In accordance with accounting principles for rate-regulated enterprises, GSWC and BVESI records regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At December 31, 2022, GSWC and BVESI had approximately $85.0 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) $75.7 million of regulatory liabilities are excess deferred income taxes arising from the lower federal income tax rate under the Tax Cuts and Jobs Act enacted in December 2017 that are being refunded to customers (Note 11), (ii) $1.1 million of net regulatory liabilities relates to flow-through deferred income taxes including the gross-up portion on the deferred tax resulting from the excess deferred income tax regulatory liability (Note 11), (iii) $2.2 million of regulatory assets relates to the underfunded position in Registrant’s pension and other post-retirement obligations (excluding the two-way pension balancing accounts), and (iv) $11.8 million regulatory liability related to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVESI’s purchase power contracts over the term of the contracts. The remainder relates to other items that do not provide for or incur carrying costs.

Regulatory assets represent costs incurred by GSWC and/or BVESI for which they have received or expect to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC and BVESI consider regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determines that a portion of either GSWC’s or BVESI’s assets are not recoverable in customer rates, the applicable utility must determine if it has suffered an asset impairment that requires it to write down the asset’s value. Regulatory assets are offset against regulatory liabilities within each ratemaking area. Amounts expected to be collected or refunded in the next twelve months have been classified as current assets and current liabilities by ratemaking area. Regulatory liabilities, less regulatory assets, included in the consolidated balance sheets are as follows:


	December 31,
(dollars in thousands)	2022		2021
GSWC
Water Revenue Adjustment Mechanism, net of the Modified Cost Balancing Account	$	31,803	$	13,326
Pensions and other post-retirement obligations (Note 12)	738		25,212
COVID-19 memorandum account	3,478		1,663
Other regulatory assets	19,226		16,949
Excess deferred income taxes (Note 11)	(71,870)		(73,000)
Flow-through taxes, net (Note 11)	(1,134)		(5,552)
Other regulatory liabilities	(8,815)		(2,680)
Total GSWC	$	(26,574)	$	(24,082)
BVESI
Derivative instrument memorandum account (Note 5)	(11,847)		(4,441)
Wildfire mitigation and other fire prevention related costs memorandum accounts	13,007		8,557
Other regulatory assets	7,965		5,359
Other regulatory liabilities	(8,005)		(8,189)
Total AWR	$	(25,454)	$	(22,796)

In July 2020, GSWC filed a general rate case application for all of its water regions and its general office. This general rate case will determine new water rates for the years 2022–2024. In November 2021, GSWC and the Public Advocates Office at the CPUC (“Public Advocates”) filed with the CPUC a joint motion to adopt a settlement agreement between GSWC and Public Advocates on this general rate case application. The settlement agreement, if approved, resolves all issues related to the 2022 annual revenue requirement in the general rate case application, with the exception of three unresolved issues. Due to the delay in finalizing the water general rate case, water revenues billed and recorded for the year ended December 31, 2022 were based on 2021 adopted rates, pending a final decision by the CPUC in this general rate case application. When approved, the new rates will be retroactive to January 1, 2022, and cumulative adjustments will be recorded upon receiving a decision by the CPUC that approves the settlement agreement. In January 2023, the CPUC issued a decision approving a second request for extension of the statutory deadline for a final decision in the water general rate case proceeding to April 7, 2023.

GSWC filed a cost of capital application in May 2021 currently pending CPUC approval. Hearings on this proceeding occurred in May 2022 and briefs were filed in June 2022. Based on management’s analysis of this regulatory proceeding and associated accounting to date, for the year ended December 31, 2022, GSWC reduced revenues by $6.4 million and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate, which relates to the impact of GSWC’s lower cost of debt requested in its application. However, at this time, management cannot predict the ultimate outcome of the cost of capital application and the associated impact on 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available.

GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”) and the Modified Cost Balancing Account (“MCBA”) accounts approved by the CPUC. The over- or under-collection of the WRAM is aggregated with the MCBA over- or under-collection for the corresponding ratemaking area and bears interest at the current 90-day commercial-paper rate. Surcharges and surcredits have been implemented for all pre-2022 WRAM/MCBA balances. During the year ended December 31, 2022, $4.4 million of pre-2022 WRAM/MCBA balances were recovered through surcharges.

During 2022, GSWC recorded an additional $22.8 million net under-collection in the WRAM/MCBA, based on 2021 authorized amounts, pending a final decision on the water general rate case. Once the CPUC issues a final decision on the general rate case, the WRAM and MCBA amounts recorded in 2022 will be updated to reflect the authorized 2022 amounts. The 2022 WRAM/MCBA balances represent under-collections in WRAM amounts due to a decrease in customer consumption as compared to adopted, as well as an under-collection of supply costs incurred and recorded in the MCBA due to a higher volume of purchased water as compared to adopted. As of December 31, 2022, GSWC had an aggregated regulatory asset of $31.8 million, which is comprised of a $17.2 million under-collection in the WRAM accounts and a $14.6 million under-collection in the MCBA accounts.

As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM balances within 24 months following the end of the year in which an under-collection is recorded. As of December 31, 2022, there were no material WRAM under-collections that were estimated to be collected over more than 24 months.

A regulatory asset has been recorded at December 31, 2022 and 2021 for the costs that would otherwise be charged to “other comprehensive income” within shareholders’ equity for the underfunded status of Registrant’s pension and other post-retirement benefit plans because the cost of these plans has historically been recovered through rates. As discussed in Note 12, as of December 31, 2022, Registrant’s underfunded position for these plans that have been recorded as a regulatory asset totaled $2.2 million. Registrant expects this regulatory asset to be recovered through rates in future periods.

The CPUC has authorized GSWC and BVESI to each use two-way balancing accounts to track differences between the forecasted annual pension expenses adopted in their respective customer rates and the actual annual expense to be recorded in accordance with the accounting guidance for pension costs. The two-way balancing accounts bear interest at the current 90-day commercial paper rate. As of December 31, 2022, GSWC has a $1.5 million over-collection related to the general office and water regions, and BVESI has a $496,000 over-collection in its two-way balancing account.

During the first half of 2022, GSWC and BVESI continued to experience delinquent customer accounts receivable due to the lingering effects of the COVID-19 pandemic, resulting in both GSWC and BVESI increasing their allowances for doubtful accounts since the end of 2021. The CPUC has authorized GSWC and BVESI to track incremental costs, including bad debt expense, in excess of what is included in their respective revenue requirements incurred as a result of the pandemic in COVID-19 emergency-related memorandum accounts, which GSWC and BVESI intend to file with the CPUC for future recovery.

As of December 31, 2022, GSWC and BVESI had approximately $3.5 million and $497,000, respectively, in regulatory asset accounts related to bad debt expense in excess of their revenue requirements, the purchase of personal protective equipment, additional incurred printing costs, and other incremental COVID-19-related costs. Emergency-related memorandum accounts are well-established cost recovery mechanisms authorized as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the amounts recorded in the COVID-19 emergency-related memorandum accounts have not impacted GSWC’s or BVESI’s earnings.

remitting federal funds that the state received from the American Rescue Plan Act of 2021 to the utility on behalf of eligible customers. GSWC applied these funds to its delinquent customers’ eligible balances. During 2022, BVESI received a total of $473,000 from the state of California for similar customer relief funding for unpaid electric customer bills incurred during the pandemic.

The CPUC requires that amounts tracked in GSWC’s and BVESI’s COVID-19 memorandum accounts for unpaid customer bills be first offset by any (i) federal and state relief for water or electric utility bill debt, and (ii) customer payments through payment plan arrangements, prior to receiving recovery from customers at large. After these offsets are made, GSWC will file with the CPUC for recovery of the remaining balance. BVESI intends to include the remaining balance in its COVID-19 memorandum account for recovery once all alternative sources of funding have been exhausted and credited to eligible customer accounts.

The CPUC adopted regulations intended to enhance the fire safety of overhead electric power lines. Those regulations included increased minimum clearances around electric power lines. BVESI was authorized to track incremental costs incurred to implement the regulations in a fire hazard prevention memorandum account for the purpose of obtaining cost recovery in a future general rate case. In August 2019, the CPUC issued a final decision on the electric general rate case, which set new rates through the year 2022. Among other things, the decision authorized BVESI to record incremental costs related to vegetation management, such as costs for increased minimum clearances around electric power lines, in the CPUC-approved memorandum account for future recovery. As of December 31, 2022, BVESI has approximately $8.7 million in incremental vegetation management costs recorded as a regulatory asset, which has been included in its general rate case application filed with the CPUC in August 2022 for future recovery. The incremental costs related to vegetation management included in the memorandum account will be subject to review during the general rate case proceeding.

California legislation enacted in September 2018 requires all investor-owned electric utilities to submit an annual wildfire mitigation plan (“WMP”) to the CPUC for approval. The WMP must include a utility’s plans on constructing, maintaining and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. BVESI submitted an update to its WMP in May 2022 to OEIS for approval prior to going to the CPUC for ratification. In December 2022, OEIS issued a final decision of approval to BVESI for its 2022 WMP update and in February 2023, the CPUC ratified BVESI’s current WMP.

Capital expenditures and other costs incurred as a result of the WMP are subject to CPUC audit. As a result, the CPUC’s Wildfire Safety Division (now part of the California Natural Resources Agency effective July 1, 2021) engaged an independent accounting firm to conduct examinations of the expenses and capital investments identified in the 2019 and 2020 WMPs for each of the investor-owned electric utilities, including BVESI. As of December 31, 2022, BVESI has approximately $4.3 million related to expenses accumulated in its WMP memorandum accounts that have been recognized as regulatory assets for future recovery. In December 2021, the independent accounting firm issued its final examination report, which contains the auditors’ results and recommendations. While the final report did not identify any findings of inappropriate costs included in the WMP memorandum accounts under review, the report suggested that the CPUC should evaluate whether some of the costs recorded in the WMP memorandum accounts are incremental to what is being recovered in customer rates in its general rate case proceeding. At this time, BVESI considers the auditor’s examination complete and does not expect further developments.

All capital expenditures and other costs incurred through December 31, 2022 as a result of BVESI’s WMPs are not currently in rates and have been filed for future recovery in BVESI's general rate case application. These costs will be subject to review during the general rate case proceeding and the CPUC may refer to the recommendations of the independent auditor’s report at that time.