Balancing and Memorandum Accounts

6 Months Ended

Jun. 30, 2019

Balancing and Memorandum Accounts

San Jose Water Company has established balancing accounts 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, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC, such as the WCMA or Tax Act memorandum accounts.

Balancing and memorandum accounts are recognized 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 WCMA, San Jose Water Company follows the requirements of ASC Topic 980-605-25, “Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded. A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period. This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges, if any. 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 ASC Topic 980 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, the balances are recorded in SJW Group’s financial statements.

Based on ASC Topic 980-605-25, San Jose Water Company recognized a regulatory assets of $1,320 and $568 due to lost revenues accumulated in the 2019 WCMA account for the three and six months ended June 30, 2019, respectively. Of the $1,320 and $568 recognized in the 2019 WCMA account for the three and six months ended June 30, 2019, respectively, a reserve of $11 was recorded which is the estimated amount that will not be collected within the 24-month period, as required by the guidance. The amounts have been reflected in the 2019 WCMA balance shown in the table below.

San Jose Water Company recognized a regulatory assets of $4,118 and $3,410 due to lost revenues accumulated in the 2018 WCMA account for the three and six months ended June 30, 2018, respectively. Of the $4,118 and $3,410 recognized in the 2018 WCMA account for the three and six months ended June 30, 2018, respectively, a reserve of $407 was recorded which is the estimated amount that will not be collected within the 24-month period, as required by the guidance. Activity for the three and six months ended June 30, 2019, represents interest and reserve activity on the accumulated balance. For the three and six

months ended June 30, 2019, a reserve of $94 and $174, respectively, was recorded. The amounts have been reflected in the 2018 WCMA balance shown in the table below.

Cost of capital memorandum account was approved by the CPUC on March 14, 2018. The account tracks the difference between current water rates and the lower rates adopted in the cost of capital decision on March 22, 2018. San Jose Water Company recorded a regulatory liability of $198 and $1,363 in the cost of capital memorandum account for the three and six months ended June 30, 2018, with a corresponding reduction to revenue. Activity for the three and six months ended June 30, 2019, respectively, represents interest activity on the accumulated balance. The amount has been reflected in the cost of capital memorandum account balance shown in the table below.

The CPUC has directed San Jose Water Company to establish a memorandum account to capture the impact of the Tax Act on its regulated revenue requirement. The CPUC has indicated that any benefit from implementing the new law should ultimately be passed on to ratepayers. Accordingly, San Jose Water Company recorded a regulatory liability of $4,563 and $5,496 in the tax memorandum account for the three and six months ended June 30, 2018, respectively, with a corresponding reduction to revenue. Activity for the three and six months ended June 30, 2019, represents interest activity on the accumulated balance. The amount has been reflected in the tax memorandum account balance shown in the table below.



	Three months ended June 30, 2019									Three months ended June 30, 2018
	Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments		Ending Balance		Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments	Ending Balance

Revenue accounts:
2014-2017 WCMA*	$	6,912		—		(1,597	)	5,315		$	7,055		220		2	7,277
2018 WCMA*	8,997			(39	)	—		8,958		(708		)	3,711		—	3,003
2019 WCMA*	(752		)	1,309		—		557		—			—		—	—
2012 General Rate Case true-up	10,152			—		(2,421	)	7,731		11,320			—		4	11,324
Cost of capital memorandum account	(1,532		)	(8	)	—		(1,540	)	(1,309		)	(198	)	—	(1,507	)
Tax memorandum account	(6,545		)	(40	)	—		(6,585	)	(933		)	(4,563	)	—	(5,496	)
All others	6,249			2,031		(1,088	)	7,192		4,251			422		2	4,675
Total revenue accounts	$	23,481		3,253		(5,106	)	21,628		$	19,676		(408	)	8	19,276
Cost-recovery accounts:
Water supply costs	8,217			(1,058	)	(1,247	)	5,912		8,197			1,190		—	9,387
Pension	(1,237		)	199		805		(233	)	(2,298		)	161		—	(2,137	)
All others	1,015			3		(148	)	870		—			—		—	—
Total cost-recovery accounts	$	7,995		(856	)	(590	)	6,549		$	5,899		1,351		—	7,250

Total	$	31,476		2,397		(5,696	)	28,177		$	25,575		943		8	26,526



	Six months ended June 30, 2019									Six months ended June 30, 2018
	Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments		Ending Balance		Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments	Ending Balance

Revenue accounts:
2014-2017 WCMA*	$	7,750		—		(2,435	)	5,315		$	6,679		596		2	7,277
2018 WCMA*	9,386			(428	)	—		8,958		—			3,003		—	3,003
2019 WCMA*	—			557		—		557		—			—		—	—
2012 General Rate Case true-up	11,328			96		(3,693	)	7,731		11,320			—		4	11,324
Cost of capital memorandum account	(1,523		)	(17	)	—		(1,540	)	(144		)	(1,363	)	—	(1,507	)
Tax memorandum account	(6,504		)	(81	)	—		(6,585	)	—			(5,496	)	—	(5,496	)
All others	5,112			3,738		(1,658	)	7,192		3,851			822		2	4,675
Total revenue accounts	$	25,549		3,865		(7,786	)	21,628		$	21,706		(2,438	)	8	19,276
Cost-recovery accounts:
Water supply costs	9,617			(1,803	)	(1,902	)	5,912		8,679			708		—	9,387
Pension	(1,843		)	383		1,227		(233	)	(2,459		)	322		—	(2,137	)
All others	1,090			6		(226	)	870		—			—		—	—
Total cost-recovery accounts	$	8,864		(1,414	)	(901	)	6,549		$	6,220		1,030		—	7,250

Total	$	34,413		2,451		(8,687	)	28,177		$	27,926		(1,408	)	8	26,526

* As of June 30, 2019, the reserve balance for the 2019 WCMA was $11 which has been included in the balance above. As of June 30, 2019, and 2018, the reserve balances for the 2018 WCMA was $174 and $407, respectively, which has been included in the balances above. As of June 30, 2018, the reserve balance for the 2017 WCMA was $938 which has been included in the balance above.

As of June 30, 2019, 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 $1,230. 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 balance reaches a threshold of 2% of authorized revenue, whichever occurs first.