REGULATORY ASSETS AND LIABILTIES

12 Months Ended

Dec. 31, 2022

REGULATORY ASSETS AND LIABILITIES

Regulatory assets and liabilities were comprised of the following as of December 31:


	Recovery Period	2022		2021
Regulatory Assets
Pension and retiree group health	Indefinitely	$	171	$	17,607
Property-related temporary differences (tax benefits flowed through to customers)	Indefinitely	143,546		130,565
Other accrued benefits	Indefinitely	24,946		23,280
Net WRAM and MCBA long-term accounts receivable	1-2 years	41,558		29,789
Asset retirement obligations, net	Indefinitely	24,548		22,935
IRMA long-term accounts receivable	1-2 years	3,682		9,032
Tank coating	Various	16,395		13,680
Recoverable property losses	7 Years	3,144		3,843
PCBA	Various	19,091		21,500
Other components of net periodic benefit cost	Indefinitely	—		3,342
General district balancing account receivable	Various	377		568
Customer assistance program (CAP) and Rate support fund (RSF) accounts receivable	1 year	2,965		5,991
Other regulatory assets	Various	3,197		3,560
Total Regulatory Assets		$	283,620	$	285,692
Regulatory Liabilities
Future tax benefits due to customers		$	131,155	$	135,027
Pension and retiree group health		58,678		27,294
HCBA		14,318		9,687
Conservation program		6,036		7,206
Net WRAM and MCBA long-term payable		172		143
Other components of net periodic benefit cost		2,475		353
Other regulatory liabilities		845		718
Total Regulatory Liabilities		$	213,679	$	180,428

The Company's pension and retiree group health regulatory asset represents the unfunded obligation of the Company’s pension and postretirement benefit plans which the Company expects to recover from customers in the future for these plans. The pension and retiree group health regulatory liability represents the over funded obligation of the Company’s postretirement benefit plans which the Company expects to refund to customers in the future. These plans are discussed in further detail in Note 11.

The PCBA regulatory asset and the HCBA regulatory liability represent incurred pension and healthcare costs that exceeded/was below the cost recovery in rates and is recoverable/refundable from/to customers. The other components of net periodic benefit cost regulatory asset are authorized by the Commissions and are probable for rate recovery through the capital program.

The property-related temporary differences are primarily due to: (i) the difference between book and federal income tax depreciation on utility plant that was placed in service before the regulatory Commissions adopted normalization for rate making purposes; and (ii) certain (state) deferred taxes for which flow through accounting continues to be applied to originating deferred taxes. The regulatory asset will be recovered in rates in future periods as the tax effects of the temporary differences previously flowed-through to customers reverse.

Other accrued benefits are accrued benefits for vacation, self-insured workers' compensation, and directors' retirement benefits. The net WRAM and MCBA long-term accounts receivable is the under-collected portion of recorded revenues that are not expected to be collected from customers within 12 months. The IRMA long-term accounts receivables is the additional amount the Company would have billed customers in 2020 and 2021 had the 2018 GRC been approved on time.

The asset retirement obligation regulatory asset represents the difference between costs associated with asset retirement obligations and amounts collected in rates. Tank coating represents the maintenance costs for tank coating projects that are recoverable from customers.

The CAP and RSF are two programs offered by Cal Water that assist qualifying customers with their monthly water bill. The programs are funded by the customers who do not qualify for the assistance. The CAP and RSF regulatory assets represent the amounts due from customers to fund the CAP and RSF credits that were provided to assist qualifying customers.

The future tax benefits due to customers primarily resulted from federal tax law changes enacted by the TCJA on December 22, 2017. The TCJA reduced the federal corporate income tax rate from 35 percent to 21 percent beginning on January 1, 2018, and GAAP requires the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate on the enactment date.

The conservation program regulatory liability is for incurred conservation costs that were below the cost recovery in rates and is refundable to customers.

Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets as of December 31, 2022 and 2021 were $66.8 million and $78.6 million, respectively. The short-term regulatory assets, as of December 31, 2022, and 2021 primarily consisted of net WRAM and MCBA, IRMA, and PCBA receivables.

The short-term portion of regulatory liabilities as of December 31, 2022 and 2021 were $12.2 million and $32.9 million, respectively. The short-term regulatory liabilities as of December 31, 2022, primarily consist of TCJA liabilities. The short-term regulatory liabilities as of December 31, 2021, primarily consist of TCJA liabilities and HCBA liabilities.

Cost of Capital Application

On May 3, 2021, Cal Water filed its required application with the CPUC to review its cost of capital for 2022 through 2024. Cal Water currently has an approved return on equity of 9.2%, a cost of debt of 5.51%, and a capital structure of 53.4% equity to 46.6% debt ratio. Cal Water requested a return on equity of 10.35%, a cost of debt of 4.23%, and a capital structure of 53.4% equity to 46.6% debt ratio. The California Public Advocates Office recommended a return on equity of 7.81%, a cost of debt of 4.23%, and a capital structure of 49.4% equity to 50.6% debt ratio. Evidentiary hearings were held in May 2022 and the case was submitted to the CPUC at the end of the second quarter of 2022 for review. In the event that the CPUC adopts the cost of capital components retroactively to January 1, 2022, the Company estimates the reduced cost of debt, if adopted at the Company's proposed equity capital structure, would reduce annual revenue by approximately $11.0 million. The Company has not reserved for any potential outcome of the proceeding as the Company has determined that it is not probable that the proceeding will be approved retroactively to January 1, 2022.