Regulatory Matters

3 Months Ended

Mar. 31, 2026

Regulatory assets and liabilities are comprised of the following as of March 31, 2026 and December 31, 2025:


	March 31, 2026		December 31, 2025
	(In thousands)
Regulatory assets:
Income tax temporary differences (a) (p)	$	206,452	204,384
Monterey Water Revenue Adjustment Mechanism (“MWRAM”) (b)	12,173		8,553
Business combinations debt premium (c) (p)	9,136		9,772
Employee benefit costs (d) (p)	3,910		5,823
Catastrophic event memorandum accounts (“CEMA”) (e)	—		127
Revenue adjustment mechanisms (f) (p)	7,401		7,931
Customer Assistance Program (“CAP”) balancing account (g)	3,922		3,696


Water supply costs (h)	—		847
Other (i)	11,394		13,729
Total regulatory assets	254,388		254,862
Less: current regulatory assets (j)	7,848		8,315
Total regulatory assets, less current portion	$	246,540	246,547
Regulatory liabilities:
Cost of removal (k)	402,814		394,391
Future income tax benefits due to customers (l)	82,007		82,285
Unrecognized pensions and other postretirement benefits (m)	30,458		32,996
Per- and Polyfluoroalkyl substances legal settlement proceeds (n)	25,070		24,682
Employee benefit costs (d)	10,046		8,771
Water supply costs (h)	3,515		—

Other (o)	2,469		3,672
Total regulatory liabilities	556,379		546,797

Total regulatory liabilities, less current portion	$	556,379	546,797

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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 5 to 100 years.

(b)MWRAM is described in the following section.

(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, and group health insurance.

(e)The CPUC (“California Public Utilities Commission”) 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. The balances primarily relate to expenses associated with SJWC’s response to COVID-19, including bad debt.

(f)Primarily relates to Water Rate Adjustment mechanism (“WRA”). WRA and Water Conservation Memorandum Account (“WCMA”) are described in the following section.

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

(h)Reflects primarily SJWC’s Full Cost Balancing Account (“FCBA”), which tracks differences in actual water supply costs compared to amounts assumed in base rates, including applicable changes and variations in costs and quantities that affect the overall mix of the water supply.

(i)Other includes other balancing and memorandum accounts and regulatory mechanisms, deferred costs for certain information technology activities, asset retirement obligations, tank painting, well reconditioning, rate case expenses and acquisition costs.

(j)Primarily relates to SJWC’s balancing and memorandum account surcharge in accordance with Decision No. 24-12-077 and the current portion of CWC’s WRA, deferred well redevelopment, carbon filters and rate case costs.

(k)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.

(l)On December 22, 2017, the Tax Cuts and Jobs Act of 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.

(m)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.

(n)Primarily relates to legal settlements received by SJWC and CWC from ongoing PFAS water contamination litigation against manufacturers which will be used to offset future costs incurred, recorded as Contributions in Aid of Construction (“CIAC”), or returned to customers through future rates. The Water Contamination Litigation Memorandum Account (“WCLMA”) has been established to track net proceeds and costs resulting from water contamination litigation related to SJWC.

(o)Primarily relates to MWC’s accrued tank painting costs.

(p)Generally, not earning a return either by interest on the regulatory asset or as a component of rate base at the allowed rate of return.

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 California Public Utilities Commission (“CPUC”) to offset those expense changes. SJWC has been authorized for the use of the FCBA to track water supply costs and energy consumption. The 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 WCLMA allows SJWC to track net proceeds and costs resulting from water contamination litigation. 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 reductions, both mandatory and voluntary. SJWC records the lost revenue captured in the WCMA balancing accounts, including amounts related to a 20-basis point reduction in the authorized return on equity per the terms of the WCMA. Applicable drought surcharges collected are used to offset the revenue losses tracked in the WCMA. All balancing accounts and memorandum accounts not included for recovery or refund in the current general rate case 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. On December 19, 2024, the CPUC approved a final decision for rate increases, which approved a recovery of $15.8 million in balancing and memorandum accounts from customers through a 12-month surcharge effective January 1, 2025.

CWC has been authorized by the Connecticut Public Utilities Regulatory Authority (“PURA”) to utilize a WRA, a decoupling mechanism, to mitigate risk 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.