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Regulatory Matters | 6 Months Ended
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Jun. 30, 2023
Regulated Operations [Abstract] |
Regulatory Matters | Regulatory Matters In accordance with accounting principles for rate-regulated enterprises, GSWC and BVES record regulatory assets, which represent probable future recovery of incurred 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 June 30, 2023, GSWC and BVES had approximately $73.7 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) $74.9 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, (ii) $2.4 million of net regulatory assets relates to the underfunded position in Registrant's pension and other retirement obligations (not including the two-way pension balancing accounts), and (iii) a $4.7 million regulatory liability related to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVES’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 including flowed-through deferred income taxes. Regulatory assets represent costs incurred by GSWC and/or BVES 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 BVES 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 BVES’s regulatory 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 assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:
(dollars in thousands) |  | June 30, 2023 |  | December 31, 2022
GSWC |  |  |  |
2022/2023 general rate case memorandum accounts (unbilled revenue) |  | $ | 50,345 |  |  | $ | — |
Water revenue adjustment mechanism, net of modified cost balancing account |  | 39,006 |  |  | 31,803 |
COVID-19 memorandum accounts |  | 3,543 |  |  | 3,478 |
Excess deferred income taxes |  | (70,967) |  |  | (71,870) |
Other regulatory assets |  | 24,917 |  |  | 19,964 |
Other regulatory liabilities |  | (2,039) |  |  | (9,949) |
Total GSWC |  | $ | 44,805 |  |  | $ | (26,574) |
BVES |  |  |  |
Derivative instrument memorandum account (Note 5) |  | (4,657) |  |  | (11,847) |
Wildfire mitigation and other fire prevention related costs memorandum accounts |  | 15,121 |  |  | 13,007 |
Other regulatory assets |  | 9,546 |  |  | 7,965 |
Other regulatory liabilities |  | (8,505) |  |  | (8,005) |
Total AWR |  | $ | 56,310 |  |  | $ | (25,454) |
Regulatory matters are discussed in the consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, 2022. Water General Rate Case and the 2022/2023 General Rate Case Memorandum Accounts: On June 29, 2023, the CPUC adopted a final decision in GSWC's general rate case application for all of its water regions and its general office that determines new water rates for the years 2022–2024. The assigned administrative law judge at the CPUC had issued a proposed decision on April 13, 2023 that, among other things, (i) adopted the full settlement agreement between GSWC and the Public Advocates Office at the CPUC (“Public Advocates”) that resolved all issues related to the 2022 annual revenue requirement in the general rate case application, and (ii) allowed for additional increases in adopted revenues for 2023 and 2024 subject to an earnings test and inflationary index values at the time of filing for implementation of the new rates. The final decision issued on June 29, 2023 is consistent in all material respects with the proposed decision issued in April. The new rates for 2022 and 2023 are effective and retroactive to January 1, 2022 and January 1, 2023, respectively. The impact of retroactive rates for the full year of 2022 as well as the 2023 second-year rate increases for the first half of 2023 have been reflected in the results of operations for the six months ended June 30, 2023. Because of receiving a proposed decision in April 2023 that approved the settlement agreement in its entirety, the impact of retroactive rates for the full year of 2022 and the estimated second-year rate increases had been reflected in the 2023 first quarter results as it became probable that the approved retroactive rates for the full year of 2022 and the first three months of 2023 would be permitted to be billed to customers in the future. Due to the delay in finalizing the water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the six months ended June 30, 2023 were based on 2021 adopted rates. GSWC was authorized to create general rate case memorandum accounts to track the revenue differences between the 2021 adopted rates and the new 2022 and 2023 rates authorized by the CPUC. As of June 30, 2023, there is an aggregate cumulative amount of $50.3 million in the general rate case memorandum accounts that have been recorded as regulatory assets related to unbilled water revenues recognized during the three and six months ended June 30, 2023, and which represent the difference between the 2021 adopted rates billed to customers and the rates authorized in the final decision for the full year of 2022 and the 2023 second-year rate increases recorded through June 30, 2023. As a result of receiving the final decision, GSWC filed for the implementation of new 2023 rate increases that went into effect on July 31, 2023. Within 90 days after the implementation of 2023 rates, GSWC will also file to recover all retroactive amounts accumulated in GSWC's general rate case memorandum accounts, of which the majority of the balances will be recovered over a 36-month period. Alternative-Revenue Programs: GSWC currently 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”) 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. As of June 30, 2023, GSWC had an aggregated regulatory asset of $39.0 million, which is comprised of a $43.4 million under-collection in the WRAM accounts and a $4.4 over-collection in the MCBA accounts. During the six months ended June 30, 2023, GSWC recorded additional net under-collections in the WRAM/MCBA accounts of approximately $22.2 million related to the 2023 year that resulted largely from lower-than-adopted water usage as authorized in the general rate case decision. In addition, GSWC recorded a net reduction of $9.8 million of under-collections during the first quarter of 2023 to reflect the cumulative full-year impact of 2022 based on authorized 2022 amounts approved in the general rate case decision for both the WRAM and MCBA accounts. On July 27, 2023, the CPUC approved the recovery of all pre-2023 WRAM/MCBA balances. Accordingly, GSWC has implemented surcharges and surcredits to recover/refund all of its WRAM/MCBA balances accumulated as of December 31, 2022. 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 June 30, 2023, there were no WRAM under-collections that were estimated to be collected beyond this 24 month period. Cost of Capital Proceeding: O n June 29, 2023, a final decision was adopted by the CPUC in the cost of capital proceeding that, among other things, (i) adopts GSWC’s requested capital structure of 57% equity and 43% debt; (ii) adopts a cost of debt of 5.1% for GSWC as compared to 6.6% previously authorized; (iii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iv) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”) through December 31, 2024; and (v) adopts the new cost of capital for the three-year period commencing January 1, 2022 through December 31, 2024. Based on the Company's assessment of the final decision issued in June, all adjustments to rates are to be prospective and not retroactive. GSWC filed an advice letter that implemented the new cost of capital effective July 31, 2023. Following the receipt of the final decision adopted on June 29 in the cost of capital proceeding, management updated its analysis and reassessed the accounting estimates recorded to date related to GSWC’s lower cost of debt. Accordingly, GSWC recorded a change in estimate that resulted in an increase to water revenues during the second quarter of 2023 in the amount of $9.3 million as a result of reversing its regulatory liability for revenues subject to refund that it had recorded during 2022 and through the end of the first quarter of 2023. The lower revenues recorded in 2022 and in the first quarter of 2023 of $6.4 million and $2.9 million, respectively, were estimates of revenues subject to refund at that time associated with the lower cost of debt. The WCCM adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by 102.8 basis points from the benchmark, which triggered the WCCM adjustment. GSWC recognized revenues for the first half of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that has been billed to water customers through the first half of 2023. On June 30, 2023, GSWC filed an advice letter to establish the WCCM for 2023, which increased GSWC's 8.85% adopted return on equity in the decision to 9.36% effective July 31, 2023. COVID-19 Emergency Memorandum Accounts: The CPUC has authorized GSWC and BVES 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. As of June 30, 2023, GSWC and BVES had approximately $3.5 million and $500,000, 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, which GSWC and BVES intend to file with the CPUC for future recovery. 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 BVES’s earnings. On April 10, 2023, the Biden Administration terminated the COVID-19 national emergency. The COVID-19 emergency-related memorandum accounts for GSWC and BVES expired when the COVID-19 national emergency ended and no additional amounts will be included in these memorandum accounts. The CPUC requires that amounts tracked in GSWC’s and BVES’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. BVES 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. In 2022, the CPUC’s moratoriums on service disconnections for nonpayment for water and electric customers ended. As a result, service disconnections due to nonpayment resumed with disconnections for delinquent residential customers having resumed in June 2022. BVES Regulatory Assets: Wildfire Mitigation and Other Fire Prevention Related Costs Memorandum 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. BVES 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 for BVES through the year 2022. Among other things, the decision authorized BVES 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 June 30, 2023, BVES had approximately $10.1 million in incremental vegetation management costs recorded as a regulatory asset, which has been included in a new 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 pending 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. In December 2022, the Office of Energy Infrastructure Safety under the California Natural Resources Agency approved BVES's 2022 WMP update. In February 2023, the CPUC ratified BVES’s current WMP. As of June 30, 2023, BVES has approximately $5.0 million related to expenses accumulated in its WMP memorandum accounts that have been recognized as regulatory assets for future recovery. All capital expenditures and other costs incurred through June 30, 2023 as a result of BVES’s WMPs are not currently in rates and have been filed for future recovery in BVES’s general rate case application. These costs will be subject to review during BVES's general rate case proceeding. 2023 Winter Storm Other Regulatory Asset BVES activated a catastrophic emergency memorandum account (“CEMA”) to track the incremental costs incurred in response to a severe winter storm that occurred during certain weeks of the first and second quarters of 2023, which resulted in the declaration of an emergency by the governor of California. Incremental costs of approximately $1.3 million were incurred and included in the CEMA account, which has been recorded as a regulatory asset as of June 30, 2023 for future recovery. The incremental costs included in the CEMA account will be subject to review and approval by the CPUC. CEMA 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 this CEMA account did not impact BVES’s earnings. Other Regulatory Assets: Other regulatory assets represent costs incurred by GSWC or BVES for which they have received or expect to receive rate recovery in the future. Registrant believes that these regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or circumstances that indicate recovery is probable. If the CPUC determines that a portion of either GSWC’s or BVES’s regulatory 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 regulatory asset to the amount that is probable of recovery.

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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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