Water Utility Services are subject to rate regulation based on cost recovery and meets the criteria of accounting guidance for rate-regulated operations, which considers the timing of the recognition of certain revenues and expenses. SJW Group’s consolidated financial statements reflect the effects of the rate-making process. The rate-making process is intended to provide

revenues sufficient to recover normal operating expenses, provide funds for replacement of water infrastructure and produce a fair and reasonable return on stockholder common equity.

Water Utility Services recognizes regulatory assets and liabilities for amounts that are deemed probable of recovery from, or refund to, customers. Determining probability requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate that recovery or refund is probable.

If the utility determines that it is no longer probable that regulatory assets would be recovered or reflected in future rates, or if the utility ceased to be subject to rate regulation, the regulatory assets would be charged against income in the period in which that determination was made. If regulatory accounting did not apply, the utility’s future financial results could become more volatile as compared to historical financial results due to the differences in the timing of expense or revenue recognition.

The company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly.

Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when it is determined that the asset is no longer probable of recovery. SJW Group continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows.

SJW Group’s net regulatory assets not earning a return primarily included postretirement pensions and other medical benefits unfunded amounts, and business combinations debt premium, net. The total amount of net regulatory assets not earning a return at December 31, 2022 and 2021, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $52,066 and $84,887, respectively.


	2022		2021
Regulatory assets:
Income tax temporary differences, net (a)	$	43,434	22,420
Postretirement pensions and other medical benefits	31,493		62,197
Business combinations debt premium	17,396		19,937
Balancing and memorandum accounts, net	45,769		38,334
WRA (b)	(4,488)		2,588
Other, net (c)	9,739		9,145
Total regulatory assets, net	143,343		154,621
Less: current regulatory asset, net	16,068		2,629
Total regulatory assets, net, less current portion	$	127,275	151,992

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(a)The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years.

(b)WRA is a Connecticut Water decoupling mechanism that qualifies as an alternative revenue program. It is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case.

(c)Other, net includes other regulatory mechanisms, accrued benefits for vacation, and asset retirement obligations that have not yet been passed through in rates.

In 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. SJWC 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.

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 SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2% of authorized revenue, whichever occurs first. As of December 31, 2022, the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-

collection of $655. On October 11, 2022, the CPUC issued General Rate Case Decision No. 22-10-005, which approved a recovery of $18,174 in balancing and memorandum accounts from customers.

SJWC met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded regulatory assets, net, as follows:


	For the year ended December 31, 2022
	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance
Revenue accounts:
Monterey Water Revenue Adjustment Mechanism (“MWRAM”)	$	16,866	6,089	(12,091)	10,864
WCMA (a)	3,534		4,041	(12,614)	(5,039)
Cost of capital memorandum accounts	(1,563)		(28)	1,416	(175)
2022 GRC interim memorandum account	—		20,650	—	20,650
All others	(386)		2,034	795	2,443
Total revenue accounts	18,451		32,786	(22,494)	28,743

Cost-recovery accounts:
Water supply costs	10,545		3,830	(4,502)	9,873
Pension	4,941		(249)	(1,857)	2,835
PRVMA (b)	707		9	(365)	351
CEMA (c)	3,245		240	—	3,485
All others	445		1,830	(1,793)	482
Total cost-recovery accounts	19,883		5,660	(8,517)	17,026

Total	$	38,334	38,446	(31,011)	45,769


	For the year ended December 31, 2021
	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance
Revenue accounts:
MWRAM	$	12,077	4,788	1	16,866
WCMA (a)	666		3,243	(375)	3,534
Cost of capital memorandum accounts	(1,561)		(2)	—	(1,563)
All others	(1,139)		750	3	(386)
Total revenue accounts	10,043		8,779	(371)	18,451

Cost-recovery accounts:
Water supply costs	8,123		2,421	1	10,545
Pension	3,478		1,464	(1)	4,941
PRVMA (b)	1,108		1	(402)	707
CEMA (c)	2,266		979	—	3,245
All others	445		—	—	445
Total cost-recovery accounts	15,420		4,865	(402)	19,883

Total	$	25,463	13,644	(773)	38,334

(a)In 2021, with the declaration of a drought emergency and conservation mandates in California by Governor Gavin Newsom and Valley Water, SJWC obtained approval to reestablish a WCMA effective July 20, 2021. Drought surcharges collected are used to offset the revenue losses tracked in the WCMA. For the year ended December 31, 2022 and 2021, SJWC recognized $4,041 and $3,243, respectively, in lost revenues accumulated in the WCMA. Effective on November 11, 2022, the CPUC approved the refund of the net WCMA balance of $20,474 to customers.

(b)On August 27, 2020, the Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) costs of $1,219 were approved for recovery by the CPUC.

(c)On March 4, 2020, the California Governor declared a State of Emergency related to COVID-19. In response, the CPUC ordered its regulated water utilities to implement emergency customer protections in accordance with the Company’s Disaster Relief Customer Protections and Outreach Plan, including waiving reconnection deposits, offering payment arrangements, suspending water service disconnections due to non-payment and requiring water utilities to develop a transition plan regarding shutoffs and terminations with customers once the moratorium ends. The customer