H2O AMERICA 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors 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 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. 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 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 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 52 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter 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 53 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. 54 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors SJW Group: 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. 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. 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. 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. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 1933 to 2020. Santa Clara, California March 2, 2020, except for Schedule I, as to which the date is March 1, 2021. 55 SJW Group and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2020 2019 Assets Utility plant: Land $ 36,845 34,395 Depreciable plant and equipment 3,198,060 2,988,454 Construction in progress 109,976 112,232 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: 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. 56 SJW Group and Subsidiaries CONSOLIDATED BALANCE SHEETS (Continued) (in thousands, except share and per share data) December 31, 2020 2019 Capitalization and Liabilities Capitalization: Stockholders’ equity: Common stock, $0.001 par value; 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 Additional paid-in capital 510,158 506,639 Retained earnings 408,037 383,191 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: Lines of credit 175,094 117,209 Current portion of long-term debt 76,241 22,272 Accrued groundwater extraction charges, purchased water and power 19,184 17,211 Accounts payable 34,200 34,886 Accrued interest 12,861 13,140 Accrued payroll 14,012 11,570 Other current liabilities 19,203 18,279 350,795 234,567 Deferred income taxes 191,415 195,598 Advances for construction 125,027 112,339 Contributions in aid of construction 296,105 286,035 Postretirement benefit plans 121,597 108,044 Other noncurrent liabilities 21,786 22,306 Commitments and contingencies — — $ 3,311,465 3,132,470 See Accompanying Notes to Consolidated Financial Statements. 57 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 (in thousands, except share and per share data) 2020 2019 2018 Operating revenue $ 564,526 420,482 397,699 Operating expense: Production Expenses: Purchased water 100,723 99,118 97,378 Power 13,330 7,443 6,180 Groundwater extraction charges 71,359 43,917 46,770 Other production expenses 40,380 25,291 18,398 Total production expenses 225,792 175,769 168,726 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 Depreciation and amortization 89,279 65,592 54,601 Merger related expenses — 15,768 18,610 Total operating expense 446,856 363,003 324,259 Operating income 117,670 57,479 73,440 Other (expense) income: Interest on long-term debt, mortgage and other interest expense ( 54,255 ) ( 31,796 ) ( 24,332 ) Pension non-service cost ( 374 ) ( 3,158 ) ( 2,356 ) 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 Provision for income taxes 8,380 8,454 10,065 Net income before noncontrolling interest 61,515 23,627 38,767 Less net income attributable to the noncontrolling interest — 224 — SJW Group net income 61,515 23,403 38,767 Other comprehensive income: 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. 58 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total Stockholders’ Equity Number of 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 ) — — Share-based compensation — — 2,117 ( 97 ) — — 2,020 Issuance of restricted and deferred stock units 95,053 — ( 4,057 ) — — — ( 4,057 ) Employee stock purchase plan 25,907 — 1,371 — — — 1,371 Common stock issued 7,762,500 7 411,069 — — — 411,076 Dividends paid ($1.12 per share) — — — ( 23,074 ) — — ( 23,074 ) Balances, December 31, 2018 28,404,316 28 495,366 393,918 — — 889,312 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 Adjustment to pension benefit plans, net of taxes of $22 — — — — 9 — 9 Share-based compensation — — 3,406 ( 93 ) — — 3,313 Share-based compensation related to business combination — — 6,384 — — — 6,384 Issuance of restricted and deferred stock units 21,909 — ( 110 ) — — — ( 110 ) Employee stock purchase plan 30,283 — 1,603 — — — 1,603 Common stock issuance cost — — ( 10 ) — — — ( 10 ) Dividends paid ($1.20 per share) — — — ( 34,134 ) — — ( 34,134 ) 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. 59 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands) 2020 2019 2018 Operating activities: Net income before noncontrolling interest $ 61,515 23,627 38,767 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 91,622 68,489 56,907 Deferred income taxes ( 5,497 ) ( 1,249 ) ( 9,486 ) Share-based compensation 3,553 3,406 2,117 Gain on sale of real estate investments ( 948 ) ( 929 ) — 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: Accounts receivable and accrued unbilled utility revenue ( 18,918 ) ( 3,860 ) ( 2,003 ) Accounts payable and other current liabilities ( 357 ) 1,946 2,130 Accrued groundwater extraction charges, purchased water and power 1,973 2,853 ( 688 ) Tax receivable and accrued taxes ( 3,557 ) ( 6,044 ) 5,841 Postretirement benefits ( 2,965 ) ( 4,000 ) 203 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 Other changes, net ( 2,413 ) 7,469 1,706 Net cash provided by operating activities 104,051 130,005 91,343 Investing activities: Additions to utility plant: Company-funded ( 195,323 ) ( 164,325 ) ( 135,973 ) Contributions in aid of construction ( 17,096 ) ( 13,563 ) ( 8,454 ) Additions to real estate investment ( 435 ) ( 137 ) ( 123 ) Payments for business/asset acquisition and water rights — ( 835,465 ) ( 2,496 ) Cost to retire utility plant, net of salvage ( 2,556 ) ( 5,026 ) ( 3,909 ) Proceeds from sale of real estate investments and utility property 1,151 745 — Proceeds from sale of equity investments — — 4,112 Net cash used in investing activities ( 214,259 ) ( 1,017,771 ) ( 146,843 ) Financing activities: Borrowings from lines of credit 276,174 105,349 76,000 Repayments of lines of credit ( 218,289 ) ( 192,055 ) ( 1,000 ) Long-term borrowings 85,000 590,000 — Long-term borrowings held as restricted cash 4,000 5,000 — Repayments of long-term borrowings ( 28,931 ) ( 1,400 ) — Debt issuance costs ( 829 ) ( 4,918 ) — Dividends paid ( 36,509 ) ( 34,134 ) ( 23,074 ) Receipts of advances and contributions in aid of construction 23,874 18,904 10,890 Refunds of advances for construction ( 2,767 ) ( 2,911 ) ( 2,700 ) Issuance of common stock, net of issuance costs — ( 10 ) 411,385 Other changes, net ( 190 ) 1,163 ( 3,078 ) 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, 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: Increase (decrease) in accrued payables for construction costs capitalized $ 1,448 ( 516 ) 340 Utility property installed by developers $ 9,779 3,077 1,747 See Accompanying Notes to Consolidated Financial Statements. 60 SJW GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2020, 2019 and 2018 (Dollars in thousands, except share and per share data) Note 1. Summary of Significant Accounting Policies 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 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. 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, “Business Combinations”). 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. 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”). SJWTX, Inc. 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. CLWSC’s service area comprises more than 247 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis counties, the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25 % interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc. 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. 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. 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”). Recently Adopted Accounting Principles 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. 61 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 The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciable Utility Plant and Equipment The major components of depreciable plant and equipment as of December 31, 2020 and 2019 are as follows: 2020 2019 Equipment $ 567,904 521,183 Transmission and distribution 1,699,953 2,207,051 Office buildings and other structures 930,203 260,220 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. The estimated service lives of depreciable plant and equipment are as follows: Useful Lives 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. 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. 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 Real estate investments are recorded at cost and consist primarily of land and buildings. 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. 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 62 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: 2020 2019 Land $ 14,168 14,168 Buildings and improvements 43,961 43,531 Total real estate investment $ 58,129 57,699 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 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. The MPUC has previously ruled that the net proceeds from the transaction will be shared equally between the customers of the Camden Rockland division and Maine Water. The transaction generated approximately $ 180 in pre-tax gain on sale of nonutility property at Maine Water. 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 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. 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. The following schedule shows the future minimum rental payments to be received from third parties under operating leases that have remaining noncancelable lease terms in excess of one year as of December 31, 2020: Year ending December 31: Rental Revenue 2021 $ 4,264 2022 2,745 2023 2,565 2024 2,645 2025 2,833 Thereafter 7,711 Business Combinations SJW Group applies the provisions of ASC Topic 805—“Business Combinations” for the purchase accounting related to the merger with CTWS on October 9, 2019. Topic 805 requires SJW Group to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. 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 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 63 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. 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 include, but are not limited to: future expected cash flows from services; historical and expected customer attrition rates and anticipated growth in revenue from acquired customers; the expected use of the acquired assets; and discount rates. See Note 12, “Business Combination” for further discussion on the CTWS transaction. Impairment of Long-Lived Assets and Goodwill In accordance with the requirements of FASB ASC Topic 360—“Property, Plant and Equipment,” the long-lived assets of SJW Group are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values of the assets. When such changes in circumstances or events occur, the company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. 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, 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. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, 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. No impairments occurred during 2020, 2019 or 2018. Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. SJW Group’s goodwill is primarily associated with the recent merger with CTWS on October 9, 2019. 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 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 The following instruments are not measured at fair value on the company’s consolidated balance sheets but, require disclosure of fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments approximates their carrying value as reported on the consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1. The fair value of long-term debt is discussed in Note 4, “Long-Term Debt” and pension plan assets in Note 9, “Benefit Plans”. SJW Group has investments in company owned life insurance which are valued at cash surrender value of the policies as reported by the insurer. 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, 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”. 64 Regulatory Rate Filings California Regulatory Affairs SJWC’s rates, service and other matters affecting its business are subject to regulation by the CPUC. Generally, there are three types of rate adjustments that affect SJWC’s revenue collection: general rate adjustments, cost of capital adjustments, and offset rate adjustments. General rate adjustments are authorized in general rate case decisions, which usually authorize an initial rate adjustment followed by two annual escalation adjustments. 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 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. 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 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 65 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’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 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. The WRA removes the financial disincentive for water utilities to develop and implement effective water conservation programs. The WRA allows water companies to defer on the balance sheet, as a regulatory asset or liability, for later collection from or crediting to customers the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings, including WICA proceedings. Projects eligible for WICA surcharges include certain types of aging utility plant, primarily water mains, meters, and service lines. Additionally, certain energy conservation projects, improvements required to comply with streamflow regulations, and improvements to acquired systems are eligible for WICA surcharges. 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 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. users. 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 CLWSC’s rates are subject to the economic regulation of the Public Utilities Commission of Texas (“PUCT”). The PUCT authorize rate increases after the filing of an Application for a Rate/Tariff Change. Rate cases may be filed as they become necessary, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months. 66 Maine Regulatory Affairs Maine Water’s rates, service and other matters affecting its business are subject to regulation by the Maine Public Utilities Commission (“MPUC”). 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 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 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 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 In California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. 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. 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 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. 67 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. 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. The CPUC 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 CPUC has indicated that the net benefit from implementing the new law should ultimately be passed on to ratepayers. The benefits associated with regulatory activities is expected to flow back to customers as directed by the CPUC, with no impact to net income. Per Advice Letter 522A filed with the 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. As such, the tax 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 a regulatory liability of $ 6,504 in the tax memorandum account for the for the year ended December 31, 2018 with a corresponding reduction to revenue. The amount has been reflected in the tax memorandum account balance shown in the table below. 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) Adjustments Ending Balance Revenue accounts: Monterey WRAM $ 7,015 2,464 2,598 12,077 2014 - 2017 WCMA 708 — ( 42 ) 666 2012 General Rate Case true-up 752 — — 752 Cost of capital memorandum accounts ( 1,553 ) ( 8 ) — ( 1,561 ) 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 Cost-recovery accounts: 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 68 For the year ended December 31, 2019 Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance 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 Cost of capital memorandum accounts ( 1,523 ) ( 30 ) — ( 1,553 ) 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 ) Cost-recovery accounts: 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 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 . On December 28, 2018, SJWC’s GRC with the CPUC was approved with new rates effective on January 1, 2019. 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, 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 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. 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. 69 Regulatory assets, net, are comprised of the following as of December 31: 2020 2019 Regulatory assets: Income tax temporary differences, net (a) $ 6,230 2,433 Postretirement pensions and other medical benefits 95,559 73,525 Business combinations debt premium, net 22,479 25,020 Balancing and memorandum accounts, net 25,463 5,283 WRA (b) 323 9,108 Other, net (c) 8,176 5,048 Total regulatory assets, net 158,230 120,417 Less: current regulatory asset, net 1,748 6,472 Total regulatory assets, net, less current portion $ 156,482 113,945 ___________________________________ (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 Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the effect of temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. To the extent permitted by the regulators, investment tax credits resulting from utility plant additions are deferred and amortized over the estimated useful lives of the related property. Advances for Construction and Contributions in Aid of Construction 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 and in Texas non-refundable. Estimated refunds for the next five years and thereafter are shown below: Estimated Refunds 2021 $ 3,050 2022 3,050 2023 3,038 2024 2,958 2025 2,896 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. Depreciation applicable to utility plant constructed with these contributions is charged to contributions in aid of construction. 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 70 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. Advances and contributions received subsequent to 1991 and prior to 1997 are included in state taxable income, except for CTWS. Asset Retirement Obligation SJW Group’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects principally the retirement costs of wells and other anticipated clean-up costs, which by law, must be remediated upon retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, a regulatory asset is also recorded. As of December 31, 2020 and 2019, the asset retirement obligation is as follows: 2020 2019 Retirement obligation $ 4,619 4,803 Discount rate 6 % 6 % Retirement obligation, present value $ 939 942 Revenue 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. The customer is typically billed on a quarterly or bi-monthly basis after water delivery has occurred. The customer is charged both a service charge which is based upon meter size and covers a portion of the fixed costs of furnishing water to the customer and a consumption charge based on actual water usage. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. As the company has the right to bill for services that it has provided, SJW Group estimates the dollar value of deliveries during the unbilled period and recognizes the associated revenue. Actual results could differ from those estimates, which may result in an adjustment to revenue when billed in a subsequent period. 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 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. • The WRA allows Connecticut Water to mitigate risk associated with changes in demand. 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. 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”. 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. 71 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 and regulatory mechanisms, net 10,217 ( 14,403 ) ( 7,541 ) Rental income 5,532 5,397 5,482 $ 564,526 420,482 397,699 Revenue also includes a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses. For the years ended December 31, 2020, 2019 and 2018, the surcharge was $ 4,911 , $ 4,955 and $ 5,013 , respectively. Share-Based Compensation 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. The compensation cost for service-based restricted stock awards are charged to income on a straight-line basis over the requisite service period, which is the vesting period. For performance-based stock awards, compensation expense is charged to income on a straight-line basis over the requisite service period based on expected attainment of performance targets. Changes in the estimates of the expected attainment of performance targets will result in a change in the number of shares that are expected to vest which may cause a cumulative catch up for the amount of share-based compensation expense during each reporting period in which such estimates are altered. Forfeitures are accounted for as they occur. 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. 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. Restricted common stock units of 22,396 , 27,082 and 5,551 as of December 31, 2020, 2019 and 2018, respectively, were excluded from the dilutive earnings per share calculation as their effect would have been anti-dilutive. Note 2. Capitalization 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. 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. Note 3. Lines of Credit SJWC entered into a $ 125,000 credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”) on June 1, 2016. The Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $ 10,000 . Proceeds of borrowings under the Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes. The Credit Agreement has a maturity date of June 1, 2021. On 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. 72 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. The Credit Agreement also includes certain financial covenants that require the Company to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio. SJW Group and SJW Land Company (collectively, the “Borrowers”), entered into a $ 15,000 credit agreement with the Lender (the “SJW Group Credit Agreement”) on June 1, 2016, which provides an unsecured credit facility to the Borrowers with a letter of credit sublimit of $ 5,000 . The SJW Group Credit Agreement matures on June 1, 2021. Borrowings under the SJW Group Credit Agreement bear interest under the same terms and conditions as those in the Credit Agreement. 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. (the “Borrower”), entered into a $ 5,000 credit agreement with the Lender (the “SJWTX Credit Agreement”), which provides an unsecured credit facility to the Borrower with a letter of credit sublimit of $ 1,000 . The SJWTX Credit Agreement matures on June 1, 2021. 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. Cost of borrowing on the lines of credit averaged 1.78 % and 3.73 % as of December 31, 2020 and 2019, respectively. The SJW Group and SJWTX, Inc. unsecured bank lines of credit have the following affirmative covenants calculated with the financial statements of SJW Group, on a consolidated basis: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175 % of interest charges. As of December 31, 2020, SJW Group and SJWTX, Inc. were in compliance with all covenants. SJWC’s unsecured bank lines of credit have the following affirmative covenants: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175 % of interest charges. As of December 31, 2020, SJWC was in compliance with all covenants. The CTWS unsecured bank lines of credit have the following affirmative covenants: (1) Connecticut Water’s earnings before interest and taxes to its interest expense shall be equal or greater to 3 to 1, (2) Maine Water’s debt to capitalization ratio shall not exceed 60 %, (3) Connecticut Water’s debt to capitalization ratio shall not exceed 60 %, and (4) CTWS’s debt to capitalization ratio shall not exceed 65 %. As of December 31, 2020, CTWS was in compliance with all covenants. 73 Note 4. Long-Term Debt Long-term debt as of December 31 was as follows: Description Rate Maturity 2020 2019 SJW Group: Senior notes 2.47% - 4.35% 2021 - 2039 $ 610,000 560,000 SJWC: 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 Connecticut Water: Connecticut Innovations Revenue Bonds, variable rate 2028 - 2029 22,050 22,050 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 Total Connecticut Water 225,400 198,646 SJWTX, Inc. senior note 6.27% 2036 15,000 15,000 Maine Water: State revolving fund loans 0.00% - 2.58% 2022 - 2048 18,651 16,032 Other First Mortgage Bonds 8.95% 2024 3,600 4,500 Bank term loans 4.18% - 5.51% 2024 - 2043 17,500 17,500 Total Maine Water 39,751 38,032 HVWC bank term loan 4.75% 2034 — 4,164 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 Less: Unamortized debt issuance costs 10,978 11,737 Current portion 76,241 22,272 Total long-term debt, less current portion $ 1,287,580 1,283,597 ___________________________________ (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. and Maine Water and require interest-only payments until maturity. To minimize issuance costs, the companies’ debt has primarily been placed privately. SJW Group 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 74 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. The notes are unsecured obligations of the Company. Interest is payable semi-annually in arrears on May 1st and November 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. The closing occurred simultaneously with the signing of the note purchase agreement. SJWC The senior note agreements of SJWC generally have terms and conditions that restrict the company from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175 % of interest charges. 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. and New York Life Insurance (collectively the “Purchasers”), pursuant to which the company sold an aggregate principal amount of $ 80,000 of its 4.29 % Senior Notes, Series M (“Series M Notes”) to the Purchasers. The Series M Notes are unsecured obligations of SJWC and are due on April 1, 2049. Interest is payable semi-annually in arrears on April 1st and October 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series M Notes are outstanding. The Series M Notes are also subject to customary events of default, the occurrence of which may result in all of the Series M Notes then outstanding becoming immediately due and payable. The closing occurred simultaneously with the signing of the note purchase agreement. SJWC has obligations pursuant to loan agreements with the California Pollution Control Financing Activity (“CPCFA”) totaling $ 120,000 in aggregate principal amounts of CPCFA revenue bonds outstanding as of December 31, 2020. The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements. As of December 31, 2020, SJWC was in compliance with all such covenants. CTWS CTWS has outstanding term loans with a commercial bank in an aggregate amount of $ 22,169 as of December 31, 2020. Under the master loan agreement, CTWS is required to comply with certain financial ratio and operational covenants. The most restrictive of these covenants is to maintain a consolidated (CTWS and its subsidiaries) debt to capitalization ratio of not more than 60 %. As of 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 % 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. Connecticut Water has outstanding $ 44,310 of tax exempt and taxable Water Facilities Revenue Bonds issued through Connecticut Innovations (formerly the Connecticut Development Authority). The bond indentures and loan agreements contain customary affirmative and negative covenants and require compliance with financial and operational covenants, and also provide for the acceleration of the Revenue Bonds upon the occurrence of stated events of default. As of December 31, 2020, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements. 75 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 % 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 SJWTX, Inc. The senior note agreement of SJWTX, Inc. has terms and conditions that restrict SJWTX, Inc. from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175 % of interest charges. In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $ 125,000 plus 30 % of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2020, SJWTX, Inc. and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions. Maine Water 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. 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. The Series S bonds mature on October 1, 2039 and carry 1 % interest. 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 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 76 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: Year 2021 $ 76,322 2022 39,179 2023 4,360 2024 48,983 2025 3,648 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. The fair value of long-term debt would be categorized as Level 2 of the fair value hierarchy. Note 5. Income Taxes The components of income tax expense were: 2020 2019 2018 Current: Federal $ 11,349 7,577 14,485 State 2,528 2,126 5,066 Deferred: 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: 2020 2019 2018 Income tax at federal statutory rate $ 14,678 6,737 10,255 Increase (decrease) in taxes attributable to: State taxes, net of federal income tax benefit 4,142 2,251 3,420 Uncertain tax positions 1,351 323 24 Property flow-through ( 9,215 ) ( 2,054 ) ( 839 ) Capitalized merger costs ( 296 ) 5,350 — Tax reform - rate change impact on deferred taxes — 77 — Reversal of excess deferred taxes recognized in regulatory liability ( 2,912 ) ( 2,355 ) ( 1,383 ) Pension flow-through 92 ( 1,244 ) — Stock-based compensation ( 333 ) ( 223 ) ( 1,602 ) Other items, net 873 ( 408 ) 190 $ 8,380 8,454 10,065 77 The components of the net deferred tax liability as of December 31 was as follows: 2020 2019 Deferred tax assets: Advances and contributions $ 22,573 19,547 Unamortized investment tax credit 619 649 Pensions, postretirement benefits and stock-based compensation 41,180 32,450 Debt premium, net 6,290 7,002 California franchise tax 756 456 Net operating loss 550 1,046 Other 6,792 7,211 Gross deferred tax assets 78,760 68,361 Valuation allowance — ( 1,924 ) Total deferred tax assets 78,760 66,437 Deferred tax liabilities: Utility plant 209,541 211,079 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 Regulatory asset - income tax temporary differences, net 1,195 295 Section 481(a) adjustments 4,763 5,721 Other 7,544 4,148 Total deferred tax liabilities 270,175 262,035 Net deferred tax liabilities $ 191,415 195,598 Management evaluates the realizability of deferred tax assets based on all available evidence, both positive and negative. 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 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 that would impact the effective rate, if recognized, is approximately $ 5,600 and $ 3,511 as of December 31, 2020 and 2019, respectively. 78 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 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 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. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $ 107 as of December 31, 2020. SJW Group has not accrued any penalties for unrecognized tax benefits. 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. On December 22, 2017 the Tax Act was signed into law. The Tax Act includes a number of changes in existing tax law impacting businesses including, among other things, a reduction in the corporate income tax rate from 35% to 21%. The rate reduction was effective on January 1, 2018. 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 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. Note 6. Utility Plant Intangible Assets Intangible assets consist of a concession fee paid to the City of Cupertino of $ 6,800 for operating the City of Cupertino municipal water system, $ 13,400 related to the purchase premium for customer relationships and other intangibles of $ 14,967 as of December 31, 2020. 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 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 2021 through 2025 and thereafter is anticipated to be $ 1,401 per year. 79 The costs of intangible assets as of December 31, 2020 and 2019 are as follows: 2020 2019 Concession fees $ 6,800 6,800 Purchase premium customer relationships 13,400 13,400 Other intangibles 14,967 13,224 Intangible assets 35,167 33,424 Less: Accumulated amortization Concession fees 6,324 6,052 Purchase premium customer relationships 1,094 201 Other intangibles 6,479 6,926 Net intangible assets $ 21,270 20,245 Note 7. Commitments SJWC purchases water from Valley Water under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with Valley Water. For the years ended December 31, 2020, 2019 and 2018, SJWC purchased from Valley Water 21,269 million gallons ($ 96,212 ), 21,862 million gallons ($ 96,285 ) and 21,345 million gallons ($ 87,702 ), respectively, of contract water. 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, 2021. Additionally, SJWC purchases non-contract water from Valley Water on an “as needed” basis if the water supply is available. In 1997, SJWC entered into a 25-year contract agreement with the City of Cupertino to operate the City’s municipal water system. SJWC paid a one-time, upfront concession fee of $ 6,800 to the City of Cupertino which is amortized over the contract term. Under the terms of the contract agreement, SJWC assumed responsibility for maintenance and operating costs, while receiving all payments for water service. SJWC and the City of Cupertino signed an amendment to the lease agreement dated January 8, 2020. Under the terms of the amended lease agreement, SJWC agreed to an incremental up-front payment of $ 5,000 to be used by the City of Cupertino for capital improvements to the City’s municipal water system prior to the expiration of the lease in September 2022. Any unspent funds at lease termination remain the property of the City. Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA. The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective. Connecticut Water will pay RWA $ 75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement. In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement, $ 2.621 per million gallons as of December 31, 2020. Connecticut Water has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system. The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service. Connecticut Water agrees to purchase 283 million gallons of water annually from MDC. 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. The terms of the agreements expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 6,900 acre-feet per year of water supply from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60 -day written notice on the proposed adjustment. 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 has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years. Maine Water guarantees a minimum consumption of 50 million gallons of water annually. Water sales to Maine Water are billed at a wholesale discount of $ 0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates. The current tariff rate wa s $ 1.51 per hundred cubic feet as of December 31, 2020. 80 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. On November 12, 2019 and February 20, 2020, SJWC reached three-year bargaining agreements with the International Union of Operating Engineers, representing certain employees in the engineering department, and the Utility Workers of America, representing the majority of all nonadministrative employees at SJWC, respectively, covering January 1, 2020 through December 31, 2022. The agreements include a 3 % wage increase in 2020, 3 % in 2021 and 4 % in 2022 for members of both unions. Note 8. Contingencies 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. Note 9. Benefit Plans Pension Plans SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. SJWC and CTWS employees hired before March 31, 2008 and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the employee’s years of service and compensation. 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. SJW Group does not have multi-employer plans. The pension plans are administered by their respective committees where the investment strategy of the investments of the various pension and post-retirement benefit plans are reviewed and approved to achieve the goals of income generation and long-term capital preservation. SJW Group engages third-party investment managers to assist with, among other things, asset allocation strategy, investment policy advice, performance monitoring, and investment manager due diligence. Individual investment decisions have been delegated by the pension plan committees to the investment managers who are also monitored by an investment consultant. Investment managers are not permitted to invest outside of the asset class or strategy under the pension plans’ investment guidelines. 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 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. 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 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 (collectively, “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 Plan ("Cash Balance Executive Supplemental Retirement Plan"). Both of the 81 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. The SERP and Cash Balance Executive Supplemental Retirement Plan had a projected benefit obligation of $ 50,757 and $ 41,768 as of December 31, 2020 and 2019, respectively, and net periodic pension cost of $ 4,480 , $ 3,219 and $ 2,905 for 2020, 2019 and 2018, respectively. 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, 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, 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 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 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 Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market funds $ 20 20 — — Mutual funds 834 834 — — Fixed income 2,329 2,329 — — Total $ 3,183 3,183 — — Other Postretirement Benefits In addition to providing pension and savings benefits, the company also provides health care and life insurance benefits for eligible retired employees under the respective employer-sponsored post-retirement benefits other than pension plans. The benefits are paid by the company and not from plan assets due to limitations imposed by Internal Revenue Service. Flexible Spending Plan SJW Group sponsors flexible spending account plans for its employees for the purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the plans. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account (“HCSA”) and/or a Dependent Care Spending Account (“DCSA”) to help defray the cost of out-of-pocket medical and dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $ 2.5 and $ 5 , respectively. Savings Plans for Employees SJW Group also sponsors salary deferral plans which are defined contribution plans that allow employees to defer and contribute a portion of their earnings to the plan. Contributions, not to exceed set limits, are matched by the company. For CTWS’s employees hired on or after January 1, 2009 and ineligible to participate in the defined benefit pension plan, CTWS contributes an additional 1.5 % of eligible contributions. SJW Group contributions were $ 2,824 , $ 2,046 and $ 1,569 in 2020, 82 2019 and 2018, respectively. All of the company’s contributions are invested at the direction of the employees in funds offered under the plans. Special Deferral Election Plans and Deferral Election Program SJW Group maintains a special deferral election plan and a deferred compensation plan and agreements for senior management and a deferral election program for non-employee directors allowing for the deferral of a portion of their earnings each year and to realize an investment return on those funds during the deferral period. Senior management and non-employee directors have to make an election on the deferral and distribution method of the deferrals before services are rendered. CTWS’s deferred compensation plan allows the company to make discretionary contributions. Senior management and non-employee directors had deferred $ 6,144 , $ 7,834 and $ 4,244 under the plans as of December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, $ 4,130 and $ 3,801 , respectively, of the total amount deferred is related to CTWS agreements that were assumed as part of the merger transaction on October 9, 2019. Assumptions Utilized on Actuarial Calculations Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions: Pension Benefits Other Benefits 2020 2019 2018 2020 2019 2018 % % % % % % Discount rate 3.05 - 3.23 3.04 - 4.16 3.52 2.59 - 3.18 2.52 - 4.09 3.45 Expected return on plan assets 6.50, 6.75 7.00, 7.25 7.00 4.20, 6.50 4.00, 7.00 7.00 Rate of compensation increase 4.00 4.00 4.00 N/A N/A N/A The expected rate of return on plan assets was determined based on a review of historical returns, for the pension plans and for medium- to large-sized defined benefit pension funds with similar asset allocations. This review generated separate expected returns for each asset class. These expected future returns were then blended based on the pension plans’ target asset allocations. Benefit obligations for the defined benefit plans and other postretirement benefits were calculated using the following weighted-average assumptions as of December 31: Pension Benefits Other Benefits 2020 2019 2020 2019 % % % % Discount rate 2.29 - 2.48 3.05 - 3.23 2.18 - 2.41 2.59 - 3.18 Rate of compensation increase 4.00 4.00 N/A N/A SJW Group utilized each plan’s projected benefit stream in conjunction with the FTSE Pension Discount Curve (formerly the Citigroup Pension Discount Curve) and the FTSE Above Median Double-A Curve for SJWC and CTWS, respectively, in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date. In 2020 and 2019, SJW Group adopted the newly then issued MP-2020 and MP-2019, respectively, Mortality Improvement Scales to determine mortality assumptions. The tables and scales reflect increasing life expectancies of participants in the United States. See also “Reconciliation of Funded Status” below. 83 Net Periodic Pension Costs Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was as follows: Pension Benefits Other Benefits 2020 2019 2018 2020 2019 2018 Components of net periodic benefit cost Service cost $ 8,659 5,947 5,790 $ 900 581 616 Interest cost 10,484 8,506 6,879 956 775 627 Expected return on assets ( 15,715 ) ( 10,118 ) ( 9,255 ) ( 857 ) ( 475 ) ( 450 ) Amortization of prior service cost 41 48 51 97 197 197 Recognized actuarial loss 4,971 3,984 3,986 229 240 321 Net periodic benefit cost $ 8,440 8,367 7,451 $ 1,325 1,318 1,311 Reconciliation of Funded Status For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation and the accumulated benefit obligation, respectively. The projected benefit obligations and the funded status of the defined benefit pension and other postretirement plans as of December 31 were as follows: Pension Benefits Other Benefits 2020 2019 2020 2019 Change in benefit obligation Benefit obligation at beginning of year $ 338,240 187,877 $ 32,546 17,489 Service cost 8,659 5,947 900 581 Interest cost 10,484 8,506 956 775 Business combination — 108,162 — 12,537 Actuarial (gain)/loss 42,164 35,502 2,421 2,027 Implicit rate subsidy — — ( 211 ) ( 217 ) Plan participants contributions — — 254 85 Administrative expenses paid ( 163 ) ( 10 ) — — Benefits paid ( 13,293 ) ( 7,744 ) ( 1,072 ) ( 731 ) Benefit obligation at end of year $ 386,091 338,240 $ 35,794 32,546 Change in plan assets Fair value of assets at beginning of year $ 243,521 127,610 $ 17,226 5,849 Actual return on plan assets 32,869 34,807 2,383 1,972 Business combination — 79,382 — 9,314 Employer contributions 16,609 9,476 675 738 Plan participants contributions — — 254 85 Administrative expenses paid ( 163 ) ( 10 ) ( 54 ) ( 55 ) Benefits paid ( 14,712 ) ( 7,744 ) ( 1,005 ) ( 677 ) Fair value of plan assets at end of year 278,124 243,521 19,479 17,226 Funded status at end of year $ ( 107,967 ) ( 94,719 ) $ ( 16,315 ) ( 15,320 ) The amounts recognized on the balance sheet as of December 31 were as follows: Pension Benefits Other Benefits 2020 2019 2020 2019 Current liabilities $ 2,760 1,899 $ 133 96 Noncurrent liabilities 105,207 92,820 16,182 15,224 $ 107,967 94,719 $ 16,315 15,320 84 SJW Group recorded a regulatory asset on the projected benefit obligation of the postretirement benefit plans as follows: 2020 2019 Funded status of obligation $ 124,282 110,039 Accrued benefit cost ( 28,723 ) ( 36,514 ) Regulatory asset, amount to be recovered in future rates $ 95,559 73,525 Plan Assets Plan assets as of December 31 were as follows: Pension Benefits Other Benefits 2020 2019 2020 2019 Fair value of assets at end of year: Debt securities $ 95,935 86,288 $ 5,684 5,608 35 % 36 % 29 % 33 % Equity securities 170,747 146,210 12,762 10,840 61 % 60 % 66 % 63 % Cash and equivalents 11,442 11,023 1,033 778 4 % 5 % 5 % 5 % Total $ 278,124 243,521 $ 19,479 17,226 The following tables summarize the fair values of plan assets by major categories as of December 31, 2020 and 2019: Fair Value Measurements at December 31, 2020 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 12,475 12,475 — — Equity securities (a) 183,509 183,509 — — Fixed Income (b) 101,619 36,012 65,607 — Total $ 297,603 231,996 65,607 — ___________________________________ (a) Actively managed portfolio of equity securities with the goal to exceed the benchmark performance. (b) Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance Fair Value Measurements at December 31, 2019 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 11,801 11,801 — — Equity securities (a) 157,050 149,265 7,785 — Fixed Income (b) 91,896 31,686 60,210 — Total $ 260,747 192,752 67,995 — ___________________________________ (a) Actively managed portfolio of equity securities with the goal to exceed the benchmark performance. (b) Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance In 2021, SJW Group expects to make required and discretionary cash contributions of up to $ 8,481 to the pension plans and other postretirement benefit plans. 85 Benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are: Pension Plan Other Postretirement Benefit Plan 2021 $ 15,707 $ 1,441 2022 15,097 1,511 2023 15,979 1,596 2024 16,023 1,676 2025 16,541 1,671 2026 - 2030 91,120 8,857 Note 10. Equity Plans Common Stock SJW Group has a Long-Term Stock Incentive Plan (the “Plan”), which has 1,800,000 shares of common stock reserved for issuance. The Plan was initially adopted by the Board of Directors on March 6, 2002. On January 30, 2013, the amended and restated Plan was adopted by the Board and became effective on April 24, 2013. The Plan was subsequently amended and restated by the Board on July 29, 2015, and thereafter amended on November 15, 2016, October 28, 2020 and January 28, 2021. The Plan allows SJW Group to provide employees, non-employee Board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the Company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. A participant in the Plan generally may not receive Plan awards covering an aggregate of more than 600,000 shares of common stock in any calendar year. Additionally, awards granted under the Plan may be conditioned upon the attainment of specified Company performance goals. The types of awards included in the Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. In addition, shares are issued to employees under the Employee Stock Purchase Plan (“ESPP”) that was approved by SJW Group stockholders. As of December 31, 2020, 2019 and 2018, 880,495 , 819,340 and 793,811 shares have been issued pursuant to the Plan, and 178,106 , 174,764 and 124,275 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units for the years ended 2020, 2019 and 2018, respectively. The remaining shares available for issuance under the Plan are 741,399 as of December 31, 2020. The compensation costs charged to income is recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from share based compensation, that are recorded to additional paid-in capital and common stock, by award type, are presented below for the years ended December 31: 2020 2019 2018 Compensation costs charged to income: ESPP $ 323 283 242 Restricted stock and deferred restricted stock 3,230 3,123 1,875 Total compensation costs charged to income $ 3,553 3,406 2,117 Proceeds from the exercise of stock options and similar instruments: ESPP 1,830 1,603 1,371 Total proceeds from the exercise of stock options and similar instruments $ 1,830 1,603 1,371 Restricted Stock and Deferred Restricted Stock Under SJW Group’s Amended and Restated Deferred Restricted Stock Program (the “Deferred Restricted Stock Program”), SJW Group granted deferred restricted stock units to non-employee Board members. This program was amended effective January 1, 2008. As a result of that amendment, no new awards of deferred restricted stock units will be made under the Deferred Restricted Stock Program with respect to Board service after December 31, 2007. 86 A summary of SJW Group’s restricted and deferred restricted stock awards under the Plan as of December 31, 2020, and changes during the year ended December 31, 2020, are presented below: Units Weighted- Average Grant- Date Fair Value Outstanding as of January 1, 2020 174,764 $ 46.63 Granted 68,995 $ 67.50 Issued ( 61,155 ) $ 44.92 Forfeited ( 4,498 ) $ 55.80 Outstanding as of December 31, 2020 178,106 $ 53.43 Shares vested as of December 31, 2020 68,317 $ 34.55 A summary of the status of SJW Group’s nonvested restricted and deferred restricted stock awards under the Plan as of December 31, 2020, and changes during the year ended December 31, 2020, are presented below: Units Weighted- Average Grant- Date Fair Value Nonvested as of January 1, 2020 93,153 $ 39.57 Granted 68,995 $ 67.50 Vested ( 50,210 ) $ 59.17 Forfeited ( 2,149 ) $ 54.33 Nonvested as of December 31, 2020 109,789 $ 65.18 In connection with the merger with CTWS, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans: CTWS 2014 Performance Stock Program, CTWS 2004 Performance Stock Program and CTWS 1994 Performance Stock Program (collectively, the “CTWS Plan”); as of October 9, 2019 a total of 156,022 shares of SJW common stock have been reserved for issuance under the assumed awards. These assumed awards generally retain all of the rights, terms and conditions of the respective plans and award agreements under which they were originally granted. During the year ended December 31, 2020, the CTWS Plan issued, exercised and forfeited 1,701 , 47,583 and 0 of shares respectively, of restricted stock based awards and deferred restricted stock. As of December 31, 2020, approximately 57,049 shares of restricted stock based awards and deferred restricted stock were outstanding under the CTWS Plan that were assumed by SJW Group on October 9, 2019. Total fair value of restricted stock awards for all plans that were vested for the years ended 2020, 2019 and 2018 were $ 3,333 , $ 2,420 and $ 1,913 , respectively. As of December 31, 2020, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $ 4,118 . This cost is expected to be recognized over a weighted-average period of 1.74 years. For the years ended December 31, 2020, 2019 and 2018, 5,327 , 6,120 and 52,629 , respectively, of performance-based and market-based restricted stock awards were issued upon the attainment of certain performance metrics and service-based vesting under the Plan. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0 % to 150 % of the target number of shares for performance-based restricted stock awards, or between 0 % and 200 % of the target number of shares for market-based restricted stock awards. As of December 31, 2020, 16,544 performance-based and market-based restricted stock awards vested and 43,257 remained outstanding. Dividend Equivalent Rights Under the Plan, certain holders of restricted stock and deferred restricted stock awards may have the right to receive dividend equivalent rights (“DERs”) each time a dividend is paid on common stock after the grant date. Stock compensation on DERs is recognized as a liability and recorded against retained earnings on the date dividends are issued. The Deferred Restricted Stock and Deferral Election Programs for non-employee Board members were amended effective January 1, 2008, to allow the DERs’ with respect to the deferred shares to remain in effect only through December 31, 2017. Accordingly, the last DERs’ conversion into deferred restricted stock units under such programs occurred on the first business day in January 2018. Previously, no such time limitation was placed in the Deferred Restricted Stock and Deferral Election Program. 87 Certain CTWS restricted stock awards and deferred restricted stock assumed under the merger agreement retained rights to receive DERs that will convert into deferred restricted stock awards on SJW Group’ quarterly dividend payment dates. As of December 31, 2020, 2019 and 2018, a cumulative of 83,679 , 81,231 and 79,478 dividend equivalent rights were converted, since inception, to deferred restricted stock awards, respectively. For the years ended December 31, 2020, 2019 and 2018, $ 160 , $ 93 and $ 97 , respectively, related to dividend equivalent rights were recorded against retained earnings and were accrued as a liability. Employee Stock Purchase Plan The ESPP allows eligible employees to purchase shares of SJW Group’s common stock at 85 % of the fair value of shares on the purchase date. Under the ESPP, employees can designate up to a maximum of 10 % of their base compensation for the purchase of shares of common stock, subject to certain restrictions. A total of 400,000 shares of SJW Group’s common stock have been reserved for issuance under the ESPP. The remaining shares available for issuance under the ESPP are 220,813 as of December 31, 2020. As of December 31, 2020, the ESPP had twelve purchase intervals since its inception. For the year ended December 31, 2020, 2019 and 2018, a total of 31,750 , 30,255 and 25,907 shares, respectively, were issued under the ESPP. The plan has no look-back provisions. For the years ended December 31, 2020, 2019 and 2018, SJW Group’s recorded expenses were $ 342 , $ 294 and $ 265 , respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ended January 31, 2021 for the ESPP is approximately $ 160 . This cost is expected to be recognized during the first quarter of 2021. Note 11. Segment and Non-Tariffed Businesses Reporting SJW Group is a holding company with four subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) SJWTX, Inc. which is doing business as CLWSC, a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, and (iv) as of October 9, 2019, SJWNE LLC a holding company for CTWS and its subsidiaries, Connecticut Water, Maine Water, HVWC, Avon Water, NEWUS and Chester Realty, Inc. On September 30, 2020, Avon Water and HVWC merged into Connecticut Water after receiving merger approval from PURA. In accordance with FASB ASC Topic 280—“Segment Reporting,” SJW Group has determined that it has two reportable business segments. The first segment is that of providing water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water and NEWUS, together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.” SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his executive staff. The executive staff reviews financial information presented on a consolidated basis that is accompanied by disaggregated information about operating revenue, net income and total assets, by subsidiary. The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category. 88 For the year ended December 31, 2020 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated (2) Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 548,013 10,981 5,532 — 548,013 16,513 564,526 Operating expense 431,375 6,943 3,510 5,028 431,375 15,481 446,856 Operating income (loss) 116,638 4,038 2,022 ( 5,028 ) 116,638 1,032 117,670 Net income (loss) 69,245 4,099 1,455 ( 13,284 ) 69,245 ( 7,730 ) 61,515 Depreciation and amortization 86,758 442 1,186 893 86,758 2,521 89,279 Senior note and other interest expense 33,877 — — 20,378 33,877 20,378 54,255 Income tax expense (benefit) in net income 16,563 998 467 ( 9,648 ) 16,563 ( 8,183 ) 8,380 Assets 3,197,626 8,869 44,405 60,565 3,197,626 113,839 3,311,465 For the year ended December 31, 2019 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 407,116 7,969 5,397 — 407,116 13,366 420,482 Operating expense 329,520 5,443 3,751 24,289 329,520 33,483 363,003 Operating income (loss) 77,596 2,526 1,646 ( 24,289 ) 77,596 ( 20,117 ) 57,479 Net income (loss) 42,691 2,019 1,623 ( 22,930 ) 42,691 ( 19,288 ) 23,403 Depreciation and amortization 63,775 420 1,196 201 63,775 1,817 65,592 Senior note and other interest expense 25,073 — — 6,723 25,073 6,723 31,796 Income tax expense (benefit) in net income 8,382 708 486 ( 1,122 ) 8,382 72 8,454 Assets 3,016,846 5,507 46,778 63,339 3,016,846 115,624 3,132,470 For the year ended December 31, 2018 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 384,639 7,578 5,482 — 384,639 13,060 397,699 Operating expense 294,536 5,012 3,539 21,172 294,536 29,723 324,259 Operating income (loss) 90,103 2,566 1,943 ( 21,172 ) 90,103 ( 16,663 ) 73,440 Net income (loss) 53,181 1,848 885 ( 17,147 ) 53,181 ( 14,414 ) 38,767 Depreciation and amortization 53,067 338 1,196 — 53,067 1,534 54,601 Senior note and other interest expense 22,157 — — 2,175 22,157 2,175 24,332 Income tax expense (benefit) in net income 14,826 719 903 ( 6,383 ) 14,826 ( 4,761 ) 10,065 Assets 1,492,954 4,489 46,517 412,429 1,492,954 463,435 1,956,389 ____________________ (1) The “All Other” category for the years ended December 31, 2020 and 2019, includes the accounts of SJW Group, SJWNE, LLC and CTWS, Inc. on a stand-alone basis. For the year ended December 31, 2018, the “All Other” category includes the accounts of SJW Group on a stand-alone basis. (2) As of December 31, 2020, the Company has performed an allocation of goodwill associated with the acquisition of CTWS to two reporting units, Connecticut and Maine, which are both aggregated within the Regulated Water Utility Services reportable segment. 89 Note 12. Business Combination On October 9, 2019, SJW Group completed the merger with CTWS, a company that provides water service throughout Connecticut and Maine. In addition, CTWS has a real estate company in Connecticut which provides property management services. SJW Group acquired all of the outstanding stock of CTWS for $ 70.00 per share in cash (without interest and less any applicable withholding taxes). The total cash purchase price was approximately $ 838,476 , less cash received of $ 3,011 , and approximately $ 6,384 related to outstanding awards of restricted stock units and deferred share units assumed in connection with the merger. The following table summarizes the purchase price and recording of fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments as of December 31, 2020. Amounts Previously Recognized as of Acquisition Date (a) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted) Assets acquired: Utility plant, net $ 750,703 — 750,703 Nonutility plant 848 — 848 Current assets 42,673 ( 785 ) 41,888 Investments 12,489 — 12,489 Regulatory assets and deferred charges, less current portion 83,132 ( 4,346 ) 78,786 Other intangible assets 17,181 — 17,181 Other assets 2,592 — 2,592 Goodwill 626,523 ( 114 ) 626,409 Total assets acquired 1,536,141 ( 5,245 ) 1,530,896 Liabilities assumed: Long-term debt 281,009 — 281,009 Current liabilities, including maturities of long-term debt 125,772 25 125,797 Deferred income taxes 107,789 ( 5,411 ) 102,378 Postretirement benefit plans 31,789 — 31,789 Contributions in aid of construction and construction advances 137,327 — 137,327 Other long-term liabilities 10,607 141 10,748 Total liabilities assumed 694,293 ( 5,245 ) 689,048 Assumed equity $ 841,848 — 841,848 ______________________________________ (a) As previously reported in the SJW Group’s 10-K for the period ended December 31, 2019. Other intangible assets primarily consists of customer relationships. The goodwill balance is primarily attributable to assembled workforce and diversification of markets both from a geographic and regulatory perspective. We do not expect the goodwill recognized in connection with the transaction will be deductible for income tax purposes. The company analyzed and revalued the acquired opening deferred tax asset and liability balances within the measurement period which resulted in a decrease to goodwill of $ 114 . The revaluation of acquired deferred tax assets and liabilities and related uncertain tax positions based upon facts and circumstances that existed as of the acquisition date resulted in adjustments that were recorded to goodwill. In addition, tax related valuation allowances assumed in connection with a business combination were initially estimated as of the acquisition date. Revaluation within the measurement period resulted in release of the valuation allowance as it is more likely than not that the new combined group will be able to utilize the acquired deferred tax assets. There was no impact associated with the measurement period adjustments to the consolidated statement of comprehensive income for the year ended December 31, 2020. 90 The following unaudited pro forma financial information summarizes the combined results of operations for SJW Group and CTWS, as though the companies were combined as of January 1, 2018. Fiscal Year Ended December 31, 2019 2018 Total revenues $ 515,153 514,364 Pretax income (loss) 60,862 72,938 Net income (loss) 56,968 65,449 Basic earnings per share 2.00 2.31 The historical consolidated financial information has been adjusted in the pro forma combined financial statements to give effect to pro forma events that are: (1) directly attributable to the transaction, (2) factually supportable and (3) expected to have continuing impact on the combined results of SJW Group and CTWS. As such, the impact of non-recurring transaction related expenses is not included. The pro forma financial statements do not reflect all cost savings (or associated costs to achieve such savings) from operating efficiencies or synergies that could result from the transaction. In addition, the pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at January 1, 2018. Note 13. Unaudited Quarterly Financial Data Summarized quarterly financial data is as follows: 2020 Quarter Ended March June September December Operating revenue $ 115,754 147,209 165,863 135,700 Operating income 15,427 36,070 41,883 24,290 SJW Group net income 2,417 19,721 26,093 13,284 Comprehensive income 2,282 19,731 26,169 12,142 Earnings per share: —Basic 0.08 0.69 0.91 0.47 —Diluted 0.08 0.69 0.91 0.46 Market price range of stock: —High 74.73 65.93 71.06 70.34 —Low 49.48 53.11 58.56 60.11 Dividend per share 0.32 0.32 0.32 0.32 2019 Quarter Ended March June September December Operating revenue $ 77,682 102,965 113,997 125,838 Operating income 12,408 21,971 17,084 6,016 SJW Group net income 5,873 13,538 9,478 ( 5,486 ) Comprehensive income 5,873 13,538 9,478 ( 5,360 ) Earnings per share: —Basic 0.21 0.48 0.33 ( 0.20 ) —Diluted 0.21 0.47 0.33 ( 0.19 ) Market price range of stock: —High 63.76 63.40 69.23 74.47 —Low 54.74 59.83 61.23 67.13 Dividend per share 0.30 0.30 0.30 0.30 91 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2020 2019 Assets Investments in subsidiaries $ 1,536,106 1,466,110 Current assets: Cash and cash equivalents 436 1,035 Intercompany receivables 258 — Income tax receivable — 7,491 Intercompany notes receivable 15,680 6,727 Other current assets 124 — 16,498 15,253 Other assets Other — 13 — 13 $ 1,552,604 1,481,376 See Accompanying Notes to Schedule I 92 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2020 2019 Capitalization and Liabilities Capitalization: Stockholders’ equity: Common stock, $0.001 par value; 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 Additional paid-in capital 510,158 506,639 Retained earnings 408,037 383,191 Accumulated other comprehensive income ( 1,064 ) 126 Total stockholders’ equity 917,160 889,984 Long-term debt, less current portion 555,824 555,820 1,472,984 1,445,804 Current liabilities: Current portion of long-term debt 49,929 — Intercompany payables — 2,349 Intercompany notes payable 19,540 24,465 Accounts payable 170 1,042 Accrued interest 3,195 3,748 Income tax payable 3,268 — Other current liabilities 252 912 76,354 32,516 Deferred income taxes 2,623 1,994 Other noncurrent liabilities 643 1,062 Commitments and contingencies — — $ 1,552,604 1,481,376 See Accompanying Notes to Schedule I 93 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 (in thousands) 2020 2019 2018 Operating revenue $ — — — Operating expense: Administrative and general 3,110 8,130 2,312 Property taxes and other non-income taxes 250 250 250 Merger related expenses — 14,849 18,610 Total operating expense 3,360 23,229 21,172 Operating loss ( 3,360 ) ( 23,229 ) ( 21,172 ) Other (expense) income: Interest on long-term debt, mortgage and other interest expense ( 19,430 ) ( 6,615 ) ( 2,264 ) Interest income on money market fund — 6,536 155 Other, net ( 250 ) 89 ( 248 ) Loss before income taxes and equity earnings from subsidiaries ( 23,040 ) ( 23,219 ) ( 23,529 ) Benefit for income taxes ( 6,414 ) ( 1,431 ) ( 6,917 ) Equity earnings from subsidiaries, net of taxes 78,141 45,191 55,379 SJW Group net income 61,515 23,403 38,767 Other comprehensive (loss) income, net ( 1,190 ) 126 — SJW Group comprehensive income $ 60,325 23,529 38,767 See Accompanying Notes to Schedule I 94 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands) 2020 2019 2018 Operating activities: Net income $ 61,515 23,403 38,767 Adjustments to reconcile net income to net cash used in operating activities: Earnings from investment in subsidiaries ( 78,141 ) ( 45,191 ) ( 55,379 ) Deferred income taxes 162 4,606 ( 5,565 ) Share-based compensation 466 141 44 Other non-cash, net — — 423 Changes in operating assets and liabilities, net of acquired assets and liabilities: Accounts payable and other current liabilities ( 1,532 ) 255 1,039 Intercompany receivables ( 2,607 ) 2,045 209 Tax receivable and accrued taxes 10,759 ( 6,779 ) ( 5,592 ) Accrued interest ( 553 ) 3,742 — Return on capital from investments in subsidiaries 47,800 28,600 20,750 Other changes, net 367 808 36 Net cash provided by (used in) operating activities 38,236 11,630 ( 5,268 ) Investing activities: Proceeds to subsidiaries for notes receivable ( 10,353 ) ( 102,522 ) ( 2,030 ) Repayments from subsidiaries for notes receivable 1,400 95,795 17,458 Investments in subsidiaries ( 37,952 ) ( 62,262 ) — Payments for business acquisition — ( 837,903 ) — Proceeds from sale of equity investments — — 4,112 Net cash (used in) provided by investing activities ( 46,905 ) ( 906,892 ) 19,540 Financing activities: Borrowings from subsidiaries for notes payable 54,837 29,865 12,705 Repayments to subsidiaries for notes payable ( 59,762 ) ( 17,705 ) ( 3,358 ) Long-term borrowings 50,000 510,000 — Issuance of common stock, net of issuance costs — — 411,385 Debt issuance costs ( 496 ) ( 3,957 ) — Dividends paid ( 36,509 ) ( 34,134 ) ( 23,074 ) Other changes, net — ( 10 ) — Net cash provided by financing activities 8,070 484,059 397,658 Net change in cash and cash equivalents ( 599 ) ( 411,203 ) 411,930 Cash and cash equivalents, beginning of year 1,035 412,238 308 Cash and cash equivalents, end of year $ 436 1,035 412,238 Cash paid during the year for: Interest $ 19,442 2,203 2,175 Income taxes $ 3,466 689 824 Supplemental disclosure of non-cash activities: Share-based compensation from investment in subsidiaries $ 2,894 4,663 ( 714 ) See Accompanying Notes to Schedule I 95 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) NOTES TO CONDENSED FINANCIAL STATEMENTS Years ended December 31, 2020, 2019 and 2018 (Dollars in thousands, except share and per share data) Restrictions on Dividends and Other Distributions SJW Group is a legal entity separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, SJW Group’s principal sources of funds are dividends or other distributions from its operating subsidiaries, borrowings and sales of equity. The rights of SJW Group and, consequently, its creditors and shareholders, to participate in any distribution of assets of any of its subsidiaries are subject to certain prior claims of creditors of such subsidiary. The abilities of certain of SJW Group’s subsidiaries to transfer funds to SJW Group in the form of cash dividends, loans or advances are subject to certain contractual and regulatory restrictions. SJW Group and its subsidiaries are subject to debt covenants that could limit their respective abilities to pay dividends. For a discussion on these covenants, see Note 4 to SJW Group and Subsidiaries Notes to Consolidated Financial Statements. In addition, Connecticut Water Service, Inc. (“CTWS”) and its regulated subsidiaries are prohibited from paying dividends if not in compliance with minimum equity requirements under commitments made by SJW Group as part of the approval granted by the Connecticut Public Utilities Regulatory Authority and the Maine Public Utilities Commission in connection with the merger with CTWS. As of December 31, 2020, the restricted net assets of SJW Group’s subsidiaries was approximately $ 283,807 or 31 % of consolidated net assets of SJW Group. 96 SJW Group and Subsidiaries FINANCIAL STATEMENT SCHEDULE Schedule II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Years ended December 31, 2020, 2019 and 2018 (in thousands) Description 2020 2019 2018 Allowance for doubtful accounts: Balance, beginning of period $ 1,512 272 190 Opening balance, SJWNE, LLC — 1,283 — Charged to expense ( 177 ) 520 430 Charged to regulatory asset 3,032 — — Accounts written off ( 800 ) ( 875 ) ( 650 ) Recoveries of accounts written off 324 312 302 Balance, end of period $ 3,891 1,512 272 Reserve for litigation and claims: Balance, beginning of period $ 2,898 2,181 1,892 Charged to expense 958 3,221 480 Revision to accrual, due to settlements ( 122 ) ( 135 ) 1 Payments ( 3,050 ) ( 2,369 ) ( 192 ) Balance, end of period $ 684 2,898 2,181 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.