Cleco Corporation Q4 2008 Earnings Call Transcript

Feb.27.09 | About: Cleco Corporation (CNL)

Cleco Corporation (NYSE:CNL)

Q4 2008 Earnings Call Transcript

February 27, 2009 11:00 am ET

Executives

Ryan Gunter – IR

Mike Madison – President and CEO, Cleco Corp.

Russell Davis – VP, Chief Accounting Officer and Interim CFO

Dilek Samil – President and COO, Cleco Power LLC

Darren Olagues – SVP, Cleco Midstream Resources LLC

Analysts

Paul Ridzon – KeyBanc

Shaw Rasher [ph] – Calyon Securities

Rebecca Followill – Tudor Pickering

Michael Lapides – Goldman Sachs

Tom King [ph] – Zimmer Lucas

Mike [ph] – Bryan Capital

Maurice May – Power Insights

Neil Kalton – Wachovia

Justin Maurer – Lord Abbett

Operator

Good morning ladies and gentlemen and welcome to the Cleco Corporation fourth quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over Mr. Ryan Gunter, Manager of Investor Relations. Mr. Gunter, you may begin.

Ryan Gunter

Thanks John. Good morning everyone and welcome to Cleco Corporation’s fourth quarter 2008 earnings conference call and year end results.

With me on the call today are Mike Madison, President and CEO of Cleco Corporation, who will update you on our 2008 accomplishments and the progress we are making on our major initiatives; and Russell Davis, our Vice President, Chief Accounting Officer and interim CFO, who will cover our financial results for the quarter and the year. We also have with us today other executives who will be available to answer your questions following the brief prepared remarks.

Before we begin, please keep in mind that during the conference call today, we will make some forward-looking statements. These statements are subject to many risks and uncertainties. Actual results may differ materially.

Please refer to the risk factors and our cautionary note regarding forward-looking statements and various reports filed with the Securities and Exchange Commission, including our 2008 Annual Report on Form 10-K.

And now, I’ll turn the call over to Mike.

Mike Madison

Thanks Ryan and good morning. Let me also thank everyone for joining us on the call this morning. I’m very pleased to report that our ability to stay focused to the challenges in 2008 resulted in solid performance and steady execution of our strategy.

Our financial performance for 2008 was strong. Despite once again back to back hurricanes and a struggling global economy, we were still able to produce strong earnings. Operationally, we continue to move forward on our key initiatives by completing the financing of our Rodemacher 3 Project, choosing a winning bidder for our long-term request for proposal and filing a new rate plan with the Louisiana Public Service Commission or LPSC.

Now naturally I can’t talk about key initiatives without discussing the construction progress of Rodemacher 3. Construction of the unit remains on budget and at the end of 2008 we had spent approximately $865 million.

Also as of January 2009, Shaw estimates that construction is 91% complete. You may recall we amended our EPC contract with Shaw last year. Shaw contractually accelerated the substantial completion date of Rodemacher 3 from September 30th to June 30th of this year.

By amending the contract substantial completion date, this eliminated Cleco’s exposure to $15 million in labor overrun and gave Shaw the opportunity to earn a bonus. While Shaw believes that will beat the original completion date of September 30th, it now estimates substantial completion be mid-August.

Let me also remind you that whether hits its new estimate for substantial completion in mid-August or the original date of September, our Company and our customers still benefit from the amended contract due to the elimination of the $15 million exposure to labor overrun.

Another key initiative is of course our proposed rate plan. You may recall in July of 2008, we filed with the LPSC our proposed base rate plan to cover our $1 billion investment in this project. We accelerated the filing of our proposed plan to coincide with the change in substantial completion date.

By filing in July, we should have a final decision on our plan from the LPSC before commercial operation of the plan which will allow new rates to go into effect immediately upon declaration of commercial operation.

On a new subject I can’t tell you how pleased I’m finally able to announce that we announced in our earning release that Cleco Power has selected a winner bidder for RFP. Cleco Power has chosen the acquisition of half of Acadia Power Station as the lowest bid.

This station is owned by Acadia Power Partners, which is a joint venture between Cleco Midstream and Cajun Gas Energy, LLC. Please recall that the Acadia plant has two units that produce 580 Megawatts, each using combined-cycle technology.

Under the bid, Cleco Power will own and operate one unit and operate the remaining 500 Megawatt unit on behalf of Acadia Power Partners. The transaction valued at approximately $300 million is subject to completion of due diligence, negotiation and execution of the definitive agreements and regulatory approvals from both the LPSC and the Federal Energy Regulatory Commission or FERC.

Now we plan to complete the transaction and secure needed approvals by the end of 2009. Cleco Power’s rate treatment for this transaction will be addressed in the LPSC staff testimony expected to be filed in April.

Now as we all look forward to the future, we are very aware of the economy as on everyone’s mind. I want to repeat what I said before. When it comes to global economy, Louisiana certainly is not isolated, but we are somewhat insulated from the economic conditions seen across much of the country. For one example, the latest statistics show that Louisiana unemployment rate remains below the national unemployment rate.

But even though Cleco may not be hit as hard as other companies, we must look for ways to mitigate the impact that current and future economic conditions may thrust upon us and continue to meet the needs of our customers and shareholders’. And towards meeting those needs, I’m very happy to announce that Cleco Power has been selected to be the total requirements supplier of Valley Electric Membership Corporation.

Valley is an electric cooperative which supplies electricity to 8 (inaudible) in West Central Louisiana and serves approximately 41 meters. Valley is currently seeking contract approval from LPSC and upon that approval, we will begin the 10 year contract in April of this year with a load of 168 Megawatt.

The financial impact this contract will have on Cleco will be included in our upcoming earnings guidance. Although we are planning to complete a major project this year with the commercial operation of Rodemacher 3, our growth strategy continues with the construction of a joint transmission upgrade project in South Louisiana beginning in late 2009.

We recently received the necessary approvals for this plant. The estimated $200 million project is an agreement between Cleco Power and two neighboring utilities. Cleco Power’s portion of the project is approximately $150 million including allowance for funds used during construction or AFUDC.

Moving now to our Midstream business, Acadia Power Partners is beginning to see the results from its aggressive marketing of Acadia Power Station’s output. Previously, we announced that Cleco Power had selected Acadia Power Partners as the wining bidder of its short term proposal to meet 2009 capacity requirements.

Since then Cleco Power has received both LPSC and FERC approval. As a reminder, the contract is for 235 Megawatt beginning March 1st of 2009 and ending October 1st 2009. Being selected and receiving approval as the lowest bidder in Cleco Power’s 2008 short term RFP is a positive step for a wholesale business.

And of course, Cleco Power’s recent announcement of its 2007 long term RFP is an important step for Midstream. As for Evangeline, we continue to operate under the 20-year tolling agreement originally executed with Williams Companies and later assigned to Bear Energy LP, a subsidiary of Bear Sterns Companies.

In 2008, JP Morgan Chase and Company acquired Bear Energy and as a result became the guarantor of the tolling agreement obligation. The result for Evangeline was a significant upgrade in the credit quality of its counterpart.

Both our regulated and our wholesale business have made great progress in our major initiatives. In 2009, we will remain focused on completing our key objectives. First, the completion of Rodemacher 3, which will be the largest generation construction project in our Companies history.

Next the beginning of our operation under a new rate plan, which is planned to be placed in commercial operation at the same – Rodemacher Unit 3 and the completion of our 2007 long term RFP by finalizing negotiations and receiving regulatory approvals.

Additionally, in 2009 we will continue to closely monitor potential environmental legislation. With the commercial operation of Rodemacher 3, we believe, we have the right blend of assets to address potential renewable mandates.

With added investment, the plant can operate using biomass. We are currently conducting studies that will determine the types and the amount of biomass we can use and retain the plant’s operating efficiencies.

The pace at which environmental legislation moves to Congress may be impacted by the status of our nation’s economy. We will of course continue monitor potential legislation that could impact our business, while we also monitor the state of – the state and national economy. We will address both the issues with the same responsible approach that has successfully directed our Company for more than 70 years.

And finally, as you can see from our earnings release, we will have a delay in providing our earnings guidance in 2008. We believe this delay is the right thing to do as we attempt to incorporate the expected results from our rate case and the provision of meaningful guidance.

Russell will give you more details on the delay later in the call. So, with that I will now turn it over to Russell to review our financial results for the fourth quarter and the year.

Russell Davis

Thanks Mike and good morning everyone. In the fourth quarter, we recorded net income of $13.5 million, which is an increase of $1.6 million compared to the fourth quarter of 2007. And on earnings per share basis, our fourth quarter earnings were $0.22 per diluted share, up $0.02 when compared to the same period last year.

At the subsidiary level, Cleco Power recorded fourth quarter earnings of $0.38 per share, up $0.05 per share from the fourth quarter of 2007. Quarter over quarter, AFUDC contributed an additional $0.11 per share. Adjustments and true-ups related to income taxes increased earnings by $0.06 and other expenses were down by $0.05 per share.

Offsetting the increases, higher interest expense of $0.14 per share, half of that change in interest expense related to the current year absence for the favorable 2007 settlement with IRS. The rest was primarily due to the 2007 issuances of senior notes, senior secured storm recovery bonds, Gulf Opportunity Zone bonds and solid-waste disposal bonds.

Now turning over to Midstream, Midstream posted a loss of $0.03 per share, greater than the loss in the fourth quarter of 2007. Evangeline was down $0.05 compared to the same period last year as a result of higher maintenance expenses, while Acadia lower losses of $0.02 per share due to the absence of 2007 effect from renegotiation of the turbine maintenance agreement.

On a Corporate level, we posted a loss of $0.04 per share, which equates to the fourth quarter 2007 results. Shifting gears and looking at our results for the entire year, we posted a very solid performance.

Our net income applicable to common stock for 2008 was $102.1 million, compared to $151.3 million in 2007. Keep in mind that the Acadia Calpine settlement accounts for $72.2 million of 2007 as a result.

On an earnings per share basis, we recorded $1.70 per diluted share compared to $2.54 per share in 2007. Once again excluding the Acadia Calpine settlement of $1.22 per diluted share were up $0.38 per share in a year-over-year comparison.

Looking at Cleco Power, compared to 2007 Cleco Power is up $0.47 with $1.89 earnings per share in 2008. Now instead of catching the details various information shown in our earnings release, let me give the top three components driving the change in Cleco Power’s earnings.

Number one, earnings from AFUDC were up $0.60 per share as our investment in Rodemacher 3 continues to increase. Secondly, partially offsetting increased earnings from AFUDC, an increase of $0.25 per share and interest expense in the years –over-year comparison, primarily resulting from the issuances of additional debt in 2008. The other changes in interest expense may be found in our earnings release.

And finally, compared to 2007, Cleco Power had lowered other expenses of $0.15 per share, $0.09 of this was tied to other taxes and depreciation collectively. The decrease in other tax is due to lower property taxes and the change in the way the Company accounts for franchise fees as a result of and LPSE order.

The change in depreciation is primarily due to decreased storm amortization cost resulting from the issuance of the storm recovery bond in March of 2008. And contributing a total of $0.08 were lower benefit cost and lower distribution and generation maintenance expense. There were smaller increases in capacity expenses and other miscellaneous expenses.

Moving on to Midstream, in a year over year comparison, excluding the gain from the Calpine bankruptcy claim and the net gain from Acadia Calpine settlement, Midstream posted lower losses of $0.05 per share in 2008.

Acadia had lower losses of $0.10 share mainly due to $0.12 of lower interest paid to the holding company. Evangeline was down $0.07 per share mainly due to higher maintenance expenses. At the Corporate level, results were $0.14 per share lower than 2007. And I just mentioned in the Midstream summary, lower interest income from Acadia resulted in $0.12 per share decrease to Corporate.

An additional loss of $0.05 per share is due to decreases in cash surrender values of Corporate owned life insurance policies and $0.04 per share was related to lower interest income from temporary investments. Partially offsetting the losses about $0.03 per share was the absence of interest expense related to $100 million of senior corporate notes repaid in May 2008.

As to earnings guidance, as Mike stated we’ll have a delay in providing in earnings guidance for 2009 because Cleco Power’s current LPSE rate case is a historic one and its results will significantly shape the Company’s financial future. We will wait to give guidance until the LPSE staff files its testimony on the utilities proposed rate plan.

We anticipate that filing to take place in April and we expect to provide 2009 guidance shortly thereafter. With that I will turn the call back to Ryan.

Ryan Gunter

Thanks, Russell. We’ll be open to take questions now.

Question-and-Answer Session

Operator

(Operating instructions) And we have Paul Ridzon from KeyBanc on line. Please go ahead.

Paul Ridzon – KeyBanc

Good morning. How are you?

Mike Madison

Good morning, Paul.

Russell Davis

Good morning, Paul.

Paul Ridzon – KeyBanc

Congratulations on the Acadia monkey off your back.

Mike Madison

Thank you.

Russell Davis

Thank you.

Paul Ridzon – KeyBanc

With between the Acadia and the transmission spend, how is the balance sheet look – are you going to have to tap the external equity markets?

Russell Davis

No. We do not plan on having to tap the external equity markets, but the amount of debt that was issued in last half of 2008, we have some room for – we continue to go without having to exit the equity markets. Depending on the structure of the Acadia transaction we may have to access the debt market in late 2009 or early 2010 to bring that transaction to fruition. We do not just any additional equity issuance.

Paul Ridzon – KeyBanc

You will be getting 150 of proceeds at Midstream, I would guess dividend to the parent and connect to use to fund the equity portion of the acquisition?

Russell Davis

Right now, the structure is still being negotiated and finalized and it’ll (inaudible) for me to go ahead indicate what that proposal would be until we at least give our primary rate at the LTSE, the opportunity to review that.

Paul Ridzon – KeyBanc

And do have on absolute basis what Evangeline and Acadia earned in ’08?

Russell Davis

Yes. You have it there. The losses, this is inclusive of the inter-company interest expense. The losses coming out of Midstream as a whole, which includes the administrative cost was $0.17 a share and negative. And that includes $0.06 to $0.07 of interest expense – in a company interest expense pushed down into the numbers.

Paul Ridzon – KeyBanc

Can this be split between Acadia and Evangeline?

Russell Davis

Split between Acadia and Evangeline. Well, we take the $0.20 as back up, you get – that’s 0.13. And we outside of the administrative expenses we had $0.05 share net income coming off of Evangeline, which reflects the average expenses that we talked about in prior calls.

Paul Ridzon – KeyBanc

(inaudible) a nickel this year?

Russell Davis

This year, yes.

Mike Madison

And that was down of what we have had in prior years due to the expenses.

Paul Ridzon – KeyBanc

And there is any chance of discussions around rate case or do you anticipate this being fully adjudicated?

Russell Davis

We are in the midst of settlement discussions. We certainly hope that we will not have to fully adjudicate the case. We are – as we have stated before, we are in the midst of discussion and hope that the settlement discussions will come to fruition and that testimony being filed in April to support those settlement discussions.

Paul Ridzon – KeyBanc

Great. And just one last question, if you wanted to work on – if you wanted to burn biomass in Rodemacher, what would be the capital outlay for the handling system?

Mike Madison

That’s very difficult right now to determine, Paul, because there is so many moving parts. For example, if the requirement coming out of Washington is 4% by 12, if it’s one number, if it’s 20%/15 it’s another number. So, right now, our studies are looking at it in multiple facets. One, watch the requirement in percentage and the timeframe, and then we’ll come up with and answers, we will be ready whatever it is. Whether it is a small amount or large amount.

Paul Ridzon – KeyBanc

Okay. Thank you, again.

Operator

Our next question comes from Gordon Howald – Calyon Securities. Please go ahead.

Shaw RasherCalyon Securities

Good morning, this is Shaw Rasher [ph]. Just two quick questions, have you begun to purchase petcoke forward in anticipation for Rodemacher’s launch? And then the second question is, just want to make sure I’m getting this correctly regarding your 2007 RFC. Are you essentially putting half of the Acadia power plant into rate base and managing the other like a toll? That’s it, thanks.

Dilek Samil

Good morning. This is Dilek at Cleco Power. Your first question about petcoke. Yes, we have been purchasing petcoke, building up that inventory in the anticipation of COD later this year. Your second question is to – the Acadia transaction. The plan is to put half of Acadia Power plant or $580 Megawatts into Cleco Power’s. rate base. Did I answer your question?

Shaw RasherCalyon Securities

You did. I guess the only question just on the coke, how – I mean have – how much of your supplies have been accounted for 2009? I mean how far are you buying?

Dilek Samil

Our goal is to maintain about a 90 day inventory. So that’s what we are building up to.

Shaw RasherCalyon Securities

Thank you. My question is being answered.

Dilek Samil

Okay.

Operator

Our next question comes from Rebecca Followill from Tudor Pickering. Please go ahead.

Rebecca Followill – Tudor Pickering

Good morning.

Russell Davis

Good morning.

Mike Madison

Good morning.

Rebecca Followill – Tudor Pickering

Two questions for you, one on biomass. As I understand it, you are not structuring where the marker currently said it’s capable of burning biomass, so we have to be a retrofit?

Mike Madison

You are absolutely right. We are not configuring Rodemacher 3 as a biomass plant. Our plan is to burn petroleum coke. We are studying the opportunity to burn biomass. But won’t make that investment and move in that direction until it becomes a mandate from the Federal government.

Rebecca Followill – Tudor Pickering

And – I’m sorry, go ahead Dilek.

Dilek Samil

Rebecca, hi. It’ not a retrofit of the plant per se because the boiler will allow us to burn just about anything in that unit. For the investment, the incremental investment that handles renewables would be around fuel handling.

Rebecca Followill – Tudor Pickering

Okay. And so, if you had to do that because of Federal mandate, I assume that would be recoverable or it’s still a question?

Dilek Samil

I fully expect that to be recoverable in rate.

Rebecca Followill – Tudor Pickering

But it’s not being incorporated into this rate case?

Dilek Samil

Not at this point.

Rebecca Followill – Tudor Pickering

Okay. And if you had to purchase for your two credits, would that be a full pass through to customers?

Dilek Samil

Actually the Commission has a docket open right now. They are reviewing the potential of setting up another mechanism. Like the fuel costs but in environmental recovery mechanism that would capture the cost of credits.

Rebecca Followill – Tudor Pickering

Okay. So, that’s still kind of up in the air. And is there an exact date in April for the release of staff decision?

Dilek Samil

No. Rebecca.

Rebecca Followill – Tudor Pickering

Okay –

Dilek Samil

That’s the target that we are working for.

Rebecca Followill – Tudor Pickering

Okay. And then finally on financing, you mentioned that Acadia that you don’t need to tap the equity markets that you might to access the debt markets. What about the financing of the transmission line or the transmission upgrade build out?

Rebecca Followill – Tudor Pickering

Okay

Mike Madison

Right now we do not anticipate having to tap either the debt or equity markets for the financing of the transmission.

Rebecca Followill – Tudor Pickering

You meet that for free cash flow?

Mike Madison

Correct.

Rebecca Followill – Tudor Pickering

Okay. Great. Thank you.

Operator

Our next question comes from Michael Lapides from Goldman Sachs. Please go ahead.

Michael Lapides – Goldman Sachs

Hi, guys. Congratulations on a good quarter and a good year. Question on the other half of the Acadia, what’s your plan for that half, I know that (inaudible) from RFPs last year and likely between those back at some point. Just curious about your thoughts on contracting or other strategies around the other 580 Megawatts?

Mike Madison

Good morning, Michael. Thanks for the compliment. Our strategy for the remaining part of Acadia is the same one that we had at last years when we talked about before and that’s progressively market the output of that plant in multiple RFPs and multiple products, whether they be PPA, asset sales or some combination. We will continue with that strategy We believe that we now show that the strategy has been successful with the one of it being sold into Cleco Power, and still believe that we have that opportunity with the other half.

Michael Lapides – Goldman Sachs

Got it. And are there any transmission? When you look at transmission projects, I’m sorry I’m coming back to the regulated business. I mean outside of the Acadia project are there any other significant transmission that are kind of in the pipeline but just haven’t been fully flushed out or haven’t been approved yet?

Mike Madison

I think you are right on what you are saying. They haven’t been fully flushed out yet. The answer is, yes. They are staying like other stay. They are still dealing with congestion problems. But I think the other thing that has occurred here is with back to back hurricane both in 8 and once we had in 5 has forced to look at may be some transmission along the coast to handle a reliability issue with respect to storms. So, there’s been a number of discussions about transmission projects that could be or should be done to address those issues.

Michael Lapides – Goldman Sachs

Got it. Okay. Thank you guys and congrats.

Operator

Our next question comes from Tom King [ph] from Zimmer Lucas. Please go ahead.

Albert King – Zimmer Lucas

Good morning.

Mike Madison

Good morning, Albert.

Tom King – Zimmer Lucas

Just want to follow up on Michael’s question for the other half of Acadia. How many RFPs are there in other half currently and when can we expect – are they going to be within a year or is it going to be longer than that?

Darren Olagues

Well, it’s Darren. There are fewer RFPs long term RFPs that are out there in the market that Acadia can reach. It’s no secret that (inaudible) does have a short term or they call near term RFP that is still outstanding three to five year RFPs and the results are still expected to be announced next week. I think they would notify the bidders next week. I’m not sure the results will be fully public. Outside of that as Mike said, if we are aggressively marketing the plan in the near term, our hope is that this summer we’ll have the plan partially contracted to try and levitate the transmission issue we faced last summer. But I rather not get into any specifics about what the RFPs are counter party that we would to. I mean as we talked about in prior calls that there’s not that many counter parties in the market. Obviously, we are happy that we won the RFP with Cleco Power, but we are going to as Mike said keep aggressively marketing the plan whether it’s output or the asset itself.

Tom King – Zimmer Lucas

Okay. And then in terms of the short term RFP – what kind of up tick can we expect for Acadia earning in ‘09

Darren Olagues

We are not prepared to release any earnings guidance on any of the subsidiaries or Corporate until have the filing of the staff testimonies. So, all of – we have to delay answering that question until we give earnings guidance overall.

Tom King – Zimmer Lucas

Okay. Fair enough. And then lastly, with the new contract you guys are going to enter into what kind of load growth functions you guys have for 2009 and 2010?

Mike Madison

As far as – Tom at the Valley?

Albert King – Zimmer Lucas

Not just the Valley, overall for the Company.

Mike Madison

I think all over they are seeing a slowdown in the economy. Again as I said it’s not as bad as what I think we are seeing nationally. But certainly we are not going to be immune from it. There are 1% to 2.5% that we annually see or seen is probably less than 1% that we have seen. If we have some downturn in some of the industry or those like pulp and paper industry we would see something there. And I think that’s the good news is that by bringing Valley on, we have a new – or the best way to counter a reduction in sales from existing customers is to put on new ones. And that’s what we’ve done by this new wholesale load. And I’m very pleased with that and we are going to continue to look for wholesale load and hope that the recession doesn’t last long and our existing retail customers be able to grow.

Albert King – Zimmer Lucas

Right. Thank you and congratulations on a good quarter.

Operator

Our next question comes from Mike [ph] from Bryan Capital. Please go ahead.

Mike – Bryan Capital

Hi, good morning. I wanted to build on the last question, the kilowatt hours were lower for different segments, consumer, industrial in the fourth quarter. And then I was wondering if any of that weather related or is that poor demand so to speak? And then may be just building on your discussion in the last question, what kind of demand growth or shrinkage do you see in 2009? And then I’ve got a follow up.

Mike Madison

I think the quarter saw most of down due to weather. We didn’t see it in terms of reduction in production from our industrials or commercial. Again with that said, we have some of our customers who have extended (inaudible) and – but none of them have told us in terms of that they are completing or eliminating production line. And so, again we are watching it. I don’t think we are going to have or continue to have the 1.5% to 2% growth. So, our challenge is to try to help them. So that hey can get through economy issues, and at the same time look for opportunities for us to serve new load. And I think if the economy is going to attack the retail side of our business, and I think our best shot may be in the wholesale side, and we just bought one in.

Mike – Bryan Capital

Okay. Great. And then in terms of – let me – the short term agreement with Acadia, you can’t really talk about what that in terms power sales for the short term, six months agreement?

Mike Madison

Without the pricing in those kinds of items as Russell said, and we are not providing the guidance on subsidiary projections.

Mike – Bryan Capital

Okay. On the long term RFP, the piece that – the piece that you are not putting back in Cleco Power. Is it possible that Cleco Power would still buy some of that production? I assume that’s not part of your fee. But where do we spread it? It seem like some of that power might still be sold back into Cleco Power, could you discuss that?

Mike Madison

I mean it could. You know the issue with transmission is always – whether or not Cleco Power needed it and we could be competitive on price. Ultimately transmission dictates when you can get the power. So, technically we could sell to Cleco Power of the power block. I would say that’s probably less likely if given they will be dispatching a sizeable unit directly in the system.

Mike – Bryan Capital

Right. Okay. And then did you discuss the impact of the Valley – Valley piece?

Mike Madison

The only thing we've discussed is the impact as far as what load would be in that particular instance. If that contract is approved, then we would again, in April of this year to serve a load about 168 Megawatts. But as far as the financial impact, we are going to be including that when we provide our earnings guidance and anticipate that would be in April.

Mike – Bryan Capital

Okay. And last question, on the pricing of the transaction, the Acadia Power Partners transaction back into Cleco Power, that was done with an arbiter, sort of observer, is that price pretty solid do you think, or is there a chance that that could be renegotiated lower when the Commission looks at it?

Mike Madison

No, we don't. And the primary reason for that is this process has been – as you mentioned, overseen by an independent monitor from the very beginning. It's a very structured process where we have very little input to. We are more reactive in terms of here are the bids. And that process is controlled by the Commission and their independent monitor. And that price coming out of there was by far the lowest bid.

Mike – Bryan Capital

Okay. Great. Thank you very much.

Operator

Our next question comes from Maurice May from Power Insights. Please go ahead.

Mike Madison

Good morning, Maury.

Maurice May – Power Insights

Good morning, folks, and again, congratulations on the quarter and the resolution of at least one of the Acadia units. I just wanted to run through the numbers on the Acadia unit that Cleco Power plans to purchase. First of all, what is the cost basis and what is the tax basis of your one-half ownership of Acadia Partners?

Dilek Samil

Maury, you're getting into structuring issues, which is as Russell mentioned upfront, we are not at this point ready to discuss. The value of the transaction to Cleco Power is $300 million.

Maurice May – Power Insights

Okay. I think at the time King Street bought their half that you wrote your half down to their purchase price of $189 million?

Russell Davis

When King Street purchase their half of Acadia – purchased into Acadia Power Partners, they did pay $189 million. At that time, Cleco or Midstream reduced or impaired their investment in Acadia Power Partners down to $189 million. That's correct, Maury.

Maurice May – Power Insights

And then has that depreciated down 3% a year since then?

Russell Davis

There would be some level of decrease there. But remember, that's not truly depreciation because that's not the value that was attached to the assets. That $189 million was the value that was attached to the partnership of – half of the partnership of Acadia Power Partners that was invested by Acadia Power Holdings.

Maurice May – Power Insights

Can you update us on that value?

Russell Davis

The value would be – it's going to be within $3 million to $6 million of that as far as the – the value as far as the change in the earnings since that point in time.

Maurice May – Power Insights

Did you write down the tax basis at the same time?

Russell Davis

No, we did not, because, remember that once again the tax basis that have been on the assets themselves and we were only – there was no impairment done to the assets owned by Acadia Power Partners. The only impairment was done through the investment in Acadia Power Partners by Acadia Power Holdings.

Maurice May – Power Insights

So the tax basis might be pretty close to the sale price by Midstream?

Russell Davis

There would be a difference there. But once again we are getting into the structure of the dealing. And because it is – I will say this because it is an affiliate transaction. There are additional opportunities available to us to structure this in a method that will be much more beneficial to both the customers of Cleco Power and to the shareholders of Cleco Corporation.

Maurice May – Power Insights

Okay. So really the bottom line is Cleco Power gains $300 million in rate base, which is financed 50-50. So 150 of equity could produce earnings of something like $0.25 a share in 2010. Is that correct?

Russell Davis

I'm going to leave what they could produce earnings per share. I won't address that, but the rest of your statement is correct. They will see $300 million go into rate base, of which it will be financed a typical utility, 50% equity, 50% debt basis.

Maurice May – Power Insights

Okay, and you could file with the LPSC to put it into rate base and they have known and measurable updates really to the point of decision. So what I'm trying to say is, you can dovetail the rate proceeding with the settlement of the transaction and it could conceivably go cleanly into rate base the first of 2010. Is that correct?

Russell Davis

We would certainly hope that it will go cleanly into rate base in 2010. As Mike stated in his comments, we actually believe the rate treatment for the Acadia transaction will be addressed in the LPSC staff testimony that's expected to be filed in April.

Maurice May – Power Insights

So, it could be part of the general rate case?

Russell Davis

That's correct.

Maurice May – Power Insights

Okay, I didn't realize that. Okay, folks, thank you very much.

Russell Davis

Thanks, Maury.

Operator

Our next question comes from Neil Kalton from Wachovia. Please go ahead.

Neil Kalton – Wachovia

Hi, good morning, everyone.

Mike Madison

Good morning, Neil.

Neil Kalton – Wachovia

Most of my questions have been asked, but I do want to follow-up a little bit on the LPSC process for the Acadia plant, for this transaction. Would they be solely looking at the actual RFP process and sort of signing off and approving that, or would they take other factors into consideration as they look at this?

Dilek Samil

Neil, hi, it’s Dilek. Let me just back up a minute and say that the transaction has two parts to it. One is the certification of Acadia as the lease cost bid into the RFP, right. So we have this process, this very stringent process, prescribed by the LPSC that we've been very careful in following not only the letter, but the spirit of it. So I know sometimes you have been impatient by how lengthy the process is, but again we have been very careful to follow all of the rules with the independent monitor, the consultants and so on. So one leg of this is the certification and that's ongoing and we expect to have those regulatory approvals by the end of this year. The other leg of the transaction is the rate making. To the extent this is the right answer coming out of the RFP, then the next question is, how do you recover the cost of that investment in rate? And that piece, we expect will come through the rate case process. On your questions as to whether the Commission will follow its own prescribed RFP, I would very much expect that to be the case.

Russell Davis

I think we have recent history of other utilities in the state that have done this process and so far they have not deviated from the process.

Neil Kalton – Wachovia

Okay. Thanks. That’s very helpful.

Operator

We have a question come from Justin Maurer, Lord Abbett. Please go ahead.

Justin Maurer – Lord Abbett

Good morning, guys.

Russell Davis

Good morning, Maurer.

Mike Madison

Good morning.

Justin Maurer – Lord Abbett

Darren, sorry if this was asked of you just a couple of questions ago on the – even though it's somewhat of a stop. On '09 Midstream, just given the short-term RFP and then less downtime at Evangeline, would you expect up earnings there?

Darren Olagues

I'm going to have to plead, please wait, give us some time, and we are going to put all that in one earnings guidance. I think it does not benefit us or our shareholders to give earnings guidance in a piecemeal fashion.

Justin Maurer – Lord Abbett

But within that – the short-term RFP, Mike, you mentioned the wholesale deal that you guys have with Valley. For 168 megawatts, which you are taking down (inaudible) change from Acadia. Is that – that's not to supply that though correct? Because the short-term RFP was not in contemplation of that deal, was it?

Michael Madison

No, it was not. The Valley wholesale contract is a Cleco Power contract, not a Midstream contract. So it goes into Cleco Power revenue stream and their obligation through their assets to serve it.

Justin Maurer – Lord Abbett

Right, I guess my question, I didn't realize, over the last year plus, you guys have been discussing the short-term RFP and the outcome was presumably for base load, I thought, not necessarily that you guys would have then have kind of access that you could supply wholesale to somebody else.

Dilek Samil

In fact, the short-term RFP that Acadia won for 2009 that did not contemplate this additional wholesale contract. And so, as a result in March of this year we issued another RFP in order to help us serve this new contract.

Justin Maurer – Lord Abbett

Got you. So is that in addition to –?

Dilek Samil

That will be in addition to the short-term deal with Acadia.

Justin Maurer – Lord Abbett

I got you, I got you, okay. And presumably why you're not going to give guidance on that piece of it until April?

Michael Madison

It’s part of –

Dilek Samil

I think the idea is that we want to put it altogether. If we give you piecemeal guidance, it's not going to make sense.

Justin Maurer – Lord Abbett

Okay. Thanks, guys.

Operator

(Operator instructions). At this time I show no questions.

Michael Madison

Alright. Thanks, everyone. I appreciate your interest in our company today and your participation. If you have any other questions, feel free to call us on our shareholder assistance line. Have a nice day.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may all disconnect.

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