| Employee Benefit Plans | Employee Benefit Plans Pension and Post-Retirement Medical Plans : Registrant maintains a defined benefit pension plan (the “Pension Plan”) that provides eligible employees (those aged 21 and older, hired before January 1, 2011) monthly benefits upon retirement based on average salaries and length of service. The eligibility requirement to begin receiving these benefits is 5 years of vested service. The normal retirement benefit is equal to 2% of the 5 highest consecutive years’ average earnings multiplied by the number of years of credited service, up to a maximum of 40, reduced by a percentage of primary Social Security benefits. There is also an early retirement option. Annual contributions are made to the Pension Plan, which comply with the funding requirements of the Employee Retirement Income Security Act (“ERISA”). At December 31, 2023, Registrant h ad 903 participants in the Pension Plan. Employees hired or rehired after December 31, 2010 are eligible to participate in a defined contribution plan. Registrant’s existing 401(k) Investment Incentive Program was amended to include this defined contribution plan. Under this plan, Registrant provides a contribution ranging from 3% to 5.25% of eligible pay each pay period into investment vehicles offered by the plan’s trustee. Full vesting under this plan occurs upon 3 years of service. Employees hired before January 1, 2011 continue to participate in and accrue benefits under the terms of the Pension Plan. Registrant also provides post-retirement medical benefits for all active employees hired before February of 1995 through a medical insurance plan. Eligible employees, who retire prior to age 65, and/or their spouses, are able to retain the benefits under the plan for active employees until reaching age 65. Eligible employees upon reaching age 65, and those eligible employees retiring at or after age 65, and/or their spouses, receive coverage through a Medicare supplement insurance policy paid for by Registrant subject to an annual cap limit. Registrant’s post-retirement medical plan does not provide prescription drug benefits to Medicare-eligible employees and is not affected by the Medicare Prescription Drug Improvement and Modernization Act of 2003. In accordance with the accounting guidance for the effects of certain types of regulation, Registrant has established a regulatory asset or liability for its underfunded or overfunded position, respectively, in its pension and post-retirement medical plans that is expected to be recovered through rates in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations are tracked and recognized as an adjustment to the regulatory account as these amounts are recognized as components of net periodic pension cost each year and in the rate-making process. The following table sets forth the Pension Plan’s and post-retirement medical plan’s funded status and amounts recognized in Registrant’s balance sheets and the components of net pension cost and accrued liability at December 31, 2023 and 2022: Pension Benefits Post-Retirement Medical (dollars in thousands) 2023 2022 2023 2022 Change in Projected Benefit Obligation: Projected benefit obligation at beginning of year $ 190,678 $ 259,751 $ 2,014 $ 2,686 Service cost 3,196 5,644 130 129 Interest cost 10,142 7,401 106 60 Actuarial (gain) loss 8,525 (72,710) 49 (570) Benefits/expenses paid (9,578) (9,408) (334) (291) Projected benefit obligation at end of year $ 202,963 $ 190,678 $ 1,965 $ 2,014 Changes in Plan Assets: Fair value of plan assets at beginning of year $ 186,906 $ 233,524 $ 11,240 $ 13,773 Actual return on plan assets 25,031 (40,299) 1,921 (2,242) Employer contributions 2,946 3,089 265 263 Benefits/expenses paid (9,578) (9,408) (599) (554) Fair value of plan assets at end of year $ 205,305 $ 186,906 $ 12,827 $ 11,240 Funded Status: Overfunded/(underfunded) amount recognized $ 2,342 $ (3,772) $ 10,862 $ 9,226 The change i n the underfunded status of the pension was due to an increase in plan asset performance, partially offset by a decrease in the discount rate, which decreased from 5.41% as of December 31, 2022 to 5.16% as of December 31, 2023. Pension Benefits Post-Retirement (dollars in thousands) 2023 2022 2023 2022 Amounts recognized on the balance sheets: Non-current assets $ 2,342 $ — $ 10,862 $ 9,226 Current liabilities — — — — Non-current liabilities — (3,772) — — Net amount recognized $ 2,342 $ (3,772) $ 10,862 $ 9,226 Amounts recognized in regulatory assets (liabilities) consist of: Prior service cost (credit) $ 1,454 $ 1,889 $ — $ — Net loss (gain) (1,899) 4,123 (6,272) (5,846) Regulatory assets (liabilities) (445) 6,012 (6,272) (5,846) Prefunded plan costs (1,897) (2,240) (4,590) (3,380) Net liability (asset) recognized $ (2,342) $ 3,772 $ (10,862) $ (9,226) Changes in plan assets and benefit obligations recognized in regulatory assets (liabilities): Regulatory asset (liability) at beginning of year $ 6,012 $ 25,691 $ (5,846) $ (9,839) Net (loss) gain (6,023) (19,245) (1,395) 2,259 New prior service cost — — — — Amortization of prior service (cost) credit (434) (434) — — Amortization of net gain (loss) — — 969 1,734 Total change in regulatory asset (liability) (6,457) (19,679) (426) 3,993 Regulatory asset (liability) at end of year $ (445) $ 6,012 $ (6,272) $ (5,846) Net periodic pension costs $ 3,289 $ 313 $ (1,210) $ (2,132) Change in regulatory asset (liability) (6,457) (19,679) (426) 3,993 Total recognized in net periodic pension cost and regulatory asset (liability) $ (3,168) $ (19,366) $ (1,636) $ 1,861 Additional year-end information for plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation $ 202,963 $ 190,678 $ 1,965 $ 2,014 Accumulated benefit obligation $ 192,986 $ 181,376 N/A N/A Fair value of plan assets $ 205,305 $ 186,906 $ 12,827 $ 11,240 Weighted-average assumptions used to determine benefit obligations at December 31: Discount rate 5.16 % 5.41 % 5.04 % 5.34 % Rate of compensation increase * * N/A N/A • Age-graded ranging from 2.5% to 7.0%. The components of net periodic pension and post-retirement benefits cost, before allocation to the overhead pool, for 2023, 2022 and 2021 are as follows: Pension Benefits Post-Retirement (dollars in thousands, except percent) 2023 2022 2021 2023 2022 2021 Components of Net Periodic Benefits Cost: Service cost $3,196 $5,644 $6,316 $130 $129 $149 Interest cost 10,142 7,401 6,833 106 60 110 Expected return on plan assets (10,483) (13,166) (12,541) (477) (587) (537) Amortization of prior service cost (credit) 434 434 434 — — — Amortization of actuarial (gain) loss — — 3,817 (969) (1,734) (1,417) Net periodic pension cost under accounting standards $3,289 $313 $4,859 $(1,210) $(2,132) $(1,695) Regulatory adjustment (281) — (1,277) — — — Total expense recognized, before surcharges and allocation to overhead pool $3,008 $313 $3,582 $(1,210) $(2,132) $(1,695) Weighted-average assumptions used to determine net periodic cost: Discount rate 5.41 % 2.89 % 2.55 % 5.34 % 2.46 % 2.20 % Expected long-term return on plan assets 5.75 % 5.75 % 6.00 % * * * Rate of compensation increase ** ** ** N/A N/A N/A * 5.50% for union plan and 3.9% for non-union (net of income taxes) in 2023 and 2022 and 5.75% for union plan and 4.0% for non-union (net of income taxes) in 2021. ** Age-graded ranging from 2.5% to 7.0%. Regulatory Adjustment : The CPUC authorized GSWC and BVES to track differences between the forecasted annual pension expenses adopted in rates and the actual annual exp enses to be recorded in accordance with the accounting guidance for pension costs in a two-way pension balancing account. During the years ended December 31, 2023 and 2021, GSWC’s actual pension expense was higher than the amounts included in water customer rates by $281,000 and $1.3 million, respectively. During the year ended December 31, 2022, GSWC’s actual expense was lower than the amounts included in water customer rates by $1.5 million and recorded as a reduction to water revenues. The cumulative amount recorded in GSWC’s two-way pension balancing account is included within the pension s and other post-retirement obligations regulatory asset discussed in Note 3. During the years ended December 31, 2023, 2022 and 2021, BVES’s actual expense was lower than the amounts included in electric rates by $270,000 , $490,000 and $246,000, respectively. These over-collections were recorded as a reduction to electric revenues. Plan Funded Status : The Pension Plan was overfunded and underfunded at December 31, 2023 and 2022, respectively. Registrant’s market related value of plan assets is equal to the fair value of plan assets. Past volatile market conditions have affected and continue to affect the value of GSWC’s trust established to fund its future long-term pension benefits. These benefit plan assets and related obligations are measured annually using a December 31 measurement date. Changes in the Pension Plan’s funded status will affect the assets and liabilities recorded on the balance sheet in accordance with accounting guidance on employers’ accounting for defined benefit pension and other post-retirement plans. Due to Registrant’s regulatory recovery treatment, the recognition of the under or overfunded status for the Pension Plan has been offset by a regulatory asset or liability, respectively, pursuant to guidance on the accounting for the effects of certain types of regulation. Plan Assets : The assets of the pension and post-retirement medical plans are managed by a third party trustee. The investment policy allocation of the assets in the trust was approved by Registrant’s Administrative Committee (the “Committee”) for the pension and post-retirement medical funds, which has oversight responsibility for all retirement plans. The primary objectives underlying the investment of the pension and post-retirement plan assets are: (i) attempt to maintain a fully funded status with a cushion for unexpected developments, possible future increases in expense levels and/or a reduction in the expected return on investments; (ii) seek to earn long-term returns that compare favorably to appropriate market indexes, peer group universes and the policy asset allocation index; (iii) seek to provide sufficient liquidity to pay current benefits and expenses; (iv) attempt to limit risk exposure through prudent diversification; and (v) seek to limit costs of administering and managing the plans. The Committee recognizes that risk and volatility are present to some degree with all types of investments. High levels of risk may be avoided through diversification by asset class, style of each investment manager and sector and industry limits. Investment managers are retained to manage a pool of assets and allocate funds in order to achieve an appropriate, diversified and balanced asset mix. The Committee’s strategy balances the requirement to maximize returns using potentially higher-return generating assets, such as equity securities, with the need to control the risk of its benefit obligations with less volatile assets, such as fixed-income securities. The Committee approves the target asset allocations. Registrant’s pension and post-retirement plan weighted-average asset allocations at December 31, 2023 and 2022, by asset category are as follows: Pension Benefits Post-Retirement Asset Category 2023 2022 2023 2022 Actual Asset Allocations : Equity securities 56 % 56 % 60 % 59 % Debt securities 39 % 39 % 39 % 39 % Real Estate Funds 5 % 5 % — % — % Cash equivalents — % — % 1 % 2 % Total 100 % 100 % 100 % 100 % Equity securities did not include AWR’s Common Shares as of December 31, 2023 and 2022. Target Asset Allocations: Pension Benefits Post-retirement Equity securities 60 % 60 % Debt securities 40 % 40 % Total 100 % 100 % The Pension Plan assets are in collective trust funds managed by a management firm appointed by the Committee. The fair value of these collective trust funds is measured using net asset value per share. In accordance with ASU 2015-07 Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalents) , the fair value of the collective trust funds is not categorized in the fair value hierarchy as of December 31, 2023 and 2022. The following tables set forth the fair value, measured by net asset value, of the pension investment assets as of December 31, 2023 and 2022: Net Asset Value as of December 31, 2023 (dollars in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Cash equivalents $ 814 — N/A N/A Fixed income fund 80,737 — Daily Daily Equity securities : U.S. small/mid cap funds 19,162 — Daily Daily U.S. large cap funds 49,770 — Daily Daily International funds 45,377 — Daily Daily Total equity funds 114,309 — Real estate funds 9,445 — Daily Daily Total $ 205,305 — Net Asset Value as of December 31, 2022 (dollars in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Cash equivalents $ 801 — N/A N/A Fixed income fund 73,863 — Daily Daily Equity securities : U.S. small/mid cap funds 17,136 — Daily Daily U.S. large cap funds 44,572 — Daily Daily International funds 42,239 — Daily Daily Total equity funds 103,947 Real estate funds 8,295 — Daily Daily Total $ 186,906 — The collective trust funds may be invested or redeemed daily, and generally do not have any significant restrictions to redeem the investments. As previously discussed in Note 1, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. As required by the accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. All equity investments in the post-retirement medical plan are Level 1 investments in mutual funds. The fixed income category includes corporate bonds and notes. The majority of fixed income investments range in maturities from less than 1 to 20 years. The fair values of these investments are based on quoted market prices in active markets. The following tables set forth by level, within the fair value hierarchy, the post-retirement plan’s investment assets measured at fair value as of December 31, 2023 and 2022: Fair Value as of December 31, 2023 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Post-Retirement Plan Assets: Cash equivalents $ 189 — — $ 189 Fixed income 5,001 — — 5,001 U.S. equity securities 7,637 — — 7,637 Total investments measured at fair value $ 12,827 — — $ 12,827 Fair Value as of December 31, 2022 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Post-Retirement Plan Assets: Cash equivalents $ 215 — — $ 215 Fixed income 4,380 — — 4,380 U.S. equity securities 6,645 — — 6,645 Total investments measured at fair value $ 11,240 — — $ 11,240 Plan Contributions : During 2023, Registrant contributed $2.9 million to its pension plan and did not make a contribution to the post-retirement medical plan. Registrant expects to contribute approximately $3.3 million to its pension plan in 2024. Registrant’s policy is to fund the plans annually at a level which is deductible for income tax purposes and is consistent with amounts recovered in customer rates while also complying with ERISA’s funding requirements. Benefit Payments : Estimated future benefit payments at December 31, 2023 are as follows (in thousands): Pension Benefits Post-Retirement Medical Benefits 2024 $ 10,604 $ 295 2025 11,089 279 2026 11,539 276 2027 12,075 252 2028 12,568 226 Thereafter 70,006 713 Total $ 127,881 $ 2,041 Assumptions : Certain actuarial assumptions, such as the discount rate, long-term rate of return on plan assets, mortality, and the healthcare cost trend rate have a significant effect on the amounts reported for net periodic benefit cost as well as the related benefit obligation amounts. Discount Rate — The assumed discount rate for pension and post-retirement medical plans reflects the market rates for high-quality corporate bonds currently available. Registrant’s discount rates were determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves. Expected Long-Term Rate of Return on Assets — The long-term rate of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income and other investments. To develop the expected long-term rate of return on assets assumption for the pension plan, Registrant considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. Registrant’s policy is to fund the medical benefit trusts based on actuarially determined amounts as allowed in rates approved by the CPUC. Registrant has invested the funds in the post-retirement trusts that are intended to achieve a desired return and minimize amounts necessary to recover through rates. The mix is expected to provide for a return on assets similar to the Pension Plan and to achieve Registrant’s targeted allocation. This resulted in the selection of the 5.50% long-term rate of return on assets assumption for the union plan and 3.9% (net of income taxes) for the non-union plan portion of the post-retirement plan. Mortality — Mortality assumptions are a critical component of benefit obligation amounts and a key factor in determining the expected length of time for annuity payments. Registrant uses the latest mortality tables published by the Society of Actuaries. Accordingly, the benefit obligation amounts as of December 31, 2023 and 2022 have incorporated recent updates to the mortality tables. Healthcare Cost Trend Rate — The assumed health care cost trend rate for 2024 starts at 5.9% grading down to 4.0% in 2047 for those under age 65, and at 6.3% grading down to 4.0% in 2047 for those 65 and over. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. Supplemental Executive Retirement Plan : Registrant has a supplemental executive retirement plan (“SERP”) that is intended to restore retirement benefits to certain key employees and officers of Registrant that are limited by Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended. The Board of Directors approved the establishment of a Rabbi Trust created for the SERP. Assets in a Rabbi Trust can be subject to the claims of creditors; therefore, they are not considered as an asset for purposes of computing the SERP’s funded status. As of December 31, 2023, the balance in the Rabbi Trust totaled $34.1 million and is included in Registrant’s other property and investments. All equity investments in the Rabbi Trust are Level 1 (as defined in Note 1) investments in mutual funds. The fixed income category includes corporate bonds and notes. The fair values of these investments are based on quoted market prices in active markets. The following tables set forth by level, within the fair value hierarchy, the Rabbi Trust investment assets measured at fair value as of December 31, 2023 and 2022: Fair Value as of December 31, 2023 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Assets held in Rabbi Trust: Cash equivalents $ 6 — — $ 6 Fixed income securities 13,676 — — 13,676 Equity securities 20,461 — — 20,461 Total investments measured at fair value $ 34,143 — — $ 34,143 Fair Value as of December 31, 2022 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Assets held in Rabbi Trust: Cash equivalents $ 9 — — $ 9 Fixed income securities 10,962 — — 10,962 Equity securities 16,560 — — 16,560 Total investments measured at fair value $ 27,531 — — $ 27,531 The following provides a reconciliation of benefit obligations, funded status of the SERP, as well as a summary of significant estimates at December 31, 2023 and 2022: (dollars in thousands) 2023 2022 Change in Benefit Obligation: Benefit obligation at beginning of year $ 30,807 $ 36,089 Service cost 1,248 1,191 Interest cost 1,644 1,022 Actuarial loss (gain) 840 (6,522) Benefits paid (945) (973) Benefit obligation at end of year $ 33,594 $ 30,807 Changes in Plan Assets: Fair value of plan assets at beginning and end of year — — Funded Status: Net amount recognized as accrued cost $ (33,594) $ (30,807) (in thousands) 2023 2022 Amounts recognized on the balance sheets: Current liabilities $ (942) $ (942) Non-current liabilities (32,652) (29,865) Net amount recognized $ (33,594) $ (30,807) Amounts recognized in regulatory assets consist of: Prior service cost $ — $ — Net loss 2,869 1,995 Regulatory assets 2,869 1,995 Unfunded accrued cost 30,725 28,812 Net liability recognized $ 33,594 $ 30,807 Changes in plan assets and benefit obligations recognized in regulatory assets consist of: Regulatory asset at beginning of year $ 1,995 $ 9,097 Net gain (loss) 840 (6,522) Amortization of prior service credit — — Amortization of net gain (loss) 34 (580) Total change in regulatory asset 874 (7,102) Regulatory asset at end of year $ 2,869 $ 1,995 Net periodic pension cost $ 2,858 $ 2,793 Change in regulatory asset 874 (7,102) Total recognized in net periodic pension and regulatory asset $ 3,732 $ (4,309) Additional year-end information for plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation $ 33,594 $ 30,807 Accumulated benefit obligation 30,794 28,157 Fair value of plan assets — — Weighted-average assumptions used to determine benefit obligations: Discount rate 5.15 % 5.42 % Rate of compensation increase * * * Age graded from 4.0% to 5.5% per year. The components of SERP expense, before allocation to the overhead pool, for 2023, 2022 and 2021 are as follows: (dollars in thousands, except percent) 2023 2022 2021 Components of Net Periodic Benefits Cost: Service cost $ 1,248 $ 1,191 $ 1,392 Interest cost 1,644 1,022 915 Amortization of net (gain) loss (34) 580 1,678 Net periodic pension cost $ 2,858 $ 2,793 $ 3,985 Weighted-average assumptions used to determine net periodic cost: Discount rate 5.42 % 2.87 % 2.52 % Rate of compensation increase * * * * A ge graded from 4.0% to 5.5% per year. Benefit Payments : Estimated future benefit payments for the SERP at December 31, 2023 are as follows (in thousands): 2024 $ 942 2025 2,344 2026 2,519 2027 2,630 2028 2,604 Thereafter 13,551 Total $ 24,590 401(k) Investment Incentive Program : Registrant has a 401(k) Investment Incentive Program under which employees may invest a percentage of their pay, up to a maximum investment prescribed by law, in an investment program managed by an outside investment manager. Registrant’s cash contributions to the 401(k) are based upon a percentage of individual employee contributions and for the years ended December 31, 2023, 2022 and 2021 were $2.9 million, $2.7 million and $2.7 million, respectively. The Investment Incentive Program also incorporates the defined contribution plan for employees hired on or after January 1, 2011. The cash contributions to the defined contribution plan for the years ended December 31, 2023, 2022 and 2021 were $2.2 million, $2.0 million and $1.9 million, respectively. |
