What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-11-06 · 137 added, 161 removed, 186 unchanged (62% of the section changed)

10 unchanged sentences

The principal business of SJWC consists of the production, purchase, storage, purification, distribution, wholesale, and retail sale of water.

SJWC provides water service to customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California.

SJWC provides water service to customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, and Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California.

SJWC distributes water to customers in accordance with accepted water utility methods which include pumping from storage and gravity feed from high elevation reservoirs.

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

During third quarter, Connecticut Water completed the merger of The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) with and into Connecticut Water, with Connecticut Water as the surviving entity.

HVWC and Avon Water were wholly owned subsidiaries of CTWS prior to the merger into Connecticut Water.

During the third quarter of 2020, Connecticut Water completed the merger of The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) with and into Connecticut Water, with Connecticut Water as the surviving entity.

HVWC and Avon Water were previously wholly owned subsidiaries of CTWS prior to merger into Connecticut Water.

The purpose of the merger was to streamline borrowings, regulatory filings and internal administrative tasks associated with maintaining and operating separate corporate entities.

1 unchanged sentence

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

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

CTWS also offers Linebacker, an optional service line protection program to eligible residential customers through NEWUS in Connecticut and Maine Water in Maine.

Linebacker covers the cost of repairs for leaking or broken water service lines which provide drinking water to a customer’s home.

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

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

SJW Land Company owned the following real properties during the nine months ended September 30, 2020 :

% for Nine months ended

September 30, 2020

SJW Land Company owned the following real properties during the three months ended March 31, 2021:

% for Three months ended

March 31, 2021

of SJW Land Company

Square Footage

Warehouse building

Knoxville, Tennessee

Commercial building

Knoxville, Tennessee

Undeveloped land and parking lot

Knoxville, Tennessee

Undeveloped land

San Jose, California

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

owns less than 100 acres of undeveloped land in the State of Connecticut.

Description Location Acreage Square Footage Revenue Expense

Warehouse building Knoxville, Tennessee 30 361,500 47 % 44 %

Commercial building Knoxville, Tennessee 15 135,000 53 % 56 %

Undeveloped land and parking lot Knoxville, Tennessee 10 N/A N/A N/A

Undeveloped land San Jose, California 103 N/A N/A N/A

As of March 31, 2021, Chester Realty, Inc.

owns 23 acres of undeveloped land and a commercial building in the State of Connecticut.

Business Strategy for Water Utility Services:

3 unchanged sentences

(3) Out-of-region water and utility related services.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets, including the CTWS merger which closed on October 9, 2019.

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

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

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Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment.

Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our

internal controls.

Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations,

reduce our operating margins and adversely affect our internal controls.

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

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Our significant accounting policies are described in our notes to the 2020 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Policies and New Accounting Pronouncements:

See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting policies and new accounting pronouncements for the nine months ended September 30, 2020 .

Recently Adopted Accounting Policies:

See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting policies for the three months ended March 31, 2021.

Results of Operations:

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

SJW Group’s consolidated net income for the three months ended March 31, 2021, was $2,616, an increase of $199, or approximately 8%, from $2,417 for the same period in 2020.

The change in net income for the three months ended March 31, 2021, was primarily due to a decrease in revenue of $969 or 1% from a decrease in customer usage and the impact of the February ice storm in the Texas service area, partially offset by an increase in cumulative water rates authorized by our California 2019 General Rate Case and a Water Infrastructure Surcharge authorized in Maine, and customer growth in Texas.

In addition, depreciation increased due to assets placed in service in 2020 and a decrease in available low cost surface water due to dry weather conditions in our California service area.

The lower revenue and increased expenses were offset by income tax expense as a result of lower pre-tax income and income tax benefits relating to share-based payments awards, state tax credits and other tax benefits.

Coronavirus (“COVID-19”) Update

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

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

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

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

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

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

(iv) increasing the number of employees telecommuting;

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

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

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

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

SJW Group’s consolidated net income for the three months ended September 30, 2020 , was $26,093 , an increase of $16,615, or approximately 175%, from $9,478 for the same period in 2019.

SJW Group’s consolidated net income for the nine months ended September 30, 2020 , was $48,231 , an increase of $19,342, or approximately 67%, from $28,889 for the same period in 2019.

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

net income from CTWS as a result of the merger and an increase in revenue at SJWC due to increased customer usage, and cumulative water rate increases, partially offset by the net recognition of certain balancing and memorandum accounts.

In addition, a reserve for the 2018 and 2019 Water Conservation Memorandum Account balances was recorded in prior year as we determined we no longer met the requirements for revenue recognition.

The net increases in revenue was partially offset by an increase in production expenses at SJWC due to a decrease in the use of available surface water supplies, an increase in customer usage, an increase in per unit costs for purchased water, groundwater extraction and energy charges, an increase in interest on long-term debt due to the debt issued to acquire SJWNE LLC, issuance of SJWC’s Series M Note and Connecticut Water’s Senior Note, and an increase in depreciation expense due to assets placed in service in 2019.

The outbreak of COVID-19 has 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.

SJWC and 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 CTWS.

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.

Operating Revenue

Operating Revenue by Segment

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Water Utility Services $ 113,441 114,384

Real Estate Services 1,344 1,370

$ 114,785 115,754

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

Three months ended

September 30,

Nine months ended

September 30,

Increase/(decrease)

Water Utility Services:

Consumption changes

Consumption changes (including unbilled utility revenue) $ (2,792) (2) %

Increase in customers 446 — %

Rate increases 2,841 2 %

OII customer rate credits

Winter storm customer credits (690) (1) %

Balancing and memorandum accounts (635) — %

Water Conservation Memorandum Account (“WCMA”)

Other (113) — %

Real Estate Services (26) — %

$ (969) (1) %

Operating Expense

Operating Expense by Segment

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Water Utility Services $ 99,847 97,378

Real Estate Services 881 831

All Other 978 2,118

$ 101,706 100,327

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

Three months ended

September 30,

Nine months ended

September 30,

Increase/(decrease)

Water production expenses:

1 unchanged sentence

Change in usage and new customers (92) — %

Purchased water and groundwater extraction charge and energy price increase

Purchased water and groundwater extraction charge and energy price change, net (809) (1) %

Balancing and memorandum accounts cost recovery (19) — %

2 unchanged sentences

Balance and memorandum account cost recovery 49 — %

Maintenance 179 — %

Property taxes and other non-income taxes 52 — %

2 unchanged sentences

Sources of Water Supply

SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 2051.

SJWC’s water supply consists of imported water purchased from the Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 2051, groundwater from wells, surface water from watershed run-off and diversion, reclaimed and water.

Surface water is the least expensive source of water.

Changes and variations in quantities from each of these sources affect the overall mix of the water supply, thereby affecting the cost of the water supply.

Changes and variations in quantities from each of these sources affect the overall mix of the water supply, thereby affecting water supply cost.

In addition, the water rate for purchased water and the groundwater extraction charge may be increased by Valley Water at any time.

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

On October 1, 2020 , Valley Water’s 10 reservoirs were approximately 25% of total capacity with 13,679 million gallons of water in storage, which is 55% of the twenty-year average for this date.

Valley Water continues to drain their largest reservoir, Anderson, in preparation for the 8-10 year Anderson Dam Seismic Retrofit Project.

As reported by the Valley Water, there has been no rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2020.

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

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

On April 1, 2021, Valley Water’s 10 reservoirs were at approximately 17% of total capacity with 9,037 million gallons of water in storage, which is 26% of the twenty-year average for this date.

Valley Water’s largest reservoir, Anderson, remains drained in preparation for the 8-10 year Anderson Dam Seismic Retrofit Project.

As reported by Valley Water, there was 5.79 inches of rainfall, or 46% of average to date, in San Jose during the current annual rainfall season that commenced on July 1, 2020.

Rainfall at SJWC’s Lake Elsman was measured at 21.62 inches during the current rainfall season.

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

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

Valley Water also reported that the managed groundwater recharge from January to September in the Santa Clara Plain was 81% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 21 feet lower than a year ago in September and 14 feet lower than the five-year average.

As of April 1, 2021, Valley Water reported that allocations from the state and federal water project are approximately 5% and 55%, respectively, of amounts requested in 2021.

Valley Water also reported that the managed groundwater recharge from January to March in the Santa Clara Plain was 96% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 18 feet lower than the five-year average.

According to Valley Water, the projected total groundwater storage at the end of 2021 is expected to fall within the normal stage of the Valley Water’s Water Shortage Contingency Plan.

On October 1, 2020 , SJWC’s Lake Elsman contained 438 million gallons of water, of which approximately 288 million gallons can be utilized for treatment in water production.

On April 1, 2021, SJWC’s Lake Elsman contained 324 million gallons of water, of which approximately 174 million gallons can be utilized for treatment in water production.

This Lake Elsman volume represents 19% of the five-year average which reflects the low winter rainfall we experienced in our Santa Cruz mountains watershed.

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

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

Production from the Montevina Surface Water Treatment Plant through the third quarter was 968 million gallons, which is 48% of the five-year average.

Production at SJWC’s smaller Saratoga Water Treatment Plant through the third quarter was 111 million gallons, which is 41% of the five-year average.

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

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

Production from the Montevina Surface Water Treatment Plant through the first quarter was 224 million gallons, which is 36% of the five-year average.

SJWC will be temporarily taking the Montevina Surface Water Treatment Plant offline in 2021 until hydrologic conditions in the watershed improve.

During the first quarter, there was no water production at SJWC’s smaller Saratoga Water Treatment Plant.

The Saratoga Water Treatment Plant was unable to be placed into service during the first quarter due to lack of run-off from Saratoga Creek and remains offline.

SJWC believes that its various water supply sources will be sufficient to meet customer demand through the remainder of 2021.

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

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

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

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

Water sources vary among the individual systems, but overall approximately 80% of the total dependable yield comes from surface water supplies and 20% from wells.

Water sources vary among the individual systems, but overall approximately 72% of the total dependable yield comes from wells and 28% from surface water supplies.

CLWSC’s water supply consists of groundwater from wells and purchased treated and untreated raw water from local water agencies.

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

CLWSC implemented Stage 1 of its Drought Management Plan on July 13, 2020 as service area conditions shifted to an Abnormally Dry state, precipitation was sparse and demand surged.

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

On October 9, 2020, CLWSC exited Stage 1 as temperatures cooled and September saw some significant rain events.

CLWSC has recently updated its Drought Management Plan to better account for both climatic conditions within its service area and increased demand due to new development.

These updates have received preliminary approval by the Texas Commission for Environmental Quality.

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

CLWSC has recently updated its Drought Management Plan to better account for both climatic conditions within its service area and increased demand due to new developments.

The updated Drought Management Plans has been approved by the Texas Commission for Environmental Quality.

CLWSC believes that by following the Drought Management Plan water supply sources will be sufficient to meet customer demand through the remainder of 2021.

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

These systems, in total, consists of approximately 500 miles of water main and reservoir storage capacity of 7.0 billion gallons.

These systems, in total, consist of approximately 600 miles of water main and reservoir storage capacity of 7.0 billion gallons.

The dependable yield from our 14 active wells and 7 surface water supplies is approximately 120 million gallons per day.

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

Three months ended September 30,

% of Total Change

Nine months ended September 30,

% of Total Change

Three months ended March 31, Increase/

(decrease) % of Total Change

Purchased water 3,646 3,635 11 — %

Groundwater 4,603 4,345 258 3 %

Surface water 1,833 2,051 (218) (2) %

Reclaimed water 85 86 (1) — %

10,167 10,117 50 1 %

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

SJWC’s unaccounted-for water on a 12-month-to-date basis for September 30, 2020 , and 2019 approximated 6.6% and 7.7%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for March 31, 2021, and 2020 approximated 7.2% and 8.0%, respectively, as a percentage of total production.

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

CTWS’s unaccounted-for water on an acquisition-to-date basis for the period ending September 30, 2020 was approximately 16.9% as a percentage of total production.

CTWS’s unaccounted-for water on a 12-month-to-date basis for March 31, 2021 was approximately 16.2% as a percentage of total production.

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

Water Production Expenses

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

The change in water production expenses for the three months ended March 31, 2021, compared to the same period in 2020, was primarily attributable to changes in average per unit costs for purchased water, groundwater extraction and energy charges, offset by a decrease in available surface water for SJWC.

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

Other Operating Expenses

Operating expenses, excluding water production expenses, increased $13,734 for the three months ended September 30, 2020 , compared to the same period in 2019 .

The increase was primarily attributable to an increase of $17,437 due to the new SJWNE LLC subsidiary operations, and an increase in depreciation and amortization expense due to increases in utility plant, partially offset by a decrease in merger related expenses due to the completion of our merger with CTWS and a decrease in integration costs that were recognized as administrative and general expenses.

Operating expenses, excluding water production expenses, increased $45,891 for the nine months ended September 30, 2020 , compared to the same period in 2019 .

The increase was primarily attributable to an increase of $47,596 due to the new SJWNE LLC subsidiary operations, and an increase in depreciation and amortization expense due to increases in utility plant, partially offset by a decrease in merger related expenses due to the completion of our merger with CTWS.

Operating expenses, excluding water production expenses, increased $1,564 for the three months ended March 31, 2021, compared to the same period in 2020.

The increase was primarily attributable to an increase of $2,056 in depreciation and amortization expense due to increases in utility plant, partially offset by a decrease in administrative and general expenses.

Other (Expense) Income

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

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

For the three months ended March 31, 2021, compared to the same period in 2020, the change in other (expense) income was primarily due to a decrease in pension non-service cost, and an increase in income generated from the return on retirement plan assets and contracted services.

Provision for Income Taxes

For the three and nine months ended September 30, 2020 , compared to the same period in 2019 , income tax expense increased $2,013 and $424, respectively.

The increase in income tax expense was primarily due to a higher pre-tax income which was offset by the increase in flow-through tax benefits.

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.

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.

For the three months ended March 31, 2021, compared to the same period in 2020, income tax expense decreased $1,334.

The decrease in income tax expense was primarily due to lower pre-tax income, state tax credits and other income tax benefits.

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

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

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.

Regulation and Rates

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Cash Flow from Operating Activities

During the nine months ended September 30, 2020 , SJW Group generated cash flows from operations of approximately $70,600 , compared to $91,300 for the same period in 2019 .

During the three months ended March 31, 2021, SJW Group generated cash flows from operations of approximately $33,400, compared to $7,900 for the same period in 2020.

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

Cash flow from operations decreased by approximately $20,700.

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

(1) decrease in collection in balancing and memorandum accounts of $36,900, (2) a decrease in collections from accounts receivable and accrued unbilled utility revenue of $13,900 due to higher unbilled revenue balances and higher accounts receivable balances from the merger with SJWNE and slower collections from customers during the COVID-19 pandemic, (3) payments of amounts previously invoiced and accrued, which increased by $6,700, and (4) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (5) general working capital and net income, adjusted for non-cash items which increased by $39,500, and (6) an increase of payments for accrued interest by $2,300 as result of new debt acquired in 2019 and 2020.

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

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

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

Cash flow from operations increased by approximately $25,400.

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

(1) increase in net changes in the balancing and memorandum accounts of $8,400, (2) payments of amounts previously invoiced and accrued including accrued productions costs, increased by $8,300, (3) an up-front payment of $5,000 in the prior year for renewal of the Cupertino service concession agreement that did not recur in the current year, (4) an increase in collections from accounts receivable and accrued unbilled utility revenue of $2,200, and (5) general working capital and net income, adjusted for non-cash items increased $1,500.

As of March 31, 2021, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchanged from March 31, 2020.

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

Some of the orders have been lifted and the anticipation is that the remaining orders will be lifted in 2021.

Once lifted, management believes that the collection rate for its accounts receivables will increase back up to pre-pandemic levels.

The financial impact of current past due accounts are being tracked for recovery through the rate-making process.

There is no guarantee that such recovery will be approved by the respective state regulatory utility commissions.

Cash Flow from Investing Activities

During the nine months ended September 30, 2020 , SJW Group used cash flows in investing activities of approximately $141,200 , compared to $114,800 for the same period in 2019 .

During the three months ended March 31, 2021, SJW Group used cash flows in investing activities of approximately $51,900, compared to $42,500 for the same period in 2020.

SJW Group used approximately:

(1) $130,400 of cash for

company-funded capital expenditures, (2) $9,600 for developer-funded capital expenditures, and (3) $1,900 for utility plant retirements.

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

As of September 30, 2020 , approximately $130,400 or 59% of the $221,800 has been spent.

Certain capital improvement projects for Water Utility Services have been delayed due to COVID-19 pandemic in 2020 compared to normal activities prior to the pandemic.

As a result, we currently expect to add between $195,000 and $200,000 in capital expenditures in 2020.

(1) $46,700 of cash for company-funded capital expenditures, (2) $4,700 for developer-funded capital expenditures, and (3) $500 for utility plant retirements.

Water Utility Services’ budgeted capital expenditures for 2021, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $238,800.

As of March 31, 2021, approximately $46,700 or 20% of the $238,800 has been invested.

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

Over the next five years, Water Utility Services expect to incur approximately $1,400,000 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems.

A significant portion of this amount is subject to future CPUC, PURA, PUCT or MPUC approval.

A significant portion of this amount is subject to future respective state regulatory utility commissions’ approval.

Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return.

3 unchanged sentences

Expenditure levels for renewal and modernization will occur as the components reach the end of their useful lives.

In most cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services and increased regulation.

cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services and increased regulation.

Cash Flow from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 , increased by approximately $45,400 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings on our lines of credit of $46,600, and (2) $5,900 increase in net cash receipts from advances and contributions in aid of construction, offset by (3) a decrease in net proceeds from new long-term debt of $4,600, and (4) $1,800 in dividends to shareholders.

Net cash provided by financing activities for the three months ended March 31, 2021, decreased by approximately $21,100 from the same period in the prior year, primarily as a result of (1) a decrease in net borrowings and repayments on our lines of credit of $67,700, (2) a decrease in net proceeds from new long-term debt of $18,000, (3) $1,800 decrease in net cash receipts from advances and contributions in aid of construction, offset by (3) an increase in net proceeds from our recent common stock equity offering of $67,200.

Sources of Capital:

1 unchanged sentence

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

Long-term Financing Agreements

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

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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.

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

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

The notes are unsecured obligations of the Company.

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

The note purchase agreement contains customary representations and warranties.

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

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

SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions at March 31, 2021.

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

As of September 30, 2020 , SJWC’s funded debt and equity were approximately 47% and 53%, respectively.

As of March 31, 2021, SJWC’s funded debt and equity were approximately 46% and 54%, respectively.

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

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

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

SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions at March 31, 2021.

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

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

As of March 31, 2021, SJWC was in compliance with all such covenants.

CTWS has outstanding term loans with a commercial bank, and under the master loan agreement CTWS is required to comply with certain financial ratio and customary affirmative and negative 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 September 30, 2020 , CTWS was in compliance with all covenants under the master loan agreement.

As of March 31, 2021, CTWS was in compliance with all covenants under the master loan agreement.

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

Connecticut Water is required to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1.

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

As of March 31, 2021, Connecticut Water was in compliance with all covenants under its master loan agreement.

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

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

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

As of March 31, 2021, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

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

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

As of September 30, 2020 , Connecticut Water was in compliance with all financial ratio and customary affirmative and negative covenants under this agreement.

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

The notes are unsecured obligations of Connecticut Water.

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 senior note agreements also require 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 March 31, 2021, Connecticut Water was in compliance with all financial ratio and customary affirmative and negative covenants under this agreement.

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

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(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 September 30, 2020 , SJWTX, Inc.

As of March 31, 2021, SJWTX, Inc.

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

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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% and an interest coverage ratio of no less than 3 to 1, required compliance with other various financial covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

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

As of March 31, 2021, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

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

Maine Water is required to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1.

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

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

The loan was secured by real property owned by HVWC.

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

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

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

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

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

At September 30, 2020 , SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $184,197 .

As of March 31, 2021, Maine Water was in compliance with all covenants under its master loan agreement.

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.

Short-term Financing Agreements

As of March 31, 2021, SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $260,000, of which $5,000 was available to SJWTX, Inc.

under a single line of credit, $140,000 was available to SJWC under a single line of credit, and $40,000 and $75,000 under a third and fourth, respectively, lines of credit was available to CTWS.

At March 31, 2021, SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $138,491.

The lines of credit bear interest at variable rates.

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

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

In addition, on May 11, 2020, SJWC entered into an additional unsecured line of credit allowing borrowings of up to $50,000 for a six month period which has a zero balance as of September 30, 2020 .

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

SJWC does not intend to renew the $50,000 line of credit at maturity.

The line of credit for SJWTX, Inc.

expires on June 1, 2021.

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 .

On April 23, 2021, the $140,000 line of credit of SJWC, which was set to mature and expire on June 1, 2021, was paid-off and replaced by a new $140,000 line of credit that will expire on December 31, 2023.

On April 23, 2021, the $5,000 line of credit of SJWTX, Inc., which was set to mature and expired on June 1, 2021, was paid off and replaced by a new $5,000 line of credit that will expire on December 31, 2023.

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

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

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

As of March 31, 2021, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Equity Financing Agreement

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 of 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 our common stock, which was exercised in full.

The Offering closed on March 10, 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.

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

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

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

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

While our ability to obtain financing will continue to be a key risk, we believe that based on our 2021 activities, we expect to have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

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

In addition, on October 14, 2019, S&P affirmed its ratings of CTWS and Connecticut Water of A- with a stable outlook.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis