What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 129 added, 115 removed, 208 unchanged (54% of the section changed)

14 unchanged sentences

These non-tariffed services include water system operations, maintenance agreements, and antenna site leases.

SJWC has utility property including land held in fee, impounding reservoirs, diversion facilities, wells, distribution storage, and all water facilities, equipment, office buildings and other property necessary to supply its customers.

Under Section 851 of the California Public Utilities Code, properties currently used and useful in providing utilities services cannot be disposed of unless California Public Utilities Commission (“CPUC”) approval is obtained.

5 unchanged sentences

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 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.

The remaining two CTWS subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc.

1 unchanged sentence

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.

Additionally, NEWUS offers expanded coverage to Connecticut Water

customers for failure of in-home plumbing, sewer and septic drainage lines and implemented modified terms and conditions with limitations on certain coverages.

The properties of CTWS’s subsidiaries consist of land, easements, rights (including water rights), buildings, reservoirs, standpipes, dams, wells, supply lines, water treatment plants, pumping plants, transmission and distribution mains and other facilities and equipment used for the collection, purification, storage and distribution of water throughout Connecticut and Maine.

1 unchanged sentence

SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”), is a public utility in the business of providing water service to approximately 21,000 connections that serve approximately 62,000 people.

CLWSC’s service area comprises more than 247 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis counties, the growing region between San Antonio and Austin, Texas.

has a 25% interest in Acequia Water Supply Corporation (“Acequia”).

The water supply corporation has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc.

as the primary beneficiary.

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

CLWSC’s service area comprises more than 247 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis

counties, the growing region between San Antonio and Austin, Texas.

CLWSC has a 25% interest in Acequia Water Supply Corporation (“Acequia”).

The water supply corporation has been determined to be a variable interest entity within the scope of Accounting Standards Codification Topic 810 with CLWSC as the primary beneficiary.

As a result, Acequia has been consolidated with CLWSC.

SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee.

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

which operated a California commercial property that was sold in the second quarter of 2017.

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 three months ended March 31, 2021:

% for Three months ended

March 31, 2021

of SJW Land Company

SJW Land Company owned the following real properties during the six months ended June 30, 2021:

% for Six months ended June 30, 2021 of SJW Land Company

Description Location Acreage Square Footage Revenue Expense

3 unchanged sentences

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

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

As of June 30, 2021, Chester Realty, Inc.

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

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(1) Regional regulated water utility operations;

(2) Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California, the Public Utilities Regulatory Authority in Connecticut (“PURA”), the Public Utilities Commission of Texas (“PUCT”) in Texas, and the Maine Public Utilities Commission (“MPUC”) in Maine;

(2) Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California, the Public Utilities Regulatory Authority in Connecticut (“PURA”), the Public Utilities Commission of Texas in Texas, and the Maine Public Utilities Commission in Maine;

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

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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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As noted above, SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee.

SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P.

The partnership had a commercial building in San Jose, California that was sold in the second quarter of 2017.

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

Chester Realty, Inc.

owns and operates land and commercial buildings in the State of Connecticut.

Chester Realty, Inc.

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

SJW Land Company and Chester Realty, Inc.’s real estate investments diversify SJW Group’s asset base.

SJW Land Company and Chester Realty, Inc.

manage its income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties.

Critical Accounting Policies:

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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.

See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting policies for the six months ended June 30, 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.

SJW Group’s consolidated net income for the three months ended June 30, 2021, was $20,775, an increase of $1,054, or approximately 5%, from $19,721 for the same period in 2020.

SJW Group’s consolidated net income for the six months ended June 30, 2021, was $23,391, an increase of $1,253, or approximately 6%, from $22,138 for the same period in 2020.

The increase in net income for the three months ended June 30, 2021, was primarily due to an increase in revenue of $5,032 or 3% from an increase in cumulative water rates and increased customer usage, partially offset by an increase in administrative and general expenses, and an increase in production costs at SJWC due to a decrease in available surface water and the increase in customer usage.

The increase in net income for the six months ended June 30, 2021, was primarily due to an increase in revenue of $4,063 or 2% from an increase in cumulative water rates and new customers, offset by an increase in administrative and general expenses, an increase in production costs due to a decrease in available low cost surface water, and an increase in depreciation due to assets placed in service in 2020.

In addition, for the three and six months ended June 30, 2021, SJW Group recorded a $3,000 pre-tax gain on sale of utility property from the release of a holdback amount by Guadalupe-Blanco River Authority (“GBRA”) in connection with the sale of Texas Water Alliance Limited (“TWA”) that occurred in 2017.

Coronavirus (“COVID-19”) Update

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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.

SJWC and CLWSC have determined that future recovery of the amount related to COVID-19 activities are 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.

If a state regulator disagrees with the calculation of recorded COVID-19 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.

See Item 1A, “Risk Factors” for further discussion.

Operating Revenue

Operating Revenue by Segment

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Water Utility Services $ 150,921 145,765 $ 264,362 260,149

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Three months ended

Increase/(decrease)

2020 Six months ended

Increase/(decrease) Increase/(decrease)

Water Utility Services:

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Rate increases 3,561 2 % 6,402 3 %

Winter storm customer credits (690) (1) %

Texas winter storm customer credits (149) — % (839) — %

Balancing and memorandum accounts (59) — % (215) — %

Other regulatory mechanisms (407) — % (887) — %

Other 112 — % (1) — %

3 unchanged sentences

Operating Expense by Segment

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Water Utility Services $ 117,514 108,944 $ 217,361 206,322

4 unchanged sentences

Three months ended

Increase/(decrease)

2020 Six months ended

Increase/(decrease) Increase/(decrease)

Water production expenses:

1 unchanged sentence

Change in usage and new customers 1,779 2 % 1,688 1 %

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

Purchased water and groundwater extraction charge, energy price change and other production expenses, net (706) (1) % (1,515) (1) %

Balancing and memorandum accounts cost recovery (146) — % (166) — %

5 unchanged sentences

Depreciation and amortization 759 1 % 2,815 1 %

Merger related expenses (354) — %

$ 8,463 8 % $ 9,842 4 %

Sources of Water Supply

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.

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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.

On July 1, 2021, Valley Water’s 10 reservoirs were at approximately 14% of total capacity with 7,719 million gallons of water in storage, which is 25% 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.

As reported by Valley Water, there was 5.79 inches of rainfall, or 41% of the average, in San Jose during the current annual rainfall season that commenced on July 1, 2020.

Rainfall at SJWC’s Lake Elsman was measured at 21.72 inches during the just completed 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 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.

As of July 1, 2021, Valley Water reported that allocations from the state and federal water project are approximately 5% and 25%, respectively, of amounts requested in 2021.

Bureau of Reclamation reduced the initial Central Valley Project allocation of 55% down to 25% due to worsening hydrologic conditions.

Valley Water also reported that the managed groundwater recharge from January to June in the Santa Clara Plain was 63% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 14 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 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.

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

On July 1, 2021, SJWC’s Lake Elsman contained 247 million gallons of water, of which approximately 97 million gallons can be utilized for treatment in water production.

This Lake Elsman volume represents 17% 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 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.

Typically, 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 second quarter was 259 million gallons, which is 17% of the five-year average.

On April 14, 2021, SJWC took the Montevina Surface Water Treatment Plant offline due to worsening hydrologic conditions in the local watershed.

Through the second 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 due to lack of run-off from Saratoga Creek and remains offline.

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

On June 9, 2021, Valley Water declared a water shortage emergency and asked its retailers to reduce consumption by 15% based on 2019 usage.

In response to Valley Water’s declaration of drought emergency and call for conservation, SJWC filed with the CPUC to activate Stage 3 of its Rule 14.1 Water Shortage Contingency Plan.

Like the most recent drought, the current restrictions center on outdoor water usage which typically accounts for half of a residential customer’s consumption.

The restrictions include limits on watering days and times, use of potable water for washing structures and other non-porous surfaces except to protect public health and safety, and no outdoor watering during and up to 48 hours after measurable rainfall.

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

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

CLWSC has long-term agreements with the Guadalupe-Blanco River Authority (“GBRA”), which expire in 2037, 2040, 2044 and 2050.

CLWSC has long-term agreements with the GBRA, which expire in 2037, 2040, 2044 and 2050.

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

CLWSC also has raw water supply agreements with the Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in 2053 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

CLWSC also has raw water supply agreements with the Lower Colorado River Authority and West Travis Public Utility Agency expiring in 2053 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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 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.

The updated Drought Management Plan 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.

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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 March 31, Increase/

Three months ended June 30, Increase/

(decrease) % of Total Change Six months ended June 30, Increase/

(decrease) % of Total Change

2021 2020 2021 2020

Purchased water 6,252 5,891 361 3 % 9,898 9,526 372 2 %

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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 March 31, 2021, and 2020 approximated 7.2% and 8.0%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2021, and 2020 approximated 7.1% and 6.4%, 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 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.

CTWS’s unaccounted-for water on a 12-month-to-date basis for June 30, 2021 was approximately 15.7% as a percentage of total production.

Unaccounted-for water on an acquisition-to-date basis for the period ended June 30, 2020 was approximately 16.7%.

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 and Water Infrastructure Surcharge main replacement programs and lost water reduction initiatives.

Water Production Expenses

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.

The change in water production expenses for the three and six months ended June 30, 2021, compared to the same period in 2020, was primarily attributable to a decrease in available surface water for SJWC and increases in customer usage, offset by changes in average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses.

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

SJWC was notified by Valley Water that the unit price of purchased water and the groundwater extraction charge was increased 9.5% and 9.1%, respectively, effective July 1, 2021.

Other Operating Expenses

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.

Operating expenses, excluding water production expenses, increased $5,613 for the three months ended June 30, 2021, compared to the same period in 2020.

The increase was primarily attributable to increases of $3,821 in administrative and general expenses primarily due to a credit to expense for the Current Expected Credit Loss (“CECL”) adoption in prior year and increases in labor, contracted work and rate case expenses, $1,253 in maintenance expense and $759 in depreciation and amortization expense due to increases in utility plant.

Operating expenses, excluding water production expenses, increased $7,177 for the six months ended June 30, 2021, compared to the same period in 2020.

The increase was primarily attributable to increases of $3,049 in administrative and general expenses in the second quarter, $2,815 in depreciation and amortization expense due to increases in utility plant, and $1,432 in maintenance expenses.

Other (Expense) Income

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.

For the three and six months ended June 30, 2021, compared to the same period in 2020, the change in other (expense) income was primarily due to a $3,000 pre-tax gain on sale from the release of a holdback amount by GBRA for the sale of TWA recorded in 2017.

Provision for Income Taxes

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.

For the three and six months ended June 30, 2021, compared to the same period in 2020, income tax expense decreased $904 and $2,238, respectively.

The decrease in income tax expense was primarily due to flow-through tax benefits.

The effective consolidated income tax rates were 14% and 18% for the three months ended June 30, 2021, and 2020, respectively, and 9% and 17% for the six months ended June 30, 2021 and 2020, respectively.

The lower effective rates for the three and six months ended June 30, 2021, were primarily due to flow-through tax benefits.

In addition, discrete tax benefits recorded in the first quarter of 2021 resulted in a lower effective tax rate for the six months ended June 30, 2021.

On March 11, 2021, the American Rescue Plan Act (“Act”) was signed into law.

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

Regulation and Rates

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Cash Flow from Operating Activities

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.

During the six months ended June 30, 2021, SJW Group generated cash flows from operations of approximately $67,100, compared to $32,300 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, allowance for equity funds used during construction, gains or losses on the sale of assets, and changes in working capital items.

Cash flow from operations increased by approximately $34,800.

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.

(1) an increase in collections from accounts receivable and accrued unbilled utility revenue of $15,300, (2) payments of amounts previously invoiced and accrued including accrued productions costs, increased by $7,300, (3) increase in net changes in the balancing and memorandum accounts of $5,700, (4) an up-front payment of $5,000 in the prior year for renewal of the Cupertino service concession agreement that did not reoccur in the current year, and (5) general working capital and net income, adjusted for non-cash items increased $1,500.

As of June 30, 2021, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchanged from June 30, 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.

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

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

The financial impact of certain past due accounts are being recorded for future 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 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.

During the six months ended June 30, 2021, SJW Group used cash flows in investing activities of approximately $107,000, compared to $81,100 for the same period in 2020.

SJW Group used approximately:

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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.

As of June 30, 2021, approximately $100,100 or 42% 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.

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

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.

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.

Cash Flow from Financing Activities

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.

Net cash provided by financing activities for the six months ended June 30, 2021, increased by approximately $4,600 from the same period in the prior year, primarily as a result of (1) an increase in net proceeds from our recent common stock equity offering of $66,800, (2) $3,600 increase in net cash receipts from advances and contributions in aid of construction, and (3) an

increase in net proceeds of $2,100 from new long-term debt, offset by (4) a decrease in net borrowings and repayments on our lines of credit of $66,000.

Sources of Capital:

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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:

(1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011.

SJW Group’s 2011 unsecured senior note of $50,000 was paid in full at maturity on June 30, 2021.

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 March 31, 2021.

SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions at June 30, 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 March 31, 2021, SJWC’s funded debt and equity were approximately 46% and 54%, respectively.

As of June 30, 2021, SJWC’s funded debt and equity were approximately 49% and 51%, 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 March 31, 2021.

SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions at June 30, 2021.

On June 25, 2021, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance (collectively the “Purchasers”), pursuant to which the company sold an aggregate principal amount of $50,000 of its 3.00% Senior Notes, Series N (“Series N Notes”) to the Purchasers.

The Series N Notes are unsecured obligations of SJWC and are due on June 25, 2051.

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

The note purchase agreement contains customary affirmative and negative covenants for as long as the Series N Notes are outstanding.

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

The closing occurred simultaneously with the signing of the note purchase agreement.

As of June 30, 2021, SJWC was in compliance with all such covenants.

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

As of June 30, 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 March 31, 2021, CTWS was in compliance with all covenants under the master loan agreement.

As of June 30, 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 March 31, 2021, Connecticut Water was in compliance with all covenants under its master loan agreement.

As of June 30, 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 March 31, 2021, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

As of June 30, 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.

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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.

from issuing additional funded debt if:

As of June 30, 2021, Connecticut Water was in compliance with all financial ratio and customary affirmative and negative covenants under this agreement.

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

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

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

(1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005.

As of March 31, 2021, SJWTX, Inc.

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

As of June 30, 2021, CLWSC and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

On May 13, 2021, CLWSC entered into a master credit agreement and promissory note with a commercial bank under which it entered into a borrowing agreement for an aggregate principal amount not to exceed $30,000, of which $20,000 was advanced at the closing date.

The borrowing carries a fixed interest rate of 4.01% due on March 20, 2041.

The remaining aggregate principal amount of the promissory note is to be advanced at the discretion of CLWSC before the maturity date.

The notes are unsecured obligations of CLWSC.

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, CLWSC 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.

Maine Water has First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and First Mortgage Bonds issued to One America.

The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65% 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 March 31, 2021, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

As of June 30, 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 March 31, 2021, Maine Water was in compliance with all covenants under its master loan agreement.

As of June 30, 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.

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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.

As of June 30, 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.

As of June 30, 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 CLWSC under a single line of credit, $140,000 was available to SJWC under a single line of credit, and $40,000 and $75,000, respectively, under a third and fourth line of credit was available to CTWS.

At June 30, 2021, SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $121,459.

The lines of credit bear interest at variable rates.

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.

On April 23, 2021, the $140,000 line of credit of SJWC, which was set to mature and expire on June 1, 2021, was closed 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 CLWSC, which was set to mature and expired on June 1, 2021, was closed 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 SJW Group’s and subsidiaries lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes.

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

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

All of the lines of credit also include certain customary financial covenants such as a funded

debt to capitalization ratio and a minimum interest coverage ratio.

As of June 30, 2021, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Equity Financing Agreement

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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 received net proceeds of approximately $66,775 from the Offering and the sale of option shares, after deducting the underwriting discounts and commissions and offering expenses.

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.

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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 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.

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

The current Standard & Poor’s Ratings Service assigned the company rating for SJW Group as an A-, with a stable outlook, SJWC as an A, with a stable outlook, and Connecticut Water as an 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