What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 740 added, 560 removed, 826 unchanged (61% of the section changed)

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To the Stockholders and Board of Directors

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of SJW Group and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission .

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission .

The Company completed its merger with Connecticut Water Service, Inc.

(“CTWS”) on October 9, 2019 and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, CTWS’s internal control over financial reporting associated with total assets of $970.0 million and total revenues of $21.7 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of CTWS.

of SJW Group:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of SJW Group and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

We have also audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO).

In our opinion, the 2020 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing in Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on these financial statements and an opinion on Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

We believe that our audits provide a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain

to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of regulatory assets and liabilities

As discussed in Note 1 to the consolidated financial statements, the Company accounts for its regulated operations in accordance with Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 980, Regulated Operations.

Pursuant to the requirements of ASC Topic 980, the financial statements of a rate-regulated enterprise reflect the actions of regulators.

These actions may result in the recognition of revenue and expenses in time periods that are different than non-rate-regulated enterprises.

The Company capitalizes, as regulatory assets, costs that are probable of recovery in future water rates.

In addition, obligations to refund previously collected revenue or to spend revenue collected from customers on future costs are recorded as regulatory liabilities.

We identified the evaluation of regulatory assets and liabilities as a critical audit matter.

This was due to the extent of auditor effort required in the evaluation of complex regulations that result in regulatory assets and liabilities.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s regulatory accounting process, including controls related to the Company’s application of ASC Topic 980 and the Company’s calculation and review of regulatory assets and liabilities.

We selected regulatory assets and liabilities and assessed the Company’s application of ASC Topic 980 by evaluating the underlying orders, statutes, rulings, memorandums, filings or publications issued by the respective regulator.

We selected a sample of the activity increasing and decreasing regulatory assets and liabilities and agreed the amounts to documents in the Company’s underlying books and records.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impact of Rate Regulation on the Financial Statements — Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s water and wastewater services.

Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized principles to account for the effects of cost-based rate regulation.

Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, including depreciable utility plant;

regulatory assets and liabilities;

operating revenue;

maintenance expense;

and depreciation and amortization expense.

The Commissions establish rates for the purpose of permitting the recovery of the cost of service and a return on investment.

The Company’s rates are subject to regulatory ratemaking processes.

The Company 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 the Company through the ratemaking process.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s financial statement line items and disclosures impacted by rate regulation and the high degree of subjectivity involved in assessing the impact of regulatory decisions on the financial statements.

Management judgments include considering evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances and assessing the probability of (1) recovery in future rates of incurred costs and (2) the requirement to refund amounts to customers.

Given that management’s accounting judgments are based on consideration of evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, and uncertain outcome of future regulatory decisions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities and pervasive impact on the financial statements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the consideration of evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, and the uncertain outcome of future regulatory decisions, that may impact the Company’s financial statement line items and disclosures impacted by rate regulation, among others:

• We tested the effectiveness of management’s controls over the initial recognition of amounts as utility plant and regulatory assets or liabilities and the evaluation of the probability of (1) the recovery in future rates of costs incurred as utility plant and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.

We also tested the effectiveness of management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or of a future reduction in rates.

• We read regulatory orders issued by the Commissions to the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to evaluate management’s

determination of the accounting impacts of any new or revised regulatory decisions and their impact on measurement of related regulatory assets and liabilities.

• We obtained supporting documentation from management regarding the evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, used in the measurement of regulatory assets and liabilities for compliance with the related orders.

We reconciled the underlying data or inputs used in the measurement to rate decisions approved by the Commissions and tested the mathematical accuracy of the calculations.

• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded, and regulatory developments, were appropriate and consistent with the information obtained in our procedures.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

March 1, 2021

We have served as the Company’s auditor since 2020.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of SJW Group and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2019 and 2018, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We served as the Company’s auditor from 1933 to 2020.

Santa Clara, California

March 2, 2020

March 2, 2020, except for Schedule I, as to which the date is March 1, 2021.

SJW Group and Subsidiaries

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Utility plant:

Land $ 36,845 34,395

Depreciable plant and equipment 3,198,060 2,988,454

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Intangible assets 35,167 33,424

3,380,048 3,168,505

Less accumulated depreciation and amortization 1,045,136 962,019

2,334,912 2,206,486

Real estate investments 58,129 57,699

Less accumulated depreciation and amortization 14,783 13,597

43,346 44,102

Current assets:

Cash and cash equivalents:

Restricted fund

Money market fund

Cash 5,269 12,944

Restricted cash 4,000 5,000

Accounts receivable:

Customers, net of allowances for uncollectible accounts of $3,891 and $1,512 in 2020 and 2019, respectively 46,832 36,305

Income tax 7,041 8,837

Other 4,269 2,833

Accrued unbilled utility revenue 44,950 40,102

Current regulatory assets, net 1,748 6,472

Prepaid expenses 8,097 6,625

Other current assets 5,125 2,928

127,331 122,046

Other assets:

Net regulatory assets, less current portion 156,482 113,945

Investments 14,367 12,928

Goodwill 628,144 628,287

Other 6,883 4,676

805,876 759,836

$ 3,311,465 3,132,470

See Accompanying Notes to Consolidated Financial Statements.

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Common stock, $0.001 par value;

authorized 70,000,000 shares in 2019 and 36,000,000 shares in 2018;

authorized 70,000,000 shares in 2020 and 2019;

issued and outstanding 28,556,605 shares in 2020 and 28,456,508 shares in 2019 $ 29 28

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Retained earnings 408,037 383,191

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income ( 1,064 ) 126

Total stockholders’ equity 917,160 889,984

Long-term debt, less current portion 1,287,580 1,283,597

2,204,740 2,173,581

Current liabilities:

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Accrued interest 12,861 13,140

Accrued property taxes and other non-income taxes

Accrued payroll 14,012 11,570

Other current liabilities 19,203 18,279

350,795 234,567

Deferred income taxes 191,415 195,598

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Postretirement benefit plans 121,597 108,044

Regulatory liabilities, net

Other noncurrent liabilities 21,786 22,306

Commitments and contingencies — —

$ 3,311,465 3,132,470

See Accompanying Notes to Consolidated Financial Statements.

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Years ended December 31 (in thousands, except share and per share data)

2020 2019 2018

Operating revenue $ 564,526 420,482 397,699

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Purchased water 100,723 99,118 97,378

Power 13,330 7,443 6,180

Groundwater extraction charges 71,359 43,917 46,770

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Administrative and general 79,741 66,301 48,933

Maintenance 22,158 20,505 18,414

Property taxes and other non-income taxes 29,886 19,068 14,975

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Pension non-service cost ( 374 ) ( 3,158 ) ( 2,356 )

Unrealized loss on California Water Service Group stock

Gain on sale of California Water Service Group stock

(Loss) gain on sale of utility property

Unrealized loss on equity investments — — ( 527 )

Gain on sale of equity investments — — 104

Gain on sale of real estate investments 948 929 —

Interest income on money market fund — 6,536 155

Other, net 5,906 2,091 2,348

Income before income taxes 69,895 32,081 48,832

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Other comprehensive income:

Unrealized gain on investment, net of taxes of $43 in 2019, $0 in 2018 and $466 in 2017

Adjustment to pension benefit plans, net of taxes of $22 in 2019

Unrealized (loss) gain on investment, net of taxes of $247 in 2020, $43 in 2019 and $0 in 2018 ( 310 ) 117 —

Adjustment to pension benefit plans, net of taxes of $(324) in 2020, $22 in 2019 and $0 in 2018 ( 880 ) 9 —

SJW Group comprehensive income $ 60,325 23,529 38,767

SJW Group earnings per share

—Basic $ 2.16 0.82 1.83

—Diluted $ 2.14 0.82 1.82

Weighted average shares outstanding

—Basic 28,521,900 28,443,052 21,214,277

—Diluted 28,694,986 28,562,546 21,332,387

See Accompanying Notes to Consolidated Financial Statements.

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(in thousands, except share and per share data)

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Noncontrolling Interest

Income (Loss) Noncontrolling Interest Total

Stockholders’

Balances, December 31, 2016

Distribution to noncontrolling interest

Unrealized income on investment, net of tax effect of $466

Share-based compensation

Issuance of restricted and deferred stock units

Employee stock purchase plan

Dividends paid ($1.04 per share)

Shares Amount

Balances, December 31, 2017 20,520,856 $ 21 84,866 376,119 2,203 — 463,209

Net income — — — 38,767 — — 38,767

Cumulative effect of change in accounting principle, net of tax effect of $1,507 — — — 2,203 ( 2,203 ) — —

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Balances, December 31, 2018 28,404,316 28 495,366 393,918 — — 889,312

Distribution to noncontrolling interest

Net income — — — 23,403 — 224 23,627

Cumulative effect of change in accounting principle, net of tax effect of $33 — — — 97 — — 97

Distribution to noncontrolling interest — — — — — ( 224 ) ( 224 )

Unrealized income on investment, net of tax effect of $43 — — — — 117 — 117

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Balances, December 31, 2019 28,456,508 28 506,639 383,191 126 — 889,984

Net income — — — 61,515 — — 61,515

Unrealized loss on investment, net of tax effect of $247 — — — — ( 310 ) — ( 310 )

Adjustment to pension benefit plans, net of taxes of $(324) — — — — ( 880 ) — ( 880 )

Share-based compensation — — 3,553 ( 160 ) — — 3,393

Issuance of restricted and deferred stock units 68,347 1 ( 1,864 ) — — — ( 1,863 )

Employee stock purchase plan 31,750 — 1,830 — — — 1,830

Dividends paid ($1.28 per share) — — — ( 36,509 ) — — ( 36,509 )

Balances, December 31, 2020 28,556,605 $ 29 510,158 408,037 ( 1,064 ) — 917,160

See Accompanying Notes to Consolidated Financial Statements.

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Years ended December 31 (in thousands)

2020 2019 2018

Operating activities:

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Gain on sale of real estate investments ( 948 ) ( 929 ) —

Loss (gain) on sale of utility property

Unrealized loss on California Water Service Group stock

Gain on sale of California Water Service Group stock

Allowance for equity funds used during construction ( 1,249 ) — —

Other non-cash, net — 20 414

Changes in operating assets and liabilities, net of acquired assets and liabilities:

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Regulatory asset related to balancing and memorandum accounts ( 14,459 ) 30,838 ( 6,488 )

Up-front service concession payment ( 5,000 ) — —

Other noncurrent assets and noncurrent liabilities 751 7,439 1,923

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Proceeds from sale of real estate investments and utility property 1,151 745 —

Proceeds from sale of California Water Service Group stock

Proceeds from sale of equity investments — — 4,112

Net cash used in investing activities ( 214,259 ) ( 1,017,771 ) ( 146,843 )

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Other changes, net ( 190 ) 1,163 ( 3,078 )

Net cash provided by (used in) financing activities

Net cash provided by financing activities 101,533 484,988 468,423

Net change in cash, cash equivalents and restricted cash ( 8,675 ) ( 402,778 ) 412,923

Cash and cash equivalents, beginning of year

Cash, cash equivalents and restricted cash, beginning of year 17,944 420,722 7,799

Cash, cash equivalents and restricted cash, end of year 9,269 17,944 420,722

Less restricted cash, end of year 4,000 5,000 —

Cash and cash equivalents, end of year $ 5,269 12,944 420,722

Cash paid during the year for:

Interest $ 59,955 32,138 27,038

Income taxes $ 10,380 16,448 13,750

Supplemental disclosure of non-cash activities:

(Decrease) increase in accrued payables for construction costs capitalized

Increase (decrease) in accrued payables for construction costs capitalized $ 1,448 ( 516 ) 340

Utility property installed by developers $ 9,779 3,077 1,747

Reconciliation to Consolidated Balance Sheets:

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash, end of year

See Accompanying Notes to Consolidated Financial Statements.

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Summary of Significant Accounting Policies

The accompanying consolidated financial statements include the accounts of SJW Group, its wholly owned subsidiaries, and two variable interest entities in which two SJW Group subsidiaries are the primary beneficiaries.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of SJW Group, its wholly owned subsidiaries, and two variable interest entities in which two SJW Group subsidiaries are the primary beneficiaries.

The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators.

All intercompany transactions and balances have been eliminated in consolidation.

The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators and conform to generally accepted accounting principles for rate-regulated public utilities.

SJW Group’s principal subsidiary, San Jose Water Company (“SJWC”), is a regulated California water utility providing water service to approximately 231,000 connections that serve approximately one million people in the greater metropolitan San Jose area.

SJW Group’s subsidiaries are as follows:

San Jose Water Company (“SJWC”), is a regulated California water utility providing water service to approximately 231,000 connections that serve approximately one million people in the greater metropolitan San Jose area.

Approximately 93 % of SJWC’s revenues are derived from the sale of water to residential and business customers.

Connecticut Water Service, Inc.

SJWNE is a special purpose entity holding company for SJW Group’s investment in Connecticut Water Service, Inc.

(“CTWS”) which was acquired on October 9, 2019.

CTWS, headquartered in Connecticut, is a holding company for water utilities companies providing water service to approximately 139,000 connections that serve a population of approximately 485,000 people in 81 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 (see, Note 12, “SJW Group and CTWS Merger”).

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 subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut 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.

SJWTX, Inc., a wholly owned subsidiary of SJW Group, is incorporated in the State of Texas and is doing business as Canyon Lake Water Service Company (“CLWSC”).

Effective September 30, 2020, The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) merged into Connecticut Water after receiving the merger approval from the Connecticut Public Utilities Regulatory Authority (“PURA”).

is incorporated in the State of Texas and is doing business as Canyon Lake Water Service Company (“CLWSC”).

CLWSC is a public utility in the business of providing water service to approximately 59,000 people.

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As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company owns a commercial property, an undeveloped real estate property, and a warehouse property in the state of Tennessee.

In September 1999, SJW Land Company contributed real property for a 70 % limited partnership interest in 444 West Santa Clara Street, L.P.

A commercial building was constructed on the partnership property and was leased to an unrelated international real estate firm under a long-term lease.

SJW Land Company owns a commercial property and undeveloped real estate property in the states of California and Tennessee and owns and operates commercial properties in the state of Tennessee.

SJW Land also has a 70 % limited partnership interest in 444 West Santa Clara Street, L.P.

444 West Santa Clara Street, L.P.

was determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary.

has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary.

As a result, 444 West Santa Clara Street L.P.

has been consolidated with SJW Land Company.

The consolidated financial statements of SJW Group at December 31, 2019 and 2018 include the operating results of 444 West Santa Clara Street, L.P.

Intercompany balances and transactions have been eliminated.

In 2017, the commercial building owned by the partnership was sold.

In 2017, 444 West Santa Clara Street, L.P.

sold all of its interests in the commercial building and land the partnership owned and operated.

The limited partnership is expected to dissolve in 2021.

Results of operations and balances of the non-controlling interest are not material to the consolidated financial statements (see below in Note 1, “Real Estate Investments”).

Texas Water Alliance Limited (“TWA”), formerly a wholly owned subsidiary of SJW Group, was undertaking activities that were necessary to develop a water supply project in Texas.

On February 22, 2016, SJW Group entered into a Purchase and Sale Agreement with the Guadalupe-Blanco River Authority (“GBRA”) pursuant to which SJW Group agreed to sell all of its equity interests in TWA to GBRA for $ 31,000 in cash.

The sales transaction closed on November 16, 2017.

As provided in the sale agreement, GBRA held back $ 3,000 (“Holdback Amount“) from the payment of the purchase price at the closing, which amount will be paid to SJW Group on June 30, 2021, subject to reduction under certain conditions.

The transaction resulted in a pre-tax gain on sale of utility property of $ 12,501 , excluding the Holdback Amount.

Recently Adopted Accounting Principles

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” as amended, which supersedes the lease requirements in “Leases (Topic 840).” This ASU generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the Consolidated Balance Sheets and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

ASU 2016-02 also makes some changes to lessor accounting and aligns with the new

revenue recognition guidance.

SJW Group adopted the new standard effective January 1, 2019, on a modified retrospective basis and did not restate comparative periods.

SJW Group also elected the package of practical expedients permitted under the transition guidance and combined lease and non-lease components.

In addition, SJW Group kept leases with an initial term of 12 months or less off the Consolidated Balance Sheets and recognized the associated lease payments in the Consolidated Statements of Comprehensive Income on a straight-line basis over the lease term.

The adoption of this standard did not have a material impact on SJW Group’s consolidated financial statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

ASU 2016-13 was effective for SJW Group in the first quarter of fiscal 2020.

The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update (“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 update was effective for SJW Group’s Form 10-K for the year ending December 31, 2020.

Retrospective adoption is required and early adoption is permitted.

The adoption of ASU 2018-14 did not have a material impact on the condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”, and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

This update is effective for fiscal years beginning after December 15, 2021.

Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

Management is currently evaluating the impacts of the provisions of ASU 2019-12 on the consolidated financial statements.

Use of Estimates

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Actual results could differ from those estimates.

Utility Plant

The cost of additions, replacements and betterments to utility plant is capitalized.

The amount of interest capitalized in 2019 , 2018 and 2017 was $ 4,323 , $ 2,856 and $ 2,807 , respectively.

Construction in progress was $ 112,232 and $ 68,765 at December 31, 2019 and 2018 , respectively.

Depreciable Utility Plant and Equipment

The major components of depreciable plant and equipment as of December 31, 2020 and 2019 are as follows:

Equipment $ 567,904 521,183

Transmission and distribution 1,699,953 2,207,051

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Total depreciable plant and equipment $ 3,198,060 2,988,454

Depreciation is computed using the straight-line method over the estimated remaining service lives of groups of assets, ranging from 5 to 75 years .

Depreciation is computed using the straight-line method over the estimated remaining service lives of groups of assets.

The estimated service lives of depreciable plant and equipment are as follows:

5 to 35 years

Transmission and distribution plant

35 to 75 years

Office buildings and other structures

7 to 50 years

Equipment 5 to 35 years

Transmission and distribution plant 35 to 75 years

Office buildings and other structures 7 to 50 years

For the years 2020, 2019 and 2018, depreciation expense as a percent of the beginning of the year balance of depreciable plant was approximately 3.2 %, 3.8 % and 3.6 %, respectively.

A portion of depreciation expense was allocated to administrative and general expense.

For the years 2019 , 2018 and 2017 , the amounts allocated to administrative and general expense were $ 2,869 , $ 2,306 and $ 2,209 , respectively.

Depreciation expense for utility plant for the years ended December 31, 2020, 2019 and 2018 was $ 86,823 , $ 63,785 and $ 53,031 , respectively.

For the years 2020, 2019 and 2018, the amounts allocated to administrative and general expense were $ 2,343 , $ 2,869 and $ 2,306 , respectively.

The cost of utility plant retired, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized.

Utility Plant Intangible Assets

All intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful life of the asset, ranging from 5 to 70 years (see Note 6, “Utility Plant Intangible Assets”).

Allowance For Funds Used During Construction (“AFUDC”)

AFUDC represents the capitalized costs of borrowed funds or a return on equity funds used to finance utility plant under construction and is capitalized as part of construction work in progress.

AFUDC is recorded to the extent approved by the respective states’ utility regulators and is recovered through water rates as the utility plant depreciates.

The amount of interest capitalized in 2020, 2019 and 2018 was $ 4,133 , $ 4,323 and $ 2,856 , respectively.

Interest on long-term debt is presented net of amounts capitalized on the Consolidated Statement of Comprehensive Income.

The amount of equity funds capitalized in 2020 was $ 1,249 , reflected in “Other, net” on the Consolidated Statement of Comprehensive Income.

Prior to the merger with CTWS on October 9, 2019, SJW Group did not have AFUDC for equity funds.

Intangible Assets

Intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful life of the asset, ranging from 5 to 70 years (see Note 6, “Utility Plant Intangible Assets”).

Real Estate Investments

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Net gains and losses from the sale of real estate investments are recorded as a component of other (expense) income in the Consolidated Statements of Comprehensive Income.

Nonutility property in Water Utility Services is also classified in real estate investments and not separately disclosed on the balance sheet based on the immateriality of the amount.

Nonutility property is property that is neither used nor useful in providing water utility services to customers and is excluded from the rate base for rate-setting purposes.

SJWC recognizes gain/loss on disposition of nonutility property in accordance with California Public Utilities Commission (“CPUC”) Code Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to customers.

There is no depreciation associated with nonutility property as it is all land.

Nonutility property in Water Utility Services is also classified in real estate investments.

Nonutility property is property that is neither used nor useful in providing water utility services to customers and is excluded from rate base for rate-setting purposes.

SJWC recognizes gain/loss on disposition of nonutility property in accordance with California

Public Utilities Commission (“CPUC”) Code Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to customers.

CTWS and CLWSC do not have regulatory restrictions on the use of proceeds from the sale of nonutility property.

There is no depreciation associated with Water Utility Services nonutility property as it is all undeveloped land.

The major components of real estate investments as of December 31, 2020 and 2019 are as follows:

Land $ 14,168 14,168

Buildings and improvements 43,961 43,531

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Depreciation on buildings and improvements for real estate investments is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years.

On September 28, 2020, SJWC sold six nonutility properties located in Los Gatos, California for $ 1,075 .

SJW Group recognized a pre-tax gain on the sale of real estate investments of $ 1,048 , after selling expenses of $ 22 .

During the year ended December 31, 2020, Maine sold various nonutility properties for a total of $ 143 .

SJW Group recognized a pre-tax loss on the sale of real estate investments of $ 100 , after selling expenses of $ 45 .

On December 19, 2019, Maine Water completed the second half of a previously announced land sale with the Coastal Mountains Land Trust, Maine nonprofit corporation.

The second transaction was structured such that Maine Water sold a conservation easement valued at $ 1,200 for $ 600 .

The transaction was structured such that Maine Water sold a conservation easement valued at $ 1,200 for $ 600 .

Accordingly, Maine Water expects to claim a $ 600 charitable deduction for federal and state income tax purposes on the bargain sale.

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Additionally, Connecticut Water disposed of a small parcel of land generating an additional $ 4 in pre-tax gain on sale of nonutility property.

On April 6, 2017, 444 West Santa Clara Street, L.P.

sold all of its interests in the commercial building and land the partnership owned and operated for $ 11,000 .

444 West Santa Clara Street, L.P.

recognized a pre-tax gain on sale of real estate investments of $ 6,323 , after selling expenses of $ 1,157 .

SJW Land Company holds a 70 % limited interest in 444 West Santa Clara Street, L.P.

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, on the transaction.

In connection with this sale, the partnership was required to deposit $ 750 into an escrow account for estimated repairs to the creek next to the land the partnership sold.

On April 22, 2019, all creek repairs were completed and a reimbursement of $ 745 was provided to the partnership.

On April 22, 2019, all creek repairs were completed for a commercial building and land SJW Land sold in 2017 and a reimbursement of $ 745 was provided to a SJW Land partnership.

SJW Land Company and the noncontrolling interest recognized a pre-tax gain on the creek reimbursement of $ 521 and $ 224 , respectively, on the transaction.

In addition, SJW Land Company sold undeveloped land located in San Jose, California for $ 1,350 on April 6, 2017.

SJW Land Company recognized a pre-tax gain on sale of real estate investments of $ 580 on the transaction, after selling expenses of $ 14 .

Real estate investments include $ 57,273 and $ 56,839 as of December 31, 2020 and 2019, respectively, of assets that are leased or available for lease.

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Rental Revenue

Thereafter 7,711

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.

Although SJW Group believes that the assumptions and estimates we make are reasonable and appropriate, they are based in part on historical experience and information obtained from CTWS’s management and are inherently uncertain.

and are inherently uncertain.

Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

The purchase price allocation process requires management to make

significant estimates and assumptions with respect to intangible assets.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets.

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 , management estimated the preliminary fair values of net tangible and intangible assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill.

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 gathering information necessary to complete the recognition and measurement of the opening balance sheet (see Note 12, “SJW Group and CTWS Merger”).

See Note 12, “Business Combination” for further discussion on the CTWS transaction.

Impairment of Long-Lived Assets and Goodwill

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To the extent an impairment exists, the asset is written down to its estimated fair value with a corresponding charge to operations in the period in which the impairment is identified.

Long-lived assets consist primarily of utility plant in service, real estate investments, intangible assets, and regulatory assets.

In addition, the company tests unamortized intangible assets, which primarily relate to water rights, at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired.

Long-lived assets consist primarily of utility plant in service, goodwill, regulatory assets, real estate investments and intangible assets.

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

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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 and must be allocated at the reporting unit level, which is defined as an operating segment or one level below, and tested for impairment at least annually, 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 value.

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.

As of December 31, 2019 , SJW Group performed a qualitative assessment and found no indicators of impairment and therefore did not perform the quantitative impairment test.

Cash and Cash Equivalents, and Restricted Fund

As of October 1, 2020, SJW Group performed a qualitative assessment and found no indicators of impairment and therefore did not perform the quantitative impairment test.

No impairments occurred during 2020, 2019 or 2018.

Cash and Cash Equivalents, and Restricted Cash

Cash and cash equivalents primarily consist of cash on deposit with banks with maturities of three months or less from the date of purchase.

Restricted funds consist of proceeds from a Maine state revolving fund bond issuance to Maine Water of $ 5,000 on December 19, 2019 for construction of a new water treatment plant.

Proceeds are held by a trustee for the bond and as conditions are met, funds are released.

On February 3, 2020, the trustee released proceeds of $ 4,114 from the bond.

Restricted funds consist of proceeds from a Maine state revolving fund bond issuances to Maine Water of $ 5,000 and $ 4,000 on December 19, 2019 and December 23, 2020, respectively for capital expenditures.

Proceeds are held by a trustee for the bonds and as funding conditions are met, funds are released.

In the first quarter of 2020, all the proceeds from the December 19, 2019 bond were released by the trustee.

Financial Instruments and Investments

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These contracts are based principally on a referenced pool of investment funds that actively redeem shares, are observable and measurable, and are presented in “Other investments” on SJW Group’s consolidated balance sheets.

As of December 31, 2019 , the value of the company owned life insurance was $ 7,086 of which $ 3,829 was related to assets to fund CTWS’ supplemental retirement plan agreements.

As of December 31, 2020 and 2019, the value of the company owned life insurance was $ 8,026 and $ 7,086 , respectively, of which $ 4,311 and $ 3,829 , respectively, was related to assets to fund CTWS’ supplemental retirement plan agreements.

See discussion on pension plans in Note 9, “Benefit Plans”.

SJW Group’s had an investment in California Water Service Group which was accounted for under FASB ASC Topic 320—“Investment—Debt and Equity Securities,” as an available-for-sale marketable security.

The investment was recorded on the Consolidated Balance Sheet at its quoted market price with the change in unrealized gain or loss reported, net of tax, as a

component of other expense (income) with the adoption of ASU 2016-01 on January 1, 2018.

Prior to adoption, the changes in unrealized gain or loss, net of tax, were reported as a component of other comprehe nsive income.

During the year ended December 31, 2018, SJW Group sold its remaining 100,000 shares of California Water Service Group for $ 4,112 before fees of $ 9 .

SJW Group recognized a gain on the sale of the stock of approximately $ 104 and tax expense of approximately $ 29 for a net gain of $ 75 .

Regulatory Rate Filings

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General rate applications are normally filed and processed during the last year covered by the most recent general rate case as required by the CPUC in order to avoid any gaps in regulatory decisions on general rate adjustments.

Cost of capital adjustments are rate adjustments resulting from the CPUC’s usual tri-annual establishment of a reasonable rate of return for SJWC’s capital investments.

Cost of capital adjustments are rate adjustments resulting from the CPUC’s usual tri-annual establishment of a reasonable rate of return on equity and average cost of borrowing on debt incurred for SJWC’s capital investments.

The purpose of an offset rate adjustment is to compensate utilities for changes in specific pre-authorized offsettable capital investments or expenses, primarily for purchased water, groundwater extraction, purchased power and pensions.

Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for which such revenue offsets have been authorized.

Memorandum accounts 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 during periods of mandated water restrictions, water tariffs and other approved activities or as directed by the CPUC such as the memorandum account for the Tax Cuts and Jobs Act (H.R.

1) (the “Tax Act”).

The purpose of a balancing and memorandum account is to track the under-collection or over-collection associated with such expense changes and activities.

On January 4, 2018, SJWC filed General Rate Case Application No.

18-01-004 (“GRC”) with the CPUC requesting authority for an increase of revenue of $ 34,288 , or 9.76 % , in 2019, $ 14,232 , or 3.7 % , in 2020 and $ 20,582 , or 5.17 % , in 2021.

Among other things, the application also included requests to recover $ 20,725 from balancing and memorandum accounts, the establishment of a Water Revenue Adjustment Mechanism and Sales Reconciliation Mechanism (“WRAM/SRM”), and a shift to greater revenue collection in the service charge.

On June 28, 2018, the CPUC issued an order in the case identifying the issues to be considered, including whether the proposed merger between SJW Group and CTWS will have any ratemaking impact on the customers of SJWC (see discussion on the merger with CTWS at Note 12).

This consideration was subsequently removed from the GRC to be considered in an Order Instituting Investigation (“OII”) on the proposed merger issued on July 20, 2018, see below for further discussion.

On August 10, 2018, SJWC and the Office of Ratepayer Advocates filed a joint motion for partial settlement (“Settlement”) of the GRC with the CPUC, resolving all issues in the GRC with the exception of authorization of a WRAM/SRM and the recovery of the balance in the Hydro Generation Research, Development and Demonstration Memorandum Account, such issues being subsequently contested in legal briefs.

The Settlement also lowered authorized sales to a level that aligns more closely with current actual consumption.

In addition, it allowed for a shift in cost recovery allowing 40% of total revenue to be collected through the fixed charge.

On October 16, 2018, the CPUC issued a Proposed Decision adopting the Settlement in part, without any impact on the proposed revenue requirement outlined in the Settlement, and delaying ruling on the contested issues in order to allow the Settlement rates to become effective January 1, 2019.

On December 4, 2018, the CPUC issued Decision 18-11-025 authorizing new rates for 2019.

Accordingly, SJWC filed Advice Letter No.

528/528A on December 7, 2018, requesting authorization to increase revenue requirement by $ 16,378 or 4.55 % in 2019 and to implement surcharges to recover $ 27,045 of under-collections from memorandum and balancing accounts.

This was approved on December 28, 2018, and new rates became effective January 1, 2019.

On July 20, 2018, the CPUC issued an Order Instituting Investigation (“OII”) No.

18-07-007 concerning SJW Group’s then proposed merger with CTWS.

A Scoping Memorandum was issued on September 7, 2018, which identified the issues to be considered in the proceeding as to whether the proposed merger is subject to CPUC approval and to evaluate the merger’s likely impacts within California.

On September 14, 2018, SJW Group and SJWC submitted joint comments in response to the issues identified in accordance with the Scoping Memorandum’s adopted schedule, and reply comments were submitted on October 19, 2018.

A Public Participation Hearing was held on January 31, 2019.

On March 4, 2019, the CPUC suspended this proceeding due to SJW Group’s announcement of its intention to file a new merger approval application with the Connecticut Public Utilities Regulatory Authority (“PURA”).

On April 3, 2019, SJW Group and CTWS jointly filed a new merger

application with PURA.

After securing the required approvals from both PURA and the MPUC, SJW Group announced the close of the merger on October 9, 2019, and notified the CPUC accordingly.

In January 2017, a SJWC customer inquired about the company’s billing practice as it related to the proration of service charges in billing cycles where a rate change occurred.

On June 22, 2017, SJWC was served with Complaint 17-06-009 regarding its billing practice for service charge rate changes.

The billing issue was made a part of SJWC’s GRC proceeding and a settlement agreement was reached with the Office of Ratepayer Advocates (now the Public Advocates Office) on May 23, 2018, limiting the duration from which to calculate customer refunds from June 1, 2011, through December 31, 2016.

Accordingly, SJWC provided an additional reserve to cover the remaining period covered by the settlement.

In accordance with Decision 18-11-025 for the GRC, SJWC filed Advice Letter No.

530 proposing total refunds of $ 2,020 for the period from June 1, 2011 through December 31, 2016.

This advice letter became effective February 8, 2019, and refunds were completed by mid-May 2019.

On April 22, 2019, the CPUC dismissed Complaint 17-07-009 citing the relief provided in Advice Letter No.

530 and the current OII on this matter (see below for further discussion).

The Complainant filed an appeal with the CPUC to dispute the dismissal.

This appeal was rejected and the Complaint was dismissed via CPUC Decision No.

19-09-040 on September 24, 2019.

On September 14, 2018, the CPUC issued OII No.

18-09-003 to which SJWC was named as Respondent.

The OII will determine whether the company unlawfully overcharged customers over a 30-year period by failing to pro-rate service charges when increases occurred during a billing period, and whether the company double-billed service charges during one billing period when allegedly switching from billing such charges in advance to billing in arrears.

The OII resulted from a report by the CPUC’s Consumer Protection and Enforcement Division (“CPED”), dated August 16, 2018, recommending an investigation into SJWC’s billing practice.

CPED calculated a refund obligation of approximately $ 2,061 for the years 2014 to 2016 that had been the subject of SJWC’s Advice Letter No.

CPED calculated a further refund obligation of approximately $ 1,990 for the years 1987 to 2013.

CPED also asserted that the company double-billed its customers during a billing period when it allegedly converted from billing in advance to billing in arrears, assumed that such double-billing occurred in January 2011, and calculated a refund obligation of approximately $ 4,935 .

The OII notes these estimates and identifies the proper refund amount as an issue in the proceeding.

The OII also identifies the CPUC’s authority to consider imposing penalties on SJWC in amounts ranging from five hundred dollars to fifty thousand dollars per offense, per day.

On July 24, 2019, SJWC and CPED jointly filed a motion for CPUC approval of a Settlement Agreement (“Agreement”) over SJWC’s past customer billing practices.

The Agreement requires the company to pay approximately $ 2,100 in customer credits, consisting of $1,757 for refunds during the period from 1987 to 2011 and an additional $350 in customer credits to low income water customers, and invest $ 5,000 in utility plant that is not allowed an investment return or rate recovery.

SJWC has recorded the $ 2,100 customer credit expense as an offset to revenues in the accompanying December 31, 2019, Consolidated Statements of Comprehensive Income.

The $ 5,000 commitment to invest in utility plant will be recognized as plant in service on the company’s financial statements once invested.

The Agreement is subject to final approval by the CPUC.

A CPUC Presiding Officer’s Decision approved the Agreement in December 2019, but an appeal was filed in January 2020 by a group of SJWC customers.

A final CPUC decision approving the Settlement and dismissing the appeal was approved on February 27, 2020.

On February 28, 2019, SJWC filed Advice Letter No.

531 with the CPUC requesting to adjust the Utilities Reimbursement Account User Fees as directed by CPUC Resolution M-4839.

The reimbursement fee was reduced from 1.4 % to 1.23 % .

This request was approved and the new fee became effective on April 1, 2019.

On March 29, 2019, SJWC filed Advice Letter No.

532 with the CPUC requesting authorization to recover its 2018 WCMA balance for the period of January 1, 2018, through December 31, 2018.

On December 19, 2019, the CPUC denied the recovery via Resolution W-5210 citing the elimination of mandatory conservation requirements.

SJWC recorded a reduction of balancing and memorandum accounts of $ 9,386 with an offset to revenues for the 2018 WCMA and reversed revenues of $ 639 recorded in the 2019 WCMA during the period ended December 31, 2019.

On June 19, 2019, the CPUC issued its final decision resolving the remaining issues in SJWC’s GRC.

Decision 19-06-010 denied the establishment of a WRAM/SRM and authorized the recovery of the Hydro Generation Research, Development and Demonstration Memorandum Account balance of $ 1,243 .

SJWC filed Advice Letter No.

534 on August 1, 2019, to recover this amount via a surcharge over a three-year period.

The CPUC rejected the advice letter on October 10, 2019, citing an error and recommended a correction and a new filing for recovery.

SJWC has made a filing to correct the record and is awaiting the CPUC’s decision.

A new advice letter for recovery is anticipated to be filed in the first quarter of 2020 pending the decision.

On August 30, 2019, SJWC filed Advice Letter No.

535 with the CPUC requesting authorization to increase the total 2019 authorized revenue requirements by $ 0.7 million or 0.17 % for plant additions related to the Montevina Water Treatment Plant Upgrade Project in 2018.

This advice letter became effective on September 29, 2019.

SJWC filed Advice Letter No.

537 with the CPUC requesting authorization to refund the balance in its 2018 Tax Accounting Memorandum Account as required by the GRC decision on October 18, 2019.

On December 3, 2019, Advice Letter 537-A was filed to refund the balance via a one-time surcredit.

For a typical residential customer with a 3/4-inch meter, the one-time

refund will be $ 20.84 .

This advice letter was approved effective January 1, 2020, and refunds to customers began on January 27, 2020.

SJWC filed Advice Letter No.

541 on November 20, 2019, with the CPUC requesting authorization to increase its revenue requirement by $ 8,600 or 2.28 % in 2020 for the first escalation year authorized in our 2018 General Rate Case Decision 18-011-025 which established rates for 2019, 2020, and 2021.

This advice letter was approved on December 26, 2019, and new rates became effective January 1, 2020.

On December 6, 2019, SJWC filed Application No.

19-12-002 with the CPUC requesting approval for cost recovery to deploy Advanced Metering Infrastructure throughout its service area.

The application seeks revenue increases of $ 2.3 million or 0.61 % in 2021, $ 4.0 million or 1.04 % in 2022, and $ 2.5 million or 0.65 % in 2023, and $ 0.3 million or 0.09 % in 2024 based on current rates in effect.

A decision from the CPUC is anticipated in the fourth quarter of 2020.

On January 22, 2020, SJWC, along with California-American Water Company, California Water Service Company, and Golden State Water Company, filed a joint request for a one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2020.

The purpose of a balancing and memorandum account is to track the under-collection or over-collection associated with such expense changes and activities for future recovery consideration.

On April 10, 2020, SJWC filed Application No.

20-04-009 seeking authorization to issue $ 300,000 in new debt and $ 50,000 in new equity.

A final decision authorizing our financing application was approved on November 19, 2020.

On January 22, 2020, SJWC, along with three other California water utilities, filed a joint request for a one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2020.

Postponing the filing one year would alleviate administrative processing costs on the utilities as well as the CPUC staff, and provide relief for both CPUC and utility resources already strained by numerous other proceedings.

The request is conditioned on no changes to the current Water Cost of Capital Mechanism in place during the one-year deferment.

A CPUC decision is expected in the first quarter of 2020.

The request was conditioned on no changes to the current Water Cost of Capital Mechanism in place during the one-year deferment.

On March 11, 2020, the CPUC approved the request.

On March 17, 2020, the CPUC ordered its regulated water utilities to halt customer disconnection activities in connection with the COVID-19 pandemic.

On April 2, 2020, Governor Gavin Newsom issued Executive Order N-42-20 suspending customer disconnection activities until further notice.

On April 16, 2020, the CPUC issued Resolution M-4842 directing utilities to implement emergency customer protections to assist customers such as waiving reconnection deposits, offering payment arrangements, and suspending disconnections for nonpayment.

This resolution is effective for up to one year, or April 15, 2021, with the option to extend.

On February 11, 2021, the CPUC approved extending customer protections required in Resolution M-4842 through June 30, 2021, through approval of Resolution M-4849 .

The resolution also requires water utilities to develop a transition plan regarding shutoffs and terminations with customers once the moratorium ends.

SJWC is currently working on such plan.

On March 19, 2020, SJWC filed Advice Letter 546 to extend customer protections listed in the company’s Disaster Relief Customer Protections and Outreach Plan as required by the CPUC in response to the COVID-19 pandemic.

The filing also activated SJWC’s Catastrophic Event Memorandum Account (“CEMA”) to track costs related to SJWC’s response which includes labor and materials, increases in bad debt from the suspension of shutoffs for non-payment, waived deposits and reconnection fees, and divergence from actual versus authorized usage.

The customer protections and CEMA were approved effective March 4, 2020.

SJWC anticipates requesting recovery of the COVID-19 pandemic response costs in a future general rate case or other filings.

On January 4, 2021, SJWC filed General Rate Case Application No.

21-01-003 requesting authority for an increase of revenue of $ 51,585 or 13.35 % in 2022, $ 16,932 or 3.88 % in 2023, and $ 19,195 or 4.24 % in 2024.

The application also includes requests to recover $ 18,499 from balancing and memorandum accounts, authorization for a $ 435,000 capital budget, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge.

The application will undergo a year-long review process and the new rates, if approved, are expected to be effective January 1, 2022.

On January 5, 2021, SJWC, along with three other California water utilities, filed a joint request for another one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2021.

Postponing the filing another year would alleviate administrative processing costs on the utilities as well as the CPUC staff, and provide relief for both CPUC and utility resources already strained by numerous other proceedings and COVID-19.

The request is conditioned on no changes to the

current Water Cost of Capital Mechanism in place during the one-year deferment.

The request was denied on February 22, 2021.

Connecticut Regulatory Affairs

Connecticut Water, HVWC and Avon Water’s rates, service and other matters affecting its business are subject to regulation by the Public Utilities Regulatory Authority of Connecticut (“PURA”).

Connecticut Water’s rates, service and other matters affecting its business are subject to regulation by the Public Utilities Regulatory Authority of Connecticut (“PURA”).

The Connecticut regulated operations seek rate relief as necessary to enable it to achieve an authorized rate of return.

PURA generally establishes rates in Connecticut on a company-wide basis and allows the Connecticut regulated operations to add surcharges to customers’ bills in order to recover certain costs associated with approved eligible capital projects through the Water Infrastructure Conservation Adjustment (“WICA”) in between full rate cases, as well as approved surcharges for the Water Revenue Adjustment (“WRA”).

Connecticut Water and HVWC mitigate the risk associated with changes in demand through a PURA approved WRA mechanism.

PURA allows the Connecticut regulated operations to add surcharges to customers’ bills in order to recover certain costs associated with approved eligible capital projects through the Water Infrastructure Conservation Adjustment (“WICA”) in between full rate cases, as well as approved surcharges for the Water Revenue Adjustment (“WRA”).

Connecticut Water and the HVWC division mitigate the risk associated with changes in demand through a PURA approved WRA mechanism.

The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case.

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Additionally, certain energy conservation projects, improvements required to comply with streamflow regulations, and improvements to acquired systems are eligible for WICA surcharges.

Avon Water does not currently use the WRA mechanism.

As of December 31, 2019 , WICA surcharges for Connecticut Water and Avon Water were 3.24 % and 9.31 % , respectively.

HVWC does not currently have an approved WICA surcharge.

As of December 31, 2020, WICA surcharges for Connecticut Water and the Avon Water division were 5.75 % and 9.31 %, respectively.

The HVWC division did not have an approved WICA surcharge.

On January 28, 2020, Connecticut Water filed a WICA application representing an additional 2.6 % surcharge, for a cumulative WICA surcharge of 5.84 %.

Additionally, on February 7, 2020, Connecticut Water filed its annual WICA reconciliation which called for a 0.09 % reduction of the WICA surcharge.

If approved as filed, Connecticut Water will begin to charge customers a cumulative WICA surcharge of 5.75 % on April 1, 2020.

Connecticut Water and HVWC’s allowed revenues, as approved by PURA during each company’s last general rate case and including subsequently approved WICA surcharges for Connecticut Water, were approximately $ 18,588 for the period from October 9, 2019, through December 31, 2019.

Through the normal billing, for the period from October 9, 2019 through December 31, 2019, revenues received from water and wastewater customers would have been approximately $ 20,428 .

As a result of the utilization of the WRA mechanism, Connecticut Water and HVWC recorded an approximate $ 1,840 reduction in revenues for the period from October 9, 2019 through December 31, 2019.

Additionally, on February 7, 2020, Connecticut Water and the Avon Water division separately filed their annual WICA reconciliations which called for 0.09 % and 0.05 % reductions of the WICA surcharges, respectively.

On March 25, 2020, in separate decisions, PURA approved a net cumulative 5.75 % surcharge for Connecticut Water and a net cumulative 9.26 % WICA surcharge for the Avon Water division, both of which became effective on customers’ bills on April 1, 2020.

On October 28, 2020, Connecticut Water filed a WICA application representing an additional 1.11 % surcharge or approximately $ 956 increase in revenues, for a cumulative WICA surcharge of 6.94 % which is scheduled to become effective April 1, 2021.

On January 15, 2021, Connecticut Water filed an application with PURA to amend rates for its customer, including those of former AWC and HVWC companies.

The filing requests an increase of $ 20,206 in annual revenues that includes more than $ 265,514 in completed infrastructure investments that are not currently in approved rates and surcharges.

The proposed increase will be applied across the company but may differ by rate divisions, meter size and between customer rate categories, i.e.

for residential, commercial, industrial, etc.

The application also reflects the costs of operating and maintaining the utility, including expenditures on power and treatment additives that have increased since the company’s last general rate case in 2010.

PURA has 200 days from the filing to review the application, and the approved rates will go into effect soon thereafter.

On March 12, 2020, PURA issued Docket No.

20-03-15 to establish a State of Emergency Utility Shut-off Moratorium for the COVID-19 pandemic.

The moratorium ordered regulated utility companies to refrain from terminating utility service to residential customers, except for safety reasons until August 1, 2020, or until such other time as determined by the PURA.

The moratorium was extended through October 1, 2020 at which time the company was permitted to resume standard collection practices until or unless there is further action by PURA.

In the same docket, PURA directed the public service companies to offer COVID-19 payment plans for the duration of the Governor’s Emergency Order (currently through April 20, 2021), and allow customers up to 24 months for payment arrangements on their water bills.

The docket directs the public service companies to maintain a detailed record of costs incurred and revenues lost as a result of implementing its orders in the docket and allows for the establishment a regulatory asset to track incurred costs.

Approval for recovery of additional costs incurred and/or revenues lost relating to the COVID-19 pandemic would be considered for recovery in the Connecticut Water’s next general rate case proceeding.

Texas Regulatory Affairs

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Further, rate cases may not be filed more frequently than once every 12 months.

As required, CLWSC submitted on January 28, 2019, its Water Pass-Through Charge (“WPC”) true-up report for the Canyon Lake area systems 2018 purchased water costs to the PUCT reflecting a change from $ 1.13 to $ 1.05 per thousand gallons.

The WPC is the annual filing to change that component of CLWSC’s water rates for the changes in purchased water costs since the

last annual true-up report.

This change for 2019 became effective on water bills being prepared as of February 1, 2019.

Two WPC true-up reports were filed to report the year 2019 costs.

The changes in the purchased water costs for the Deer Creek Ranch water system resulted in a decrease in the usage charge from $ 2.19 to $ 2.02 per thousand gallons, and an increase in the monthly base charge of $ 3.04 per residential account.

These Deer Creek Ranch rate changes became effective October 1, 2019.

The 2019 WPC true-up report for the water systems located in the Canyon Lake area resulted in a reduction of the WPC usage rate from $ 1.05 to $ 0.95 per thousand gallons which became effective on February 1, 2020.

Maine Regulatory Affairs

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As with the Connecticut regulated operations, rate relief is sought as necessary to enable the company to achieve an authorized rate of return.

MPUC approves Maine Water’s rates on a division-by-division basis.

MPUC approves Maine Water’s rates on a division-by-division basis in Maine and allows Maine Water to add surcharges to customers’ bills in order to recover certain costs associated with capital projects through the Water Infrastructure Surcharge (“WISC”) in between general rate cases.

Projects eligible for WISC surcharges include all infrastructure replacement or repair projects, excluding meters, that are necessary for the transmission, distribution or treatment of water.

In 2015, a WRA mechanism law in Maine became available to regulated water utilities.

Maine’s rate-adjustment mechanism could provide revenue stabilization in divisions with declining water consumption and Maine Water expects to request usage of this mechanism in future rate filings when consumption trends support its use.

On December 20, 2019, Maine Water filed a general a rate increase for their Skowhegan Division seeking approximately $ 221 , or 14.7 % , in additional revenue with the MPUC.

A final decision from the MPUC is expected in the second quarter of 2020.

On January 20, 2020, Maine Water filed Water Infrastructure Surcharge (“WISC”) applications with the MPUC in four divisions requesting an increase between 1.76 % and 3.00 %, representing approximately $ 371 in additional revenues.

The WISC application was approved on February 26, 2020 and the surcharges are effective March 1, 2020.

The WISC application was approved on February 26, 2020 and the surcharges were effective March 1, 2020.

On March 16, 2020, MPUC issued an emergency moratorium on utility disconnection activities in connection to the COVID-19 pandemic.

The moratorium directed public utility companies not to engage in any disconnection activities including disconnection notices for all classes of customers until further notice from MPUC.

Maine Water is tracking COVID-19 related costs for potential future recovery in rates charged to customers.

On September 17, 2020, the MPUC issued an order lifting the moratorium on utility disconnections in Maine effective November 1, 2020.

The Order requires specific notifications by utilities to their customers prior to resuming disconnection activities and requires a waiver of late payment fess for customers who enter into payment arrangements on or before December 31, 2020.

Maine Water is providing customer notices as required and resumed utility disconnections in November, 2020.

On November 23, 2020, Maine Water filed WISC applications with the MPUC in five divisions requesting an increase of between 1.1 % and 5 %, representing approximately $ 304 in additional revenues.

The WISC applications were approved on December 15th and 22nd, 2020 and the surcharges became effective January 1, 2021.

Balancing and Memorandum Accounts

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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.

Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process.

In addition, in the case of special revenue programs such as the Water Conservation Memorandum Account (“WCMA”) and WRA, SJWC and CTWS follow the requirements of ASC Topic 980-605-25—“Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded.

A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period.

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.

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

When such evidence provides sufficient support, the balances are recorded in SJW Group’s consolidated financial statements.

On December 19, 2019, the CPUC denied the recovery of the 2018 WCMA in Advice Letter No.

CPUC approved Advice Letter No.

548A for the recovery of the Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) on August 27, 2020.

Advice Letter No.

548A allowed recovery of $ 1,219 which was recognized as a regulatory asset for the year ended December 31, 2020.

The amounts have been reflected in the PRVMA balances shown in the table below.

In response to the California Governor’s Emergency Declaration on March 4, 2020, CPUC Resolution M-4842 authorized water utilities to activate a COVID-19 CEMA with the same effective date.

The CEMA was activated for SJWC through the filing of Advice Letter 546 on March 19, 2020.

The account tracks savings and costs from COVID-19 related activities as well as uncollectibles beyond the authorized bad debt in the general rate case.

SJWC has determined that future recovery of the account is probable and recognized regulatory assets of $ 2,266 in the COVID-19 CEMA for the year ended December 31, 2020.

The amounts have been reflected in the CEMA balances shown in the table below.

On December 19, 2019, the CPUC denied the recovery of the 2018 Water Conservation Memorandum Account (“WCMA”) in Advice Letter No.

532 and no longer approved the tracking of WCMA balances.

Due to the decision, SJWC believes it no longer meets the probability criteria under ASC Topic 980-605-25 for the 2018 WCMA and has recognized a reduction to regulatory assets of $ 9,386 for the year ended December 31, 2019 .

SJWC had previously recognized regulatory assets of $ 9,386 due to lost revenues accumulated in the 2018 WCMA account for the year ended December 31, 2018 .

As of December 31, 2018 , there was no reserve recorded to offset the 2018 WCMA.

Due to the decision, SJWC determined it no longer met the probability criteria under ASC Topic 980-605-25 for the 2018 WCMA and recognized a reduction to regulatory assets of $ 9,386 for the year ended December 31, 2019.

As a result of the current status of the CPUC filing for the 2018 WCMA above, SJW Group also eliminated the regulatory asset balance for its 2019 WCMA as of December 31, 2019.

As of December 31, 2019, $ 639 in lost revenues had accumulated in the 2019 WCMA.

SJWC recognized regulatory assets of $ 1,182 due to lost revenues accumulated in the 2017 WCMA account which represented the relief of the prior year reserve of $ 1,169 and interest earned on the balance during the year ended December 31, 2018 .

The prior year reserve represented the estimated amount that may not be collected within the 24-month period defined in the guidance.

These amounts have been recorded in the 2017 WCMA balance shown in the table below for the year ended December 31, 2018.

As of December 31, 2018 , there was no reserve balance netted from the balance below.

SJWC recognized regulatory assets of $ 1,182 due to lost revenues accumulated in the 2017 WCMA account which represented the relief of the $ 1,169 reserve and interest earned on the balance during the year ended December 31, 2018.

The reserve had represented the estimated amount that may not be collected within the 24-month period defined in the guidance.

A cost of capital memorandum account was approved by the CPUC on March 14, 2018.

The account tracks the difference between current water rates and the lower rates adopted in the cost of capital decision issued on March 22, 2018.

recorded a regulatory liability of $ 1,379 in the cost of capital memorandum account for the year ended December 31, 2018 with a corresponding reduction to revenue.

SJWC recorded a regulatory liability of $ 1,379 in the cost of capital memorandum account for the year ended December 31, 2018 with a corresponding reduction to revenue.

The amount has been reflected in the 2018 cost of capital memorandum account balance shown in the table below.

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The amount has been reflected in the tax memorandum account balance shown in the table below.

Refunds for the tax memorandum account began on January 27, 2020.

In 2018, SJWC re-evaluated the accounting for cost-recovery balancing and memorandum accounts under the new revenue recognition guidance, ASU 2014-09, “Revenue from Contracts with Customers.” Prior to adoption, SJWC recorded cost-recovery accounts as a component of revenue.

Upon adoption of ASU 2014-09, SJWC began recording such balances as capitalized costs until recovery is approved by the CPUC.

The change is reflected in the cost-recovery balancing and memorandum accounts as shown in the table below.

SJWC met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded revenue and regulatory assets as follows:

Refunds for tax memorandum account balances began on January 27, 2020.

SJWC met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded regulatory assets, net, as follows:

For the year ended December 31, 2020

Beginning Balance

Regulatory Asset

Increase (Decrease)

Refunds (Collections)

Surcharge Offset and Other

Beginning Balance Regulatory Asset

Increase (Decrease) Refunds (Collections)

Adjustments Ending

Revenue accounts:

Monterey WRAM $ 7,015 2,464 2,598 12,077

2014 - 2017 WCMA 708 — ( 42 ) 666

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Tax memorandum account ( 6,643 ) ( 2 ) 6,978 333

All others ( 2,219 ) 62 ( 67 ) ( 2,224 )

Total revenue accounts ( 1,940 ) 2,516 9,467 10,043

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Water supply costs 4,328 3,828 ( 33 ) 8,123

Pension 2,449 1,008 21 3,478

PRVMA — 1,219 ( 111 ) 1,108

CEMA — 2,266 — 2,266

All others 446 3 ( 4 ) 445

Total cost-recovery accounts 7,223 8,324 ( 127 ) 15,420

Total $ 5,283 10,840 9,340 25,463

For the year ended December 31, 2019

Beginning Balance

Regulatory Asset

Increase (Decrease)

Refunds (Collections)

Surcharge Offset and Other

Beginning Balance Regulatory Asset

Increase (Decrease) Refunds (Collections)

Adjustments Ending

Revenue accounts:

Monterey WRAM $ 6,847 4,582 ( 4,414 ) 7,015

2014 - 2017 WCMA 7,750 — ( 7,042 ) 708

2018 WCMA 9,386 ( 9,386 ) — —

2012 General Rate Case true-up 11,328 96 ( 10,672 ) 752

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Tax memorandum account ( 6,504 ) ( 139 ) — ( 6,643 )

All others ( 1,735 ) ( 107 ) ( 377 ) ( 2,219 )

Total revenue accounts 25,549 ( 4,984 ) ( 22,505 ) ( 1,940 )

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Water supply costs 9,617 207 ( 5,496 ) 4,328

Pension ( 1,843 ) 745 3,547 2,449

All others 1,090 10 ( 654 ) 446

Total cost-recovery accounts 8,864 962 ( 2,603 ) 7,223

For the year ended December 31, 2017

Beginning Balance

Regulatory Asset

Increase (Decrease)

Refunds (Collections)

Surcharge Offset and Other

Revenue accounts:

2014 - 2017 WCMA

2012 General Rate Case true-up

Cost of capital memorandum accounts

Drought surcharges

Cost-recovery accounts

Total $ 34,413 ( 4,022 ) ( 25,108 ) 5,283

As of December 31, 2020, the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $ 1,586 .

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As part of the GRC decision, $ 27,045 of balancing and memorandum accounts were also approved for recovery over a 12 -month period at $0.5894 per centum cubic feet surcharge effective on January 1, 2019.

For the year ended December 31, 2019 , SJWC collected $ 25,108 in surcharges for the approved recovery.

All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account reaches a threshold of 2 % of authorized revenue, whichever occurs first.

For the year ended December 31, 2020 and 2019, SJWC collected $ 151 and $ 25,108 , respectively, in surcharges for the approved recovery.

Recovery of this surcharge ended in January 2020 and the remaining uncollected balance will be filed in the next general rate case.

All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2 % of authorized revenue, whichever occurs first.

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.

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, debt premiums related to business combinations, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not yet been passed through in rates.

For Connecticut and Maine water utility services, regulatory assets and liabilities also include deferred revenues associated with the WRA regulatory mechanism (see discussion in Regulatory and Rates Regulation section above).

Water Utility Services recognizes regulatory assets and liabilities for amounts that are deemed probable of recovery from, or refund to, customers.

Determining probability requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate that recovery or refund is probable.

If the utility determined that it is no longer probable that regulatory assets would be recovered or reflected in future rates, or if the utility ceased to be subject to rate regulation, the regulatory assets would be charged against income in the period in which that determination was made.

If regulatory accounting did not apply, the utility’s future financial results could become more volatile as compared to historical financial results due to the differences in the timing of expense or revenue recognition.

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 company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years.

Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when that asset no longer meets the criteria for being recorded as a regulatory asset.

Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when it is determined that the asset is no longer probable of recovery.

SJW Group continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows.

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

Regulatory assets, net, are comprised of the following as of December 31:

Regulatory assets:

Income tax temporary differences, net

Income tax temporary differences, net (a) $ 6,230 2,433

Postretirement pensions and other medical benefits 95,559 73,525

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Balancing and memorandum accounts, net 25,463 5,283

Total regulatory assets, net in Consolidated Balance Sheets

WRA (b) 323 9,108

Other, net (c) 8,176 5,048

Total regulatory assets, net 158,230 120,417

current regulatory asset, net 1,748 6,472

Total regulatory assets, net, less current portion $ 156,482 113,945

Regulatory liability:

Income tax temporary differences, net

Total regulatory liability in Consolidated Balance Sheets

On December 22, 2017, the Tax Act was signed into law.

Among other things, the Tax Act lowers the corporate tax rate to 21% from the maximum rate of 35% , effective for tax years including or commencing January 1, 2018.

See also Note 5, “Income Taxes”.

___________________________________

(a) The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years.

(b) WRA is a Connecticut Water decoupling mechanism that qualifies as an alternative revenue program.

It is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case.

(c) Other, net includes other regulatory mechanisms, accrued benefits for vacation, and asset retirement obligations that have not yet been passed through in rates.

Income taxes are accounted for using the asset and liability method.

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In California, advances for construction received after 1981 are primarily refunded ratably over 40 years.

In Connecticut and Maine, advances for construction are refunded as services are connected to the main, over periods not exceeding 15 years.

E stimated refunds for the next five years and thereafter are shown below:

In Connecticut and Maine, advances for construction are refunded as services are connected to the main, over periods not exceeding 15 years and in Texas non-refundable.

Estimated refunds for the next five years and thereafter are shown below:

Estimated Refunds

Thereafter 52,462

As of December 31, 2020, advances for construction was $ 125,027 of which $ 29,117 was related to non-refundable advances for construction and $ 28,456 was related to advances which are refunded based on service connections made.

As of December 31, 2020 and 2019, the fair value of the advances for construction refunded ratably over 40 years is $ 50,391 and $ 50,035 , respectively.

Contributions in aid of construction represent funds received from developers that are not refundable under applicable regulations.

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Customer advances and contributions in aid of construction received subsequent to 1986 and prior to June 12, 1996 generally must be included in federal taxable income, except for CTWS.

Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances and over the tax depreciable life of the related asset for contributions.

Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances and over the tax depreciable

life of the related asset for contributions.

Receipts subsequent to June 12, 1996 are generally exempt from federal taxable income, unless specifically prescribed under treasury regulations, including CTWS.

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Retirement costs have historically been recovered through rates at the time of retirement.

As a result, the liability is offset by a regulatory asset.

As a result, a regulatory asset is also recorded.

As of December 31, 2020 and 2019, the asset retirement obligation is as follows:

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Discount rate 6 % 6 %

Regulatory asset, present value, recorded as a liability

SJW Group recognizes revenue in accordance with ASC Topic 606 - “Revenue from Contracts with Customers.” In accordance with Topic 606, management has determined that the company has principally four categories of revenues.

The first category, revenue from contracts with customers, represents metered revenue of Water Utility Services which includes billings to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period.

Retirement obligation, present value $ 939 942

Management has determined that the company has principally four categories of revenues.

The first category is recognized in accordance with ASC Topic 606- “Revenue from Contracts with Customers” and represents metered revenue of Water Utility Services which includes billings to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period.

SJW Group satisfies its performance obligation upon delivery of water to the customer at which time the customer consumes the benefits provided by the company.

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Actual results could differ from those estimates, which may result in an adjustment to revenue when billed in a subsequent period.

The second category, rental income, represents lease rental income from SJW Land Company and Chester Realty, Inc.

The tenants pay monthly in accordance with lease agreements and SJW Group recognizes the income ratably over the lease term as this is the most representative of the pattern in which the benefit is expected to be derived from SJW Group’s underlying asset.

The third and fourth revenue categories are other balancing and memorandum accounts and alternative revenue programs.

Both are scoped out of Topic 606 and are accounted for under FASB ASC Topic 980 - “Regulated Operations.” Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process.

In addition, in the case of special revenue programs, SJWC, Connecticut Water, and HVWC follow the requirements of ASC Topic 980-605-25, “Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded.

A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period.

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

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

When such evidence provides sufficient support, the balances are recorded in SJW Group’s financial statements.

To encourage conservation, SJWC received approval from the CPUC to implement a Mandatory Conservation Revenue Adjustment Memorandum Account in 2014.

This account was subsequently replaced with a WCMA.

The second category is recognized in accordance with ASC Topic 980-605-25, “Alternative Revenue Programs”.

Under Programs established by the CPUC and PURA, allowing for automatic adjustment of future rates, the company recognizes revenue when it is objectively determinable, probable of recovery and expected to be collected within 24 months of the year-end in which the revenue is recognized.

A reserve, based on an estimate of actual usage over the recovery period, is recorded for amounts SJW Group estimates will not be collected within the 24-month period.

SJW Group’s alternative revenue programs include SJWC’s WCMA and CTWS’s WRA.

• The WCMA allowed SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reductions.

SJWC recorded the lost revenue captured in the WCMA regulatory accounts once the revenue recognition requirements of FASB ASC Topic 980 - “Regulated Operations,” subtopic 605-25 were met.

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.

SJWC recorded the lost revenue captured in the WCMA balancing accounts.

In December 2019, CPUC denied SJWC’s request to recover the 2018 WCMA balance.

As a result of the decision, during the year ended December 31, 2019, SJWC wrote off a total balance of $ 9,386 related to 2018 lost revenue and $ 639 related to 2019 lost revenue that was recorded in the 2018 and 2019 WCMA accounts, respectively.

For further discussion, please see “Balancing and Memorandum Accounts” in Note 1.

• The WRA allows Connecticut Water to mitigate risk associated with changes in demand.

The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings.

The third category represents the impact of other balancing and memorandum accounts and other regulatory mechanisms that are accounted for under FASB ASC Topic 980 - “Regulated Operations”.

The fourth category, rental income, represents lease rental income.

Tenants pay monthly in accordance with lease agreements and SJW Group recognizes the income ratably over the lease term as this is the most representative of the pattern in which the benefit is expected to be derived from SJW Group’s underlying asset.

The major streams of revenue for SJW Group are as follows:

2020 2019 2018

Revenue from contracts with customers $ 549,270 447,720 389,302

Alternative revenue programs, net ( 493 ) ( 18,232 ) 10,456

Other balancing and memorandum accounts revenue, net (1)

Other balancing and memorandum accounts revenue and regulatory mechanisms, net 10,217 ( 14,403 ) ( 7,541 )

Rental income 5,532 5,397 5,482

$ 564,526 420,482 397,699

(1) For year ended December 31, 2019 and 2018 , $ 962 and $ 2,643 , respectively, of amounts related to cost-recovery balancing accounts which upon adoption of Topic 606 are recorded as capitalized costs rather than revenue until recovery is approved by the CPUC.

Prior to adoption of Topic 606, these amounts were recorded as revenue.

For further discussion, please see “Balancing and Memorandum Accounts” above.

Revenue also includes a surcharge collected from regulated customers that is paid to the CPUC.

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Share-Based Compensation

SJW Group calculates the fair value of service-based and performance-based restricted stock awards based on the grant date fair market value of the company’s stock price reduced by the present value of the dividends expected to be declared on outstanding shares.

SJW Group calculates the fair value of service-based and performance-based restricted stock awards based on the grant date fair value of the company’s stock price reduced by the present value of the dividends expected to be declared on outstanding shares.

SJW Group utilizes the Monte Carlo valuation model, which requires the use of subjective assumptions, to compute the fair value of market-vesting restricted stock units.

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Forfeitures are accounted for as they occur.

Maintenance Expense

Planned major maintenance projects are charged to expense as incurred.

Earnings per Share

Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the year.

The two-class method in computing basic earnings per share is not used because the number of participating securities as defined in FASB ASC Topic 260—“Earnings Per Share” is not significant.

The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security.

Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with deferred restricted common stock awards under SJW Group’s Long-Term Incentive Plan and shares potentially issuable under the Employee Stock Purchase Plans.

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Capitalization

SJW Group was authorized to issue 36,000,000 shares of common stock of $ 0.001 par value per share.

On April 24, 2019, SJW Group amended its certificate of incorporation to increase the authorized number of shares of common stock to 70,000,000 shares.

SJW Group is authorized to issue 70,000,000 shares of common stock of $ 0.001 par value per share.

At December 31, 2020 and 2019, 28,556,605 and 28,456,508 , respectively, shares of common stock were issued and outstanding.

At December 31, 2019 and 2018 , 1,000,000 shares of preferred stock of $ 0.001 par value per share were authorized for SJW Group.

As of December 31, 2020 and 2019, 1,000,000 shares of preferred stock of $ 0.001 par value per share were authorized for SJW Group.

At December 31, 2020 and 2019, no shares of preferred stock were issued or outstanding.

On November 28, 2018, SJW Group entered into an underwriting agreement with J.P.

Morgan Securities LLC, Barclays Capital Inc., RBC Capital Markets, LLC and UBS Securities LLC, as representatives of the several underwriters (the “Underwriters”) , pursuant to which SJW Group sold to the Underwriters an aggregate of 6,750,000 shares of SJW Group ’ s common stock, par value $ 0.001 per share (the “Firm Shares”), in an underwritten public offering.

Pursuant to the underwriting agreement, SJW Group granted the Underwriters a 30 -day option to purchase up to an additional 1,012,500 shares of its common stock (the “Option Shares”), which was exercised in full on December 3, 2018.

The offering of the Firm Shares closed on December 3, 2018 and the offering of the Option Shares on December 5, 2018.

SJW Group received net proceeds of approximately $ 358,256 from the sale of the Firm Shares and received additional net proceeds of approximately $ 53,738 from the sale of the Option Shares, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group.

SJW Group used the net proceeds from the offering, together with the net offering proceeds from the new debt financing in 2019, to finance the merger of CTWS on October 9, 2019 and to pay related fees and expenses.

See Note 12 for a discussion on the CTWS merger.

Pending such use, the company had invested the net proceeds temporarily in a short-term money market fund.

Lines of Credit

3 unchanged sentences

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

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 which had a zero balance at its maturity on November 11, 2020.

The Credit Agreement contains 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.

3 unchanged sentences

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

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

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

1 unchanged sentence

The SJWTX Credit Agreement matures on June 1, 2021.

CTWS maintains a $ 15,000 line of credit agreement with CoBank, ACB, which is currently scheduled to expire on July 1, 2020.

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 maintains a $ 15,000 line of 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 maintains an additional credit agreement that was temporarily increased to $ 95,000 with RBS Citizens, N.A.

On March 1, 2020, the amount available on the RBS Citizens, N.A.

line of credit was reduced to the original amount of $ 75,000 .

The line of credit matures on December 14, 2023.

As of December 31, 2020 and 2019, SJW Group had outstanding balances on the lines of credit of $ 175,094 and $ 117,209 , respectively.

13 unchanged sentences

Long-term debt as of December 31 was as follows:

3.05% - 4.35%

4.29% - 9.45%

Description Rate Maturity 2020 2019

Senior notes 2.47% - 4.35% 2021 - 2039 $ 610,000 560,000

Senior notes 4.29% - 8.58% 2022 - 2049 320,000 330,000

California Pollution Control Financing Authority Revenue Bonds 4.75%, 5.10% 2040, 2046 120,000 120,000

Total SJWC 440,000 450,000

CTWS bank term loans 4.09%, 4.15% 2027, 2037 22,169 23,935

2 unchanged sentences

Connecticut Innovations Revenue Bonds, fixed rate 5.00% 2021 22,260 22,506

Senior notes 3.53%, 3.51% 2037, 2050 70,000 35,000

Bank term loans 3.51% - 4.75% 2022 - 2036 111,090 119,090

3.16% - 4.75%

Total Connecticut Water 225,400 198,646

senior note 6.27% 2036 15,000 15,000

State revolving fund loans 0.00% - 2.58% 2022 - 2048 18,651 16,032

0.00% - 2.58%

Other First Mortgage Bonds 8.95% 2024 3,600 4,500

Bank term loans 4.18% - 5.51% 2024 - 2043 17,500 17,500

4.18% - 5.51%

Total Maine Water 39,751 38,032

1 unchanged sentence

Avon Water mortgage loan 3.05% 2033 — 2,809

Total debt 1,352,320 1,292,586

Unamortized debt premium, net (a) 22,479 25,020

3 unchanged sentences

___________________________________

Consists of fair value adjustments recognized through purchase accounting for the completed merger with CTWS on October 9, 2019.

(a) Consists of fair value adjustments recognized through purchase accounting for the completed merger with CTWS on October 9, 2019.

Senior notes held by institutional investors are unsecured obligations of SJW Group, SJWC, Connecticut Water, SJWTX, Inc.

1 unchanged sentence

To minimize issuance costs, the companies’ debt has primarily been placed privately.

The senior note agreements of SJW Group 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.

The 2011 senior note agreement of SJW Group 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.

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.

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.

On October 8, 2019, 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 $ 310,000 of its 3.05 % Senior Notes, Series 2019A, due November 1, 2029, $ 75,000 of its 3.15 % Senior Notes, Series 2019B, due November 1, 2031, and $ 125,000 of its 3.53 % Senior Notes, Series 2019C, due November 1, 2039.

3 unchanged sentences

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.

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.

1 unchanged sentence

(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.

On March 28, 2019, SJWC entered into a note purchase agreement with certain affiliates of MetLife, Inc., Brighthouse Financial, Inc.

12 unchanged sentences

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

Connecticut Water

Connecticut Water has outstanding term loans with a commercial bank in an aggregate amount of $ 111,090 as of December 31, 2020.

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.

On December 15, 2020, Connecticut Water paid in full a $ 8,000 term loan that reached maturity.

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

3 unchanged sentences

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.

On March 12, 2020, Connecticut Water entered into a note purchase agreement with NYL Investors, LLC as agent of 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.

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

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

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

The note was paid in full on September 24, 2020

The senior note agreement of SJWTX, Inc.

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Maine Water has $ 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.

provision for maturity acceleration upon the occurrence of stated events of default.

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.

On December 19, 2019, Maine Water issued $ 5,000 of Series S First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund.

1 unchanged sentence

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

The proceeds of the Series S bond issuance are represented as restricted cash on the Consolidated Balance Sheets at December 31, 2019.

The proceeds of the Series S bond issuance are represented as restricted cash on the Consolidated Balance Sheets at December 31, 2019 and are held by a trustee for the bond until conditions are met.

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.

The trustee released all proceeds of from the bond during the first quarter of 2020.

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

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 December 31, 2019 , Maine Water was in compliance with all covenant under its master loan agreement.

On February 3, 2020, the trustee released proceeds of $ 4,114 from the bond.

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 and $ 4,164 was outstanding.

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 and $ 2,809 was outstanding.

Maine 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, Maine Water was in compliance with all covenants under its master loan agreement.

The following is a table of the consolidated company’s schedule of principal payments:

2021 $ 76,322

Thereafter 1,179,828

The estimated fair value of long-term debt as of December 31, 2020 and 2019 was approximately $ 1,570,727 and $ 1,396,205 , respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the Company.

1 unchanged sentence

The components of income tax expense were:

2020 2019 2018

Federal $ 11,349 7,577 14,485

State 2,528 2,126 5,066

Federal ( 8,073 ) ( 1,929 ) ( 7,702 )

State 2,576 680 ( 1,784 )

$ 8,380 8,454 10,065

The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $ 69,895 , $ 32,081 and $ 48,832 in 2020, 2019 and 2018:

“Expected” federal income tax

2020 2019 2018

Income tax at federal statutory rate $ 14,678 6,737 10,255

Increase (decrease) in taxes attributable to:

8 unchanged sentences

Other items, net 873 ( 408 ) 190

$ 8,380 8,454 10,065

The components of the net deferred tax liability as of December 31 was as follows:

2 unchanged sentences

Unamortized investment tax credit 619 649

Pensions and postretirement benefits

Pensions, postretirement benefits and stock-based compensation 41,180 32,450

Debt premium, net 6,290 7,002

1 unchanged sentence

Net operating loss 550 1,046

Merger related expenses

Tax related net regulatory liability

Other 6,792 7,211

Gross deferred tax assets 78,760 68,361

3 unchanged sentences

Utility plant 209,541 211,079

Pension and postretirement benefits

Deferred gain and other-property related

Pension and postretirement 31,227 22,263

Deferred gain and other-property 5,875 5,872

Regulatory asset - business combinations debt premium, net 6,290 7,002

Intangibles 3,443 3,693

Deferred revenue 297 1,962

1 unchanged sentence

Section 481(a) adjustments 4,763 5,721

Other 7,544 4,148

Total deferred tax liabilities 270,175 262,035

2 unchanged sentences

The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse.

Based on all available evidence, management believes it is more likely than not

that SJW Group will realize the benefits of these deferred tax assets.

The valuation allowance as of December 31, 2019 relates to state net operating losses assumed from CTWS.

Net operating loss carryforwards assumed from the CTWS merger expire beginning in 2029 and ending in 2038.

Federal net operating loss carryforward generated after December 31, 2017 have no expiration.

As of December 31, 2019 , the estimated amount of CTWS net operating loss carryforwards available to offset future taxable income for Federal, Connecticut and Maine purposes are $ 9,213 , $ 32,604 and $ 9,506 , respectively.

SJW Group also assumed from the CTWS merger estimated state tax credit carryforwards of $ 1,000 which will expire beginning in 2020 and ending in 2040.

The valuation allowance, the net operating losses, and the state tax credit carryforwards are expected to be adjusted during the acquisition measurement period.

The change in the net deferred tax liabilities of $ 115,947 in 2019 included $ 109,435 from recording the acquisition of CTWS and other non-cash items primarily consisting of regulatory assets and liabilities relating to income tax temporary differences.

Based on all available evidence, management believes it is more likely than not that SJW Group will realize the benefits of its deferred tax assets.

Accordingly, the valuation allowance relating to deferred tax assets acquired from CTWS was released in 2020 through purchase accounting adjustments made within the measurement period.

Net operating loss carryforwards expire beginning in 2032 and ending in 2039.

As of December 31, 2020, the estimated amount of net operating loss carryforwards available to offset future taxable income for Connecticut and Maine purposes are $ 29,555 and $ 1,087 , respectively.

SJW Group also acquired from the CTWS merger estimated state tax credit carryforwards of $ 1,033 which will expire beginning in 2021 and ending in 2040.

The change in the net deferred tax liabilities of $ 4,183 in 2020 included other non-cash items primarily consisting of regulatory assets and liabilities relating to income tax temporary differences.

The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $ 6,468 and $ 4,037 as of December 31, 2020 and 2019, respectively.

The amount of tax benefits, net of any federal benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $ 27 and $ 70 as of December 31, 2019 and 2018 , respectively.

The amount of tax benefits, net of any federal benefits for state taxes that would impact the effective rate, if recognized, is approximately $ 5,600 and $ 3,511 as of December 31, 2020 and 2019, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

2020 2019 2018

Balance at beginning of year $ 3,834 1,382 1,307

Increase related to tax positions taken during the current year, including interest

Increase related to tax positions taken during a prior year, including interest

Reductions related to tax positions taken in a prior year, including interest

Increase related to tax positions taken during the current year 1,104 351 —

Increase related to tax positions taken during a prior year 1,530 3,483 75

Reductions related to tax positions taken in a prior year — ( 1,382 ) —

Balance at end of year $ 6,468 3,834 1,382

The increase in gross unrecognized tax benefits in 2019 was primarily a result of the acquisition of CTWS.

The increase in gross unrecognized tax benefits in 2020 was primarily due to the uncertain tax position relating to repairs tax deductions.

SJW Group’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense.

1 unchanged sentence

SJW Group has not accrued any penalties for unrecognized tax benefits.

The amount of interest recognized in 2019 was a decrease to expense of $ 43 .

The amount of interest recognized in 2020 was a increase to expense of $ 80 .

SJW Group does not foresee material changes to its gross uncertain tax liability within the next 12 months following December 31, 2020.

2 unchanged sentences

The rate reduction was effective on January 1, 2018.

In accordance with generally accepted accounting principles, SJW Group recorded the revaluation of deferred taxes and related impacts using the new corporate tax rate in its December 31, 2017 consolidated financial statements.

The amounts recorded were based on information known and reasonable estimates used as of December 31, 2017.

As such, SJW Group recorded this estimate as a provisional amount.

SJW Group recorded a tax benefit of $ 2,357 related to the deferred taxes revaluation impacting non-regulated operations due to the tax rate reduction.

However, for regulated operations governed by state public utility commissions, the lower tax rate benefits are expected to flow back to customers under current normalization rules and agreed-upon methods with the commissions.

The revaluation of deferred tax assets and liabilities of the regulated operations resulted in a decrease in net deferred tax liabilities of $ 83,666 which was recorded as a regulatory liability in 2017.

SJW Group completed its accounting for the tax effects of tax reform in the fourth quarter of 2018.

An additional tax expense of $ 67 and a reduction of $ 455 in regulatory liability was recorded.

The CPUC has directed SJWC to establish a memorandum account to capture all of the impacts of the Tax Act including the benefit of the reduction in the federal statutory income tax rate from 35% to 21% on its regulated revenue requirement.

The PUCT has directed water utilities to record as a regulatory liability the difference between the revenues collected under existing rates and the revenue that would have been collected had the existing rates been set using the new federal statutory income tax rate.

The benefits associated with regulatory activities is expected to flow back to customers as directed by the CPUC and PUCT, with no impact to net income.

As per Advice Letter No.

522A filed with CPUC, the benefit of the reduction in the federal statutory income tax rate from 35% to 21% were reflected in the customer bills effective July 1, 2018.

memorandum account only includes the benefit of the reduction in the federal statutory income tax rate through June 30, 2018.

The other impacts of the Tax Act were recorded in the tax memorandum account for the entire year.

Accordingly, SJWC recorded $ 6,504 liability in the tax memorandum account for the year ended December 31, 2018.

For discussion on approved refunds, please see “Regulatory Rate Filings” in Note 1.

CLWSC refunded the accrued amounts for the period January 25, 2018, through April 30, 2018, in the second quarter of 2018.

The FTCC will continue to be reflected on customer bills every month starting from May 1, 2018 until the implementation of new rates resulting from the next rate case.

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 amounts estimated.

The lower tax rate benefits associated with regulatory operations governed by state public utility commissions are expected to flow back to customers with no impact to net income.

The state public utility commissions have directed the water utilities to record the difference between the revenues collected under existing rates and the revenue that would have been collected had the existing rates been set using the new federal statutory income tax rate as a regulatory liability or to establish a memorandum account.

In addition, the benefit of amortization of excess deferred income taxes created by the reduction of tax rate to 21% will flow back to the customers under current normalization rules and agreed upon methods with the commissions.

On March 27, 2020 the CARES Act was signed into law and included several income tax provisions.

The income tax provisions included modifications to net operating loss (“NOL”) usage limitations, net operating loss carrybacks, business interest expense limitations and timing of estimated tax payments.

SJW Group has not generated NOLs in recent years and does not expect to generate a loss in 2020 so the CARES Act’s provisions related to carryback of losses are not applicable.

The business interest limitation rules, including those changes under the CARES Act, under Section 163(j) are not applicable to the SJW Group’s regulated businesses.

SJW Group has accounted for the applicable effects of the CARES Act.

SJW Group files U.S.

federal income tax returns and income tax returns in various states.

SJW Group is no longer subject to tax examination for fiscal years prior to 2016 for federal purposes and 2015 for state purposes.

The open tax years for the jurisdictions in which SJW Group files are as follows:

federal income tax returns and income tax returns in various states and is subject to ordinary statute of limitation of three years for federal and three or four years for different state returns.

However, due to tax attribute carryforwards, SJW Group is subject to examination for tax years 2009 forward for federal and 2012 forward for state returns of CTWS and its subsidiaries.

The statute of limitation for SJW Group returns is closed for these extended years and remains open for 2017 and forward for federal and 2016 or 2017 and forward for different states.

Utility Plant Intangible Assets

1 unchanged sentence

Other intangibles primarily consist of $ 3,999 which was paid for service area and water rights related to CLWSC, $ 5,984 for infrastructure related to the Cupertino service concession arrangement, $ 1,400 for customer relationships and $ 1,040 incurred in conjunction with Valley Water water contracts related to the operation of SJWC.

All intangible assets are recorded at cost and all are being amortized using the straight-line method over the legal or estimated economic life of the asset ranging from 5 to 70 years.

All intangible assets are recorded at cost and are primarily being amortized using the straight-line method over the legal or estimated economic life of the asset ranging from 5 to 70 years.

Amortization expense for the intangible assets was $ 1,401 , $ 745 and $ 647 for the years ended December 31, 2020, 2019 and 2018, respectively.

Amortization expense for 2020 through 2024 is anticipated to be $ 745 per year.

Amortization expense for 2021 through 2025 and thereafter is anticipated to be $ 1,401 per year.

The costs of intangible assets as of December 31, 2020 and 2019 are as follows:

5 unchanged sentences

Concession fees 6,324 6,052

Purchase premium customer relationships 1,094 201

Other intangibles 6,479 6,926

4 unchanged sentences

On June 22, 2020, the Valley Water Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 10 % through June 30, 2021.

Based on current prices and estimated deliveries, SJWC

is committed to purchase from Valley Water a minimum of 90 % of the reduced delivery schedule, or 19,794 million gallons ( $ 89,539 ) of water at the current contract water rate of $ 4.5 per million gallons for the year ending December 31, 2020 .

Based on current prices and estimated deliveries, SJWC is committed to purchase from Valley Water a minimum of 90 % of the reduced delivery schedule, or 19,794 million gallons ($ 89,539 ) of water at the current contract water rate of $ 4.5 per million gallons for the year ending December 31, 2021.

Additionally, SJWC purchases non-contract water from Valley Water on an “as needed” basis if the water supply is available.

12 unchanged sentences

Connecticut Water agrees to purchase 283 million gallons of water annually from MDC.

Rate charged by the MDC at December 31, 2019 were three dollars and fifty cents per hundred cubic feet.

The rate charged by the MDC at December 31, 2020 were $ 3.97 per hundred cubic feet.

CLWSC has long-term contracts with the GBRA.

2 unchanged sentences

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

In 2018, CLWSC acquired raw water supply agreements with the Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in 2053 and 2046, respectively, for 250 acre-feet of water under 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 Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in 2059 and 2046, respectively, for 250 acre-feet of water under each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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 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 .

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

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

As of December 31, 2020, SJWC had 370 employees, of whom 137 were executive, administrative or supervisory personnel, and of whom 233 were members of unions.

2 unchanged sentences

Contingencies

Class Action Suits Related to the merger with CTWS

On June 14, 2018, certain shareholders of CTWS (the “Plaintiffs”) filed two nearly identical class-action complaints in Connecticut state court against the CTWS board of directors, SJW Group, Eric W.

Thornburg, Chairman, President and Chief Executive Officer of SJW Group, and CTWS (the “Defendants”).

The complaints, as amended on September 18, 2018 and September 20, 2018, allege that the CTWS board breached its fiduciary duties in connection with the Merger, that CTWS’s preliminary proxy statement, filed with the SEC on August 20, 2018, omitted certain material information and that SJW Group and Mr.

Thornburg aided and abetted the alleged breaches by the CTWS board of directors.

Among other remedies, the actions sought to recover rescissory and other damages and attorney’s fees and costs.

SJW Group believed the claims in these complaints were without merit and vigorously defended against such complaints.

The parties to the lawsuits agreed in principle to settle the lawsuits in exchange for the issuance of additional disclosures by CTWS.

Pursuant to the agreements to settle the lawsuits, the Plaintiffs reserved the right to seek a mootness fee from CTWS.

The parties moved to stay proceedings, other than fee-related proceedings, until the closing of the merger with CTWS, and the court initially granted the parties’ motion to stay on November 14, 2018.

The initial stay of proceedings had expired on February 28, 2019 and after multiple motions by the parties and granting of extensions, the stay of the proceedings continued until November 11, 2019.

On November 20, 2018, the Plaintiffs filed an opening brief in support of their mootness fee demand of $ 1,500 .

The merger with CTWS closed on October

9, 2019, and pursuant to the agreement in principle to settle the litigation, the complaints would be dismissed after the closing.

On November 12, 2019, the Defendants filed an opposition to the Plaintiffs’ fee demand.

On November 27, 2019, the Plaintiffs filed a reply brief in further support of their mootness fee demand.

On January 8, 2020, the court entered an order dismissing Plaintiffs’ complaints.

On January 10, 2020, the parties entered into an agreement pursuant to which the Defendants would pay a mootness fee amount of $ 325 in exchange for the release of all of the Plaintiffs’ claims.

Billing Practice OII with CPUC

On September 14, 2018, the CPUC issued OII No.

18-09-003 to which SJWC was named as Respondent.

By a decision adopted November 29, 2018, in SJWC’s then-pending GRC, the CPUC approved a settlement to resolve the alleged overcharging issue for the period since June 2011 by requiring customer credits to customers totaling $ 2,020 .

That amount was refunded to customers pursuant to SJWC’s Advice Letter No.

530, effective February 8, 2019.

See discussion on the matter in Note 1, “Regulatory Rate Filings.” On July 24, 2019, SJWC and CPED jointly filed a motion for CPUC approval of a Settlement Agreement (“Agreement”) over SJWC’s past customer billing practices.

The Agreement requires the company to pay approximately $ 2,100 in additional customer refunds, consisting of $1,757 for refunds during the period from 1987 to 2011 and $350 in customer credits to low income water customers, and invest $ 5,000 in utility plant that is not allowed an investment return or rate recovery.

SJWC recorded the $ 2,100 customer credit expense as an offset to revenues during the second quarter of 2019.

The $ 5,000 commitment to invest in utility plant will be recognized as plant in service on the company’s financial statements once invested.

A CPUC Presiding Officer’s Decision approved the Agreement in December 2019, but an appeal was filed in January 2020 by a group of SJWC customers.

On February 27, 2020, the CPUC adopted a modified version of the Agreement, which found the appeal to be without merit and approved the Agreement.

The CPUC’s adopted decision is scheduled to become final on March 28, 2020.

SJW Group is subject to ordinary routine litigation incidental to its business.

SJW Group and its subsidiaries are subject to ordinary routine litigation incidental to its business.

There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.

4 unchanged sentences

For SJWC employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee.

Certain employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefits based on the employee’s years of service and compensation.

Interest is credited based on the annual yield on 30-year Treasury bonds as of October for the preceding plan year with a minimum annual rate of 3.25% and a maximum annual rate of 6.00%.

For the year ended December 31, 2020, interest credits assumption was 3.50%.

CTWS employees hired on or after January 1, 2009 are entitled to an additional 1.5 % of eligible compensation to their company sponsored savings plan.

5 unchanged sentences

The committees ensure that the plans establish a target mix that is expected to achieve its investment objectives, by assuring a broad diversification of investment assets among investment types, while minimizing volatility of the target asset mix, unless market conditions make such a change appropriate to reduce risk.

The pension plans require a minimum portion of plan assets to be allocated to fixed income securities and guidelines and restrictions on equity investments for the assets.

The pension plans require a minimum portion of plan assets to be allocated to fixed income securities and provide guidelines and restrictions on equity investments for the assets.

Plan assets are marked to market at each measurement date, resulting in unrealized actuarial gains or losses.

Unrealized actuarial gains and losses on pension assets are amortized over the expected future working lifetime of participants for actuarial expense calculation purposes.

For the SJWC retirement plans, market gains in 2018 decreased pension expense by approximately $ 2,520 in 2019 and market losses in 2017 increased pension expense by approximately $ 1,388 in 2018 .

Market gains in 2019 decreased pension expense by approximately $ 5,464 in 2020 and market losses in 2018 increased pension expense by approximately $ 4,485 in 2019.

Fo r t he year ended December 31, 2020, the net actuarial loss of the benefit obligation was related primarily a loss from changes of discount rate of $ 46,443 , a $ 489 loss in data and other changes, and a gain from mortality changes of $ 2,139 .

Generally, it is expected of the investment managers that the performance of the assets held in the pension plans, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three -to- five-year period and/or full market cycle.

These standards include specific absolute and risk-adjusted performance standards over a three -to- five-year period and/or full market cycle.

The expected long-term rate of return on the pension plan assets is between 7.00% and 7.25%.

The expected long-term rate of return on the pension plan assets is between 6.50 % and 6.75 % for the year ended December 31, 2020.

SJW Group calculates the market-related value of defined benefit pension plan assets, which is defined under FASB ASC Topic 715—“Compensation—Retirement Benefits” as a balance used to calculate the expected return on plan assets, using fair value.

The fair value is based on quoted prices in active markets for identical assets and significant observable inputs.

Senior management hired before March 31, 2008 for SJWC and January 1, 2009 for CTWS are eligible to receive additional retirement benefits under the supplemental executive retirement plans and retirement contracts (“SERP”).

SJWC’s senior management hired on or after March 31, 2008 are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plans.

Both of the plans are non-qualified plans in which only senior management and other designated members of management may participate.

SJWC’s senior management hired on or after March 31, 2008 are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan ("Cash Balance Executive Supplemental Retirement Plan").

plans are non-qualified plans in which only senior management and other designated members of management may participate.

The annual cost of the plans has been included in the determination of the net periodic benefit cost shown below.

1 unchanged sentence

SJWC’s plans are unfunded while CTWS’s SERP is funded through investments consisting primarily of life insurance contracts and assets in a Rabbi Trust.

As of December 31, 2019 , total investments made to fund CTWS’s SERP was $ 7,070 which is included in investments in SJW Group’s consolidated balance sheets.

As of December 31, 2020 and 2019, total investments made to fund CTWS’s SERP was $ 7,470 and $ 7,070 , respectively, which is included in “Investments” in SJW Group’s Consolidated Balance Sheets.

The life insurance contracts are valued at cash surrender value of the policies as reported by the insurer.

As of December 31, 2019 , the value of the life insurance contracts was $ 3,829 .

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s SERP by major categories as of December 31, 2019 :

As of December 31, 2020 and 2019, the value of the life insurance contracts was $ 4,311 and $ 3,829 , respectively.

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s SERP by major categories as of December 31, 2020 and 2019 :

Fair Value Measurements at December 31, 2020

Asset Category

Asset Category Total Quoted

(Level 1) Significant

(Level 2) Significant

Money market funds $ 83 83 — —

Mutual funds 2,101 2,101 — —

Fixed income 830 830 — —

Total $ 3,014 3,014 — —

Fair Value Measurements at December 31, 2019

Asset Category Total Quoted

(Level 1) Significant

(Level 2) Significant

Money market funds $ 20 20 — —

Mutual funds 834 834 — —

Fixed income 2,329 2,329 — —

Total $ 3,183 3,183 — —

What changed 10-K

Item 8. Financial Statements and Supplementary Data