Regulatory Matters

9 Months Ended

Sep. 30, 2025

Regulatory assets and liabilities are comprised of the following as of September 30, 2025 and December 31, 2024:


	September 30, 2025		December 31, 2024
Regulatory assets:
Income tax temporary differences (a) (p)	$	196,072	180,103
Monterey Water Revenue Adjustment Mechanism (“MWRAM”) (b)	9,660		9,985
Business combinations debt premium (c) (p)	10,407		12,313
Employee benefit costs (d) (p)	6,008		6,370
Revenue adjustment mechanisms (e) (p)	8,670		5,024
Customer Assistance Program (“CAP”) balancing account (f)	4,281		6,599
Unrecognized pensions and other postretirement benefits (g) (p)	1,506		3,177
2022 general rate case interim memorandum account (h)	—		3,392

Other (j)	12,819		15,264
Total regulatory assets	249,423		242,227
Less: current regulatory assets (k)	7,047		18,172
Total regulatory assets, less current portion	$	242,376	224,055
Regulatory liabilities:
Cost of removal (l)	387,169		364,398
Future income tax benefits due to customers (m)	82,349		84,128
Unrecognized pensions and other postretirement benefits (g)	27,608		27,872
PFAS legal settlement proceeds (q)	20,986		—
Employee benefit costs (d)	6,850		1,137
Water supply costs (i)	605		3,386
Revenue adjustment mechanisms (e)	89		1,122
Other (n)	2,553		2,798
Total regulatory liabilities	528,209		484,841
Less: current regulatory liabilities (o)	3		1,122
Total regulatory liabilities, less current portion	$	528,206	483,719

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(a)Consists primarily of temporary income tax differences that are flowed through to customers, which will be recovered in future rates as these temporary differences reverse. The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the lives of the plant assets, which are between 5 to 100 years.

(b)MWRAM is described in the following section.

(c)Consists of debt fair value adjustments recognized through purchase accounting for the completed merger with CTWS in 2019.

(d)Includes deferrals of pension and other postretirement benefit expense and cost of accrued benefits for vacation, and group health insurance.

(e)Primarily relates to Water Rate Adjustment mechanism (“WRA”). WRA and Water Conservation Memorandum Account (“WCMA”) are described in the following section.

(f)Represents costs associated with SJWC’s CAP.

(g)Represents actuarial losses and gains and prior service cost that have not yet been recognized as components of net periodic benefit cost for certain pension and other postretirement benefit plans.

(h)Represents the difference between revenues collected in interim rates in effect as of January 1, 2022 and revenues that would result from rates authorized in SJWC’s 2022 general rate case retroactive to January 1, 2022.

(i)Reflects primarily SJWC’s Full Cost Balancing Account (“FCBA”), which tracks differences in actual water supply costs compared to amounts assumed in base rates, including applicable changes and variations in costs and quantities that affect the overall mix of the water supply.

(j)Other includes other balancing and memorandum accounts and regulatory mechanisms, deferred costs for certain information technology activities, asset retirement obligations, tank painting, well reconditioning and rate case expenses.

(k)Primarily relates to SJWC’s balancing and memorandum account surcharge in accordance with Decision No. 24-12-077 and the current portion of CWC’s deferred well redevelopment and rate case costs.

(l)Represents amounts collected in rates from customers for estimated costs to retire assets at the end of their expected useful lives before the costs are incurred.

(m)On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act included a reduction in the federal income tax rate from 35% to 21%. The rate reduction was effective on January 1, 2018 and resulted in a regulatory liability for the excess deferred income taxes. The benefit of amortization of excess deferred income taxes flows back to the customers under current normalization rules and agreed upon methods with the commissions.

(n)Other includes accrued tank painting costs and other regulatory mechanisms.

(o)Primarily relates to the current portion of WRA.

(p)Generally, not earning a return either by interest on the regulatory asset or as a component of rate base at the allowed rate of return.

(q)Primarily relates to legal settlements received by SJWC and CWC from ongoing PFAS water contamination litigation against manufacturers which will be used to offset future costs incurred, recorded as Contributions in Aid of Construction (“CIAC”), or returned to customers through future rates. Water Contamination Litigation Memorandum Account (“WCLMA”) has been established to track net proceeds and costs resulting from water contamination litigation related to SJWC.

SJWC 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 California Public Utilities Commission (“CPUC”) to offset those expense changes. SJWC has been authorized for the use of the FCBA to track water supply costs and energy consumption. The MWRAM balancing account tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

SJWC also maintains memorandum accounts to track 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. The WCLMA allows SJWC to track net proceeds and costs resulting from water contamination litigation. The WCMA allows SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reductions, both mandatory and voluntary. SJWC records the lost revenue captured in the WCMA balancing accounts, including amounts related to a 20-basis point reduction in the authorized return on equity per the terms of the WCMA. Applicable drought surcharges collected are used to offset the revenue losses tracked in the WCMA. All balancing accounts and memorandum 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. On December 19, 2024, the CPUC issued General Rate Case Decision No. 24-12-077, which approved a recovery of $15,792 in balancing and memorandum accounts from customers through a 12-month surcharge effective January 1, 2025.

CWC has been authorized by the Connecticut Public Utilities Regulatory Authority (“PURA”) to utilize a WRA, a decoupling mechanism, to mitigate risk associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows the company to implement a surcharge or sur-credit as necessary to recover or refund the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings.

H2O AMERICA 10-Q