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Regulatory Matters | 12 Months Ended
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Dec. 31, 2019
Regulated Operations [Abstract] |
Regulatory Matters | Regulatory Matters In accordance with accounting principles for rate-regulated enterprises, Registrant 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, 2019, Registrant had approximately $43.1 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) $79.9 million of regulatory liabilities relates to the creation of an excess deferred income tax liability brought about by a lower federal income tax rate as a result of the Tax Cuts and Jobs Act (see Note 11) that is expected to be refunded to customers, (ii) $12.4 million 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 (also see Note 11), and (iii) $43.4 million of regulatory assets relates to the underfunded position in Registrant's pension and other post-retirement obligations (not including the two-way pension balancing accounts). The remainder relates to other items that do not provide for or incur carrying costs. Regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC considers 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 GSWC’s assets are not recoverable in customer rates, GSWC 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 rate-making area. Amounts expected to be collected or refunded in the next twelve months have been classified as current assets and current liabilities by rate-making area. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:
|  | December 31,
(dollars in thousands) |  | 2019 |  | 2018
GSWC |  |  |  |  |  |
Water Revenue Adjustment Mechanism and Modified Cost Balancing Account |  | $ | 22,535 |  |  | $ | 17,763 |
Costs deferred for future recovery on Aerojet case |  | 8,292 |  |  | 9,516 |
Pensions and other post-retirement obligations (Note 12) |  | 40,693 |  |  | 33,124 |
Derivative unrealized loss (Note 5) |  | 3,171 |  |  | 311 |
General rate case memorandum accounts |  | 4,820 |  |  | 5,054 |
Other regulatory assets |  | 18,842 |  |  | 18,440 |
Excess deferred income taxes (Note 11) |  | (79,886 | ) |  | (81,465 | )
Flow-through taxes, net (Note 11) |  | (12,439 | ) |  | (15,273 | )
Tax Cuts and Jobs Act ("Tax Act") memorandum accounts |  | — |  |  | (8,293 | )
Various refunds to customers |  | (8,478 | ) |  | (7,517 | )
Total |  | $ | (2,450 | ) |  | $ | (28,340 | )
Alternative-Revenue Programs: Under the WRAM, GSWC records the difference between the adopted level of volumetric revenues as authorized by the CPUC for metered accounts (adopted volumetric revenues) and the actual volumetric revenues recovered in customer rates. While the WRAM tracks volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items that are not subject to the WRAM. The adopted volumetric revenues consider the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to an asset or liability balancing account (tracked individually for each rate making area). The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future. The WRAM only applies to customer classes with conservation rates in place. The majority of GSWC’s water customers have conservation rate structures. Under the Modified Cost Balancing Account (“MCBA”), GSWC tracks adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. Variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses are recorded as a component of the MCBA to be recovered from or refunded to GSWC’s customers at a later date. This is reflected with an offsetting entry to an asset or liability balancing account (tracked individually for each rate-making area). Unlike the WRAM, the MCBA applies to all customer classes. The recovery or refund of the WRAM is netted against the MCBA over- or under-collection for the corresponding rate-making area and bears interest at the current 90-day commercial-paper rate. During the year ended December 31, 2019, $11.6 million of pre-2019 WRAM/MCBA balances were recovered. During 2019, GSWC recorded an additional $16.3 million net under-collection in the WRAM/MCBA. The majority of this balance represents 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, 2019, GSWC had an aggregated regulatory asset of $22.5 million, which is comprised of an $11.0 million under-collection in the WRAM accounts and an $11.5 million under-collection in the MCBA accounts. In February 2020, GSWC filed with the CPUC for recovery of the 2019 WRAM/MCBA balances. As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM balances within 24 months following the year in which an under-collection is recorded. As of December 31, 2019, there were no WRAM under-collections that were estimated to be collected over more than 24 months. Costs Deferred for Future Recovery: The CPUC authorized a memorandum account to allow for the recovery of costs incurred by GSWC related to contamination lawsuits brought against Aerojet-General Corporation ("Aerojet") and the state of California. In July 2005, the CPUC authorized GSWC to recover approximately $21.3 million of the Aerojet litigation memorandum account, through a rate surcharge, which will continue for no longer than 20 years. Beginning in October 2005, a surcharge went into effect to begin amortizing the memorandum account over a 20-year period. Aerojet also agreed to reimburse GSWC $17.5 million, plus interest accruing from January 1, 2004, for GSWC’s past legal and expert costs, which is included in the Aerojet litigation memorandum account. The reimbursement of the $17.5 million is contingent upon the issuance of land use approvals for development in a defined area within Aerojet property in Eastern Sacramento County and the receipt of certain fees in connection with such development. It is management’s intention to offset any proceeds from the housing development by Aerojet in this area against the balance in this litigation memorandum account. At this time, management believes the full balance of the Aerojet litigation memorandum account will be collected either from customers or Aerojet. Pensions and Other Post-retirement Obligations: A regulatory asset has been recorded at December 31, 2019 and 2018 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, 2019, Registrant’s underfunded position for these plans that have been recorded as a regulatory asset totaled $43.4 million. Registrant expects this regulatory asset to be recovered through rates in future periods. The CPUC has authorized GSWC to use two-way balancing accounts to track differences between the forecasted annual pension expenses adopted in both water and electric rates and the actual annual expense to be recorded by GSWC 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, 2019, GSWC has a net $2.7 million over-collection in the two-way pension balancing accounts, consisting of a $1.5 million over-collection related to the general office and water regions, and a $1.2 million over-collection related to BVES. General Rate Case Memorandum Accounts: The balance in the general rate case memorandum accounts represents the revenue differences between interim rates and final rates authorized by the CPUC due to delays in receiving decisions on various general rate case applications. As of December 31, 2019, there is a net aggregate $4.8 million under-collection in these accounts, primarily related to the revenue difference between interim rates and final rates authorized by the CPUC in the May 2019 decision, as further discussed below. GSWC has implemented surcharges ranging from 12-36 months to collect the $4.8 million balance. Tax Cuts and Jobs Act ("Tax Act") Memorandum Accounts: On December 22, 2017, the Tax Act was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. The most significant provisions of the Tax Act impacting GSWC are the reduction of the federal corporate income tax rate from 35% to 21% and the elimination of bonus depreciation for regulated utilities. Pursuant to a CPUC directive, the 2018 impact of the Tax Act on the water segment’s adopted revenue requirement was tracked in a memorandum account effective January 1, 2018. For 2018, over-collections of approximately $7.1 million related to the water segment were tracked and recorded as a regulatory liability. On July 1, 2018, new lower water rates, which incorporate the new federal income tax rate, were implemented for all water ratemaking areas. GSWC refunded the $7.1 million to water customers in 2019. The electric general rate case approved by the CPUC in August 2019 was retroactive to January 1, 2018. The new rates approved in this general rate case incorporate the effects of the Tax Act. Reductions in the water and electric revenue requirements resulting from the impacts of the Tax Act are largely offset by decreases in GSWC's income tax expense, resulting in minimal impact to net earnings (see Note 11). Other Regulatory Assets: Other regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in the future. These regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or circumstances that indicate recovery is probable. Other Regulatory Matters: Renewables Portfolio Standard: BVES is subject to the renewables portfolio standard (“RPS”) law, which requires BVES to meet certain targets for purchases of energy from qualified renewable energy resources. In December 2012, GSWC entered into a ten-year agreement with a third party to purchase renewable energy credits (“RECs”) whereby GSWC agreed to purchase approximately 578,000 RECs over a ten-year period, which would be used towards meeting California's RPS requirements. As of December 31, 2019, GSWC believes it has purchased sufficient RECs to be in compliance for all periods through 2019. Accordingly, no provision for loss or potential penalties has been recorded in the financial statements as of December 31, 2019. The cost of these RECs has been included as part of the electric supply cost balancing account as of December 31, 2019. Cost of Capital Proceeding: In March 2018, the CPUC issued a final decision in the cost of capital proceeding for GSWC and three other water utilities for the years 2018 - 2020. Among other things, the final decision adopted for GSWC's water segment a return on equity of 8.90%, with a return on rate base of 7.91%. The previously authorized return on equity for GSWC’s water segment was 9.43%, with a return on rate base of 8.34%. In April 2018, GSWC implemented new water rates to incorporate the cost of capital decision. For the year ended December 31, 2019, GSWC recorded a regulatory liability with a corresponding decrease in water revenues of approximately $982,000 representing the revenue difference between the old and new cost of capital rates through April 2018. General Rate Case Filings: Water Segment: In July 2017, GSWC filed a general rate case application for all of its water regions and the general office to determine new rates for the years 2019 - 2021. On May 30, 2019, the CPUC issued a final decision on GSWC's water general rate case with rates retroactive to January 1, 2019. As a result of the May 2019 CPUC final decision, GSWC implemented new water rates on June 8, 2019. The CPUC in the final decision also approved the recovery of previously incurred costs that were being tracked in CPUC-authorized memorandum accounts. This resulted in a reduction to administrative and general expense of approximately $1.1 million, which was recorded during the second quarter of 2019. Electric Segment: In May 2017, GSWC filed its electric general rate case application with the CPUC to determine new electric rates for the years 2018 through 2021. In November 2018, GSWC and the Public Advocates Office filed a joint motion to adopt a settlement agreement between the two parties resolving all issues in connection with the general rate case. On August 15, 2019, the CPUC issued a final decision on this general rate case, adopting the settlement agreement in its entirety. As a result of the decision, which was retroactive to January 1, 2018, Registrant recorded approximately $2.3 million of pretax income in 2019 which related to 2018. Among other things, the decision (i) authorizes a new return on equity for GSWC's electric segment of 9.60%, as compared to its previously authorized return of 9.95%; (ii) includes a capital structure and debt cost similar to those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital proceeding; and (iii) extends the rate cycle by an additional year (new rates will be effective for 2018 - 2022).

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- Definition The entire disclosure for detailed information about regulatory assets and liabilities, including current and noncurrent assets created when regulatory agencies permit the deferral of costs to the balance sheet that would otherwise be required to appear on the company's income statement and would be charged against current expenses or revenues, as well as current and noncurrent liabilities created when regulatory agencies permit. + References No definition available. + Details
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