Income Taxes	9 Months Ended
Sep. 30, 2013
Income Taxes
Income Taxes	Note 8. Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company anticipates that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted us rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes. During the third quarter of 2013, the Company recorded $4.4 million of State of California enterprise zone (EZ) credits for sales and use taxes and hiring incentives for the period from 2008 to 2013 based on an analysis of all district operations. The Company filed amended state income tax returns for tax years 2008, 2009, 2010 and 2011. The State of California EZ credits were included on the Company’s 2012 state income tax returns filed during the fourth quarter of 2013. Unused State of California EZ credits, if any, can be carried-forward ten years. The Company estimates the carried-forward portion of its State of California EZ credits at $2.3 million. The Company’s analysis of State of California EZ credits as of September 30, 2013 resulted in the recognition of a $0.6 million liability for unrecognized tax benefits. During 2012, the Company filed an application for a change in accounting method (section 481 adjustment) with the Internal Revenue Service (IRS) to implement the repairs and maintenance deduction. These tax regulations allowed the Company to deduct a significant amount of water main costs previously capitalized for book and tax purposes. The 2012 repairs and maintenance deductions resulted in a federal net operating loss (NOL) of $38.8 million and state NOL of $58.4 million. On September 19, 2013, the U. S. Department of the Treasury and IRS issued final and re-proposed tangible property regulations with an effective date of January 1, 2014. An application for a change in accounting method can be filed to adopt the new tax regulations before January 1, 2014. The final and re-proposed tangible property regulations will provide the Company with additional repairs and maintenance deductions for equipment such as fire hydrants, pumps, meters, and carbon filters. The Company does not expect any material changes to the previous filed method change as a result of the early adoption. The Company estimated 2013 equipment repairs and maintenance deductions of $5.0 million and recorded the estimate as of September 30, 2013. The 2012 federal and state income tax NOLs were carried-forward to reduce 2013 income tax payments. The NOL carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance. The NOL carry-forward does not begin to expire until 2033. The American Taxpayer Relief Act of 2012 provided the Company with additional 50% first-year bonus depreciation for assets placed in service from December 31, 2012 to December 31, 2013. The federal income tax bonus deduction was estimated at $10.0 million in 2013 and was $14.5 million in 2012. On October 24, 2013, the IRS completed an audit of the Company’s 2010 and 2011 federal income tax returns with no changes to our previously reported taxes.

Note 8. Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

The Company anticipates that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted us rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.

During the third quarter of 2013, the Company recorded $4.4 million of State of California enterprise zone (EZ) credits for sales and use taxes and hiring incentives for the period from 2008 to 2013 based on an analysis of all district operations. The Company filed amended state income tax returns for tax years 2008, 2009, 2010 and 2011. The State of California EZ credits were included on the Company’s 2012 state income tax returns filed during the fourth quarter of 2013. Unused State of California EZ credits, if any, can be carried-forward ten years. The Company estimates the carried-forward portion of its State of California EZ credits at $2.3 million. The Company’s analysis of State of California EZ credits as of September 30, 2013 resulted in the recognition of a $0.6 million liability for unrecognized tax benefits.

During 2012, the Company filed an application for a change in accounting method (section 481 adjustment) with the Internal Revenue Service (IRS) to implement the repairs and maintenance deduction. These tax regulations allowed the Company to deduct a significant amount of water main costs previously capitalized for book and tax purposes. The 2012 repairs and maintenance deductions resulted in a federal net operating loss (NOL) of $38.8 million and state NOL of $58.4 million. On September 19, 2013, the U. S. Department of the Treasury and IRS issued final and re-proposed tangible property regulations with an effective date of January 1, 2014. An application for a change in accounting method can be filed to adopt the new tax regulations before January 1, 2014. The final and re-proposed tangible property regulations will provide the Company with additional repairs and maintenance deductions for equipment such as fire hydrants, pumps, meters, and carbon filters. The Company does not expect any material changes to the previous filed method change as a result of the early adoption. The Company estimated 2013 equipment repairs and maintenance deductions of $5.0 million and recorded the estimate as of September 30, 2013. The 2012 federal and state income tax NOLs were carried-forward to reduce 2013 income tax payments. The NOL carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance. The NOL carry-forward does not begin to expire until 2033.

The American Taxpayer Relief Act of 2012 provided the Company with additional 50% first-year bonus depreciation for assets placed in service from December 31, 2012 to December 31, 2013. The federal income tax bonus deduction was estimated at $10.0 million in 2013 and was $14.5 million in 2012.

On October 24, 2013, the IRS completed an audit of the Company’s 2010 and 2011 federal income tax returns with no changes to our previously reported taxes.