Global Water Resources Inc

3. REGULATORY MATTERS

Regulatory Assets and Liabilities

The Company’s regulatory assets and liabilities consist of the following (in thousands):

Acquisition Premiums

In Decision No. 79383 (June 20, 2024), the ACC authorized acquisition premiums for the following entities: GW- Francesca Water Company, Inc., GW- Las Quintas Serenas Water Company, Inc., GW- Lyn Lee Water Company, Inc., GW-Mirabell Water Company, Inc., GW-Rincon Water Company, Inc., and GW- Tortolita Water Company, Inc.. These entities were consolidated to form GW-Saguaro. The acquisition premiums approved for GW-Saguaro totaled approximately $1.8 million at the time of the decision. Decision No. 79383 also approved a 50-year amortization period for recovery of the acquisition premiums beginning July 2024.

Decision No. 78644, issued on July 27, 2022, approved acquisition premiums related to the acquisitions of the Company’s GW-Turner utility as well as those of Global Water – Red Rock Water Company, Inc. (now part of GW-Santa Cruz and GW-Palo

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Verde). Amortization began in 2022 as the acquisition premiums were included in customer rates as approved in the decision and will continue over a 25-year period. The acquisition premium balance relating to these utilities as of December 31, 2024 was approximately $0.7 million.

Income Taxes Recoverable/Payable Through Future Rates

The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. For the Company’s regulated entities, substantially all of the change in deferred income taxes is recorded as an offset to either a regulatory asset or liability because the impact of changes in the rates are expected to be recovered from or refunded to customers.

Acquired ICFAs

The ICFA regulatory liability, established in compliance with a 2014 settlement agreement with the ACC, relates to the offset of intangible assets related to ICFA contracts obtained in connection with the GW-Santa Cruz, GW-Palo Verde, and Sonoran acquisitions. When funds are received related to the acquired ICFA intangible asset, a portion of these funds reduce the acquired ICFA regulatory liability and partially offset the amortization expense recognition of the related intangible asset. The regulatory liability is classified as long term due to the long term nature of these arrangements and the uncertainty of the timing of receipt of funds to be received against the acquired ICFA intangible asset.

Depreciation

Decision No. 78644 approved an adjustment to update previously approved depreciation rates. The adjustment was incorporated into rates in accordance with the rate decision.

Recent ACC Rulings and Activity

2024 GW-Farmers Rate Case

On June 27, 2024, GW-Farmers filed a rate case application with the ACC for increased water rates based on a 2023 test year with updates for changes in post-test year plant through December 31, 2024. The application requests, among other things, a revenue increase of approximately $1.3 million phased-in over two steps and recovery of an acquisition premium related to the Farmers Water Co. acquisition. On January 10, 2025, GW-Farmers filed with the ACC a unanimous settlement agreement between GW-Farmers, RUCO and the Utilities Division Staff of the ACC. Among other elements, the unanimous settlement agreement calls for an increase in GW-Farmers’ annual revenue requirement of $1.1 million and a return on equity of 9.6%, with rates to be phased-in over three periods, starting with 50% of the increase effective on May 1, 2025, with subsequent 25% portions of the increase effective November 1, 2025 and May 1, 2026. In addition to the rate increase, the agreement proposes a deferral of the recovery of an acquisition premium of approximately $3 million related to the Company’s acquisition of GW-Farmers, to be recovered in a future rate case. The unanimous settlement agreement is under advisement with the ALJ, and the Company anticipates a decision in the first half of 2025.

Acquisition of Seven Systems from City of Tucson

In Decision No. 79679 on January 22, 2025, the ACC approved GW-Ocotillo’s Application for a CC&N to provide water service toseven isolated public water systems currently receiving service from the City of Tucson. The Company expects to complete the acquisition of theseven isolated public water systems from the City of Tucson in the first half of 2025, subject to customary closing conditions.

2025 GW-Santa Cruz and GW-Palo Verde Rate Case

In February 2025, the Company notified the ACC of its intention to file a rate case for its GW-Santa Cruz and GW-Palo Verde utilities in 2025. The GW-Santa Cruz and GW-Palo Verde rate case will be based on a test year ending December 31, 2024 with updates for changes in post-test year plant. The Company has begun stakeholder outreach for the rate case.

Southwest Plant Accounting Order and Bill Credit

On July 3, 2023, the Company’s GW-Palo Verde and GW-Santa Cruz utilities filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset the depreciation expense recorded for the Company’s Southwest Plant, plus the carrying cost at the authorized rate of return set in GW-Palo Verde’s and GW-Santa Cruz’s most recent rate order, until the plant is considered for recovery in the next GW-Palo Verde and GW-Santa Cruz rate case. The Southwest Plant was substantially constructed prior to 2009 to provide water, wastewater, and recycled water service for the area southwest of

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In January 2024, the Company discovered that approximately $7.8 million of construction costs for the Southwest Plant had been prematurely included as “plant in service” for rate making purposes in 2007 and were reflected in the calculation of customer rates in Decision No. 71878 (September 15, 2010). Those costs were also included as “plant in service” in Decision No. 74364 (February 26, 2014) and Decision No. 78644 (July 27, 2022). The Company disclosed this circumstance to the ACC on March 1, 2024, and on April 25, 2024, GW-Palo Verde filed an application with the ACC requesting a monthly bill credit for customers that would be in place until the conclusion of the next GW-Palo Verde rate case. The ACC issued Decision No. 79424 on July 18, 2024 approving the bill credit with an effective date of August 1, 2024, which will reduce revenue earned subsequent to the order by approximately $570,000 annually. The bill credit will be in place until the conclusion of the next GW-Palo Verde rate case, which Decision No. 79424 requires GW-Palo Verde to file no later than December 31, 2025. The ACC may take further action during the next GW-Palo Verde rate case. Such action may include requiring the Company to reduce rates further going forward or taking other actions that would be unfavorable to the Company.

Decision No. 79383 - Issued June 20, 2024 - GW-Saguaro Rate Case

On June 20, 2024, the ACC issued Decision No. 79383 relating to each of the rate case applications filed byseven of the Company’s regulated utilities for increased water rates based on a 2022 test year. Decision No. 79383 approved, among other things, a collective annual revenue increase of approximately $351,000. The approved rates will be phased-in over five periods with the first increase effective July 1, 2024. The subsequent four increases will be effective on January 1 of each subsequent year, with the majority of the revenue increase phased in by January 1, 2025.

The ACC also approved:

(i) the consolidation of water rates to one single rate for theseven utilities;

(ii) acquisition premiums relating to the Company’s acquisitions of its GW-Mirabell, GW-Lyn Lee, GW-Francesca, GW-Tortolita, GW - Rincon, and GW-Las Quintas utilities, each located in Pima County, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement;

(iii) the Company’s ability to annually adjust rates to flow through certain changes in tax expense, primarily related to income taxes, without the necessity of a rate case proceeding;

(iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources;

(v) a capital structure matching the Company’s previous rate case of 55% equity with a 9.6% return on equity; and

(vi) a depreciation expense accounting deferral for GW - Rincon (now part of GW-Saguaro).