What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-11-06 · 327 added, 540 removed, 217 unchanged (80% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

REVENUE $ 114,785 115,754

OPERATING EXPENSE:

1 unchanged sentence

Purchased water 15,645 15,934

Power 3,003 2,725

Groundwater extraction charges 15,545 15,028

2 unchanged sentences

Administrative and general 20,893 21,262

Maintenance 6,265 6,086

Property taxes and other non-income taxes 7,515 7,463

6 unchanged sentences

Pension non-service cost 326 ( 45 )

Interest income on money market fund

Gain on sale of real estate investments

Other, net 1,754 757

Income before income taxes 1,720 2,855

Provision for income taxes

NET INCOME BEFORE NONCONTROLLING INTEREST

Less net income attributable to the noncontrolling interest

SJW GROUP NET INCOME

(Benefit) provision for income taxes ( 896 ) 438

NET INCOME 2,616 2,417

Other comprehensive income (loss), net 38 ( 135 )

SJW GROUP COMPREHENSIVE INCOME

SJW GROUP EARNINGS PER SHARE

COMPREHENSIVE INCOME $ 2,654 2,282

EARNINGS PER SHARE

Basic $ 0.09 0.08

Diluted $ 0.09 0.08

DIVIDENDS PER SHARE $ 0.34 0.32

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic 28,862,882 28,489,357

Diluted 28,990,203 28,674,221

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share data)

September 30,

2021 December 31,

Utility plant:

Land $ 38,339 36,845

Depreciable plant and equipment 3,223,736 3,198,060

1 unchanged sentence

Intangible assets 35,167 35,167

3,423,920 3,380,048

Less accumulated depreciation and amortization 1,068,852 1,045,136

2,355,068 2,334,912

Real estate investments 58,280 58,129

Less accumulated depreciation and amortization 15,072 14,783

43,208 43,346

CURRENT ASSETS:

Cash and cash equivalents:

Cash 11,406 5,269

Restricted cash 3,104 4,000

Accounts receivable:

Customers, net of allowances for uncollectible accounts

Customers, net of allowances for uncollectible accounts of $ 3,614 and $ 3,891 on March 31, 2021 and December 31, 2020, respectively

45,583 46,832

Income tax 4,671 7,041

Other 5,455 4,269

Accrued unbilled utility revenue 37,288 44,950

Prepaid expenses 10,634 8,097

Current regulatory assets, net 226 1,748

Other current assets 5,100 5,125

123,467 127,331

OTHER ASSETS:

Net regulatory assets, less current portion 161,392 156,482

Investments 15,161 14,367

Goodwill 628,144 628,144

Other 5,702 6,883

810,399 805,876

$ 3,332,142 3,311,465

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share data)

September 30,

2021 December 31,

CAPITALIZATION AND LIABILITIES

3 unchanged sentences

authorized 70,000,000 shares;

issued and outstanding shares 28,552,177 on September 30, 2020 and 28,456,508 on December 31, 2019

issued and outstanding shares 29,789,887 on March 31, 2021 and 28,556,605 on December 31, 2020

Additional paid-in capital 578,395 510,158

3 unchanged sentences

Long-term debt, less current portion 1,303,028 1,287,580

2,281,324 2,204,740

CURRENT LIABILITIES:

6 unchanged sentences

Other current liabilities 19,148 19,203

289,735 350,795

DEFERRED INCOME TAXES 189,531 191,415

4 unchanged sentences

COMMITMENTS AND CONTINGENCIES — —

$ 3,332,142 3,311,465

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share data)

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Noncontrolling Interest

Stockholders’

Shares Amount

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

Unrealized loss on investment, net of tax benefit of $50

Net income — — — 2,616 — 2,616

Unrealized gain on investment, net of tax benefit of $ 14

— — — — 38 38

Share-based compensation — — 1,280 ( 32 ) — 1,248

1 unchanged sentence

Employee stock purchase plan 18,235 — 1,026 — — 1,026

Common stock issuance, net of costs 1,184,500 1 66,895 — — 66,896

Dividends paid ($ 0.34 per share)

— — — ( 9,724 ) — ( 9,724 )

BALANCES, March 31, 2021 29,789,887 30 578,395 400,897 ( 1,026 ) 978,296

Unrealized gain on investment, net of tax of $4

Share-based compensation

Issuance of restricted and deferred stock units

Dividends paid ($0.32 per share)

BALANCES, June 30, 2020

Unrealized gain on investment, net of tax of $28

Share-based compensation

Issuance of restricted and deferred stock units

Employee stock purchase plan

Dividends paid ($0.32 per share)

BALANCES, September 30, 2020

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Noncontrolling Interest

Stockholders’

Shares Amount

BALANCES, December 31, 2019 28,456,508 $ 28 $ 506,639 $ 383,191 $ 126 $ 889,984

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

Net income — — — 2,417 — 2,417

Unrealized loss on investment, net of tax benefit of $ 50

— — — — ( 135 ) ( 135 )

Share-based compensation — — 251 ( 43 ) — 208

1 unchanged sentence

Employee stock purchase plan 15,552 — 970 — — 970

Common stock issuance cost

Dividends paid ($ 0.32 per share)

— — — ( 9,118 ) — ( 9,118 )

BALANCES, March 31, 2020 28,497,841 28 507,075 376,447 ( 9 ) 883,541

Net income before noncontrolling interest

Distribution to noncontrolling interest

Share-based compensation

Issuance of restricted and deferred stock units

Dividends paid ($0.30 per share)

BALANCES, June 30, 2019

Net income before noncontrolling interest

Share-based compensation

Employee stock purchase plan

Dividends paid ($0.30 per share)

BALANCES, September 30, 2019

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Nine months ended September 30,

Three months ended March 31,

OPERATING ACTIVITIES:

Net income $ 2,616 2,417

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Stock-based compensation 1,280 251

Gain on sale of real estate investments

Loss on sale of utility property

Allowance for equity funds used during construction ( 402 ) —

Changes in operating assets and liabilities:

14 unchanged sentences

Payments to retire utility plant, net of salvage ( 461 ) ( 271 )

Proceeds from sale of real estate investments

Proceeds from sale of utility property

NET CASH USED IN INVESTING ACTIVITIES ( 51,940 ) ( 42,469 )

4 unchanged sentences

Repayments of long-term borrowings ( 1,159 ) ( 1,171 )

Debt issuance and broker fee costs

Issuance of common stock, net of issuance costs 67,249 —

Dividends paid ( 9,724 ) ( 9,118 )

3 unchanged sentences

NET CASH PROVIDED BY FINANCING ACTIVITIES 23,805 44,869

NET CHANGE IN CASH AND CASH EQUIVALENTS

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 5,241 10,329

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 9,269 17,944

CASH, CASH EQUIVALENTS AND RESTRICTED CASH , END OF PERIOD 14,510 28,273

LESS RESTRICTED CASH, END OF PERIOD 3,104 —

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,406 28,273

Cash paid during the period for:

Interest $ 9,516 9,373

Income taxes 158 ( 50 )

Supplemental disclosure of non-cash activities:

1 unchanged sentence

Utility property installed by developers 202 3,076

Accrued additional common stock issuance costs 353 —

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

MARCH 31, 2021

(in thousands, except share and per share data)

2 unchanged sentences

The Notes to Consolidated Financial Statements in SJW Group’s 2020 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

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 condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

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 is effective for SJW Group’s Form 10-K for the year ending December 31, 2020.

Retrospective adoption is required and early adoption is permitted.

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

Recently Adopted Accounting Principles

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 our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”.

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the expected transition away from reference rates that are expected to be discontinued, such as LIBOR.

ASU 2020-04 was effective upon issuance.

Companies may elect to apply the guidance prospectively through December 31, 2022.

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

ASU 2019-12 was effective for SJW Group in the first quarter of fiscal 2021.

The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.

Impacts of Coronavirus (“COVID-19”)

The outbreak of COVID-19 had significant impact on the global economy.

Financial impacts experienced by SJW Group due to the COVID-19 pandemic include higher uncollectible accounts receivables and increased costs from COVID-19 related prevention activities.

The regulators in the states SJW Group operates have approved mechanisms to either record a regulatory asset or track in a memorandum account expenses and savings related to COVID-19.

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

doing business as Canyon Lake Water Company (“CLWSC”) have determined that future recovery of the account is probable and have recognized the related regulatory assets.

Probability criteria has not yet been met for Connecticut Water Service, Inc.

If a state regulator disagrees with the calculation of recorded account balances, we may be required to make adjustments that could adversely affect our results of operations.

SJW Group continues to monitor COVID-19 developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary.

Water sales are seasonal in nature and influenced by weather conditions.

1 unchanged sentence

Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period.

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

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Revenue from contracts with customers $ 112,238 105,136

2 unchanged sentences

Rental income 1,344 1,370

$ 114,785 115,754

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 period.

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 restricted common stock awards under SJW Group’s Long-Term Incentive Plan (as amended, the “Incentive Plan”), shares potentially issuable under the performance stock plans assumed through the business combination with Connecticut Water Service, Inc.

(“CTWS”), and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”).

For the three months ended September 30, 2020 and 2019 , 1,029 and 524 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

For the nine months ended September 30, 2020 and 2019 , 20,220 and 10,158 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

combination with CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”).

For the three months ended March 31, 2021 and 2020, 8,579 and 17,573 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

Utility Plant Depreciation

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

For the three months ended September 30, 2020 and 2019 , the amounts allocated to administrative and general expense were $ 658 and $ 663 , respectively.

For the nine months ended September 30, 2020 , and 2019 , the amounts allocated to administrative and general expense were $ 2,128 and $ 1,995 , respectively.

For the three months ended March 31, 2021, and 2020, the amounts allocated to administrative and general expense were $ 493 and $ 1,098 , respectively.

Real Estate Investments

The major components of real estate investments as of March 31, 2021, and December 31, 2020, are as follows:

2021 December 31,

Land $ 14,168 14,168

Buildings and improvements 44,112 43,961

Subtotal 58,280 58,129

accumulated depreciation and amortization 15,072 14,783

Total $ 43,208 43,346

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years.

Substantially all of the real estate investments relate to assets that are currently subject to operating leases.

Regulatory Rate Filings

California Regulatory Affairs

On March 17, 2020, the California Public Utilities Commission (“CPUC”) ordered its regulated water utilities to halt customer disconnection activities in connection with the COVID-19 pandemic.

On April 2, 2020, California 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 was effective for up to one year, or April 15, 2021, with the option to extend.

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

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

On April 1, 2021, SJWC filed Advice Letter 560 which includes such plan.

SJWC filed Advice Letter 556 on November 16, 2020, with the CPUC requesting authorization to increase its revenue requirement by 11,750 or 3.04 % in 2021 for the final escalation year authorized in our 2018 General Rate Case Decision 18-011-025 which established rates for 2019, 2020, and 2021.

This advice letter was approved on December 17, 2020, and new rates became effective January 1, 2021.

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 new rates, if approved, are expected to be effective in the first quarter of 2022.

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

Postponing the filing an additional year would have alleviated administrative processing costs on the utilities as well as the CPUC staff, and provided relief for both CPUC and utility resources already strained by numerous other proceedings and COVID-19.

The request was conditioned on no changes being made as a result of the current Water Cost of Capital Mechanism in place during the one-year deferment.

The request was denied on February 22, 2021.

SJWC expects to file its Cost of Capital application on May 3, 2021, as required by the CPUC.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

Connecticut Regulatory Affairs

On October 28, 2020, The Connecticut Water Company (“Connecticut Water”) filed a Water Infrastructure Conservation Adjustment (“WICA”) application representing an additional 1.11 % surcharge or approximately $ 956 increase in revenues, for a cumulative WICA surcharge of 6.94 %.

The Public Utilities Regulatory Authority of Connecticut (“PURA”) approved the requested increase with an April 1, 2021 effective date.

Additionally, on February 1, 2021, Connecticut Water filed its annual WICA reconciliation which called for a 0.09 % increase of the WICA surcharge.

On March 3, 2021, PURA approved the reconciliation, resulting in a net cumulative 7.03 % surcharge for Connecticut Water which became effective on customers’ bills on April 1, 2021.

As of March 31, 2021, WICA surcharges for Connecticut Water and its Avon Water division were 5.75 % and 9.31 %, respectively.

The Heritage Village Water (“HVWC”) division does not have an approved WICA surcharge.

On January 15, 2021, Connecticut Water filed an application with PURA to amend rates for its customers, including the divisions of Avon Water and HVWC.

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 filing proposes a new rate that would provide a 15 % reduction in water bills for income-eligible customers, which would be the first low-income rate for a Connecticut water utility, if approved.

The filing also includes a tiered block rate structure for residential water customers to promote water conservation.

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

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 decision in 2010.

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

Connecticut Water expects to receive a decision in the third quarter of 2021.

Long-term debt issuances for Connecticut Water require regulatory authorization which is typically obtained for a specified amount of debt to be issued during a specified period of time.

On March 16, 2021, Connecticut Water filed for PURA approval for the issuance of up to $ 100,000 of long-term borrowings in 2021.

Connecticut Water anticipates to use the proceeds to pay down line of credit borrowings and payoff maturing debt, as well as general working capital needs.

Connecticut Water expects to receive a decision from PURA within 60 days of its filing.

Texas Regulatory Affairs

On January 29, 2021, CLWSC submitted its Water Pass-Through Charge (“WPC”) true-up report for the Canyon Lake area water systems’ 2020 purchased water costs.

The WPC is the annual filing to change the monthly per thousand gallons charge for changes in purchased water costs since the last annual true-up report.

The 2020 WPC true-up report resulted in a reduction of the WPC usage rate from $ 0.95 dollars to $ 0.7 dollars per thousand gallons which became effective on March 1, 2021.

The Deer Creek Ranch water system has a separate WPC.

A WPC filing for Deer Creek Ranch is required only when there is a change in purchased water costs.

The WPC true-up report for this system was submitted December 1, 2020, which resulted in a decrease in the usage charge from $ 2.02 to $ 1.84 dollars per thousand gallons, and an increase in the monthly base charge of $ 0.51 dollars per residential account.

The Deer Creek Ranch WPC rate changes became effective February 25, 2021.

A disaster declaration was declared on February 12, 2021 by the Public Utilities Commission of Texas (“PUCT”) because of severe winter weather.

The PUCT issued orders under Docket No.

51812-6 which prohibited disconnections for non-payment, suspended the rules for late fees and interest, and allowed for estimated billing for the duration of the disaster declaration.

On March 5, 2021, the PUCT reinstituted the utilities’ ability to resume charging late fees.

Maine Regulatory Affairs

On June 17, 2020, the Main Public Utilities Commission (“MPUC”) approved a general rate increase for Skowhegan Division customers allowing $ 198 in additional revenue.

Per the MPUC decision, the increase will be implemented in two steps:

an initial 9.80 % rate increase effective June 15, 2020, and a 3.51 % rate increase effective July 1, 2021.

The combined rate increase is 13.31 %.

On November 23, 2020, The Maine Water Company (“Maine Water”) filed Water Infrastructure Surcharge (“WISC”) applications with the MPUC in five divisions requesting an increase between 1.1 % and 5 %, representing approximately $ 304 in additional revenues.

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

On March 10, 2021, Maine Water filed a general rate increase application for the Biddeford Saco Division seeking approximately $ 6,659 , or 77.5 %, in additional revenue.

The application has proposed a multi-year rate plan that is designed to

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

ease the transition to higher water bills over the period from July 2021 to July, 2023 .

The primary driver for the increase in rates is the support for a new drinking water treatment facility on the Saco River, a $ 60,000 project to replace the existing facility that is expected to be in service in the second quarter of 2022, and a decision on the requested revenue increase is expected in the second quarter of 2022, in alignment with the completion of the new water treatment facility.

Regulatory Assets, Net

Regulatory assets, net are comprised of the following as of March 31, 2021, and December 31, 2020:

March 31, 2021 December 31, 2020

Regulatory assets:

Income tax temporary differences, net $ 7,345 6,230

Postretirement pensions and other medical benefits 96,682 95,559

Business combinations debt premium, net 21,843 22,479

Balancing and memorandum accounts, net 28,137 25,463

Water Rate Adjustment (“WRA”) 174 323

Other, net 7,437 8,176

Total regulatory assets, net in Consolidated Balance Sheets 161,618 158,230

current regulatory asset, net 226 1,748

Total regulatory assets, net, less current portion $ 161,392 156,482

At March 31, 2021 and December 31, 2020, SJW Group’s regulatory assets, net not earning a return primarily included the postretirement pensions and other medical benefits unfunded amount, and business combinations debt premium, net.

The total amount of regulatory assets, net not earning a return at March 31, 2021 and December 31, 2020, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $ 119,745 and $ 119,236 , respectively.

Balancing and Memorandum Accounts

SJWC has established balancing accounts 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.

The Monterey Water Revenue Adjustment Mechanism (“WRAM”) tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

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

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

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

This reserve is based on an estimate of actual usage over the recovery period.

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

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

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

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

Three months ended March 31, 2021 Three months ended March 31, 2020

Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance

Revenue accounts:

Monterey WRAM $ 12,077 1,776 — 13,853 $ 7,015 1,970 ( 27 ) 8,958

2014-2017 WCMA 666 — — 666 708 — ( 43 ) 665

2012 General Rate Case true-up 752 — 1 753 752 — — 752

Cost of capital memorandum account ( 1,561 ) — — ( 1,561 ) ( 1,553 ) ( 5 ) — ( 1,558 )

Tax memorandum account 333 — — 333 ( 6,643 ) ( 3 ) 6,978 332

All others ( 2,224 ) ( 175 ) — ( 2,399 ) ( 2,219 ) ( 205 ) ( 67 ) ( 2,491 )

Total revenue accounts $ 10,043 1,601 1 11,645 $ ( 1,940 ) 1,757 6,841 6,658

Cost-recovery accounts:

Water supply costs 8,123 787 — 8,910 4,328 767 ( 34 ) 5,061

Pension 3,478 366 — 3,844 2,449 415 22 2,886

Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”)

1,108 — ( 81 ) 1,027 — — — —

COVID-19 Catastrophic Event Memorandum Account (“CEMA”) 2,266 — — 2,266 — — — —

All others 445 — — 445 446 1 ( 4 ) 443

Total cost-recovery accounts $ 15,420 1,153 ( 81 ) 16,492 $ 7,223 1,183 ( 16 ) 8,390

Total $ 25,463 2,754 ( 80 ) 28,137 $ 5,283 2,940 6,825 15,048

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.

Capitalization

On March 8, 2021, SJW Group entered into an underwriting agreement with J.P.

Morgan Securities LLC, as the representative of the several underwriters named therein (the “Underwriters”), which provided for the issuance and sale by SJW Group to the Underwriters 1,030,000 shares of our common stock, par value $ 0.001 per share, in an underwritten public offering (the “Offering”).

The shares in the Offering were sold at a public offering price of $ 59.00 per share.

SJW Group also granted the Underwriters an option to purchase up to 154,500 additional shares of common stock, which was exercised in full.

The Offering closed on March 11, 2021 and the offering of option shares closed on March 16, 2021.

SJW Group received net proceeds of approximately $ 58,122 from the Offering and received additional net proceeds of approximately $ 8,774 from the sale of the option shares, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group.

SJW Group used the proceeds from the offerings to pay down a bank line of credit agreement, dated as of June 1, 2016, between SJWC and JPMorgan Chase Bank, N.A.

and for general corporate purposes, which include, among other things, financing infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations and working capital.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

SJW Group accounts for stock-based compensation based on the grant date fair value of awards issued to employees in accordance with FASB ASC Topic 718 - “Compensation - Stock Compensation,” which requires the measurement and recognition of compensation expense based on the estimated fair value of stock-based payment awards.

1 unchanged sentence

The types of awards included in the Incentive Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards.

As of September 30, 2020 , 182,367 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 743,038 shares are available for award issuances under the Incentive Plan.

As of March 31, 2021, 187,170 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 688,365 shares are available for award issuances under the Incentive Plan.

In addition, shares are issued to employees under the company’s ESPP.

In connection with the merger with CTWS on October 9, 2019, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans:

In connection with the merger with Connecticut Water Service, Inc.

(“CTWS”) on October 9, 2019, 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 Plans”).

As of September 30, 2020 , approximately 66,430 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plans.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

As of March 31, 2021, approximately 55,761 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plans.

Stock compensation costs charged to income are recognized on a straight-line basis over the requisite service period.

A summary of compensation costs charged to income and proceeds from the exercise of any restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three and nine months ended September 30, 2020 , and 2019 .

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Adjustments to additional paid-in capital and common stock for:

Compensation costs charged to income:

ESPP $ 181 171

Restricted stock and deferred restricted stock 1,099 80

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ESPP proceeds $ 1,026 970

Stock, Restricted Stock and Deferred Restricted Stock

For the three months ended September 30, 2020 , and 2019 , SJW Group granted under the Incentive Plan 761 and 0 , respectively, three year service-based restricted stock awards with a weighted-average grant date fair value of $ 58.63 and $ 0 , respectively, per unit.

For the nine months ended September 30, 2020 , and 2019 , SJW Group granted under the Incentive Plan 43,474 and 26,565 , respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $ 63.87 and $ 51.42 , respectively, per unit.

Performance-based and market-based restricted stock awards granted for the three months ended September 30, 2020 , and 2019 were 58 and 0 target units, respectively, with a weighted-average grant date fair value of $ 62.95 and $ 0 respectively, per unit.

Performance-based and market-based restricted stock awards granted for the nine months ended September 30, 2020 , and 2019 were 24,777 and 30,401 target units, respectively, with a weighted-average grant date fair value of $ 65.02 and $ 60.46 , respectively, per unit.

Restricted Stock and Deferred Restricted Stock

For the three months ended March 31, 2021, and 2020, SJW Group granted under the Incentive Plan 33,701 and 28,367 , respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $ 64.22 and $ 65.89 , respectively, per unit.

Performance-based and market-based restricted stock awards granted for the three months ended March 31, 2021, and 2020 were 29,459 and 24,581 target units, respectively, with a weighted-average grant date fair value of $ 66.35 and $ 73.85 , respectively, per unit.

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 September 30, 2020 , the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $ 4,987 .

As of March 31, 2021, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $ 7,203 .

This cost is expected to be recognized over a weighted-average period of 2.20 years.

3 unchanged sentences

A total of 400,000 shares of common stock have been reserved for issuance under the ESPP.

SJW Group’s recorded expenses were $ 85 and $ 244 for the three and nine months ended September 30, 2020 , respectively, and $ 82 and $ 223 for the three and nine months ended September 30, 2019 , respectively, related to the ESPP.

The total unrecognized compensation costs related to the semi-annual offering period that ends January 29, 2021 , for the ESPP is approximately $ 116 .

This cost is expected to be recognized during the fourth quarter of 2020 and first quarter of 2021.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

March 31, 2021

(in thousands, except share and per share data)

Real Estate Investments

The major components of real estate investments as of September 30, 2020 , and December 31, 2019 , are as follows:

September 30,

Buildings and improvements

accumulated depreciation and amortization

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years .

Substantially all of the real estate investments relate to assets that are currently subject to operating leases.

On September 28, 2020, San Jose Water Company 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 .

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

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

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

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

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

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

Defined Benefit Plan

SJW Group’s recorded expenses were $ 88 and $ 86 for the three months ended March 31, 2021 and 2020, respectively, related to the ESPP.

The total unrecognized compensation costs related to the semi-annual offering period that ends July 30, 2021, for the ESPP is approximately $ 123 .

This cost is expected to be recognized during the second and third quarters of 2021.

Long-Term Liabilities and Bank Borrowings

SJW Group’s contractual obligations and commitments include senior notes, bank term loans, revenue bonds, state revolving fund loans, mortgages, and other obligations.

Water Utility Services have received advance deposit payments from its customers on certain construction projects and the refunds of the advance deposit payments constitute an obligation of the respective subsidiaries.

On March 2, 2021, Maine Water entered into a credit agreement with a commercial bank, pursuant to an existing master loan agreement under which the commercial bank issued Maine Water a promissory note on the same date with an aggregate principal amount of $ 17,000 and a fixed interest rate of 3.89 %, due March 1, 2041.

The notes are unsecured obligations of Maine Water.

Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year.

The promissory note contains customary representations and warranties.

Under the promissory note, Maine 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.

Proceeds from the borrowing were received on March 18, 2021.

As of March 31, 2021, Maine Water was in compliance with all financial, affirmative and negative covenants under this agreement.

Benefit Plans

SJW Group maintains noncontributory defined benefit pension plans for its eligible employees.

San Jose Water Company (“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.

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.

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 CTWS 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.

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.

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SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits other than pension plans.

The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three and nine months ended September 30, 2020 , and 2019 are as follows:

Three months ended September 30,

Nine months ended September 30,

The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three months ended March 31, 2021, and 2020 are as follows:

Three months ended March 31,

Service cost $ 2,735 2,443

Interest cost 2,580 2,904

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Amortization of prior service cost 12 741

Total $ 2,355 2,726

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

March 31, 2021

(in thousands, except share and per share data)

The following tables summarize the fair values of plan assets by major categories as of September 30, 2020 , and December 31, 2019 :

Fair Value Measurements at September 30, 2020

Asset Category

Cash and cash equivalents

Equity securities (a)

Fixed income (b)

______________________________________

Actively managed portfolio of equity securities with the goal to exceed the benchmark performance

Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance

Fair Value Measurements at December 31, 2019

Asset Category

Cash and cash equivalents

Equity securities (a)

Fixed income (b)

______________________________________

Actively managed portfolio of equity securities with the goal to exceed the benchmark performance

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 $ 9,043 to the pension plans and Social Welfare Plan.

For the three and nine months ended September 30, 2020 , SJW Group has made $ 9,360 contributions to such plans.

For the three months ended March 31, 2021, SJW Group has made no contributions to such plans.

For the three months ended March 31, 2021, income tax benefit was $ 896 .

Income tax expense for the three months ended March 31, 2020, was $ 438 .

The effective consolidated income tax rates were ( 52 )% and 15 % for the three months ended March 31, 2021, and 2020, respectively.

The lower effective rates for the three months ended March 31, 2021, were primarily due to excess tax benefits relating to share-based payment awards, state tax credits and other discrete tax items.

SJW Group had unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties of approximately $ 6,511 and $ 6,468 as of March 31, 2021 and December 31, 2020, respectively.

SJW Group does not expect its unrecognized tax benefits to change significantly within the next 12 months.

On March 11, 2021, the American Rescue Plan Act was signed into law.

SJW Group is currently evaluating the impact this legislation may have on the consolidated financial results.

Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2021, but require disclosure of their fair values:

cash and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of such instruments as of March 31, 2021, approximates their carrying value as reported on the condensed 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.

There have been no changes in valuation techniques during the three months ended March 31, 2021.

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 SJW Group’s long-term debt was approximately $ 1,486,355 and $ 1,570,727 as of March 31, 2021, and December 31, 2020, 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 book value of long-term debt was $ 1,379,313 and $ 1,363,821 as of March 31, 2021, and December 31, 2020, respectively.

The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts by major categories as of March 31, 2021, and December 31, 2020:

Fair Value Measurements at March 31, 2021

Asset Category Total Quoted

(Level 1) Significant

(Level 2) Significant

Money market funds $ 145 145 — —

Mutual funds 2,034 2,034 — —

Fixed income 830 830 — —

Total $ 3,009 3,009 — —

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

Fair Value Measurements at December 31, 2020

Asset Category Total Quoted

(Level 1) Significant

(Level 2) Significant

Money market funds $ 83 83 — —

Mutual funds 2,101 2,101 — —

Fixed income 830 830 — —

Total $ 3,014 3,014 — —

Segment and Non-Tariffed Business 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 Canyon Lake Water Service Company (“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, The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”), New England Water Utility Services, Inc.

(i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) 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) SJWNE LLC a holding company for CTWS and its subsidiaries, Connecticut Water, Maine Water, New England Water Utility Services, Inc.

(“NEWUS”) and Chester Realty, Inc.

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

In accordance with FASB ASC Topic 280 - “Segment Reporting,” 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 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 AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

The first segment is 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.”

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.

1 unchanged sentence

Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category.

For Three Months Ended September 30, 2020

Water Utility Services

Real Estate Services

Operating revenue

Operating expense

Operating income (loss)

Net income (loss)

Depreciation and amortization

Interest on long-term debt and other interest expense

Provision for income taxes

For Three Months Ended September 30, 2019

Water Utility Services

Real Estate Services

Operating revenue

Operating expense

Operating income (loss)

Net income (loss)

Depreciation and amortization

Interest on long-term debt and other interest expense

Provision for income taxes

For Nine Months Ended September 30, 2020

Water Utility Services

Real Estate Services

For Three Months Ended March 31, 2021

Water Utility Services Real Estate Services All Other (1) SJW Group

Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total

Operating revenue $ 111,396 2,045 1,344 — 111,396 3,389 114,785

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Interest on long-term debt and other interest expense 8,171 — — 5,268 8,171 5,268 13,439

Provision for income taxes

(Benefit) provision for income taxes ( 116 ) 182 109 ( 1,071 ) ( 116 ) ( 780 ) ( 896 )

Assets $ 3,218,536 7,625 44,763 61,218 3,218,536 113,606 3,332,142

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

March 31, 2021

(in thousands, except share and per share data)

For Nine Months Ended September 30, 2019

Water Utility Services

Real Estate Services

For Three Months Ended March 31, 2020

Water Utility Services Real Estate Services All Other (1) SJW Group

Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total

Operating revenue $ 111,367 3,017 1,370 — 111,367 4,387 115,754

4 unchanged sentences

Interest on long-term debt and other interest expense 8,174 — — 5,110 8,174 5,110 13,284

Provision for income taxes

* The “All Other” category for the nine months ended September 30, 2020 , includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis.

For the three months ended September 30, 2019 , the “All Other” category includes the accounts of SJW Group and Hydro Sub, Inc.

on a stand-alone basis.

For the three months ended September 30, 2019 , Hydro Sub, Inc.

had no recorded revenue or expenses and as of September 30, 2019 held no assets and incurred no liabilities.

was a subsidiary created solely to facilitate the merger with CTWS and was dissolved following the completion of merger in October 2019.

Long-Term Liabilities and Bank Borrowings

SJW Group’s contractual obligations and commitments include senior notes, bank term loans, revenue bonds, state revolving fund loans, mortgages, and other obligations.

Lines of Credit

On April 24, 2020, SJW Group and SJW Land Company entered into a Termination and Payoff agreement with JPMorgan Chase Bank, N.A.

as the lender (the “Lender”) to terminate the SJW Group and SJW Land Company $ 15,000 credit agreement.

On May 11, 2020, the SJWC entered into a Second Amendment (the “Second Amendment”) to SJWC’s existing $ 125,000 credit agreement, dated as of June 1, 2016, with the Lender, as amended by the First Amendment, dated January 12, 2018, (collectively, the “Existing SJWC Credit Agreement”), with the Lender.

The Second Amendment amends the existing SJWC Credit Agreement to, among other things, increase the total commitment by $ 15,000 , from $ 125,000 to $ 140,000 .

Also on May 11, 2020, SJWC entered into a $ 50,000 credit agreement (the “New SJWC Credit Agreement”) with the Lender.

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

The New SJWC Credit Agreement has a maturity date of November 11, 2020.

Borrowings under the New SJWC Credit Agreement bear interest at either the Alternate Base Rate (“ABR”) or the LIBOR (as defined in the New SJWC Credit Agreement) rate.

ABR borrowings (which are borrowings bearing interest at a rate determined by reference to the ABR) will bear interest at a rate per annum equal to (i) the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate on such day plus 0.5 % , and (c) the adjusted LIBOR rate for a one-month interest period on such day plus 1 % plus (ii) the Applicable Rate (as defined in the New SJWC Credit Agreement), which is determined based on a pricing grid that is dependent upon the credit rating of SJWC as determined by either S&P or Moody’s.

Eurodollar borrowings under the New SJWC Credit Agreement will bear interest at a rate per annum equal to (i) the adjusted LIBOR rate for the interest period in effect plus (ii) the Applicable Rate.

The New SJWC 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 New SJWC Credit Agreement also includes certain financial covenants that require SJWC to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio and to limit SJWC’s maximum consolidated cash balance.

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.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

Amendment amends the prior agreement to, among other things, increase the total commitment by $ 25,000 , from $ 15,000 to $ 40,000 and extend the maturity date to May 15, 2025.

Long-Term Debt

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

The notes are unsecured obligations of Connecticut Water.

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

The note purchase agreement contains customary representations and warranties.

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

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

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

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

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

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 were held as restricted cash by a trustee to be used for pre-approved projects primarily related to preliminary engineering and design work of a new water treatment plant in Maine Water’s Biddeford and Saco division.

Proceeds were held by a trustee for the bond until conditions were met.

On February 3, 2020, and March 11, 2020, the trustee released proceeds of $ 4,114 and $ 886 , respectively, from the bond.

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

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

The notes are unsecured obligations of the Company.

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

The note purchase agreement contains customary representations and warranties.

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

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

For the three and nine months ended September 30, 2020 , income tax expense was $ 4,578 and $ 9,226 , respectively.

Income tax expense for the three and nine months ended September 30, 2019 , was $ 2,565 and $ 8,802 , respectively.

The effective consolidated income tax rates were 15 % and 21 % for the three months ended September 30, 2020 and 2019 , respectively, and 16 % and 23 % for the nine months ended September 30, 2020 , and 2019 , respectively.

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

SJW Group had unrecognized tax benefits of approximately $ 6,594 and $ 3,834 as of September 30, 2020 and December 31, 2019 , respectively.

SJW Group does not expect its unrecognized tax benefits to change significantly within the next 12 months.

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

The CARES Act includes, among other items, measures concerning income taxes.

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

The Internal Revenue Service has issued guidance that will determine the final disposition of the excess deferred taxes and other impacts of the Tax Cuts and Jobs Act (H.R.

At this time, the company has applied a reasonable interpretation of the Tax Act and continues to work with the state utility regulators to determine the final methodology for disposition of excess deferred taxes.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of September 30, 2020 , but require disclosure of their fair values:

cash and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of such instruments as of September 30, 2020 , approximates their carrying value as reported on the condensed 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.

There have been no changes in valuation techniques during the three and nine months ended September 30, 2020 .

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 pension plan assets is discussed in Note 4.

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 “Investments” on SJW Group’s consolidated balance sheets.

As of September 30, 2020 , the value of the company owned life insurance was $ 7,497 of which $ 3,913 was related to assets to fund CTWS’s supplemental retirement plan agreements.

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

In addition to life insurance contracts, CTWS’s supplemental retirement plan agreements are also funded with a Rabbi Trust.

Fair Value Measurements at September 30, 2020

Asset Category

Money market funds

Fair Value Measurements at December 31, 2019

Asset Category

Money market funds

The fair value of SJW Group’s long-term debt was approximately $ 1,575,067 and $ 1,396,205 as of September 30, 2020 , and December 31, 2019 , 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 book value of the long-term debt was $ 1,379,555 and $ 1,305,869 as of September 30, 2020 , and December 31, 2019 , respectively.

The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

Regulatory Rate Filings

California Regulatory Affairs

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

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

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

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

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

On March 4, 2019, the CPUC suspended this proceeding due to SJW Group’s announcement of its intention to file a new merger approval application with the PURA.

On April 3, 2019, SJW Group and CTWS jointly filed a new merger application with PURA.

After securing the required approvals from both PURA and the Maine Public Utilities Commission (“MPUC”), SJW Group announced the close of the merger on October 9, 2019, and notified the CPUC accordingly.

On August 31, 2020, the CPUC issued Decision 20-08-036 dismissing the OII and closing the proceeding.

The OII is officially concluded as no application for rehearing was filed within 30 days of decision issuance.

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

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

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

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

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

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

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

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

The OII also identifies the CPUC’s authority to consider imposing penalties on SJWC in amounts ranging from $ 0.5 to $ 50 per offense, per day.

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

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

The Agreement was subject to final approval by the CPUC.

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

A final CPUC decision approving the Agreement and dismissing the appeal was approved on February 27, 2020, and concluded this proceeding.

Advice Letter No.

545 was filed on March 13, 2020, requesting authorization to provide refunds to customers.

For a typical residential customer with a 3/4-inch meter, the one-time refund was $ 5.52 dollars .

This advice letter was approved effective April 12, 2020, and SJWC completed issuing refunds in mid-June 2020.

On June 19, 2019, the CPUC issued its final decision resolving the remaining issues in SJWC’s general rate case for 2019.

Decision 19-06-010 denied the establishment of a WRAM/SRM and authorized the recovery of the Hydro Generation Research, Development and Demonstration Memorandum Account balance as of September 30, 2016.

SJWC filed Advice Letter No.

534 on August 1, 2019, to recover the $ 1,243 Hydro Generation Memorandum Account balance as of September 30, 2017, via a surcharge over a three-year period.

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

SJWC filed to correct the record and received the CPUC’s decision on April 10, 2020.

Advice Letter 548 was filed on April 24, 2020, requesting recovery of $ 1,224 via a 36-month surcharge.

The adjustment in the memorandum account balance reflected project costs incurred after September 30, 2016, which are not allowable per Decision 19-06-010.

Per Resolution W-5228 approved on August 27, 2020 by the CPUC, further adjustments were made to the memorandum account balance resulting in an approved recovery of $ 1,219 which was recognized in the company’s regulatory assets as of September 30, 2020 .

The recovery was approved in Advice Letter 548A effective August 31, 2020.

SJWC filed Advice Letter No.

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

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

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

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

one-time refund will be $ 20.84 dollars per customer.

This advice letter was approved effective January 21, 2020, and refunds to customers began and completed in January 2020.

SJWC filed Advice Letter No.

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

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

On December 6, 2019, SJWC filed Application No.

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

The application seeks revenue increases of $ 2,315 or 0.61 % in 2021, $ 3,960 or 1.04 % in 2022, $ 2,510 or 0.65 % in 2023, and $ 341 or 0.09 % in 2024 based on current rates in effect.

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

On January 22, 2020, SJWC, along with 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 16, 2020, the CPUC ordered its regulated water utilities to halt customer disconnection activities in connection with the COVID-19 pandemic.

On April 16, 2020, the CPUC issued Executive Order N-42-20 suspending customer disconnection activities.

The CPUC’s and Governor’s orders will remain in effect until further notice.

This resolution is effective for up to one year, or April 16, 2021, with the option to extend.

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, anticipated increase 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.

SJWC filed Advice Letter No.

552 with the CPUC requesting authorization to establish a Polyfluoroalkyl Substances Memorandum Account (“PFAS MA”) on August 18, 2020.

The advice letter was approved retroactive to March 1, 2019.

SJWC will track in this account incremental expenses related to PFAS monitoring, sampling, and customer outreach activities for potential future recovery.

Connecticut Regulatory Affairs

As of September 30, 2020 , Water Infrastructure Conservation Adjustment (“WICA”) surcharges for Connecticut Water and Avon Water were 5.75 % and 9.31 % , respectively.

HVWC did not have an approved WICA surcharge.

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

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

On March 25, 2020, PURA approved a net cumulative 5.75 % surcharge for Connecticut Water 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 6.85 % which is scheduled to become effective January 1, 2021.

On March 3, 2020, Connecticut Water filed an application, Docket No.

20-03-04, with PURA to merge Avon Water and HVWC with and into Connecticut Water.

The application was made to streamline borrowings, regulatory filings and internal administrative tasks associated with maintaining separate corporate entities and was approved by PURA on September 16, 2020.

The merger became effective on September 30, 2020 .

After the approval and prior to the completion of the merger, the outstanding debt balances held at Avon Water and HVWC were repaid in full.

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

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

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 may resume standard collection practices until or unless there is further action by PURA.

In the same docket, PURA further directed 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 may establish 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.

Legislation was recently passed in Connecticut that made changes to the PURA statutes for utility regulation.

The most notable changes that affect water companies were adjustments to extend the timelines for adjudication of various regulatory proceedings.

In particular, the following proceeding timelines were increased:

general rate case from 150 days with 30 day extension (180 days maximum) to 200 days, change in control from 120 days with 30 day extension (150 days maximum) to 200 days with an opportunity for a 30 day extension (230 days maximum), and financing from 30 days to 60 days.

In addition, there is a new requirement that any future change in control or merger approvals would require the composition of the board of directors of the holding company to include a proportional percentage of Connecticut-based directors.

The law also authorizes, but does not require, the PURA to consider adoption of a framework for performance-based regulation of private water companies.

Texas Regulatory Affairs

As required, CLWSC submitted on January 27, 2020, its Water Pass-Through Charge (“WPC”) true-up report for the Canyon Lake area systems 2019 purchased water costs.

The WPC is the annual filing to change the component of CLWSC’s water rates for changes in purchased water costs since the last annual true-up report.

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

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

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

The WPC filings for Deer Creek Ranch and the Canyon Lake area were approved by the Public Utilities Commission of Texas (“PUCT”) and a new tariff with the WPC rates was issued in May 2020.

In connection with the disaster declaration in Texas, the PUCT issued Order No.

50664-106 to mitigate the impact of the COVID-19 pandemic on residential water utility customers.

CLWSC responded to these orders by stopping disconnections for nonpayment of utility bills, and not charging fees for late payment.

The PUCT allowed this order to expire on June 13, 2020.

The PUCT also issued Accounting Orders under No.

50664-108, which instructs utilities to record the incremental costs and lost revenues from the COVID-19 pandemic in a regulatory tracking account for recovery in future rates.

These amounts will be considered by the PUCT for recovery in each utility’s next rate application.

Maine Regulatory Affairs

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

On June 17, 2020, the MPUC approved a general rate increase for Skowhegan Division customers allowing $ 198 in additional revenue.

Per the MPUC decision, the increase will be implemented in two steps:

an initial 9.80 % rate increase effective June 15, 2020, and a 3.51 % rate increase effective July 1, 2021.

The combined rate increase is 13.31 % .

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 applications were approved on February 26, 2020, and the surcharges became 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.

MWC is processing customer notices as required with the intention of resuming utility disconnections in November, 2020.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

On October 9, 2020, Maine Water filed a request for approval of a special rate contract between Maine Water and the Kennebec Water District (“KWD”).

Maine Water has purchased water from KWD under a special rate contract approved by the MPUC since November 2000.

The filing seeks to continue the existing relationship between the two water utilities and requests extension of the expiring 20 year agreement for an additional 20 years.

Balancing and Memorandum Accounts

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

This reserve is based on an estimate of actual usage over the recovery period.

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

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

CPUC approved Advice Letter No.

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

In 2016, the Company determined recovery at the time was not probable and recorded a reserve for the costs related to the project.

Advice Letter No.

548A allowed recovery of $ 1,219 which was recognized as a regulatory asset for the three and nine months ended September 30, 2020 , and the reserve previously recognized was reversed.

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

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

532 and no longer approved the tracking of WCMA balances.

As a result of conflicting CPUC proposed decisions issued in October 2019 on recovery of the 2018 WCMA balance, SJWC determined that it no longer met the probability criteria for recognition under ASC Topic 980-605-25 and fully reserved the 2019 and 2018 WCMA balances as of September 30, 2019.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

Three months ended September 30, 2020

Three months ended September 30, 2019

Beginning Balance

Regulatory Asset Increase (Decrease)

Refunds (Collections) Adjustments

Ending Balance

Beginning Balance

Regulatory Asset Increase (Decrease)

Refunds (Collections) Adjustments

Ending Balance

Revenue accounts:

Monterey WRAM

2014-2017 WCMA

2012 General Rate Case true-up

Cost of capital memorandum account

Tax memorandum account

Total revenue accounts

Cost-recovery accounts:

Water supply costs

Total cost-recovery accounts

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Beginning Balance

Regulatory Asset Increase (Decrease)

Refunds (Collections) Adjustments

Ending Balance

Beginning Balance

Regulatory Asset Increase (Decrease)

Refunds (Collections) Adjustments

Ending Balance

Revenue accounts:

Monterey WRAM

2014-2017 WCMA

2012 General Rate Case true-up

Cost of capital memorandum account

Tax memorandum account

Total revenue accounts

Cost-recovery accounts:

Water supply costs

Total cost-recovery accounts

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

As of September 30, 2020 , the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that have not been recorded into the financial statements was a net under-collection of $ 2,245 .

Regulatory Assets

Regulatory assets are comprised of the following as of September 30, 2020 , and December 31, 2019 :

September 30, 2020

December 31, 2019

Regulatory assets:

Income tax temporary differences, net

Postretirement pensions and other medical benefits

Business combinations debt premium, net

Balancing and memorandum accounts, net

Total regulatory assets, net in Consolidated Balance Sheets

current regulatory asset, net

Total regulatory assets, net, less current portion

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.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

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 September 30, 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

Nonutility plant

Current assets

Regulatory assets and deferred charges, less current portion

Other intangible assets

Total assets acquired

Liabilities assumed:

Long-term debt

Current liabilities, including maturities of long-term debt

Deferred income taxes

Postretirement benefit plans

Contributions in aid of construction and construction advances

Other long-term liabilities

Total liabilities assumed

Assumed equity

Provision (benefit) for income taxes 1,202 470 132 ( 1,366 ) 1,202 ( 764 ) 438

Assets $ 3,054,474 9,170 46,436 64,218 3,054,474 119,824 3,174,298

____________________

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 $ 1,222 during the third quarter of 2020.

There was no impact associated with the measurement period adjustments to the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2020 .

Goodwill is not amortized but is tested for impairment annually, as of the first day of the fourth quarter, 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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2020

(in thousands, except share and per share data)

(1) The “All Other” category for the three months ended March 31, 2021 and March 31, 2020, includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis.

(2) As of March 31, 2021 and December 31, 2021, 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.

Subsequent Events

On April 23, 2021, SJWC paid off its existing $ 140,000 line of credit agreement which was set to mature on June 1, 2021, and entered into a new $ 140,000 credit agreement (“SJWC Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”).

The SJWC Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $ 15,000 .

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

The new SJWC Credit Agreement has a maturity date of December 31, 2023.

The SJWC Credit Agreement contains customary representations, warranties and events of default, as well as a restrictive covenants customary for facilities of this type.

The SJWC Credit Agreement also includes certain financial covenants that requires the Company to maintain a maximum funded debt to capitalization ratio.

Also on April 23, 2021, SJW Group, as guarantor, and SJWTX paid off its existing $ 5,000 line of credit agreement which was set to mature on June 1, 2021, and entered into a new $ 5,000 credit agreement (“SJWTX Credit Agreement”) with the Lender.

The SJWTX Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $ 1,000 .

The new SJWTX Credit Agreement has a maturity date of December 31, 2023.

Legal Proceedings

2 unchanged sentences

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What changed 10-Q

Item 1. Financial Statements