Regulatory Matters

12 Months Ended

Dec. 31, 2020

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, 2020, Registrant had approximately $19.8 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) $78.3 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 that is expected to be refunded to customers (Note 11), (ii) $10.4 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 (Note 11), and (iii) $66.6 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). The remainder relates to other items that do not provide for or incur carrying costs.

Regulatory assets represent costs incurred by GSWC and BVESI for which either has received or expects 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 entity 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 assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:


	December 31,
(dollars in thousands)	2020		2019
GSWC
Water Revenue Adjustment Mechanism, net of the Modified Cost Balancing Account	$	13,741	$	22,535
Costs deferred for future recovery on Aerojet case	6,751		8,292
Pensions and other post-retirement obligations (Note 12)	65,576		40,693
Derivative unrealized loss (Note 5)	—		3,171
COVID-19 memorandum account	4,119		—
Other regulatory assets	10,670		23,662
Excess deferred income taxes (Note 11)	(74,185)		(79,886)
Flow-through taxes, net (Note 11)	(9,722)		(12,439)
Various refunds to customers	(4,577)		(8,478)
Total GSWC	$	12,373	$	(2,450)
BVESI
Derivative unrealized loss (Note 5)	1,537		—
Other regulatory assets	2,629		—
Total AWR	$	16,539	$	(2,450)

Alternative-Revenue Programs:

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. During the year ended December 31, 2020, $14.7 million of pre-2020 WRAM/MCBA balances were recovered through surcharges. During 2020, GSWC recorded an additional $5.9 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, 2020, GSWC had an aggregated regulatory asset of $13.7 million, which is comprised of a $3.6 million over-collection in the WRAM accounts and a $17.3 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 year in which an under-collection is recorded. As of December 31, 2020, 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, 2020 and 2019 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, 2020, Registrant’s underfunded position for these plans that have been recorded as a regulatory asset totaled $66.6 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, 2020, GSWC has a $1.0 million over-collection related to the general office and water regions, and BVESI has a $206,000 over-collection in its two-way balancing account.

COVID-19 Memorandum Accounts:

The CPUC has approved GSWC's and BVESI's requests to activate memorandum accounts, such as a Catastrophic Event Memorandum Account ("CEMA"), for the impact of the COVID-19 pandemic. GSWC and BVESI have suspended service disconnections for nonpayment as required by the CPUC. Costs incurred by GSWC and BVESI in response to the COVID-19 pandemic, including bad debt expense in excess of what is included in their respective revenue requirements, are being included in these memorandum accounts for future recovery. As of December 31, 2020, GSWC and BVESI recorded $4.1 million and $295,000, respectively, in COVID-19-related incremental costs as regulatory assets as GSWC and BVESI believe these costs are probable of recovery.

Other Regulatory Assets:

Other regulatory assets represent costs incurred by GSWC or BVESI 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.