Balancing and Memorandum Account Recovery Procedures

For California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. San Jose Water Company also maintains memorandum accounts to track revenue impacts due to catastrophic events, unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, cost of capital, any revenue requirement impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and other approved activities or as directed by the CPUC.

Balancing and memorandum accounts are recognized in revenue by San Jose Water Company when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. In addition, in the case of special revenue programs such as the MCRAMA, collection of the account balance must occur within 24 months of the end of the year the revenue is recorded. In assessing the probability criteria for balancing and memorandum accounts between general rate cases, San Jose Water Company considers evidence that may exist prior to CPUC authorization that would satisfy FASB ASC Topic 980 - “Regulated Operations,” subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support for balance recognition, the balances are recorded in SJW Corp.'s financial statements.

San Jose Water Company met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and increased revenue and regulatory assets as follows:



	Three months ended September 30, 2014									Three months ended September 30, 2013
	Beginning Balance			Revenue Increase(Reduction)		Refunds (Collections)		Ending Balance		Beginning Balance			Revenue Increase(Reduction)		Refunds (Collections)	Ending Balance

Memorandum accounts	$	(1,511	)	(154	)	23		(1,642	)	$	(1,558	)	(279	)	—	(1,837	)

Balancing accounts:
Water supply costs	(1,221		)	2,477		(17	)	1,239		(1,833		)	679		—	(1,154	)
Pension	9,672			(6,625	)	(123	)	2,924		8,307			825		—	9,132
2012 General Rate Case true-up	—			46,456		—		46,456		—			—		—	—
All others	1,858			(81	)	(9	)	1,768		1,314			536		—	1,850
Total balancing accounts	$	10,309		42,227		(149	)	52,387		$	7,788		2,040		—	9,828

Total	$	8,798		42,073		(126	)	50,745		$	6,230		1,761		—	7,991



	Nine months ended September 30, 2014									Nine months ended September 30, 2013
	Beginning Balance			Revenue Increase(Reduction)		Refunds (Collections)		Ending Balance		Beginning Balance			Revenue Increase(Reduction)	Refunds (Collections)		Ending Balance

Memorandum accounts	$	(1,895	)	230		23		(1,642	)	$	(1,887	)	928	(878	)	(1,837	)

Balancing accounts:
Water supply costs	(2,378		)	3,634		(17	)	1,239		(1,590		)	436	—		(1,154	)
Pension	9,734			(6,687	)	(123	)	2,924		6,657			2,475	—		9,132
2012 General Rate Case true-up	—			46,456		—		46,456		—			—	—		—
All others	2,229			(452	)	(9	)	1,768		369			1,481	—		1,850
Total balancing accounts	$	9,585		42,951		(149	)	52,387		$	5,436		4,392	—		9,828

Total	$	7,690		43,181		(126	)	50,745		$	3,549		5,320	(878	)	7,991

On September 29, 2014, the CPUC approved a surcharge to true-up the difference between interim rates and authorized rates of $46,700 to be recovered over a three-year period as well as one-time refunds of $200 as authorized in the 2012 General Rate Case. The net amount of $46,500 has been recorded in the 2012 General Rate Case true-up row in the table above. This amount includes $2,800 related to water supply and pension balancing accounts that have previously been recorded and have been deducted from the appropriate row in the table above.

As of September 30, 2014, the total balance in San Jose Water Company's balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $3,721, of which 87% relates to the MCMA and MCRAMA. All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in San Jose Water Company's next general rate case or at the time an individual account reaches a threshold of 2% of authorized revenue, whichever occurs first.