What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-03-02 · 226 added, 167 removed, 442 unchanged (47% of the section changed)

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SJW Group is a publicly traded company and is a holding company with four subsidiaries:

SJWC, a wholly-owned subsidiary, is a public utility in the business of providing water service to approximately 231,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

SJWNE LLC, a wholly-owned subsidiary of SJW Group.

SJWC, a wholly-owned subsidiary of SJW Group, is a public utility in the business of providing water service to approximately 231,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

SJWNE LLC is a wholly-owned subsidiary of SJW Group.

On October 9, 2019, CTWS became a wholly-owned subsidiary of SJWNE LLC.

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sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company also sold certain undeveloped land located in San Jose, California.

TWA, formerly a wholly owned subsidiary of SJW Group, was undertaking activities that were necessary to develop a water supply project in Texas.

In 2017, SJW Group sold all of its equity interest in TWA to GBRA for $31.0 million.

The limited partnership is expected to dissolve in 2021.

Business Strategy for Water Utility Services

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Regional Regulated Activities

SJW Group’s regulated utility operation is conducted through SJWC, Connecticut Water, HVWC, Avon Water, CLWSC and Maine Water.

SJW Group’s regulated utility operation is conducted through SJWC, Connecticut Water, CLWSC and Maine Water.

SJW Group plans and applies a diligent and disciplined approach to maintaining and improving its water system infrastructures and also seeks to acquire regulated water systems adjacent to or near its existing service territory.

CTWS also provides regulated wastewater services through HVWC.

Connecticut Water also provides regulated wastewater services.

The United States water utility industry is largely fragmented and is dominated by municipal-owned water systems.

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Additionally, CTWS 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, curb box, curb box cover, meter pit, meter pit cover, meter pit valve plus in-home water main shut off valve before the meter.

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.

For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line, curb box, curb box cover, meter pit, meter pit cover, meter pit valve plus in-home water main shut off valve before the meter.

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.

SJW Group also seeks appropriate non-tariffed business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations.

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• Synergy potential.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets, for example the merger with CTWS.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets, for example the merger with CTWS in 2019.

However, we cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities.

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sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company sold the undeveloped land located in San Jose, California.

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

The limited partnership is expected to dissolve in 2021.

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

Chester Realty, Inc.

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For a detailed discussion on the application of these and other accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.” SJW Group’s critical accounting policies are as follows:

Balancing and Memorandum Accounts

Recognition of Regulatory Assets and Liabilities

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980.

In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred.

Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process.

The regulatory assets and liabilities recorded by Water Utility Services primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates.

The company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly.

The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes.

In December 2019, CPUC denied SJWC’s request in Advice Letter No.

532 to recover the 2018 balances of WCMA and was ordered to remove the WCMA accounts from the preliminary statement book.

As a result of the decision, SJWC wrote off the total 2018 WCMA balance of $9.4 million and $0.6 million recorded in its 2019 WCMA memorandum accounts.

(See also Note 1, “Summary of Accounting Principles” in the consolidated financial statements).

No other disallowances were recognized during the years ending December 31, 2020 and 2019.

Recognition of Balancing and Memorandum Accounts

Balancing and memorandum accounts are utilized by our California operations.

The purpose of a balancing account is to track the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes.

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Balancing accounts are currently being maintained for the following items:

purchased water, purchased power, groundwater extraction charges, pensions, and general rate case true-ups.

purchased water, purchased power, groundwater extraction charges, pensions, and general rate case and cost of capital true-ups.

The amount in the water production balancing accounts varies with the seasonality of the water utility business such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection, while during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection.

The pension balancing account is intended to capture the difference between actual pension expense and the amount approved in rates by the CPUC.

The general rate case true-up accounts are a result of revenue shortfalls authorized for collection by the CPUC due to delayed rate case decisions.

The general rate case true-up accounts are a result of revenue shortfalls authorized for collection or refund by the CPUC due to delayed rate case and cost of capital decisions.

SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC.

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This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges.

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria.

subtopic 340-25 recognition criteria.

Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable.

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In the case where SJWC’s balancing or memorandum-type accounts that have been authorized by the CPUC reach certain thresholds or have termination dates, SJWC can request the CPUC to recognize the amounts in customer rates prior to the next regular general rate case proceeding by filing an advice letter.

Recognition of Regulatory Assets and Liabilities

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980.

The disallowance of any asset in future ratemaking, including deferred

regulatory assets, would require SJWC to immediately recognize the impact of the costs for financial reporting purposes.

In December 2019, CPUC denied SJWC’s request in Advice Letter No.

532 to recover the 2018 balances of WCMA and was ordered to remove the WCMA accounts from the preliminary statement book.

As a result of the decision, SJWC wrote off the total 2018 WCMA balance of $9.4 million and $0.6 million recorded in its 2019 WCMA memorandum accounts.

(See also Note 1, “Summary of Accounting Principles” in the consolidated financial statements).

No other disallowances were recognized during the years ending December 31, 2019 and 2018 .

Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business.

Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount.

SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test.

In assessing the qualitative factors, SJW Group considers the impact of these key factors:

change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events.

If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed.

SJW Group’s goodwill is primarily associated with the recent merger with CTWS on October 9, 2019.

SJW Group performed an impairment analysis as of October 1, 2020.

The qualitative assessment found no indicators of impairment and therefore did not perform the quantitative impairment test.

No impairments occurred during 2020, 2019 or 2018.

Business Combinations

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Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While SJW Group uses our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Comprehensive Income.

While SJW Group used our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates were inherently uncertain and subject to refinement.

As a result, during the one year measurement period from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments were recorded to our Consolidated Statements of Comprehensive Income.

Accounting for business combinations requires SJW Group to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies.

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Although SJW Group believes the assumptions and estimates made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include, but are not limited to:

Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to:

future expected cash flows from services;

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and discount rates.

As of December 31, 2019 , the preliminary value of the acquired deferred tax assets and deferred tax liabilities are based on a preliminary analysis, and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date).

In addition, management is still evaluating CTWS’s acquisition accounting in the opening balance sheet.

SJW Group analyzed and revalued the acquired opening deferred tax asset and liability balances within the measurement period which resulted in a decrease to goodwill of $114.

There was no impact associated with the measurement period adjustments to the consolidated statement of comprehensive income for the year ended December 31, 2020.

Factors Affecting Our Results of Operations

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Regulatory risk is mitigated in California by use of a forward-looking test year which allows the return on and return of utility plant on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.

Pursuant to Connecticut regulations, Connecticut Water, Avon Water and HVWC employ a historical test year.

Pursuant to Connecticut regulations, Connecticut Water employs a historical test year.

To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Connecticut.

Additionally, to mitigate regulatory lag for pipeline replacement and conservation related projects, the Connecticut State Legislature has approved of WICA that allows for a surcharge to be added to customer bills semi-annually for certain eligible pre-approved projects.

Additionally, to mitigate regulatory lag for pipeline replacement and conservation related projects, the Connecticut State Legislature has approved WICA that allows for a surcharge to be added to customer bills semi-annually for certain eligible pre-approved projects.

Further to mitigate risks from variations in revenues from changes in customer usage, the Connecticut State Legislature has approved a WRA to provide for recovery of the company’s authorized revenues.

Pursuant to Texas regulation, CLWSC employs a historical test year.

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These expenses include power, which is used to operate pumps and other equipment, purchased water and groundwater extraction charges.

For 2019 , production expenses accounted for approximately 51% of our total operating expenses excluding merger related expenses.

For 2020, production expenses accounted for approximately 51% of our total operating expenses.

Price increases associated with these production inputs would adversely impact our results of operations until rate relief is granted.

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(i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories.

During 2019 , 2018 and 2017 , we had capitalized cash outflows of $ 835,465 , $ 2,496 and $ 1,149 , respectively, for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base.

In addition, we had $15,768 and $18,610 in merger related costs reflected in our consolidated statements of comprehensive income related to the Merger in 2019 and 2018 , respectively.

During 2019 and 2018, we had cash outflows of $835,465 and $2,496, respectively, for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base.

In 2020, there was no cash outflows for business acquisitions and water rights.

Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety and water quality standards.

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Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices, all of which could affect Water Utility Services’ results of operations.

SJWC residential usage decreased 0.8% from 2018 to 2019 and increased 3.8% from 2017 to 2018.

SJWC business usage decreased 1.0% and increased 3.0% from 2018 to 2019 and from 2017 to 2018, respectively.

In addition, 2019 residential and business usage was 0.4% and 3.94% lower, respectively, than the amount authorized in our 2019-2021 general rate case.

SJWC residential usage increased 13.3% from 2019 to 2020 and decreased 0.8% from 2018 to 2019.

SJWC business usage increased 1.4% and decreased 1.0% from 2019 to 2020 and from 2018 to 2019, respectively.

In addition, 2020 residential and business usage was 12.75% higher and 2.57% lower, respectively, than the amount authorized in our 2019-2021 general rate case.

Residential usage and business usage in 2019 was 0.4% and 3.94%, respectively, lower than the amount authorized in our 2019-2021 general rate case.

CLWSC residential and business usage increased 2.1% from 2018 to 2019 and decreased 3.5% from 2017 to 2018.

CLWSC residential and business usage increased 13.6% from 2019 to 2020 and increased 2.1% from 2018 to 2019.

CTWS residential and business usage per cubic feet was 78.86 and 232.43, respectively, for the year ended December 31, 2020.

From the date of merger, October 9, 2019, to December 31, 2019, CTWS residential and business usage per cubic feet was 16.59 and 57.72, respectively.

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In addition, SJWC actively works with Valley Water to address California’s long-term water supply challenges by continuing to educate customers on responsible water use practices and to conduct long-range water supply planning.

Connecticut Water and Maine Water believes that they will be able to meet customer demand for 2020 with their water supply which consists of groundwater from wells, surface water in reservoirs and purchased treated by neighboring water utilities.

Connecticut Water and Maine Water believes that they will be able to meet customer demand for 2021 with their existing water supply which consists of groundwater from wells, surface water in reservoirs and purchased water treated by neighboring water utilities.

CLWSC believes that it will be able to meet customer demand for 2021 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

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SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

During the years ended December 31, 2019 and 2018, SJW Group spent $15,768 and $18,610 , respectively, on merger costs related to the merger with CTWS which was completed on October 9, 2019.

Results of Operations

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See Item 1, “Business” for a discussion of SJW Group’s general business and regulatory activities.

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 evolve and has included:

(i) suspending service disconnections for non-payments pursuant to orders from certain state regulators, which will remain for specified durations with the longest extending to June 30, 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.

The Regulators have approved regulatory mechanisms to either record a regulatory asset or track in memorandum account for expenses and savings related to COVID-19.

SJWC and CLWSC have determined that future recovery of the account is probable and recognized the regulatory assets.

Probability criteria has not been met for CTWS.

If the Regulators disagrees with our calculation of these accounts, we may be required to make adjustments that could adversely affect our results of operations.

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

Please see other risks related to COVID-19 under Item 1A, “Risk Factors.”

SJW Group’s consolidated net income for the year ended December 31, 2020 was $61,515, compared to $23,403 for the same period in 2019.

This represents a decrease of $15,364 or 40%, from 2018 .

The decrease in net income was primarily due to costs incurred related to integration with the new operations in CTWS, an increase in production expenses due to higher usage and higher per unit costs for purchased water, ground water extraction and energy charges, and higher depreciation expenses due to assets placed in service in 2018, partially offset by an increase in operating revenue and decrease in costs due to the increased use of surface water.

The increase in operating revenue was primarily due to an increase of $21,660 from the new CTWS operations following the completion of the merger on October 9, 2019, an increase in authorized rates, and net recognition of certain balancing and memorandum accounts, offset by a write-off of revenue related to amounts recorded in our 2019 WCMA and 2018 WCMA.

This represents an increase of $38,112 or 163%, from 2019.

The increase in net income was primarily due to addition of net income from CTWS and an increase in revenue at SJWC due to increased customer usage, cumulative water rate increases, there were no merger related expenses, and a write -off recorded in the prior year for the 2018 and 2019 Water Conservation Memorandum Account as we determined these costs were no longer probable of recovery.

The net increase in revenue was partially offset by an increase in productions expenses at SJWC due to a decrease of available surface water supply and an increase in customer usage, higher depreciation expenses due to assets placed in service in 2019, and an increase in interest on long-term debt due to the debt issued to acquire SJWNE LLC and issuance of SJWC’s Series M Note.

Operating Revenue

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Operating Revenue

2020 2019 2018

Water Utility Services $ 558,994 415,085 392,217

Real Estate Services 5,532 5,397 5,482

$ 564,526 420,482 397,699

The change in consolidated operating revenues was due to the following factors:

Increase/(decrease)

Increase/(decrease) 2019 vs.

Increase/(decrease)

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Rate increases 12,234 3 % 13,877 3 %

OII customer rate credits

Customer rate credits 4,964 1 % (2,107) — %

Balancing and memorandum accounts:

Cost recovery recorded prior year

2016 WCMA revision to new customer classification

Cost of capital memorandum account 22 — % 1,349 — %

Water Conservation Memorandum Account 9,386 2 % (19,841) (5) %

Tax Act 137 — % 6,366 2 %

All other 73 — % 301 — %

Other 3,232 1 % 403 — %

Revenue from acquisition of SJWNE LLC — — % 21,660 5 %

Real Estate Services 135 — % (85) — %

$ 144,044 34 % $ 22,783 6 %

The revenue increase consists of $143,909 from Water Utility Services and $135 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase of $111,183 due to higher customer usage, an increase in authorized rates which resulted in $12,234 of additional revenue and an increase from customer rate credits of $4,964.

In addition, a write-off of the 2018 and 2019 Water Conservation Memorandum Account balances was recorded in prior year as we determined these costs were no longer probable of recovery.

The revenue increase consists of $22,868 from Water Utility Services offset by a decrease of $85 from Real Estate Services.

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These increases were partially offset by a net decrease in revenue recognized from certain balancing and memorandum accounts, which included a decrease of $19,841 in WCMA, partially offset by increases of $6,366 from the Tax Act and $1,349 in the Cost of Capital Memorandum Account.

The revenue increase consists of $8,694 from Water Utility Services offset by a decrease of $220 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase in rates which resulted in $17,516 of additional revenue and an increase of $7,376 due to higher water usage.

The Company also recognized a revenue increase due to new customers of $2,298.

These increases were partially offset by decreases in revenue recognized from certain balancing and memorandum accounts, which included a decrease of $6,504 as a result of the Tax Act, a $5,462 decrease in the WCMA, a $3,864 decrease in cost recovery recorded in the prior year, a $1,379 decrease in the Cost of Capital Memorandum Account, and a $1,371 decrease due to the 2016 WCMA revision to new customer classification.

Water Utility Services’ Operating Revenue and Customer Counts

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Operating Revenue by Customer Group

2020 2019 2018

Residential and business $ 487,675 384,448 356,535

Industrial 5,025 2,514 2,215

Public authorities 20,534 17,892 18,049

Balancing and memorandum accounts

Others 45,376 18,157 12,519

Balancing and memorandum accounts and other regulatory mechanisms 384 (7,926) 2,899

$ 558,994 415,085 392,217

Number of Customers

2020 2019 2018

Residential and business 372,641 370,074 241,253

Industrial 605 596 76

Public authorities 2,406 2,398 1,343

Others 13,641 13,539 4,595

389,293 386,607 247,267

Operating Expense

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Operating Expense

2020 2019 2018

Water Utility Services $ 438,318 334,963 299,548

Real Estate Services 3,510 3,751 3,539

All Other 5,028 24,289 21,172

$ 446,856 363,003 324,259

The change in consolidated operating expenses was due to the following factors:

Increase/(decrease)

Increase/(decrease) 2019 vs.

Increase/(decrease)

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Balance and memorandum account cost recovery 311 — % 477 — %

Maintenance 1,653 — % 2,091 1 %

Property taxes and other non-income taxes 10,818 3 % 4,093 1 %

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Merger related expenses (15,768) (4) % (2,842) (1) %

$ 83,853 23 % $ 38,744 12 %

Sources of Water Supply

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The agreements, which are take-or-pay contracts, provide CLWSC with an aggregate of 6,900 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA.

CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, to provide for 250 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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

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Source of Water Supply

2020 2019 2018

(million gallons) (MG)

Purchased water 22,933 22,385 24,110

Groundwater 21,248 12,038 12,507

Surface water 8,625 7,061 2,674

Reclaimed water 798 732 762

53,604 42,216 40,053

Average water production expense per MG $ 4,212 4,162 4,213

Water production in 2019 for water utility services increased 2,163 million gallons from 2018.

Water production in 2020 for water utility services increased 11,388 million gallons from 2019 primarily due to a full year of CTWS operations in 2020.

Water production in 2019 for water utility services increased 2,163 million gallons from 2018.

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The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $4.2, $4.2 and $3.9 per million gallons for Valley Water’s fiscal years 2021, 2020, and 2019, respectively.

Unaccounted-for water for 2019 and 2018 approximated 7.2% and 7.0%, respectively, as a percentage of production.

SJWC’s unaccounted-for water for 2020 and 2019 approximated 6.5% and 7.2%, respectively, as a percentage of 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.

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Maine Water has an agreement with the Kennebec Water District for potable water service.

The agreement was extended and became effective on November 7, 2015 for a new term of 5 years.

The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to Maine Water are billed at a flat rate per gallon plus the monthly minimum tariff rate for a 4-inch metered service.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates.

CTWS’s unaccounted-for water for the period ending December 31, 2020 was approximately 16.2% 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.

The various components of operating expenses are discussed below.

Water production expenses

Water production expenses increased $33,864 due to an increase in customer usage, $18,992 as a result of decreased availability of California surface water in 2020 compared to 2019, and $588 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, offset by a decrease of $3,421 due to changes in water production balancing and memorandum accounts.

Valley Water did not increase the unit price of purchased water and groundwater extraction fees for their fiscal year beginning July 1, 2020.

Water production expenses increased $12,125 due to higher per unit costs paid for purchased water, groundwater extraction and energy charges, $5,850 due to the new CTWS operations and $1,211 due to changes in water production balancing and memorandum accounts, offset by decreases of $11,348 due to an increase in the use of available surface water in 2019 compared to 2018, and $795 due to a decrease in customer usage.

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

Water production expenses increased $14,931 due to higher per unit costs paid for purchased water, groundwater extraction and energy charges, and $5,077 due to an increase in customer usage, offset by a decrease of $7,998 due to an increase in the use of available surface water in 2018 compared to 2017 and a decrease of $1,423 in the balancing and memorandum accounts.

Effective July 2018, Valley Water increased the unit price of purchased water by approximately 9% and the groundwater extraction charge by approximately 10%.

Administrative and General Expense

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Administrative and general expense increased $13,440 in 2020, or 4%, in comparison to 2019.

The increase consisted primarily of $17,793 due to CTWS operations, partially offset by a decrease of $4,520 in integration costs related to the merger.

Administrative and general expense increased $17,368 in 2019, or 5%, in comparison to 2018.

The increase consisted primarily of:

(1) $7,295 due to the new CTWS operations, (2) $4,860 increase in integration costs related to the merger, (3) $1,539 increase in accounting and legal fees, (4) $1,491 increase in contracted work primarily related to the recycled water retrofit program, social media outreach, accounting services and customer service strategy, (5) $677 increase in salaries and wages, and (6) $605 in cost recoveries other than pension costs through balance and memorandum accounts.

Administrative and general expense decreased $7 in 2018, or less than 1%, in comparison to 2017.

The decrease consisted primarily of:

(1) $606 in cost recoveries other than pension costs through balance and memorandum accounts, and (2) $509 decrease in legal fees, partially offset by, (3) $593 increase in group insurance costs, (4) $428 increase in contracted work primarily related to the recycled water retrofit program, and (5) $401 increase in rate case expenses.

Maintenance Expense

Maintenance expense increased $2,091 in 2019, or 1%, in comparison to 2018, and increased $53 in 2018, or less than 1%, in comparison to 2017.

Maintenance expense increased $1,653 in 2020, or less than 1%, in comparison to 2019, and increased $2,091 in 2019, or 1%, in comparison to 2018.

The increase in 2020 consisted primarily of $3,639 due to CTWS operations, offset by a decrease of $1,745 in SJWC primarily due to a change in the probability assessment of regulatory recovery of a hydro-turbine generator project.

The increase in 2019 consisted primarily of $1,128 increase due to the new CTWS operations.

The increase in 2018 consisted primarily of:

(1) $520 increase in salaries and wages, partially offset by (2) a $524 decrease in contracted work as a result of increased capitalized projects.

Property Taxes and Other Non-income Taxes

Property taxes and other non-income taxes for 2020 and 2019 increased $10,818 and $4,093 from prior years, respectively.

The increases were primarily a result of increased utility plant.

The increase in 2019 also included $3,096 due to the new CTWS operations.

The increase in 2020 was primarily due to $10,603 in CTWS operations.

The increase in 2019 was primarily a result of increased utility plant, and $3,096 due to the new CTWS operations.

SJW Group anticipates increases in 2021 for property taxes and other non-income taxes due to increases in utility plant.

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Depreciation and amortization expense increased $23,687 in 2020, or 6%, in comparison to 2019, and increased $10,991 in 2019, or 4%, in comparison to 2018.

The increase were primarily due to increases in utility plant.

The increase in 2019 also included an increase of $4,903 due to the new CTWS operations.

The increases were primarily due to increases in utility plant.

In addition, the increases in 2020 and 2019 also included $16,380 and $4,903 due to the new CTWS operations, respectively.

SJW Group anticipates increases in 2021 for depreciation expense due to increases in utility plant.

Other Income and Expense

The change in other (expense) income in 2019 compared to 2018 was primarily due an increase in interest on long-term debt as a result the issuance of SJWC’s Series M note and SJW Group’s Series 2019A, B & C notes.

The change in other (expense) income in 2020 compared to 2019 was primarily due to an increase in interest on long-term debt as a result of the issuance of SJW Group’s Series 2019A, 2019B, 2019C and 2020 notes.

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

The new CTWS operations generated an increase of $5,144 in expense.

The change in other (expense) income in 2019 compared to 2018 was primarily due to an increase in interest on long-term debt as a result a full year of interest recorded on SJWC’s Series M note and SJW Group’s Series 2019A, 2019B and 2019C notes.

In addition, interest income increased due to the invested proceeds from our equity offering in December 2018.

The new CTWS operations generated an increase of $2,025 in expense.

The change in other (expense) income in 2018 compared to 2017 was primarily due to a $12,501 pre-tax gain on sale of the equity interests in TWA and a pre-tax gain of $6,903, reduced by the noncontrolling interest’s of $1,896, on the sale of our limited partnership’s properties and undeveloped land in San Jose, California recorded in the prior year.

SJW Group’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs, was 4.3%, 4.4% and 6.0% for the years ended December 31, 2020 and 2019 and 2018.

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The effective consolidated income tax rate was 12% for 2020, 26% for 2019 and 21% for 2018.

The decrease in income tax expense was primarily due due to lower pre-tax income and flow-through deductions which were partially offset by the write-off of non-deductible merger costs.

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 Act.

At this time, the Company has applied a reasonable interpretation of the Tax Act.

Future clarification of the Tax Act may change the estimated amounts.

Income tax expense decreased due to flow- through deductions and absence of the write-off of non-deductible merger costs in 2020.

The decrease was mostly offset by an increase due to higher pre-tax income.

Please refer to Note 5, “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of actual to expected income tax expense.

Other Comprehensive (Loss) Income

The change in other comprehensive income in 2019 was primarily due to the change in the benefit obligation for Connecticut Water’s supplemental executive retirement agreements as a result of a decrease in the discount rate.

The change in other comprehensive income in 2018 was due to a change in accounting for the fair value of the company’s investment in California Water Service Group as a result of the adoption of ASU 2016-01, “Financial Instruments - Overall” effective January 1, 2018.

The change in other comprehensive income in 2020 and 2019 was primarily due to the change in the benefit obligation for Connecticut Water’s supplemental executive retirement agreements as a result of a change in the discount rate.

Liquidity and Capital Resources

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Payments from customers are impacted by the general economic conditions in the areas where SJW Group operates.

Payment delinquencies are mitigated by service interruptions due to non-payment.

As of December 31, 2019 , the change in allowance for doubtful accounts was due to the increased number of customers from the merger with CTWS.

Write-offs for uncollectible accounts remain less than 1% of total revenue consistent prior year.

Management believes it can continue to collect its accounts receivable balances at its historical collection rate.

Payment delinquencies are mitigated by service interruptions due to non-payment prior to the COVID-19 pandemic.

In California, Governor Gavin Newsom signed an executive order suspending water service disconnections due to non-payment by customers retroactive to March 4, 2020 and until June 30, 2021.

In Connecticut, the March 12, 2020, PURA moratorium ruling to halt shutoff for nonpayment expired on October 1, 2020.

In Maine, MPUC lifted the moratorium on utility disconnections effective November 1, 2020.

PUCT in Texas had ordered on March 13, 2020 public utilities to suspend water service disconnections and late fees charged to customers which expired on June 13, 2020.

There is no guarantee that the Regulators will extend or reinstate such orders.

As of December 31, 2020, the change in allowance for doubtful accounts was due to adjustments made for the effect of COVID-19 on our customers and from the adoption of Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” and subsequent amendments.

Impacts to allowance for doubtful accounts related to COVID-19 were recorded to regulatory assets or tracked by regulatory mechanisms as directed by the Regulators.

Write-offs for uncollectible accounts remain less than 1% of total revenue consistent with prior year.

Management believes that the accounts receivable aging will continue to deteriorate throughout the duration of the COVID-19 pandemic as long as the moratoriums on water service disconnections and non-payment continue in California.

Funds collected from Water Utility Services’ customers are used to pay for water production expenses, in addition to costs associated with general operations.

Funds were also generated from borrowings.

From these amounts, SJW Group paid cash dividends of approximately $ 34,134 and funded its 2019 working capital and capital expenditure programs.

SJW Group also obtained funds through the issuance of common stock in December of 2018 to partially finance our merger with CTWS and to pay related fees and expenses.

Pending close of the merger on October 9, 2019, SJW Group had invested the funds raised in a short-term money market fund which was managed by a reputable financial institution.

See Note 2 of “Notes to Consolidated Financial Statements” for a discussion of the equity offering.

The remaining funding for the all-cash merger with CTWS was provided through proceeds from a debt financing in October 2019, existing cash balances and cash flows from operations.

In 2020, SJW Group and its subsidiaries obtained $89,000 in funds from new long-term debt.

From these amounts, SJW Group funded its 2020 capital expenditure programs and working capital.

See Note 4 of “Notes to Consolidated Financial Statements” for discussion on the debt financing activities of SJW Group.

In addition, SJW Group paid cash dividends of approximately $36,509 during the year ended December 31, 2020.

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.

In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost of capital.

While our ability to obtain financing will continue to be a key risk, we believe that based on our 2019 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

While our ability to obtain financing will continue to be a risk, we believe that based on our 2020 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

On October 16, 2019, Standard & Poor’s Ratings Service initiated coverage on SJW Group assigning a company rating of A-, with a stable outlook and affirming its company rating of SJWC of A, with a stable outlook.

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In 2020, SJW Group generated cash flow from operations of approximately $104,051 compared to $130,005 in 2019 and $91,343 in 2018.

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 on the sale of assets, and changes in working capital items.

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, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets, and other changes in working capital items.

Cash flow from operations decreased in 2020 by approximately $25,900.

The decrease was primarily due to a combination of the following factors:

(1) a decrease in collections of the balancing and memorandum accounts by $45,300, (2) a decrease in collections of

previously billed and accrued receivables by $15,000, (3) a decrease in the other noncurrent assets and noncurrent liabilities of $6,700 primarily from an increase in payments for executive and board deferral for retirees and deferred tax changes, and (4) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (5) general working capital and net income, adjusted for non-cash items increase by $46,100.

Cash flow from operations increased in 2019 by approximately $38,700.

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(1) an increase in the collection of the balancing and memorandum accounts of $37,300, (2) an increase in accrued groundwater extraction charges, purchased water and power of $3,600, and (3) general working capital and net income, adjusted for non-cash items increased by $9,700, offset by (4) net collection of taxes receivable which was $11,900 less than in prior year.

Cash flow from operations decreased in 2018 by approximately $9,800.

The decrease was primarily due to a combination of the following factors:

(1) a decrease in the collection of the balancing and memorandum accounts of $5,500, (2) a decrease in accrued groundwater extraction charges, purchased water and power of $4,200, and (3) general working capital and net income, adjusted for non-cash items decreased by $3,700, offset by (4) an increase of a net collection of taxes receivable which was $3,600 more than in prior year.

Cash Flow from Investing Activities

In 2020, SJW Group used approximately $195,300 of cash for Company funded capital expenditures, $17,100 for developer funded capital expenditures, $2,600 in utility plant retirement costs, and $400 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $1,200 from the sale of real estate investments and utility property.

In 2019, SJW Group used approximately $164,300 of cash for Company funded capital expenditures, $13,600 for developer funded capital expenditures, $5,000 in utility plant retirement costs, $835,500 for the purchase of CTWS, and $100 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $745 from the sale of real estate investments and utility property.

In 2018 , SJW Group used approximately $136,000 of cash for Company funded capital expenditures, $8,500 for developer funded capital expenditures, $3,900 in utility plant retirement costs, $2,500 for water service asset acquisitions, and $100 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $4,100 from the sale of remaining shares of California Water Service Group stock.

Water Utility Services budgeted capital expenditures for 2021, excluding capital expenditures financed by customer contributions and advances is as follows:

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Water treatment $ 35,553 15 %

Wastewater treatment 1,798 1 %

Source of supply 9,174 4 %

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Distribution system 125,012 52 %

$ 238,800 100 %

The 2021 capital expenditures budget is concentrated in main replacements.

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Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2019 increased by approximately $16,600 from the same period in the prior year, primarily as a result of cash proceeds from long-term debt issued in current year and increase in receipts of advances and contributions in aid of construction, partially offset by the the proceeds from the prior year issuance of SJW Group’s common stock, a decrease in the amount of net borrowings on our lines of credit, a decrease in net other changes for equity plan payments, broker fees and debt issuance costs, and an increase in dividends paid to stockholders.

SJW Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit.

As such, when long-term borrowings are high, borrowings on our line of credit tend to be low and when long-term borrowings are low, borrowings on our line of credit tend to be high.

Net cash provided by financing activities for the year ended December 31, 2020 decreased by approximately $383,400 from the same period in the prior year, primarily as a result of decrease in cash proceeds from long-term debt issued in current year and increase in payments of long-term debt that matured, partially offset by an increase in the amount of net borrowings on our lines of credit, increase in receipts of advances and contributions in aid of construction, and a decrease in debt issuance costs.

Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit.

As such, during years when long-term borrowings are high, borrowings on our line of credit tend to be low and when long-term borrowings are low, borrowings on our line of credit tend to be high.

SJW Group, SJW Land Company, SJWTX, Inc., SJWC and CTWS have unsecured bank lines of credit totaling $260,000 as of December 31, 2020.

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The level of future earnings and the related cash flow from operations is dependent, in large part, on the timing and outcome of regulatory proceedings.

Long-term Financing Arrangements

SJW Group has outstanding $610,000 unsecured senior notes as of December 31, 2020.

SJW Group’s 2011 unsecured senior note agreement has terms and conditions that restrict SJW Group from issuing additional funded debt if:

(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.

On August 11, 2020, SJW Group entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which SJW Group sold an aggregate principal amount of $50,000 of its 2.47% Senior Notes, Series 2020, due August 1, 2030.

The notes are unsecured obligations of the Company.

Interest is payable semi-annually in arrears on February 1st and August 1st of each year.

The note purchase agreement contains customary representations and warranties.

Under the note purchase agreement, SJW Group is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding.

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.

SJW Group’s 2019 and 2020 unsecured senior note agreements have terms and conditions that restrict SJW Group from issuing additional funded debt if the funded consolidated debt would exceed 70% of total capitalization.

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

SJWC’s financing activity is designed to achieve a capital structure consistent with regulatory guidelines of approximately 47% debt and 53% equity.

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

As of December 31, 2019 , SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions.

In addition, SJWC has a restricted payment clause which prohibits any payment or distribution, including dividends, if it exceeds the sum of (1) cumulative net income since December 31, 1991, (2) the aggregate net proceeds received from the sale of shares of its capital stock since December 31, 1991, and (3) $20,000.

On November 2, 2020, SJWC paid in full its $10,000 Series C senior notes that reached maturity.

As of December 31, 2020, SJWC was in compliance with all terms and conditions of these unsecured senior notes.

SJWC also has obligations pursuant to loan agreements with the California Pollution Control Financing Activity (“CPCFA”) supporting $120,000 in aggregate principal amount of CPCFA revenue bonds outstanding as of December 31, 2020.

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

has an outstanding $15,000 senior note as of December 31, 2019 .

The senior note agreement has terms and conditions that restrict SJWTX, Inc.

from issuing additional funded debt if:

In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if:

(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 December 31, 2019 , SJWTX, Inc.

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

SJW Group has outstanding a $560,000 unsecured senior notes as of December 31, 2019 .

The senior notes have terms and conditions that restrict SJW Group from issuing additional funded debt if:

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

As of December 31, 2019 , SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

CTWS has outstanding term loans with a commercial bank in an aggregate amount of $22,169 as of December 31, 2020.

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Under its master loan agreement, Connecticut Water is required to comply with financial and operational covenants substantially identical to those found in CTWS’ master loan agreement.

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

Connecticut Water is required to maintain a debt to

capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1.

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

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Connecticut Water has a $70,000 unsecured senior note that has 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 agreement also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60%.

The senior note agreement also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1.

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

Maine Water has outstanding $16,032 of First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and $4,500 of First Mortgage Bonds issued to One America.

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.

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.

Interest is payable semi-annually in arrears on March 12th and September 12th of each year.

The note purchase agreement contains customary representations and warranties.

Under the note purchase agreement, Connecticut Water is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding.

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.

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

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

The loan was secured by real property owned by the HVWC division.

The note was paid in full on September 24, 2020.

Avon Water had a mortgage loan that was due in 2033.

The note was paid in full on September 24, 2020.

has an outstanding $15,000 senior note as of December 31, 2020.

The senior note agreement has terms and conditions that restrict SJWTX, Inc.

from issuing additional funded debt if:

In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if:

As of December 31, 2020, SJWTX, Inc.

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

Maine Water has outstanding $18,651 of First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and $3,600 of First Mortgage Bonds issued to One America as of December 31, 2020.

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%, an interest coverage ratio of no less than 3 to 1, a dividend restriction where cumulative dividends paid since 1993 can not exceed cumulative net income since 1982 plus $120, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

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

On December 23, 2020, Maine Water issued $4,000 of Series T First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund.

The Series T bonds mature on October 1, 2041 and carry 1% interest.

The Series T First Mortgage Bond covenants are the same as all other First Mortgage Bonds.

The proceeds of the Series T bond issuance are represented as restricted cash on the Consolidated Balance Sheets at December 31, 2020.

The restricted cash will be used for pre-approved projects primarily related to preliminary engineering and design work of a water treatment plant in Maine’s Biddeford and Saco division.

Maine Water has outstanding term loans with a commercial bank in an aggregate amount of $17,500 as of December 31, 2020.

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

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

The loan bears interest at a rate of 4.75% with monthly payments of principal and interest of $31.

The loan is secured by real property owned by HVWC.

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 December 31, 2019, HVWC was in compliance with all covenants of the loan.

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

This loan amortizes over 20 years and carries a fixed interest rate of 3.05% with monthly principal and interest payments of $22.

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 December 31, 2019, Avon Water was in compliance with all covenants of the loan.

As of December 31, 2020, SJW Group and its subsidiaries are in compliance with all of their debt covenants.

On June 1, 2016, SJWC entered into a $125,000 Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”).

The Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $10,000 .

Short-term Financing Arrangements

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 Company to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

SJWC maintains a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”) dated June 1, 2016.

The Credit Agreement provides SJWC with an unsecured credit facility with a letter of credit sublimit of $10,000.

Proceeds of borrowings under the Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes.

The Credit Agreement has a maturity date of June 1, 2021.

On June 1, 2016, SJW Group and SJW Land Company (collectively, the “Borrowers”), entered into a $15,000 credit agreement with the Lender (the “SJW Group Credit Agreement”), which provides an unsecured credit facility to the Borrowers with a letter of credit sublimit of $5,000 .

The SJW Group Credit Agreement matures on June 1, 2021.

Borrowings under the SJW Group Credit Agreement bear interest under the same terms and conditions as those in the Credit Agreement.

In addition, on June 1, 2016, SJW Group, as guarantor, and SJWTX, Inc.

On May 11, 2020, SJWC amended its unsecured line of credit to increase the lending commitment by $15,000 from $125,000 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 which had a zero balance at it’s maturity on November 11, 2020.

SJW Group and SJW Land Company (collectively, the “Borrowers”), had a $15,000 credit agreement with the Lender (the “SJW Group Credit Agreement”), which provided an unsecured credit facility to the Borrowers with a letter of credit sublimit of $5,000.

On April 24, 2020, SJW Group terminated the SJW Group Credit Agreement effective April 29, 2020.

In addition, SJW Group, as guarantor, and SJWTX, Inc.

(the “Borrower”), entered into a $5,000 credit agreement with the Lender (the “SJWTX Credit Agreement”), which provides an unsecured credit facility to the Borrower with a letter of credit sublimit of $1,000.

The SJWTX Credit Agreement matures on June 1, 2021.

On June 29, 2009, CTWS entered into a $15,000 credit agreement with CoBank, ACB, which matures on July 1, 2020.

Borrowings under this credit agreement bear interest at 3.54%.

CTWS maintains an additional credit agreement of $95,000 with RBS Citizens, N.A., which will be reduced to $75,000 on March 1, 2020, with a final maturity on December 14, 2023.

CTWS had a $15,000 credit agreement with CoBank, ACB which was scheduled to expire on July 1, 2020.

On May 29, 2020, CTWS entered into a Second Amendment to the CTWS’s existing $15,000 credit agreement, dated as of August 6, 2014, with 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 line of credit expires on May 15, 2025.

CTWS also maintained an additional credit agreement of $95,000 with RBS Citizens, N.A., which was reduced to $75,000 on March 1, 2020, with a final maturity on December 14, 2023.

Borrowings under this credit agreement bear interest at the daily LIBOR rate, plus 100 basis points as of December 31, 2020.

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

As of December 31, 2020, SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $260,000.

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

CTWS Merger Financing Arrangements

In December 2018, SJW Group received net proceeds of approximately $358,256 from the sale of 6,750,000 shares of common stock in a public offering pursuant to an effective shelf registration and received net proceeds of approximately $53,738 from the sale of an additional 1,012,500 shares of common stock, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group.

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SJW Group’s contractual obligations and commitments as of December 31, 2020 are as follows:

Contractual Obligations Due in

Total Contractual Obligations Due in

Senior notes, Water Utility Services $ 408,600 900 21,800 40,900 345,000

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Bank term loans, CTWS 22,169 1,832 3,897 4,236 12,204

Mortgage loan, Avon Water

Total contractual cash obligation $ 1,419,774 79,372 49,628 58,484 1,232,290

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Maine Water has an agreement with the Kennebec Water District for potable water service.

The agreement was extended and became effective on November 7, 2015 for a new term of 5 years.

Maine Water guarantees a minimum consumption of 60 million gallons of water annually.

Water sales to Maine Water are billed at a flat rate of $5 per year plus the monthly minimum tariff rate of $1.51 per hundred cubic feet for a 4-inch metered service as of December 31, 2019 .

The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates.

The current tariff rate wa s $1.51 per hundred cubic feet as of December 31, 2020.

CLWSC has long-term contracts with the GBRA.

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The water rate may be adjusted by GBRA at any time, provided GBRA gives CLWSC a 60-day written notice on the proposed adjustment.

In 2018, CLWSC acquired raw water supply agreements with the LCRA and WTPUA expiring in 2053 and 2046, respectively, for 250 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, for 250 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

SJWC and CTWS sponsor noncontributory defined benefit pension plans and provide health care and life insurance benefits for retired employees.

In 2019 , SJW Group contributed $9,476 and $738 to the pension plan and other postretirement benefit plan, respectively.

CTWS had no contributions for the period from the merger date, October 9, 2019, to December 31, 2019.

In 2020, SJWC and CTWS contributed $16,609 and $675 to the pension plan and other postretirement benefit plan, respectively.

In 2021, SJWC and CTWS expect to make required and discretionary cash contributions of up to $8,481 to the pension plans and other postretirement benefit plans.

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A commercial building was constructed on the property of 444 West Santa Clara Street, L.P.

and was leased to an international real estate firm.

and was leased to an international real estate firm and was sold in 2017.

SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P.

as a variable interest entity within the scope of ASC Topic 810.

On January 10, 2017, 444 West Santa Clara Street, L.P.

entered into a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000.

The sales transaction closed on April 6, 2017 and SJW Land Company and the noncontrolling interest recognized a pre-tax gain on sale of real estate investments of $4,427 and $1,896, respectively.

Impact of Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” and subsequent amendments.

Topic 326 requires measurement and recognition of expected credit losses for financial assets held.

This is effective for SJW Group in the first quarter of fiscal 2020, and adoption is not expected to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20:

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” which aims to improve the overall usefulness of disclosure to financial statement users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures.

This is effective for SJW Group during the year ending December 31, 2020.

Retrospective adoption is required and early adoption is permitted.

Management is currently evaluating the effect that the new standard will have on its defined benefit plan disclosures.

On December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The decisions reflected in the ASU update specific areas of Topic 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements.

The amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

SJW Group does not plan on early adoption and is in the early stages of analyzing the impact of the amendments.

The amendments to changes in reporting related to foreign equity method investments and foreign subsidiaries are not anticipated to apply to SJW Group.

Amendments to changes in reporting taxes not based on income (such as equity or capital) and changes in tax laws during interim periods are to be further analyzed as applicable.

Management is currently evaluating the effect that the new standard will have on its consolidated financial statements.

The limited partnership interest is expected to dissolve in 2021.

Recently Adopted Accounting Policies and New Accounting Pronouncements

See Note 1 of “Notes to Consolidated Financial Statements” for a discussion of recently adopted accounting policies and new accounting pronouncements for the year ended December 31, 2020.

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-K

Item 7. Management’s Discussion and Analysis