What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 193 added, 267 removed, 401 unchanged (53% of the section changed)

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On October 9, 2019, CTWS became a wholly-owned subsidiary of SJWNE LLC.

CTWS is a holding company whose subsidiaries are primarily public utilities providing water service to approximately 139,000 service connections that serve a population of approximately 485,000 people in 81 municipalities with a service area of approximately 269 square miles throughout Connecticut and Maine and 3,000 wastewater connections in Southbury, Connecticut.

SJWTX, Inc., a wholly owned subsidiary of SJW Group, doing business as Canyon Lake Water Service Company, is a public utility in the business of providing water service to approximately 20,000 connections that serve approximately 59,000 people.

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

Connecticut Water Service, Inc.

is a holding company whose subsidiaries are primarily public utilities providing water service to approximately 140,000 service connections that serve a population of approximately 456,000 people in 81 municipalities with a service area of approximately 269 square miles throughout Connecticut and Maine and 3,000 wastewater connections in Southbury, Connecticut.

SJWTX, Inc., doing business as CLWSC, is a public utility in the business of providing water service to approximately 24,000 service connections that serve approximately 70,000 people.

CLWSC’s service area comprises more than 266 square miles in Bandera, Blanco, Comal, Hays, Kendall, Medina and Travis County in the growing region between San Antonio and Austin, Texas.

On December 17, 2021, CLWSC completed its acquisition of Kendall West Utility and Bandera East Utility, companies that provide water services, including wastewater and recycled water services, in Kendall, Bandera and Medina counties which are located in south central Texas.

Kendall West Utility and Bandera East Utility, together, added approximately 5,000 people through 1,600 service connections in a service area approximately 19 square miles to CLWSC’s operations.

has a 25% interest in Acequia Water Supply Corporation.

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

SJW Land Company, a wholly owned subsidiary of SJW Group, owns undeveloped land in the states of California and Tennessee, owns and operates commercial buildings in Tennessee and has a 70% limited partnership interest in 444 West Santa Clara Street, L.P.

444 West Santa Clara Street, L.P.

has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary.

As a result, 444 West Santa Clara Street L.P.

has been consolidated with SJW Land Company.

In 2017, 444 West Santa Clara Street, L.P.

sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company also sold certain undeveloped land located in San Jose, California.

The limited partnership is expected to dissolve in 2021.

SJWTX, Inc is undergoing a corporate reorganization to separate regulated operations from non-tariffed activities.

In November 2021, SJWTX Holdings and TWOS were formed for the purpose of effecting a corporate reorganization of our water services organization in Texas.

TWOS was created for non-tariffed operations and is wholly-owned by SJWTX Holdings.

SJWTX Holdings is a wholly-owned subsidiary of SJW Group, incorporated to hold the investments in SJWTX, Inc.

In addition, in 2022, SJWTX Holdings intends to create a new subsidiary to hold future wholesale water supply assets.

SJW Land Company, a wholly owned subsidiary of SJW Group, owns undeveloped land in the States of California and Tennessee, owns and operates commercial buildings in Tennessee.

Business Strategy for Water Utility Services

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CLWSC provides non-tariffed wholesale water service to adjacent utilities and non-tariffed wastewater services.

CTWS provides non-tariffed services, such as water system operations and maintenance agreements under agreements with municipalities and other utilities.

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

For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line, curb box, curb box cover, meter pit, meter pit cover, meter pit valve plus in-home water main shut off valve before the meter.

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.

CTWS provides non-tariffed services, such as water system operations and maintenance under agreements with municipalities and other utilities.

Additionally, CTWS offers Linebacker, an optional service line protection program covering a limited amount of the cost of

repairs for leaking or broken water and wastewater service lines and in-home plumbing to eligible residential customers in Connecticut and water service lines to eligible residential customers in Maine.

SJW Group also seeks appropriate non-tariffed business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations.

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• Synergy potential.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets, for example the merger with CTWS in 2019.

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

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

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SJW Group’s real estate investment activity is conducted through SJW Land Company and Chester Realty, Inc.

SJW Land Company owns undeveloped land in Tennessee and owns 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 owned a commercial building in San Jose, California.

In 2017, 444 West Santa Clara Street, L.P.

sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company sold the undeveloped land located in San Jose, California.

The limited partnership is expected to dissolve in 2021.

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

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

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

Critical Accounting Policies

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Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980.

In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred.

In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records

deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred.

Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process.

The regulatory assets and liabilities recorded by Water Utility Services primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates.

The company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly.

The company primarily adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts on a monthly basis.

The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes.

In December 2019, CPUC denied SJWC’s request in Advice Letter No.

532 to recover the 2018 balances of WCMA and was ordered to remove the WCMA accounts from the preliminary statement book.

As a result of the decision, SJWC wrote off the total 2018 WCMA balance of $9.4 million and $0.6 million recorded in its 2019 WCMA memorandum accounts.

(See also Note 1, “Summary of Accounting Principles” in the consolidated financial statements).

No other disallowances were recognized during the years ending December 31, 2020 and 2019.

No disallowances were recognized during the years ending December 31, 2021 and 2020.

Recognition of Balancing and Memorandum Accounts

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This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges.

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980

subtopic 340-25 recognition criteria.

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

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change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events.

If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed.

If SJW Group determines that as a result of the qualitative assessment it is more likely than not (>

50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed.

SJW Group’s goodwill is primarily associated with the recent merger with CTWS on October 9, 2019.

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No impairments occurred during 2021, 2020 or 2019.

Business Combinations

SJW Group applies the provisions of ASC Topic 805—“Business Combinations” for the purchase accounting related to the merger with CTWS on October 9, 2019.

Topic 805 requires SJW Group to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While SJW Group used our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates were inherently uncertain and subject to refinement.

As a result, during the one year measurement period from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments were recorded to our Consolidated Statements of Comprehensive Income.

Accounting for business combinations requires SJW Group to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies.

Although SJW Group believes that the assumptions and estimates we make are reasonable and appropriate, they are based in part on historical experience and information obtained from CTWS’s management and are inherently uncertain.

Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets.

Although SJW Group believes the assumptions and estimates made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to:

future expected cash flows from services;

historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;

the expected use of the acquired assets;

and discount rates.

SJW Group analyzed and revalued the acquired opening deferred tax asset and liability balances within the measurement period which resulted in a decrease to goodwill of $114.

There was no impact associated with the measurement period adjustments to the consolidated statement of comprehensive income for the year ended December 31, 2020.

Factors Affecting Our Results of Operations

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SJWC also maintains balancing accounts to track changes in purchased water, purchased power, groundwater extraction charges and pension costs for later rate recovery.

Regulatory risk is mitigated in California by use of a forward-looking test year which allows the return on and return of utility plant on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.

Regulatory risk in California is mitigated by use of a forward-looking test year which allows the return on and return of utility plant on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.

Pursuant to Connecticut regulations, Connecticut Water employs a historical test year.

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We plan to spend approximately $222,823 in 2022 and $1,311,271 over the next five years for capital improvements, subject to CPUC, PURA, PUCT, and MPUC approval.

SJW Group funds these expenditures through a variety of sources, including earnings received from operations, debt and equity issuances, and borrowings.

SJW Group funds these expenditures through a variety of sources, including earnings received from operations, debt and equity financing, and other borrowings.

SJW Group relies upon lines of credit to fund capital expenditures in the short term and has historically issued long-term debt to refinance our short-term debt.

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

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.

Compliance with Environmental, Health and Safety Standards

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(i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories.

During 2019 and 2018, we had cash outflows of $835,465 and $2,496, respectively, for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base.

In 2020, there was no cash outflows for business acquisitions and water rights.

During 2021, we had cash outflows of $23,587 for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base, including the recent expanded customer base in Texas as a result of the Kendall West Utility and Bandera East Utility acquisition.

Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety and water quality standards.

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Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices, all of which could affect Water Utility Services’ results of operations.

SJWC residential usage increased 13.3% from 2019 to 2020 and decreased 0.8% from 2018 to 2019.

SJWC business usage increased 1.4% and decreased 1.0% from 2019 to 2020 and from 2018 to 2019, respectively.

In addition, 2020 residential and business usage was 12.75% higher and 2.57% lower, respectively, than the amount authorized in our 2019-2021 general rate case.

Residential usage and business usage in 2019 was 0.4% and 3.94%, respectively, lower than the amount authorized in our 2019-2021 general rate case.

CLWSC residential and business usage increased 13.6% from 2019 to 2020 and increased 2.1% from 2018 to 2019.

CTWS residential and business usage per cubic feet was 78.86 and 232.43, respectively, for the year ended December 31, 2020.

From the date of merger, October 9, 2019, to December 31, 2019, CTWS residential and business usage per cubic feet was 16.59 and 57.72, respectively.

With the availability of the WRA in Connecticut that allows for recovery of authorized revenues, decreases in consumption year to year do not present the same financial risk as had historically been the case.

SJWC residential usage decreased 11.4% from 2020 to 2021 and increased 13.3% from 2019 to 2020.

SJWC business usage decreased 2.7% and increased 1.4% from 2020 to 2021 and from 2019 to 2020, respectively.

In addition, 2021 residential and business usage was lower by 0.09% and 5.25%, respectively, than the amount authorized in our 2019-2021 general rate case.

Residential usage and business usage in 2020 was 12.75% higher and 2.57% lower, respectively, than the amount authorized in our 2019-2021 general rate case.

CLWSC residential and business usage decreased 8.5% from 2020 to 2021 and increased 13.6% from 2019 to 2020.

CTWS residential usage decreased 4.5% and business usage increased 0.9% from 2020 to 2021 With the availability of the WRA in Connecticut that allows for recovery of authorized revenues, decreases in consumption year to year do not present the same financial risk as in our other water utility services utilities.

Weather Conditions, Seasonality and Sources of Water Supply

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Also, customer usage of water is affected by weather conditions, in particular during the warmer months.

Our water systems experience higher demand in the summer due to the warmer temperatures and increased usage by customers for outside irrigation of lawns and landscaping.

Our water systems experience higher demand in the summer due to the warmer temperatures and

increased usage by customers for outside irrigation of lawns and landscaping.

In periods of drought, if customers are encouraged or required to conserve water due to a shortage of supply or restriction of use, revenue tends to be lower.

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CLWSC believes that it will be able to meet customer demand for 2022 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

Merger and Acquisition Activities

From time to time there may be opportunities to acquire businesses and assets.

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

We expect to incur costs in connection with the execution of this pursuit and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results.

Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations.

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.

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

Results of Operations

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See Item 1 , “Business” for a discussion of SJW Group’s general business and regulatory activities.

COVID-19 Update

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

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

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

(i) suspending service disconnections for non-payments pursuant to orders from certain state regulators, which will remain for specified durations with the longest extending to June 30, 2021;

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

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

(iv) increasing the number of employees telecommuting;

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

The Regulators have approved regulatory mechanisms to either record a regulatory asset or track in memorandum account for expenses and savings related to COVID-19.

SJWC and CLWSC have determined that future recovery of the account is probable and recognized the regulatory assets.

Probability criteria has not been met for CTWS.

If the Regulators disagrees with our calculation of these accounts, we may be required to make adjustments that could adversely affect our results of operations.

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

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

SJW Group’s consolidated net income for the year ended December 31, 2021 was $60,478, compared to $61,515 for the same period in 2020.

This represents an increase of $38,112 or 163%, from 2019.

The increase in net income was primarily due to addition of net income from CTWS and an increase in revenue at SJWC due to increased customer usage, cumulative water rate increases, there were no merger related expenses, and a write -off recorded in the prior year for the 2018 and 2019 Water Conservation Memorandum Account as we determined these costs were no longer probable of recovery.

The net increase in revenue was partially offset by an increase in productions expenses at SJWC due to a decrease of available surface water supply and an increase in customer usage, higher depreciation expenses due to assets placed in service in 2019, and an increase in interest on long-term debt due to the debt issued to acquire SJWNE LLC and issuance of SJWC’s Series M Note.

This represents a decrease of $1,037 or 2%, from 2020.

The decrease in net income was primarily due to an increase in administrative and general expenses as a result of increased insurance costs and higher employee compensation, an increase in depreciation expense due to assets placed in service in 2020, an increase in maintenance expenses due to an increase in leak repairs, an increase in production costs due to higher average per unit costs for purchased water, groundwater extraction, energy charges, and a decrease in available surface water at SJWC, and an impairment of long-lived asset for a customer care and billing implementation project no longer being pursued by CLWSC.

These increases were partially offset by an increase in revenue due to cumulative water rate increases and net recognition of certain balancing and memorandum accounts, offset by a decrease in usage.

In addition, the sale of real estate investments and nonutility properties generated a pre-tax gain of $8,421 and the sale of Texas Water Alliance generated a $3,000 pre-tax gain.

COVID-19 Update

The COVID-19 pandemic has had significant impact on the global economy.

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

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

SJWC and CLWSC have determined that future recovery of the amount related to COVID-19 activities is probable and have recognized the related regulatory assets.

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.

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” and Item 7 , “Liquidity and Capital Resources” for further discussion.

Operating Revenue

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Customer rate credits — — % 4,964 1 %

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

Balancing and memorandum accounts:

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All other 689 — % 73 — %

Other regulatory mechanisms 2,491 — % — — %

Other 347 — % 3,232 1 %

Revenue from acquisition of SJWNE LLC — — % 21,660 5 %

Real Estate Services (153) — % 135 — %

$ 9,160 2 % $ 144,044 34 %

The revenue increase consists of $9,313 from Water Utility Services offset by a $153 decrease from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase in authorized rates which resulted in $25,179 of additional revenue, a net increase in revenue recognized from certain balancing and memorandum accounts of $3,941, an increase due to new customers of $2,896, and an increase in other regulatory mechanisms of $2,491, partially offset by a decrease in revenue of $24,702 due to lower usage and a decrease of $839 from the winter storm credits in Texas.

The revenue increase consists of $143,909 from Water Utility Services and $135 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase of $111,183 due to higher customer usage, an increase in authorized rates which resulted in $12,234 of additional revenue and an increase from customer rate credits of $4,964.

In addition, a write-off of the 2018 and 2019 Water Conservation Memorandum Account balances was recorded in prior year as we determined these costs were no longer probable of recovery.

The revenue increase consists of $22,868 from Water Utility Services offset by a decrease of $85 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to the merger with CTWS which generated an increase of $21,660, an increase in authorized rates which resulted in $13,877 of additional revenue, and an increase of $2,673 due to new customers.

These increases were partially offset by a net decrease in revenue recognized from certain balancing and memorandum accounts, which included a decrease of $19,841 in WCMA, partially offset by increases of $6,366 from the Tax Act and $1,349 in the Cost of Capital Memorandum Account.

The revenue increase for Water Utility Services is primarily due to an increase of $111,183 due to higher customer usage primarily due to the acquisition of CTWS in October 2019.

In addition, we experienced an increase in authorized rates which resulted in $12,234 of additional revenue and an increase from customer rate credits of $4,964 related to a CTWS merger commitment and as a result of our billing settlement with the CPUC.

Also, in 2019, we wrote off the 2018 and 2019 WCMA balances as we determined these amounts were no longer probable of recovery.

No similar write-off occurred in 2020.

Water Utility Services’ Operating Revenue and Customer Counts

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Balance and memorandum account cost recovery 1,302 — % (3,421) (1) %

Production expenses related to acquisition of SJWNE LLC — — % 5,850 2 %

Total water production expenses 3,291 1 % 50,023 14 %

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Maintenance 2,654 1 % 1,653 — %

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

Property taxes and other non-income taxes 1,078 — % 10,818 3 %

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Merger related expenses — — % (15,768) (4) %

Impairment of long lived assets 2,211 — % — — %

Sale of nonutility property (7,494) (2) % — — %

$ 15,671 3 % $ 83,853 23 %

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

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

In addition, the water rates for purchased water and the groundwater extraction charge

may be increased by Valley Water at any time.

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

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

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

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

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CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, to provide for 250 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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

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

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

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Average water production expense per MG $ 4,488 4,212 4,162

The percentages of water supply by source excluding reclaimed water by state is presented below:

Purchased Water Groundwater Surface Water

2021 2020 2019 2021 2020 2019 2021 2020 2019

California 50 % 52 % 56 % 46 % 43 % 28 % 1 % 3 % 14 %

Connecticut 7 % 4 % 7 % 32 % 40 % 28 % 61 % 56 % 65 %

Maine 2 % 2 % 2 % 6 % 7 % 7 % 92 % 91 % 91 %

Texas 9 % 5 % 5 % 35 % 35 % 41 % 56 % 60 % 54 %

Water production in 2021 for water utility services decreased 2,563 million gallons from 2020.

Water production in 2020 for water utility services increased 11,388 million gallons from 2019 primarily due to a full year of CTWS operations in 2020.

Water production in 2019 for water utility services increased 2,163 million gallons from 2018.

The changes are primarily attributable to changes in consumption by customers and are consistent with the changes in the related water production expenses.

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SJWC’s unaccounted-for water for 2021 and 2020 approximated 7.8% and 6.5%, respectively, as a percentage of 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.

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 water loss reduction programs.

Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA.

The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective.

Connecticut Water will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement.

In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement.

Connecticut Water will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement and sunsetting in 2022.

In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement, $2.621 per million gallons as of December 31, 2021.

Connecticut Water has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system.

The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service.

Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC.

Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC at the published retail rate, $4.05 per hundred cubic feet as of December 31, 2021.

Maine Water has an agreement with the Kennebec Water District for potable water service.

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Maine Water guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate was $1.51 per hundred cubic feet as of December 31, 2021.

CTWS’s unaccounted-for water for the period ending December 31, 2021 was approximately 14.3% 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.

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 WICA and Water Infrastructure Surcharge (“WISC”) main replacement programs and lost water reduction initiatives.

The various components of operating expenses are discussed below.

Water production expenses

Water production expenses increased $33,864 due to an increase in customer usage, $18,992 as a result of decreased availability of California surface water in 2020 compared to 2019, and $588 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, offset by a decrease of $3,421 due to changes in water production balancing and memorandum accounts.

Water production expenses increased $11,626 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, $3,897 as a result of decreased availability of California surface water in 2021 compared to 2020, and $1,302 due to changes in water production balancing and memorandum accounts, offset by a decrease of $13,534 due to a decrease in customer usage.

Water production expenses increased $33,864 due to an increase in customer usage including increases due to the October 2019 acquisition of CTWS, $18,992 as a result of decreased availability of California surface water in 2020 compared to 2019, and $588 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, offset by a decrease of $3,421 due to changes in water production balancing and memorandum accounts.

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

Water production expenses increased $12,125 due to higher per unit costs paid for purchased water, groundwater extraction and energy charges, $5,850 due to the new CTWS operations and $1,211 due to changes in water production balancing and memorandum accounts, offset by decreases of $11,348 due to an increase in the use of available surface water in 2019 compared to 2018, and $795 due to a decrease in customer usage.

Effective July 2019, Valley Water increased the unit price of purchased water by approximately 6.1% and the groundwater extraction charge by approximately 6.6%.

Administrative and General Expense

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Administrative and general expense increased $7,591 in 2021, or 2%, in comparison to 2020.

The increase consisted primarily of $17,793 due to CTWS operations, partially offset by a decrease of $4,520 in integration costs related to the merger.

The increase consisted primarily of $1,928 in group health insurance costs, $1,542 increase in compensation, $1,229 increase in insurance expense, $1,108 increase in uncollectible accounts due to a credit recorded in 2020 for the Current Expected Credit Loss adoption, $1,104 increase in contracted work, and $703 increase in rate case expenses.

Administrative and general expense increased $13,440 in 2020, or 4%, in comparison to 2019.

The increase consisted primarily of:

(1) $7,295 due to the new CTWS operations, (2) $4,860 increase in integration costs related to the merger, (3) $1,539 increase in accounting and legal fees, (4) $1,491 increase in contracted work primarily related to the recycled water retrofit program, social media outreach, accounting services and customer service strategy, (5) $677 increase in salaries and wages, and (6) $605 in cost recoveries other than pension costs through balance and memorandum accounts.

The increase consisted primarily of $17,793 due to the addition of CTWS’s operations, partially offset by a decrease of $4,520 due to integration costs incurred in 2019 related to the merger that did not recur in 2020.

Maintenance Expense

Maintenance expense increased $1,653 in 2020, or less than 1%, in comparison to 2019, and increased $2,091 in 2019, or 1%, in comparison to 2018.

The increase in 2020 consisted primarily of $3,639 due to CTWS operations, offset by a decrease of $1,745 in SJWC primarily due to a change in the probability assessment of regulatory recovery of a hydro-turbine generator project.

The increase in 2019 consisted primarily of $1,128 increase due to the new CTWS operations.

Maintenance expense increased $3,873 in 2021, or 17%, in comparison to 2020, and increased $1,653 in 2020, or less than 1%, in comparison to 2019.

The increase in 2021 was primarily due to increases of $2,402 in contract, repairs and maintenance, and

materials expense as a result of increased leaks, $1,298 due to a favorable change in the probability assessment of regulatory recovery of a hydro-turbine generator project reserve established in a prior year, and $408 increase in compensation.

The increase in 2020 consisted primarily of $3,639 due to the addition of CTWS’s operations, offset by a decrease of $1,745 in SJWC primarily due to a change in the probability assessment of regulatory recovery of the hydro-turbine generator project.

Property Taxes and Other Non-income Taxes

Property taxes and other non-income taxes for 2020 and 2019 increased $10,818 and $4,093 from prior years, respectively.

The increase in 2020 was primarily due to $10,603 in CTWS operations.

The increase in 2019 was primarily a result of increased utility plant, and $3,096 due to the new CTWS operations.

Property taxes and other non-income taxes for 2021 and 2020 increased $1,078 and $10,818 from the prior years, respectively.

The increase in 2021 was primarily a result of increased utility plant.

The increase in 2020 was primarily due to the addition of $10,603 related to CTWS’s operations.

SJW Group anticipates increases in 2022 for property taxes and other non-income taxes due to increases in utility plant.

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The increases were primarily due to increases in utility plant.

In addition, the increases in 2020 and 2019 also included $16,380 and $4,903 due to the new CTWS operations, respectively.

In addition, the increase in 2020 also included $16,380 due to the the addition of CTWS’s operations.

SJW Group anticipates increases in 2022 for depreciation expense due to increases in utility plant.

Impairment of long-lived asset

Impairment of long-lived asset increased $2,211 in 2021 due to the write-off of a customer care and billing system implementation in Texas.

Sale of nonutility properties

Sale of nonutility properties increased $7,494 in 2021 primarily due to the sales of multiple vacant land properties located in California.

Other Income and Expense

The change in other (expense) income in 2021 compared to 2020 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 and $1,704 decrease in pension non-service cost due to an increase on the return of pension assets and an increase in the discount rate.

The change in other (expense) income in 2020 compared to 2019 was primarily due to an increase in interest on long-term debt as a result of the issuance of SJW Group’s Series 2019A, 2019B, 2019C and 2020 notes.

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

The new CTWS operations generated an increase of $5,144 in expense.

The change in other (expense) income in 2019 compared to 2018 was primarily due to an increase in interest on long-term debt as a result a full year of interest recorded on SJWC’s Series M note and SJW Group’s Series 2019A, 2019B and 2019C notes.

In addition, interest income increased due to the invested proceeds from our equity offering in December 2018.

The new CTWS operations generated an increase of $2,025 in expense.

The new CTWS operations generated an additional increase of $5,144 in expense.

SJW Group’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs, was 4.1%, 4.3% and 4.4% for the years ended December 31, 2021 and 2020 and 2019.

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The effective consolidated income tax rate was 12% for 2021, 12% for 2020 and 26% for 2019.

Income tax expense decreased due to flow- through deductions and absence of the write-off of non-deductible merger costs in 2020.

The decrease was mostly offset by an increase due to higher pre-tax income.

The effective income tax rate decreased from 2019 due to flow-through deductions and the absence of the write-off of non-deductible merger costs in 2020 and 2021.

Please refer to Note 7 , “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of actual to expected income tax expense.

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Payment delinquencies are mitigated by service interruptions due to non-payment prior to the COVID-19 pandemic.

In California, Governor Gavin Newsom signed an executive order suspending water service disconnections due to non-payment by customers retroactive to March 4, 2020 and until June 30, 2021.

In Connecticut, the March 12, 2020, PURA moratorium ruling to halt shutoff for nonpayment expired on October 1, 2020.

In Maine, MPUC lifted the moratorium on utility disconnections effective November 1, 2020.

PUCT in Texas had ordered on March 13, 2020 public utilities to suspend water service disconnections and late fees charged to customers which expired on June 13, 2020.

In California, the current state executive order suspending water service disconnections due to non-payment by customers expired December 31, 2021.

However, the CPUC directed that regulated water utilities continue to suspend customer disconnections until February 1, 2022.

There are currently no such orders effective

in the other states where we operate.

There is no guarantee that the Regulators will extend or reinstate such orders.

As of December 31, 2020, the change in allowance for doubtful accounts was due to adjustments made for the effect of COVID-19 on our customers and from the adoption of Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” and subsequent amendments.

Impacts to allowance for doubtful accounts related to COVID-19 were recorded to regulatory assets or tracked by regulatory mechanisms as directed by the Regulators.

As of December 31, 2021, the change in allowance for doubtful accounts was primarily due to adjustments made for the effect of COVID-19 on our customers.

Impacts to allowance for doubtful accounts related to COVID-19 are being recorded for future recovery through the rate-making process.

On February 3, 2022, SJWC received $9,757 through the State of California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customers accounts greater that 60-days past due as of June 30, 2021.

Write-offs for uncollectible accounts remain less than 1% of total revenue consistent with prior year.

Management believes that the accounts receivable aging will continue to deteriorate throughout the duration of the COVID-19 pandemic as long as the moratoriums on water service disconnections and non-payment continue in California.

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

Funds collected from Water Utility Services’ customers are used to pay for water production expenses, in addition to costs associated with general operations.

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In 2021, SJW Group and its subsidiaries obtained $247,000 in funds from new long-term debt.

From these amounts, SJW Group funded its 2020 capital expenditure programs and working capital.

From these amounts, SJW Group funded its 2021 capital expenditure programs refinanced certain short and long-term borrowings, and funded working capital.

See Note 6 of “Notes to Consolidated Financial Statements” for discussion on the debt financing activities of SJW Group.

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While our ability to obtain financing will continue to be a 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.

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

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

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

In 2021, the common dividends declared and paid on SJW Group’s common stock represented 66% of net income.

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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, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets, and other changes in working capital items.

Cash flow from operations decreased in 2020 by approximately $25,900.

The decrease was primarily due to a combination of the following factors:

(1) a decrease in collections of the balancing and memorandum accounts by $45,300, (2) a decrease in collections of

previously billed and accrued receivables by $15,000, (3) a decrease in the other noncurrent assets and noncurrent liabilities of $6,700 primarily from an increase in payments for executive and board deferral for retirees and deferred tax changes, and (4) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (5) general working capital and net income, adjusted for non-cash items increase by $46,100.

Cash flow from operations increased in 2021 by approximately $26,000.

The increase was primarily due to a combination of the following factors:

(1) an increase in the collection of the balancing and memorandum accounts of $37,300, (2) an increase in accrued groundwater extraction charges, purchased water and power of $3,600, and (3) general working capital and net income, adjusted for non-cash items increased by $9,700, offset by (4) net collection of taxes receivable which was $11,900 less than in prior year.

(1) increase in collections of previously billed and accrued receivables by $13,000, (2) an increase in general working capital and net income adjusted for non-cash items increase by $6,800, (3) payments of previously invoiced and accrued payables or amounts, decreased by $5,200, and (4) a $5,000 up-front service concession payment that occurred in the previous year, offset by (5) an increase in accrued groundwater extraction charges, purchased water and power of $4,000.

Cash flow from operations decreased in 2020 by approximately $25,900.

The decrease was primarily due to a combination of the following factors:

(1) a decrease in collections of the balancing and memorandum accounts by $45,300, (2) a decrease in collections of previously billed and accrued receivables by $15,000, (3) a decrease in the other noncurrent assets and noncurrent liabilities of $6,700 primarily from an increase in payments for executive and board deferrals for retirees and deferred tax changes, and (4) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (5) general working capital and net income, adjusted for non-cash items which increased by $46,100.

Cash Flow from Investing Activities

In 2021, SJW Group used approximately $234,000 of cash for Company funded capital expenditures, $23,600 for SJWTX, Inc.’s acquisition of Kendall West Utility and Bandera East Utility, $17,100 for developer funded capital expenditures, $2,800 in utility plant retirement costs, and $800 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $18,200 from the sale of Texas Water Alliance, real estate investments and nonutility properties.

In 2020, SJW Group used approximately $195,300 of cash for Company funded capital expenditures, $17,100 for developer funded capital expenditures, $2,600 in utility plant retirement costs, and $400 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $1,200 from the sale of real estate investments and utility property.

In 2019, SJW Group used approximately $164,300 of cash for Company funded capital expenditures, $13,600 for developer funded capital expenditures, $5,000 in utility plant retirement costs, $835,500 for the purchase of CTWS, and $100 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $745 from the sale of real estate investments and utility property.

Water Utility Services budgeted capital expenditures for 2021, excluding capital expenditures financed by customer contributions and advances is as follows:

Water Utility Services budgeted capital expenditures for 2022, excluding capital expenditures financed by customer contributions and advances is estimated as follows:

Budgeted Capital

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Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 decreased by approximately $383,400 from the same period in the prior year, primarily as a result of decrease in cash proceeds from long-term debt issued in current year and increase in payments of long-term debt that matured, partially offset by an increase in the amount of net borrowings on our lines of credit, increase in receipts of advances and contributions in aid of construction, and a decrease in debt issuance costs.

Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit.

Net cash provided by financing activities for the year ended December 31, 2021, increased by approximately $31,300 from the same period in the prior year, primarily as a result of increase in cash proceeds from long-term debt issued in current year, cash proceeds from issuances of common stock, and increase in cash receipts of advances and contributions in aid of construction, partially offset by an decrease in the amount of net borrowings on our lines of credit and an increase in payments for dividends.

SJW Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit.

As such, during years when long-term borrowings are high, borrowings on our line of credit tend to be low and when long-term borrowings are low, borrowings on our line of credit tend to be high.

SJW Group, SJW Land Company, SJWTX, Inc., SJWC and CTWS have unsecured bank lines of credit totaling $260,000 as of December 31, 2020.

SJWC, CTWS and SJWTX, Inc.

have unsecured bank lines of credit totaling $260,000 as of December 31, 2021.

Drawdowns on our lines of credit are restricted by our funded debt not exceeding a percent of total capitalization as defined in our debt covenants.

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

Long-term Financing Arrangements

SJW Group has outstanding $610,000 unsecured senior notes as of December 31, 2020.

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.

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

The notes are unsecured obligations of the Company.

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

The note purchase agreement contains customary representations and warranties.

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

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

SJW Group’s 2019 and 2020 unsecured senior note agreements have terms and conditions that restrict SJW Group from issuing additional funded debt if the funded consolidated debt would exceed 70% of total capitalization.

As of December 31, 2020, SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

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

As of December 31, 2020, SJWC’s long-term debt and equity were approximately 46% and 54%, respectively.

The average borrowing rate of SJWC’s long-term debt was 5.8% as of December 31, 2020.

SJWC has outstanding $320,000 of unsecured senior notes as of December 31, 2020.

The senior note agreements of SJWC 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-calendar-month period would be less than 175% of interest charges.

In addition, SJWC has a restricted payment clause which prohibits any payment or distribution, including dividends, if it exceeds the sum of (1) cumulative net income since December 31, 1991, (2) the aggregate net proceeds received from the sale of shares of its capital stock since December 31, 1991, and (3) $20,000.

On November 2, 2020, SJWC paid in full its $10,000 Series C senior notes that reached maturity.

As of December 31, 2020, SJWC was in compliance with all terms and conditions of these unsecured senior notes.

SJWC also has obligations pursuant to loan agreements with the California Pollution Control Financing Activity (“CPCFA”) supporting $120,000 in aggregate principal amount of CPCFA revenue bonds outstanding as of December 31, 2020.

The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements.

As of December 31, 2020, SJWC was in compliance with all such covenants.

CTWS has outstanding term loans with a commercial bank in an aggregate amount of $22,169 as of December 31, 2020.

Under the master loan agreement, CTWS is required to comply with certain financial ratio and operational covenants.

The most restrictive of these covenants is to maintain a consolidated (CTWS and its subsidiaries) debt to capitalization ratio of not more than 60%.

As of December 31, 2020, CTWS was in compliance with all covenants under the master loan agreement.

Connecticut Water has outstanding term loans with a commercial bank in an aggregate amount of $111,090 as of December 31, 2020.

Under its master loan agreement, Connecticut Water is required to comply with financial and operational covenants substantially identical to those found in CTWS’ master loan agreement.

Connecticut Water is required to maintain a debt to

capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1.

As of December 31, 2020, Connecticut Water was in compliance with all covenants under its master loan agreement.

Connecticut Water has outstanding $44,310 of tax exempt and taxable Water Facilities Revenue Bonds issued through Connecticut Innovations (formerly the Connecticut Development Authority).

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

As of December 31, 2020, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

Connecticut Water has a $70,000 unsecured senior note that has terms and conditions that restrict Connecticut Water from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default.

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

As of December 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

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

The notes are unsecured obligations of Connecticut Water.

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

The note purchase agreement contains customary representations and warranties.

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

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

As of December 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

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

The loan was secured by real property owned by the HVWC division.

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

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

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

has an outstanding $15,000 senior note as of December 31, 2020.

The senior note agreement has terms and conditions that restrict SJWTX, Inc.

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:

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

As of December 31, 2020, SJWTX, Inc.

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

Maine Water has outstanding $18,651 of First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and $3,600 of First Mortgage Bonds issued to One America as of December 31, 2020.

The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65%, an interest coverage ratio of no less than 3 to 1, a dividend restriction where cumulative dividends paid since 1993 can not exceed cumulative net income since 1982 plus $120, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

As of December 31, 2020, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

On December 23, 2020, Maine Water issued $4,000 of Series T First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund.

The Series T bonds mature on October 1, 2041 and carry 1% interest.

The Series T First Mortgage Bond covenants are the same as all other First Mortgage Bonds.

The proceeds of the Series T bond issuance are represented as restricted cash on the Consolidated Balance Sheets at December 31, 2020.

The restricted cash will be used for pre-approved projects primarily related to preliminary engineering and design work of a water treatment plant in Maine’s Biddeford and Saco division.

Maine Water has outstanding term loans with a commercial bank in an aggregate amount of $17,500 as of December 31, 2020.

Under its master loan agreement, Maine Water is required to comply with financial and operational covenants substantially identical to those found in CTWS and Connecticut Water’s master loan agreements.

Maine is required to maintain a debt to capitalization ratio of not more than 60%.

As of December 31, 2020, Maine Water was in compliance with all covenant under its master loan agreement.

As of December 31, 2020, SJW Group and its subsidiaries are in compliance with all of their debt covenants.

SJW Group’s regulated operations financing activity is designed to achieve capital structures consistent with regulatory guidelines in the locations where the companies operate.

See current authorized capital structures in Item 1 , “Business” under “Regulation and Rates.”

Short-term Financing Arrangements

SJW Group and its subsidiaries have unsecured line of credit agreements where borrowings are used to refinance existing debt, for working capital, and for general corporate purposes.

A summary of the line of credit agreements as of December 31, 2021, and 2020 are as follows:

Maturity Date Line Limit Amounts Outstanding Unused Portion Amounts Outstanding

SJWC credit agreement (a) December 31, 2023 $ 140,000 — 140,000 80,000

CTWS credit agreement December 14, 2023 75,000 22,996 52,004 55,094

CTWS credit agreement May 15, 2025 40,000 40,000 — 40,000

credit agreement (b) December 31, 2023 5,000 — 5,000 —

$ 260,000 62,996 197,004 175,094

___________________________________

(a) Credit agreement also provides for a letter of credit sublimit of $15,000.

(b) Credit agreement also provides for a letter of credit sublimit of $1,000.

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

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

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

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

The line of credit bears interest at variable rates.

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

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

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

Cost of borrowing on the lines of credit averaged 1.32% and 1.78% as of December 31, 2021 and 2020, respectively.

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 Company to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

SJWC maintains a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”) dated June 1, 2016.

The Credit Agreement provides SJWC with an unsecured credit facility with a letter of credit sublimit of $10,000.

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

The Credit Agreement has a maturity date of June 1, 2021.

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

In addition, on May 11, 2020, SJWC entered into an additional unsecured line of credit allowing borrowings of up to $50,000 for a six month period which had a zero balance at it’s maturity on November 11, 2020.

SJW Group and SJW Land Company (collectively, the “Borrowers”), had a $15,000 credit agreement with the Lender (the “SJW Group Credit Agreement”), which provided an unsecured credit facility to the Borrowers with a letter of credit sublimit of $5,000.

On April 24, 2020, SJW Group terminated the SJW Group Credit Agreement effective April 29, 2020.

In addition, SJW Group, as guarantor, and SJWTX, Inc.

(the “Borrower”), entered into a $5,000 credit agreement with the Lender (the “SJWTX Credit Agreement”), which provides an unsecured credit facility to the Borrower with a letter of credit sublimit of $1,000.

The SJWTX Credit Agreement matures on June 1, 2021.

CTWS had a $15,000 credit agreement with CoBank, ACB which was scheduled to expire on July 1, 2020.

On May 29, 2020, CTWS entered into a Second Amendment to the CTWS’s existing $15,000 credit agreement, dated as of August 6, 2014, with CoBank, ACB (“CoBank”), as amended by the First Amendment, dated October 28, 2015.

The Second Amendment amends the prior agreement to, among other things, increase the total commitment by $25,000, from $15,000 to $40,000.

The $40,000 line of credit expires on May 15, 2025.

CTWS also maintained an additional credit agreement of $95,000 with RBS Citizens, N.A., which was reduced to $75,000 on March 1, 2020, with a final maturity on December 14, 2023.

Borrowings under this credit agreement bear interest at the daily LIBOR rate, plus 100 basis points as of December 31, 2020.

As of December 31, 2020, SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $260,000.

At December 31, 2020, the total amount available under these lines of credits was $84,906.

The cost of borrowing on SJW Group’s short-term credit facilities has averaged 1.78% as of December 31, 2020.

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

CTWS Merger Financing Arrangements

In December 2018, SJW Group received net proceeds of approximately $358,256 from the sale of 6,750,000 shares of common stock in a public offering pursuant to an effective shelf registration and received net proceeds of approximately $53,738 from the sale of an additional 1,012,500 shares of common stock, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group.

Prior to the close of the merger with CTWS, the company invested the net offering proceeds in money-market funds.

Funding for SJW Group’s all-cash merger with CTWS which closed on October 9, 2019 was provided through proceeds from the company’s equity offering in December 2018 and the debt financing in October 2019, existing cash balances and cash flow from operations.

SJW Group had previously received a financing commitment letter from lenders, including JPMorgan Chase Bank, N.A., Barclays Bank PLC, Royal Bank of Canada and UBS AG, Stamford Branch to provide a senior unsecured bridge loan facility of up to $975 million in the event that SJW Group was unable to secure other financing for the merger at or prior to the time the merger is completed.

Subsequent to the net proceeds received by SJW Group from the public offering of common stock in 2018, the facility commitment was reduced to $563 million.

On October 9, 2019, the commitment was terminated in connection with the closing of the merger and no amount was funded under such commitment.

Long-term Financing Arrangements

SJW Group and its subsidiaries long-term debt activities are for purposes of refinancing short-term borrowings, funding capital expenditures and working capital, and repayments of maturing long-term debt.

The following table summarizes the long-term debt issuances and repayments for the year ended December 31, 2021:

Issuance (Repayment) Activity Date Maturity Date

Senior Note, Series A, 4.35% $ (50,000) June 2021 June 2021

Senior Note, Series N, 3.30% 50,000 June 2021 June 2051

Senior Note, Series O, 3.00% 50,000 December 2021 December 2051

Bank term loan, 4.09% (1,269) 2021 December 2027

Bank term loan, 4.15% (563) 2021 August 2037

Connecticut Water:

2021A Senior Note, 3.07% 50,000 August 2021 June 2051

2021B Senior Note, 3.10% 50,000 December 2021 December 2051

Connecticut Innovations Revenue Bonds, 5.00% (22,050) December 2021 December 2021

Bank term loan, 4.01% 20,000 May 2021 March 2041

Bank term loan, 4.11% 10,000 December 2021 March 2041

Bank term loan, 3.89% 17,000 March 2021 March 2041

Senior Note, Series G, 3.89% (900) December 2021 December 2024

State revolving fund loans, various series, 0.00%-2.58% (1,331) 2021 2022-2041

The debt and credit agreements of SJW Group and its subsidiaries contain various financial and other covenants.

Non-compliance with these covenants could result in accelerated due dates and termination of the agreements.

In addition, the credit agreements contain customary representations and warranties and are subject to customary events of default, which may result in the outstanding debt becoming immediately due and payable.

As of December 31, 2021, SJW Group and its subsidiaries were in compliance with all covenants related to its long-term debt agreements.

Equity Financing Arrangements

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

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

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

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

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

SJW Group received net proceeds of approximately $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.

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

On November 17, 2021, SJW Group entered into an equity distribution agreement (the “Equity Distribution Agreement”) with J.P.

Morgan Securities LLC, Janney Montgomery Scott LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (each a “Sales Agent” and, collectively, the “Sales Agents”), pursuant to which the Company may offer and sell shares of its common stock, $0.001 par value per share (the “Shares”), from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $100,000.

Pursuant to the Equity Distribution Agreement, the Shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act

of 1933, as amended, including sales by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices, in block transactions, or as otherwise agreed upon by the Company and the Sales Agents.

Proceeds from the sale of the shares under the Equity Distribution Agreement can be used in the financing of acquisitions, including the acquisition of the Kendall West and Bandera East utilities in Texas, infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations, and working capital over the term of the Equity Distribution Agreement as such needs arise.

SJW Group issued and sold a total of 355,115 shares of common stock with a weighted average price of $70.40 per share and received approximately $24,253 in net proceeds under the Equity Distribution Agreement during the year ended December 31, 2021.

Off-Balance Sheet Arrangement/Contractual Obligations

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For further discussion on uncertain tax positions, please see Note 7 of “Notes to Consolidated Financial Statements.”

Water Supply Agreements

SJWC purchases water from Valley Water under terms of a master contract expiring in 2051.

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On June 24, 2021, Valley Water Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 23% through June 30, 2022.

Effective February 1, 2022, the treated water contract delivery schedule will increase by 10%, and Valley Water will evaluate supply conditions and adjust the delivery schedules as appropriate.

Based on current prices and estimated deliveries, SJWC is committed to purchase from Valley Water a minimum of 90% of the reduced delivery schedule, or 18,756 million gallons ($92,902) of water at the current contract water rate of $5.0 per million gallons in the year ending December 31, 2022.

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The contract water rate for Valley Water’s fiscal years 2022, 2021 and 2020 was $5.0, $4.5 and $4.5 per million gallons, respectively.

The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $4.6, $4.2 and $4.2 per million gallons for Valley Water’s fiscal years 2022, 2021 and 2020, respectively.

SJWC also pumps water from the local groundwater basin.

There are no delivery schedules or contractual obligations associated with the purchase of groundwater.

Valley Water determines the groundwater extraction charge and it is applied on a per unit basis.

Valley Water determines the groundwater extraction charge and it is applied on a

per unit basis.

In addition to the Valley Water groundwater extraction charge, SJWC also incurs power costs to pump the groundwater from the basin.

Connecticut Water has an agreement with the South Central Connecticut RWA to purchase water from RWA.

Connecticut Water has an agreement with the RWA to purchase water.

The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective.

Connecticut Water will pay RWA seventy-five dollars per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement.

Connecticut Water will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement.

In addition, Connecticut Water has the option, but is under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement ($2.6 per million gallons as of December 31, 2021).

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The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate wa s $1.51 per hundred cubic feet as of December 31, 2021.

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CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, for 250 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

Employee Benefit Arrangements

SJWC and CTWS sponsor noncontributory defined benefit pension plans and provide health care and life insurance benefits for retired employees.

In 2020, SJWC and CTWS contributed $16,609 and $675 to the pension plan and other postretirement benefit plan, respectively.

In 2021, SJWC and CTWS contributed $13,147 and $669 to the pension plans and other postretirement benefit plans, respectively.

In 2022, SJWC and CTWS expect to make required and discretionary cash contributions of up to $8,820 to the pension plans and other postretirement benefit plans.

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Under these benefit plans, CTWS is committed to pay approximately $846 annually to former officers and directors.

444 West Santa Clara Street, L.P.

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

A real estate development firm owns the remaining 30% limited partnership interest.

A commercial building was constructed on the property of 444 West Santa Clara Street, L.P.

and was leased to an international real estate firm and was sold in 2017.

SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P.

as a variable interest entity within the scope of ASC Topic 810.

The limited partnership interest is expected to dissolve in 2021.

Recently Adopted Accounting Policies and New Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis