Summary of Significant Accounting Policies

Operating revenue

The following tables disaggregate the Company’s operating revenue by source for the three and six month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30
	2018		2017
Revenue from contracts with customers	$	171,772	$	162,593
Regulatory balancing account revenue	860		8,539
Total operating revenue	$	172,632	$	171,132



	Six Months Ended June 30
	2018			2017
Revenue from contracts with customers	$	306,026		$	275,405
Regulatory balancing account revenue	(1,147		)	17,763
Total operating revenue	$	304,879		$	293,168

Revenue from contracts with customers

The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the Commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies. Revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates, for a service charge, and for other authorized charges.

The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges.

The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).

Contract terms are generally short-term and at will by customers and, as a result, no separate financing component is recognized for the Company's collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.

Certain customers are not billed for volumetric consumption, but are instead billed a flat rate at the beginning of each monthly service period. The amount billed is initially deferred and subsequently recognized over the monthly service period, as the performance obligation is satisfied. The deferred revenue balance, which is included in "accrued expenses and other liabilities" on the consolidated balance sheets, is inconsequential.

In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and six month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30
	2018		2017
Residential	$	109,849	$	102,171
Business	32,125		29,543
Industrial	7,941		6,408
Public authorities	8,251		7,874
Other	13,606		16,597
Total revenue from contracts with customers	$	171,772	$	162,593



	Six Months Ended June 30
	2018		2017
Residential	$	201,167	$	178,036
Business	59,182		51,569
Industrial	15,520		13,363
Public authorities	13,695		12,020
Other	16,462		20,417
Total revenue from contracts with customers	$	306,026	$	275,405

Regulatory balancing account revenue

The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC) in its triennial General Rate Case (GRC), is decoupled from the volume of the sales. Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers.

The Water Revenue Adjustment Mechanism (WRAM) allows the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as regulatory balancing account revenue.

Cost-recovery rates, such as the Modified Cost Balancing Account (MCBA), provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs and certain other operating expenses. Variances between adopted and actual costs are recorded as regulatory balancing account revenue.

Each district's WRAM and MCBA regulatory assets and liabilities are allowed to be netted against one another. The Company recognizes regulatory balancing account revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. To the extent that regulatory balancing account revenue is estimated to be collectible beyond 24 months, recognition is deferred.

Non-regulated Revenue

The following tables disaggregate the Company’s non-regulated revenue by source for the three and six month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30
	2018		2017
Operating and maintenance revenue	$	2,297	$	2,053
Other non-regulated revenue	1,981		1,178
Non-regulated revenue from contracts with customers	$	4,278	$	3,231
Lease revenue	$	567	$	508
Total non-regulated revenue	$	4,845	$	3,739



	Six Months Ended June 30
	2018		2017
Operating and maintenance revenue	$	5,462	$	3,966
Other non-regulated revenue	2,724		2,220
Non-regulated revenue from contracts with customers	$	8,186	$	6,186
Lease revenue	$	1,078	$	1,015
Total non-regulated revenue	$	9,264	$	7,201

Operating and maintenance services are provided for non-regulated water and wastewater systems owned by private companies and municipalities. The Company negotiates formal agreements with the customers, under which they provide operating, maintenance and customer billing services related to the customers’ water system. The formal agreements outline the fee schedule for the services provided. The agreements typically call for a fee-per-service or a flat-rate amount per month. The Company satisfies its performance obligation of providing operating and maintenance services over time as services are rendered; as a result, the Company employs the invoice practical expedient and recognizes revenue in the amount that it has the right to invoice. Contract terms are generally short-term and, as a result, no separate financing component is recognized for its collections from customers, which generally require payment within 30 days of billing.

Other non-regulated revenue primarily relates to services for the design and installation of water mains and other water infrastructure for customers outside the regulated service areas and insurance program administration. Other non-regulated revenue is inconsequential.

The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property. Lease revenue is not considered revenue from contracts with customers and is recognized following current operating lease standards.

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown on the Condensed Consolidated Statements of Cash Flows:



	June 30, 2018		December 31, 2017
Cash and cash equivalents	33,668		94,776
Restricted cash (included in "taxes, prepaid expenses and other assets")	597		576
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	34,265	$	95,352

Adoption of New Accounting Standards

In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (codified in ASC 606), which amends the existing revenue recognition guidance. The Company completed an evaluation of the new revenue standard and implemented the standard on January 1, 2018 using the modified retrospective method for all contracts. The reported results for the first three and six months of 2018 reflect the application of ASC 606 guidance, while prior period amounts were not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods. Other than increased disclosures regarding revenues related to contracts with customers, the implementation did not have a significant impact on the Company’s consolidated financial statements (see "Operating Revenue" section of note 2 above).

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This update adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The Company will continue to classify proceeds from the settlement of insurance claims on the basis of the nature of the loss and from the settlement of Company-owned life insurance policies as cash inflows on the Condensed Consolidated Statements of Cash Flows. The Company implemented the standard on January 1, 2018 and retrospectively applied the standard in the comparative period. The standard does not have a significant impact to the Company's consolidated financial statements.

In November of 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. The update requires the Company to combine restricted cash with cash and cash equivalents when reconciling the beginning and end of period balances in the Condensed Consolidated Statements of Cash Flows. The Company implemented the standard on January 1, 2018 and retrospectively applied the standard in the comparative period.

The following table shows the effect of the accounting change to the Condensed Consolidated Statements of Cash Flows:



	Six Months Ended June 30, 2017
Condensed Consolidated Statements of Cash Flows line item	As Reported on Form 10-Q			Adjusted Balance on Form 10-Q			Increase (Decrease) from Retrospective Adoption
Change in restricted cash	$	(598	)	$	—		$	598
Net cash used in investing activities	$	(110,076	)	$	(109,478	)	$	598
Change in cash, cash equivalents, and restricted cash	$	3,611		$	4,209		$	598
Cash, cash equivalents, and restricted cash at beginning of period	$	25,492		$	25,935		$	443
Cash, cash equivalents, and restricted cash at end of period	$	29,103		$	30,144		$	1,041

In March of 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented as non-operating items. In addition, the standard only allows the service cost component to be eligible for capitalization.

The standard became effective as of January 1, 2018. The presentation amendments were applied retrospectively and the capitalization amendments were applied prospectively on and after the effective date. The Company applied the practical expedient that permits the Company to use the amounts disclosed in its pension and other postretirement benefit plan footnote from the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Commissions have authorized the Company to recover the other components of net periodic benefit cost through the Company’s capital program and thus on and after the effective date, the other components of net periodic benefit cost that have previously been recorded as part of utility plant have been recognized as a regulatory asset (see note 9). As a result, the changes required by the standard did not have a material impact on the results of operations.

The following tables show the effect of the accounting change to the Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2017:



	Three Months Ended June 30, 2017
Condensed Consolidated Statement of Income line item	As Reported on Form 10-Q			Adjusted Balance on Form 10-Q			Increase (Decrease) from Retrospective Adoption
Administrative and general	$	23,796		$	21,413		$	(2,383	)
Income taxes	$	9,635		$	10,606		$	971
Total operating expenses	$	145,873		$	144,461		$	(1,412	)
Net operating income	$	25,259		$	26,671		$	1,412
Other components of net periodic benefit cost	$	—		$	(2,383	)	$	2,383
Income tax expense on other income and expense	$	(1,217	)	$	(246	)	$	971
Net other income	$	1,787		$	375		$	(1,412	)



	Six Months Ended June 30, 2017
Condensed Consolidated Statement of Income line item	As Reported on Form 10-Q			Adjusted Balance on Form 10-Q			Increase (Decrease) from Retrospective Adoption
Administrative and general	$	49,045		$	44,159		$	(4,886	)
Income taxes	$	8,751		$	9,722		$	971
Total operating expenses	$	259,859		$	255,944		$	(3,915	)
Net operating income	$	33,309		$	37,224		$	3,915
Other components of net periodic benefit cost	$	—		$	(4,886	)	$	4,886
Income tax expense on other income and expense	$	(2,106	)	$	(1,135	)	$	971
Net other income	$	3,085		$	(830	)	$	(3,915	)

New Accounting Standards Issued But Not Yet Adopted

In February of 2016, the FASB issued ASU 2016-02, Leases, which amends the guidance relating to the definition of a lease, recognition of lease assets and liabilities on the balance sheet, and the related disclosure requirements. In November of 2017, the FASB tentatively decided to amend the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company will adopt the standard using the modified retrospective method for its existing leases and expects this standard to increase lease assets and lease liabilities on the Condensed Consolidated Balance Sheets. The Company intends to elect certain practical expedients and will carry forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company will also apply the practical expedient that will allow the Company to elect, as an accounting policy, by asset class, to include both lease and nonlease components as a single component and account for it as a lease. The Company will apply the short-term lease exception for lessees which will allow the Company to not have to apply the recognition requirements of the new leasing guidance for short-term leases and to recognize lease payments in net income on a straight line basis over the lease term. The Company does not expect that the guidance will have a material impact on the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Cash Flows, and lease disclosures.