What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 108 added, 78 removed, 259 unchanged (42% of the section changed)

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Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors.

For more information about such forward-looking statements, including some of the factors that may affect our actual results, please see our disclosures under “Forward-Looking Statements,” and elsewhere in this Form 10-Q, including Item 1A under “Risk Factors.”

SJW Group is a holding company with four wholly-owned subsidiaries:

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(“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.

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

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.

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

On July 1, 2021, CLWSC completed the asset purchase of Clear Water Estates Water System, LLC which added approximately 230 connections and 0.6 square miles to the service area.

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

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

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

SJW Land Company owned the following real properties during the nine months ended September 30, 2021:

% for Nine months ended September 30, 2021 of SJW Land Company

Description Location Acreage Square Footage Revenue Expense

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Undeveloped land (1) San Jose, California 103 N/A N/A N/A

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

____________________

(1) On October 29, 2021, SJW Land sold 1.93 acres of undeveloped land located in San Jose, California.

See Note 13, “Subsequent Events” of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of the transaction.

As of September 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 in Texas, and the Maine Public Utilities Commission in Maine;

(2) Regional non-tariffed water utility related services provided in accordance with the guidelines established by the California Public Utilities Commission in California, the Public Utilities Regulatory Authority in Connecticut, 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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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.

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

Critical Accounting Policies:

The discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2020 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our annual report on Form 10-K for the year ended December 31, 2020, that was filed with the SEC on March 1, 2021.

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2020.

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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 six months ended June 30, 2021.

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

SJW Group’s consolidated net income for the three months ended September 30, 2021, was $19,068, a decrease of $7,025, or approximately 27%, from $26,093 for the same period in 2020.

SJW Group’s consolidated net income for the nine months ended September 30, 2021, was $42,459, a decrease of $5,772, or approximately 12%, from $48,231 for the same period in 2020.

The decrease in net income for the three months ended September 30, 2021, was primarily due to an increase in production costs due to increases in average per unit costs for purchased water, groundwater extraction, energy charges, and a decrease in available surface water at SJWC.

In addition, administrative and general expenses increased due to higher compensation, contracted work charges and the impact of one-time credits in 2020 that not recur in 2021.

The decrease in net income for the nine months ended September 30, 2021, was primarily due to an increase in production costs due to increases in average per unit costs for purchased water, groundwater extraction, energy charges and a decrease in available surface water at SJWC, and an increase in administrative and general expenses increased primarily due to the same factors noted for the three months ended September 30, 2021, as described above.

These increases were partially offset by an increase in revenue of $5,123 or 1% from an increase in cumulative water rates and net recognition of other regulatory mechanisms and certain balancing and memorandum accounts, net of a decrease in customer usage.

In addition, for the nine months ended September 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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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.

Probability criteria have not yet been met for CTWS.

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.

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Operating Revenue by Segment

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

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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Three months ended

2020 Six months ended

September 30,

2020 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

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Operating Expense by Segment

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

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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Three months ended

2020 Six months ended

September 30,

2020 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

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Maintenance 600 — % 2,032 1 %

Balance and memorandum account cost recovery 1,219 1 % 1,219 — %

Property taxes and other non-income taxes 328 — % 427 — %

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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 customer rates to offset the cost increase.

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.

If an increase occurs, then SJWC would file an advice letter with the California Public Utilities Commission (“ CPUC”) seeking authorization to increase customer rates to offset the cost increase.

We are currently experiencing a severe drought in California that is expected to have a significant impact on the sources of our water supply.

On October 1, 2021, Valley Water’s 10 reservoirs were at approximately 12% of total capacity with 6,252 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 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.

As reported by Valley Water, there was zero inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2021.

Rainfall at SJWC’s Lake Elsman was measured at zero 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 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.

As of October 1, 2021, Valley Water reported that allocations from the State Water Project was 5% or 1,629 million gallons.

Valley Water received conditional approval for an increase of the Central Valley Project allocation from the original allocation of 25%.

Conditional approval is based on public health and safety needs, and increases the total allocation to 23,298 million gallons.

Valley Water reported that its Semitropic groundwater bank reserves are at 91% of capacity or 103,931 million gallons, which can be used to perform water transfers with other state water contractors.

Valley Water also reported that the managed groundwater recharge from January to September in the Santa Clara Plain was 46% 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 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.

On October 1, 2021, SJWC’s Lake Elsman contained 191 million gallons of water, of which approximately 41 million gallons can be utilized for treatment in water production.

This Lake Elsman volume represents 18% of the five-year average which reflects the low winter rainfall we experienced in our Santa Cruz mountains watershed.

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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.

Production from the Montevina Surface Water Treatment Plant through the third quarter was 259 million gallons, which is 14% 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 plant remains offline.

Through the third 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.

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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 June 30, Increase/

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

Three months ended September 30, Increase/

(decrease) % of Total Change Nine months ended September 30, Increase/

(decrease) % of Total Change

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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 June 30, 2021, and 2020 approximated 7.1% and 6.4%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for September 30, 2021, and 2020 approximated 6.9% and 6.6%, 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 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%.

CTWS’s unaccounted-for water on a 12-month-to-date basis for September 30, 2021 was approximately 14.6% as a percentage of total production.

Unaccounted-for water on an acquisition-to-date basis for the period ended September 30, 2020 was approximately 16.9%.

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 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.

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

customer usage.

Effective July 1, 2021, Valley Water increased the unit price of purchased water by approximately 9.5% and the groundwater extraction charge by approximately 9.1%.

Other Operating 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.

Operating expenses, excluding water production expenses, increased $6,751 for the three months ended September 30, 2021, compared to the same period in 2020.

The increase was primarily attributable to increases of $4,370 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, offset by lower accounting fees.

In addition, maintenance expense increased $1,819 due to the reversal of the Hydroturbine reserve in the prior year and depreciation and amortization expense increased $1,420 due to increases in utility plant.

Operating expenses, excluding water production expenses, increased $13,928 for the nine months ended September 30, 2021, compared to the same period in 2020.

The increase was primarily attributable to increases of $7,770 in administrative and general expenses primarily due to a credit to expense for the CECL adoption in prior year and increases in labor, group insurance costs, rate case expenses and contracted work, offset by lower accounting fees, $4,235 in depreciation and amortization expense due to increases in utility plant, and $3,251 in maintenance expenses.

Other (Expense) Income

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.

For the three months ended September 30, 2021, compared to the same period in 2020, the change in other (expense) income was primarily due to gain on sale of real estate investments recorded in prior year.

For the nine months ended September 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 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.

For the three and nine months ended September 30, 2021, compared to the same period in 2020, income tax expense decreased $1,829 and $4,067, respectively.

The decrease in income tax expense was primarily due to a decrease in pre-tax book income and flow-through tax benefits.

The effective consolidated income tax rates were 13% and 15% for the three months ended September 30, 2021, and 2020, respectively, and 11% and 16% for the nine months ended September 30, 2021, and 2020, respectively.

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

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

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Cash Flow from Operating Activities

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.

During the nine months ended September 30, 2021, SJW Group generated cash flows from operations of approximately $100,300, compared to $70,600 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.

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

(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.

(1) an increase in collections from accounts receivable and accrued unbilled utility revenue of $14,800, (2) payments of amounts previously invoiced and accrued including accrued productions costs, increased by $7,000, (3) 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, (4) net income adjusted for non-cash items increased by $5,400 primarily due to deferred income taxes, and (5) general working capital items increased $3,000, offset by, (6) a decrease in net collection of taxes receivable which was $5,500.

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

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

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

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

The financial impact of certain past due accounts are being recorded for future recovery through the rate-making process.

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Cash Flow from Investing Activities

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.

During the nine months ended September 30, 2021, SJW Group used cash flows from investing activities of approximately $182,900, compared to $141,200 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 June 30, 2021, approximately $100,100 or 42% of the $238,800 has been invested.

As of September 30, 2021, approximately $169,200 or 71% 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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Cash Flow from Financing Activities

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.

Net cash provided by financing activities for the nine months ended September 30, 2021, increased by approximately $16,700 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) an increase in net proceeds of $8,900 from new long-term debt, and (3) $4,600 increase in net cash receipts from advances and contributions in aid of construction, offset by (4) a decrease in net borrowings and repayments on our lines of credit of $61,600, and (5) an increase of dividends paid to stockholders of $2,600.

Sources of Capital:

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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 June 30, 2021.

SJW Group’s remaining 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, 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 June 30, 2021, SJWC’s funded debt and equity were approximately 49% and 51%, respectively.

As of September 30, 2021, SJWC’s funded debt and equity were approximately 48% and 52%, 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.

SJWC’s unsecured senior note agreements generally have terms and conditions that restrict SJWC from issuing additional funded debt if:

(1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-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 June 30, 2021.

(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, 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.

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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.

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

On August 4, 2021, SJWC entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which the company sold an aggregate principal amount of $50,000 of its 3.00% Senior Notes, Series O (“Series O Notes”), due December 1, 2051.

The Series O Notes are unsecured obligations of SJWC.

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

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

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

The closing of the note purchase agreement is expected to occur on December 1, 2021.

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

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

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

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

As of September 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.

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

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, 2021, Connecticut Water was in compliance with all covenants under this agreement.

On August 4, 2021, Connecticut Water entered into a note purchase agreement with certain affiliates of Metropolitan Life Insurance Company, New York Life Insurance Company, the Northwestern Mutual Life Insurance Company and Pacific Life Insurance Company, pursuant to which Connecticut Water sold on August 4, 2021, an aggregate principal amount of $50,000 of its 3.07% Senior Notes, Series 2021A, due 2051 (the “2021A Notes”) and will sell on December 1, 2021, an aggregate principal amount of $50,000 of its 3.10% Senior Notes, Series 2021B, due 2051 (the “2021B Notes” and together with the 2021A Notes, the “CWC Notes”).

The closing on December 1, 2021, is subject to customary closing conditions.

The CWC Notes are unsecured obligations of Connecticut Water, with the 2021A Notes due on June 1, 2051, and the 2021B Notes due on December 1, 2051.

Interest on the CWC Notes is payable semi-annually in arrears on June 1st and December 1st of each year.

The note purchase agreement contains customary representations and warranties.

Connecticut Water has agreed to customary affirmative and negative covenants for as long as the CWC Notes are outstanding.

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

The proceeds from the sale of the CWC Notes will be used to repay outstanding short and/or long-term borrowings, to fund Connecticut Water’s capital expenditures, and/or for other general corporate purposes.

As of September 30, 2021, Connecticut Water was in compliance with all covenants under this agreement.

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

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

As of September 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.

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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 June 30, 2021, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

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

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

As of September 30, 2021, Maine Water was in compliance with all financial, affirmative and negative covenants under this agreement.

Short-term Financing Agreements

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.

As of September 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 September 30, 2021, SJW Group and its subsidiaries had available unused short-term bank lines of credit totaling $137,928.

The lines of credit bear interest at variable rates.

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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 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.

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 September 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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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