Regulatory Matters

12 Months Ended

Dec. 31, 2023

Regulation

Water Utility Services, excluding non-tariffed activities, are subject to rate regulation based on cost recovery and meets the criteria of accounting guidance for rate-regulated operations under ASC Topic 980, which affects the timing of the recognition of certain revenues and expenses. SJW Group’s consolidated financial statements reflect the actions of regulators in the rate-making process. The rate-making process is intended to provide revenues sufficient to recover normal operating expenses, provide funds for replacement of water infrastructure and produce a fair and reasonable return on stockholder common equity.

Water Utility Services, excluding non-tariffed activities, recognizes regulatory assets for incurred costs that are deemed probable of recovery from customers. Also, Water Utility Services recognizes regulatory liabilities for amounts expected to be refunded to customers in the rate-making process and for amounts collected in advance of the related expenditures. Regulatory assets or liabilities are also recognized for special revenue programs such as WCMA and WRA in accordance with guidance on alternative revenue programs under ASC Topic 980. Application of ASC 980, including determining whether recovery is probable, requires significant judgment by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate that recovery or refund is probable.

If the regulated utility determines that it is no longer probable that regulatory assets or liabilities would be recovered or refunded through the regulatory process, or if the utility ceased to be subject to rate regulation, the affected regulatory assets and liabilities would be derecognized with a corresponding adjustment to income in the period in which that determination was made.

SJWC has established balancing accounts for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. In 2022, SJWC’s general rate case decision approved the use of the Full Cost Balancing Account to track the water supply costs and energy consumption. The Monterey Water Revenue Adjustment (“MWRAM”) balancing account tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

SJWC also maintains memorandum accounts to track impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC. The WCMA allows SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reduction. SJWC records the lost revenue captured in the WCMA balancing accounts. Applicable drought surcharges collected are used to offset the revenue losses tracked in the WCMA. Mandatory water conservation requirements from Santa Clara Valley Water District (“Valley Water”) ended on April 11, 2023, which also ended SJWC’s Mandatory Conservation Plan, that included drought allocations and surcharges. On October 2, 2023, the CPUC approved the continuation of WCMA and Water Conservation Expense Memorandum Account under the voluntary call for conservation effective April 20, 2023. All balancing accounts and memorandum accounts not included for recovery or refund in current customer rates will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2% of authorized revenue, whichever occurs first.

CWC has been authorized by PURA to utilize WRA, a decoupling mechanism, to mitigate risks associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows the company to implement a surcharge or sur-credit as necessary to recover or refund the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings.

As of December 31, 2023 and 2022, SJW Group’s regulatory assets not earning a return primarily included unrecognized pensions and other postretirement benefits and business combinations debt premium. The total amount of regulatory assets not earning a return at December 31, 2023 and 2022, either by interest on the regulatory asset or as a component of rate base at the allowed rate of return was $43,141 and $66,373, respectively.

Regulatory Assets and Liabilities

Regulatory assets and liabilities are comprised of the following as of December 31:


	2023		2022
Regulatory assets:
Income tax temporary differences (a)	$	157,669	137,860
Unrecognized pensions and other postretirement benefits (b)	24,593		45,799
Business combinations debt premium (c)	14,855		17,396
Employee benefit costs (d)	9,815		8,068
MWRAM (e)	9,361		10,864
Customer Assistance Program (“CAP”) balancing account (f)	5,457		3,417
Catastrophic event memorandum accounts (“CEMA”) (g)	4,819		3,485
2022 general rate case interim memorandum account (h)	4,571		20,650
Water supply costs (i)	583		9,873
Other (j)	8,463		8,363
Total regulatory assets	240,186		265,775
Less: current regulatory asset (k)	4,276		19,740
Total regulatory assets, less current portion	$	235,910	246,035
Regulatory liabilities:
Cost of removal (l)	$	346,418	—
Future income tax benefits due to customers (m)	88,610		94,426
Unrecognized pensions and other postretirement benefits (b)	20,196		14,307
Revenue adjustment mechanisms (n)	5,536		9,528
Other (o)	3,407		4,171
Total regulatory liabilities	464,167		122,432
Less: current regulatory liabilities (p)	3,059		3,672
Total regulatory liabilities, less current portion	$	461,108	118,760

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(a)Consists primarily of temporary income tax differences that are flowed through to customers, which will be recovered in future rates as these temporary differences reverse. The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the lives of the plant assets, which are between 4 to 100 years.

(b)Represents actuarial losses and gains and prior service cost that have not yet been recognized as components of net periodic benefit cost for certain pension and other postretirement benefit plans.

(c)Consists of debt fair value adjustments recognized through purchase accounting for the completed merger with CTWS in 2019.

(d)Includes deferrals of pension and other postretirement benefit expense and cost of accrued benefits for vacation.

(e)MWRAM is described in the previous section.

(f)Represents costs associated with SJWC’s CAP.

(g)Primarily related to increased bad debt expenses associated with SJWC’s response to COVID-19. The CPUC has authorized water utilities to activate CEMA accounts in order to track savings and costs related to SJWC’s response to catastrophic events, which includes external labor and materials, increases in bad debt from suspension of shutoffs for non-payment, waived deposits and reconnection fees, and divergence from actual versus authorized usage.

(h)Represents the difference between revenues collected in interim rates in effect as of January 1, 2022 and revenues that would result from rates authorized in SJWC’s 2022 general rate case retroactive to January 1, 2022.

(i)Reflects differences in actual water supply costs compared to amounts assumed in setting rates, including applicable changes and variations in costs and quantities that affect the overall mix of the water supply.

(j)Other includes other balancing and memorandum accounts and regulatory mechanisms, deferred costs for certain information technology activities, asset retirement obligations and rate case expenses.

(k)As of December 31, 2023, primarily relates to MWRAM. As of December 31, 2022, primarily relates to the 2022 general rate case interim memorandum account.

(l)Represents amounts collected in rates from customers for estimated costs to retire assets at the end of their expected useful lives before the costs are incurred. During 2023, the Company completed a new depreciation study and as of December 31, 2023, recorded a classification adjustment of $346,418 as cost of removal regulatory liabilities. As of December 31, 2022, cost of removal regulatory liabilities of $316,647 are included in net utility plant - accumulated depreciation and amortization. Management has concluded a classification adjustment to the prior year balance sheet is not necessary because the impact is immaterial.

(m)On December 22, 2017 the Tax Act was signed into law. The Tax Act included a reduction in the federal income tax rate from 35% to 21%. The rate reduction was effective on January 1, 2018 and resulted in a regulatory liability for the excess deferred income taxes. The benefit of amortization of excess deferred income taxes flows back to the customers under current normalization rules and agreed upon methods with the commissions.

(n)Consists of WRA and WCMA, which are described in the previous section.

(o)Other includes other balancing and memorandum accounts, other regulatory mechanisms and accrued tank painting costs.

(p)As of December 31, 2023 and 2022, primarily relates to WRA.