What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 125 added, 99 removed, 210 unchanged (52% of the section changed)

6 unchanged sentences

SJW Group is a holding company with four wholly-owned subsidiaries:

San Jose Water Company (“SJWC”), SJWNE LLC as of October 9, 2019, SJWTX, Inc.

San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc.

and SJW Land Company.

9 unchanged sentences

The majority of the properties are located in the hillside areas adjacent to SJWC’s various watershed properties.

SJWNE LLC, which is a wholly-owned subsidiary of SJW Group, is the holding company for Connecticut Water Service, Inc.

CTWS became a wholly-owned subsidiary of SJWNE LLC as part of the merger transaction between SJW Group and CTWS that was completed on October 9, 2019.

CTWS, headquartered in Connecticut, serves as a holding company for water utility companies providing water service to approximately 138,000 connections that serve a population of approximately 484,000 people in 80 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut.

The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”) and The Maine Water Company (“Maine Water”).

The remaining two subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc.

(“NEWUS”), which provides contract water and sewer operations and other water related services.

CTWS also offers Linebacker, an optional service line protection program offered by CTWS to eligible residential customers through NEWUS in Connecticut and Maine Water in Maine covering the cost of repairs for leaking or broken water service lines which provide drinking water to a customer’s home.

For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line and related equipment.

Additionally, NEWUS offers expanded coverage to Connecticut Water customers for failure of in-home plumbing, sewer and septic drainage lines and implemented modified terms and conditions with limitations on certain coverages.

The properties of CTWS’s subsidiaries consist of land, easements, rights (including water rights), buildings, reservoirs, standpipes, dams, wells, supply lines, water treatment plants, pumping plants, transmission and distribution mains and other

facilities and equipment used for the collection, purification, storage and distribution of water throughout Connecticut and Maine.

In certain cases, Connecticut Water and Maine Water are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.

SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”), is a public utility in the business of providing water service to approximately 19,000 connections that serve approximately 55,000 people.

8 unchanged sentences

The limited partnership has been determined to be a variable interest entity within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 - “Consolidation” with SJW Land Company as the primary beneficiary, and as a result, has been consolidated with SJW Land Company.

Connecticut Water Service, Inc.

(“CTWS”), headquartered in Connecticut, is a holding company for water utilities companies providing water service to approximately 138,000 connections that serve a population of approximately 480,000 people in 80 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut.

As part of the merger transaction between SJW Group and CTWS on October 9, 2019, CTWS became a wholly-owned subsidiary of SJWNE LLC which is a wholly-owned subsidiary of SJW Group.

The subsidiaries held by CTWS that provide utility water

services are The Connecticut Water Company (“Connecticut Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”) and The Maine Water Company (“Maine Water”).

The remaining two subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc.

(“NEWUS”), which provides contract water and sewer operations and other water related services.

For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line and related equipment.

The properties of CTWS consist of land, easements, rights (including water rights), buildings, reservoirs, standpipes, dams, wells, supply lines, water treatment plants, pumping plants, transmission and distribution mains and other facilities and equipment used for the collection, purification, storage and distribution of water throughout Connecticut and Maine.

In certain cases, Connecticut Water and Maine Water are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.

SJW Land Company owned the following real properties during the three months ended March 31, 2020 :

% for Three months ended

March 31, 2020

SJW Land Company owned the following real properties during the six months ended June 30, 2020 :

% for Six months ended

June 30, 2020

of SJW Land Company

8 unchanged sentences

San Jose, California

As of March 31, 2020 , Chester Realty, Inc.

As of June 30, 2020 , Chester Realty, Inc.

owns less than 100 acres of property in the State of Connecticut.

15 unchanged sentences

As noted above, SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee.

SJW Land Company also owns a limited partnership

interest in 444 West Santa Clara Street, L.P.

SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P.

The partnership had a commercial building in San Jose, California that was sold in the second quarter of 2017.

3 unchanged sentences

Chester Realty, Inc.

manages its income producing and other properties until such time a determination is made to reinvest proceeds from sale of such properties.

manages its income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties.

SJW Land Company and Chester Realty, Inc.’s real estate investments diversify SJW Group’s asset base.

15 unchanged sentences

Revenue is generally higher in the warm, dry summer months when water usage and sales are greater, and lower in the winter months when cooler temperatures and increased rainfall curtail water usage and sales.

SJW Group’s consolidated net income for the three months ended March 31, 2020 , was $2,417 , a decrease of $3,456, or approximately 59%, from $5,873 for the same period in 2019.

The decrease in net income for the three months ended March 31, 2020 , was primarily due to an increase in production expenses at SJWC due to a decrease in the use of available surface water and an increase in customer usage, and an increase in interest on long-term debt used to acquire SJWNE LLC and issuance of SJWC’s Series M note.

These increases were partially offset by the addition of net income from the company’s new SJWNE LLC utility operations, and customer usage and rate increases at SJWC.an increase in operating revenue.

Coronavirus (“COVID-19”) Update

In 2020, the outbreak of COVID-19 has had significant impact on the global economy.

SJW Group has taken precautions to protect the health and safety of employees, customers and the community while continuing to deliver safe and reliable water service as we are deemed to be an essential service provider.

SJW Group’s response to the COVID-19 outbreak continues to rapidly evolve and has included:

(i) suspending service disconnections for non-payments pursuant to orders from certain state regulators, which will remain in effect over other existing requirements governing disconnections for specified durations with the longest extending to April 2021;

(ii) waiving reconnection or facilities fees for affected customers and suspending deposit requirements for affected customers who must reconnect to the systems;

(iii) the temporary closure of our walk-in customer payment centers where they were provided;

(iv) increasing the number of employees telecommuting;

and (v) delaying some capital improvement projects at our water utilities.

Although, we do not believe the COVID-19 pandemic has materially adversely affected SJW Group’s financial results and business operations for the six months ended June 30, 2020 , the full impact of the pandemic is uncertain.

SJW Group continues to monitor developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary.

SJW Group’s consolidated net income for the three months ended June 30, 2020 , was $19,721 , an increase of $6,183, or approximately 46%, from $13,538 for the same period in 2019.

SJW Group’s consolidated net income for the six months ended June 30, 2020 , was $22,138 , an increase of $2,727, or approximately 14%, from $19,411 for the same period in 2019.

The increase in net income for the three and six months ended June 30, 2020 , was primarily due to addition of net income from the

company’s new SJWNE LLC’s subsidiary CTWS as a result of the merger and an increase in revenue at SJWC due to increased customer usage and higher average rates, partially offset by an increase in production expenses at SJWC due to a decrease in the use of available surface water and an increase in customer usage, an increase in interest on long-term debt due to the debt issued to acquire CTWS and issuance of SJWC’s Series M Note, and an increase in depreciation expense due to assets placed in service in 2019.

Operating Revenue

Operating Revenue by Segment

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Water Utility Services

2 unchanged sentences

Three months ended

Six months ended

Increase/(decrease)

Water Utility Services:

2 unchanged sentences

Rate increases

OII customer rate credits

Balancing and memorandum accounts:

3 unchanged sentences

Operating Expense by Segment

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Water Utility Services

2 unchanged sentences

Three months ended

Six months ended

Increase/(decrease)

Water production expenses:

15 unchanged sentences

If an increase occurs, then SJWC would file an advice letter with the CPUC seeking authorization to increase revenues to offset the cost increase.

On July 1, 2020 , Valley Water’s 10 reservoirs were approximately 37% of total capacity with 61,462 acre-feet of water in storage, which is 63% of the twenty-year average for this date.

As reported by the Valley Water, there was 8.82 inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2019.

Rainfall at SJWC’s Lake Elsman was measured at 30.26 inches during the current rainfall season.

Under normal hydrologic conditions, state and federal water allocations represent approximately 40% of the Valley Water’s total annual water supply.

As of July 1, 2020 , Valley Water reported that allocations from the state and federal water project are approximately 20% and 70%, respectively, of amounts requested in 2020 .

Valley Water also reported that the managed groundwater recharge from January to June in the Santa Clara Plain was 87% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 19 feet lower than a year ago in June and 7 feet lower than the five-year average.

According to Valley Water, the projected total groundwater storage at the end of 2020 is expected to fall within the normal stage of the Valley Water’s Water Shortage Contingency Plan.

On July 1, 2020 , SJWC’s Lake Elsman contained 2,234 acre-feet of water, of which approximately 1,774 acre-feet can be utilized for treatment.

This Lake Elsman volume represents 55% of the five-year average which reflects the low winter rainfall we experienced in our Santa Cruz mountains watershed.

Local surface water is a less costly source of water than groundwater or purchased water and its availability significantly impacts SJWC’s results of operations.

SJWC will utilize surface water and additional water from its portfolio of groundwater supplies to supplement imported water from the Valley Water.

Production from the Montevina Surface Water Treatment Plant through the second quarter was 710 million gallons, which is 43% of the five-year average.

Production at SJWC’s smaller Saratoga Water Treatment Plant through the second quarter was 111 million gallons, which is 46% of the five-year average.

Saratoga Water Treatment Plant was taken out of service during the second quarter due to lack of run-off from Saratoga Creek and remains offline.

SJWC believes that its various water supply sources will be sufficient to meet customer demand through the remainder of 2020 .

The Connecticut water utility services’ infrastructure consists of 65 noncontiguous water systems in the State of Connecticut.

These systems, in total, consist of approximately 1,800 miles of water main and reservoir storage capacity of 2.4

billion gallons.

These systems, in total, consist of approximately 1,800 miles of water main and reservoir storage capacity of 2.4 billion gallons.

The dependable yield from our 235 active wells and 18 surface water supplies is approximately 65 million gallons per day.

5 unchanged sentences

Production wells located in a Comal Trinity Groundwater Conservation District, a regulated portion of the Trinity aquifer, are charged a groundwater pump tax based upon usage.

With service area conditions shifting to an Abnormally Dry drought condition in most of our Texas service area, with very high usage and little rain In the forecast, CLWSC began implementation of Stage 1 of its Drought Management Plan on July 13, 2020.

This was done in coordination with neighboring municipalities with which it shares water supply sources.

Stage 1 limits lawn irrigation systems to twice per week watering and signals to customers the need to pursue conservation.

CLWSC believes that, with the judicious implementation of its Drought Management Plan, its water supply sources will be sufficient to meet customer demand through the remainder of 2020.

Maine Water’s infrastructure consists of 12 noncontiguous water systems in the State of Maine.

3 unchanged sentences

The following table presents the change in sources of water supply, in million gallons, for Water Utility Services:

Three months ended March 31,

Three months ended June 30,

% of Total Change

Six months ended June 30,

% of Total Change

Purchased water

2 unchanged sentences

The changes in the source of supply mix were consistent with the changes in the water production expenses.

SJWC’s unaccounted-for water on a 12-month-to-date basis for March 31, 2020 , and 2019 approximated 8.0% and 6.6%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2020 , and 2019 approximated 6.4% and 7.1%, respectively, as a percentage of total production.

The unaccounted-for water estimate is based on the results of past experience and the impact of flows through the system, partially offset by SJWC’s main replacements and lost water reduction programs.

CTWS’s unaccounted-for water on an acquisition-to-date basis for the period ending March 31, 2020 was approximately 16.1% as a percentage of total production.

The unaccounted-for water estimate is based on the results of past experience and the impact of flows through CTWS’s systems, unadjusted for any required system flushing, partially offset by WICA and WISC main replacement programs and lost water reduction initiatives.

CTWS’s unaccounted-for water on an acquisition-to-date basis for the period ending June 30, 2020 was approximately 16.7% as a percentage of total production.

The unaccounted-for water estimate is based on the results of past experience and the impact of flows through CTWS’s systems, unadjusted for any required system flushing, partially offset by Water Infrastructure Conservation Adjustment (“WICA”) and Water Infrastructure Surcharge (“WISC”) main replacement programs and lost water reduction initiatives.

Water Production Expenses

The change in water production expenses for the three months ended March 31, 2020 , compared to the same period in 2019 , was primarily attributable to the new SJWNE LLC operations, a decrease in the use of surface water, an increase in customer usage and higher per unit costs for purchased water, groundwater extraction and energy charges, offset by a decrease in cost-recovery balancing and memorandum accounts.

The change in water production expenses for the three and six months ended June 30, 2020 , compared to the same period in 2019 , was primarily attributable to the new SJWNE LLC subsidiary operations, a decrease in available surface water for SJWC, an increase in customer usage and higher per unit costs for purchased water, groundwater extraction and energy charges, offset by a decrease in cost-recovery balancing and memorandum accounts.

Effective July 1, 2019, Valley Water increased the unit price of purchased water by approximately 6.1% and the groundwater extraction charge by approximately 6.6%.

Other Operating Expenses

Operating expenses, excluding water production expenses, increased $18,057 for the three months ended March 31, 2020 , compared to the same period in 2019 .

The increase was primarily attributable to an increase of $15,951 due to the new SJWNE LLC operations, and increases of $1,533 in administrative and general expenses primarily due to legal and accounting fees, $1,106 in depreciation and amortization expense due to increases in utility plant, and an increase of COVID-19 related reserves and expenses of $555, partially offset by a decrease in merger related expenses due to the completion of the merger with CTWS.

Operating expenses, excluding water production expenses, increased $14,100 for the three months ended June 30, 2020 , compared to the same period in 2019 .

The increase was primarily attributable to an increase of $14,187 due to the new SJWNE LLC subsidiary operations, and depreciation and amortization expense due to increases in utility plant, partially offset by a decrease in merger related expenses due to the completion of our merger with CTWS.

Operating expenses, excluding water production expenses, increased $32,157 for the six months ended June 30, 2020 , compared to the same period in 2019 .

The increase was primarily attributable to an increase of $30,159 due to the new SJWNE LLC subsidiary operations, and increases in administrative and general expenses primarily due to an increase in accounting

fees and contracted work, and depreciation and amortization expense due to increases in utility plant, partially offset by a decrease in merger related expenses due to the completion of our merger with CTWS.

Other (Expense) Income

For the three months ended March 31, 2020 , compared to the same periods in 2019 , the change in other (expense) income was primarily due to an increase in interest on long-term debt as a result of the issuance of SJW Group’s Series 2019A, B and C

notes and SJWC’s Series M note.

For the three and six months ended June 30, 2020 , compared to the same periods in 2019 , the change in other (expense) income was primarily due to an increase in interest on long-term debt as a result of the issuance of SJW Group’s Series 2019A, B and C notes and SJWC’s Series M note.

In addition, interest income decreased due to use of previously invested money market funds for the merger with CTWS.

Provision for Income Taxes

For the three months ended March 31, 2020 , compared to the same period in 2019 , income tax expense decreased $1,607.

The decrease in income tax expense of $1,607 is primarily due to a lower pre-tax income in the three months ended March 31, 2020 and the flow-through tax benefits of certain CTWS tax attributes.

The effective consolidated income tax rates were 15% and 26% for the three months ended March 31, 2020 and 2019 , respectively.

For the three and six months ended June 30, 2020 , compared to the same period in 2019 , income tax expense increased $18 and decreased $1,589, respectively.

The decrease in income tax expense for the six months ended June 30, 2020 is primarily due to the effect of flow-through tax benefits of certain CTWS tax attributes.

The effective consolidated income tax rates were 18% and 23% for three months ended June 30, 2020 , and 2019 , respectively, and 17% and 24% for the six months ended June 30, 2020 , and 2019 , respectively.

The lower effective rates for the three and six months ended June 30, 2020 , were primarily due to flow-through tax benefits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law.

1 unchanged sentence

Many of the CARES Act’s requirements are subject to further clarification.

The Company has considered the income tax provisions of the CARES Act in the first quarter of 2020.

SJW Group has considered the income tax implications of the CARES Act in its estimated tax provision and does not believe it will materially impact the company’s year end tax rate.

SJW Group expects the Internal Revenue Service to issue guidance in future periods that will determine the final disposition of the excess deferred taxes and other impacts of the Tax Cuts and Jobs Act (H.R.

1 unchanged sentence

Future clarification of the Tax Act may change estimated amounts.

California Water Supply

On April 1, 2020 , Valley Water’s 10 reservoirs were approximately 35% of total capacity with 58,563 acre-feet of water in storage, which is 56% of the twenty-year average for this date.

As reported by the Valley Water, there was 7.24 inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2019, that included one of the driest February’s on record.

Rainfall at SJWC’s Lake Elsman was measured at 23.78 inches during the current rainfall season.

Under normal hydrologic conditions, state and federal water allocations represent approximately 40% of the Valley Water’s total annual water supply.

As of April 1, 2020 , the Valley Water reported that allocations from the state and federal water project are approximately 15% and 65%, respectively, of amounts requested in 2020 .

Valley Water also reported that the managed groundwater recharge from January to March in the Santa Clara Plain was 121% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately four feet lower than a year ago in February and nine feet higher than the five-year average.

The groundwater level in the Santa Clara Plain was not measured in March due to the COVID-19 shelter in place order.

According to Valley Water, the projected total groundwater storage at the end of 2020 is expected to fall within the normal stage of the Valley Water’s Water Shortage Contingency Plan.

On April 1, 2020 , SJWC’s Lake Elsman contained 1,384 acre-feet of water, of which approximately 924 acre-feet can be utilized for treatment.

This Lake Elsman volume represents 50% of the five-year average.

Local surface water is a less costly source of water than groundwater or purchased water and its availability significantly impacts SJWC’s results of operations.

SJWC will utilize surface water and additional water from its portfolio of groundwater supplies to supplement imported water from the Valley Water.

Production from the Montevina Surface Water Treatment Plant through the first quarter was 334 million gallons, which is 46% of the five-year average.

Production at SJWC’s smaller Saratoga Water Treatment Plant through the first quarter was 48 million gallons, which is 48% of the five-year average.

SJWC believes that its various water supply sources will be sufficient to meet customer demand through the remainder of 2020 .

Regulation and Rates

4 unchanged sentences

Cash Flow from Operating Activities

During the three months ended March 31, 2020 , SJW Group generated cash flows from operations of approximately $7,900 , compared to $25,200 for the same period in 2019 .

During the six months ended June 30, 2020 , SJW Group generated cash flows from operations of approximately $32,300 , compared to $49,800 for the same period in 2019 .

Cash flow from operations is primarily generated by net income from revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, gains or losses on the sale of assets, and changes in working capital items.

1 unchanged sentence

This decrease was the result of a combination of the following factors:

(1) decrease in collection in balancing and memorandum accounts of $13,100, (2) payments of amounts previously invoiced and accrued, which increased by $9,200, (3) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (4) an increase of $5,100

in interest accruals for new debt and debt acquired by the merger with CTWS., and (5) general working capital and net income, adjusted for non-cash items increased by $4,900.

As of March 31, 2020 , Water Utility Services’ write-offs for uncollectible accounts represent less than 1% of its total revenue, unchanged from March 31, 2019 .

In March 2020, the regulated utilities commissions of the respective states we operate in have made executive orders suspending water service disconnections due to non-payment from customers in light of the current stay-at-home orders, quarantines and similar governmental restrictions for the global COVID-19 pandemic.

Management believes that the historical collection rate for its accounts receivable will decrease during the COVID-19 pandemic and although any financial impact is currently tracked to be filed through the rate-making process, there is no guarantee that such recovery will be approved by the respective regulatory utility commissions.

(1) decrease in collection in balancing and memorandum accounts of $20,100, (2) a decrease in collections from accounts receivable and accrued unbilled utility revenue of $11,800 due to higher unbilled revenue balances and slower collections from customers during the COVID-19 pandemic, (3) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, (4) payments of amounts previously invoiced and accrued, which increased by $4,400, offset by (5) general working capital and net income, adjusted for non-cash items increased by $18,100, and (6) net collection of taxes receivable which was $5,800 more than in prior year.

As of June 30, 2020 , Water Utility Services’ write-offs for uncollectible accounts represent less than 1% of its total revenue, unchanged from June 30, 2019 .

In March 2020, the regulated utilities commissions of the respective states we operate initiated executive orders suspending water service disconnections due to non-payment from customers in light of the current stay-at-home orders, quarantines and similar governmental restrictions in response to the global COVID-19 pandemic.

Management believes that the historical collection rate for its accounts receivables will decrease during the COVID-19 pandemic and although any financial impact is currently tracked to be filed through the rate-making process, there is no guarantee that such recovery will be approved by the respective state regulatory utility commissions.

Cash Flow from Investing Activities

During the three months ended March 31, 2020 , SJW Group used cash flows in investing activities of approximately $42,500 , compared to $34,400 for the same period in 2019 .

During the six months ended June 30, 2020 , SJW Group used cash flows in investing activities of approximately $81,100 , compared to $72,500 for the same period in 2019 .

SJW Group used approximately:

(1) $38,300 of cash for company-funded capital expenditures, (2) $3,600 for developer-funded capital expenditures, and (3) $300 in utility plant retirement costs.

(1) $74,100 of cash for company-funded capital expenditures, (2) $5,000 for developer-funded capital expenditures, and (3) $1,600 for utility plant retirements.

Water Utility Services’ budgeted capital expenditures for 2020 , exclusive of capital expenditures financed by customer contributions and advances, are approximately $221,800 .

As of March 31, 2020 , approximately $38,300 or 17% of the $225,800 has been spent.

As of June 30, 2020 , approximately $74,100 or 33% of the $221,800 has been spent.

Water Utility Services’ capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations.

8 unchanged sentences

Cash Flow from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2020 , increased by approximately $36,700 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings on our lines of credit of $82,200, and (2) $1,500 increase in net cash receipts from advances and contributions in aid of construction, offset by (3) a decrease in net proceeds from new long-term debt of $45,000.

Net cash provided by financing activities for the six months ended June 30, 2020 , increased by approximately $30,200 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings on our lines of credit of $74,500, and (2) $3,300 increase in net cash receipts from advances and contributions in aid of construction, offset by (3) a decrease in net proceeds from new long-term debt of $46,700.

Sources of Capital:

3 unchanged sentences

(1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011.

SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions at March 31, 2020 .

SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions at June 30, 2020 .

SJWC’s financing activity is designed to achieve a capital structure consistent with our CPUC authorized s tructure of approximately 47% debt and 53% equity.

As of March 31, 2020 , SJWC’s funded debt and equity were approximately 49% and 51%, respectively.

Funding for SJWC’s future capital expenditure program is expected to be provided primarily through internally-generated funds, the issuance of new long-term debt, the issuance of equity, all of which will be consistent with regulator guidelines.

As of June 30, 2020 , SJWC’s funded debt and equity were approximately 48% and 52%, respectively.

Funding for SJWC’s future capital expenditure program is expected to be provided primarily through internally-generated funds, the issuance of new long-term debt, and the issuance of equity, all of which will be consistent with regulator guidelines.

SJWC’s unsecured senior note agreements generally have terms and conditions that restrict SJWC from issuing additional funded debt if:

(1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-month-calendar period would be less than 175% of interest charges.

SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions at March 31, 2020 .

SJWC’s loan agreements with the California Pollution Control Financing Authority contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, including, among other things, complying with certain disclosure obligations and covenants relating to the tax exempt status of the interest on the bonds and limitations and prohibitions relating to the transfer of the projects funded by the loan proceeds and the assignment of the loan agreement.

As of March 31, 2020 , SJWC was in compliance with all such covenants.

SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions at June 30, 2020 .

obligations and covenants relating to the tax exempt status of the interest on the bonds and limitations and prohibitions relating to the transfer of the projects funded by the loan proceeds and the assignment of the loan agreement.

As of June 30, 2020 , SJWC was in compliance with all such covenants.

CTWS has outstanding term loans with a commercial bank and under the master loan agreement, CTWS is required to comply with certain financial ratio and operational covenants.

The most restrictive of these covenants is to maintain a consolidated (CTWS and its subsidiaries) debt to capitalization ratio of not more than 60%.

As of March 31, 2020 , CTWS was in compliance with all covenants under the master loan agreement.

As of June 30, 2020 , CTWS was in compliance with all covenants under the master loan agreement.

Connecticut Water has outstanding term loans with a commercial bank and under its master loan agreement, Connecticut Water is required to comply with financial and operational covenants substantially identical to those found in CTWS’s master loan agreement.

Connecticut Water is required to maintain a debt to capitalization ratio of not more than 60%.

As of March 31, 2020 , Connecticut Water was in compliance with all covenants under its master loan agreement.

As of June 30, 2020 , Connecticut Water was in compliance with all covenants under its master loan agreement.

Connecticut Water has tax exempt and taxable Water Facilities Revenue Bonds issued through Connecticut Innovations (formerly the Connecticut Development Authority).

The bond indentures and loan agreements contain customary affirmative and negative covenants and require compliance with financial and operational covenants, and also provide for the acceleration of the Revenue Bonds upon the occurrence of stated events of default.

As of March 31, 2020 , Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

On March 12, 2020 Connecticut Water entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which Connecticut Water sold an aggregate principal amount of $35,000 of its 3.51% Senior Notes, due March 12, 2050.

As of June 30, 2020 , Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

Connecticut Water’s unsecured senior notes have terms and conditions that restrict Connecticut Water from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default.

The senior note agreements also require Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio at each fiscal quarter end of no less than three-to-one.

As of June 30, 2020 , Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

On March 12, 2020, Connecticut Water entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which Connecticut Water sold on the same date an aggregate principal amount of $35,000 of its 3.51% Senior Notes, due March 12, 2050.

The notes are unsecured obligations of Connecticut Water.

3 unchanged sentences

The notes are also subject to customary events of default, the occurrence of which may result in all of the notes then outstanding becoming immediately due and payable.

The closing occurred simultaneously with the signing of the note purchase agreement.

The senior note agreements also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio at each fiscal quarter end of no less than three-to-one.

As of March 31, 2020 , Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

SJWTX, Inc.’s unsecured senior note agreement has terms and conditions that restrict SJWTX, Inc.

3 unchanged sentences

(1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005.

As of March 31, 2020 , SJWTX, Inc.

As of June 30, 2020 , SJWTX, Inc.

and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

1 unchanged sentence

The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65%, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

As of March 31, 2020 , Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

Maine Water has outstanding term loans with a commercial bank and under its master loan agreement.

Maine Water is required to comply with financial and operational covenants substantially identical to those found in CTWS and Connecticut Water’s master loan agreements.

Maine is required to maintain a debt to capitalization ratio of not more than 60%.

As of March 31, 2020 , Maine Water was in compliance with all covenants under its master loan agreement.

As of June 30, 2020 , Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

Maine Water has outstanding term loans with a commercial bank and under its master loan agreement, Maine Water is required to comply with financial and operational covenants substantially identical to those found in CTWS and Connecticut Water’s master loan agreements.

Maine Water is required to maintain a debt to capitalization ratio of not more than 60%.

As of June 30, 2020 , Maine Water was in compliance with all covenants under its master loan agreement.

HVWC has a term loan with a commercial bank, due in 2034.

1 unchanged sentence

The loan agreement restricts HVWC’s ability to incur additional debt and requires compliance with a funded debt to capitalization covenant and other operational covenants.

As of March 31, 2020 , HVWC was in compliance with all covenants of the loan.

As of June 30, 2020 , HVWC was in compliance with all covenants of the loan.

Avon Water has a mortgage loan that is due in 2033.

The loan agreement (1) generally restricts the ability of Avon Water to incur additional debt or make dividend payments other than in the ordinary course of business, and (2) requires submission of periodic financial reports as part of loan covenants.

As of March 31, 2020 , Avon Water was in compliance with all covenants of the loan.

As of March 31, 2020 , SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $235,000 , of which $15,000 was available to SJW Group and SJW Land Company under a single line of credit, $5,000 was available to SJWTX, Inc.

under a second line of credit, $125,000 was available to SJWC under a third line of credit, and $15,000 and $75,000 under a fourth and fifth, respectively, lines of credit was available to CTWS.

At March 31, 2020 , SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $103,598 .

The loan agreement (1) generally restricts the ability of Avon Water to incur additional debt or make dividend payments other than in the ordinary course of business, and (2) requires submission of

periodic financial reports as part of loan covenants.

As of June 30, 2020 , Avon Water was in compliance with all covenants of the loan.

As of June 30, 2020 , SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $310,000 , of which $5,000 was available to SJWTX, Inc.

under a single line of credit, $190,000 was available to SJWC under two additional lines of credit line of credit, and $40,000 and $75,000 under a fourth and fifth, respectively, lines of credit was available to CTWS.

At June 30, 2020 , SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $163,329 .

The lines of credit bear interest at variable rates.

On April 24, 2020, SJW Group terminated the $15,000 joint unsecured bank line of credit held by SJW Group and SJW Land Company effective April 29, 2020.

On May 11, 2020, SJWC amended its $125,000 unsecured line of credit to increase the lending commitment $15,000 to $140,000.

In addition, on May 11, 2020, SJWC entered into an additional unsecured line of credit allowing borrowings of up to $50,000 during a six month period.

On April 24, 2020, SJW Group terminated a $15,000 joint unsecured bank line of credit held by SJW Group and SJW Land Company effective April 29, 2020.

On May 11, 2020, SJWC amended its $125,000 unsecured line of credit to increase the lending commitment by $15,000 to $140,000.

In addition, on May 11, 2020, SJWC entered into an additional unsecured line of credit allowing borrowings of up to $50,000 for a six month period.

The $140,000 and $50,000 lines of credit of SJWC expire on June 1, 2021 and November 11, 2020, respectively.

1 unchanged sentence

expires on June 1, 2021.

The lines of credit for CTWS expire July 1, 2020 and December 14, 2023.

On May 29, 2020, the CTWS entered into a Second Amendment to the CTWS’s existing $15,000 credit agreement, dated as of August 6, 2014, with the CoBank, ACB (“CoBank), as amended by the First Amendment, dated October 28, 2015.

The Second Amendment amends the prior agreement to, among other things, increase the total commitment by $25,000 , from $15,000 to $40,000 .

The $40,000 and $75,000 lines of credit for CTWS expire May 15, 2025 and December 14, 2023, respectively.

During 2020, the cost of borrowing on SJW Group’s short-term credit facilities has averaged 2.02%.

All of SJW Group’s and subsidiaries lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes.

All of the lines of credit also include certain financial covenants that require the borrower and, in some cases SJW Group, to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

As of March 31, 2020 , SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

All of the lines of credit also include certain financial covenants that require the borrower to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

As of June 30, 2020 , SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

The condition of the capital and credit markets or the strength of financial institutions could impact SJW Group’s ability to draw on its lines of credit, issue long-term debt, sell its equity or earn interest income.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis