of the Risk Management Committee.  

Prior to thethird quarter of 2002, Cleco Power used EITF No. 98-10 to determine whether themarket risk-sensitive instruments and positions were required to bemarked-to-market. In October 2002, the EITF rescinded EITFNo. 98-10, effective the first fiscal period beginning after December 15, 2002. Cleco Power currently uses SFAS No. 133 to determine whether the marketrisk-sensitive instruments and positions are required to be marked-to-market.  Generally,Cleco 

52
****
Power's market risk-sensitive instruments and positions qualify for thenormal-purchase, normal-sale exception to mark-to-market accounting of SFAS No.133, since Cleco Power generally takes physical delivery and the instrumentsand positions are used to satisfy customer requirements.  Cleco Power couldhave positions that are required to be marked-to-market because they do notmeet the exceptions of SFAS No. 133 and do not qualify for hedge accountingtreatment.  The positions entered into for marketing and trading purposes donot meet the exemptions of SFAS No. 133, and the net mark-to-market of thosepositions is recorded in income.  Cleco Power has entered into other positionsto mitigate some of the volatility in fuel costs passed on to customers.  Thesepositions are marked-to-market, with the resulting gain or loss recorded on thebalance sheet as a component of the accumulated deferred fuel asset orliability.  When these positions close, actual gains or losses will be includedin the fuel adjustment clause and reflected on customers' bills.

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

***Interest Rate Risks***

Cleco Powerhas entered into various fixed- and variable-rate debt obligations.  Fordetails, see Item 8, "Financial Statements and Supplementary Data - Notes tothe Financial Statements - Note 6 - Debt."  The calculations of the changes infair market value and interest expense of the debt securities are made over aone-year period.

As of December31, 2004, the carrying value of Cleco Power's long-term fixed-rate debt wasapproximately $410.6 million, with a fair market value of approximately $433.8million.  Fair value was determined using quoted market prices.  Each 1.0% increaseor decrease in the average interest rates applicable to such debt would resultin a corresponding decrease or increase, respectively, of approximately $4.3million in the fair values of these instruments.  If these instruments are heldto maturity, no change in stated value will be realized.

As of December 31, 2004, Cleco Power had noshort-term variable-rate debt.  Cleco Power monitors its mix of fixed- andvariable-rate debt obligations in light of changing market conditions and fromtime to time may alter that mix by, for example, refinancing balances outstandingunder its variable-rate credit facility with fixed-rate debt.

***Market Risk***

Cleco Power's financial positions that are notused to meet the power demands of customers are marked-to-market as required bySFAS No. 133.  There were no speculative positions at December 31, 2004, andDecember 31, 2003; therefore, no mark-to-market amounts were recorded on theincome statement or balance sheet.

For trading activities, Cleco Power maintains adaily risk report which shows VAR and current market conditions.  VAR limitsare established and monitored by the Risk Management Committee.

Cleco Power provides fuel for generation andpurchases power to meet the power demands of customers.  Cleco Power hasentered into positions to mitigate some of the volatility in fuel costs passedon to customers, as encouraged by an LPSC order.  In December 2004, Cleco Powerfiled a fuel stabilization policy with the LPSC to target higher levels ofminimum hedging percentages.  This LPSC order could result in larger volatilityin the marked-to-market amounts for the financial positions to mitigate fuelcost volatility for Cleco Power customers.  These positions aremarked-to-market, with the resulting gain or loss recorded on the balance sheetas a component of the accumulated deferred fuel asset or liability and acomponent of the risk management asset or liability.  Based on market prices atDecember 31, 2004, the net mark-to-market impact was a loss of $2.1 million.

Cleco Power utilizes a VAR model to assess themarket risk of its trading portfolios, including derivative financial instruments. VAR represents the potential loss in fair values for an instrument from adversechanges in market factors for a specified period of time and confidence level. The VAR is estimated using a historical simulation calculated daily assuming aholding period of one day, with a 95% confidence level for natural gas andpower positions.  Total volatility is based on historical cash, implied market,and current cash volatility assessments.

As a result of Cleco Power's decision to no longerengage in speculative trading activities, there was no VAR at December 31, 2004,or December 31, 2003.

The following table summarizes the market valuematurities of contracts at December 31, 2004, with respect to Cleco Power:

      MATURITY

      MATURITy

            TOTAL

CONTRACTUAL OBLIGATIONS

     LESS THAN

      MATURITY

   OVER THREE

               FAIR

(THOUSANDS)

       ONE YEAR

      1-3 YEARS

            YEARS

            VALUE

Assets

   $      6,907

   $               -

   $               -

   $      6,907

Liabilities

   $    50,457

   $               -

   $               -

   $   50,457

For additional information on the marketvalue maturities of contracts, see Item 8, "Financial Statements and SupplementaryData - Notes to the Financial Statements - Note 5 - Fair Value of FinancialInstruments."

53
****
**ITEM 8.**    FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

  Report of Independent Registered PublicAccounting Firm

To the Shareholders and Board

of Directors ofCleco Corporation:

We have completed an integrated audit ofCleco Corporation's 2004 consolidated financial statements and of its internal controlover financial reporting as of December 31, 2004 and audits of its 2003 and2002 consolidated financial statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States).  Our opinions, basedon our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financialstatements listed in the index appearing under Item 15(a)(1) presentfairly, in all material respects, the financial position of Cleco Corporationand its subsidiaries at December 31, 2004 and 2003, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2004 in conformity with accounting principles generally acceptedin the United States of America.  These financial statements are the responsibilityof the Company's management.  Our responsibility is to express an opinion onthese financial statements based on our audits.  We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit of financial statementsincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

As discussed in Note 2 to the financial statementsof Cleco Corporation, effective March 31, 2004, the Company adopted provisionsof FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities -an Interpretation of Accounting Research Bulletin No. 51 (revised December2003)."

Internal control over financial reporting

Also, in our opinion, management's assessment,included in Management's Report on Internal Control Over Financial Reportingappearing under Item 8, that the Company maintained effective internal controlover financial reporting as of December 31, 2004 based on criteria establishedin Internal Control - Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO), is fairly stated,in all material respects, based on those criteria.  Furthermore, in ouropinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2004, based on criteriaestablished in Internal Control - Integrated Framework issued by the COSO.  TheCompany's management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting.  Our responsibility is to expressopinions on management's assessment and on the effectiveness of the Company'sinternal control over financial reporting based on our audit.  We conducted ouraudit of internal control over financial reporting in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects.  An audit of internal control overfinancial reporting includes obtaining an understanding of internal controlover financial reporting, evaluating management's assessment, testing andevaluating the design and operating effectiveness of internal control, andperforming such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 

A company's internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company's internal control over financial reporting includesthose policies and procedures that (i) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company's assets that could have a material effect on the financialstatements. 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

/s/  PricewaterhouseCoopers LLP

New Orleans, Louisiana

March 14, 2005

 

54
****
  Management'sReport on Internal Control Over Financial Reporting

The management of Cleco Corporation is responsiblefor establishing and maintaining adequate internal control over financialreporting, as such term is defined in the rules promulgated under theSecurities Exchange Act of 1934.  Cleco Corporation's internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with accounting principles generallyaccepted in the United States of America. 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

Cleco Corporation's management conducted an assessmentof the effectiveness of Cleco Corporation's internal control over financialreporting as of December 31, 2004.  In making this assessment, management usedthe criteria in Internal Control-Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission.  Based on thisassessment, Cleco Corporation's management concluded that, as of December 31,2004, Cleco Corporation's internal control over financial reporting waseffective.

Management's assessment of the effectiveness ofCleco Corporation's internal control over financial reporting as of December31, 2004 has been audited by PricewaterhouseCoopers LLP, an independentregistered public accounting firm, as stated in their report which appears onpage 54 of this Annual Report on Form 10-K.

 

55
****
  CLECO CORPORATION

  Consolidated Statements of Operations

                                                  FOR  THE YEAR ENDED DECEMBER 31,

(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

**                      2004**

** **

                      2003

                      2002

**Operating revenue**

     Electric operations

** $     718,151**

   $         676,002

   $         568,102

     Tolling operations

**         10,255**

                 98,726

                 90,260

     Energy trading, net

**                  3**

                     (936)

                   1,599

     Energy operations

**                53**

                       556

                   1,437

     Other operations

**         30,477**

                 30,666

                 34,033

     Intercompany revenue

**           7,767**

                            -

                            -

          Gross operating revenue

**       766,706**

              805,014

               695,431

               Electric customer credits

**       (20,889)**

                  (1,562)

                  (2,900)

          Operating revenue, net

**       745,817**

               803,452

              692,531

**Operating expenses**

     Fuel used for electric generation

**       153,750**

              163,769

              143,733

     Power purchased for utility customers

**       267,371**

              231,839

              151,085

     Purchases for energy operations

**              299**

                   1,104

                       859

     Other operations

**         83,677**

                 94,666

                 83,837

     Maintenance

**         40,917**

                 60,479

                 35,068

     Depreciation

**         59,930**

                 76,318

                 67,713

     Restructuring charge

**             (160)**

                     (306)

                   9,470

     Impairments of long-lived assets

**                   -**

              147,993

                            -

     Taxes other than income taxes

**         38,895**

                 39,137

                 38,343

          Total operating expenses

**       644,679**

              814,999

              530,108

**Operating income (loss)**

**       101,138**

               (11,547)

              162,423

Interest income

**           3,956**

                   2,371

                   1,574

Allowance for other funds used during  construction

**           3,723**

                   2,741

                    2,719

Equity income from investees

**         47,538**

                 31,649

                 16,204

Other income

**           2,232**

                   3,578

                   2,119

Other expense

**         (4,398)**

                  (9,188)

                  (4,930)

Income before interest charges

**       154,189**

                 19,604

              180,109

**Interest charges**

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

**         53,451**

                 71,602

                 60,674

     Allowance for borrowed funds used during  construction

**         (1,245)**

                      (813)

                     (603)

          Total interest charges

**         52,206**

                 70,789

                 60,071

**Income (loss) from continuing operations  before income taxes**

**       101,983**

               (51,185)

              120,038

Federal and state income tax expense (benefit)

**         35,864**

               (21,417)

                 39,665

**Income (loss) from continuing operations**

**         66,119**

               (29,768)

                 80,373

**Discontinued operations**

     Loss from discontinued operations, net of  tax

**         (1,615)**

                  (5,161)

                  (8,498)

     Gain from disposal of segment, net of tax

**           1,685**

                            -

                            -

          Total income (loss) from discontinued  operations

**                70**

                  (5,161)

                  (8,498)

**Net income (loss)**

**         66,189**

               (34,929)

                 71,875

Preferred dividends requirements, net

**           2,216**

                   1,861

                   1,872

**Net income (loss) applicable to common stock**

** $       63,973**

   $          (36,790)

   $            70,003

**Average shares of common stock outstanding**

     Basic

** 47,371,319**

        46,820,058

        46,245,104

     Diluted

** 47,528,886**

        46,820,058

        46,292,058

**Basic earnings (loss) per share**

     From continuing operations

** $            1.33**

   $               (0.68)

   $                 1.65

     From discontinued operations

** $                   -**

   $               (0.11)

   $              (0.18)

     Net income (loss) applicable to common stock

** $            1.33**

   $               (0.79)

   $                 1.47

**Diluted earnings (loss) per share**

     From continuing operations

** $            1.32**

   $               (0.68)

   $                1.65

     From discontinued operations

** $                   -**

   $               (0.11)

   $             (0.18)

     Net income (loss) applicable to common stock

** $            1.32**

   $               (0.79)

   $                1.47

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

** $         0.900**

   $                0.900

   $              0.895

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

56
****
  CLECO CORPORATION

  Consolidated Balance Sheets

                                             AT DECEMBER 31,

(THOUSANDS

**                           2004**

** **

                           2003

**Assets**

     Current assets

          Cash and  cash equivalents

** $      123,787**

   $                95,381

          Restricted  cash, current portion

**                      -**

                        6,668

          Customer  accounts receivable (less allowance for doubtful accounts of $506 in 2004 and  $16,502 in 2003)

**            34,468**

                     28,657

          Accounts  receivable - affiliate

**              2,276**

                                 -

          Other  accounts receivable 

**            23,562**

                     28,233

          Taxes  receivable

**                      -**

                     22,127

          Unbilled  revenue

**            17,256**

                     23,659

          Fuel  inventory, at average cost

**            21,132**

                     15,719

          Material and  supplies inventory, at average cost

**            16,609**

                     17,348

          Accumulated  deferred federal and state income taxes, net

**              4,767**

                        1,544

          Accumulated  deferred fuel

**            13,997**

                                 -

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

**            19,170**

                     11,282

          Margin  deposits

**              5,159**

                           477

          Prepayments

**              4,023**

                        5,715

          Other  current assets

**              1,560**

                        3,201

               Total  current assets

**          287,766**

                   260,011

     Property, plant  and equipment

          Property,  plant and equipment

**      1,733,970**

               2,105,972

          Accumulated  depreciation

**        (781,925)**

                 (773,043)

          Net  property, plant and equipment

**          952,045**

               1,332,929

          Construction  work in progress

**          108,000**

                     75,855

               Total  property, plant and equipment, net

**      1,060,045**

               1,408,784

     Equity investment  in investees

**          314,284**

                   264,073

     Prepayments

**              6,568**

                        7,018

     Restricted cash,  less current portion

**                   93**

                      34,594

     Regulatory assets  and liabilities - deferred taxes, net  

**            92,864**

                     93,142

     Regulatory assets  - other

**            26,327**

                     26,466

     Assets held for  sale

**                      -**

                        8,282

     Long-term  receivable

**                      -**

                     14,701

     Other deferred  charges

**            49,116**

                     42,355

             **Total assets**

** $   1,837,063**

   $          2,159,426

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

                          

(Continued on nextpage)

57
****
  CLECO CORPORATION

  Consolidated Balance Sheets

                                              AT DECEMBER 31,

(THOUSANDS)

**                           2004**

** **

                           2003

**Liabilities and shareholders' equity**

**   Liabilities**

          Current  liabilities

               Short-term  debt

** $                  -**

   $              200,787

               Short-term  debt - affiliate

**              8,799**

                                 -

               Long-term  debt due within one year

**          160,000**

                        4,918

               Accounts  payable

**            75,770**

                     82,314

               Retainage

**                   50**

                        7,625

               Accrued  payroll

**              2,693**

                        2,141

               Accounts  payable - affiliate

**              9,835**

                                 -

               Customer  deposits

**            22,654**

                     21,382

               Provision  for rate refund

**            23,951**

                                 -

               Taxes  accrued

**            16,323**

                                 -

               Interest  accrued

**              9,572**

                     15,667

               Accumulated  deferred fuel

**                      -**

                        6,579

               Other  current liabilities

**              8,030**

                        4,743

          Total  current liabilities

**          337,677**

                   346,156

     Deferred credits

          Accumulated  deferred federal and state income taxes, net

**          368,846**

                   324,687

          Accumulated  deferred investment tax credits

**            17,303**

                     19,015

          Other  deferred credits

**          101,621**

                     61,042

               Total  deferred credits

**          487,770**

                   404,744

     Long-term debt,  net 

**          450,552**

                   907,058

               Total  liabilities

**      1,275,999**

               1,657,958

Commitments and  Contingencies (Note 16)

**Shareholders' equity**

          Preferred  stock

          Not subject  to mandatory redemption, $100 par value, authorized 1,352,000 shares, issued 234,160  and 253,240 shares at December 31,   2004 and 2003, respectively

**            23,416**

                     25,324

          Deferred  compensation related to preferred stock held by ESOP

**            (4,190)**

                      (6,607)

               Total  preferred stock not subject to mandatory redemption

**            19,226**

                     18,717

     Common  shareholders' equity

          Common  stock, $1 par value, authorized 100,000,000 shares, issued 49,667,861 and  47,299,119 shares at December 31, 2004 and 2003,  respectively

**            49,668**

                     47,299

          Premium on  common stock

**          194,055**

                   154,928

          Retained  earnings

**          308,003**

                   286,797

          Unearned  compensation

**            (5,733)**

                                 -

          Treasury  stock, at cost 44,275 and 115,484 shares at December 31, 2004 and 2003,  respectively

**                (887)**

                      (2,493)

          Accumulated  other comprehensive loss

**            (3,268)**

                      (3,780)

               Total  common shareholders' equity

**          541,838**

                   482,751

                   Total  shareholders' equity

**          561,064**

                   501,468

**Total liabilities and shareholders' equity**

** $   1,837,063**

   $          2,159,426

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

58
****
CLECO CORPORATION

Consolidated Statements of CashFlows

                                                  FOR  THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**                     2004**

** **

                      2003

                      2002

**Operating activities**

     Net income (loss)

** $    66,189**

   $          (34,929)

   $            71,875

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

          Gain on  disposal of segment, net of tax

**         (1,685)**

                            -

                            -

          Depreciation  and amortization

**        63,446**

                 81,204

                 71,144

          Evangeline  warranty settlement

**                  -**

                   8,649

                            -

          Provision for  doubtful accounts

**          1,610**

                 17,407

                       688

          Return on  equity investment in investee

**        42,602**

                 34,525

                            -

          Income from  equity investments

**       (47,538)**

               (31,631)

               (16,204)

          Unearned  compensation expense

**          2,092**

                  (1,558)

                   6,605

          Allowance for  other funds used during construction

**         (3,723)**

                  (2,741)

                  (2,719)

          Amortization  of investment tax credits

**         (1,712)**

                  (1,729)

                  (1,743)

          Net deferred  income taxes 

**        30,248**

                  (6,264)

                 79,060

          Deferred fuel  costs 

**       (17,560)**

                       237

                 13,459

          Impairments  of long-lived assets

**          1,100**

              156,250

                   3,587

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

**         (1,353)**

                       424

                   1,124

          Changes in  assets and liabilities:

               Accounts  receivable, net

**         (8,285)**

                 10,166

                  (5,119)

               Accounts  and notes receivable, affiliate 

**       (14,954)**

                            -

                            -

               Unbilled  revenue

**          6,402**

                  (3,650)

                  (2,308)

               Fuel,  materials and supplies inventory

**         (7,786)**

                  (5,342)

                       372

               Prepayments

**          1,712**

                  (2,043)

               (15,215)

               Accounts  payable

**         (3,840)**

               (22,036)

                   3,931

               Accounts  and notes payable, affiliate

**        16,005**

                            -

                            -

               Accrued  payroll

**             552**

                        (39)

                   1,050

               Customer  deposits

**          1,272**

                       295

                       395

               Long-term  receivable

**         (2,206)**

                  (4,331)

                  (4,465)

               Other  deferred accounts

**        25,091**

                   6,318

                  (3,198)

               Retainage  payable

**         (7,575)**

                            -

                            -

               Taxes  accrued

**        36,700**

                   1,480

               (35,204)

               Interest  accrued

**         (4,162)**

                       121

                     (150)

               Margin  deposits

**         (4,682)**

                     (159)

                       262

               Other,  net

**         (1,358)**

                  (1,688)

                  (1,849)

          Net cash  provided by operating activities

**      166,602**

              198,936

              165,378

**Investing  activities**

     Additions to  property, plant and equipment

**       (79,873)**

               (74,511)

               (89,704)

     Allowance for  other funds used during construction

**          3,723**

                   2,741

                   2,719

     Proceeds from sale  of property, plant and equipment

**             271**

                       316

                            -

     Proceeds from  disposal of segment

**        10,426**

                            -

                            -

     Return of (investment  in) equity investment in investee

**          7,054**

                   6,043

               (39,860)

     Investment in cost  method investments

**         (5,485)**

                            -

                            -

     Acquisition of partnership,  net of cash acquired

**                  -**

                            -

               (54,561)

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

**         (6,923)**

                  (2,716)

                  (1,120)

     Transfer of cash  from restricted accounts

**        10,178**

                 12,406

               (19,359)

          Net cash used  in investing activities

**       (60,629)**

               (55,721)

             (201,885)

**Financing  activities**

     Sale of common stock,  net

**        35,705**

                            -

                 44,300

     Conversion of  options to common stock

**             383**

                       120

                            -

     Issuance of common  stock under employee stock purchase plan

**                  -**

                        (44)

                            -

     Repurchase of  common stock

**                  -**

                        (67)

                     (105)

     Change in  short-term debt, net

**       (67,750)**

             (250,211)

              135,745

     Retirement of  long-term obligations

**         (2,541)**

               (41,470)

               (63,204)

     Issuance of  long-term debt

**                  -**

              175,000

                 67,739

     Deferred financing  costs

**                  -**

                  (2,474)

                  (3,776)

     Change in ESOP  trust 

**          1,753**

                   1,328

                   1,257

     Dividends paid on  preferred stock

**         (2,350)**

                  (1,861)

                  (1,873)

     Dividends paid on  common stock 

**       (42,767)**

               (42,486)

               (41,183)

          Net cash (used  in) provided by financing activities

**       (77,567)**

             (162,165)

              138,900

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

**        28,406**

               (18,950)

               102,393

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

**        95,381**

              114,331

                 11,938

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

** $    123,787**

   $            95,381

   $          114,331

**Supplementary cash  flow information**

     Interest paid (net  of amount capitalized)

** $      54,619**

   $            68,004

   $            62,671

     Income taxes  paid/(received)

** $   (42,056)**

   $         (25,567)

   $              3,000

**Supplementary  noncash financing activities**

Issuance of treasury  stock - LTICP and ESOP plans

** $        1,492**

   $              2,734

   $              1,584

Issuance of common  stock - LTICP/ESOP/ESPP

** $    4,784(1)**

   $                     -

   $                     -

(1)         Includes  conversion of preferred stock to common stock of $1,908

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

59
****
CLECO CORPORATION

Consolidated Statements ofComprehensive Income

                             FOR  THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**                        2004**

** **

                      2003

                      2002

Net income (loss)

** $      66,189**

   $          (34,929)

   $            71,875

Other comprehensive income (loss), net of tax:

     Net unrealized income (loss) from limited  partnership (net of tax expense of $91 in 2004, $68 in 2003 and $0 in 2002)

**               146**

                      109

                     (413)

     Net unrealized gain from available-for-sale  securities (net of tax expense of $46 in 2004, $29 in 2003 and $20 in 2002)

**                 73**

                         47

                         55

     Recognition of additional minimum pension  liability (net of tax expense (benefit) of $183 in 2004, $689 in 2003 and  $1,548 in 2002)

**               293**

                 (1,102)

                  (2,476)

Comprehensive income (loss)

**               512**

                     (946)

                  (2,834)

**Comprehensive income (loss), net of tax**

** $      66,701**

   $          (35,875)

   $            69,041

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

Consolidated Statements of Changesin Common Shareholders' Equity

ACCUMULATED

PREMIUM

OTHER

TOTAL

                              COMMON STOCK

UNEARNED

   ON COMMON

RETAINED

    TREASURY STOCK

COMPREHENSIVE

COMMON

(THOUSANDS, EXCEPT SHARE AMOUNTS)

              SHARES

          AMOUNT

COMPENSATION

               STOCK

EARNINGS

SHARES

COST

LOSS

EQUITY
**BALANCE, JANUARY 1, 2002**

45,065,152

   $     45,065

   $                      -

   $ 111,714

   $ 337,254

     (102,242)

   $     (2,067)

   $                        -

$ 491,966

Issuance of common stock

    2,000,000

            2,000

         42,300

44,300

Treasury shares purchased

          (5,784)

             (105)

(105)

Issuance of treasury stock

          (1,269)

         78,067

           1,593

324

Dividend requirements,preferred stock, net

          (1,872)

(1,872)

Cash dividends, common stock,$0.895 per share

       (41,184)

(41,184)

Net income

         71,875

71,875

Other comprehensive income, net of tax

                  (2,834)

(2,834)

**BALANCE, DECEMBER 31, 2002**

47,065,152

          47,065

                           -

      152,745

      366,073

       (29,959)

             (579)

                  (2,834)

562,470

Common stock issued forcompensatory plans

       233,967

                234

           2,247

2,481

Incentive shares forfeited

       (91,022)

          (2,022)

(2,022)

Issuance of treasury stock

                (64)

           5,497

               108

             44

Dividend requirements,preferred stock, net

          (1,861)

(1,861)

Cash dividends, common stock, $0.900 per share

       (42,486)

(42,486)

Net loss

       (34,929)

       (34,929)

Other comprehensive income, net of tax

                      (946)

(946)

**BALANCE, DECEMBER 31, 2003**

47,299,119

          47,299

                           -

      154,928

      286,797

     (115,484)

          (2,493)

                  (3,780)

482,751

Issuance of common stock

    2,000,000

            2,000

         33,705

35,705

Common stock issued for compensatory plans

       368,742

                369

           5,548

5,917

Issuance of treasury stock

                 50

         91,640

           2,018

2,068

Unearned compensation (LTICP)

               (5,733)

(5,733)

Incentive shares forfeited

       (20,431)

             (412)

(412)

Common stock issuance costs

             (176)

(176)

Dividend requirements,preferred stock, net

          (2,216)

(2,216)

Cash dividends, common stock, $0.900 per share

       (42,767)

(42,767)

Net income

         66,189

66,189

Other comprehensive income, net of tax

                       512

512

**BALANCE, DECEMBER 31, 2004**

      49,667,861

   $     49,668

   $          (5,733)

   $ 194,055

   $ 308,003

(44,275)

 $        (887)

   $             (3,268)

$ 541,838

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

60
****
Report of Independent Registered Public Accounting Firm
 
To the Member and Board of Managers of Cleco Power LLC:

In our opinion, the financial statementslisted in the index appearing under Item 15(a)(1) present fairly, in allmaterial respects, the financial position of Cleco Power LLC at December 31,2004 and 2003, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2004 in conformity withaccounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company's management.  Our responsibilityis to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

New Orleans, Louisiana

March 14, 2005

 

61
****
CLECO POWER

Statements of Income

                                  FOR  THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**                      2004**

** **

                      2003

** **

                      2002

**Operating revenue**

** **

     Electric  operations

** $   718,151**

   $         676,002

* *

   $         568,102

     Energy trading,  net

**                  3**

                       626

* *

                     (752)

     Other operations

**         30,162**

                 30,013

* *

                 29,331

     Affiliate revenue

**           1,882**

                   2,209

* *

                   1,708

          Gross  operating revenue

**       750,198**

               708,850

* *

               598,389

               Electric  customer credits

**       (20,889)**

                  (1,562)

* *

                  (2,900)

          Operating  revenue, net

**       729,309**

              707,288

* *

              595,489

**Operating expenses**

* *

     Fuel used for  electric generation

**       154,043**

              163,869

* *

              138,582

     Power purchased  for utility customers

**       267,371**

              230,691

* *

              151,090

     Other operations

**         73,969**

                 62,742

* *

                 62,794

     Maintenance

**         36,329**

                 44,542

* *

                 28,170

     Depreciation

**         56,731**

                 54,084

* *

                 52,233

     Restructuring  charge

**                   -**

                     (315)

* *

                   8,099

     Taxes other than  income taxes

**         36,735**

                 37,062

* *

                 36,892

          Total  operating expenses

**       625,178**

               592,675

* *

              477,860

**Operating income**

**       104,131**

              114,613

* *

              117,629

Interest income

**           3,561**

                   1,335

* *

                       933

Allowance for other  funds used during construction

**           3,723**

                   2,741

* *

                   2,719

Other income

**           2,265**

                   4,714

* *

                   3,678

Other expense

**         (5,342)**

                  (7,775)

* *

                  (4,122)

Income before interest  charges

**       108,338**

              115,628

* *

              120,837

**Interest charges**

* *

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

**         29,689**

                 29,587

* *

                 29,694

     Allowance for  borrowed funds used during construction

**         (1,244)**

                     (813)

* *

                     (603)

          Total  interest charges

**         28,445**

                 28,774

* *

                 29,091

**Income before income taxes**

**         79,893**

                 86,854

* *

                 91,746

Federal and state  income taxes

**         27,691**

                 29,846

* *

                 32,172

**Net income**

** $     52,202**

   $            57,008

* *

   $            59,574

The accompanying  notes are an integral part of the financial statements.
 
62
****
CLECO POWER

Balance Sheets

                                    AT DECEMBER 31,

(THOUSANDS)

**                       2004**

** **

                             2003

**Assets**

** **

     Utility plant and equipment

          Property, plant and equipment

** $    1,721,752**

   $            1,692,815

          Accumulated depreciation

**          (776,925)**

                   (732,334)

          Net property, plant and equipment

**          944,827**

                     960,481

          Construction work in progress

**           106,368**

                       68,224

               Total utility plant, net

**        1,051,195**

                 1,028,705

     Current assets

          Cash and cash equivalents

**             54,113**

                       70,990

          Customer accounts receivable (less  allowance for doubtful accounts of $506 in 2004 and $755 in 2003)

**             34,468**

                       25,513

          Other accounts receivable

**             21,460**

                       18,733

          Accounts receivable - affiliate

**               5,208**

                       17,052

          Unbilled revenue

**             17,256**

                       17,208

          Fuel inventory, at average cost

**             21,132**

                       15,719

          Material and supplies inventory, at  average cost

**             16,609**

                       13,477

          Margin deposits

**               5,159**

                             477

          Prepayments

**               2,897**

                          2,016

          Accumulated deferred fuel

**             13,997**

                             -

          Accumulated deferred federal and state  income taxes, net

**               4,247**

                          2,353

          Cash surrender value of life insurance  policies

**               4,880**

                          4,262

          Other current assets

**                  548**

                          1,845

               Total current assets

**           201,974**

                     189,645

     Prepayments

**               6,568**

                          7,017

     Regulatory assets and liabilities - deferred  taxes, net

**             92,864**

                       93,142

     Regulatory assets - other

**             26,327**

                       26,466

Other deferred charges

**             46,460**

                       33,941

**Total assets**

**        1,425,388**

                 1,378,916

**Liabilities and member's equity**

     Member's equity

** $       453,457**

   $                445,866

     Long-term debt

**           350,552**

                     410,576

          Total capitalization

**           804,009**

                     856,442

Current liabilities

     Long-term debt due within one year

**             60,000**

                                   -

     Accounts payable

**             68,630**

                       69,456

     Accounts payable - affiliate

**               8,075**

                       24,694

     Customer deposits

**             22,637**

                       21,364

     Provision for rate refund

**             23,951**

                                  -

     Taxes accrued

**             20,709**

                       11,216

     Interest accrued

**               7,621**

                          7,619

     Accumulated deferred fuel    

**                       -**

                          6,579

     Other current liabilities

**               6,253**

                          2,960

               Total current liabilities

**           217,876**

                     143,888

Deferred credits

     Accumulated deferred federal and state  income taxes, net

**           339,060**

                     313,871

     Accumulated deferred investment tax credits

**             17,303**

                       19,015

     Other deferred credits

**             47,140**

                       45,700

               Total deferred credits

**           403,503**

                     378,586

**Total liabilities and member's equity**

** $    1,425,388**

   $            1,378,916

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

63
****
CLECO POWER

Statements of Cash Flows

**                **FOR  THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**                     2004**

** **

                      2003

                      2002

**Operating activities**

     Net income

** $     52,202**

   $            57,008

   $            59,574

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

          Depreciation  and amortization

**         58,782**

                 55,849

                 53,409

          Provision  for doubtful accounts

**           1,610**

                   1,614

                       688

          Unearned  compensation expense

**              259**

                     (478)

                   2,376

          Allowance  for other funds used during construction

**         (3,723)**

                  (2,741)

                  (2,719)

          Amortization  of investment tax credits

**         (1,712)**

                  (1,729)

                  (1,743)

          Net deferred  income taxes

**         19,861**

                 13,419

                 56,926

          Deferred  fuel costs 

**       (17,560)**

                       237

                 13,509

          Cash  surrender value of company-owned life insurance

**             (564)**

                       240

                            -

          Changes in  assets and liabilities:

               Accounts  receivable, net

**       (13,292)**

                   3,160

                  (7,677)

               Accounts  and notes receivable, affiliate

**         11,844**

                  (7,756)

                  (4,443)

               Unbilled  revenue

**               (48)**

                  (1,212)

                  (1,194)

               Fuel,  materials and supplies inventory

**         (7,767)**

                  (3,554)

                       526

               Prepayments

**             (432)**

                     (257)

                     (630)

               Accounts  payable

**             (251)**

                   6,347

                   5,339

               Accounts  and notes payable, affiliate

**       (17,007)**

                 15,533

                     (915)

               Accrued  payroll

**              410**

                        (46)

                       802

               Customer  deposits

**           1,273**

                       295

                       370

               Other  deferred accounts

**         13,378**

                  (3,008)

                  (3,416)

               Taxes  accrued

**           9,493**

                 29,339

               (33,935)

               Interest  accrued

**                  2**

                     (106)

                       401

               Margin  deposits

**         (4,682)**

                     (484)

                            7

               Other,  net

**           1,165**

                  (2,141)

                  (2,529)

          Net cash  provided by operating activities

**       103,241**

              159,529

              134,726

**Investing activities**

     Additions to  property, plant and equipment

**       (78,700)**

               (68,507)

               (87,321)

     Allowance for  other funds used during construction

**           3,723**

                   2,741

                   2,719

     Proceeds from  sale of property, plant and equipment

**              271**

                       316

                            -

     Cash surrender  value of company-owned life insurance

**             (629)**

                     (305)

                     (321)

     Transfer of cash  from restricted accounts

**                   -**

                            6

                            -

          Net cash  used in investing activities

**       (75,335)**

               (65,749)

               (84,923)

**Financing activities**

     Change in  short-term debt, net

**                   -**

             (107,000)

                 43,258

     Retirement of  long-term obligations

**               (83)**

               (25,000)

               (50,000)

     Issuance of  long-term debt

**                   -**

                 75,000

                 75,059

     Deferred  financing costs

**                   -**

                     (557)

                  (3,776)

     Distribution to  parent

**       (44,700)**

               (44,400)

               (51,300)

     Contribution from  parent

**                   -**

                 10,000

                   3,000

          Net cash  (used in) provided by financing activities

**       (44,783)**

                (91,957)

                 16,241

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

**       (16,877)**

                   1,823

                 66,044

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

**         70,990**

                 69,167

                   3,123

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

** $     54,113**

   $            70,990

   $            69,167

**Supplementary cash flow information**

     Interest paid  (net of amount capitalized)

** $     29,009**

   $            27,322

   $            28,503

     Income taxes paid  (received)

** $       7,790**

   $          (10,198)

   $              2,906

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

64
****
CLECO POWER

Statements of Comprehensive Income

               FOR THE YEAR ENDED  DECEMBER 31,

(THOUSANDS)

**              2004**

** **

              2003

              2002

Net income

** $ 52,202**

   $    57,008

   $    59,574

Other comprehensive income (loss), before tax:

     Reduction (recognition) of additional  minimum pension liability

**         145**

             (907)

          (1,485)

Other comprehensive income (loss), before tax

**         145**

             (907)

          (1,485)

Income tax (expense) benefit related to items of  other comprehensive loss

**         (56)**

               349

               571

**Comprehensive income, net of tax**

** $ 52,291**

   $    56,450

   $    58,660

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

Statements of Changes in Member'sEquity

(THOUSANDS)

      MEMBER'S            EQUITY

ACCUMULATEDOTHER

COMPREHENSIVE

LOSS

             TOTAL            MEMBER'S            EQUITY

**BALANCE, JANUARY 1, 2002**

$   413,456

         $              -

$   413,456

Recognition of additional minimum pension  liability, net of tax

                    -

                  (914)

             (914)

Contribution from parent

           3,000

                         -

           3,000

Distribution to member

       (51,300)

                         -

       (51,300)

Net income

         59,574

                         -

         59,574

**BALANCE, DECEMBER 31, 2002**

      424,730

                  (914)

      423,816

Recognition of additional minimum pension  liability, net of tax

                    -

                  (558)

             (558)

Contribution from parent

         10,000

                         -

         10,000

Distribution to member

       (44,400)

                         -

       (44,400)

Net income

         57,008

                         -

         57,008

**BALANCE, DECEMBER 31, 2003**

      447,338

               (1,472)

      445,866

Reduction of additional minimum pension  liability, net of tax

                    -

                      89

                 89

Distribution to member

       (44,700)

                         -

       (44,700)

Net income

         52,202

                         -

         52,202

**BALANCE, DECEMBER 31, 2004**

**$ 454,840**

**      $      (1,383)**

**$ 453,457**

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

65
****
Index to Applicable Notes to the FinancialStatements of Registrants

Note 1

The Company

Cleco Corporation and  Cleco Power

Note 2

Summary of Significant  Accounting Policies

Cleco Corporation and  Cleco Power

Note 3

Regulatory Assets and  Liabilities

Cleco Corporation and  Cleco Power

Note 4

Jointly Owned Generation  Units

Cleco Corporation and  Cleco Power

Note 5

Fair Value of  Financial Instruments

Cleco Corporation and  Cleco Power

Note 6

Debt

Cleco Corporation and  Cleco Power

Note 7

Common Stock

Cleco Corporation

Note 8

Preferred Stock

Cleco Corporation

Note 9

Pension Plan and  Employee Benefits

Cleco Corporation and  Cleco Power

Note 10

Income Taxes

Cleco Corporation and  Cleco Power

Note 11

Disclosures About  Segments

Cleco Corporation

Note 12

Accrual of Electric  Customer Credits

Cleco Corporation and  Cleco Power

Note 13

Equity Investment in  Investees

Cleco Corporation

Note 14

Operating Leases

Cleco Corporation and  Cleco Power

Note 15

Change in Accounting  Estimate

Cleco Corporation

Note 16

Litigation and Other  Commitments and Contingencies

Cleco Corporation and  Cleco Power

Note 17

Discontinued  Operations and Dispositions

Cleco Corporation

Note 18

Risks and  Uncertainties

Cleco Corporation and  Cleco Power

Note 19

Review of Trading  Activities

Cleco Corporation and  Cleco Power

Note 20

Restructuring Charge

Cleco Corporation and  Cleco Power

Note 21

Acquisition

Cleco Corporation

Note 22

Disclosures About  Guarantees

Cleco Corporation and  Cleco Power

Note 23

Impairments of  Long-Lived Assets

Cleco Corporation

Note 24

FERC Settlement

Cleco Corporation and  Cleco Power

Note 25

Affiliate Transactions

Cleco Power

Note 26

Perryville

Cleco Corporation

Note 27

Accounting for Asset  Retirement Obligation

Cleco Corporation and  Cleco Power

Note 28

Miscellaneous  Financial Information (Unaudited)

Cleco Corporation and Cleco  Power

Note 29

Variable Interest  Entities

Cleco Corporation

Note 30

Subsequent Event

Cleco Corporation and  Cleco Power

66
****
Notes to the Financial Statements

**Note 1 - The Company**

***General***

Cleco Corporation is a holding company that isexempt from regulation, subject to certain limited exceptions, as a public utilityholding company under PUHCA.  Cleco Corporation has the following threebusiness segments:
-  ClecoPower is an integrated electric utility services subsidiary regulated by theLPSC and the FERC, among other regulators, which determine the rates ClecoPower can charge its customers.  Cleco Power serves approximately 265,000customers in 103 communities in central and southeastern Louisiana.  ClecoPower also engages in energy management activities.
-  Midstreamis a merchant energy subsidiary that owns and operates merchant generationstations and invests in joint ventures that own and operate merchant generationstations.
-  ClecoCorporation's other segment consists of a holding company, a shared servicessubsidiary, and an investment subsidiary.

**Note 2 - Summary of Significant Accounting Policies**

***Use of Estimates***

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period.  Actual resultscould differ from those estimates.  

***Principles of Consolidation***

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

Cleco has adopted the provisions of FIN 46R onits scheduled effective dates.  Through a review of equity interests and othercontractual relationships, Cleco has determined that it is not the primarybeneficiary of Evangeline, which is considered a variable interest entity.  Inaccordance with FIN 46R, Cleco was required to deconsolidate Evangeline fromits consolidated financial statements and begin reporting its investment inEvangeline on the equity method of accounting effective March 31, 2004.  As aresult, the assets and liabilities of Evangeline no longer are reported onCleco Corporation's Consolidated Balance Sheet but instead are represented byone line item corresponding to Cleco's equity investment in Evangeline.  EffectiveApril 1, 2004, Evangeline's results of operations are reported as equity incomefrom investees on Cleco Corporation's Consolidated Statements of Operations. For additional information on the deconsolidation of Evangeline, see Note 13 -"Equity Investment in Investees."

The financial results of Perryville and PEH areincluded in Cleco Corporation's consolidated results through January 27, 2004. However, generally accepted accounting principles specifically require that anyentity that files for protection under the U.S. Bankruptcy Code, whethersolvent or insolvent, whose financial statements previously were consolidatedwith those of its parent must be deconsolidated prospectively from the parentand presented on the cost method.  The cost method requires Cleco to presentthe net assets of Perryville and PEH at January 27, 2004, as an investment andnot recognize any income or loss from Perryville or PEH in Cleco's results ofoperations during the reorganization period.  As of December 31, 2004, thisinvestment had a negative cost basis of approximately $37.3 million, which isincluded in other deferred credits on Cleco Corporation's Consolidated BalanceSheet.  When Perryville's bankruptcy proceedings are concluded, the subsequentaccounting treatment will be determined based upon the applicable facts andcircumstances existing at such time, including the terms of any plan of reorganizationor liquidation.  For additional information on the deconsolidation ofPerryville, see Note 26 - "Perryville."

***Reclassifications***

Certain reclassifications have been made to the2003 and 2002 financial statements to conform them to the presentation used inthe 2004 financial statements.  These reclassifications had no effect on ClecoCorporation's net income applicable to common stock or total commonshareholders' equity or Cleco Power's net income or total member's equity.

***Statements of Cash Flows***

The Consolidated Statements of Cash Flows of ClecoCorporation and the Statements of Cash Flows of Cleco Power are prepared usingthe "indirect method" described in SFAS No. 95.  This method requires that netincome be adjusted to remove (1) the effects of all deferrals and accruals ofoperating cash receipts and payments and (2) the effects of all investing andfinancing cash flow items.

***Regulation***

Cleco Power maintains its accounts in accordancewith the Uniform System of Accounts prescribed for electric utilities by theFERC, as adopted by the LPSC.  Cleco Power's retail rates are regulated by theLPSC and its rates for transmission services and wholesale power sales areregulated by the FERC.  Cleco Power follows SFAS No. 71, which allows utilitiesto capitalize or defer certain costs based on regulatory approval andmanagement's ongoing assessment that it is probable these items will berecovered through the ratemaking process.

Pursuant to SFAS No. 71, Cleco Power hasrecorded regulatory assets and liabilities primarily for the effects of incometaxes.  In addition, Cleco Power has recorded regulatory assets for deferredmining costs, storm restoration costs, interest 

67
****
costs, estimated future assetremoval costs, and fuel and energy purchases as a result of rate actions ofregulators.  For information regarding the regulatory assets and liabilities recordedby Cleco Power, see Note 3 - "Regulatory Assets and Liabilities."

Any future plan adopted by the LPSC for purposesof transitioning utilities from LPSC regulation to retail competition mayaffect the regulatory assets and liabilities recorded by Cleco Power if the criteriafor the application of SFAS No. 71 cannot continue to be met.  At thistime, Cleco cannot predict whether any legislation or regulation affectingCleco Power will be enacted or adopted and, if enacted, what form such legislationor regulation may take.

***Property, Plant and Equipment***

Property, plant and equipment consist primarily ofregulated utility generation and energy transmission assets and, prior toPerryville and Evangeline's deconsolidation, merchant generation stations.  Regulatedassets, utilized primarily for retail operations and electric transmission anddistribution, are stated at the cost of construction, which includes certainmaterials, labor, payroll taxes and benefits, administrative and general costs,and the estimated cost of funds used during construction.  Merchant assets arestated at the lower of fair market value or cost of construction (includinginterest) or acquisition.  Jointly owned assets are reflected in property,plant and equipment at Cleco Power's share of the cost to construct or purchasethe assets.  For information on jointly owned assets, see Note 4 - "JointlyOwned Generation Units."

Cleco's cost of improvements to property, plantand equipment is capitalized.  Costs associated with repairs and majormaintenance projects are expensed as incurred.  Cleco capitalizes the cost topurchase or develop software for internal use.  The amounts of unamortizedcomputer software costs at December 31, 2004, and 2003 were $40.4 million and$37.1 million, respectively.  Amortization of capitalized computer softwarecosts charged to expense for the years ending December 31, 2004, 2003 and 2002was $4.1 million, $4.0 million, and $3.9 million, respectively.

Upon retirement or disposition, the cost ofCleco Power's depreciable plant and the cost of removal, net of salvage value,are charged to accumulated depreciation and are recovered via a return on thecost of plant included in the rate base.  For Cleco's other depreciable assets,upon disposition or retirement, the difference between the net book value ofthe property and any proceeds received for the property is recorded as a gainor loss on asset disposition on Cleco's statement of operations.  Any costincurred to remove the asset is charged to expense.  Annual depreciation provisionsexpressed as a percentage of average depreciable property for Cleco Power were 3.34%for 2004, 3.23% for 2003, and 3.28% for 2002.

Depreciation on property, plant and equipment iscalculated primarily on a straight-line basis over the useful lives of theassets, as follows:

            YEARS

Utility plant

             5-58

Other

             5-44

Property, plant and equipment consist of:

                                AT DECEMBER  31,

(THOUSANDS)

**                    2004**

                    2003

Regulated utility plants

** $  1,720,771**

   $   1,691,834

Merchant power plants

**                 -**

            402,834

Other

**       13,199**

              11,304

     Total property, plant and equipment

** 1,733,970**

        2,105,972

          Accumulated depreciation

**   (781,925)**

          (773,043)

     Net property, plant and equipment

** $    952,045**

   $   1,332,929

The $402.8 million decrease in merchantpower plants (as shown above) in 2004 was the result of the deconsolidation of Perryvilleand Evangeline.  For information on the change in accounting for Perryville andEvangeline, see "- Principles of Consolidation" above.

The table below discloses the amounts of plantacquisition adjustments reported in Cleco Power's property, plant and equipmentand the associated accumulated amortization reported in accumulateddepreciation.  The plant acquisition adjustment primarily relates to the 1997acquisition of Teche.  The acquisition adjustment represents the amount paid byCleco Power for the assets of Teche in excess of their carrying value.

                         AT DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

Plant acquisition adjustment

** $ 5,359**

   $      5,359

Less accumulated amortization

**     1,941**

           1,687

     Net plant acquisition adjustment

** $ 3,418**

   $      3,672

***Inventories***

Fuel inventories consist of coal, lignite, and oilused to generate electricity.

Materials and supplies inventory consists oftransmission and distribution line construction and repair material, and generatingstation and transmission and distribution substation repair materials.

Both fuel and materials and supplies inventoriesare stated at average cost and are issued from inventory using the average costof existing inventory.

***Accounts Receivable***

Accounts receivable are recorded at the invoicedamount and do not bear interest.  It is the policy of management to review theoutstanding accounts receivable monthly, as well as the bad debt write-offsexperienced in the past, and establish an allowance for doubtful accounts.  Accountbalances are charged off against the allowance when management determines it isprobable the receivable will not be recovered.  As of December 31, 2004, and2003, the allowance for doubtful accounts amounted to $0.5 million and $16.5million, 

68
****
respectively.  The $16.0 million decrease in the allowance fordoubtful accounts was primarily the result of reserves recorded at Perryvillein 2003, to reflect uncollectible MAEM receivables, as a result of Mirant andcertain of its affiliates bankruptcy filing and the related rejection of thePerryville Tolling Agreement.  There is no off-balance sheet credit exposurerelated to Cleco's customers.  

***Insurance Reserves***

Cleco maintains property insurance on generatingstations, buildings and contents, and substations.  Cleco is self-insured forany damage to transmission and distribution lines.  To mitigate the exposure topotential financial loss for damage to lines, Cleco maintains a reserve, supportedby monthly charges to operating expense.

Cleco also maintains liability and workers'compensation insurance to mitigate financial losses due to injuries and damagesto the property of others.  Cleco's insurance covers claims that exceed certainself-insured limits.  For claims that do not meet the limits to be covered byinsurance, Cleco maintains reserves similar to those for property damage.

***Impairments of Assets***

Cleco applies the provisions of SFAS No. 144 toaccount for asset impairments.  Under this standard, Cleco evaluates at eachbalance sheet date whether events and circumstances have occurred that indicatepossible operational impairment.  Cleco uses an estimate of the futureundiscounted cash flows of the related asset or asset grouping over theremaining life in measuring whether operating assets are recoverable.  An impairmentis recognized when future undiscounted cash flows of assets are estimated to beinsufficient to recover the related carrying value.  Cleco considers continuedoperating losses or significant and long-term changes in business conditions tobe primary indicators of potential impairment.  In measuring impairment, Clecolooks to quoted market prices, if available, or the best information availablein the circumstances, including the estimated discounted cash flows associatedwith the related assets.  During 2004, 2003, and 2002, Cleco recorded impairmentcharges on a combination of pipeline assets and proved oil and gas reservesowned by Cleco Energy.  During 2003, Cleco recorded impairment charges ongeneration assets owned by Perryville.  The impairment charges at Cleco Energy areclassified as discontinued on Cleco Corporation's Consolidated Statements ofOperations.  For additional information on the asset impairment charges, seeNote 23 - "Impairments of Long-Lived Assets."

***Cash Equivalents***

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

***Restricted Cash***

Various agreements to which Cleco is subjectcontain covenants that restrict its use of cash.  As certain provisions underthese agreements are met, cash is transferred out of related escrow accountsand becomes available for general corporate purposes.  At December 31, 2004,$0.1 million of cash was restricted under the Diversified Lands mitigation escrowagreement.  The $41.2 million decrease in restricted cash in 2004 was primarilythe result of the deconsolidation of Evangeline and Perryville.  Forinformation on the change in accounting for Evangeline and Perryville, see "-Principles of Consolidation" above.  At December 31, 2003, $32.6 million ofcash was restricted under the Evangeline senior secured bond indenture, $6.9million was restricted under an agreement with the lenders for Perryville, and$1.8 million of APH's cash was restricted under the terms of the Midstream lineof credit.

***Equity Investments***

Cleco reports its investment in unconsolidatedaffiliated companies on the equity method of accounting, as defined in APBOpinion No. 18.  The amounts reported on Cleco's balance sheet represent thevalue of assets contributed by Cleco plus Cleco's share of the net income ofthe affiliate, less any distributions of earnings (dividends) received from theaffiliate.

In accordance with FIN 46R, Cleco was requiredto deconsolidate Evangeline from its consolidated financial statements and beginreporting its investment in Evangeline on the equity method of accountingeffective March 31, 2004.  For additional information, see Note 13 - "EquityInvestment in Investees."

***Income Taxes***

Cleco accounts for income taxes under SFAS No.109.  Income tax expense and related balance sheet amounts are comprised of a"current" portion and a "deferred" portion.  The current portion representsCleco's estimate of the income taxes payable or receivable in the current year. The deferred portion represents Cleco's estimate of the future income taxeffects of events that have been recognized in the financial statements orincome tax returns in the current or prior years.  Cleco makes assumptions andestimates when it records income taxes, such as its ability to deduct items onits tax returns, the timing of the deduction and the effect of regulation bythe LPSC on income taxes.  Cleco's income tax expense and related assets andliabilities could be affected by its assumptions and estimates, changes in suchassumptions and estimates, and by ultimate resolution of assumptions and estimateswith taxing authorities.

Cleco Corporation and its subsidiaries, otherthan Cleco Power, record current and deferred federal and state income taxes ata composite rate of 38.5%.  Cleco Power records current and deferred federalincome taxes at the statutory rate of 35.0% and records current state incometax expense at 3.5%.  Cleco Power records temporary differences between bookand tax income under the flow-through method of accounting for state purposesas required by LPSC guidelines.  Cleco files a federal consolidated income taxreturn for all wholly owned subsidiaries.  Cleco and its subsidiaries recordcurrent and deferred income tax liabilities based on amounts that would berecorded had each affiliate prepared separate tax 

69
****
returns.  The effective taxrate could be different than the statutory or composite rates due todifferences in recognition between the statement of operations and the incometax return.  For additional information on income taxes, see Note 10 - "Income Taxes."

***Investment Tax Credits***

Investment tax credits, which were deferred forfinancial statement purposes, are amortized to income over the estimatedservice lives of the properties that gave rise to the credits.

***Debt Expenses, Premiums, and Discounts***

Expenses, premiums, and discounts applicable todebt securities are amortized to income ratably over the lives of the relatedissues.  Expenses and call premiums related to refinanced Cleco Power debt aredeferred and amortized over the life of the new issue.

***Revenue and Fuel Costs***

*Utility Revenue.*  Revenue from sales ofelectricity is recognized based upon the amount of energy delivered.  The costsof fuel and purchased power used for retail customers currently are recoveredfrom customers through the fuel adjustment clause, based upon fuel costs andamounts of purchased power incurred in prior months.  These adjustments aresubject to audit and final determination by regulators.  Excise taxes andpass-through fees collected on the sale of electricity are not recorded in utilityrevenue.

*Unbilled Revenue.*  Cleco Power accrues estimated revenue monthlyfor energy delivered since the latest billings.  Prior to the sale of ClecoEnergy's assets, Cleco Energy accrued estimated revenue monthly for gas salesto customers.  The monthly estimated unbilled revenue amounts are recorded asrevenue and a receivable and are reversed the following month.

*Energy Trading, Net, and Other Revenue.* Revenue is recognized at the time products or services are provided to and acceptedby customers.  A component of energy trading, net revenue is the change inmark-to-market for Cleco.  For additional information on mark-to-market accounting,see "- Risk Management" below.

*Tolling Revenue.*  Midstream's revenueis derived predominantly from its tolling agreements related to its generatingfacilities.  Cleco considers the Evangeline Tolling Agreement and consideredthe Perryville Tolling Agreement to be operating leases as defined by SFASNo. 13 and SFAS No. 29 because of the tolling counterparties' abilityto control the use of the plants, among other criteria, through or beyond theyear 2020.  The Evangeline Tolling Agreement contains a monthly shaping factorthat provides for a greater portion of annual revenue to be received by Clecoduring the summer months, which is designed to coincide with the physical usageof the plant.  SFAS No. 13 generally requires lessors to recognize revenueusing a straight-line approach unless another rational allocation of therevenue is more representative of the pattern in which the leased property isemployed.  Cleco believes the recognition of revenue pursuant to the monthlyshaping factor for several provisions contained within the Evangeline TollingAgreement is a rational allocation method, which better reflects the expectedusage of the plant.  Other provisions are recognized as revenue using astraight-line approach.  Certain provisions of the tolling agreements, such asbonuses and penalties, are considered contingent as defined by SFASNo. 29.  Contingent rents are recorded as revenue or a reduction inrevenue in the period in which the contingency is met.  The Perryville TollingAgreement did not contain a monthly shaping factor for revenue, but instead hada monthly adjustment for penalties, which caused a greater risk of losing revenueif capacity was not available during the summer peak months.  The PerryvilleTolling Agreement was rejected by MAEM, effective September 15, 2003, and as aresult, Midstream no longer receives tolling revenue from MAEM.  In accordancewith FIN 46R, Cleco was required to deconsolidate Evangeline from itsconsolidated financial statements and begin reporting its investment in Evangelineon the equity method of accounting effective March 31, 2004.  As a result,effective April 1, 2004, Evangeline revenue and expenses are netted andreported on one line item as equity income from investees on ClecoCorporation's Consolidated Statements of Operations.  For information on thechange in accounting at Evangeline, see -"Principles of Consolidation" above.  Foradditional information on the rejection of the Perryville Tolling Agreement,see Note 26 - "Perryville."

*Taxes/Excise Taxes.*  Cleco Powercollects a sales and use tax on the sale of electricity that subsequently isremitted to the state in accordance with state law.  These amounts are not recordedas income or expense on the income statement, but are reflected at grossamounts on Cleco's balance sheet as a receivable until the tax is collected andas a payable until the liability is paid due to the pass-through nature of thisitem.  Additionally, Cleco Power collects a consumer fee for one of itsfranchise agreements.  This fee is not recorded on Cleco's income statement asrevenue and expense, but is reflected at gross amounts on Cleco's balance sheetas a receivable until it is collected and as a payable until the liability ispaid.  Cleco currently does not have any excise taxes reflected on its incomestatement.

***AFUDC***

The capitalization of AFUDC by Cleco Power is autility accounting practice prescribed by the FERC and the LPSC.  AFUDCrepresents the estimated cost of financing construction and is not a currentsource of cash.  Under regulatory practices, a return on and recovery of AFUDCis permitted in setting rates charged for utility services.  The compositeAFUDC rate, including borrowed and other funds, was 13.7% on a pre-tax basis (8.5%net of tax) for 2004, 12.7% on a pretax basis (7.8% net of tax) for 2003, and13.5% on a pre-tax basis (8.3% net of tax) for 2002.

 

70
****
***CapitalizedInterest***

Cleco and its subsidiaries, except Cleco Power(see AFUDC above), capitalize interest costs related to longer term constructionprojects.  Other than AFUDC at Cleco Power, no interest was capitalized in 2004and 2003.  However, Cleco capitalized $6.0 million of interest in 2002.  Formore information, see Note 13 - "Equity Investment in Investees."

***Risk Management***

Market riskinherent in Cleco's market risk-sensitive instruments and positions includesthe potential change arising from changes in interest rates and the commodityprices of power and natural gas traded on different energy exchanges.  Cleco'sTrading Risk Management Policy authorizes the use of various derivativeinstruments, including exchange traded options and futures contracts, forwardpurchase and sales contracts, and swap transactions, to reduce exposure tofluctuations in the price of power and natural gas.  Cleco adopted SFAS No. 133in the first quarter of 2001, and, prior to the third quarter of 2002, Clecoused the guidelines in this standard, as well as EITF No. 98-10 to determinewhether market risk-sensitive instruments and positions were required to bemarked-to-market.  EITF No. 98-10 was rescinded, and Cleco Power currently usesSFAS No. 133 to determine whether the market risk-sensitive instruments andpositions are required to be marked-to-market.  Generally, Cleco Power's marketrisk-sensitive instruments and positions qualify for the normal-purchase,normal-sale exception to mark-to-market accounting of SFAS No. 133, as modifiedby SFAS No. 149, since Cleco Power generally takes physical delivery and theinstruments and positions are used to satisfy customer requirements.  Thepositions entered into for marketing and trading purposes do not meet theexemptions of SFAS No. 133, and the net mark-to-market of those positions isrecorded in income.  There were no speculative positions at December 31, 2004;therefore, no mark-to-market amounts were recorded on the income statement orbalance sheet.  Cleco Power has entered into other positions to mitigate someof the volatility in fuel costs passed on to customers.  These positions aremarked-to-market with the resulting gain or loss recorded on the balance sheetas a component of the accumulated deferred fuel asset or liability.  When thesepositions close, actual gains or losses will be included in the fuel adjustmentclause and reflected on customers' bills.  Prior to the sale of Cleco Energy'sassets, Cleco Energy's financial positions were marked-to-market.  Cleco andCleco Power maintain a master netting agreement policy and monitor credit riskexposure through review of counterparty credit quality, corporate-wideaggregate counterparty credit exposure and corporate-wide aggregatecounterparty concentration levels.  Cleco actively manages these risks byestablishing appropriate credit and concentration limits on transactions withcounterparties and requiring contractual guarantees, cash deposits or lettersof credit from counterparties or their affiliates, as deemed necessary.  ClecoPower has agreements in place with various counterparties that authorize thenetting of financial buys and sells and contract payments to mitigate creditrisk.

***Recent AccountingStandards***

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

In December 2003, FASB released FIN 46R, which expandedthe requirements of consolidation by including "Variable Interest Entities,"which depend on the financial support of a parent in order to maintainviability.  Detailed tests prescribed in FIN 46R are used to determine thedependence of a Variable Interest Entity on a parent company.  For entitiesCleco forms or invests in after December 31, 2003, FIN 46R is required to beapplied at the time of formation or investing.  For transactions prior toDecember 31, 2003, FIN 46R was required to be applied as of March 31, 2004,unless the entity is a special purpose entity.  If the entity is a specialpurpose entity, then certain tests must be performed in order to determineconsolidation at December 31, 2003.  Prior to the adoption of FIN 46R,Evangeline's assets and liabilities were consolidated with Cleco.  However,Evangeline is a variable interest entity under FIN 46R, and pursuant to therequirements of FIN 46R, Cleco deconsolidated Evangeline effective March 31,2004.  The adoption of this standard decreased consolidated assets andliabilities by $204.0 million and had no impact on net income applicable tocommon stock or to earnings per share.  The adoption of this standard had noimpact on the financial statements of Cleco Power.  For additional information,see Note 29 - "Variable Interest Entities."

In December 2003, FASB issued a revision to SFASNo. 132 that requires additional disclosure of pension assets and assumptions. SFAS No. 132 disclosure requirements have been incorporated into Note 9 - "PensionPlan and Employee Benefits."

On March 31, 2004, EITF No. 03-6 was issued, whichreached a consensus on a clarification concerning the computation of earningsper share in SFAS No. 128 for companies that have issued securities other thancommon stock that entitle the holder to participate in the company's declareddividends and earnings.  The consensus states that securities should beincluded in basic earnings per share calculations when the holder is entitledto receive dividends rather than if the holder is entitled to receive earningsor value upon redemption of the securities or liquidation of assets.  The effectivedate of EITF No. 03-6 is the first fiscal period beginning after March 31,2004, and requires restatement of prior period information.  Cleco Corporationadopted the two-class method for computing basic earnings per share forfinancial statements issued for the quarter ended June 30, 2004.  Implementationof EITF No. 03-6 had no effect on net income applicable to common shareholdersor financial condition of Cleco Corporation and could reduce basic earnings pershare for the comparative prior periods and prospective periods.  

On May 19, 2004, FASB issued FSP SFAS No. 106-2which superseded FSP SFAS No. 106-1.  FSP SFAS No. 106-2 requires companiesthat provide post-retirement prescription drug benefits which are "actuariallyequivalent" to Medicare Part D (a prescription drug benefit under Medicare) toreflect the federal subsidy in their calculations of the post-retirement

71
****
 liability and current expense.  Cleco adopted this standard effective July 1,2004, and remeasured the accumulated post-retirement benefit obligationrelating to non-pension post-retirement benefits, retroactive to January 1,2004.  For more information about the effects of adopting FSP SFAS No. 106-2,see Note 9 - "Pension Plan and Employee Benefits."

On September 30, 2004, the EITF issued EITF No.04-8 which clarifies when to include certain securities that can be convertedinto common stock in the diluted earnings per share calculation.  Thisconsensus requires a company with securities with embedded conversion featuresbased on market price, to include the respective common shares in the dilutedearnings per share calculation, even if the trigger market price has not beenmet or exceeded.  This EITF issue was ratified by the FASB on October 13, 2004,and was effective for reporting periods ending after December 15, 2004.  Theadoption of this EITF had no impact on Cleco, because Cleco currently does nothave any securities within the scope of this EITF.

On September 30, 2004, the EITF issued EITF No.04-10 which clarifies the aggregation of segments which do not meet the quantitativethresholds contained in SFAS No. 131.  This consensus allows companies toaggregate segments, which do not meet quantitative thresholds, if the aggregationis consistent with the objective of SFAS No. 131; the segments have similareconomic characteristics; and the segments have a majority of severaloperational and regulatory characteristics.  This EITF was ratified by the FASBon October 13, 2004.  In November 2004, the effective date of this EITF waschanged in order to coincide with the effective date of an in-process FASBStaff Position on determining whether two segments have similar economiccharacteristics.  The expected effective date for this EITF is for fiscalperiods ending after March 15, 2005.  Restatement of comparative prior periodsis required.  Cleco currently is evaluating the impact of this EITF on the SFASNo. 131 disclosures.

On November 18, 2004, EITF No. 03-13 was issued,which provides guidance in the determination of whether an operation should beclassified as discontinued by clarifying the concept of eliminating cash flowsand the concept of significant continuing involvement.  The provisions of thisEITF are effective for a component of an enterprise that is either disposed of orclassified as held for sale in fiscal years beginning after December 15, 2004. The adoption of this EITF may affect the classification of assets if all otherrequirements for discontinued operations as described in SFAS No. 144 are met. The EITF did not affect the accounting for the sale of substantially all of theassets of Cleco Energy in the year 2004.

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

On December 16, 2004, SFAS No. 123(R) wasissued, which provides expensing and disclosure requirements for stock-based compensation. This SFAS will require all equity instruments, including stock options, to beexpensed at their fair value and supersedes APB No. 25 and SFAS No. 123 whichallowed companies to use the intrinsic value method.  Currently, Cleco utilizesthe intrinsic value method as described in APB No. 25.  SFAS No. 123(R) alsoprohibits reversing previously recognized stock-based compensation expense, ifthe forfeiture of the instruments was due to the failure of a market-basedperformance measure.  Most of Cleco's stock-based compensation contains amarket-based performance measure.  This Statement is effective for fiscalperiods beginning after June 15, 2005.  Cleco currently expects to choose themodified prospective method of transition which requires a company to recognizecompensation expense calculated pursuant to SFAS No. 123(R) for all non-vestedstock-based compensation outstanding on the date of adoption prospectively.  Iffuture stock-based awards and assumptions are consistent with historical awardsand assumptions, Cleco expects to record pre-tax compensation expense of approximately$1.4 million in 2005 and approximately $2.6 million annually thereafter.  See "-Stock-Based Compensation," below for additional information concerning Cleco'sstock-based compensation.

On December 16, 2004, SFAS No. 152 was issued, whichmodifies the accounting for time-sharing transactions.  This statement is effectivefor financial statements issued after June 15, 2005, and will not impact thefinancial condition or results of operations of the Registrants.

On December 16, 2004, SFAS No. 153 was issued, whichrequires the nonmonetary exchange of assets to be recorded at the fair value ofthe assets exchanged.  This statement is effective for financial statementsissued after June 15, 2005, and is not expected to impact the financialcondition or results of operations of the Registrants.

On December 21, 2004, FASB issued FSP SFAS Nos.109-1 and 109-2 which relate to accounting and disclosure of certain income taxprovisions of the American Jobs Creation Act of 2004.  FSP SFAS No. 109-1requires companies to treat the deduction relating to qualified productionactivities income as a permanent item rather than a rate reduction.  Thistreatment potentially could apply downward pressure to the Registrants' effectiveincome tax rates in 2005, depending on the size of the deduction.  FSP SFAS No.109-2 relates to foreign earnings repatriation and will have no impact on thefinancial condition or results of operations of the Registrants.  Both of thesestatements currently are effective and will be applied in 2005.

***Earnings (Loss) per Average Common Share***

Earnings (loss) per average common share arecomputed using the weighted average number of shares of common stockoutstanding during the year.  The table below is a reconciliation of thecomponents in the calculation of basic and diluted earnings (loss) per share.

72
***                      FOR THE YEAR ENDED  DECEMBER 31,

**2004**

2003

              2002

(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

**                INCOME(NUMERATOR)**

                       **SHARES(DENOMINATOR)**

**   PER  SHARE AMOUNT**

               INCOME(NUMERATOR)

                   SHARES(DENOMINATOR)

     PER SHARE AMOUNT

                  INCOME       (NUMERATOR)

                  SHARES    (DENOMINATOR)

     PER SHARE  AMOUNT

Income (loss) from continuing operations

** $    66,119**

   $       (29,768)

   $         80,373

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

**               46**

                      46

                      46

Deduct:  participating preferred stock dividends

**          2,293  2,294**

                2,001

                2,092

Deduct:  amount allocated to participating  preferred

**             951**

                         -

                1,902

**Basic earnings (loss) per share**

Income (loss) from continuing operations available  to common shareholders

**  $    62,829**

**               47,371**

**  $    1.33**

       $       (31,815)

                  46,820

 $        (0.68)

       $         76,333

               46,245

   $       1.65

**Effect of Dilutive Securities**

Stock option grants

**               38**

                          -

                       47

Restricted stock (LTICP)

**             120**

                          -

                          -

**Diluted earnings (loss) per share**

Income (loss) from continuing operations available  to common shareholders plus assumed conversions

**  $    62,829**

**            47,529**

**  $    1.32**

       $       (31,815)

                  46,820

 $        (0.68)

       $         76,333

                   46,292

       $       1.65

Options to purchase 899,002 shares of common stockat prices ranging from $20.38 to $24.25 were outstanding as of December 31,2004.  The shares subject to these options were not included in the computationof diluted earnings per share for the fiscal year ended December 31, 2004,because the options' exercise prices were greater than the average market priceof the common shares.  The options expire between 2009 and 2012.

No optionsto purchase shares of common stock were included in the computation of diluted earnings(loss) per share for the fiscal year ended December 31, 2003, because the effectswould have been anti-dilutive.

Options topurchase 889,136 shares of common stock at prices ranging from $20.38 to $24.25were outstanding as of December 31, 2002.  The shares subject to these optionswere not included in the computation of diluted earnings per share for thefiscal year ended December 31, 2002, because the options' exercise prices weregreater than the average market price of the common shares.  The options expirebetween 2009 and 2012.

***Stock-BasedCompensation***

At December 31, 2004, Cleco Corporation had twostock-based compensation plans:  the LTICP and the ESPP.  Options or restrictedshares of stock, known as non-vested stock as defined by SFAS No. 123, may begranted to certain officers, key employees, or directors of Cleco Corporationand its subsidiaries pursuant to the LTICP.  Substantially all employees,excluding officers and general managers, of Cleco Corporation and itssubsidiaries may choose to participate in the ESPP and purchase a limitedamount of common stock at a discount through a stock option agreement.  APBOpinion No. 25 and related interpretations are applied in accounting for ClecoCorporation's stock-based compensation plans.  Therefore, no stock-basedemployee compensation is reflected in the Cleco Corporation Consolidated Statementsof Operations for 2004, 2003 or 2002, other than for restricted stock grants,as all compensatory stock options granted had an exercise price equal to thefair market value of common stock on the date of the grant and ESPP options areconsidered noncompensatory.  

The fair market value of restricted stock asdetermined on the measurement date is recorded as compensation expense duringthe service periods, generally threeyears, in which the restrictions lapse and if obtainment of vestingrequirements is probable.  During the years ended December 31, 2004, and 2002,pre-tax compensation costs in amounts of $1.1 million and $4.1 million,respectively, were recognized for shares of restricted stock granted under theLTICP.  During the year ended December 31, 2003, Cleco reported a reduction inpre-tax compensation cost of $0.8 million for shares of restricted stock. Cleco grants two types of restricted stock with market and performanceobjectives to employees.  The first type, target shares, can be voted, andemployees receive dividends prior to the lapse of the restrictions.  The secondtype, opportunity shares, cannot be voted, nor do employees receive dividendsprior to the lapse of the restrictions.  Both types of these grants require thesatisfaction of the service requirement, as well as the achievement of one ormore market-based or performance-based objectives in order to obtain vesting. However, if certain events occur, such as retirement after age 55 ortermination as part of a plan of reorganization prior to the end of the serviceperiod, employees would vest in a pro-rata number of target and opportunityshares.  At December 31, 2004, the number of target and opportunity restrictedshares previously granted for which restrictions had not lapsed totaled579,394.  Cleco also grants restricted stock with only a service periodrequirement to employees and directors.  These grants require the satisfactionof a pre-determined service period in order for the shares to vest.  During thevesting period, the employees and directors can vote the shares and receivedividends.  At December 31, 2004, the number of shares of restricted stockpreviously granted with only a service period requirement for which the periodhad not ended was 47,969.

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

73
****
per common share would approximate the pro formaamounts in the table below, if the compensation expense for these plans was recognizedin compliance with SFAS No. 123.
 
                     FOR THE YEAR ENDED  DECEMBER 31,

(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

**              2004**

** **

              2003

             2002

Net income (loss) applicable to common stock, as  reported

** $  63,973**

   $    (36,790)

   $    70,003

Stock-based employee compensation expense  recognized (reversed) included in reported

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

**        707**

             (484)

          2,539

Total stock-based employee compensation expense  determined under fair value based method of all awards, net of related tax effects

**     2,538**

           2,714

          2,578

Pro forma net income (loss) applicable to common  stock

** $ 62,142**

   $    (39,988)

   $    69,964

Earnings (loss) per share:

     Basic - as reported

** $     1.33**

   $        (0.79)

   $       1.47

     Basic - pro forma

** $     1.29**

   $        (0.86)

   $       1.47

     Diluted - as reported

** $     1.32**

   $        (0.79)

   $       1.47

     Diluted - pro forma

** $     1.29**

   $        (0.86)

   $       1.46
The fair value of each stock option grantedunder the ESPP is estimated on the date of grant using the Black-Scholes optionpricing model with the assumptions listed below. 
                 FOR THE YEAR ENDED DECEMBER 31,

**            2004**

            2003

            2002

Expected term (in years)

**      1.00**

            5.35

            5.66

Volatility

**22.00%**

     30.39%

     28.00%

Expected dividend yield

**   5.01%**

        5.50%

        3.95%

Risk-free interest rate

**   1.28%**

        3.41%

        3.71%

Weighted average fair value (Black-Scholes value)

** $   2.58**

   $       1.94

   $       4.13

The fair value of shares of restrictedstock granted under the LTICP is estimated on the date of grant using the MonteCarlo simulation model with the assumptions listed below.

                 FOR THE YEAR ENDED DECEMBER 31,

**            2004**

            2003

            2002

Expected term (in years)

**      3.00**

            3.00

            3.00

Volatility of Cleco stock

**   34.8%**

        33.9%

        24.0%

Correlation between Cleco stock volatility and  peer group

**   37.8%**

        39.0%

        41.0%

Expected dividend yield

**     5.0%**

          6.3%

          4.0%

Weighted average fair value (Monte Carlo model)

** $ 18.14**

   $       8.61

   $    14.90

The effects of applying SFAS No. 123 inthis pro forma disclosure are not necessarily indicative of future amounts. SFAS No. 123 is not applicable to awards prior to 1995.  Cleco Corporationanticipates making awards in the future under its stock-based compensationplans.

**Note 3 - Regulatory Assets and Liabilities**

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

Pursuant to SFAS No. 71, Cleco Power hasrecorded regulatory assets and liabilities primarily for the effects of incometaxes.  In addition, Cleco Power has recorded regulatory assets for deferredmining costs, storm restoration costs, interest costs, estimated future assetremoval costs, and fuel and energy purchases as a result of rate actions ofregulators.

The deferred storm restoration costs, deferredmining costs, deferred interest costs, and the deferred asset removal costs arepresented in the line item entitled "Regulatory Assets - Other" and thedeferred fuel and purchased power costs are presented on the line item entitled"Accumulated Deferred Fuel" on the Cleco Corporation Consolidated BalanceSheets.  Under the current regulatory environment, Cleco Power believes theseregulatory assets will be fully recoverable; however, if in the future, as aresult of regulatory changes or increased competition, Cleco Power's ability torecover these regulatory assets would not be probable, then to the extent thatsuch regulatory assets were determined not to be recoverable, Cleco Power wouldbe required to write-off or write-down such assets.  Cleco Power does not earna return on these regulatory assets through current rates.

The following chart summarizes Cleco Power'sregulatory assets and liabilities at December 31, 2004, and 2003:

                          AT DECEMBER 31,

                     REMAINING

 (THOUSANDS)

**              2004**

              2003

       RECOVERY    PERIOD

Depreciation

**$ 25,876**

   $   27,110

Asset basis differences

**        792**

              860

Prior years flowthrough

**     8,792**

           9,233

     Total federal regulatory asset - SFAS  No. 109

**   35,460**

        37,203

Depreciation

**   22,607**

        22,883

Asset basis differences

**     7,530**

           6,111

Prior years flowthrough

**        526**

              556

Nonplant

**     3,282**

           2,676

     Total state regulatory asset - SFAS No.  109

**   33,945**

        32,226

Total AFUDC

**   33,303**

        34,531

Total investment tax credit

**    (9,844)**

       (10,818)

     Total regulatory assets and liabilities  - deferred taxes, net

**   92,864**

        93,142

Deferred mining costs

**   11,359**

           9,724

                             7 yrs.

Deferred storm restoration costs

**     5,544**

           6,930

                             4 yrs.

Deferred interest costs

**     9,133**

           9,547

                          32 yrs.

Deferred fuel and purchased power

**   13,997**

         (6,579)

                            >1 yr.

Deferred asset removal costs

**        291**

              265

                          45 yrs.

     Total deferred costs

**   40,324**

        19,887

     Total regulatory assets and liabilities,  net

**$ 133,188**

   $ 113,029

74
****
***Deferred Taxes***

At December 31, 2004, and 2003, Cleco Power had recorded$92.9 million and $93.1 million, respectively, of SFAS No. 109 net regulatoryassets related to probable future taxes payable that will be recovered fromcustomers through future rates.  The regulatory requirement to flow through thecurrent tax benefits of certain accelerated deductions to customers results indeferred tax liabilities that are recovered from ratepayers as they are paid.  Regulatoryasset and liability recovery periods are based on assets' lives, which aretypically 30 years or greater and are attributable to differences between bookand tax income.  The effects of potential deregulation of the industry or possiblefuture changes in the method of rate regulation of Cleco Power could requirediscontinuance of the application of SFAS No. 71.

***Deferred Mining Costs***

In May 2001, Cleco Power signed a lignite contractwith the miner at the Dolet Hills mine.  As ordered by the LPSC in docketsU-21453, U-20925(SC) and U-22092(SC) (Subdocket G), retail ratepayers arereceiving fuel cost savings equal to at least 2% of the projected costs underthe previous mining contract through 2011.  Costs above 98% of the previous contract'sprojected costs are deferred.  Deferred costs will be recovered from retailcustomers through the fuel adjustment clause when the actual costs of the newcontract are below 98% of the projected costs of the previous contract.  As ofDecember 31, 2004, and 2003, Cleco Power had remaining deferred costs and interestrelating to its lignite mining contract of $11.4 million and $9.7 million, respectively.

***Deferred StormRestoration Costs***

Cleco Power incurred approximately $29.0 millionof storm restoration costs, primarily during the fourth quarter of 2002, toreplace utility poles and conductors damaged by Tropical Storm Isidore andHurricane Lili.  According to an agreement with the LPSC, approximately $8.2million of these restoration costs were recorded as a regulatory asset ($7.0million in 2002 and $1.2 million in 2003) for recovery over the six-year periodwhich began in January 2003.  The balance deferred at December 31, 2004, and2003, was $5.5 million and $6.9 million, respectively.

***Deferred Interest Costs***

Cleco Power's deferred interest costs includeadditional deferred capital construction financing costs authorized by theLPSC.  At December 31, 2004, and 2003, these costs totaled $9.1 million and $9.5million, respectively and are being recovered over the estimated lives of therespective assets constructed.

***Deferred Fuel and Purchased Power Costs***

The cost of fuel used for electric generation andthe cost of power purchased for utility customers are recovered through the LPSC-establishedfuel adjustment clause which enables Cleco Power to pass on to its customerssubstantially all such charges.  Approximately 94% of Cleco Power's total fuelcost is regulated by the LPSC, while the remainder is regulated by the FERC.  Deferredfuel and purchased power costs recorded at December 31, 2004, and 2003, were anunder-recovery of $14.0 million and an over-recovery of $6.6 million, respectively,and is scheduled to be collected from or credited to customers in futuremonths.  Also included in the $14.0 million under-recovered amount reported atDecember 31, 2004, are favorable surcharge adjustments representing fuel costsnot collected in prior periods and the reversal of gas transportation chargesrecorded in 2002 as a result of the settlement of Cleco Power's 2001-2002 fuelaudit.

***Deferred Asset RemovalCosts***

For information regarding deferred asset removalcosts, see Note 27 - "Accounting for Asset Retirement Obligation."

**Note 4 - Jointly Owned Generation Units**

Two electric generation units operated by ClecoPower are jointly owned with other utilities.  Cleco Power recognized $73.2million, $66.3 million, and $58.0 million of its proportionate share ofoperation and maintenance expenses associated with these two units, includingfuel costs of $60.3 million, $56.9 million, and $49.4 million, during the yearsended December 31, 2004, 2003, and 2002, respectively. 

** **

                            AT DECEMBER 31, 2004

(DOLLAR AMOUNTS IN THOUSANDS)

          RODEMACHER                      UNIT #2

DOLET HILLS
                     TOTAL

Ownership

**           30 %**

**           50 %**

Utility plant in service

**    $  84,711**

**    $ 277,371**

**    $ 362,082**

Accumulated depreciation

**    $  55,994**

**    $ 152,229**

**    $ 208,223**

Unit capacity (MW)

**             523**

**             650**

Share of capacity (MW)

**             157**

**             325**

**Note 5 - Fair Value of Financial Instruments**

The amounts reflected in Cleco's and Cleco Power'sBalance Sheets at December 31, 2004, and 2003, for cash and cash equivalents,accounts receivable, accounts payable, and short-term debt approximate fairvalue because of their short-term nature.  Estimates of the fair value ofCleco's and Cleco Power's long-term debt and Cleco's nonconvertible preferredstock are based upon the quoted market price for the same or similar issues orby a discounted present value analysis of future cash flows using current ratesobtained by Cleco and Cleco Power for debt and by Cleco for preferred stockwith similar maturities.  In connection with the establishment of the ESOP, theESOP borrowed $30.0 million.  Subsequently, Cleco Power purchased the loan.  Theamount of the loan is directly offset by Cleco Power's guarantee of the loan.  Thefair value of Cleco's convertible preferred stock is estimated assuming itsconversion into common stock at the market price per common share at December31, 2004, and 2003, with proceeds from the sale of the common stock used to repaythe principal balance of Cleco Power's loan to the ESOP.  The estimatedfair value of energy market positions is based upon observed market prices whenavailable.  When such market prices are not available, management estimatesmarket value at a discrete point in time by assessing market 

75
****
conditions and observedvolatility.  These estimates are subjective in nature and involveuncertainties.  Therefore, actual results may differ from these estimates.

***Cleco***

                              AT DECEMBER 31,

** **

** **

**              2004**

              2003

    (THOUSANDS)

**     CARRYING           VALUE**

** **

**    ESTIMATED       FAIR  VALUE**

       CARRYING            VALUE

    ESTIMATED    FAIR VALUE

Financial instruments not marked-to-market

     Long-term debt

**$ 611,178**

**$ 644,709**

   $ 912,660

   $ 947,622

     Preferred stock not subject to mandatory  redemption

**$   19,226**

**$   39,622**

   $   18,717

   $   35,092
******
** **

** **

** **

** **

                             AT DECEMBER 31,

** **

** **

** **

**              2004**

              2003

(THOUSANDS)

**ORIGINALVALUE**

** **

**OTHER****UNREALIZED     LOSSES DURING THE PERIOD**

**ESTIMATEDFAIR VALUE**

            ORIGINAL            VALUE

OTHER     UNREALIZED     LOSSES DURING     THE PERIOD    

        ESTIMATED   FAIR VALUE

Financial instruments marked-to-market

     Energy Market Positions

     Assets

**$   7,376**

**    $    (469)**

**$  6,907**

   $   39,768

      $       (2,817)

   $   36,951

     Liabilities

**$ 52,135**

**    $ (1,678)**

**$ 50,457**

   $   54,570

      $          (526)

   $   54,044
******
Cleco Power

                              AT DECEMBER 31,

** **

** **

**              2004**

              2003

    (THOUSANDS)

**     CARRYING           VALUE**

** **

**   ESTIMATED   FAIR VALUE**

       CARRYING            VALUE

    ESTIMATED    FAIR VALUE

Financial instruments not marked-to-market

     Long-term debt

**$ 411,178**

**$ 433,779**

   $ 411,260

   $ 450,367
******
** **

** **

** **

** **

                     AT DECEMBER 31,

** **

** **

** **

** **

**              2004**

              2003

  (THOUSANDS)

**      ORIGINAL           VALUE**

** **

**OTHER**** UNREALIZED   LOSSES DURING   THE PERIOD**

** **

**   ESTIMATED   FAIR VALUE**

        ORIGINAL            VALUE

OTHER   UNREALIZED   LOSSES DURING   THE PERIOD 

    ESTIMATED FAIR VALUE  

Financial instruments marked-to-market

     Energy Market Positions

     Assets

**$   7,376**

**    $    (469)**

**$   6,907**

   $   25,240

      $      (2,437)

   $   22,803

     Liabilities

**$ 52,135**

**    $ (1,678)**

**$ 50,457**

   $   41,364

      $      (1,468)

   $   39,896
The financial instruments not marked-to-market arereported on Cleco's and Cleco Power's Balance Sheets at carrying value.  The financialinstruments marked-to-market represent off-balance sheet risk because, to theextent Cleco and Cleco Power have an open position, they are exposed to therisk that fluctuating market prices may adversely affect their financialcondition or results of operations upon settlement.  Original value representsthe fair value of the positions at the time originated.
In addition to Cleco's long-term financialinstruments not marked-to-market listed above, at December 31, 2004, Evangelinehad $197.8 million of 8.82% senior secured bonds outstanding, due September 19,2019, with an estimated market value of $204.7 million.  At December 31, 2004, Perryvillehad $98.7 million of debt outstanding relating to a subordinated loan agreementwith Mirant, with an estimated market value of $98.7 million.  These long-terminstruments of Evangeline and Perryville are not included above due to the deconsolidationof Evangeline and Perryville.  For information on the deconsolidation, see Note2 - "Summary of Significant Accounting Policies - Principles of Consolidation."

76
****
**Note 6 - Debt**

***Cleco***

Cleco's total indebtedness as of December 31, 2004,and 2003, was as follows: 

                             AT DECEMBER  31,

(THOUSANDS)

**                   2004**

                  2003

Cleco Corporation's short-term bank loans

** $               -**

   $        50,000

Midstream's short-term bank loans

**                -**

             17,750

Perryville's Senior Loan Agreement

**                -**

          133,037

          Total short-term debt

** $               -**

   $     200,787

Cleco Corporation's senior notes, 8.75%, due 2005

** $ 100,000**

   $     100,000

Cleco Power's first mortgage bonds Series X,  9.5%, due 2005

**      60,000**

             60,000

Cleco Corporation's senior notes, 7.00%, due 2008

**    100,000**

          100,000

Cleco Power's senior notes, 5.375%, due 2013

**      75,000**

             75,000

Cleco Power's pollution control revenue bonds,  5.875% due 2029, callable after September 1, 2009

**      61,260**

             61,260

          Total bonds

**    396,260**

          396,260

Cleco Power's medium-term notes

     6.20%, due 2006

**      15,000**

             15,000

     6.32%, due 2006

**      15,000**

             15,000

     6.95%, due 2006

**      10,000**

             10,000

     6.53%, due 2007

**      10,000**

             10,000

     7.00%, due 2007

**      25,000**

             25,000

     7.50%, due 2007

**      15,000**

             15,000

     6.52%, due 2009

**      50,000**

             50,000

          Total medium-term notes

**    140,000**

          140,000

Cleco Power's insured quarterly notes

     6.05%, due 2012, callable after June 1, 2004

**      49,975**

             50,000

     6.125%, due 2017, callable after March 1,  2005

**      24,943**

             25,000

          Total insured quarterly notes

**      74,918**

             75,000

Perryville's Subordinated Loan Agreement

**                -**

             98,650

Evangeline's senior secured bonds, 8.82%, due  2019

**                -**

          202,750

          Gross amount of long-term debt

**    611,178**

          912,660

Less:

     Amount due within one year

**   (160,000)**

              (4,918)

     Unamortized premium and discount, net

**          (626)**

                 (684)

          Total long-term debt, net

** $ 450,552**

   $     907,058

The amounts payable under long-term debtagreements for each year through 2009 and thereafter are listed below:

(THOUSANDS)

          2005

          2006

          2007

          2008

          2009

   THEREAFTER

Amounts payable under long-term debt agreements

$160,000

   $40,000

   $50,000

$100,000

   $50,000

   $211,178

At December 31, 2004, Cleco had nooutstanding short-term debt.  At December 31, 2003, there was $200.8 million ofoutstanding short-term debt with a weighted average interest rate of 2.82%.

The first mortgage bonds are collateralized bythe LPSC-jurisdictional property, plant and equipment ($944.8 million as ofDecember 31, 2004) owned by Cleco Power.  In the various parishes that containsuch property, a lien is filed with the clerk of court.  Before Cleco Power cansell any of this property, it must obtain a release signed by the trustee.

At December 31, 2004, Perryville's Senior Loanand the Subordinated Loan were no longer a part of Cleco's Consolidated BalanceSheets due to the bankruptcy filing of Perryville and PEH.  The loan balancesare presented on Perryville's stand-alone Balance Sheet.  The Senior Loanbalance at December 31, 2004, was $127.6 million compared to $133.0 million atDecember 31, 2003.  The Subordinated Loan balance of $98.7 million was the samefor December 31, 2004, and 2003.  For additional information on the SeniorLoan, Subordinated Loan and bankruptcy filings, see Note 26 - "Perryville."

Evangeline was determined to be a variableinterest entity under FIN 46R, and pursuant to the requirements of FIN 46R,Cleco deconsolidated Evangeline effective March 31, 2004.  As a result, theassets and liabilities of Evangeline no longer are reported on ClecoCorporation's Consolidated Balance Sheets.  These amounts are reported on oneline as equity investments in investees on Cleco Corporation's ConsolidatedBalance Sheets.  Effective March 31, 2004, Evangeline's senior secured bondsare not included on the long-term debt line item in Cleco's Consolidated BalanceSheets due to the deconsolidation.  The amount of the bonds outstanding atDecember 31, 2004, was $197.8 million compared to $202.8 million at December31, 2003.  For additional information on the deconsolidation of Evangeline, seeNote 29 - "Variable Interest Entities."

***Cleco Power***

Cleco Power's total indebtedness as of December31, 2004, and 2003, was as follows:

             AT DECEMBER  31,

(THOUSANDS)

**                   2004**

                  2003

First mortgage bonds Series X, 9.5%, due 2005

** $   60,000**

   $        60,000

Senior notes, 5.375%, due 2013

**      75,000**

             75,000

Pollution control revenue bonds, 5.875%, due  2029, callable after September 1, 2009

**      61,260**

             61,260

               Total bonds

**    196,260**

          196,260

Medium-term notes

     6.20%, due 2006

**      15,000**

             15,000

     6.32%, due 2006

**      15,000**

             15,000

     6.95%, due 2006

**      10,000**

             10,000

     6.53%, due 2007

**      10,000**

             10,000

     7.00%, due 2007

**      25,000**

             25,000

     7.50%, due 2007

**      15,000**

             15,000

     6.52%, due 2009

**      50,000**

             50,000

               Total medium-term notes

**    140,000**

          140,000

Insured quarterly notes

     6.05%, due 2012, callable after June 1, 2004

**      49,975**

             50,000

     6.125%, due 2017, callable after March 1,  2005

**      24,943**

             25,000

               Total insured quarterly notes

**      74,918**

             75,000

               Gross amount of long-term debt

**    411,178**

          411,260

Less:

     Amount due within one year

**     (60,000)**

                        -

     Unamortized premium and discount, net

**          (626)**

                 (684)

     Total long-term debt, net

** $ 350,552**

   $     410,576

The amounts payable under long-term debtagreements for each year through 2009 and thereafter are listed below:

(THOUSANDS)

           2005

          2006

          2007

         2008

          2009

 THEREAFTER

Amounts payable under long-term debt agreements

   $60,000

   $40,000

   $50,000

      $       -

   $50,000

   $211,178

At December 31, 2004, and 2003, ClecoPower had no outstanding short-term debt.

 

77
****
***Credit Facilities***

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

Cleco Corporation has a revolving three-yearcredit facility totaling $150.0 million.  The commitment fees for this facilityare based upon Cleco Corporation's highest unsecured debt ratings and arecurrently 0.275%.  This facility provides for working capital and other needs. If Cleco Power defaults under the Cleco Power facility, then Cleco Corporationwould be considered in default under the Cleco Corporation facility.  As ofDecember 31, 2004, Cleco Corporation was in compliance with the covenants inthis credit facility.  Off-balance sheet commitments entered into by Cleco withthird parties for certain types of transactions between those parties andCleco's subsidiaries, other than Cleco Power, reduce the amount of creditavailable to Cleco Corporation under the facility by an amount equal to thestated or determinable amount of the primary obligation.  At December 31, 2004,there were no amounts drawn on this facility.  The $150.0 million at December31, 2004, was reduced by off-balance sheet commitments of $18.3 million and a$25.0 million restriction on borrowing related to Cleco's 8.75% Senior Notes, leavingavailable capacity of $106.7 million.  An uncommitted line of credit with abank in an amount up to $5.0 million also is available to support ClecoCorporation's working capital needs.  This line of credit is available to eitherCleco Corporation or Cleco Power.

Cleco Power has a revolving credit facilitytotaling $125.0 million.  This facility provides that borrowings outstanding onthe maturity date may be converted into a one-year term loan.  This facilitywill provide for working capital and other needs.  Commitment fees are basedupon Cleco Power's highest unsecured debt rating and are currently 0.20%.  Thefacility is scheduled to expire on April 30, 2005.  At December 31, 2004, therewere no outstanding draws under this credit facility, and Cleco Power was in compliancewith the covenants in this credit facility.

***Interest Rate Swaps***

As of December 31, 2004, Cleco Corporation had two$50.0 million interest rate swaps under which the 8.75% fixed-rate on itsSenior Notes was swapped for floating rate exposure based on the six-monthLIBOR on the last day of each calculation period, plus agreed upon spreads of6.615% and 6.03%, respectively, on the $50.0 million notional amounts associatedwith each of the swaps.  The swaps were entered into on February 20, 2004, andMay 3, 2004, respectively, and under the terms of the agreement a netsettlement amount is paid semi-annually on June 1, and December 1.  Thefixed-rate debt matures and the interest rate swaps terminate on June 1, 2005. As of December 31, 2004, Cleco Corporation paid the swap counterparty a netsettlement amount of $0.1 million.

**Note 7 - Common Stock**

In connection with incentive compensation plans, approvedby shareholders, in effect during the three-year period ended December 31, 2004,certain officers and key employees of Cleco were awarded shares of restrictedCleco Corporation common stock.  The cost of the restricted stock awards, asmeasured by the market value of the common stock at the time of the grant, isrecorded as compensation expense during the periods, generally three years, inwhich the restrictions lapse.  As of December 31, 2004, Cleco had $5.7 millionrecorded as unamortized deferred compensation costs included in common equity. Cleco Corporation does not have any equity compensation plans not approved byshareholders.  For additional information on compensation costs and restrictedstock, see Note 2 - "Summary of Significant Accounting Policies - Stock-Based Compensation."

Cleco Corporation records no charge to expensewith respect to the granting of options at fair market value or above toemployees or directors.  Options may be granted to certain officers, keyemployees, or directors of Cleco.  A maximum of 1.6 million equity instruments couldbe granted under Cleco's LTICP.  As of December 31, 2004, there wereapproximately 480,661 incentive shares available for future grants under the LTICP.  During 2004, Cleco Corporation granted options exercisable for 15,000shares of common stock to directors.  The directors' options have an exerciseprice approximately equal to the fair market value of the stock at grant date,are immediately exercisable, and expire after ten years.  The employees'options have an exercise price approximately equal to the fair market value ofthe stock at grant date, vest one-third each year, beginning on the thirdanniversary of the grant date, and expire after ten years.  In accordance withAPB Opinion No. 25, no compensation expense for stock options granted has beenrecognized.

78
****
Changes in incentive shares for the three-yearperiod ended December 31, 2004, were as follows:

             OPTION              PRICE           PER SHARE

   INCENTIVE SHARE      UNEXERCISED OPTION SHARES

          AVAILABLE                      FOR FUTURE        GRANTS

**Balance, January 1, 2002**

** **

          1,332,228

        899,041

Options exercised

     $   16.1300

              (24,000)

                      -

Options forfeited

     $   16.1300

              (20,000)

                      -

Options forfeited

     $   22.2500

              (26,099)

           26,099

Options forfeited

     $   17.3200

                 (1,333)

             1,333

Options forfeited

     $   24.2500

              (13,333)

           13,333

Options forfeited - premium (employees) 

     $     19.205        to 21.580

            (100,666)

                      -

Options forfeited - premium (employees) 

     $     20.620        to 23.170

              (16,000)

           16,000

Options granted (directors)

     $   18.1250

                22,500

         (22,500)

Options granted (directors)

     $   24.0000

                20,000

         (20,000)

Options granted - basic (employees)

     $   24.2500

                82,100

         (82,100)

Restricted stock granted

                           -

       (147,447)

Restricted stock forfeited

                           -

           10,189

**Balance, December 31, 2002**

** **

          1,255,397

        693,948

Options exercised

     $   15.9375

                 (5,000)

                      -

Options exercised

     $   16.2500

                 (2,500)

                      -

Options forfeited

     $   16.1250

              (27,600)

                      -

Options forfeited

     $   18.4400

                 (2,400)

             2,400

Options forfeited

     $   22.2500

                 (8,000)

             8,000

Options forfeited

     $   24.2500

                 (5,500)

             5,500

Options granted (directors)

     $   14.8750

                15,000

         (15,000)

Options granted (directors)

     $   16.2500

                26,250

         (26,250)

Options granted - basic (employees)

     $   16.2500

                13,550

         (13,550)

Options granted - basic (employees)

     $   16.3750

                  9,000

            (9,000)

Restricted stock granted

** **

                           -

       (176,266)

Restricted stock forfeited

** **

                           -

           91,022

**Balance, December 31, 2003**

** **

          1,268,197

        560,804

Options exercised

     $   15.9375

                 (3,634)

                      -

Options exercised

     $   16.1250

              (16,333)

                      -

Options exercised

     $   18.1250

                 (2,500)

                      -

Options exercised

     $   16.2500

                 (1,000)

                      -

Options forfeited

     $   16.1250

                 (2,000)

                      -

Options forfeited

     $   22.2500

                 (7,034)

             7,034

Options forfeited

     $   24.2500

                 (5,000)

             5,000

Options granted (directors)

     $   17.7500

                15,000

         (15,000)

Restricted stock granted

** **

       (185,735)

Restricted stock forfeited

** **

        108,558

**Balance, December 31, 2004**

**   1,245,696**

**   480,661**
The following table summarizesinformation about employee and director stock options outstanding at December31, 2004: 
** **

                WEIGHTED

** **

AVERAGE

** **

                  NUMBER

WEIGHTED
REMAINING

  RANGE OF

** **

                  NUMBER

EXERCISABLE  AT

AVERAGE

   CONTRACTUAL LIFE

 EXERCISE PRICE

** **

          OUTSTANDING

           12/31/2004

EXERCISE PRICE

                  IN YEARS

     $        15.938

** **

               14,704

               14,704

   $        15.938

                         3.32

     $        15.938

               10,000

               10,000

   $        15.938

                         4.38

     $        16.125

            199,467

            199,467

   $        16.125

                         4.56

     $        19.205 to 21.58

            472,134

            472,134

    $        20.380

                         4.56

     $        15.938

                     556

                     556

    $        15.938

                         4.96

     $        17.315

               26,667

               24,445

    $        17.315

                         5.33

     $        20.62 to 23.17

               38,000

               25,333

    $        21.883

                         5.33

     $        18.44

               35,400

               23,600

    $        18.440

                         5.58

     $        21.96 to 24.675

               54,000

               36,000

    $        23.305

                         5.58

     $       22.6875

               10,000

               10,000

    $        22.688

                         6.32

     $          23.25

                 3,334

                 3,334

    $        23.250

                         6.42

     $          22.25

            198,867

               82,956

    $        22.250

                         6.57

     $        20.375

                 9,000

                 3,000

    $        20.375

                         6.75

     $          24.25

** **

               58,267

                          -

    $        24.250

                         7.30

     $          24.00

               20,000

                          -

    $        24.000

                         7.32

     $        18.125

               20,000

               20,000

    $        18.125

                         7.55

     $        14.875

               15,000

               15,000

    $        14.875

                         8.32

     $          16.25

               36,300

               22,750

    $        16.250

                         8.57

     $        16.375

                 9,000

                          -

    $        16.375

                         8.76

     $          17.75

               15,000

               15,000

    $        17.750

                         9.32

Various debt agreements contain covenantsthat restrict the amount of retained earnings that may be distributed asdividends to common shareholders.  The most restrictive covenant requires ClecoCorporation's total indebtedness to be less than or equal to 65% of totalcapitalization.  At December 31, 2004, approximately $217.7 million of retainedearnings was not restricted.

***Shareholder Rights Plan***

In July 2000, Cleco Corporation's Board ofDirectors adopted the Shareholder Rights Plan (Rights Plan).  Under the RightsPlan, the holders of common stock as of August 14, 2000, received a dividend ofone right for each share of common stock held on that date.  In the event anacquiring party accumulates 15% or more of Cleco Corporation's common stock,the rights would, in essence, allow the holder to purchase Cleco Corporation'scommon stock at half the current fair market value.  Cleco Corporationgenerally would be entitled to redeem the rights at $.01 per right at any timeuntil the tenth day following the time the rights become exercisable. The rights expire on July 30, 2010.

***Employee StockPurchase Plan***

In January 2000, Cleco Corporation's Board ofDirectors adopted the ESPP.  Shareholders approved the plan in April 2000, andthe plan was implemented on October 1, 2000.

79
****Regular, full-time, and part-time employees ofCleco Corporation and its participating subsidiaries, except officers, generalmanagers, and employees who own 5% or more of Cleco Corporation's stock, mayparticipate in the ESPP.  An eligible employee enters into an option agreementto become a participant in the ESPP.  Under the agreement, the employeeauthorizes payroll deductions in an amount not less than $10 but not more than$350 each pay period.  Payroll deductions are accumulated during a calendarquarter and applied to the purchase of common stock at the end of each quarter,which is referred to as an "offering period."  Pending the purchase of commonstock, payroll deductions remain as general assets of Cleco.  No trust or otherfiduciary account has been established in connection with the ESPP.  At the endof each offering period, payroll deductions are automatically applied to thepurchase of shares of common stock.  The number of shares of common stockpurchased is determined by dividing each participant's payroll deductionsduring the offering period by the option price of a share of common stock.  Theoption price of a share of common stock is equal to 85% of the lower of the closingprice at the beginning or the end of each offering period.
A maximum of 684,000 shares of common stock maybe purchased under the ESPP, subject to adjustment for changes in the capitalizationof Cleco Corporation.  The Compensation Committee of Cleco Corporation's Boardof Directors administers the ESPP.  The Compensation Committee and the Board ofDirectors each possess the authority to amend the ESPP, but shareholderapproval is required for any amendment that increases the number of sharescovered by the ESPP.  As of December 31, 2004, there were 515,569 shares ofcommon stock left to be purchased under the ESPP.

***Common Stock Issuance***

On May 8, 2002, Cleco Corporation issued 2.0million shares of common stock in a public offering.  Net proceeds from theissuance were approximately $44.3 million.

On November 9, 2004, Cleco Corporation issued 2.0million shares of common stock in a public offering.  Net proceeds from the issuancewere approximately $35.7 million.

***Common StockRepurchase Program***

In 1991, Cleco Corporation began a common stockrepurchase program in which up to $30.0 million of common stock may be repurchased. At December 31, 2004, approximately $16.1 million of common stock was availablefor repurchase under this program.  Purchases are made on a discretionary basisat times and in amounts as determined by management, subject to marketconditions, legal requirements, and other factors.  The purchases may not beannounced in advance and may be made in the open market or in privately negotiatedtransactions.  Cleco Corporation did not purchase any common stock under therepurchase plan in 2004, 2003, or 2002.  There is no expiration date for the program.

**Note 8 - Preferred Stock**

Within the ESOP, each share of Cleco Corporation 8.125%Convertible Preferred Stock Series of 1991 is convertible into 9.6 shares ofCleco Corporation common stock.  The annual dividend rate on the ClecoCorporation ESOP preferred stock is generally the higher of $8.125 per share or9.6 times the Cleco Corporation common stock annual dividend.

The amount of total capitalization reflected inCleco Corporation's Consolidated Financial Statements has been reduced by anamount of deferred compensation expense related to the shares of convertiblepreferred stock that have not yet been allocated to ESOP participants.  The amountsshown in Cleco Corporation's Consolidated Financial Statements for preferreddividend requirements in 2004, 2003, and 2002 have been reduced byapproximately $124,000, $187,000, and $266,000, respectively, to reflect thebenefit of the income tax deduction for dividend requirements on unallocatedshares held by the ESOP.

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

Information about the components of preferredstock capitalization is as follows:
 
          BALANCE

          BALANCE

          BALANCE

** **

** **

**            BALANCE**

               JAN. 1,

            DEC. 31,

            DEC. 31,

** **

** **

**             DEC.  31,**

(THOUSANDS, EXCEPT SHARE AMOUNTS)

                2002

            CHANGE

                2002

            CHANGE

                2003

**           CHANGE**

** **

**                   2004**

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

           26,297

               (748)

           25,549

            (1,254)

           24,295

**     (1,908)**

**      22,387**

   $      27,326

   $          (748)

   $      26,578

   $       (1,254)

   $      25,324

** $  (1,908)**

** $   23,416**

Deferred compensation related to convertible preferredstock held by the ESOP

   $    (11,338)

   $        2,268

   $       (9,070)

   $        2,463

   $       (6,607)

**  $   2,417**

**  $   (4,190)**

Cumulative preferred stock, $100 par value

     Number of shares

          Authorized

     1,352,000

                      -

     1,352,000

                      -

     1,352,000

**               -**

** 1,352,000**

          Issued and outstanding

        273,260

            (7,480)

        265,780

         (12,540)

        253,240

**   (19,080)**

**    234,160**

Cumulative preferred stock, $25 par value

     Number of shares authorized (None outstanding)

     3,000,000

     3,000,000

     3,000,000

** 3,000,000**

80
****
Preferred stock, other than the convertiblepreferred stock held by the ESOP, is redeemable at Cleco Corporation's option,subject to 30 days' prior written notice to shareholders.  The convertiblepreferred stock is redeemable at any time at Cleco Corporation's option.  IfCleco Corporation were to elect to redeem the convertible preferred stock,shareholders could elect to receive the optional redemption price or convertthe preferred stock into common stock.  The redemption provisions for thevarious series of preferred stock are shown in the following table.

          OPTIONAL REDEMPTION                   PRICE PER SHARE

Series

4.50%

                                 $101

Convertible, Series of 1991

$100.8125 to $100

**Note 9 - Pension Plan and Employee Benefits**

Most employees are covered by a noncontributory,defined benefit pension plan.  Benefits under the plan reflect an employee'syears of service, age at retirement, and highest total average compensation forany consecutive five calendar years during the last 10 years of employment withCleco Corporation.  Cleco Corporation's policy is to base its contributions tothe employee pension plan upon actuarial computations utilizing the projectedunit credit method, subject to the Internal Revenue Service's full fundinglimitation.  Discretionary contributions of $14.0 million and $2.9 million weremade during 2004 and 2003, respectively.  No contributions to the pension planwere made during 2002.  Currently, a contribution required by fundingregulations is not expected during 2005.  A discretionary contribution may bemade during 2005; however, the decision to make a contribution and the amount,if any, has not been determined.  Cleco Power is considered the plan sponsorand Support Group is considered the plan administrator.

Cleco Corporation's retirees and theirdependents are eligible to receive medical, dental, vision, and life insurancebenefits (other benefits).  Cleco Corporation recognizes the expected cost ofthese benefits during the periods in which the benefits are earned.

The employee pension plan and other benefitsobligation plan assets and funded status as determined by the actuary atDecember 31, 2004, and 2003, are presented in the following table.

 PENSION BENEFITS

     OTHER BENEFITS

(THOUSANDS)

**              2004**

              2003

**              2004**

              2003

Change in benefit obligation

     Benefit obligation at beginning of year

**$ 218,076**

   $ 189,384

**  $ 37,522**

   $   31,829

     Service cost

**     6,086**

           5,354

**     2,300**

           1,771

     Interest cost

**   12,642**

        12,292

**     2,398**

           2,102

     Plan    participants' contributions

**             -**

                    -

**        512**

              451

     Amendments

**             -**

                    -

**    (6,199)**

                    -

     Actuarial loss

**   12,816**

        21,994

**     6,072**

           3,617

     Expenses paid

**    (1,183)**

         (1,330)

**             -**

                    -

     Benefits paid

**    (9,839)**

         (9,618)

**    (2,050)**

         (2,248)

     Benefit obligation at end of year

**  238,598**

      218,076

**   40,555**

        37,522

Change in plan assets

     Fair value of plan assets at      beginning  of year

**  193,201**

      167,978

**             -**

                    -

     Actual return on plan  assets

**   23,399**

        33,271

**             -**

                    -

     Employer contribution

**   14,000**

           2,900

**             -**

                    -

     Expenses paid

**    (1,183)**

         (1,330)

**             -**

                    -

     Benefits paid

**    (9,839)**

         (9,618)

**             -**

                    -

     Fair value of plan assets at  end of  year

**  219,578**

      193,201

**             -**

                    -

Funded status

** (19,020)**

       (24,875)

** (40,555)**

       (37,522)

     Unrecognized net actuarial  loss    

**   43,652**

        36,890

**   16,268**

        11,036

        Unrecognized transition  obligation/(asset)

**             -**

               (37)

**     3,817**

           4,208

     Unrecognized prior service cost

**     8,514**

           9,500

**    (6,199)**

                    -

     Prepaid (accrued) benefit  cost

**  $ 33,146**

   $   21,478

**  $  (26,669)**

   $  (22,278)

Employee pension plan assets may be investedin publicly traded domestic common stocks, including Cleco Corporation commonstock; U.S. government, federal agency and corporate obligations; aninternational equity fund, commercial real estate funds; a hedge fund-of-funds;and pooled temporary investments.  The table below shows a breakdown of theplan assets by investment category based on market values at December 31, 2004and 2003.

                       PENSION BENEFITS

**               2004**

               2003

Fair value of plan assets by category

     Debt securities

          Short-term investment funds

**        2.0%**

              3.6%

          U.S. Government obligations

**      10.5%**

              9.6%

          Domestic corporate obligations

**      12.8%**

           12.5%

          International corporate obligations

**        0.2%**

              0.5%

Equity securities

          Domestic corporate stock

**      44.0%**

           47.5%

          International corporate stock

**      24.5%**

           19.4%

     Real estate

**        5.9%**

              6.6%

     Other assets

**        0.1%**

              0.3%

81
****
The employee pension plan accumulatedbenefit obligation as determined by the actuary at December 31, 2004, and 2003,is presented in the following table.

                     PENSION BENEFITS

(THOUSANDS)

                  **2004**

              2003

Accumulated benefit obligation

** $  196,776**

   $ 177,568

The components of net periodic pensionand other benefits cost (income) for 2004, 2003, and 2002 are as follows:

** **

PENSION BENEFITS
              OTHER BENEFITS

(THOUSANDS)

**          2004**

         2003

         2002

             **2004**

         2003

         2002

Components of periodic benefit costs

** **

     Service cost

**          $   6,086**

** **

   $ 5,354

   $ 4,653

** $  2,300**

   $ 1,771

   $ 1,309

     Interest cost    

**12,642**

** **

    12,292

    11,502

** 2,399**

      2,102

      1,828

     Expected return on plan assets

**(17,410)**

** **

   (17,714)

   (18,687)

**          -**

               -

               -

Special termination benefits

**           -**

** **

               -

      1,599

**          -**

               -

          150

     Curtailment loss

**           -**

** **

               -

          987

**          -**

               -

               -

        Amortization of  transition obligation      (asset)

**      (37)**

** **

     (1,318)

     (1,318)

**    389**

          389

          492

     Prior    period service cost amortization

**      986**

** **

          986

      1,062

**          -**

               -

               -

     Net (gain) loss amortization

**        64**

** **

               -

        (635)

**      841**

          458

            47

     Net periodic benefit cost (income)

**$ 2,331**

** **

   $   (400)

   $   (837)

**  $  5,929**

   $ 4,720

   $ 3,826

The measurement date used to determinethe pension and other postretirement benefits is December 31.  The assumptionsused to determine the benefit obligation and the periodic costs are as follows:

              PENSION BENEFITS

                       OTHER BENEFITS

**             2004**

           2003

**             2004**

             2003

Weighted-average assumptions used to determine  the benefit obligation as of December 31:

     Discount rate

**    5.75%**

       6.00%

**    5.75%**

         6.00%

     Expected return on plan assets

**    8.50%**

       8.70%

**         N/A**

             N/A

     Rate of compensation increase

**    4.59%**

       5.00%

**         N/A**

             N/A

 

** **

** **

 PENSION BENEFITS

 OTHER BENEFITS

**           2004**

** **

           2003

** **

       2002

             **2004**

        2003

    2002

Weighted-average assumptions used to determine  the net benefit cost (income) for the year ended December 31:

 

 

 

 

 

 

     Discount rate

** 6.00%**

      6.50%

     7.25%

** 6.00%**

6.50%

  7.25%

     Expected return on plan assets

**  8.70%**

      9.00%

    9.50%

**       N/A**

        N/A

     N/A

     Rate of    compensation  increase

**  5.00%**

      5.00%

    5.00%

**       N/A**

        N/A

    N/A

In the fourth quarter of 2002, Cleco recognizeda restructuring charge of $10.2 million.  A portion of the restructuring chargeincluded a curtailment loss of $1.0 million, special termination benefits of$1.6 million related to the pension plan, and special termination benefits of$0.2 million related to other benefits.  For more information about therestructuring charge, see Note 20 - "Restructuring Charge."

Cleco Corporation's retirement committee hasestablished investment performance objectives of the pension plan assets.  Overa three to five year period, the objectives are for the pension plan's annualizedtotal return to:
-  Exceedthe assumed rate of return on plan assets,
-  Exceedthe annualized total return of a customized index consisting of a mixture ofStandard & Poor's 500 Index, Russell Mid Cap Value Index, Morgan StanleyCapital International Europe, Australia, Far East Index, Lehman Brothers U.S.Universal Index, and the median real estate manager performance in the HewittInvestment Group open end real estate universe, and
-  Rankin the upper 50 percent of a universe of composite pension funds.
-  In order to meet the objectives and tocontrol risk, the retirement committee has established guidelines that the investmentmanagers must follow.

Domestic Equity Portfolios
-  Equityholdings of a single company must not exceed 10% of the manager's portfolio. 
-  Aminimum of 25 stocks should be owned.
-  Equityholdings in a single sector should not exceed the lesser of three times thesector's weighting in the Standard & Poor's 500 Index or 35% of the portfolio. 

International Equity Portfolios
-  Equityholdings of a single company should not exceed 5% of the manager's portfolio. 
-  Aminimum of 30 stocks should be owned.
-  Equityholdings in a single sector should not exceed 35%.
-  Currencyhedging decisions are at the discretion of the investment manager.

Debt Portfolios
-  Atleast 85% of the debt securities should be "investment grade" securities (BBB-by Standard & Poor's or Baa3 by Moody's) or higher.
-  Bondpurchases should be limited to readily marketable securities.

Real Estate Portfolios
-  Realestate funds should be invested primarily in direct equity positions, with debtand other investments representing less than 25% of the fund.
-  Leverageshould be less than 70% of the market value of the fund.
-  Investmentsshould be focused on existing income-producing properties, with land anddevelopment properties representing less than 40% of the fund.

82
****
Hedge Fund-of-Funds
-  Thefund should be invested in a minimum of 20 individual partnerships.
-  Noindividual partnership should exceed 10% of the fund-of-funds.
-  Thefund should be diversified across several different "styles" of partnerships,including event-driven strategies, fixed income arbitrage and trading, andother arbitrage strategies.  The fund generally should not be invested inemerging markets, short-term only, traditional Commodity Trading Advisor's orderivative-only strategies.

During 2004, the Cleco retirementcommittee approved a change in the policy concerning the use of derivatives. Fund managers are allowed limited use of derivatives, subject to policies andguidelines established by the committee and to the following restrictions:
-  Derivativesmay be used only if the vehicle is deemed by the manager to be more attractivethan a similar investment in the underlying cash market; or if the vehicle isbeing used to manage risk of the portfolio.
-  Thederivatives may not be used in a speculative manner or to leverage theportfolio.
-  Thederivatives may not be used as short-term trading vehicles.
-  Investmentmanagers shall alert the retirement committee, in writing, before engaging instrategies which use derivatives.  The written communication shall include thenature and purpose of the strategy, a quantification of the magnitude of theprogram in absolute dollar terms, an outline of the methods to be used tomonitor the program, and an outline of the process to be followed in reportingon commitments relative to established guidelines and on the success of theproposed strategy.

Due to the nature of the hedgefund-of-funds, its manager is exempt from the above derivative policy.

The retirement committee has established thefollowing investment asset allocation target percentages for the pension planassets.

                           PERCENT OF TOTAL  PLAN ASSETS*

       MINIMUM

          TARGET

      MAXIMUM

Equity

     Domestic

            39%

            47%

            55%

     International

            13%

            18%

            23%

Total equity

            60%

            65%

            70%

Debt securities

            18%

            23%

            28%

Real estate

               4%

               7%

            10%

Hedge fund-of-funds

               2%

               5%

               8%

Cash equivalents

               0%

               0%

               5%

*    Minimums and  maximums within subcategories not intended to equal total for category.

The expected return on plan assets wasdetermined by examining the risk profile of each target category as compared tothe expected return on that risk, within the parameters determined by theretirement committee.  The result was compared to the expected rate of returnof other comparable plans to ensure Cleco Corporation's estimation was within areasonable range.  In assessing the risk as compared to return profile, historicalreturns as compared to risk was one factor considered.  The historical riskcompared to returns was adjusted for the expected future long-term relationshipbetween risk and return.  The adjustment for the future risk compared toreturns was, in part, subjective and not based on any measurable or observableevents.

At December 31, 2003, the pension plan held 28,292shares of Cleco Corporation common stock.  In May 2004, the pension plan disposedof its 28,292 shares of Cleco Corporation common stock and as of December 31,2004 holds no shares of Cleco Corporation common stock.  None of the planparticipants' future annual benefits are covered by insurance contracts.

The assumed health care cost trend rates used tomeasure the expected cost of other benefits were 10.0% in 2004, 11.0% in 2003,and 11.0% in 2002.  The rate declines to 5.0% by 2010 and remains at 5.0%thereafter.  Assumed health care cost trend rates have a significant effect onthe amount reported for the health care plans.  A one-percentage point changein assumed health care cost trend rates would have the following effects onother benefits:

             ONE-PERCENTAGE POINT

(THOUSANDS)

       INCREASE

      DECREASE

Effect on total of service and interest cost  components

   $         410

   $        (411)

Effect on post-retirement benefit obligation

   $      2,582

   $     (2,555)

On December 8, 2003, the President signedinto law the Medicare Prescription Drug, Improvement and Modernization Act of2003 (the Act).  The Act introduces a prescription drug benefit under Medicare(Medicare Part D), as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuariallyequivalent to Medicare Part D.  In May 2004, the FASB issued FSP SFAS No. 106-2to provide guidance on accounting for the effects of the Act by employers whoseprescription drug benefits are actuarially equivalent to the drug benefit underMedicare Part D.  FSP SFAS No. 106-2 is effective as of the first interimperiod beginning after June 15, 2004.

Cleco adopted FSP SFAS No. 106-2 on July 1, 2004. Cleco, in conjunction with its actuarial advisors, determined that benefits providedby the plan as of the date of enactment are at least actuarially equivalent toMedicare Part D.  Final requirements to determine actuarial equivalence wereissued on January 21, 2005.  However, Cleco is evaluating the new requirementsin relation to their plan.  FSP SFS No. 106-2 provides two methods oftransition, including retroactive application to either the date of enactmentor the next normal measurement date after the enactment or prospective applicationfrom the date of adoption.  Cleco has elected retroactive application to thenext normal measurement date after enactment, which for Cleco, is January 1, 2004.

83
****
Based on actuarial analysis, the estimated impactof future Medicare subsidies reduced the January 1, 2004, accumulatedpost-retirement benefit obligation by $4.7 million and reduced the otherbenefit costs for the twelve months ended December 31, 2004, as follows:

(THOUSANDS)

AT DECEMBER 31, 2004

Components of other benefit costs:

     Reduction in service cost

**            $     252**

     Reduction in interest cost

**                  280**

     Reduction in net loss amortization

**                  340**

     Reduction in net other benefit cost

**            $     872**

Certain key executives and key managersare covered by a SERP.  The SERP is a non-qualified, non-contributory, definedbenefit pension plan.  Benefits under the plan reflect an employee's years of service,age at retirement, and the sum of the highest base salary paid out of the lastfive calendar years and the average of the three highest bonuses paid duringthe last 60 months prior to retirement, reduced by benefits received from anyother defined benefit pension plan.  Cleco Corporation does not fund the SERPliability, but instead pays for current benefits out of the general fundsavailable.  Cleco Power has formed a Rabbi Trust designated as the beneficiaryfor life insurance policies issued on the SERP participants.  Proceeds from thelife insurance policies are expected to be used to pay SERP participants' lifeinsurance benefits, as well as future SERP payments.  However, since this is anon-qualified plan, the assets of the trust could be used to satisfy generalcreditors of Cleco Power in the event of insolvency.  No contributions to theSERP were made during the three-year period ended December 31, 2004.  ClecoPower is considered the plan sponsor and Support Group is considered the planadministrator.

The SERP's assets and funded status, as determinedby the actuary at December 31, 2004, and 2003, are presented in the following table.

                           SERP BENEFITS

(THOUSANDS)

**              2004**

              2003

Change in benefit obligation

     Benefit obligation at beginning of year

**$ 20,496**

   $   16,018

     Service cost

**        924**

              564

     Interest cost

**     1,164**

           1,155

     Amendments

**             -**

              911

     Actuarial loss

**        180**

           2,616

     Benefits paid

**       (846)**

             (768)

     Benefit obligation at end of year

**   21,918**

        20,496

Funded status

** (21,918)**

       (20,496)

     Unrecognized net actuarial loss

**     9,003**

           9,293

     Unrecognized prior service cost

**        708**

              762

          Accrued benefit cost

**$ (12,207)**

   $  (10,441)

Amounts recognized in the statement of financial  position consist of:

     Accrued benefit costs

**$ (18,254)**

   $  (17,018)

     Intangible asset

**        708**

              762

     Accumulated other comprehensive income

**     5,339**

           5,815

     Net amount recognized

**$ (12,207)**

   $  (10,441)

The SERP's accumulated benefitobligation, as determined by the actuary at December 31, 2004, and 2003, ispresented in the following table.

                          SERP BENEFITS

(THOUSANDS)

**              2004**

              2003

Accumulated benefit obligation

** $ 18,254**

   $   17,018

The components of the net SERP cost for2004, 2003, and 2002 are as follows:

** **

                             SERP BENEFITS

(THOUSANDS)

**              2004**

              2003

              2002

Components of periodic benefit costs

Service cost

** $     924**

   $         564

   $         606

Interest cost

**     1,164**

           1,155

              952

Amortization of transition obligation

**             -**

                    -

              291

Prior period service cost amortization

**          53**

                 54

                  (7)

Net loss amortization

**        470**

              434

              314

Net periodic benefit cost

** $ 2,611**

   $      2,207

   $      2,156

To calculate periodic costs and thebenefit obligation, the SERP uses the same discount rate and average rate of compensationincrease as the employee pension plan for the same time periods.  The SERP alsouses the same measurement dates.  The expected return on plan assets is notapplicable since the SERP has no assets.

Since Cleco Power is the pension plan sponsor andthe related trust holds the assets, the prepaid benefit cost of the pensionplan is reflected at Cleco Power.  The liability of Cleco Corporation's othersubsidiaries is transferred, with a like amount of assets, to Cleco Powermonthly.  The expense of the pension plan related to Cleco Corporation's othersubsidiaries for the years ending December 31, 2004 and 2003 was $2.1 millionand $1.6 million, respectively.  For the year ending December 31, 2002, ClecoCorporation's other subsidiaries recognized expense of $3.4 million, includingspecial termination benefits of $0.3 million relating to the pension plan.

Cleco Corporation is the plan sponsor for the otherbenefits.  There are no assets set aside in a trust and the liabilities arereported on the individual subsidiaries' financial statements.  The expenserelated to other benefits reflected on Cleco Power's statement of income forthe year ending December 31, 2004 was $5.0 million, net of the estimated MedicarePart D subsidy of $0.7 million.  For the years ending December 31, 2003 and2002, Cleco Power recognized an expense of $3.3 million and $3.2 million,respectively.  Cleco Power's allocated amount of the other benefit liabilitywas $21.2 million and $18.0 million at December 31, 2004 and 2003,respectively.

The SERP is a non-qualified plan, as defined by theEmployee Retirement Income Security Act of 1974.  The plan has no assets andthe liabilities are reported on the individual subsidiaries' financialstatements.  The expense related to the SERP reflected on Cleco Power'sstatements of income for the years ending December 31, 2004, 2003 and 2002 was$0.7 million, $0.6 million and $0.8 million, respectively.  Cleco Power'sallocated amount of the SERP liability was $5.7 million and $5.3 million atDecember 31, 2004 and 2003, 

84
****
respectively.  Cleco Corporation's othersubsidiaries reflected expense relative to SERP of $1.9 million, $1.7 millionand $1.3 million for the years ending December 31, 2004, 2003 and 2002,respectively.  At December 31, 2004 and 2003, Cleco Corporation's othersubsidiaries' allocated amount of SERP liability was $6.5 million and $5.1million, respectively.

During 2004, Cleco recorded an increase in othercomprehensive income of $0.4 million, net of the associated income tax expenseof $0.2 million.  The increase was primarily due to the reduction of theminimum pension liability for the SERP, as defined by SFAS No. 87.  During2003, Cleco recorded a reduction in other comprehensive income of $1.8 million,net of the associated tax benefit of $0.7 million.  The reduction was primarilydue to the recognition of an additional minimum pension liability for the SERP,as defined by SFAS No. 87.  The accumulated other comprehensive loss, net ofincome tax, associated with the recognition of the minimum pension liability forthe SERP is $3.2 million.

The projected benefit payments and projectedreceipts pursuant to Medicare Part D subsidy for the employee pension plan,other benefits obligation plan, and SERP for each year through 2009 and thenext five years thereafter as determined by the actuary are listed below:

(THOUSANDS)

             2005

             2006

             2007

             2008

                2009

         NEXT FIVE                YEARS

Pension plan

$   9,654

$   9,698

$   9,761

$   9,877

$ 10,020

   $    56,381

SERP

$      884

$      895

$      931

$      977

$   1,018

   $      6,459

Other benefits obligation plan, gross

$   2,267

$   2,386

$   2,523

$   2,642

$   2,683

   $    15,834

Medicare Part D subsidy receipts

$           -

$      170

$      195

$      219

$      252

   $      1,668

Most employees are eligible toparticipate in a 401(k) savings and investment plan.  Cleco Corporation makesmatching contributions to 401(k) Plan participants by allocating shares ofconvertible preferred stock held by the ESOP.  Compensation expense related tothe 401(k) Plan is based upon the value of shares of preferred stock allocatedto ESOP participants and the amount of interest incurred by the ESOP, lessdividends on unallocated shares held by the ESOP.  At December 31, 2004, and2003, the ESOP had allocated to employees 198,535 and 195,042 shares,respectively.

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

                         FOR THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

401(k) Plan expense

** $     847**

   $      1,205

   $      1,057

Dividend requirements to ESOP on convertible  preferred stock

**  $ 2,294**

   $      2,002

   $      2,092

Interest incurred by ESOP on its indebtedness

** $     344**

   $         564

   $         770

Company contributions to ESOP

** $     711**

   $      1,212

   $      1,408

**Note 10 - Income Taxes**

***Cleco***

For the year ended December 31, 2004, federalincome tax expense is less than the amount computed by applying the statutoryfederal rate to income before tax.  For the year ended December 31, 2003,federal income tax benefit is more than the amount computed by applying thestatutory federal rate to loss before tax.  For the year ended December 31,2002, federal income tax expense is less than the amount computed by applyingthe statutory federal rate to income before tax.  The differences are asfollows:

FOR THE YEAR ENDED DECEMBER 31,

** **

** **

**      2004**

              2003

              2002

(THOUSANDS, EXCEPT FOR %)

**       AMOUNT**

** **

**            %**

AMOUNT

                   %

         AMOUNT

                   %

Income (loss) before tax

**$ 101,983**

**     100.0**

 $  (51,185)

          100.0

   $ 120,038

          100.0

Tax at statutory rate on book (loss) income  before tax

**   35,694**

**       35.0**

(17,915)

             35.0

        42,013

             35.0

Increase (decrease):

     Tax effect of AFUDC

**    (2,068)**

**        (2.0)**

(1,813)

               3.5

         (1,421)

              (1.2)

     Amortization of investment tax credits

**    (1,712)**

**        (1.7)**

(1,729)

               3.4

         (1,743)

              (1.5)

     Tax effect of prior-year tax benefits not  deferred

**     3,069**

**         3.0**

3,133

              (6.1)

              390

               0.3

     Other, net

**    (1,292)**

**        (1.3)**

193

              (0.4)

         (3,677)

              (3.0)

Total federal income tax expense (benefit)

**  33,691**

**       33.0**

(18,131)

             35.4

        35,562

             29.6

Current and deferred state income tax expense (benefit),  net of federal benefit for state income tax expense (benefit)

**     2,173**

**         2.2**

(3,286)

               6.4

           4,103

               3.4

Total federal and state income tax expense (benefit)

**$ 35,864**

**       35.2**

 $  (21,417)

             41.8

   $   39,665

             33.0
The 2004 decrease in other, net as shown in thechart above, was primarily due to return to accrual true ups recorded in 2004,a permanent tax deduction related to Medicare Part D recorded under FSP SFASNo. 106-2 in 2004, and a 2003 non-tax deductible civil penalty of $0.8 millionpaid to FERC in accordance with the Consent Agreement.
85
****Information about current and deferred income taxexpense is as follows: 
                        FOR THE YEAR ENDED DECEMBER  31,

(THOUSANDS)

**             2004**

              2003

              2002

Current federal income tax expense (benefit)

**$  6,181**

   $  (18,296)

   $  (33,627)

Deferred federal income tax expense

**   28,099**

           3,509

        68,900

Amortization of accumulated deferred investment  tax credits

**   (1,712)**

         (1,729)

         (1,743)

Total federal income tax expense (benefit)

**   32,568**

       (16,516)

        33,530

Current state income tax expense (benefit)

**     2,034**

           2,359

               (51)

Deferred state income tax expense (benefit)

**     1,262**

         (7,260)

           6,186

Total state income tax expense (benefit)    

**     3,296**

         (4,901)

           6,135

Total federal and state income tax expense (benefit)

**$ 35,864**

   $  (21,417)

   $   39,665

Discontinued operations

     Income tax expense from income (loss) from  operations:

          Federal current

**       (155)**

               (68)

         (1,398)

          Federal deferred

**       (680)**

         (2,511)

           3,975

          State current

**         (20)**

                 23

                   3

          State deferred

**           (3)**

                  (1)

                  (2)

     Total tax (benefit) expense from income  (loss) from discontinued operations

**$    (858)**

   $    (2,557)

   $      2,578

     Income tax expense from gain on disposal of  segment:
         
          Federal current

**       (662)**

                    -

                    -

          Federal deferred

**     1,569**

                    -

                    -

     Total tax expense from gain on disposal of  segment

**        907**

                    -

                    -

     Total federal and state income tax expense  (benefit)

**$ 35,913**

   $  (23,974)

   $   42,243
The balance of accumulated deferredfederal and state income tax assets and liabilities at December 31, 2004, and2003, was comprised of the tax effect of the following: 
** **

** **

AT DECEMBER 31,

** **

** **

**                  2004**

                    2003

(THOUSANDS)

**      CURRENT**

** **

**   NONCURRENT**

CURRENT
           NONCURRENT

Depreciation and property basis differences

**  $         -**

**$ (277,936)**

   $               -

   $     (247,628)

State net operating tax losses

**             -**

**        8,707**

                    -

                 8,532

SERP - Other comprehensive income

**             -**

**        1,819**

                    -

                 2,140

AFUDC

**             -**

**    (33,000)**

                    -

            (34,661)

Investment tax credits

**             -**

**        9,844**

                    -

               10,818

SFAS No. 109 adjustments:
                       
          Nonplant flow through

**             -**

**      (3,282)**

                    -

               (2,676)

          Depreciation and property  basis differences flow  through

**             -**

**    (56,804)**

                    -

            (56,964)

          Prior years flow through

**             -**

**      (9,317)**

                    -

               (9,788)

Post retirement benefits other than pension

**     2,760**

**        5,090**

              628

                 5,782

Other

**     2,007**

**    (13,967)**

              916

                  (242)

     Accumulated deferred  federal and state income  taxes

**  $ 4,767**

**$ (368,846)**

   $      1,544

   $     (324,687)

Management considers it more likely thannot that all deferred tax assets will be realized.  Consequently, deferred taxassets have not been reduced by a valuation allowance.

The state net operating tax loss consists of $48.4million of carryforwards that expire in 2018, $112.6 million of carryforwardsthat expire in 2019 and $13.0 million of carryforwards that expire in 2020.  Deferredstate tax benefits are available to the extent that Cleco has state taxableincome prior to expiration of the carryforwards.  Although Cleco currently hasnot provided a valuation allowance to reduce the state net operating tax loss,a valuation may be provided in the future if estimates of future taxable stateincome are reduced.

86
****
Cleco Power

Federal income tax expense is less than the amountcomputed by applying the statutory federal rate to income before tax, asfollows:

    FOR  THE YEAR ENDED DECEMBER 31,

** **

** **

**              2004**

              2003

              2002

(THOUSANDS,    EXCEPT FOR %)

**AMOUNT**
** **

**                  %**

AMOUNT
                   %

AMOUNT
                   %

Income before tax

** $ 79,893**

**     100.0**

   $   86,854

          100.0

   $   91,746

          100.0

Tax at statutory rate on book income before tax

**   27,963**

**       35.0**

        30,399

             35.0

        32,111

             35.0

Increase (decrease):

     Tax effect of AFUDC

**    (2,068)**

**        (2.6)**

         (1,813)

              (2.1)

         (1,421)

              (1.5)

     Amortization of investment tax credits

**    (1,712)**

**        (2.1)**

         (1,729)

              (2.0)

         (1,743)

              (1.9)

     Tax effect of prior-year tax benefits not  deferred

**     3,069**

**         3.8**

           3,133

               3.6

              390

               0.4

     Other, net

**       (650)**

**        (0.8)**

             (456)

              (0.5)

             (339)

              (0.4)

Total federal income tax expense

**   26,602**

**       33.3**

        29,534

             34.0

        28,998

             31.6

Current and deferred state income tax expense,  net of federal benefit for state income tax expense

**     1,089**

**         1.4**

              312

               0.4

           3,174

               3.5

Total federal and state income taxes    

** $ 27,691**

**       34.7**

   $   29,846

             34.4

   $   32,172

             35.1
Information about current and deferredincome tax expense is as follows: 
                         FOR THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

Current federal income tax expense (benefit)

** $ 7,803**

   $   17,924

   $  (22,335)

Deferred federal income tax expense    

**   19,924**

        13,171

        51,505

Amortization of accumulated deferred investment  tax credits

**    (1,712)**

         (1,729)

         (1,743)

Total federal income tax expense

**   26,015**

        29,366

        27,427

Current state income tax expense (benefit)

**     1,739**

              231

             (676)

Deferred state income tax (benefit) expense    

**         (63)**

              249

           5,421

Total state income tax  expense

**     1,676**

              480

           4,745

Total federal and state income taxes

** $ 27,691**

   $   29,846

   $   32,172

The balance of accumulated deferredfederal and state income tax assets and liabilities at December 31, 2004, and2003, was comprised of the tax effect of the following:

** **

** **

   AT DECEMBER 31,

** **

** **

**                  2004**

                  2003

(THOUSANDS)

**CURRENT**
** **

**NONCURRENT**
CURRENT
NONCURRENT
Depreciation and property basis differences

**  $         -**

**  $  (241,874)**

   $               -

   $   (221,818)

SERP - Other comprehensive income

**             -**

**           865**

                    -

                  921

AFUDC

**             -**

**    (33,000)**

                    -

           (34,661)

Investment tax credits

**             -**

**        9,844**

                    -

            10,818

SFAS No. 109 adjustments:
                       
          Nonplant    flow through

**             -**

**      (3,282)**

                    -

             (2,676)

          Depreciation and  property  basis  differences flow through

**             -**

**    (56,804)**

                    -

           (56,964)

          Prior years flow through

**             -**

**      (9,317)**

                    -

             (9,788)

Post retirement benefits other than pension

**     4,458**

**      (2,040)**

           3,583

                  370

Other

**       (211)**

**      (3,452)**

         (1,230)

                   (73)

     Accumulated deferred  federal and state    income  taxes

**  $ 4,247**

**  $  (339,060)**

   $      2,353

   $   (313,871)

Management considers it more likely thannot that all deferred tax assets will be realized.  Consequently, deferred taxassets have not been reduced by a valuation allowance.

Regulatory assets and liabilities, net recordedfor deferred taxes at December 31, 2004, and 2003, were $92.9 million and $93.1million, respectively.  Regulatory assets and liabilities will be realized overthe accounting lives of the related properties to the extent past ratemakingpractices are continued by regulators.  For additional information on deferredtaxes, see Note 3 - "Regulatory Assets and Liabilities - Deferred Taxes."

**Note 11 - Disclosures About Segments**

***Cleco***

Cleco's reportable segments are based on its methodof internal reporting, which disaggregates business units by first-tiersubsidiary.  Reportable segments were determined by applying SFAS No. 131.  Cleco'sreportable segments are Cleco Power, Midstream, andOther.  The Other segment consists of the holdingcompany, a shared services subsidiary, and an investment subsidiary.  The Othersegment subsidiaries operate within Louisiana and Delaware.

Each reportable segment engages in business activities from which itearns revenue and incurs expenses.  Segment managers report periodically toCleco's Chief Executive Officer (the chief operating decision-maker) withdiscrete financial information and, at least quarterly, present discretefinancial information to Cleco's Board of Directors.  Each reportable segmentprepared budgets for 2004 that were presented to and approved by Cleco's Boardof Directors.  The reportable segments exceeded the quantitativethresholds as defined in SFAS No. 131.

The financial results of Cleco's segments arepresented on an accrual basis.  Management evaluates the performance of itssegments and allocates resources to them based on segment profit, and therequirements to implement new strategic initiatives and projects to meetcurrent business objectives.  Material intercompany transactions occur on aregular basis.

87
****
**SEGMENT INFORMATION**

** **

** **

** **

** **

** **

** **

**          ****UNALLOCATED**

** **

** **

** **

** **

** **

** **

** **

** **

**                             ITEMS,**

** **

** **

**             ****CLECO**

** **

** **

** **

** **

** **

**RECLASSIFICATIONS**

** **

** **

2004     (THOUSANDS)

**        ****POWER**

** **

**MIDSTREAM**

** **

**OTHER**

** **

**         &    ELIMINATIONS**

** **

**CONSOLIDATED**
Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

**$ 718,151**

** $              -**

** $             -**

**        $             -**

** $ 718,151**

     Tolling operations

**                -**

**       10,255**

**                -**

**                      -**

**       10,255**

     Energy trading, net

**               3**

**                 -**

**                -**

**                      -**

**                3**

     Energy operations

**                -**

**               53**

**                -**

**                      -**

**              53**

     Other operations

**      30,162**

**               62**

**            259**

**                    (6)**

**       30,477**

     Electric customer credits

**    (20,889)**

**                 -**

**                -**

**                      -**

**     (20,889)**

Affiliate revenue

**             22**

**         4,474**

**        3,271**

**                      -**

**         7,767**

Intercompany revenue

**        1,860**

**             285**

**      41,350**

**           (43,495)**

**                 -**

Operating revenue, net

**$ 729,309**

** $    15,129**

** $   44,880**

**        $ (43,501)**

** $ 745,817**

Depreciation expense

**$   56,731**

** $      2,197**

** $     1,002**

**        $             -**

** $   59,930**

Interest charges

**$   28,445**

** $    17,764**

** $   18,526**

**        $ (12,529)**

** $   52,206**

Interest income

**$     3,561**

** $           49**

** $   12,851**

**        $ (12,505)**

** $     3,956**

Equity income from investees

**$             -**

** $    47,538**

** $             -**

**        $             -**

** $   47,538**

Federal and state income tax expense (benefit)

**$   27,691**

** $    12,022**

** $   (3,690)**

**        $       (159)**

** $   35,864**

Segment profit (loss) from continuing operations,  net

**$   52,202**

** $    17,829**

** $   (3,912)**

**        $             -**

** $   66,119**

Income from discontinued operations, including gain  on disposal of $1,685, net of tax

**                -**

**              70**

**                -**

**                      -**

**              70**

Segment profit (loss) (1)

**$   52,202**

** $    17,899**

** $   (3,912)**

**        $             -**

** $   66,189**

Additions to (adjustments of) long-lived assets    

**$   78,700**

** $       (142)**

** $     1,315**

**        $             -**

** $   79,873**

Segment assets

**$ 1,425,388**

** $  328,512**

** $ 611,578**

**        $ (528,415)**

** $  1,837,063**

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

**Segment profit**

** **

**        $   66,189**

** **

** **

**Unallocated items:**

** **

** **

** **

**   Preferred dividends**

** **

**             (2,216)**

** **

** **

**Net income applicable to common stock**

** **

**        $   63,973**

** **

** **

 

                 UNALLOCATED

                            ITEMS,

CLECO
RECLASSIFICATIONS

2003     (THOUSANDS)

             POWER

MIDSTREAM

                  OTHER

          &    ELIMINATIONS

CONSOLIDATED

Revenue

** **

** **
     
** **

** **

** **

** **

** **

** **

     Electric operations

   $    676,002

   $                  -

   $                  -

            $                    -

   $       676,002

     Tolling operations

                       -

            98,726

                       -

                                  -

              98,726

     Energy trading, net

                  626

             (2,844)

                       -

                         1,282

                   (936)

     Energy operations

                       -

                  556

                       -

                                  -

                    556

     Other operations

            30,013

                  691

                  242

                           (280)

               30,666

     Electric customer credits

             (1,562)

                       -

                       -

                                  -

               (1,562)

Intercompany revenue

              2,209

                  168

            40,052

                     (42,429)

                          -

Operating revenue, net

   $    707,288

   $       97,297

   $       40,294

            $       (41,427)

   $       803,452

Depreciation expense

   $       54,084

   $       21,168

   $         1,066

            $                    -

   $         76,318

Impairments of long-lived assets

   $                  -

   $    147,993

   $                  -

            $                    -

   $       147,993

Interest charges

   $       28,774

   $       38,753

   $       17,516

            $       (14,254)

   $         70,789

Interest income

   $         1,335

   $             624

   $       14,562

            $       (14,150)

   $            2,371

Equity income from investees

   $                  -

   $       31,649

   $                  -

            $                    -

   $         31,649

Federal and state income tax expense (benefit)

   $       29,846

   $     (49,250)

   $        (1,807)

            $             (206)

   $        (21,417)

Segment profit (loss) from continuing operations,  net

   $       57,008

   $     (80,152)

   $        (6,624)

            $                    -

   $        (29,768)

Loss from discontinued operations, net of tax

                       -

             (5,161)

                       -

                                  -

               (5,161)

Segment profit (loss) (1)

   $       57,008

   $     (85,313)

   $        (6,624)

            $                    -

   $        (34,929)

Additions to long-lived assets    

   $       68,507

   $         4,843

   $         1,161

            $                    -

   $         74,511

Segment assets

   $ 1,378,916

   $    790,660

   $    649,774

            $    (659,924)

   $   2,159,426

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

Segment loss

** **

            $       (34,929)

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                       (1,861)

** **

** **

Net loss applicable to common stock

** **

            $       (36,790)

** **

** **

88
****
 

                 UNALLOCATED

                            ITEMS,

CLECO
RECLASSIFICATIONS

2002     (THOUSANDS)

                 POWER

MIDSTREAM

                  OTHER

          &    ELIMINATIONS

CONSOLIDATED
Revenue

** **

** **

** **

** **

** **

** **

** **

** **

** **

     Electric operations

   $    568,102

   $                  -

   $                  -

            $                    -

   $       568,102

     Tolling operations

                       -

            90,260

                       -

                                  -

              90,260

     Energy trading, net

                (752)

              2,345

                       -

                                 6

                 1,599

     Energy operations

                       -

              1,436

                       -

                                 1

                 1,437

     Other operations

            29,331

              4,652

                    88

                             (38)

              34,033

     Electric customer credits

             (2,900)

                       -

                       -

                                  -

               (2,900)

Intercompany revenue

              1,708

                  257

            33,371

                     (35,336)

                          -

Operating revenue, net

   $    595,489

   $       98,950

   $       33,459

            $       (35,367)

   $       692,531

Depreciation expense

   $       52,233

   $       14,545

   $             935

            $                    -

   $         67,713

Impairments of long-lived assets

   $                  -

   $                  -

   $                  -

            $                    -

   $                     -

Interest charges

   $       29,091

   $       31,212

   $       13,533

            $       (13,765)

   $         60,071

Interest income

   $             933

   $             440

   $       13,833

            $       (13,632)

   $            1,574

Equity income from investees

   $                  -

   $       16,204

   $                  -

            $                    -

   $         16,204

Federal and state income tax expense (benefit)

   $       32,172

   $       10,161

   $        (2,495)

            $             (173)

   $         39,665

Segment profit (loss) from continuing operations,  net

   $       59,574

   $       23,158

   $        (2,359)

            $                    -

   $         80,373

Loss from discontinued operations, net of tax

                       -

             (8,498)

                       -

                                  -

                (8,498)

Segment profit (loss) (1)

   $       59,574

   $       14,660

   $        (2,359)

            $                    -

   $         71,875

Additions to (adjustments of) long-lived assets    

   $       87,321

   $       98,064

   $        (1,260)

            $                    -

   $       184,125

Segment assets

   $ 1,338,445

   $    978,947

   $    631,389

            $    (604,225)

   $   2,344,556

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

Segment profit

** **

            $        71,875

** **

** **

Unallocated items:

** **

** **

** **

     Preferred dividends

** **

                       (1,872)

** **

** **

Net income applicable to common stock

** **

            $        70,003

** **

** **

***Cleco Power***

Cleco Power is a vertically integrated, regulatedelectric utility operating within Louisiana and is viewed as one unit by management. Discrete financial reports are prepared only at the company level.  Thisapproach is consistent with the standards applicable to segment reporting asdefined by SFAS No. 131.

**Note 12 - Accrual of Electric Customer Credits**

Cleco's reported earnings for December 31, 2004,2003, and 2002 reflect accruals of $4.9 million, $1.6 million and $2.9 million,respectively, within Cleco Power for electric customer credits that areexpected to be required under terms of an earnings review settlement reachedwith the LPSC in 1996.  In addition to the $4.9 million electric customercredits accrual for the year ending December 31, 2004, Cleco Power recorded a$16.0 million accrual for additional credits to retail customers as a result ofCleco Power's settlement of an audit of fuel costs and trading practices by theLPSC.  Together, the reported customer credits accrual for the year ending December31, 2004, is $20.9 million.  For information on the LPSC fuel audit, see Note 16- "Litigation and Other Commitments and Contingencies - Fuel Audit."

The 1996 LPSC settlement, subsequent amendments,and an approved one-year extension, set Cleco Power's rates until September 30,2005.  The subsequent amendments and one-year extension have not changed theterms of the original 1996 settlement.  As part of the settlement, Cleco Poweris allowed to retain all regulated earnings up to a 12.25% return on equity,and to share equally with customers, as credits on their bills, all regulatedearnings between 12.25% and 13% return on equity.  All regulated earnings abovea 13% return on equity are credited to customers.  This effectively allowsCleco Power the opportunity to realize a regulatory rate of return up to12.625%.  The amount of credits due customers, if any, is determined by theLPSC annually based on results for each 12-month period ended September 30.  The1996 LPSC settlement provides for such credits to be made on customers' billsthe following summer.  The LPSC's preliminary report for the cycle endedSeptember 30, 2001 required a $0.6 million refund, which was credited tocustomers' bills in September 2002.  In August 2004, Cleco Power re-submittedits 2001 and 2002 rate stabilization plan filings with the LPSC, adjusting certainitems noted by the LPSC during the recent audit of fuel costs and tradingpractices.  In September 2004, the LPSC accepted Cleco Power's revised 2001filing, noting that no further credits were due customers for the cycle endedSeptember 30, 2001.

The LPSC has not yet issued its preliminaryreport for the cycles ended September 30, 2002, and September 30, 2003, forwhich Cleco Power has made the requisite filings.  These filings also werepending final settlement of the fuel and trading practices audit and settlementof a related lawsuit filed in St. Landry Parish.  The fuel audit settlement hasbeen approved by the LPSC and the related St. Landry Parish lawsuit wasdismissed at a settlement hearing on November 15, 2004.  Cleco anticipates thecompletion of the reviews for the cycles ended September 30, 2002, andSeptember 30, 2003, by the third quarter of 2005.  The requisite filings for thecycle ended September 30, 2004 were submitted to the LPSC on February 28,2005.  For information on the St. Landry Parish lawsuit, see Note 16 -"Litigation and Other Commitments and Contingencies - Other Litigation."

As mentioned above, the current ratestabilization plan sets Cleco Power's allowed return on equity until September30, 2005.  Possible rate stabilization plan options include 

89
****
seeking ashort-term extension, combining an extension request with a generationcertificate of public convenience and necessity application, seeking a new ratecase, or allowing the current plan to expire and continue under current ratesuntil the LPSC orders a review of Cleco Power's rates.  Management is unable topredict what Cleco Power's allowed return on equity will be after September 30,2005.

ClecoPower's Balance Sheets at December 31, 2004, and 2003 reflect accruals of $9.9million and $5.0 million, respectively, for estimated electric customer credits. The $9.9 million of credits at December 31, 2004, relate to the 12-monthcycles ended September 30, 2002, through 2005.  The $5.0 million of credits atDecember 31, 2003 relate to the 12-month cycles ended September 30, 2001through 2003.  The amount of these credits reported under the line itemprovision for rate refund total $7.9 million at December 31, 2004, and zero atDecember 31, 2003, and reflect amounts due currently.  Credits not currentlydue, in the amount of $2.0 million and $5.0 million at December 31, 2004 and2003, respectively, are reported under the line item other deferred credits.  Thecurrent balance at December 31, 2004, also reflects $16.0 million of creditsrelating to settlement of the fuel audit.  All customer credits were recordedas a reduction in revenue due to the nature of the credits.  The accruals arebased upon the original 1996 settlement, the resolution of the fuel audit and annualissues as agreed between Cleco and the LPSC, and Cleco's assessment of issuesthat remain outstanding.

**Note 13 - Equity Investment in Investees**

Equity investment in investees represents primarilyMidstream's $257.0 million investment in Acadia, owned 50% by APH and 50% byCalpine; and its $57.3 million investment in Evangeline, owned 100% byMidstream.  Midstream's portion of earnings from Acadia and Evangeline areincluded in the equity investments of each company.  The earnings from Acadia were$41.3 million for the year ended December 31, 2004.  In accordance with FIN46R, Cleco was required to deconsolidate Evangeline from its consolidatedfinancial statements effective April 1, 2004.  Equity investment earnings fromEvangeline (subsequent to its deconsolidation) were $19.9 million for the yearended December 31, 2004.  For the year ended December 31, 2004, no materialearnings or losses were recorded for the other equity investments.

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

(THOUSANDS)

**          **AT DECEMBER 31, 2004

Contributed assets (cash and land)

**            $   250,612**

Net income (inception to date)

**                   74,135**

Capitalized interest and other (inception to  date)

**                   19,469**

     Less: Cash distributions (inception to date)

**                  87,232**

          Total equity investment in investee

**            $   256,984**

Midstream's equity, as reported on thebalance sheet of Acadia at December 31, 2004, was $288.3 million.  The differenceof $31.3 million between the equity investment in investee of $257.0 million asshown in the table above and Midstream's equity includes $19.5 million ofinterest capitalized on funds contributed to Acadia.  It also includes othermiscellaneous charges related to the construction of the Acadia facility offsetby $50.8 million which represents the difference between the accountingtreatments used by the partnership entities to record the allocation oftermination agreement income.  The cash distributions of $87.2 million wereused to pay interest and repay principal on debt at Cleco Corporation relatingto this investment.  In addition, Cleco has credit support available in theevent CES and Calpine fail to fulfill their obligations under either tollingagreement.  Calpine has posted letters of credit totaling $40.0 million as of December31, 2004.  These letters of credit have various expiration terms, of which$13.0 million will expire on May 9, 2006, $12.0 million will expire on December31, 2006, and $15.0 million will remain in effect for the duration of thetolling agreements.  The table below contains summarized financial informationfor Acadia.

                           AT DECEMBER 31,

(THOUSANDS)

**              2004**

               2003

Current assets

**$ 13,929**

   $     14,217

Property, plant and equipment, net

**462,654**

       474,561

Other assets

**     7,632**

            4,167

     Total assets

**$ 484,215**

   $  492,945

Current liabilities

**$ 9,070**

   $       3,711

Partners' capital

**475,145**

       489,234

     Total liabilities and partners' capital

**$ 484,215**

   $  492,945

 

** **

                  AT DECEMBER 31,

(THOUSANDS)

**              2004**

               2003

               2002

Total revenue

** $ 76,406**

   $     83,046

   $     49,102

Termination agreement income

**             -**

       105,500

                     -

Total operating expenses

**   35,118**

          28,788

          19,416

Other income (expense)

**          13**

                (50)

                     3

     Net income

** $ 41,301**

   $  159,708

   $     29,689

Income tax expense recorded on APH'sfinancial statements related to Midstream's 50% ownership interest in Acadiawas $5.4 million, $5.9 million, and $2.8 million for the years ended December31, 2004, 2003, and 2002, respectively.

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

(THOUSANDS)

**          **AT DECEMBER 31, 2004

Contributed assets (cash)

**            $      43,580**

Net income (inception to date)

**                  103,527**

     Less:  Cash distributions (inception to  date)

**                    89,843**

          Total equity investment in investee

**            $      57,264**

90
****
The table below contains summarized financial informationfor Evangeline.

                           AT DECEMBER 31,

(THOUSANDS)

**              2004**

               2003

Current assets

**$ 11,168**

   $     10,289

Accounts receivable - affiliate

**     3,096**

            9,844

Notes receivable - affiliate

**     2,723**

                     -

Property, plant and equipment, net

**198,053**

       203,297

Other assets

**   49,055**

          45,914

     Total assets

**$ 264,095**

   $  269,344

Current liabilities

**$ 15,019**

   $     19,371

Accounts payable - affiliate

**        939**

                532

Long-term debt

**191,820**

       197,832

Other liabilities

**   53,018**

          45,880

Member's equity

**     3,299**

            5,729

     Total liabilities and member's equity

**$ 264,095**

   $  269,344

 

** **

                         AT DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

Operating revenue

** $ 59,084**

   $   58,118

   $   61,693

Operating expenses

**   14,603**

        21,396

        13,509

Depreciation

**     5,654**

        12,211

           8,846

Interest charges

**   17,841**

        18,200

        19,153

Other income

**        277**

              193

              358

Other expense

**          31**

              142

                 36

Federal and state income taxes    

**        528**

           2,654

           7,906

Net income

** $ 20,704**

   $      3,708

   $   12,601

In addition to the income tax expensereflected in the chart above, income tax expense recorded on Midstream'sfinancial statements related to Midstream's 100% ownership interest inEvangeline (subsequent to its deconsolidation) was $8.2 million for the yearended December 31, 2004.

**Note 14 - Operating Leases**

Under the terms of the Evangeline TollingAgreement, the tolling counterparty has the right to own, dispatch, and marketall of the electric generation capacity produced by Evangeline, and isresponsible for providing the required natural gas to the facility.  Midstreamcollects a fee from the tolling counterparty for operating and maintaining thetolled facility.  The tolling agreement has terms that extend until at least theyear 2020.  The tolling agreement is accounted for as an operating lease andthe revenue is recognized as described in Note 2 - "Summary of SignificantAccounting Policies - Revenue and Fuel Costs - Tolling Revenue."

In accordance with FIN 46R, Cleco was requiredto deconsolidate Evangeline from its consolidated financial statements as ofMarch 31, 2004.  Effective April 1, 2004, Evangeline's revenue and expenses arenetted and reported on one line item as equity income from investees on Cleco'sConsolidated Statements of Operations.  For additional information of FIN 46Rand the deconsolidation of Evangeline, see Note 29 - "Variable Interest Entities."

The following table contains an analysis ofCleco's property being utilized under operating leases:

                          AT DECEMBER  31,

(THOUSANDS)

**              2004**

              2003

Merchant power plants

**$ 224,338**

   $ 223,131

Construction work in progress

**     1,145**

           1,941

Less: accumulated depreciation

**   27,430**

        21,776

     Net plant

**$ 198,053**

   $ 203,296

Effective March 31, 2004, Evangeline'splant assets no longer are reported on Cleco's Consolidated Balance Sheets, butinstead are represented by one line item corresponding to Cleco's equityinvestment in Evangeline.  

The following is a schedule for Evangeline, byyears, of future minimum rental payments (assumes no change to the testedcapacity or heat rate of the plants) required under the Evangeline Tolling Agreement:

(THOUSANDS)

                YEAR ENDING DECEMBER 31,

2005

                               $           52,442

2006

                                            52,987

2007

                                            53,539

2008

                                            54,095

2009

                                            54,659

Thereafter

                                         609,219

     Total future rental payments

                               $        876,941

Future rental payments have not beenadjusted for contingent items such as bonuses or penalties, which may changethe actual amounts received from the tolling counterparty under the tollingagreement.

The Perryville Tolling Agreement was accountedfor as an operating lease.  Prior to September 15, 2003 (MAEM's rejection ofthe Perryville Tolling Agreement), MAEM paid Perryville a fixed fee and avariable fee for operating and maintaining the facility.  MAEM also paid aquarterly amount to Perryville, which represented its share of Perryville'squarterly parts and maintenance expenses under Perryville's long-term maintenancecontract with General Electric Corporation.  This amount was based uponPerryville's run hours and factored starts for each quarter.

For the year ended December 31, 2004, tollingrevenue of $10.2 million was recognized, including contingent rents ofapproximately $0.3 million.  For the years ended December 31, 2003, and 2002,tolling revenue of $98.7 million and $90.2 million, respectively, wasrecognized.  For the years ended December 31, 2003, and 2002, contingent rentswere approximately $8.3 million and $9.4 million, respectively.

The following is a schedule of operating leasesthat Cleco maintains in the ordinary course of business activities.  Themajority of Cleco's operating leases are for line construction and operatingvehicles and for railcars for coal deliveries, both utilized by Cleco Power.  Theremaining leases provide for office and operating facilities and officeequipment.  These leases have various terms and expiration dates from 1 to 20years.  The following table is a summary of expected operating lease paymentsfor the years indicated.

 

91
****
                    YEAR ENDING DECEMBER 31,

CLECO
CLECO

(THOUSANDS)

CORPORATION

                   POWER

                    TOTAL

2005

         $        165

         $     4,400

         $     4,565

2006

                    150

                3,972

                4,122

2007

                    150

                3,536

                3,686

2008

                         2

                2,804

                2,806

2009

                         -

                2,159

                2,159

Thereafter

                         -

              10,070

              10,070

     Total operating lease payments

         $        467

         $  26,941

         $  27,408

Cleco's operating leases for lineconstruction and maintenance vehicles have a term of seven years with anadditional one-year renewal.  The lease payment is determined by taking theequipment's original cost multiplied by the adjusted rental factor.  Contingentrents are based on the change in the LIBOR rate at May 15, 2001 compared toDecember 31, 2004, 2003 and 2002.  For the years ended December 31, 2004, 2003and 2002, lease expense of $0.6 million, $0.6 million and $0.3 million,respectively, was recognized.  Contingent rents were less than $0.1 million forthe years ended December 31, 2004, 2003 and 2002.

The railcar leases are divided into two groups. The first group has 120 railcars and the lease expires on March 31, 2021.  Thesecond group of railcars has 125 cars and the lease term expires on March 31,2017.  Cleco Power pays a monthly rental fee per car.  For the years endedDecember 31, 2004, 2003 and 2002, operating lease expense of $1.1 million, $1.1million and $1.0 million, respectively, was recognized.  The railcar leases donot contain contingent rent payments.

Cleco's operating leases for vehicles, office andoperating facilities and office equipment have lease terms from three to tenyears.  The monthly lease payment is determined by summing the monthlyequipment amortization with the lowest monthly interest rate multiplied by theamortized value.  Contingent rents are calculated by comparing the difference betweenthe lowest rate at December, 1984 to the lowest rate at December, 2004, 2003and 2002.  For the years ended December 31, 2004, 2003 and 2002, lease expenseof $1.9 million, $2.2 million, and $2.2 million, respectively, was recognized. For the years ended December 31, 2004, 2003 and 2002, contingent rents wereapproximately $0.1 million, $0.1 million and $0.1 million, respectively.

**Note 15 - Change in Accounting Estimate**

Perryville changed its accounting estimatesrelating to useful lives October 1, 2002.  The estimated service lives for Perryville'splant assets were extended from 35 to 46 years.  The change was based upon a studyperformed by an independent third party engineering firm.  In addition toPerryville's asset lives being extended during 2002, component depreciationescalated depreciation expense for the year, offsetting what would otherwisehave been a decline in depreciation due to the extension in the assets' lives. As a result of the above change, net income applicable to common stock decreased$0.3 million for 2002, or $0.01 per diluted share.

**Note 16 - Litigation and Other Commitments andContingencies**

***Securities Litigation***

On November 22, 2002, a lawsuit was filed in the NinthJudicial District Court, Parish of Rapides, State of Louisiana, on behalf of aclass of persons or entities who purchased Cleco Corporation's common stockduring a specified period of time, hereinafter referenced as the Class Period. Cleco Corporation refers to this lawsuit as the Securities Litigation.  In theSecurities Litigation, the plaintiff alleges that Cleco Corporation issued anumber of materially false and misleading statements during the Class Period,among other purposes, in order to cause the price of Cleco Corporation's stockto rise artificially.  The plaintiff alleges that, during the Class Period,Cleco Corporation failed to disclose the existence of the round-trip tradesthat Cleco Corporation disclosed in its Quarterly Report on Form 10-Q for thequarterly period ended September 30, 2002.  The plaintiff also alleges thatCleco Corporation's financial information was not prepared in conformity withgenerally accepted accounting principles during the Class Period.  ClecoCorporation removed the lawsuit to the United States District Court for theWestern District of Louisiana.  In May 2003, the lawsuit was dismissed withoutprejudice, allowing the plaintiff to re-file the lawsuit subject to certainstipulations and restrictions.  On November 12, 2003, the plaintiff again filedsuit in the Ninth Judicial District Court, Parish of Rapides, State ofLouisiana.  Cleco Corporation again removed the suit to the United StatesDistrict Court for the Western District of Louisiana and moved that the suit bedismissed pursuant to federal law.  On March 19, 2004, the United StatesDistrict Court heard oral arguments on Cleco Corporation's Motion to Dismissand the plaintiff's Motion to Remand.  On April 9, 2004, the court denied theplaintiff's Motion to Remand and granted Cleco Corporation's Motion to Dismiss,dismissing this matter with prejudice.  The plaintiff filed an appeal with theUnited States Fifth Circuit Court of Appeals on May 14, 2004.  Cleco isopposing this appeal, and it is unknown when a decision will be rendered by theappellate court.

On April 18, 2003, a Shareholder's DerivativeComplaint was filed by a shareholder of Westar, in the United States DistrictCourt for the District of Kansas.  The defendants named in the complaint are Westar,its Board of Directors, its former Chief Executive Officer, President andChairman, and Cleco Corporation.  The complaint alleges violations of Section14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgatedthereunder, and, in addition, breaches of fiduciary duties owed to Westar,and/or for aiding and abetting such breaches.  The complaint asserts that ClecoCorporation aided and abetted the director defendants' breaches of fiduciary dutiesby engaging in round-trip trades with Westar.  The complaint seeks the award ofunspecified compensatory damages against the defendants and the plaintiff'scosts and disbursements of the lawsuit.  The complaint has been amended, butthe claims against Cleco Corporation have not changed substantively.  Thelawsuit has been stayed by agreement of all parties and the court while theplaintiffs and Westar attempt resolution through mediation.  Management 

92
****
doesnot believe this lawsuit will have a material impact on Cleco's financialcondition, results of operations, or cash flows.

***Other Litigation***

On July 24, 2003, a petition was filed in the 27thJudicial District Court, Parish of St. Landry, State of Louisiana, by severalCleco Power customers.  The named defendants were Cleco Corporation, ClecoPower, Midstream, Marketing & Trading, Evangeline, Acadia, and Westar.  Theplaintiffs were seeking class action status on behalf of all Cleco Power'sretail customers, and their petition centered around Cleco's trading activitiesfirst disclosed by Cleco in November 2002.  The plaintiffs alleged, among otherthings, that the defendants' conduct was in violation of Louisiana antitrustlaw.  On July 6, 2004, Cleco Corporation announced that it had reached a preliminarysettlement regarding these issues, as well as the related issues raised in thefuel audit by the LPSC.  On July 14, 2004, Cleco, the LPSC Staff and theseplaintiffs entered into a settlement in connection with the LPSC settlement ofthe fuel audit and related trading issues.  On July 21, 2004, the LPSC issuedan order approving the settlement.  On November 15, 2004, the 27thJudicial District Court dismissed with prejudice the lawsuit and released allclaims related to the lawsuit.  For more information on the settlement of theLPSC fuel audit and related issues, see "- Fuel Audit."

Cleco is involved in regulatory, environmental, andlegal proceedings before various courts, regulatory commissions, andgovernmental agencies regarding matters arising in the ordinary course ofbusiness.  Some of these proceedings, such as fuel review and environmentalissues, could involve substantial amounts.  In several lawsuits, Cleco has beennamed as a defendant by individuals who claim injury due to exposure toasbestos while working at sites in central Louisiana.  Most of the claimantswere workers who participated in the construction of various industrialfacilities, including power plants, and some of the claimants have worked atlocations owned by Cleco.  Cleco's management regularly analyzes currentinformation and, as necessary, provides accruals for probable liabilities onthe eventual disposition of these matters.  Cleco's management believes thatthe disposition of these matters will not have a material adverse effect on theRegistrants' financial condition, results of operations, or cash flows.

***Fuel Audit***

In the second half of 2002, the LPSC informedCleco Power that it was planning to conduct a periodic fuel audit.  The auditcommenced in March 2003 and included Fuel Adjustment Clause filings for January2001 through December 2002, although a portion of the data requested for theaudit related to periods prior to 2001.  Three parties intervened in the LPSCfuel audit proceeding, one of which withdrew its petition and two of which areCleco Power customers.  The audit, pursuant to the Fuel Adjustment ClauseGeneral Order issued November 6, 1997, in Docket No. U-21497, is required to beperformed not less than every other year; however, this was the first LPSC FuelAdjustment Clause audit of Cleco Power since the issuance of the GeneralOrder.  On July 6, 2004, Cleco announced that it had reached a preliminarysettlement of the fuel audit and related issues with the LPSC Staff and withthe intervenors in the fuel audit proceeding.  The settlement also included settlementof the claims made by several Cleco Power customers in a lawsuit filed in the27th Judicial District Court, Parish of St. Landry, State ofLouisiana.  On July 21, 2004, the LPSC issued an order approving thesettlement.  On November 15, 2004, the 27th Judicial District Courtdismissed with prejudice the lawsuit and released all claims related to thelawsuit.  For more information on the St. Landry Parish lawsuit, see - "Other Litigation"above.  The settlement of the LPSC fuel audit and related trading issues calledfor Cleco Power to refund $16.0 million to its retail customers.  Thedistribution of the refund was completed in February 2005.  Cleco Power agreedas part of the settlement to make certain Fuel Adjustment Clause filings andaffiliate reports with the LPSC, to adopt a reasonable compliance monitoringprogram, and to review with the LPSC Staff its affiliate code of conduct inorder to make recommendations to expand the code of conduct.  The settlementalso includes an agreement between Cleco Power and the intervenors wherebyCleco will pay a specified amount of the intervenors' attorney fees.  Thesettlement agreement resolved issues related to recovery of fuel and purchasedpower expenses for 2001 and 2002, including related gas put options and gastransportation charges, and all trading issues covered by the audit.  ClecoPower's pre-tax earnings in the second quarter of 2004 were reduced by $10.0million due to the settlement, which represented the amount of the customerrefund and intervenors' attorney fees associated with the settlement, lessamounts previously recorded in conjunction with issues covered by thesettlement.  Cleco Power anticipates the next fuel audit to cover 2003 and2004; however, any future audit could include prior periods with the exceptionof January 2001 through December 2002.  Management is unable to predict theresults of future LPSC fuel audits, which could require Cleco Power to refundpreviously recovered revenue and could result in a material adverse impact onthe Registrants' results of operations and financial condition.

***Gas Put Options and Gas Transportation Charge***

During 2002, certain fourth-quarter 2001 naturalgas purchase transactions were identified that were accounted forinconsistently with Cleco Power's fuel adjustment clause.  Upon identificationof this matter in 2002, Cleco Power credited the cumulative amount of theoption premiums previously received to its fuel cost for fuel adjustment clausepurposes resulting in a 2002 reduction of fuel revenue by the amount of theoption premiums and thereby returning this amount to Cleco Power's customers.  Duringa review of an affiliate gas transportation contract, Cleco determined that thegas transportation charge billed by a wholesale subsidiary of Cleco Energy toCleco Power exceeded the wholesale subsidiary's cost of providing such servicesto Cleco Power, plus a reasonable rate of return.  These transactions 

 

93
****
 

exceededthe pricing standards of the LPSC for affiliate transactions.  These gas puttransactions and transportation charge transactions were reviewed and includedin the related fuel audit settlement as referenced above.

***Off-Balance SheetCommitments***

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

The off-balance sheet commitments are notrecognized on Cleco's Consolidated Balance Sheets because it has beendetermined that Cleco's affiliates are able to perform these obligations undertheir contracts and that it is not probable that payments by Cleco will berequired.  Some of these commitments reduce the amount of the credit facilityavailable to Cleco Corporation by an amount defined by the credit facility.  Thefollowing table shows off-balance sheet commitments grouped by the affiliate onwhose behalf each commitment was made.  The table also shows the face amount ofthe commitment, applicable reductions, the resulting net amount of thecommitment, and associated reductions in Cleco Corporation's ability to draw onits credit facility at December 31, 2004.  A discussion of the off-balancesheet commitments is detailed in the explanations following the table.  Thediscussion should be read in conjunction with the table to understand theimpact of the off-balance sheet commitments on Cleco's financial condition.
 
AT DECEMBER 31, 2004

    REDUCTIONS    TO THE

  AMOUNT AVAILABLE

             TO BE DRAWN ON

                 FACE
     
NET
CLECO CORPORATION'S
SUBSIDIARIES/AFFILIATES (THOUSANDS)

            AMOUNT

REDUCTIONS
AMOUNT

      CREDIT    FACILITY

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

**          $ 277,400**

** $         -**

**       $ 277,400**

**         $             -**

Cleco Corporation obligation under Perryville's  debt service reserve

**                  7,352**

**     5,485**

**1,867**

**                1,867**

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

**                  1,400**

**             -**

**1,400**

**                1,400**

Cleco Corporation guarantees issued to Cleco  Energy counterparties

**                  3,000**

**             -**

**3,000**

**                        -**

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

**15,000**

**             -**

**15,000**

**              15,000**

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

**                     525**

**             -**

**                 525**

**                        -**

Cleco Power obligations under Lignite Mining  Agreement

**21,570**

**             -**

**21,570**

**                        -**

     Total

**          $ 326,247**

** $ 5,485**

**       $ 320,762**

**         $   18,267**

Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  The aggregate guarantee of $277.4 million islimited based on the following amounts and events:  (i) $42.4 million relatingto the Power Purchase Agreement, other ancillary agreements, and certainpre-closing liabilities associated with the Sale Agreement, and (ii) $235.0 millionwith respect to the Sale Agreement arising from Perryville's failure to pay,perform, or discharge the Senior Loan Agreement debt, Subordinated Loan Agreementdebt and any other liabilities arising from the Senior Loan Agreement.  The $235.0million portion of the guarantee described above is reduced to $100.0 millionwhen the Senior Loan Agreement is paid.  In addition, if the Perryville and PEHBankruptcy Court enters an order terminating the automatic stay, Entergy Louisianawould have the right to terminate the sale transaction and would be entitled toliquidated damages of $10.0 million from Perryville.  These potentialliquidated damage obligations have been guaranteed by Cleco Corporation, in theevent they are not paid by Perryville, and are included in the $42.4 millionportion of the guarantee described above.

If Perryville is unable to make principal paymentsto its lenders, Cleco Corporation will be required to pay up to $1.9 million onbehalf of Perryville under a cash collateral order issued by the Perryville andPEH Bankruptcy Court.  As of December 31, 2004, Cleco Corporation had paid thequarterly principal payments due by Perryville in the amount of $5.5 million asrequired by the Perryville and PEH Bankruptcy Court.  In addition, if ClecoCorporation's long-term senior unsecured debt is rated below BBB- by Standard& Poor's or Baa3 by Moody's, Cleco Corporation will be required to post aletter of credit in an amount up to $1.9 million.  For information on the cashcollateral order, bankruptcy filings of the Mirant Debtors, Perryville and PEH,and their related impacts on the Senior Loan Agreement, see Note 26 -"Perryville."

In November 2004, Cleco completed the sale ofsubstantially all of the assets of Cleco Energy.  Cleco Corporation providedguarantees to the buyers of the first and second disposal groups of ClecoEnergy for the payment and performance of the indemnity obligations of ClecoEnergy.  The aggregate amount of the guarantees is $1.4 million.  For informationon the sale of Cleco Energy's assets, see Note 17 - "Discontinued Operationsand Dispositions."

Guarantees of $3.0 million previously issued byCleco Corporation to Cleco Energy's counterparties in order to facilitateenergy operations and to Marketing & Trading's counterparties in order tofacilitate energy management and trading expired as of February 14, 2005.  AtDecember 31, 2004, 

 

94
****
there were no guaranteed net open positions for Cleco Energy,so the borrowing restriction in Cleco Corporation's credit facility was notaffected.

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

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

As part of the Lignite Mining Agreement enteredinto in 2001, Cleco Power and SWEPCO, joint owners of Dolet Hills, have agreedto pay the lignite miner's loan and lease principal obligations when due, ifthe lignite miner does not have sufficient funds or credit to pay.  Any amountspaid on behalf of the miner would be credited by the lignite miner against thenext invoice for lignite delivered.  At December 31, 2004, Cleco Power's 50%exposure for this obligation was approximately $21.6 million.  The lignitemining contract is in place until 2011 and does not affect the amount ClecoCorporation can borrow under its credit facility.

In July 2004, Acadia paid the final retainageamount of $0.3 million to the contractor who built its plant, terminating ClecoCorporation's guarantee to pay 50% of the amounts outstanding if Acadia couldnot pay the contractor.

The following table summarizes the expectedtermination date of the guarantees and standby letters of credit discussedabove:
 
                              AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

NET
                MORE

            AMOUNT

LESS THAN
                 THAN

(THOUSANDS)

   COMMITTED

       ONE YEAR

      1-3 YEARS

      4-5 YEARS

         5 YEARS

Guarantees

   $ 305,237

   $      4,867

   $ 277,400

   $      1,400

   $   21,570

Standby letter of credit

        15,525

              525

                    -

                    -

        15,000

     Total commercial commitments

   $ 320,762

   $      5,392

   $ 277,400

   $      1,400

   $   36,570

***Long-term Purchase Obligations***

Cleco Corporation had no unconditional long-termpurchase obligations at December 31, 2004.  Cleco Power has severalunconditional long-term purchase obligations related to the purchase oflignite, coal, energy capacity, and energy delivery facilities.  The aggregateamount of payments required under such obligations at December 31, 2004, is asfollows:

(THOUSANDS)

              YEAR ENDING DECEMBER 31,

2005

                               $        13,015

2006

                                         13,380

2007

                                            5,539

2008

                                            6,743

2009

                                            6,804

Thereafter

                                         12,078

     Total long-term purchase obligations

                               $        57,559

Payments under these agreements for theyears ended December 31, 2004, 2003, and 2002 were $14.9 million, $15.4million, and $14.4 million, respectively. 

***CES***

In a series of written notices commencing in May2004, CES notified Acadia that CES was invoking certain rights regardingdispute resolution under the Calpine Tolling Agreements between CES and Acadiaand requested that Acadia conduct a simultaneous capacity test of both PowerBlocks of the Acadia electric generation facility in the manner specified withinthe notices.  CES notified Acadia that it may withhold up to one-half of themonthly payments due Acadia under the Calpine Tolling Agreements and may takeother action, including, without limitation, (i) unwinding Calpine'sinterest in Acadia, (ii) terminating the Calpine Tolling Agreements,(iii) asserting claims against Cleco Power for allegedly flawed interconnectionstudies, and/or (iv) seeking reimbursement for the alleged overpayment ofcapacity fees from August 2003.  CES indicated that the dispute is primarilybased upon transmission constraints that, according to allegations by CES,limit the ability of CES to deliver Acadia's capacity and energy to thewholesale market.  On September 27, 2004, CES sent a letter to Acadiaclaiming to be a notice of default under the Calpine Tolling Agreements.  Inthe letter, CES claimed that Acadia's refusal to conduct the requestedsimultaneous capacity test was a default under the Calpine Tolling Agreements.  AlthoughCES did not expressly so state, Cleco believed that CES might attempt to usethe test results as an alleged basis to reduce its monthly payments to Acadiaunder the Calpine Tolling Agreements.  Acadia performed the requested simultaneoustest under protest on October 12, 2004, while reserving all of its rightsto assert that such capacity test is not required by the testing provisions ofthe Calpine Tolling Agreements and does not entitle CES to any reduction in itsmonthly capacity payments to Acadia.  Standard capacity test results werecomparable to previous tests and were within the parameters of the CalpineTolling Agreements.  Supplemental capacity testing was suspended due to a minormechanical problem with one of the Power Blocks.  Since the test, CES 

 

95
** **
has sentletters to Cleco Corporation, Cleco Power and Acadia requesting that eachentity maintain, preserve and in some instances, produce records specified inthe letters relating to the test.  The Calpine Tolling Agreements allow CES andAcadia the right, under current conditions, to require up to four capacity testsin any given contract year.  Cleco can give no assurance as to the results ofany such testing in the future. Under the Calpine Tolling Agreements, bindingarbitration is a means of resolving the alleged dispute, although neither partyhas invoked arbitration to date.  Acadia and CES are discussing transmissionavailability issues with the regional transmission providers.  There is noassurance that these discussions will resolve any of CES's allegations oftransmission constraints.  Through February 2005, CES has continued to remitfull payment (other than the periodic withholding of disputed billing amounts)of the monthly tolling fees to Acadia.

On March 8, 2005, Acadia received a letter from CESrequesting a refund of approximately $2.3 million.  CES claims natural gasmetering errors have caused errors in calculating the heat rate performance ofAcadia's facility from January 2003 through July 2004.  Acadia is reviewingthe information supplied by CES and plans to resolve this issue, including arefund if necessary, in 2005.  Cleco Corporation's share of such cost, andthe timing of any accrual that Acadia may be required to make in connection withthis matter cannot be estimated at this time.

If CES were to fail to perform its obligationsunder the tolling agreements, it could have a material adverse impact on Cleco'sresults of operations, financial condition and cash flow.  In addition, Acadiamay not be able to enter into agreements in replacement of the existing tollingagreements on terms as favorable as its existing agreements or at all.

***SESCO***

In October 2003, the Texas Commission on EnvironmentalQuality notified Cleco Power that it had been identified as a PRP for the SESCOfacility in San Angelo, Texas.  The facility operated as a transformerrepair and scrapping facility from the 1930s until 2003, and both soil andgroundwater contamination exist at the site and in surrounding areas.  Based onits then-available information, Cleco Power accrued a minimal amount for itspotential liability for the site in November 2003.  In September 2004, ClecoPower received documentation indicating that it may have sent a greater numberof transformers to SESCO for repair, refurbishing and/or recycling thanpreviously believed.  The investigation of SESCO's historical records is stillongoing.  The results of the continued investigation could show that ClecoPower's dealings with SESCO were more extensive than current documentationindicates.  Additional investigations are being conducted by a group of PRPs todetermine what additional remediation activities are required at the site andto identify all PRPs.  It is likely that Cleco Power together with other PRPswill be required to contribute to the past and future cost of the investigationand remediation of the site.  The ultimate cost of remediation of the site,Cleco Power's share of such cost, and the timing of any accrual that ClecoPower may be required to make in connection with this matter cannot beestimated at this time.  However, management believes that the outcome of thesite remediation will not have a material adverse impact on the Registrants'financial condition, results of operations, or cash flows.

***EPA***

In February 2005, Cleco Power received noticesthat the EPA is investigating Rodemacher Power Station and Dolet Hills PowerStation through requests for data as authorized by Section 114 of the Clean AirAct.  The apparent purpose of the investigation is to determine whether ClecoPower has complied with applicable EPA NSR and New Source Performance Standardsrequirements in connection with capital expenditures, modifications, oroperational changes Cleco Power has made at these facilities.  Cleco Power'sresponse to the initial data request is expected to be completed by May 2005. It is unknown at this time when the EPA will take further action, if any, as aresult of the information to be provided by Cleco Power and if any such actionwould have a material adverse impact on the Registrants' financial condition,results of operations, or cash flows.

***Other Contingencies***

The capacity and energy contract between ClecoPower and Williams stipulates that Cleco Power must provide additional securityin the event of certain Cleco Power ratings triggers.  These Cleco Powertriggers include: ratings downgrade below investment grade, negative credit watchfor possible downgrade below investment grade, failure to make required payments,and failure to maintain a certain debt-to-equity ratio.  The amount of theadditional security required to be provided by Cleco Power to Williams in theevent of a Cleco Power ratings trigger is $5.0 million under this contract.  ClecoPower was previously obligated to provide additional security up to $20.0million; however, the previous capacity and energy contract with Williamsexpired on its own terms on December 31, 2004.  A prior capacity contract withDynegy expired on its own terms on December 31, 2004 and no additional securityobligations exist under that contract.

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

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

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

96
** **
**Note 17 - Discontinued Operations and Dispositions**

***Cleco Energy***

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

Based on the final bids for the second disposalgroup, Cleco recorded a pre-tax impairment loss of $1.1 million in the secondquarter of 2004, which represented the excess of the carrying value over thecalculated fair value of the assets, less costs to sell.  On September 15,2004, Cleco Energy completed the sale of the second disposal group for a grosssales price of $0.8 million (subject to certain adjustments).  This resulted ina $0.3 million loss for the year ended December 31, 2004, which is included indiscontinued operations, income (loss) from disposal of segment, net of tax in Cleco's Consolidated Statements of Operations.

For additional information on impairments relatedto Cleco Energy, see Note 23 - "Impairments of Long-Lived Assets."

On November 16, 2004, Cleco Energy completed thesale of its first disposal group consisting of the natural gas pipeline andmarketing operations for a gross sales price of $9.1 million (subject tocertain adjustments).  This resulted in a $2.0 million gain for the year endedDecember 31, 2004, which is included in discontinued operations, income (loss)from disposal of segment, net of tax in Cleco's Consolidated Statements of Operations.

For information on guarantees entered into relatedto the sale of the disposal groups, see Note 16 - "Litigation and Other Commitmentsand Contingencies - Off-Balance Sheet Commitments."

The following table summarizes the operatingresults that have been classified as discontinued operations on ClecoCorporation's Consolidated Statements of Operations and are reported in theMidstream segment in Note 11 - "Disclosures About Segments."  Prior periodresults have been reclassified from income from continuing operations todiscontinued operations.

                   FOR THE YEAR ENDED DECEMBER 31,

    DISCONTINUED OPERATIONS (THOUSANDS)

**              2004**

** **

              2003

              2002

Operating revenue, net

** $ 44,355**

   $   71,189

   $   28,926

Pre-tax operating (loss) 

**    (2,473)**

         (7,718)

         (5,920)

Federal and state income tax (benefit) expense

**       (858)**

         (2,557)

           2,578

Operating (loss) income, net of tax

**    (1,615)**

         (5,161)

         (8,498)

Gain from disposal, net of tax expense of $907

**     1,685**

                    -

                    -

     Total

** $       70**

   $    (5,161)

   $    (8,498)

**Note 18 - Risks and Uncertainties**

***Cleco***

Cleco Corporation could be subject to possibleadverse consequences if any of Cleco's remaining counterparties fail to performtheir obligation under their respective tolling agreements or if ClecoCorporation or its affiliates are not in compliance with loan agreements orbond indentures.  Cleco's remaining tolling counterparties are Williams andCES.  The following list is not all-inclusive, but represents examples ofpossible adverse consequences resulting from the nonperformance of Cleco'stolling counterparties and certain defaults resulting from noncompliance withdebt covenant agreements or bond indentures:
-  Cleco'sfinancial condition and results of operations may be adversely affected by thetolling counterparties' failure to pay amounts due to Cleco and may not beconsistent with historical and projected results.
-  Clecomay not be able to enter into agreements in replacement of its existing tollingagreements on terms as favorable as their existing agreements or at all. 
-  Clecowould be required to test any long-lived generation asset for impairment if thetolling counterparty defaulted under the related tolling agreement.  If Clecodetermined that an impairment existed, the asset would be written down to itsfair market value, which could materially adversely affect Cleco's results ofoperations and financial condition.
-  Possibleacceleration of Cleco's project-level debt, in particular under provisions ofthe bonds issued by Evangeline, the bondholders have the right to demand theentire outstanding principal amount ($197.8 million at December 31, 2004) andinterest to be immediately due and payable upon a default under the EvangelineTolling Agreement.  As of December 31, 2004, Cleco was not aware of any suchdefault by Williams.  If the bondholders were to exercise this right,Evangeline might, among other things, refinance the bonds, pay off the bondswith other borrowings or the proceeds of issuances of additional debt, or causeEvangeline to seek protection under federal bankruptcy laws.  In addition, thetrustee of the bonds could foreclose on the mortgage and assume ownership ofthe plant.  Any alternative financing would likely be on less favorable termsthan the existing terms.  The bonds issued by Evangeline are nonrecourse toCleco Corporation.

The outstanding amount ($127.6 million atDecember 31, 2004) due under the Senior Loan Agreement related to thePerryville facility was deemed accelerated upon the bankruptcy filings byPerryville and PEH.  As a result of the bankruptcy cases and by virtue of theautomatic stay under the U.S. Bankruptcy Code, the lenders' ability to exercisetheir remedies under the Senior Loan Agreement, including, but not limited to,their ability to foreclose on the mortgage or assume ownership of thePerryville facility, are significantly limited and 

97
****
would require approval ofthe Perryville and PEH Bankruptcy Court.  For additional information on the SeniorLoan Agreement and bankruptcy filings, see Note 26 - "Perryville."

If the pending sale of the Perryville power stationto Entergy Louisiana were not to be consummated by December 31, 2005, thePower Purchase Agreement would terminate.  If this were to occur, Cleco wouldneed to seek an alternative purchaser of the facility or its generation, orallow Perryville and PEH's Senior Loan Agreement and other obligations to beresolved in their bankruptcy proceedings. Any of these alternatives couldresult in Cleco receiving significantly less value for the Perryville PowerStation and its generation than anticipated, as well as possibly cause Cleco torecord additional losses on its investment and under certain circumstancesrequire Cleco to pay $10.0 million in liquidated damages to Entergy Louisiana. For additional information on the pending sale of the Perryville power station,see Note 26 - "Perryville."

Financing for operational needs and constructionrequirements is dependent upon the cost and availability of external funds fromcapital markets and financial institutions.  Access to funds is dependent uponfactors such as general economic conditions, regulatory authorizations andpolicies, Cleco Corporation's credit rating, the credit rating of ClecoCorporation's subsidiaries, the cash flows from routine operations and thecredit ratings of project counterparties.  If Cleco Corporation's credit ratingwere to be downgraded by Moody's or by Standard & Poor's, Cleco Corporationwould be required to pay additional fees and higher interest rates under itsbank credit and other debt agreements.

***Cleco Power***

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

Financing for operational needs and constructionrequirements is dependent upon the cost and availability of external funds fromcapital markets and financial institutions.  Access to funds is dependent uponfactors such as general economic conditions, regulatory authorizations andpolicies, Cleco Corporation's credit rating, the credit rating of ClecoCorporation's subsidiaries, the cash flows from routine operations and thecredit ratings of project counterparties.  If Cleco Power's credit rating wereto be downgraded by Moody's or by Standard & Poor's, Cleco Power would berequired to pay additional fees and higher interest rates under its bank creditand other debt agreements.

**Note 19 - Review of Trading Activities**

In the third quarter of 2002, Cleco reviewedcertain energy trading activities, including transactions between Cleco Powerand certain Midstream companies.  These activities and transactions may haveviolated PUHCA, as well as various statutes and regulations administered by theFERC and the LPSC.

Cleco contacted the appropriate regulatoryauthorities, including the staffs of the FERC and the LPSC, and held discussionswith them concerning indirect sales of test power by Evangeline to Cleco Power,other indirect acquisitions of purchased power by Cleco Power from Marketing& Trading, Cleco Power's indirect sales of power to Marketing &Trading, and other transactions between Cleco Power and Marketing &Trading.  Formal investigations were initiated by the FERC and the LPSC afterCleco contacted those agencies regarding the transactions.  On July 25, 2003,the FERC issued its order approving the Consent Agreement between the FERCStaff and Cleco which settled the FERC's investigation into certaintransactions.  On July 21, 2004, the LPSC issued an order approving thesettlement of Cleco Power's fuel audit and related trading issues.  For moreinformation about the Consent Agreement and the FERC settlement, see Note 24 -"FERC Settlement."  For more information about the LPSC fuel audit and relatedsettlement, see Note 16 - "Litigation and Other Commitments and Contingencies -Fuel Audit."

**Note 20 - Restructuring Charge**

In September 2002, Cleco announced a companywideorganizational restructuring.  The purpose of the restructuring was to realignand staff new and existing company functions to address changes in the powerproduction industry and company initiatives.  A reduction in staffing levelsand a corresponding decrease in employee expenses were anticipated andrealized.  The reduction in employee expenses was offset by increases in otheroperating costs in the year 2003.  During the fourth quarter of 2002, 117employees were severed, and 37 employees accepted an early retirement package, resultingin 154 fewer employees.  The majority of these employees left during the fourthquarter of 2002.  The majority of the accrued severance and other termination benefits was paid by March 31, 2003.  Theamount of employee severance cost originally accrued was adjusted for changesin initial staffing estimates and lease termination costs were lowered due tocontinued use of certain work facilities.

 

98
****
**Cleco**

The following table shows the type of charges incurredfor the restructuring.  There was no remaining liability associated with the restructuringas of December 31, 2004.

ORIGINALLY
PAID
         CHANGE

CATEGORY OF COST

EXPENSED IN

                          THROUGH

    IN ORIGINAL

          LIABILITY

(THOUSANDS)

2002

          DECEMBER 31, 2004

           EXPENSE

     REMAINING

Cash items

** **

** **

     Severance and other employee payouts, including  associated  payroll  taxes

$      6,509

**         $     5,908**
 
   $        (601)

   $               -

     Lease termination payments

              592

**                   275**

             (317)

                    -

     Other

                 43

**                     43**

                    -

                    -

          Total cash items

           7,144

**                6,226**

             (918)

                    -

Noncash items

     Special termination benefits

           2,736

     Write-off of leasehold  improvements

              284

          Total noncash items

           3,020

               Total

   $   10,164

Therestructuring charge is presented in a separate line item entitled"Restructuring Charge" in the "Operating Expenses" section of Cleco's Consolidated Statements of Operations.  As a result of this restructuring, no business segment or component of a business segment qualified as a discontinued operation.

***Cleco Power***

The following table shows the type of chargesincurred by Cleco Power for the restructuring.  There was no remainingliability recorded by Cleco Power for the restructuring as of December 31,2004.

ORIGINALLY
                         PAID

CHANGE
CATEGORY OF COST

EXPENSED IN

                          THROUGH

    IN ORIGINAL

          LIABILITY

(THOUSANDS)

2002

          DECEMBER 31, 2004

           EXPENSE

     REMAINING

Cash items

** **

** **

     Severance and other  employee payouts,   including  associated  payroll  taxes

  $      4,150

**         $     3,930**

   $        (220)

   $               -

     Share of affiliate severance payouts

           1,314

**               1,219**

                (95)

                    -

          Total cash items

           5,464

**               5,149**

             (315)

                    -

Noncash items

     Special termination benefits

           2,368

     Write-off of leasehold  improvements

              267

          Total noncash items

           2,635

               Total

   $      8,099

The restructuring charge is presented ina separate line item entitled "Restructuring Charge" in the "Operating Expenses"section of Cleco Power's Statements of Income.  As a result of thisrestructuring, neither Cleco Power nor a component of Cleco Power qualified asa discontinued operation.

**Note 21 - Acquisition**

On June 20, 2002, Midstream purchased Mirant's 50%ownership interest in Perryville.  Midstream paid Mirant $54.6 million in cash as repayment of project debt, Mirant'sinvested capital to date, and other miscellaneous costs.  The terms of theagreement required Cleco Corporation toretire $48.0 million in project debt owed to Mirant and assume Mirant's totalequity commitment of up to $19.5 million.  Cleco Corporation used a combination of newly issued common equityand short-term debt to fund its acquisition of Mirant's interest in Perryville. Cleco Corporation discontinued theequity method of accounting effective July 1, 2002, and consolidated Perryville'sassets and liabilities as of June 30, 2002.  Perryville's revenue and expenseswere reported in the Statement of Operations beginning July 1, 2002.  As ofDecember 31, 2003, Perryville's assets and liabilities were $226.4 million.  Asa result of the bankruptcy filings of Perryville and PEH on January 28, 2004,their financial results have been deconsolidated from Cleco and are presentedon the cost method.  For additional information regarding Perryville, see Note26 - "Perryville."

Cleco's consolidated pro forma results, as ifthe acquisition had occurred on January 1, 2002, are shown below.

    (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

               FOR THE YEAR ENDED

                 DECEMBER  31, 2002

Revenue

                        $    722,383

Net income

                        $      70,690

Earnings per share (basic)

                        $          1.53

Earnings per share (diluted)

                        $          1.49

**Note 22 - Disclosures About Guarantees**

Cleco Corporation and Cleco Power have agreed tocontractual terms that require them to pay third parties if certain triggeringevents occur.  These contractual terms generally are defined as guarantees inFIN 45.  Guarantees issued or modified after December 31, 2002, that fallwithin the initial recognition scope of FIN 45 are required to be recorded as aliability.  Outstanding guarantees that fall within the disclosure scope of FIN45 are required to be disclosed for all accounting periods ending after December15, 2002.

Guarantees and indemnifications were issued inconnection with the asset sales of Cleco Energy's oil and gas properties andnatural gas pipelines.  These guarantees and indemnifications fall within therecognition scope of FIN 45 because they relate to the past performanceobligations of the disposed assets and also contain provisions requiring paymentfor potential damages.  The potential liabilities expire either after a two- orfive-year life.  Each indemnification and guarantee was assigned probabilitiesand estimates of potential damages.  The maximum aggregate potential paymentunder the guarantees and indemnifications is $1.2 million.  The discounted probability-weightedliability under the guarantees and indemnifications as of December 31, 2004,was $0.1 million.  The buyers of the Cleco Energy assets would be entitled to amountsunder the guarantees and indemnifications due to breach or default ofperformance of Cleco Energy under their respective sale agreements.  ClecoCorporation has guaranteed Cleco Energy's indemnification obligations under 

99
****
thesale agreements.  Maximum potential payments under the Cleco Corporationguarantees are $1.4 million but are not within the recognition scope of FIN45.  For additional information on the sales of Cleco Energy assets, see Note17 - "Discontinued Operations and Dispositions."

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

Cleco Corporation has issued guarantees and a letterof credit to support the activities of Perryville,Evangeline, and Cleco Energy.  These commitments are not within thescope of FIN 45, since these are guaranteesof performance by wholly owned subsidiaries.  For information regardingthese commitments, see Note 16 - "Litigation and Other Commitments andContingencies - Off-Balance Sheet Commitments."

For information on the Lignite Mining Agreemententered into by Cleco Power and SWEPCO, see Note 16 - "Litigation and OtherCommitments and Contingencies - Off-Balance Sheet Commitments."

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

**Note 23 - Impairments of Long-Lived Assets**

SFAS No. 144 requires long-term assets to bereviewed for potential impairment whenever events or changes in circumstancesindicate that the carrying amounts of such assets may not be recoverable.  Dueto such events surrounding several groups of long-lived assets, an analysis ofprobability-weighted future cash flows under possible scenarios proved thecarrying value of certain assets to be greater than the undiscounted futurecash flows.  Therefore, impairment charges were required to reduce the carryingvalue to fair value, which was determined by current market indicators oftransactions between willing buyers and sellers or the discounted future cashflows from those assets.  At December 31, 2003, the differences between Cleco'scarrying values and its fair values for the impaired long-lived assets relatedto Perryville were $148.0 million ($91.0 million after tax).  These charges arepresented in the "Operating expenses" section of Cleco Corporation's ConsolidatedFinancial Statements.  At December 31, 2004, 2003, and 2002, thedifferences between Cleco's carrying values and its fair values for theimpaired long-lived assets related to Cleco Energy were $1.1 million ($0.7million after tax), $8.3 million ($5.4 million after tax) and $3.6 million ($2.3million after tax), respectively.  These charges are presented in the"Discontinued Operations" section of Cleco Corporation's Consolidated FinancialStatements.  The impaired assets are part of the Midstream reporting segment.

***Perryville 2003***

Perryville owns and operates a 718-MW naturalgas-fired power plant near Perryville, Louisiana.  The Perryville facilityconsists of approximately 562 MW of combined-cycle capacity and approximately156 MW of peaking capacity.  In July 2001, Perryville entered into thePerryville Tolling Agreement, a 21-year capacity and energy agreement forPerryville's entire capacity, with MAEM, a subsidiary of Mirant.  Prior to theJuly 14, 2003, filing by the Mirant Debtors for voluntary protection underChapter 11 of the U.S. Bankruptcy Code, the carrying value of the Perryvillefacility was compared to its undiscounted, probability-weighted, future cashflows.  Due to the Mirant Debtors' bankruptcy and subsequent rejection of thePerryville Tolling Agreement, the difference between Perryville's carryingvalue and its fair value as determined by then-current market indicators oftransactions between willing buyers and sellers resulted in an impairmentcharge of $134.8 million ($82.9 million after tax) in the second quarter of2003.  On December 31, 2003, based on continuing negotiations to sell thePerryville facility and the subsequent signing of a sale agreement, thecarrying value of the Perryville facility was further reduced to the agreedupon sale price.  At December 31, 2003, the difference between Perryville'scarrying value and the anticipated sale proceeds resulted in an additional impairment charge of $13.2 million ($8.1 million after tax).  For additionalinformation regarding Perryville, the Mirant Debtors' bankruptcy, saleagreement and damage claims, see Note 26 - "Perryville."

**Cleco Energy 2004 -Discontinued Operations**

In June 2004, following final bids for the oil andgas production properties of Cleco Energy, Cleco recorded a pre-tax impairment loss in the second quarter of 2004, which represented the excess ofthe carrying value over the calculated fair value of the assets, less costs tosell.  For additional information related to the sale of the oil and gasproduction properties, see Note 17 - "Discontinued Operations andDispositions."

**Cleco Energy 2003 - Discontinued Operations**

In December 2003, following the loss of ClecoEnergy's largest industrial customer and Cleco's decision to focus Cleco'sbusiness strategy on core assets, the decision was made to potentially scaledown operations and contribute substantially all of the assets to a jointventure or sell substantially all of the assets.  Therefore, the carrying valueof Cleco Energy's assets was compared to its undiscounted,probability-weighted, future cash flows.  The analysis of probability weighting of

100
****
future cash flows under possible scenarios, as required by SFAS No. 144,changed due to the decision to scale down operations.  As a result of thechange in probability weighting of Cleco Energy's undiscounted future cashflows, management believed that the carrying value of Cleco Energy's long-livedassets was impaired; therefore, the carrying value of these assets was reducedto fair value.

**Cleco Energy 2002 -Discontinued Operations**

During 2002, Cleco Energy held oil and natural gasreserves in Texas.  The reserves were purchased in 1998 as a part of thepurchase of Sabine Texican Pipeline Co., Inc. and were categorized as provedproducing, proved nonproducing, and proved undeveloped reserves.  In 2002,Cleco Energy engaged an independent petroleum engineer to compute estimatedreserves and future net cash flow analysis of the proved oil and natural gasreserves.  The independent petroleum engineer used geologic and financial dataprovided by Cleco Energy and definitions approved by the Society of PetroleumEngineers, Inc. to analyze the proved reserves.  The report provided by the independentpetroleum engineer consisted of an estimate of annual oil and natural gasproduction, an estimate of future prices, and an estimate of future costs.  Thesum of the undiscounted estimate of net cash flows was lower than the carryingvalue of the proved oil and gas reserves, which resulted in the determinationthat the assets were impaired and were required to be written down to theirfair market value.  The major change in the assumption used in the independentpetroleum engineer's report for 2002 as compared to the 2001 assessment was arise in projected expenses and capital costs required to produce revenue from the provedreserves.  The fair value of the proved reserves was determined by using thediscounted estimated net future cash flows.

**Note 24 - FERC Settlement**

On July 25, 2003, the FERC issued an orderapproving a Consent Agreement between the FERC Staff and Cleco that settled theFERC investigation that commenced after Cleco's disclosure in November 2002 ofcertain energy marketing and trading practices.  By its terms, the ConsentAgreement was effective on August 24, 2003 (the Effective Date).  As a part ofthe settlement, Cleco agreed to certain penalties and remedies, includingpayment of a $0.8 million civil penalty to the FERC.

The Compliance Plan requires that Cleco obtain fromthe FERC Staff their approval of the plan's policies and procedures.  On April7, 2004, the FERC Staff confirmed, in writing, Cleco's substantial complianceto date with the Consent Agreement and Compliance Plan.  On October 31, 2004,Cleco provided to the FERC Staff the results of an external audit of itscompliance with the Compliance Plan.  Cleco and the FERC Staff have reviewedthis report, which cited minor exceptions to full compliance.  Management planscorrective actions to mitigate these minor exceptions.

**Note 25 - Affiliate Transactions**

***Cleco***

Cleco has affiliate balances that were noteliminated as of December 31, 2004.  The balances were not eliminated due tothe deconsolidation of Evangeline and Perryville.  For information on thesedeconsolidations, see Note 13 - "Equity Investment in Investees" and Note 26 -"Perryville - Financial Results."

Effective July 1, 1999, Cleco entered into serviceagreements with affiliates that provide Cleco access to professional servicesand goods.  Services and goods provided by Cleco Power are charged atmanagement's estimate of fair market value or fully loaded cost, whichever ishigher.  Services provided to Cleco Power are charged at management's estimateof fair market value or fully loaded cost, whichever is lower, with the exceptionof Support Group, which charges only fully loaded cost in order to comply withCleco's affiliate policy.

Affiliate goods and services received by Clecoprimarily involve services provided by Support Group and Generation Services. Support Group provides joint and common administrative support services in theareas of information technology; finance, cash management, accounting andauditing; human resources; corporate communications; project consulting; riskmanagement; strategic and corporate development; legal, ethics and regulatorycompliance; facilities management; supply chain and inventory management andother administrative services.  Generation Services provides electric powerplant operations and maintenance expertise.  A summary of charges from eachaffiliate included in the Statements of Operations of Cleco follows:

                         FOR THE YEAR ENDED DECEMBER  31,

(THOUSANDS)

**              2004**

              2003

              2002

**Support Group**

     Purchases for    energy operations

** $       17**

   $               -

   $               -

     Other operations

**     2,132**

                    -

                    -

     Maintenance

**        902**

                    -

                    -

     Taxes other than income taxes

**            9**

                    -

                    -

     Income taxes

**          11**

                    -

                    -

     Other deductions

**          54**

                    -

                    -

     Interest charges

**            2**

                    -

                    -

**Cleco Power**

     Other operations

**          22**

                    -

                    -

**Generation Services**

     Other operations

**     1,759**

                    -

                    -

     Maintenance

**     2,026**

                    -

                    -

**CLE Pipeline**

     Fuel purchased

**        620**

                    -

                    -

Followingis a reconciliation of Cleco intercompany revenue:

                         FOR THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

Evangeline 

** $ 4,306**

   $               -

   $               -

Perryville 

**     3,461**

                    -

                    -

     Total

** $ 7,767**

   $               -

   $               -

 

101
****
Cleco had the following affiliatereceivable and payable balances associated with the service agreements betweenCleco and its affiliates:

                         AT DECEMBER 31,

** **

** **

**              2004**

              2003

**ACCOUNTS**
** **

**ACCOUNTS**
         ACCOUNTS

         ACCOUNTS

(THOUSANDS)

**RECEIVABLE**

** **

**           PAYABLE**

   RECEIVABLE

     PAYABLE  

Evangeline

** $     939**

** $ 3,096**

   $               -

   $               -

Perryville

**     1,337**

**     6,739**

                    -

                    -

     Total

** $ 2,276**

** $ 9,835**

   $               -

   $               -

Cleco had the following short-term debtaffiliate balance at December 31, 2004.  The balances represent unsettled transactionsat December 31, 2004.

                    FOR THE YEAR ENDED

                              DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

Evangeline

** $ 2,723**

   $               -

Perryville

**     6,076**

                    -

     Total

** $ 8,799**

   $               -

***Cleco Powe*r**

Effective July 1, 1999, Cleco Powerentered into service agreements with affiliates that provide Cleco Power accessto professional services and goods.  The services and goods are charged toCleco Power at management's estimate of fair market value or fully loaded cost,whichever is lower, with the exception of Support Group, which charges onlyfully loaded cost in order to comply with Cleco's affiliate policy.  Cleco Power reviewed certain transactions betweenCleco Power and certain Midstream companies and determined these transactions exceededthe pricing standards of the LPSC.  For additional information on these transactions,see Note 19 - "Review of Trading Activities."  In June 2003, CLE Intrastatetransferred to Cleco Power its natural gas pipeline and interconnections atRodemacher and Teche power stations with Trunkline Gas Company, LouisianaIntrastate Pipeline Company, and ANR Pipeline Company.  The pipeline and interconnectionsallow Cleco Power to access various natural gas supply markets, which helps tomaintain a more economical fuel supply for Cleco Power's customers.

Affiliate goods and services received by ClecoPower primarily involve services provided to Cleco Power by Support Group. Support Group provides joint and common administrative support services in theareas of information technology; finance, cash management, accounting andauditing; human resources; corporate communications; project consulting; riskmanagement; strategic and corporate development; legal, ethics and regulatorycompliance; facilities management; supply chain and inventory management andother administrative services.  It also provides electric power plant operations,maintenance, and engineering expertise to Cleco Power.  A summary of chargesfrom each affiliate included in the Statements of Income of Cleco Power follows:

                         FOR THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

**Cleco****Corporation**

     Other operations

** $         -**

   $            45

   $            49

**Support Group**

     Other operations

**   30,129**

        24,474

        21,315

     Maintenance

**     4,050**

           4,042

           1,295

     Restructuring charge

**             -**

               (96)

           1,079

     Taxes other than income taxes

**        101**

                 87

                    -

     Other deductions

**        600**

              571

              434

**Midstream**

     Other operations

**             -**

                   8

              984

     Restructuring charge

**             -**

                    -

                 84

**Evangeline**

     Fuel and power purchased

**             -**

             (111)

                    -

     Other operations

**             -**

               (36)

                    -

     Maintenance

**             -**

                    -

                   3

     Other deductions

**             -**

                   5

                 28

**Marketing & Trading**

     Fuel and power purchased

**             -**

         (1,070)

                    -

     Other operations

**             -**

                  (2)

              934

     Restructuring charge

**             -**

                    -

                 67

**Generation Services**

     Other operations

**          12**

                 50

              654

     Maintenance

**            1**

                   9

           1,537

     Restructuring charge

**             -**

                    -

                 84

**Cleco Energy**

     Fuel and power purchased

**             -**

              100

          (5,151)

     Other operations

**             -**

                   1

                 24

**CLE Pipeline**

     Fuel purchased

**        292**

                    -

                    -

**Diversified Lands**

     Other deductions

**          58**

                 49

                    -

**Perryville**

     Other operations

**             -**

                  (2)

                    -

     Other deductions

**             -**

                 13

                   8

ClecoPower also entered into agreements to provide goods and services to affiliatedcompanies.  The goods and services are charged by Cleco Power at fully loadedcost or management's estimate of fair market value, whichever is higher, inorder to comply with Cleco's affiliate policy.  The majority of the servicesprovided by Cleco Power to affiliates relates to the lease of office space toSupport Group.  Following is a reconciliation of Cleco Power's affiliaterevenue:

                         FOR THE YEAR ENDED DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

              2002

Support Group

** $ 1,829**

   $      2,094

   $      1,279

Midstream 

**          24**

                 32

                 12

Evangeline 

**          29**

                 14

              308

Marketing & Trading

**             -**

                 64

                 24

Generation Services 

**             -**

                   5

                 28

Cleco Energy 

**             -**

                    -

                   1

Diversified Lands 

**             -**

                    -

                   8

Perryville 

**             -**

                    -

                 48

     Total

** $ 1,882**

   $      2,209

   $      1,708

102
****
Cleco Power had the following affiliatereceivable and payable balances associated with the service agreements betweenCleco Power and its affiliates:

                         AT DECEMBER 31,

** **

** **

             2004

              2003

**ACCOUNTS**
** **

**    ACCOUNTS**

ACCOUNTS
    ACCOUNTS

(THOUSANDS)

**RECEIVABLE**

** **

**           PAYABLE**

   RECEIVABLE

           PAYABLE

Cleco Corporation

** $ 3,731**

** $     992**

   $   15,536

   $   20,224

Support Group 

**     1,320**

**     6,912**

           1,185

           4,318

Midstream 

**            5**

**             -**

                 14

                 21

Evangeline

**          18**

**             -**

                   5

                   1

Marketing & Trading 

**             -**

**             -**

                 21

                 10

Generation Services

**          16**

**            2**

                 99

                   9

Cleco Energy 

**             -**

**             -**

                 49

                   2

Diversified Lands 

**            2**

**          60**

                 24

                    -

Perryville

**            6**

**             -**

                 11

                    -

Others

**        110**

**        109**

              108

              109

     Total

** $ 5,208**

** $ 8,075**

   $   17,052

   $   24,694

Forthe years ended December 31, 2004, and 2003, Cleco Power paid cash dividends toCleco Corporation of approximately $44.7 million and $44.4 million,respectively.

Affiliates that participate in the definedbenefit pension plan sponsored by Cleco Power transfer their liability and anequal amount of cash on a periodic basis to Cleco Power.  The table below showsthe amounts transferred by affiliates during 2004 and 2003:

                    FOR THE YEAR ENDED

                              DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

Cleco Corporation

** $     236**

   $               -

Support Group

**     1,855**

           1,218

Marketing & Trading

**             -**

                 46

Generation Services

**        194**

              371

Midstream

**          35**

                 25

     Total

** $ 2,320**

   $      1,660

**Note 26 - Perryville**

***Background***

Perryville owns and operates a 718-MW naturalgas-fired power plant near Perryville, Louisiana.  The Perryville facilityconsists of approximately 562 MW of combined-cycle capacity and approximately156 MW of peaking capacity.  In July 2001, Perryville entered into thePerryville Tolling Agreement, a 21-year capacity and energy sale agreement foruse of Perryville's entire capacity, with MAEM, a subsidiary of Mirant.  Under theterms of the Perryville Tolling Agreement, MAEM had the right to supply naturalgas to fuel the Perryville facility, and it was exclusively entitled to all ofthe capacity and energy output from the facility.  Perryville was obligated toprovide energy conversion services, within specified performance parameters, when requested by MAEM.  The agreement required MAEM to payPerryville various capacity reservation and fixed operations and maintenancefees, the amounts of which depended upon the type of capacity and ultimate performanceachieved by the facility.  In addition to the capacity reservation and fixedoperating and maintenance payments from MAEM, Perryville was entitled tocollect and MAEM was obligated to pay amounts associated with variableoperating and maintenance expenses based on MAEM's dispatch of the facilityunder the Perryville Tolling Agreement.  Payments received from MAEM under thePerryville Tolling Agreement were Perryville's only source of revenue.  Mirantand MAI provided limited guarantees that supported MAEM's obligations under thePerryville Tolling Agreement.

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

On July 14, 2003, the Mirant Debtors filed forprotection under Chapter 11 of the U.S. Bankruptcy Code in the Mirant DebtorsBankruptcy Court. Under the terms of the Perryville Tolling Agreement,Perryville invoiced MAEM for pre-petition amounts of $8.7 million andpost-petition amounts of $7.0 million, prior to MAEM's rejection of thePerryville Tolling Agreement as described below.  Perryville recorded a reservefor uncollectible accounts of $15.7 million at December 31, 2003, as a resultof MAEM's failure to remit these amounts.  These charges, collectively $15.7million, are included in the operating expenses section of the ClecoCorporation's Consolidated Statements of Operations.  No amounts due to or fromMirant have been netted by Perryville under the Perryville Tolling Agreement.  OnAugust 29, 2003, the Mirant Debtors filed a motion with the U.S. BankruptcyCourt pursuant to section 365 of the U.S. Bankruptcy Code seeking authority toreject the Perryville Tolling Agreement.  The Mirant Debtors have asserted thatthe Perryville Tolling Agreement was rejected as of September 15, 2003.  Uponthe rejection of the Perryville Tolling Agreement, MAEM's rights andobligations under such agreement were terminated.  In connection with therejection of the Perryville Tolling Agreement, Perryville has asserted inexcess of $1.0 billion in damage claims against the Mirant Debtors intheir bankruptcy cases.  For information on the impairment of Perryville'slong-lived assets, see Note 23 - "Impairments of Long-Lived Assets."

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

Upon MAEM's rejection of the Perryville TollingAgreement, MAEM's rights and obligations under this agreement were terminated. On December 3, 2003, Perryville filed a motion in the Mirant Debtors BankruptcyCourt seeking allowance and immediate payment of an administrative expenseclaim in the amount of approximately $7.2 million.  This administrative expenseclaim arises out of post-petition services performed by Perryville under thePerryville Tolling Agreement prior to its rejection by MAEM.  Currently, thereis no hearing date scheduled with respect to this claim, and Perryville'smotion is still pending before the Mirant Debtors Bankruptcy Court.  On December 15, 2003, Perryville filed damage claims against MAEM due to therejection of the Perryville Tolling Agreement and against Mirant and MAI undertheir respective limited guarantees.  The rejection damage claims are in excessof $1.0 billion against MAEM; $98.7 million against MAI; and $177.2 millionagainst Mirant under its limited guarantee.  However, the amounts, if any,that Perryville actually will 

103
** **
recover are uncertain.  On March 26, 2004, the MirantDebtors filed an objection to the Proof of Claim asserted by Perryville againstMAEM.  On June 3, 2004, the Mirant Debtors filed additional objections to theMirant and MAI claims under their limited guarantees.  In these objections, theMirant Debtors requested that the Mirant Debtors Bankruptcy Court disallow, orin the alternative, reduce the unpaid amounts owed to Perryville.  In July2004, the Mirant Debtors Bankruptcy Court approved a Mediation and AbatementOrder stipulating the provisions for selection of a mediator, as well as atentative schedule for mediation.  Mediation was conducted in August 2004,using a neutral party to facilitate negotiations of all damage claims.  Themediation terminated without reaching a settlement on any of the damageclaims.  Perryville has filed a motion to compel arbitration to preserve itsright to arbitrate the MAEM claim.  This motion was filed on July 14, 2004, inthe Mirant Debtors Bankruptcy Court, requesting relief from the automatic stayto initiate arbitration to determine the financial loss suffered by Perryvilledue to MAEM's rejection of the Perryville Tolling Agreement.  A hearing on thismotion was held on September 1, 2004.  On September 29, 2004, the MirantDebtors Bankruptcy Court denied Perryville's request that the court compelarbitration.  Perryville filed an appeal of the Mirant Debtors BankruptcyCourt's denial in federal district court.  It is unknown at this time when thefederal district court will render a decision on this appeal.  In November2004, the Mirant Debtors Bankruptcy Court approved a scheduling order tolitigate Perryville's administrative expense claim and MAEM claim.  Discovery exchangeand pre-trial efforts for both parties for the administrative expense and theMAEM claim were completed in late February 2005.  The efforts provided for exchangeof information between the Mirant Debtors and Perryville and for proceedingwith expert and other witness depositions or rebuttals.  The Mirant Debtors contendPerryville's damages for the MAEM claim and the administrative expense claimare $151.6 million (subject to offset by $98.7 million due under theSubordinated Loan Agreement).  Perryville and PEH contend their damages are inthe range of $395.0 million to $407.0 million (with no offset for the unpaidSubordinated Loan Agreement).  Perryville and the Mirant Debtors continue todiscuss a potential settlement to resolve the dispute resulting from the MAEMrejection of the Perryville Tolling Agreement.  Based on ongoing settlementdiscussions, the Mirant Debtors Bankruptcy Court postponed the pre-trialconference previously scheduled for February 28, 2005 until the week of March28, 2005.  The settlement discussions are subject to negotiation and executionof a definitive agreement and the approvals by the Mirant Debtors BankruptcyCourt and the Perryville and PEH Bankruptcy Court.

In January 2005, the Mirant Debtors filed theirproposed Plan of Reorganization (the Plan) and Disclosure Statement (DisclosureStatement), to allow the Mirant Debtors to emerge from Chapter 11 protection bymid-2005.  The Plan sets forth the proposed structure of the Mirant Debtors andhow the claims of creditors and stockholders are to be treated.  The DisclosureStatement contains information that may enable creditors and stockholders ofthe Mirant Debtors to make an informed decision when exercising their right toaccept or reject the Plan; however, the Plan is subject to supplementation,modification and amendment prior to confirmation.  If the Disclosure Statementis found by the Mirant Bankruptcy Court to contain adequate information, then theMirant Debtors will solicit votes on the Plan from those creditors, securityholders and interest holders who are entitled to vote on the Plan.  Should thePlan be approved in its current form, the damage claims of Perryville and PEHwould be consolidated into a single claim in support of MAEM's damages ratherthan multiple claims against MAEM and MAI/Mirant (under their limited guarantees). The priority administrative expense claim would remain a separate claim.

***Impairments ofLong-Lived Assets***

Prior to the July 14, 2003, bankruptcy filing bythe Mirant Debtors, the carrying value of the Perryville facility was comparedto its undiscounted, probability-weighted, future cash flows.  Due to theMirant Debtors' bankruptcy and subsequent rejection of the Perryville TollingAgreement, the difference between Perryville's carrying value and its fairvalue as determined by current market indicators of transactions betweenwilling buyers and sellers resulted in an impairment charge of $134.8 million($82.9 million after tax) in the second quarter of 2003.  On December 31, 2003,based on continuing negotiations to sell the Perryville facility and thesubsequent signing of a sale agreement, the carrying value of the Perryvillefacility was further reduced to the agreed upon sale price.  At December 31,2003, the difference between Perryville's carrying value and its fair valueresulted in an additional impairment charge of $13.2 million ($8.1 millionafter tax).  For additional information regarding Perryville's impairment, seeNote 23 - "Impairments of Long-Lived Assets."

***Perryville Bankruptcy***

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

On February 26, 2004, the Perryville and PEHBankruptcy Court entered a final cash collateral order (Cash Collateral Order). The Cash Collateral Order provided for the transfer of 

104
****
up to $6.1 million(subject to certain adjustments) of additional restricted cash to the DIPAccounts for post-petition expenses, including routine operations andmaintenance, inventory, goods and services, costs reasonably necessary toobtain regulatory approval and other necessary approvals in connection with thePower Purchase Agreement and Sale Agreement, adequate protection payments,professional fees and expenses, and certain pre-petition expenses of the lendersfor professional services.  Revenue from the Power Purchase Agreement also isdeposited into the DIP Accounts to provide additional cash for Perryville'suse.  The Cash Collateral Order stipulated payment of quarterly interest and principalpayments under the Senior Loan Agreement, set forth provisions for earlytermination events, and also granted a replacement lien to the lenders.  In theevent Perryville cannot pay its quarterly principal payments, ClecoCorporation, if demanded by Perryville, is obligated under its guarantee to payup to $1.9 million of these payments in the future.  As of December 31, 2004,Cleco Corporation has paid $5.5 million of principal payments on behalf ofPerryville.  The Cash Collateral Order also stipulated that the lenders shallnot take any action to delay the closing of the Sale Agreement, shall supportthe Sale Agreement, and shall refrain from seeking relief of the automatic stayunder the U.S. Bankruptcy Code for as long as the order is in effect.  Subjectto the occurrence of the early termination events set forth therein, the CashCollateral Order, as amended, terminates on the earlier of December 31, 2005,or payment by Perryville of all amounts (other than the amount of default interestwaived under the Cash Collateral Order) due and payable under the Senior LoanAgreement.  On May 25, 2004, Perryville also received approval from thePerryville and PEH Bankruptcy Court to extend the exclusivity period toSeptember 24, 2004, during which time the debtors may file a plan ofreorganization.  The period within which the debtors may solicit acceptancesthereof was extended to November 23, 2004.  On September 22, 2004, thePerryville and PEH Bankruptcy Court approved a second extension of theexclusivity period to March 31, 2005.  The period within which the debtors maysolicit acceptance of a plan of reorganization also was extended until May 30,2005.  Perryville and PEH have requested a further extension of the exclusiveperiods.

***Perryville's SeniorLoan Agreement***

The outstanding amounts due under the Senior LoanAgreement were deemed accelerated upon the bankruptcy filings by Perryville andPEH.  As a result of the commencement of these bankruptcy cases and by virtueof the automatic stay under the U.S. Bankruptcy Code, the lenders' ability toexercise their remedies under the Senior Loan Agreement, including, but notlimited to, their ability to foreclose on the mortgage or assume ownership ofthe Perryville facility, are limited significantly and would require approvalof the Perryville and PEH Bankruptcy Court.  As of December 31, 2004, theoutstanding principal of the Senior Loan Agreement was $127.6 million.  As aresult of these bankruptcy filings, the assets and liabilities of Perryvilleand PEH were deconsolidated from Cleco with the Senior Loan Agreementclassified as a pre-petition secured liability on Perryville's balance sheet.  Perryville'sSenior Loan Agreement is nonrecourse to Cleco Corporation other than (i) thebalance remaining under a guarantee for a portion of the current year's debtservice requirement, which at December 31, 2004, was $1.9 million and (ii) apossible conditional guarantee described below in "- Perryville's SubordinatedLoan Agreement."  The default on the Senior Loan Agreement resulting from thebankruptcy filings by Perryville and PEH has had no impact on any other creditfacility or financing arrangement of Cleco Corporation or its othersubsidiaries.  For additional information on the deconsolidation of Perryville,see "- Financial Results" below.

***Perryville'sSubordinated Loan Agreement***

As a result of the Mirant Debtors' bankruptcy andMAEM's failure to make payments under the Perryville Tolling Agreement, allobligations of Perryville to make principal and interest payments under theSubordinated Loan Agreement, as well as the accrual of additional interest,have been suspended indefinitely.  As of December 31, 2004, the amountoutstanding under the Subordinated Loan Agreement was $98.7 million.

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

105
****
***Pending Sale of thePerryville Facility***

On January 28, 2004, Perryville entered into theSale Agreement to sell its 718-MW power plant to Entergy Louisiana.  The SaleAgreement provides for conditions customary to closing, including requisiteregulatory approvals, as well as other covenants, representations, andwarranties.  On April 23, 2004, the Perryville and PEH Bankruptcy Courtapproved the Sale Agreement between Perryville and Entergy Louisiana whicheffectively became non-appealable ten days thereafter.  The approval authorizedthe sale of substantially all of Perryville's operating assets to EntergyLouisiana free and clear of all liens, claims and encumbrances and assumedliabilities under the Sale Agreement.  If certain conditions to closing are notsatisfied or waived on or before September 30, 2005, the Sale Agreement may beterminated.  Cleco Corporation provided a limited guarantee to EntergyLouisiana and Entergy Gulf States for Perryville's performance obligationsunder the Sale Agreement, the Power Purchase Agreement, and other ancillaryagreements related to the sale.  The aggregate guarantee of $277.4 million islimited based on the following amounts and events:  (i) $42.4 million relatingto the Power Purchase Agreement, other ancillary agreements, and certainpre-closing liabilities associated with the Sale Agreement, and (ii) $235.0million with respect to the Sale Agreement arising from Perryville's failure topay, perform, or discharge the Senior Loan Agreement debt, Subordinated LoanAgreement debt and any other liabilities arising from the Senior Loan Agreement. The $235.0 million portion of the guarantee described above is reduced to$100.0 million when the Senior Loan Agreement is paid.

Pursuant to the terms of the Sale Agreement,Perryville had agreed to sell its operating assets and property to EntergyLouisiana for $170.0 million (subject to certain adjustments).  In order toexpedite regulatory approval of the Sale Agreement, Perryville and Entergy Louisianaagreed to pursue restructuring the Sale Agreement by removing thetransmission-related and certain interconnection facilities (Jurisdictional Assets)from the Sale Agreement.  Removing the Jurisdictional Assets from the SaleAgreement (Alternative Structure) eliminates the requirement to obtain FERCapproval under Section 203 of the Federal Power Act.  On October 6, 2004, theFERC granted the requested Declaratory Order stipulating the FERC does not havejurisdiction over the sale in the form of the Alternative Structure.  EffectiveOctober 21, 2004, Perryville and Entergy Louisiana amended the Sale Agreementto restructure the transaction in the form of the Alternative Structure.  Theamendments to the Sale Agreement permanently extend the date of the closing ofthe sale under the Sale Agreement to December 31, 2005.  On December 8, 2004,the amended Sale Agreement in the form of the Alternative Structure wasapproved by the Perryville and PEH Bankruptcy Court.  Consummation of the sale,among other state regulatory approvals, would require certain approval by theSEC under PUHCA.

The assets to be sold to Entergy Louisiana do notinclude Perryville's claims against the Mirant Debtors or any othercash-related assets of Perryville.  It is anticipated that the proceeds fromthe sale to Entergy Louisiana will be sufficient to pay the Senior LoanAgreement and all current obligations of Perryville and PEH.  The sale toEntergy Louisiana, which is expected to be completed by the third quarter of2005, is contingent upon obtaining necessary approvals from the LPSC and theSEC; a final inspection by Entergy Louisiana and its ability to recover all ofits costs in acquiring the Perryville power plant through base rates, fuel adjustmentcharges or other such rates or regulatory treatment as deemed acceptable toEntergy Louisiana in its sole discretion; and satisfaction of other customaryclosing conditions.  If the Perryville and PEH Bankruptcy Court enters an orderterminating the automatic stay, then Entergy Louisiana would have the right toterminate the sale transaction and would be entitled to liquidated damages of$10.0 million from Perryville.  These potential liquidated damage obligationshave been guaranteed by Cleco Corporation, in the event they are not paid byPerryville and are included in the $42.4 million portion of the guarantee describedabove.

The Alternative Structure reduced the original$170.0 million sale price by $7.9 million and allowed PEP to retain the JurisdictionalAssets and provide transmission service to Entergy Louisiana.  TheJurisdictional Assets, comprised primarily of transformers and interconnectionequipment, are expected to provide transmission service for Entergy Louisianato interconnect and deliver the output of the Perryville generating assets tothe Entergy transmission grid.  Perryville has filed a cost of service tariff andother ancillary agreements with the FERC, which, if accepted will be effectiveupon consummation of the Sale Agreement.  Under the Alternative Structure,Entergy Louisiana will maintain the assets under an operations and maintenanceagreement.

Also, on January 28, 2004, Entergy Services signedthe Power Purchase Agreement to purchase the output of the Perryville plant throughthe earlier of (i) the closing or termination of the sale to Entergy Louisianaor (ii) December 31, 2004.  Entergy Services also had the option to extend thePower Purchase Agreement through September 30, 2005; however, the PowerPurchase Agreement automatically terminates upon termination of the SaleAgreement.  On September 20, 2004, Entergy Services and Perryville amended thePower Purchase Agreement to lengthen the term of the extension in the agreementto December 31, 2005.  The LPSC approved the extension of the Power PurchaseAgreement on November 10, 2004.  On November 12, 2004, Entergy Servicesprovided the necessary notice provisions under the Purchase Power Agreement andextended the agreement through the latter of (i) December 31, 2005, or (ii) theclosing or termination of the Sale Agreement.  The Power Purchase Agreementprovides that Entergy Services will make certain payments to Perryville andwill supply natural gas to the Perryville facility and is exclusively entitledto all capacity and energy output from the facility.  Under the Power PurchaseAgreement, Perryville is obligated to provide energy conversion services,within specified performance parameters, when requested by Entergy Services.  Existingpersonnel will continue to operate the facility through the closing of the saleto Entergy Louisiana.  Perryville received 

106
****
necessary approvals of the PowerPurchase Agreement from the Perryville and PEH Bankruptcy Court and beganoperating under the agreement on February 17, 2004.  Based on the terms of theamended Power Purchase Agreement, and in conjunction with use of the restrictedcash, Perryville is anticipated to have sufficient funds to maintain itsoperations through December 31, 2005.

***Financial Results***

The financial results of Perryville and PEH areincluded in Cleco Corporation's consolidated results through January 27, 2004. However, generally accepted accounting principles precludes consolidation ofmajority-owned subsidiaries where control does not rest with the majority owners. Cleco is utilizing the cost method to account for its investment in Perryvilleand PEH.  The cost method requires Cleco to present the net assets ofPerryville and PEH at January 27, 2004, as an investment and not recognizeany income or loss from Perryville or PEH in Cleco Corporation's results ofoperations during the reorganization period.  As of December 31, 2004,this investment had a negative cost basis of approximately $37.3 million, whichis included in other deferred credits on Cleco Corporation's ConsolidatedBalance Sheet.  When Perryville's bankruptcy proceedings are concluded, thesubsequent accounting treatment will be determined based upon the applicablefacts and circumstances existing at such time, including the terms of any planof reorganization or liquidation.

The Perryville and PEH consolidated financialstatements set forth below have been prepared in conformity with SOP 90-7,which requires a segregation of liabilities subject to compromise by thePerryville and PEH Bankruptcy Court as of the bankruptcy filing date andidentification of all transactions and events that are associated directly withthe reorganization.  Liabilities subject to compromise include pre-petition unsecuredclaims, which may be settled at amounts which differ from those recorded in thePerryville and PEH consolidated financial statements.

***Statements ofOperations***

(THOUSANDS)

                 PRE-

     PETITION(1)

 

                 POST-

       PETITION(2)

  FOR THE YEAR ENDED DECEMBER   31,

 

**        2004**

         2003

2002

Operating revenue

     $       72

     $ 15,348

** $ 15,420**

     $ 40,946

     $ 29,003

Operating expenses

        2,373

        15,433

**   17,806**

        33,502

           8,763

Impairments of  long-lived assets

                 -

                    -

**             -**

         147,993

                  -

Interest charges

            458

           7,763

**     8,221**

           5,132

           4,279

Other income

              10

              152

**        162**

              466

           1,348

Other expense

                 4

                 28

**          32**

                 32

                  9

Federal and state  income tax (benefit) expense 

       (1,058)

         (2,967)

**    (4,025)**

      (55,877)

           6,665

Net (loss) income

     $ (1,695)

     $  (4,757)

** $ (6,452)**

     $ (89,370)

     $ 10,635

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

** **

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

** **

***Consolidated Balance Sheets***

                         AT DECEMBER 31,

(THOUSANDS)

**              2004**

              2003

Current assets

**$ 18,462**

   $      5,124

Accounts receivable-affiliate

**     6,739**

        11,923

Notes receivable-affiliate        

**     6,076**

           2,147

Property, plant and equipment, net

**161,748**

      167,852

Other assets

**   29,920**

        39,316

     Total assets

**$ 222,945**

   $ 226,362

Current liabilities

**$  2,052**

   $ 134,420

Pre-petition secured liability

**127,552**

                    -

Accounts payable-affiliate

**        377**

           1,394

Liabilities subject to compromise    (1)

**102,008**

                    -

Deferred credits

**          24**

                    -

Long-term debt, net

**             -**

        98,650

Member's equity

**    (9,068)**

         (8,102)

     Total liabilities and member's equity

**$ 222,945**

   $ 226,362

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

**             **

               Unsecured debt

**$ 98,650**

               Accounts payable-affiliate

**        960**

               Accounts payable

**     1,435**

               Current deferred taxes

**        208**

               Long-term deferred taxes

**        755**

                        Total

**$ 102,008**

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

Perryville and PEH routinely engage in affiliatetransactions with other entities within Cleco in the ordinary course of business. As a result of its bankruptcy filings, Perryville and PEH are precluded from payingdividends to equity holders and making payments on any pre-bankruptcy filingaccounts or notes payable that are due and owing to any other entity withinCleco (pre-petition accounts payable-affiliate, which was $1.0 million as ofDecember 31, 2004) and other creditors during the pendency of the bankruptcycase.

**Note 27 - Accounting for Asset Retirement Obligation**

Cleco has recorded an asset retirement obligation(liability) in accordance with SFAS No. 143 that became effective on January 1,2003.  SFAS No. 143 requires an entity to record an asset retirement obligationwhen there is a legal obligation under existing or enacted law, statute,written or oral contract, or by legal construction under the doctrine ofpromissory estoppel.  Cleco Power determined that a liability exists forcleanup and closing costs of solid waste facilities associated with its powerstations that use lignite and coal for fuel.  Due to the indeterminate life ofthe power station using coal, an asset retirement obligation was not recorded. However, Cleco Power was able to reasonably estimate the obligation 

 

107
****
associatedwith the power station using lignite as fuel, based on the amount of lignitereserves available to fuel the station, and recorded an asset retirementobligation for the related cleanup and closure costs.  At December 31, 2004,this liability is estimated at $0.3 million and is included in other deferredcredits.  Due to an absence of contractual, regulatory, or other legallyenforceable requirements to incur costs to retire assets, Midstream did notrecord an asset retirement obligation.

At the point the liability for asset retirementis incurred, SFAS No. 143 requires capitalization of the costs to the relatedasset, property, plant and equipment, net.  For asset retirement obligationsexisting at the time of adoption, the statement requires capitalization ofcosts at the level that existed at the point of incurring the liability.  Thesecapitalized costs are depreciated over the same period as the related property. At the date of adoption, the depreciation expense for past periods wasrecorded as a regulatory asset in accordance with SFAS No. 71 because ClecoPower believes the LPSC will allow it to recover these costs in future rates.  Currentdepreciation of the asset retirement cost also is being deferred as aregulatory asset under SFAS No. 71.

The initial liability is accreted to its presentvalue each period.  Cleco Power defers this accretion as a regulatory assetbased on its determination that these costs can be collected from customers.  Priorto the adoption of SFAS No. 143, Cleco Power did not recover in rates anyallowances for closure costs for any assets in use or retired and has notrecognized any additional depreciation or utilized depreciation rates thatincluded a negative salvage component.

If SFAS No. 143 had been in effect in 2002,there would have been no impact on earnings per share for the year ended December31, 2002, net of income tax effect.  Since a change in earnings per share wouldnot have occurred, pro forma earnings per share disclosures are not presented.

The table below discloses the pro forma assetretirement obligation during the twelve months ended December 31, 2002, forCleco Power as if SFAS No. 143 had been effective in 2002.

     ASSET RETIREMENT

                  OBLIGATION

                OBLIGATION

          ACCRETION OF OBLIGATION

     ASSET RETIREMENT

             OBLIGATION AT

            RECOGNIZED ON

          RECOGNIZED ON

                 RECOGNIZED THROUGH

             OBLIGATION AT

(THOUSANDS)

           JANUARY 1, 2002

INITIAL APPLICATION

      ASSETS ACQUIRED

                    DECEMBER 31, 2002

     DECEMBER 31, 2002

Cleco Power

                        $  286

                        $       -

                        $      -

                                    $        22

                        $  308
The following table shows costs as ofJanuary 1, 2003, and changes to the asset retirement obligation and accumulateddepreciation during the twelve months ended December 31, 2003 and 2004. 
         ORIGINAL ASSET

                        ASSET

           ACCUMULATED

              RETIREMENT

           ACCUMULATED

              RETIREMENT

       DEPRECIATION OF

(THOUSANDS)

                OBLIGATION

                 ACCRETION

                OBLIGATION

         RELATED ASSET

Balance, January 1, 2003 

                $        90

                $     211

                $     301

                $        29

Changes through December 31, 2003

                             -

                          23

                          23

                             2

Balance, December 31, 2003

                $        90

                $     234

                $     324

                $        31

Changes through December 31, 2004

                             -

                          24

                          24

                             2

Balance, December 31, 2004

                $        90

                $     258

                $     348

                $        33

As of December 31, 2004, Cleco Power'sregulatory asset, included in other deferred charges, is the total accumulatedaccretion of $258,000 and accumulated depreciation of $33,000 for a total of $291,000.

108
****
**Note 28 - Miscellaneous Financial Information(Unaudited)**

***Cleco***

Quarterly information for Cleco for 2004 and 2003is shown in the following table. 

** **

** **

** **

** **

** **

** **

**              2004**

**                1st**

** **

**               2ND**

** **

**               3RD**

** **

**                4TH**

(THOUSANDS,  EXCEPT PER SHARE AMOUNTS)

**      QUARTER**

** **

**      QUARTER**

** **

**      QUARTER**

** **

**      QUARTER**

Operating revenue as previously reported

**$ 183,710**

**$ 166,322**

**$ 229,390**

**$ 183,455**

Adjustments:

     Adjustments due to discontinued operations(1)

**  (17,061)**

**             -**

**             -**

**             -**

Operating revenue adjusted

**$ 166,649**

**$ 166,322**

**$229,390**

**$ 183,455**

Operating income as previously reported

**$ 27,209**

**$ 17,771**

**$ 33,362**

**$ 22,676**

Adjustments:

     Discontinued operations    (1)

**       (317)**

**             -**

**             -**

**             -**

     SFAS No. 106-2    (2)

**        218**

**        218**

**             -**

**             -**

Operating income adjusted

**$ 27,110**

**$ 17,989**

**$ 33,362**

**$ 22,676**

Income (loss) from discontinued operations, net

**$      158**

**$     (288)**

**$      (35)**

**$ (1,451)**

(Loss) income on disposal of segment, net of tax

**$          -**

**$           -**

**$    (271)**

**$  1,957**

Net income applicable to common stock as previously  reported

**$ 12,879**

**$   9,903**

**$ 26,915**

**$ 13,841**

Adjustments:

     Adoption of FSP-SFAS No.106-2  (Medicare Part D.) (2)

**        218**

**        218**

**             -**

**             -**

Net income applicable to common stock adjusted

**$ 13,097**

**$ 10,121**

**$ 26,915**

**$ 13,841**

Basic net income per average common share as  previously reported

**$     0.27**

**$      0.21**

**$     0.55**

**$     0.28**

     Adoption of EITF No. 03-6    (3)

**$          -**

**$      0.01**

**$          -**

**$          -**

Basic net income per average share adjusted

**$     0.27**

**        0.22**

**$      0.55**

**$     0.28**

Diluted net income per average common share as  previously reported

**$     0.27**

**$      0.21**

**$     0.55**

**$     0.28**

     Adoption of EITF No. 03-6    (3)

**             -**

**        0.01**

**             -**

**             -**

Diluted net income per average common share  adjusted

**$     0.27**

**$     0.22**

**$     0.55**

**$     0.28**

Dividends paid per common share

**$   0.225**

**$    0.225**

**$   0.225**

**$   0.225**

Closing market price per share

     High

**$   18.81**

**$    18.34**

**$   17.77**

**$   20.52**

     Low

**$   17.00**

**$    16.10**

**$   16.34**

**$   17.17**

(1) The  adjustment is due to the sale of Cleco Energy's assets.  For additional information,  see Note 17 - "Discontinued Operations and Dispositions."

(2) The  adjustment is due to the adoption of FSP-SFAS No. 106-2 (Medicare Part D.) on  September 30, 2004.  For additional information, see Note 9 - "Pension  Plan and Employee Benefits."

(3) The  adjustment is due to the adoption of EITF 03-6 on June 30, 2004.  For  additional information, see Note 2 - "Recent Accounting Standards."

 

 

              2003

                1st

                2ND

                3RD

                4TH

(THOUSANDS,  EXCEPT PER SHARE AMOUNTS)

QUARTER

        QUARTER

        QUARTER

        QUARTER

Operating revenue as previously reported

$  187,449

$  198,966

$  261,092

$  192,524

Adjustments:

     Adjustments due to discontinued operations(1)

       (18,545)

                    -

                    -

       (18,033)

Operating revenue adjusted

$  168,904

$  198,966

$  261,092

$  174,491

Operating income (loss) previously reported

$     35,150

$   (96,431)

$     47,872

$      (6,126)

Discontinued Operations (1)

              404

                    -

                    -

           7,585

Operating income (loss) adjusted

$     35,554

$   (96,431)

$     47,872

$       1,459

(Loss) income from discontinued operations, net  of tax

$         (463)

$           349

$           115

$      (5,163)

Net income (loss) applicable to common stock

$     17,336

$   (66,858)

$     23,342

$   (10,610)

Basic net income (loss) per average common share  as previously reported

$          0.37

$        (1.42)

$          0.48

$        (0.23)

     Adoption of EITF No. 03-6    (2)

$        (0.01)

$                -

$                -

$                -

Basic net income (loss) per average common share  adjusted

$          0.36

$        (1.42)

$          0.48

$        (0.23)

Diluted net income (loss) per average common  share 

$          0.36

$        (1.42)

$          0.48

$        (0.23)

Dividends paid per common share

$       0.225

$       0.225

$       0.225

$       0.225

Closing market price per share

     High

$       15.09

$       17.66

$       17.18

$       18.29

     Low    

$       10.64

$       12.23

$       14.88

$       15.86

(1) The  adjustment is due to the sale of Cleco Energy's assets.  For additional information,  see Note 17 - "Discontinued Operations and Dispositions."

(2) The  adjustment is due to the adoption of EITF 03-6 on June 30, 2004.  For  additional information, see Note 2 - "Recent Accounting Standards."

Cleco Corporation's common stock islisted for trading on the New York Stock Exchange under the ticker symbol"CNL."  Cleco Corporation's preferred stock is not listed on any stockexchange.  On December 31, 2004, Cleco had 8,245 common shareholders and 97 preferredshareholders, as determined from the records of the transfer agent.

On January 28, 2005, Cleco Corporation's Boardof Directors declared a quarterly dividend of $0.225 per share payable on February15, 2005, to common shareholders of record on February 7, 2005.  Preferreddividends also were declared payable March 1, 2005, to preferred shareholdersof record on February 15, 2005.

109
****
***Cleco Power***

Quarterly information for Cleco Power for 2004 and2003 is shown in the following table.

** **

** **

** **

** **

** **

** **

**              2004**

**                   1st**

** **

**               2ND**

** **

**               3RD**

** **

**                4TH**

    (THOUSANDS) 

**      QUARTER**

** **

**      QUARTER**

** **

**      QUARTER**

** **

**      QUARTER**

Operating revenue 

**$ 156,009**

**$ 164,570**

**$ 227,339**

**$ 181,390**

Operating income as previously reported

**$ 24,489**

**$ 20,165**

**$ 34,634**

**$ 24,470**

     Adoption of FSP-SFAS No. 106-2 (Medicare  Part D.) (1)

**        186**

**        186**

**             -**

**             -**

Operating income adjusted

**$ 24,675**

**$ 20,351**

**$ 34,634**

**$ 24,470**

Net income as previously reported

**$ 11,819**

**$  9,710**

**$ 16,792**

**$ 13,507**

     Adoption of FSP-SFAS No. 106-2 (Medicare  Part D.) (1)

**        186**

**        186**

**             -**

**             -**

Net income adjusted

**$ 12,005**

**$  9,896**

**$ 16,792**

**$ 13,507**

Distributions paid to Cleco (as sole member)

**$ 11,100**

**$ 11,800**

**$  5,000**

**$ 16,800**

(1) The  adjustment is due to the adoption of FSP-SFAS No. 106-2 (Medicare Part D.) on  September 30, 2004.  For additional information, see Note 9 - "Pension  Plan and Employee Benefits."

 

 

              2003

                1st

                2ND

                3RD

                4TH

(THOUSANDS)

        QUARTER

        QUARTER

        QUARTER

        QUARTER

Operating revenue 

   $ 145,503

   $ 172,131

   $    225,045

   $ 164,609

Operating income 

   $   28,651

   $   31,946

   $      29,488

   $   24,528

Net income 

   $   15,937

   $   15,253

   $      13,909

   $   11,909

Distributions paid to Cleco (as sole member)

   $   14,600

   $   15,900

   $                -

   $   13,900

**Note 29 - Variable Interest Entities**

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

In accordance with FIN 46R, Cleco was requiredto deconsolidate Evangeline from its consolidated financial statements and beginreporting its investment in Evangeline on the equity method of accounting.  Asa result, effective March 31, 2004, the assets and liabilities of Evangeline nolonger are reported on Cleco Corporation's Consolidated Balance Sheets, butinstead are represented by one line item corresponding to Cleco's equityinvestment in Evangeline.  Effective April 1, 2004, Evangeline's results ofoperations are reported as equity income from investees on Cleco Corporation's ConsolidatedStatements of Operations.

Since its inception, Cleco has had 100%ownership and voting interest of Evangeline.  All of the capacity and output ofthe power plant has been tolled to Williams which pays Evangeline certain fixedand variable amounts.  At December 31, 2004, Evangeline had assets with a bookvalue of approximately $264.1 million and liabilities of $260.8 million.  Forthe year ended December 31, 2004, Evangeline had operating revenue of $59.1million and operating expenses (including depreciation) of $20.3 million. Cleco's current assessment of its maximum exposure to loss at December 31,2004, consists of its equity investment of $57.2 million.

**Note 30 - Subsequent Events**

***Franchises***

Cleco Power's franchise with the town ofFranklinton, and its approximately 1,850 customers, was up for renewal in April2003.  Franklinton elected not to renew its franchise agreement with ClecoPower, electing to take service from another provider.  As a result, a ten-yearfranchise was granted to a competing cooperative in December 2003.  Cleco Powerexpects to continue to serve these customers until there is an equitabletransfer of the distribution assets.  On February 23, 2005, the LPSC reviewedan independent third party appraisal of these assets and, by vote, ordered thatthe distribution system's fair market value was $2.3 million.  Cleco Power isnow in the process of closing the sale and transferring service to the newprovider.  

110
****
**ITEM 9. **   CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**     CONTROLS AND PROCEDURES
 
***Evaluationof Disclosure Controls and Procedures***

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

During theRegistrants' fourth fiscal quarter, there have been no changes to the Registrants'internal control over financial reporting that have materially affected or arereasonably likely to materially affect the Registrants' internal control overfinancial reporting.

The attestation report of PricewaterhouseCoopers LLP on management'sassessment of Cleco Corporation's internal control over financial reporting andmanagement'sannual report on Cleco Corporation's internal control over financial reporting areincluded in this annual report on pages 54 and 55, respectively.

**ITEM 9B.**     OTHER INFORMATION

None.

111
****
PART III

**ITEM 10.**     DIRECTORS AND EXECUTIVE OFFICERS

**Audit Committee Financial Expert**

Cleco's board of directors has determined that Mr.W. Larry Westbrook, who serves as the Chairman of the Audit Committee of theBoard of Directors, fulfills the requirements for an independent auditcommittee financial expert for both Cleco Corporation and Cleco Power.

**Financial Manager's Code of Conduct**

Cleco Corporation and Cleco Power have adopted acode of conduct that applies to their principal executive officer, principalfinancial officer, principal accounting officer and all persons performingsimilar functions.  This code of conduct is posted on Cleco's homepage on theInternet's World Wide Web located at http://www.cleco.com.  This code ofconduct also is available free of charge by request sent to:  ShareholderServices, Cleco, P.O. Box 5000, Pineville LA 71361-5000.

**CLECO**

The information set forth, (i) under the caption"Proposal Number I - Election of Four Class II Directors" and (ii) under thecaption "Section 16(a) Beneficial Ownership Reporting Compliance" in theCompany's Proxy Statement dated March 31, 2005, relating to the Annual Meetingof Shareholders to be held on May 5, 2005, filed with the SEC pursuant toRegulation 14A under the Securities Exchange Act of 1934 (2005 ProxyStatement), is incorporated herein by reference.  See also "Part I - ExecutiveOfficers of the Registrants."

**CLECO POWER**

The information called for by Item 10 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).

**ITEM 11. **    EXECUTIVE COMPENSATION

**CLECO**

The information set forth, (i) under thesubcaptions "Independence and Organization of the Board of Directors" and"Compensation of the Board of Directors" under the caption "Proposal Number I -Election of Four Class II Directors" and (ii) under the caption "ExecutiveCompensation" in the 2005 Proxy Statement (excluding the information requiredby paragraphs (k) and (l) of Item 402 of Regulation S-K) is incorporated hereinby reference.

**CLECO POWER**

The information called for by Item 11 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).

112
****
**ITEM 12.**     SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

**CLECO**

**Security Ownership**

The information set forth, (i) under the caption"Security Ownership of Directors and Management" and (ii) under the caption"Security Ownership of Certain Beneficial Owners" in the 2005 Proxy Statementis incorporated herein by reference.

**Equity Compensation Plan Information**

Cleco has compensation plans under which equitysecurities of Cleco Corporation are authorized for issuance as approved bysecurity holders.  Cleco does not have such plans that have not been approvedby security holders.  The table below provides information about compensationplans under which equity securities of Cleco Corporation are authorized for issuanceat December 31, 2004.

PLAN CATEGORY

                        NUMBER OF              SECURITIES TO BE      ISSUED UPON EXERCISE                OF OUTSTANDING          OPTIONS, WARRANTS                          OR RIGHTS

           WEIGHTED-AVERAGE            EXERCISE PRICE OF                     OUTSTANDING                            OPTIONS,                         WARRANTS                        AND RIGHTS

                        NUMBER OF      SECURITIES REMAINING     AVAILABLE FOR FUTURE                ISSUANCE UNDER      EQUITY COMPENSATION             PLANS (EXCLUDING     SECURITIES REFLECTED                   IN COLUMN (A))

                                     (a)

                                     (b)

                                     (c)

Equity compensation plans approved by security  holders

     Employee Stock Purchase Plan

                               6,845

                      $     14.756

                          515,569(1)

     Long-term incentive compensation plans

                       1,245,696

                      $     19.941

                          480,661(2)

Total

                       1,252,541

                      $     19.913

                          996,230

(1)   The  number of options in column (a) for the Employee Stock Purchase Plan  represents the number of options granted at December 31, 2004, based on  employee withholdings and the option grant calculation under the plan.

 
(2)   Stock  options and restricted stock can be issued pursuant to the 2000 LTICP.  This  plan requires the number of securities available to be issued to be reduced  by the number of options and the number of restricted shares previously  awarded, net of forfeitures.  At December 31, 2004, there were 444,293 shares  of restricted stock awarded, net of forfeitures, pursuant to the 2000 LTICP.   New options or restricted stock cannot be issued pursuant to the 1990 LTICP,  which expired in December 1999.  However, stock options issued prior to  December 1999 under the 1990 LTICP remain outstanding until they expire.

 
For additional information oncompensation plans using equity securities, see Item 8, "Financial Statementsand Supplementary Data - Notes to the Financial Statements - Note 7 - CommonStock."  This information should be read in conjunction with the ConsolidatedFinancial Statements and related Notes thereto.

**CLECO POWER**

The information called for by Item 12 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).

**ITEM 13.**     CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS

**CLECO**

The information set forth under the caption"Proposal Number I - Election of Four Class II Directors - Interests of theBoard of Directors" in the 2005 Proxy Statement is incorporated herein byreference.

**CLECO POWER**

The information called for by Item 13 with respectto Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K(Omission of Information by Certain Wholly Owned Subsidiaries).

113
****
**ITEM 14.**     PRINCIPALACCOUNTANT FEES AND SERVICES

**CLECO**

The information set forth under "Relationship withAccountants - Principal Accountant Fees and Services" and "- Audit CommitteePre-Approval Policies and Procedures" regarding fees paid to Cleco'sindependent auditors in the 2005 Proxy Statement is incorporated herein by reference.

**CLECO POWER**

PricewaterhouseCoopers LLP provides professionalservices for Cleco Power that are directly billed and also to ClecoCorporation, the cost of which may be ultimately allocated to Cleco Powerthough not billed directly to them.  Aggregate fees directly billed or allocatedto Cleco Power for professional services rendered for Cleco Power byPricewaterhouseCoopers LLP as of or for the years ended December 31, 2004, and2003 were as follows:

(THOUSANDS)

**              2004**

               2003

Audit

** $     650**

   $           339

Audit Related

**          21**

                  58

Tax

**        121**

                288

     Total

** $     792**

   $           685

The audit fees for 2004 were forprofessional services rendered for the audits of Cleco Power's financialstatements; the review of those financial statements included in Cleco Power'squarterly reports on Form 10-Q; testing required by Section 404 of the Sarbanes-OxleyAct of 2002; issuance of comfort letters; prospectus supplement review; andassistance with the review of documents filed with the SEC.  The audit fees for2003 were for professional services rendered for the audits of Cleco Power'sfinancial statements; the review of those financial statements included in ClecoPower's quarterly reports on Form 10-Q; issuance of comfort letters; andassistance with the review of documents filed with the SEC.

The audit**related fees billed during 2004and 2003 were for accounting consultations and assurance and other services relatedto employee benefit plan audits.

Tax fees billed during 2004 and 2003 were forservices related to tax compliance reviews; tax planning and tax advice,including assistance with and representation in tax audits and appeals; taxservices for employee benefit plans; and requests for rulings or technicaladvice from tax authorities.

Based on thereview and discussions referred to above, the Audit Committee approved theinclusion of Cleco Power's audited financial statements in this Report.

The Audit Committee of Cleco Power's board ofmanagers has established a policy requiring its pre-approval of all audit andnon-audit services provided by its independent auditors.  The policy requiresthe general pre-approval of annual audit services and specific pre-approval ofall other permitted services.  In determining whether to pre-approve permittedservices, the Audit Committee considers whether such services are consistentwith SEC rules and regulations.  Furthermore, requests for pre-approval forservices that are eligible for general pre-approval must be detailed as to theservices to be provided.  All of the 2004 audit and non-audit services describedabove were pre-approved by the Audit Committee pursuant to applicable rules ofthe SEC.  None of the 2003 audit and non-audit services described above were approvedby the Audit Committee pursuant to the waiver of pre-approval provisions setforth in applicable rules of the SEC.

114
****
PART IV

**ITEM 15. **    EXHIBITS AND FINANCIAL STATEMENTSCHEDULES

    FORM 10-K

         ANNUAL

         REPORT

Report of Independent Registered Public  Accounting Firm

54

Management's Report on Internal Control Over  Financial Reporting

55

15(a)(1)

Consolidated Statements of Operations for the  years ended December 31, 2004, 2003, and 2002

56

Consolidated Balance Sheets at  December 31, 2004, and 2003

57

Consolidated Statements of Cash Flows for the  years ended December 31, 2004, 2003, and 2002

59

Consolidated Statements of Comprehensive Income  for the years ended December 31, 2004, 2003, and 2002

60

Consolidated Statements of Changes in Common  Shareholders' Equity for the years ended December 31, 2004, 2003, and 2002

60

Notes to the Financial Statements

66

Report of Independent Registered Public  Accounting Firm

61

Financial Statements of Cleco Power

     Cleco Power Statements of Income for the  years ended December 31, 2004, 2003, and 2002

62

     Cleco Power Balance Sheets at December 31,  2004, and 2003

63

     Cleco Power Statements of Cash Flows for the  years ended December 31, 2004, 2003, and 2002

64

     Cleco Power Statements of Comprehensive  Income for the years ended December 31, 2004, 2003, and 2002

65

     Cleco Power Statements of Changes in  Member's Equity for the years ended December 31, 2004, 2003, and 2002

65

15(a)(3)

List of Exhibits

116

The Exhibits designated by an asteriskare filed herewith.  The Exhibits not so designated previously have been filedwith the SEC and are incorporated herein by reference.  The Exhibits designatedby two asterisks are management contracts and compensatory plans andarrangements required to be filed as Exhibits to this Report.

115
****
EXHIBITS

**Cleco**

SEC FILE ORREGISTRATIONNUMBER

REGISTRATIONSTATEMENT ORREPORT

EXHIBITNUMBER

      2(a)

Plan of Reorganization and Share Exchange Agreement

333-71643-01

S-4(6/30/99)

C

      3(a)

Articles of Incorporation of the Company,  effective July 1, 1999

333-71643-01

S-4(6/30/99)

A

      3(a)(1)

Bylaws of Cleco Corporation (revised effective  October 24, 2003)

      3(b)

Bylaws of Cleco (revised effective July 28, 2000)

333-55656

S-3(2/14/01)

4.10

      3(b)(1)

Operating Agreement of Cleco Power LLC (revised effective  October  24, 2003)

      3(c)

Articles of Amendment to the Amended and Restated  Articles of Incorporation of Cleco setting forth the terms of the $25  Preferred Stock

1-15759

8-K(7/28/00)

1

      3(d)

Articles of Amendment to the Amended and Restated  Articles of Incorporation to increase amount authorized common stock and to  effect a two-for-one split of the Company's common stock

1-15759

2001 ProxyStatement (3/01)

B-1

      3(e)

Bylaws of Cleco, revised effective April 26, 2002

1-15759

10-Q(3/30/02)

3(a)

      4(a)(1)

Indenture of Mortgage dated as of July 1, 1950,  between Cleco and First National Bank of New Orleans, as Trustee

1-5663

10-K(1997)

4(a)(1)

      4(a)(2)

First Supplemental Indenture dated as of October  1, 1951, to Exhibit 4(a)(1)

1-5663

10-K(1997)

4(a)(2)

      4(a)(3)

Second Supplemental Indenture dated as of June 1,  1952, to Exhibit 4(a)(1)

1-5563

10-K(1997)

4(a)(3)

      4(a)(4)

Third Supplemental Indenture dated as of January  1, 1954, to Exhibit 4(a)(1)

1-5563

10-K(1997)

4(a)(4)

      4(a)(5)

Fourth Supplemental Indenture dated as of  November 1, 1954, to Exhibit 4(a)(1)

1-5563

10-K(1997)

4(a)(5)

      4(a)(6)

Tenth Supplemental Indenture dated as of  September 1, 1965, to Exhibit 4(a)(1)

1-5663

10-K(1986)

4(a)(11)

      4(a)(7)

Eleventh Supplemental Indenture dated as of April  1, 1969, to Exhibit 4(a)(1)

1-5663

10-K(1998)

4(a)(8)

      4(a)(8)

Eighteenth Supplemental Indenture dated as of December  1, 1982, to Exhibit 4(a)(1)

1-5663

10-K(1993)

4(a)(8)

      4(a)(9)

Nineteenth Supplemental Indenture dated as of  January 1, 1983, to Exhibit 4(a)(1)

1-5663

10-K(1993)

4(a)(9)

      4(a)(10)

Twenty-Sixth Supplemental Indenture dated as of   March 15, 1990, to Exhibit 4(a)(1)

1-5663

8-K(3/90)

4(a)(27)

      4(b)

Indenture between Cleco and Bankers Trust  Company, as Trustee, dated as of October 1, 1988

33-24896

S-3(10/11/88)

4(b)

      4(b)(1)

Agreement Appointing Successor Trustee dated as  of April 1, 1996, by and among Central Louisiana Electric Company, Inc.,  Bankers Trust Company, and The Bank of New York

333-02895

S-3(4/26/96)

4(a)(2)

      4(c)

Agreement Under Regulation S-K Item  601(b)(4)(iii)(A)

333-71643-01

10-Q(9/99)

4(c)

      4(d)

Trust Indenture dated as of December 10, 1999  Between Cleco Evangeline LLC and Bank One Trust Company, N.A. as Trustee  Relating to $218,600,000, 8.82% Senior Secured Bonds due 2019

1-15759

10-K(1999)

4(m)

      4(e)

Senior Indenture, dated as of May 1, 2000,  between Cleco and Bank One, N.A., as trustee

333-33098

S-3/A(5/8/00)

4(a)

      4(f)

Supplemental Indenture No. 1, dated as of May 25,  2000, to Senior Indenture providing for the issuance of Cleco's 8 3⁄4% Senior Notes due 2005

1-15759

8-K(5/24/00)

4.1

      4(g)

Form of 8 3⁄4% Senior Notes due 2005 (included in  Exhibit 4(f) above)

1-15759

8-K(5/24/00)

4.1

      4(h)

Rights agreement between Cleco and EquiServe  Trust Company, as Right Agent

1-15759

8-K(7/28/00)

1

      4(i)

Perryville Energy Partners, LLC Construction and  Term Loan Agreement

      4(j)

Form of Supplemental Indenture No. 2 providing  for the issuance of $100,000,000 principal amount of 7.000% Notes due May 1,  2008

1-15759

10-Q(3/31/03)

4(a)

      4(j)(1)

Form of $100,000,000 7.000% Notes due May 1, 2008    

1-15759

10-Q(3/31/03)

4(b)

 **10(a)

1990 Long-Term Incentive Compensation Plan

1-5663

1990 Proxy Statement(4/90)

A

 **10(b)

Annual Incentive Compensation Plan amended and  restated as of January 23, 2003

1-15759

10-K(2003)

10(b)

 **10(c)

Participation Agreement, Annual Incentive Compensation  Plan

 **10(d)(1)

Supplemental Executive Retirement Plan

1-5663

10-K(1992)

10(o)(1)

 **10(d)(1)(a)

First Amendment to Supplemental Executive  Retirement Plan effective July 1, 1999

1-15759

10-K(2003)

10(e)(1)(a)

 **10(d)(1)(b)

Second Amendment to Supplemental Executive Retirement  Plan dated July 28, 2000

1-15759

10-K(2003)

10(e)(1)(b)

 **10(d)(1)(c)

Supplemental Executive Retirement Trust dated December  13, 2000

1-15759

10-k(2003)

10(e)(1)(c)

 **10(d)(2)

Form of Supplemental Executive Retirement Plan  Participation Agreement between the Company and the following officers:  David  M. Eppler and Catherine C. Powell

1-5663

10-K(1992)

10(o)(2)

 **10(e)

Form of Executive Severance Agreement between  Cleco and the following officers:  David M. Eppler and Catherine C. Powell

1-5663

10-K(1995)

10(f)

      10(f)(1)

Term Loan Agreement dated as of April 2, 1991,  among the 401(k) Savings and Investment Plan ESOP Trust, Cleco, as Guarantor,  the Banks listed therein and The Bank of New York, as Agent

1-5663

10-Q(3/91)

4(b)

      10(f)(2)

Assignment and Assumption Agreement, effective as  of May 6, 1991, between The Bank of New York and the Canadian Imperial Bank  of Commerce, relating to Exhibit 10(h)(1)

1-5663

10-Q(3/91)

4(c)

      10(f)(3)

Assignment and Assumption Agreement dated as of  July 3, 1991, between The Bank of New York and Rapides Bank and Trust Company  in Alexandria, relating to Exhibit 10(h)(1)

1-5663

10-K(1991)

10(y)(3)

      10(f)(4)     

Assignment and Assumption Agreement dated as of  July 6, 1992, among The Bank of New York, CIBC, Inc. and Rapides Bank and  Trust Company in Alexandria, as Assignors, the 401(k) Savings and Investment  Plan ESOP Trust, as Borrower, and Cleco, as Guarantor, relating to Exhibit  10(h)(1)

1-5663

10-K(1992)

10(bb)(4)

      10(g)     

Reimbursement Agreement (The Industrial  Development Board of the Parish of Rapides, Inc. (Louisiana) Adjustable  Tender Pollution Control Revenue Refunding Bonds, Series 1991) dated as of  October 15, 1997, among the Company, various financial institutions, and  Westdeutsche Landesbank Gironzentrale, New York Branch, as Agent

1-5663

10-K(1997)

10(i)

      10(h)

401(k) Savings and Investment Plan ESOP Trust  Agreement dated as of August 1, 1997, between UMB Bank, N.A. and Cleco

1-5663

10-K(1997)

10(m)

      10(h)(1)

First Amendment to 401(k) Savings and Investment  Plan ESOP Trust Agreement dated as of October 1, 1997, between UMB Bank, N.A.  and Cleco

1-5663

10-K(1997)

10(m)(1)

      10(i)

Form of Notice and Acceptance of Grant of  Nonqualified Stock Options, with fixed option price under Cleco's 1990  Long-term Incentive Compensation Plan

333-71643-01

10-Q(9/99)

10(a)

116
****
 

**Cleco**

SEC FILE ORREGISTRATIONNUMBER

REGISTRATIONSTATEMENT ORREPORT

EXHIBITNUMBER

      10(j)

Form of Notice and Acceptance of Grant of  Nonqualified Stock Options, with variable option prices

333-71643-01

10-Q(9/99)

10(b)

 **10(k)

2000 Long-Term Incentive Compensation Plan

333-71643-01

2000 Proxy Statement(3/00)

A

      10(l)

Form of Notice and Acceptance of Directors' Grant  of Nonqualified Stock Options under Cleco's 2000 Long-Term Incentive Compensation  Plan

1-15759

10-Q(6/00)

10(a)

      10(m)

Form of Notice and Acceptance of Grant of  Restricted Stock under Cleco's 2000 Long-Term Incentive Compensation Plan

1-15759

10-Q(6/00)

10(b)

      10(n)

Form of Notice and Acceptance of Grant of Nonqualified  Stock Options, with fixed option price under Cleco's 2000 Long-Term Incentive  Compensation Plan

1-15759

10-Q(6/00)

10(c)

      10(o)

Form of Notice and Acceptance of Grant of  Nonqualified Stock Options, with variable option price under Cleco's 2000  Long-Term Incentive Compensation Plan

1-15759

10-Q(6/00)

10(d)

      10(p)

Cleco Corporation Employee Stock Purchase Plan

333-44364

S-8(8/23/00)

4.3

      10(p)(1)

Amendment No. 1 to Employee Stock Purchase Plan  dated January 22, 2004

1-15759

10-K(2003)

10(s)(1)

 **10(q)

Cleco Corporation Deferred Compensation Plan

333-59696

S-8(4/27/01)

4.3

      10(r)

Deferred Compensation Trust dated January 2001

1-15759

10-K(2003)

10(u)

 **10(s)

Cleco Corporation 2000 Long-Term Incentive Compensation  Plan, Amendment Number 1, Effective as ofDecember 12, 2003

333-59692

S-8(4/27/01)

4.3

 **10(s)(1)

2000 Long-Term Incentive Compensation Plan, Amendment  Number 2, Effective as of July 23, 2004

1-15759

10-Q(9/30/04)

10(a)

 **10(t)

Formal Notice and Acceptance of Director's Grant  of Nonqualified Stock Option

1-5663

10-Q(9/01)

10

      10(u)

Credit Agreement dated as of April 30, 2004 among  Cleco Corporation, the Bank of New York, as Administrative Agent, and the  lenders and other parties thereto

1-15759

10-Q(6/30/04)

10(c)

 **10(v)(1)

Supplemental Executive Retirement Plan  Participation Agreement between Cleco and Dilek Samil

1-15759

10-K(2002)

10(z)(1)

 **10(v)(2)

Supplemental Executive Retirement Plan  Participation Agreement between Cleco and Samuel H. Charlton, III

1-15759

10-K(2002)

10(z)(2)

    *10(v)(3)

Supplemental Executive Retirement Plan  Participation Agreement between Cleco and Michael H. Madison

    *10(v)(4)

Supplemental Executive Retirement Plan  Participation Agreement between Cleco and R. O'Neal Chadwick, Jr.

    *10(v)(5)

Supplemental Executive Retirement Plan  Participation Agreement between Cleco and David M. Eppler

 **10(AA)(1)

Executive Employment Agreement between Cleco and  Dilek Samil

1-15759

10-K(2002)

10(AA)(1)

 **10(AA)(1)(a)

Amendment to Executive Employment Agreement  between Cleco Corporation and Dilek Samil dated September 26, 2003

1-15759

10-K(2003)

10(AA)(1)(a)

 **10(AA)(2)

Amended and Restated Executive Employment  Agreement between Cleco Corporation and David Eppler dated January 1, 2002

1-15759

10-K(2003)

10(AA)(2)

 **10(AA)(3)

Executive Employment Agreement between Cleco  Corporation and Sam Charlton dated August 28, 2002

1-15759

10-K(2003)

10(AA)(3)

 **10(AA)(4)

Executive Employment Agreement between Cleco  Corporation and Neal Chadwick dated October 25, 2002

1-15759

10-K(2003)

10(AA)(4)

    *10(AA)(4)(a)

Executive Employment Agreement between Cleco  Corporation and Michael H. Madison dated October 1, 2003

 **10(AA)(5)

Amended and Restated Executive Employment  Agreement between Cleco Corporation and Cathy Powell dated January 1, 2002

1-15759

10-K(2003)

10(AA)(5)

 **10(AA)(6)

Table of 2005 Base Salaries and Bonuses for Cleco  Corporation Named Executive Officers

1-15759

8-K(1/28/05)

10.1

 **10(AA)(7)

Summary of Director Compensation and Benefits

1-15759

8-K(1/28/05)

10.2

      10(AB)

Acadia Power Partners - Second amended and  restated limited liability company agreement dated May 9, 2003

1-15759

10-Q(6/30/03)

10(c)

      10(AC)

Purchase and Sale Agreement by and between  Perryville Energy Partners, L.L.C. and Entergy Louisiana, Inc. dated January  28, 2004

1-15759

10-K(2003)

10(AC)

    *10(AD)

Purchase and Sale Agreement by and between  Perryville Energy Partners, L.L.C. and Entergy Louisiana, Inc. dated October  21, 2004

    *11

Computation of Earnings (loss) Per Common Share

    *12(a)

Computation of Ratios of Earnings (loss) to Fixed  Charges and of Earnings (loss) to Combined Fixed Charges and Preferred Stock  Dividends

    *21

Subsidiaries of the Registrant

    *23(a)

Consent of Independent Accountants Registered  Public Accounting Firm

    *24(a)

Power of Attorney from each Director of Cleco  whose signature is affixed to this Form 10-K for the year ended December 31,  2004

    *31(a)

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

    *32(a)

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

117
****
 

**Cleco Power**

SEC FILE ORREGISTRATIONNUMBER

REGISTRATIONSTATEMENT ORREPORT

EXHIBITNUMBER

      2(a)

Joint Agreement of Merger of Cleco Utility Group  Inc. with and into Cleco Power LLC, dated December 15, 2000

333-52540

S-3/A (1/26/01)

2

      3(a)

Articles of Organization and Initial Report of  Cleco Power LLC, dated December 11, 2000

533-52540

S-3/A(1/26/01)

3(a)

      3(b)

Operating Agreement of Cleco Power LLC amended as  of April 26, 2002

1-15759

10-Q(3/30/02)

3(b)

      4(a)(1)

Indenture of Mortgage dated as of July 1,  1950, between the Company and First National Bank of New Orleans, as Trustee

1-5663

10-K(1997)

4(a)(1)

      4(a)(2)

First Supplemental Indenture dated as of  October 1, 1951, to Exhibit 4(a)(1)

1-5663

10-K(1997)

4(a)(2)

      4(a)(3)

Second Supplemental Indenture dated as of  June 1, 1952, to Exhibit 4(a)(1)

1-5663

10-K(1997)

4(a)(3)

      4(a)(4)

Third Supplemental Indenture dated as of  January 1, 1954, to Exhibit 4(a)(1)

1-5663

10-K(1997)

4(a)(4)

      4(a)(5)

Fourth Supplemental Indenture dated as of  November 1, 1954, to Exhibit 4(a)(1)

1-5663

10-K(1997)

4(a)(5)

      4(a)(6)

Tenth Supplemental Indenture dated as of  September 1, 1965, to Exhibit 4(a)(1)

1-5663

10-K(1986)

4(a)(11)

      4(a)(7)

Eleventh Supplemental Indenture dated as of  April 1, 1969, to Exhibit 4(a)(1)

1-5663

10-K(1998)

4(a)(8)

      4(a)(8)

Eighteenth Supplemental Indenture dated as of  December 1, 1982, to Exhibit 4(a)(1)

1-5663

10-K(1993)

4(a)(8)

      4(a)(9)

Nineteenth Supplemental Indenture dated as of  January 1, 1983, to Exhibit 4(a)(1)

1-5663

10-K(1993)

4(a)(9)

      4(a)(10)

Twenty-Sixth Supplemental Indenture dated as of  March 15, 1990, to Exhibit 4(a)(1)

1-5663

8-K(3/90)

4(a)(27)

      4(b)

Indenture between the Company and Bankers Trust  Company, as Trustee, dated as of October 1, 1988

33-24896

S-3(10/11/88)

4(b)

      4(b)(1)

Agreement Appointing Successor Trustee dated as  of April 1, 1996, by and among Central Louisiana Electric Company, Inc.,  Bankers Trust Company, and The Bank of New York

333-02895

S-3(4/26/96)

4(a)(2)

      4(c)

Agreement Under Regulation S‐K Item  601(b)(4)(iii)(A)

333-71643-01

10-Q(9/99)

4(c)

      4(d)

First Supplemental Indenture, dated as of  December 1, 2000, between Cleco Utility Group Inc. and the Bank of New York

333-52540

S-3/A(1/26/01)

4(a)(2)

      4(e)

Second Supplemental Indenture, dated as of  January 1, 2001, between Cleco Power LLC and The Bank of New York

333-52540

S-3/A(1/26/01)

4(a)(3)

      4(f)

Third Supplemental Indenture, dated as of April  26, 2001, between Cleco Power LLC and the Bank of New York

1-5663

8-K(4/01)

4(a)

      4(g)

Fourth Supplemental Indenture, dated as of February  1, 2002, between Cleco Power LLC and the Bank of New York

1-5663

8-K(2/02)

4.1

      4(h)

Fifth Supplemental Indenture, dated as of May 1,  2002, between Cleco Power LLC and the Bank of New York

1-5663

8-K(5/8/02)

4.1

      4(i)

Form of Sixth Supplemental Indenture providing  for the issuance of $75,000,000 principal amount of 5.375% Notes due May 1,  2013

333-71643-01

10-Q(3/31/03)

4(a)

      4(i)(1)

Form of $75,000,000 5.375% Notes due May 1, 2013

333-71643-01

10-Q(3/31/03)

4(b)

  **10(a)

1990 Long-Term Incentive Compensation Plan

1-5663

1990 Proxy Statement (4/90)

A

 **10(b)

Participation Agreement, Annual Incentive Compensation  Plan

1-5663

10-K(1999)

10(c)

 **10(c)

Deferred Compensation Plan for Directors

1-5663

10-K(1992)

10(n)

 **10(d)(1)

Supplemental Executive Retirement Plan

1-5663

10-K(1992)

10(o)(1)

 **10(d)(2)

Form of Supplemental Executive Retirement Plan  Participation Agreement between Cleco and the following officers:  Gregory L. Nesbitt, David M. Eppler, Catherine C. Powell and  Mark H. Segura 

1-5663

10-K(1992)

10(o)(2)

 **10(e)

Form of Executive Severance Agreement between  Cleco and the following officers:  David M. Eppler, Catherine C.  Powell and Mark H. Segura

1-5663

10-K(1995)

10(f)

      10(f)(1)

Term Loan Agreement dated as of April 2,  1991, among the 401(k) Savings and Investment Plan ESOP Trust, the Company,  as Guarantor, the Banks listed therein and The Bank of New York, as Agent

1-5663

10-Q(3/91)

4(b)

      10(f)(2)

Assignment and Assumption Agreement, effective as  of May 6, 1991, between The Bank of New York and the Canadian Imperial  Bank of Commerce, relating to Exhibit 10(f)(1)

1-5663

10-Q(3/91)

4(c)

      10(f)(3)

Assignment and Assumption Agreement dated as of  July 3, 1991, between The Bank of New York and Rapides Bank and Trust  Company in Alexandria, relating to Exhibit 10(f)(1)

1-5663

10-K(1991)

10(y)(3)

      10(f)(4)     

Assignment and Assumption Agreement dated as of  July 6, 1992, between The Bank of New York, CIBC, Inc. and Rapides Bank  and Trust Company in Alexandria, as Assignors, the 401(k) Savings and  Investment Plan ESOP Trust, as Borrower, and the Company, as Guarantor,  relating to Exhibit 10(f)(1)

1-5663

10-K(1992)

10(bb)(4)

      10(g)     

Reimbursement Agreement (The Industrial  Development Board of the Parish of Rapides, Inc. (Louisiana) Adjustable  Tender Pollution Control Revenue Refunding Bonds, Series 1991) dated as of  October 15, 1997, among the Company, various financial institutions, and  Westdeutsche Landesbank Gironzentrale, New York Branch, as Agent

1-5663

10-K(1997)

10(I)

      10(h)

Selling Agency Agreement between the Company and  Salomon Brothers Inc., Merrill Lynch & Co., Smith Barney Inc. and First  Chicago Capital Markets, Inc. dated as of December 12, 1996

333-02895

S-3(12/10/96)

1

      10(i)

401(k) Savings and Investment Plan ESOP Trust  Agreement dated as of August 1, 1997, between UMB Bank, N.A. and the  Company

1-5663

10-K(1997)

10(m)

      10(i)(1)

First Amendment to 401(k) Savings and Investment  Plan ESOP Trust Agreement dated as of October 1, 1997, between UMB Bank,  N.A. and the Company

1-5663

10-K(1997)

10(m)(1)

      10(i)(2)

401(k) Savings and Investment Plan as amended and  restated effective January 1, 2004

1-5663

10-Q(3/31/04)

10(a)

      10(i)(3)

401(k) Savings and Investment Plan, Stock Trust  Agreement, Amendment Number 2, Effective January 1, 2004

1-5663

10-Q(6/30/04)

10(b)

      10(j)

2000 Long-Term Incentive Compensation Plan

Form 10(11/15/00)

10(j)

 **10(k)

Cleco Corporation 2000 Long-Term Incentive Compensation  Plan, Amendment Number 1, Effective as ofDecember 12, 2003

333-59692

S-8(4/27/01)

4.3

 **10(l)(1)

2000 Long-Term Incentive Compensation Plan,  Amendment Number 2 effective as of July 23, 2004

1-5663

10-Q(9/30/04)

10(b)

      10(m)

364-Day Credit Agreement dated as of April 30,  2004 among Cleco Power LLC, the Bank of New York, as Administrative Agent,  and the lenders and other parties thereto

1-5663

10-Q(6/30/04)

10(d)

118
****
 

**Cleco Power**

SEC FILE ORREGISTRATIONNUMBER

REGISTRATIONSTATEMENT ORREPORT

EXHIBITNUMBER

    *12(b)

Computation of Ratios of Earnings to Fixed  Charges

    *23(b)

Consent of Independent Registered Public  Accounting Firm

    *24(b)

Power of Attorney from each Manager of Cleco Power  whose signature is affixed to this Form 10-K for the year ended December 31,  2004

    *31(b)

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

    *32(b)

CEO  Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
****
119
****
**Signatures**
Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this Report to be signed on its behalf bythe undersigned, thereunto duly authorized.

CLECO CORPORATION

(Registrant)

By::  

/s/  David M. Eppler

(David M. Eppler)

(President, Chief Executive Officer and  Director)

Date:  March14, 2005

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

Signature

Title

Date

/s/  David M. Eppler

President, Chief Executive Officer and Director

March 14, 2005

(David M. Eppler)

(Principal Executive Officer)

/s/  Dilek Samil

Executive Vice President and Chief Financial  Officer

March 14, 2005

(Dilek Samil)

(Principal Financial Officer)

/s/  R. Russell Davis

Vice President and Controller

March 14, 2005

(R. Russell Davis)

(Principal Accounting Officer)

 

DIRECTORS*

SHERIAN G.  CADORIA

RICHARD B.  CROWELL

DAVID M.  EPPLER

J. PATRICK  GARRETT

F. BEN JAMES,  JR.

ELTON R. KING

WILLIAM L.  MARKS

RAY B.  NESBITT

ROBERT T.  RATCLIFF, SR.

WILLIAM H.  WALKER, JR.

W. LARRY  WESTBROOK

 

*By:

/s/  David M. Eppler

March 14, 2005

(David M. Eppler, as Attorney-in-Fact)

120
****
**Signatures**

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this Report to be signed on its behalf bythe undersigned, thereunto duly authorized.

CLECO POWER LLC

(Registrant)

By::  

/s/  David M. Eppler

(David M. Eppler)

(Chief Executive Officer and Manager)

Date:  March14, 2005

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

Signature

Title

Date

/s/  David M. Eppler

Chief Executive Officer and Manager

March 14, 2005

(David M. Eppler)

(Principal Executive Officer)

/s/  Dilek Samil

Executive Vice President and Chief Financial  Officer

March 14, 2005

(Dilek Samil)

(Principal Financial Officer)

/s/  R. Russell Davis

Vice President and Controller

March 14, 2005

(R. Russell Davis)

(Principal Accounting Officer)

 

MANAGERS*

SHERIAN G.  CADORIA

RICHARD B.  CROWELL

DAVID M.  EPPLER

J. PATRICK  GARRETT

F. BEN JAMES,  JR.

ELTON R. KING

WILLIAM L.  MARKS

RAY B.  NESBITT

ROBERT T.  RATCLIFF, SR.

WILLIAM H.  WALKER, JR.

W. LARRY  WESTBROOK

 

*By:

/s/  David M. Eppler

March 14, 2005

(David M. Eppler, as Attorney-in-Fact)

121
********* |