H2O AMERICA 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of SJW Group: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of SJW Group and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). We have also audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 49 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Impact of Rate Regulation on the Financial Statements — Refer to Note 3 to the financial statements Critical Audit Matter Description The Company is subject to rate regulation by state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s water and wastewater services. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as depreciable utility plant; regulatory assets and liabilities; operating revenues; operation and maintenance expense; and depreciation expense. The Commissions establish rates for the purpose of permitting the recovery of the cost of service and a return on investment. The Company’s rates are subject to regulatory ratemaking processes. The Company 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 the Company through the ratemaking process. We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s financial statement line items and disclosure impacted by rate regulation and the high degree of subjectivity involved in assessing the impact of regulatory decisions on the financial statements. Management judgments include assessing the probability of (1) recovery in future rates of incurred costs and (2) the requirement to refund amounts to customers. Given that management’s accounting judgements are based on consideration of evidence, such as regulatory rules and decisions, past practice, and other facts and circumstances, and uncertain outcome of future regulatory decisions, auditing these judgements required specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities and pervasive impact on the financial statements. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the consideration of evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, and the uncertain outcome of future regulatory decisions, that may impact the Company’s financial statement line items and disclosures impacted by rate regulation, among others: • We tested the effectiveness of management’s controls over the initial recognition of amounts as utility plant and regulatory assets or liabilities and the evaluation of the probability of (1) the recovery in future rates of costs incurred as utility plant and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or of a future reduction in rates. • We read regulatory orders issued by the Commissions to the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to evaluate management’s determination of the accounting impacts of any new or revised regulatory decisions and their impact on measurement of related regulatory assets and liabilities. • We obtained supporting documentation from management regarding the evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, used in the measurement of regulatory assets and liabilities for compliance with the related orders. We reconciled the underlying data or inputs used in the measurement to rate decisions approved by the Commissions and tested the mathematical accuracy of the calculations. 50 • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded, and regulatory developments, were appropriate and consistent with the information obtained in our procedures. /s/ DELOITTE & TOUCHE LLP San Jose, California February 25, 2022 We have served as the Company’s auditor since 2020. 51 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors SJW Group: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows of SJW Group and subsidiaries (the “Company”) for the year ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the years ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 1933 to 2020. Santa Clara, California March 2, 2020, except for Schedule I, as to which the date is March 1, 2021. 52 SJW Group and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 Assets Utility plant: Land $ 39,004 36,845 Depreciable plant and equipment 3,381,908 3,198,060 Construction in progress 176,427 109,976 Intangible assets 36,276 35,167 3,633,615 3,380,048 Less accumulated depreciation and amortization 1,136,116 1,045,136 2,497,499 2,334,912 Real estate investments and nonutilty properties 57,632 58,129 Less accumulated depreciation and amortization 15,951 14,783 41,681 43,346 Current assets: Cash and cash equivalents: Cash 10,908 5,269 Restricted cash 1,211 4,000 Accounts receivable: Customers, net of allowances for uncollectible accounts of $ 4,600 and $ 3,891 in 2021 and 2020, respectively 53,699 46,832 Income tax 2,308 7,041 Other 4,735 4,269 Accrued unbilled utility revenue 44,026 44,950 Current regulatory assets, net 2,629 1,748 Prepaid expenses 9,667 8,097 Other current assets 4,902 5,125 134,085 127,331 Other assets: Net regulatory assets, less current portion 151,992 156,482 Investments 15,784 14,367 Goodwill 640,471 628,144 Other 10,883 6,883 819,130 805,876 $ 3,492,395 3,311,465 See Accompanying Notes to Consolidated Financial Statements. 53 SJW Group and Subsidiaries CONSOLIDATED BALANCE SHEETS (Continued) (in thousands, except share and per share data) December 31, 2021 2020 Capitalization and Liabilities Capitalization: Stockholders’ equity: Common stock, $ 0.001 par value; authorized 70,000,000 shares in 2021 and 2020; issued and outstanding 30,181,348 shares in 2021 and 28,556,605 shares in 2020 $ 30 29 Additional paid-in capital 606,392 510,158 Retained earnings 428,260 408,037 Accumulated other comprehensive (loss) ( 163 ) ( 1,064 ) Total stockholders’ equity 1,034,519 917,160 Long-term debt, less current portion 1,492,935 1,287,580 2,527,454 2,204,740 Current liabilities: Lines of credit 62,996 175,094 Current portion of long-term debt 39,106 76,241 Accrued groundwater extraction charges, purchased water and power 17,200 19,184 Accounts payable 30,391 34,200 Accrued interest 14,174 12,861 Accrued payroll 11,583 14,012 Other current liabilities 27,821 19,203 203,271 350,795 Deferred income taxes 200,451 191,415 Advances for construction 130,693 125,027 Contributions in aid of construction 316,479 296,105 Postretirement benefit plans 89,998 121,597 Other noncurrent liabilities 24,049 21,786 Commitments and contingencies $ 3,492,395 3,311,465 See Accompanying Notes to Consolidated Financial Statements. 54 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 (in thousands, except share and per share data) 2021 2020 2019 Operating revenue $ 573,686 564,526 420,482 Operating expense: Production Expenses: Purchased water 98,231 100,723 99,118 Power 13,511 13,330 7,443 Groundwater extraction charges 75,866 71,359 43,917 Other production expenses 41,475 40,380 25,291 Total production expenses 229,083 225,792 175,769 Administrative and general 87,332 79,741 66,301 Maintenance 26,031 22,158 20,505 Property taxes and other non-income taxes 30,964 29,886 19,068 Depreciation and amortization 94,400 89,279 65,592 Gain on sale of nonutility properties ( 7,494 ) — — Impairment of long-lived asset 2,211 — — Merger related expenses — — 15,768 Total operating expense 462,527 446,856 363,003 Operating income 111,159 117,670 57,479 Other (expense) income: Interest on long-term debt, mortgage and other interest expense ( 54,339 ) ( 54,255 ) ( 31,796 ) Pension non-service cost 1,330 ( 374 ) ( 3,158 ) Gain on sale of Texas Water Alliance (“TWA”) 3,000 — — Gain on sale of real estate investments 927 948 929 Interest income on money market fund — — 6,536 Other, net 6,770 5,906 2,091 Income before income taxes 68,847 69,895 32,081 Provision for income taxes 8,369 8,380 8,454 Net income before noncontrolling interest 60,478 61,515 23,627 Less net income attributable to the noncontrolling interest — — 224 SJW Group net income 60,478 61,515 23,403 Other comprehensive income: Unrealized gain (loss) on investment, net of taxes of $ 68 in 2021, $ 247 in 2020 and $ 43 in 2019 185 ( 310 ) 117 Adjustment to pension benefit plans, net of taxes of $ 264 in 2021, $( 324 ) in 2020 and $ 22 in 2019 716 ( 880 ) 9 SJW Group comprehensive income $ 61,379 60,325 23,529 SJW Group earnings per share —Basic $ 2.04 2.16 0.82 —Diluted $ 2.03 2.14 0.82 Weighted average shares outstanding —Basic 29,601,284 28,521,900 28,443,052 —Diluted 29,735,533 28,694,986 28,562,546 See Accompanying Notes to Consolidated Financial Statements. 55 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total Stockholders’ Equity Number of Shares Amount Balances, December 31, 2018 28,404,316 $ 28 495,366 393,918 — — 889,312 Net income — — — 23,403 — 224 23,627 Cumulative effect of change in accounting principle, net of tax effect of $ 33 — — — 97 — — 97 Distribution to noncontrolling interest — — — — — ( 224 ) ( 224 ) Unrealized income on investment, net of tax effect of $ 43 — — — — 117 — 117 Adjustment to pension benefit plans, net of taxes of $ 22 — — — — 9 — 9 Share-based compensation — — 3,406 ( 93 ) — — 3,313 Share-based compensation related to business combination — — 6,384 — — — 6,384 Issuance of restricted and deferred stock units 21,909 — ( 110 ) — — — ( 110 ) Employee stock purchase plan 30,283 — 1,603 — — — 1,603 Common stock issued, net of costs — — ( 10 ) — — — ( 10 ) Dividends paid ($ 1.20 per share) — — — ( 34,134 ) — — ( 34,134 ) Balances, December 31, 2019 28,456,508 28 506,639 383,191 126 — 889,984 Net income — — — 61,515 — — 61,515 Unrealized loss on investment, net of tax effect of $ 247 — — — — ( 310 ) — ( 310 ) Adjustment to pension benefit plans, net of taxes of $( 324 ) — — — — ( 880 ) — ( 880 ) Share-based compensation — — 3,553 ( 160 ) — — 3,393 Issuance of restricted and deferred stock units 68,347 1 ( 1,864 ) — — — ( 1,863 ) Employee stock purchase plan 31,750 — 1,830 — — — 1,830 Dividends paid ($ 1.28 per share) — — — ( 36,509 ) — — ( 36,509 ) Balances, December 31, 2020 28,556,605 29 510,158 408,037 ( 1,064 ) — 917,160 Net income — — — 60,478 — — 60,478 Unrealized gain on investment, net of tax effect of $ 68 — — — — 185 — 185 Adjustment to pension benefit plans, net of taxes of $ 264 — — — — 716 — 716 Share-based compensation — — 4,246 ( 118 ) — — 4,128 Issuance of restricted and deferred stock units 49,824 — ( 1,066 ) — — — ( 1,066 ) Employee stock purchase plan 35,304 — 2,026 — — — 2,026 Common stock issuance, net of costs 1,539,615 1 91,028 — — — 91,029 Dividends paid ($ 1.36 per share) — — — ( 40,137 ) — — ( 40,137 ) Balances, December 31, 2021 30,181,348 $ 30 606,392 428,260 ( 163 ) — 1,034,519 See Accompanying Notes to Consolidated Financial Statements. 56 SJW Group and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands) 2021 2020 2019 Operating activities: Net income before noncontrolling interest $ 60,478 61,515 23,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 96,474 91,622 68,489 Deferred income taxes ( 2,851 ) ( 5,497 ) ( 1,249 ) Share-based compensation 4,246 3,553 3,406 Gain on sale of TWA, real estate investments and nonutility properties ( 11,421 ) ( 948 ) ( 909 ) Allowance for equity funds used during construction ( 1,926 ) ( 1,249 ) — Impairment of long-lived asset 2,211 — — Changes in operating assets and liabilities, net of acquired assets and liabilities: Accounts receivable and accrued unbilled utility revenue ( 5,931 ) ( 18,918 ) ( 3,860 ) Accounts payable and other current liabilities 4,843 ( 357 ) 1,946 Accrued groundwater extraction charges, purchased water and power ( 1,984 ) 1,973 2,853 Tax receivable and accrued taxes ( 6,416 ) ( 3,557 ) ( 6,044 ) Postretirement benefits ( 4,312 ) ( 2,965 ) ( 4,000 ) Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits ( 14,629 ) ( 14,459 ) 30,838 Up-front service concession payment — ( 5,000 ) — Other noncurrent assets and noncurrent liabilities 13,381 751 7,439 Other changes, net ( 2,123 ) ( 2,413 ) 7,469 Net cash provided by operating activities 130,040 104,051 130,005 Investing activities: Additions to utility plant: Company-funded ( 233,933 ) ( 195,323 ) ( 164,325 ) Contributions in aid of construction ( 17,096 ) ( 17,096 ) ( 13,563 ) Additions to real estate investment ( 826 ) ( 435 ) ( 137 ) Payments for business/asset acquisitions ( 23,587 ) — ( 835,465 ) Cost to retire utility plant, net of salvage ( 2,781 ) ( 2,556 ) ( 5,026 ) Proceeds from sale of TWA, real estate investments and nonutility properties 18,228 1,151 745 Net cash used in investing activities ( 259,995 ) ( 214,259 ) ( 1,017,771 ) Financing activities: Borrowings from lines of credit 96,625 276,174 105,349 Repayments of lines of credit ( 208,722 ) ( 218,289 ) ( 192,055 ) Long-term borrowings 247,000 85,000 590,000 Long-term borrowings held as restricted cash — 4,000 5,000 Repayments of long-term borrowings ( 76,113 ) ( 28,931 ) ( 1,400 ) Dividends paid ( 40,137 ) ( 36,509 ) ( 34,134 ) Receipts of advances and contributions in aid of construction 26,438 23,874 18,904 Refunds of advances for construction ( 2,852 ) ( 2,767 ) ( 2,911 ) Issuance of common stock, net of issuance costs 91,028 — ( 10 ) Other changes, net ( 462 ) ( 1,019 ) ( 3,755 ) Net cash provided by financing activities 132,805 101,533 484,988 Net change in cash, cash equivalents and restricted cash 2,850 ( 8,675 ) ( 402,778 ) Cash, cash equivalents and restricted cash, beginning of year 9,269 17,944 420,722 Cash, cash equivalents and restricted cash, end of year 12,119 9,269 17,944 Less restricted cash, end of year 1,211 4,000 5,000 Cash and cash equivalents, end of year $ 10,908 5,269 12,944 Cash paid during the year for: Interest $ 58,175 59,955 32,138 Income taxes $ 8,466 10,380 16,448 Supplemental disclosure of non-cash activities: (Decrease) Increase in accrued payables for construction costs capitalized $ ( 5,436 ) 1,448 ( 516 ) Utility property installed by developers $ 2,659 9,779 3,077 See Accompanying Notes to Consolidated Financial Statements. 57 SJW GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2021, 2020 and 2019 (Dollars in thousands, except share and per share data) Note 1. Organization and Operations The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SJW Group, its wholly owned subsidiaries, and two variable interest entities in which two SJW Group subsidiaries are the primary beneficiaries. The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators. All intercompany transactions and balances have been eliminated in consolidation. The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators and conform to generally accepted accounting principles for rate-regulated public utilities. SJW Group’s subsidiaries are as follows: San Jose Water Company (“SJWC”), is a regulated California water utility providing water service to approximately 231,000 connections that serve approximately one million people in the greater metropolitan San Jose area. Approximately 92 % of SJWC’s revenues are derived from the sale of water to residential and business customers. SJWNE, LLC is a special purpose entity holding company for SJW Group’s investment in Connecticut Water Service, Inc. Connecticut Water Service, Inc., headquartered in Connecticut, is a holding company for water utilities companies providing water service to approximately 140,000 connections that serve a population of approximately 456,000 people in 81 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut. Connecticut Water Service, Inc. and its subsidiaries (“CTWS”) became a wholly-owned subsidiary of SJWNE LLC which is a wholly-owned subsidiary of SJW Group (see, Note 1 4 , “Business Combinations”) in 2019. The subsidiaries held by Connecticut Water Service, Inc. that provide utility water services are The Connecticut Water Company (“Connecticut Water”) and The Maine Water Company (“Maine Water”). The remaining two subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc. (“NEWUS”), which provides contract water and sewer operations and other water related services. SJWTX, Inc. is doing business as Canyon Lake Water Service Company (“CLWSC”). CLWSC is a public utility in the business of providing water service to approximately 24,000 service connections that serve a population of approximately 70,000 people. CLWSC’s service area comprises more than 266 square miles in the southern region of the Texas Hill Country in Bandera, Blanco, Comal, Hays, Kendall, Medina and Travis counties, 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. SJWTX, Inc. has a 25 % interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc. SJWTX, Inc is undergoing a corporate reorganization to separate regulated operations from non-tariffed activities. In November 2021, SJWTX Holdings, Inc. (“SJWTX Holdings”) and Texas Water Operation Services LLC (“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. and TWOS. In addition, in 2022, SJWTX Holdings intends to create a new subsidiary to hold future wholesale water supply assets. SJW Land Company owns a commercial property and undeveloped real estate property in the states of California and Tennessee and owns and operates commercial properties in the state of Tennessee. Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. 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. 58 Note 2. Summary of Significant Accounting Policies Recently Adopted Accounting Principles In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 was effective for SJW Group in the first quarter of fiscal year 2021. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciable Utility Plant and Equipment The major components of depreciable plant and equipment as of December 31, 2021 and 2020 are as follows: 2021 2020 Equipment $ 598,285 567,904 Transmission and distribution 1,802,008 1,699,953 Office buildings and other structures 981,615 930,203 Total depreciable plant and equipment $ 3,381,908 3,198,060 Depreciation is computed using the straight-line method over the estimated remaining service lives of groups of assets. The estimated service lives of depreciable plant and equipment are as follows: Useful Lives Equipment 5 to 35 years Transmission and distribution plant 35 to 75 years Office buildings and other structures 7 to 50 years For the years 2021, 2020 and 2019, depreciation expense as a percent of the beginning of the year balance of depreciable plant was approximately 3.2 %, 3.2 % and 3.8 %, respectively. Depreciation expense for utility plant for the years ended December 31, 2021, 2020 and 2019 was $ 91,906 , $ 86,823 and $ 63,785 , respectively. The cost of utility plant retired, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized. As of December 31, 2021 and 2020, accrued payables for additions to depreciable utility plant were $ 20,579 and $ 24,571 , respectively. Allowance For Funds Used During Construction (“AFUDC”) AFUDC represents the capitalized costs of borrowed funds or a return on equity funds used to finance utility plant under construction and is capitalized as part of construction work in progress. AFUDC is recorded to the extent approved by the respective states’ utility regulators and is recovered through water rates as the utility plant depreciates. The amount of interest capitalized in 2021, 2020 and 2019 was $ 4,422 , $ 4,133 and $ 4,323 , respectively. Interest on long-term debt is presented net of amounts capitalized on the Consolidated Statement of Comprehensive Income. The amount of equity funds capitalized in 2021, 2020 and 2019 was $ 1,926 , $ 1,249 and $ 198 , respectively, reflected in “Other, net” on the Consolidated Statement of Comprehensive Income. Prior to the merger with CTWS on October 9, 2019, SJW Group did not have AFUDC for equity funds. Intangible Assets Intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful life of the asset, ranging from 5 to 70 years (see Note 8 , “Utility Plant Intangible Assets”). 59 Real Estate Investments and Nonutility Properties Real estate investments and nonutility properties are recorded at cost and consist primarily of land and buildings. Net gains and losses from the sale of real estate investments and nonutility properties are recorded as a component of other (expense) income and operating expense, respectively, in the Consolidated Statements of Comprehensive Income. Nonutility property is property that is neither used nor useful in providing water utility services to customers and is excluded from rate base for rate-setting purposes. SJWC recognizes gain/loss on disposition of nonutility property in accordance with California Public Utilities Commission (“CPUC”) Code Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to customers. CTWS and CLWSC do not have regulatory restrictions on the use of proceeds from the sale of nonutility property. There is no depreciation associated with Water Utility Services nonutility property as it is all undeveloped land. The major components of real estate investments and nonutility properties as of December 31, 2021 and 2020 are as follows: 2021 2020 Land $ 12,615 14,168 Buildings and improvements 45,017 43,961 Total real estate investments and nonutility properties $ 57,632 58,129 Depreciation on buildings and improvements for real estate investments is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years. A former wholly owned subsidiary of SJW Group, Texas Water Alliance Limited was sold to Guadalupe-Blanco River Authority (“GBRA”) in 2017. The sales agreement with GBRA included a holdback amount of $ 3,000 to be paid to SJW Group on June 30, 2021, subject to reduction under certain conditions. SJW Group received the holdback amount without reduction from the GBRA on June 29, 2021 and recognized a pre-tax gain on sale of $ 3,000 . On October 29, 2021, San Jose Water sold two nonutility properties located in San Jose, California for $ 13,150 . SJW Group recognized a pre-tax gain on the sale of nonutility properties of $ 7,230 , after selling expenses of $ 277 for one of the properties sold, and a gain of $ 5,442 was deferred on the other nonutility property pending CPUC review. On February 15, 2022, the CPUC review was completed and the deferred gain will be recognized in the first quarter of 2022. Also, on October 29, 2021, SJW Land sold undeveloped land located in San Jose, California for $ 2,600 . SJW Group recognized a pre-tax gain on the sale of real estate investments of $ 927 , after selling expenses of $ 121 . On September 28, 2020, SJWC sold six nonutility properties located in Los Gatos, California for $ 1,075 . SJW Group recognized a pre-tax gain on the sale of real estate investments of $ 1,048 , after selling expenses of $ 22 . Real estate investments include $ 58,330 and $ 57,273 as of December 31, 2021 and 2020, respectively, of assets that are leased or available for lease. The following schedule shows the future minimum rental payments to be received from third parties under operating leases that have remaining noncancelable lease terms in excess of one year as of December 31, 2021: Year ending December 31: Rental Revenue 2022 $ 4,251 2023 4,230 2024 2,990 2025 2,912 2026 3,075 Thereafter 4,753 Business Combinations SJW Group applies the provisions of Accounting Standards Codification (“ASC”) Topic 805—“Business Combinations” for the purchase accounting related to business acquisitions. 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 uses best available estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, such estimates are inherently uncertain and subject to refinement. As a result, during the one year measurement period from the acquisition date, we record 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 60 of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are 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 the acquired company’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. See Note 1 4 , “Business Combinations” for further discussion. Impairment of Long-Lived Assets and Goodwill In accordance with the requirements of FASB ASC Topic 360—“Property, Plant and Equipment,” the long-lived assets of SJW Group are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values of the assets. When such changes in circumstances or events occur, the company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. To the extent an impairment exists, the asset is written down to its estimated fair value with a corresponding charge to operations in the period in which the impairment is identified. Long-lived assets consist primarily of utility plant in service, goodwill, regulatory assets, real estate investments and intangible assets. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, 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. During the year ended December 31, 2021, SJW Group determined that an implementation project for a customer care billing system at CLWSC will no longer be pursued and accordingly wrote-off $ 2,211 of accumulated costs for the project that were previously recorded as construction in progress on the consolidated balance sheets. No impairments occurred during 2020 and 2019. Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. SJW Group’s goodwill is primarily associated with the recent merger with CTWS in 2019. As of October 1, 2021, SJW Group performed a qualitative assessment and found no indicators of impairment and therefore did not perform the quantitative impairment test. No goodwill impairments occurred during 2021, 2020 or 2019. Cash and Cash Equivalents, and Restricted Cash Cash and cash equivalents primarily consist of cash on deposit with banks with maturities of three months or less from the date of purchase. Restricted funds consist of proceeds from state revolving fund bond issuances to Maine Water of $ 4,000 on December 23, 2020, for capital expenditures. Proceeds are held by a trustee for the bonds and as funding conditions are met, funds are released. As of December 31, 2021, $ 2,789 of the proceeds from the December 23, 2020, bond were released by the trustee, and a balance of $ 1,211 remains. No bond issuances of this nature took place during 2021. Financial Instruments and Investments The following instruments are not measured at fair value on the company’s consolidated balance sheets but require disclosure of fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments approximates their carrying value as reported on the consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1. The fair value of long-term debt is discussed in Note 6 , “Long-Term Debt” and pension plan assets in Note 11 , “Benefit Plans”. 61 SJW Group has investments in company owned life insurance which are valued at cash surrender value of the policies as reported by the insurer. The value of these contracts is based principally on a referenced pool of investment funds that actively redeem shares, are observable and measurable, and are presented in “Other investments” on SJW Group’s Consolidated Balance Sheets. As of December 31, 2021 and 2020, the value of the company owned life insurance was $ 8,026 and $ 8,026 , respectively, of which $ 4,191 and $ 4,311 , respectively, was related to assets to fund CTWS’ supplemental retirement plan agreements. See discussion on pension plans in Note 11 , “Benefit Plans”. Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the effect of temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. To the extent permitted by the regulators, investment tax credits resulting from utility plant additions are deferred and amortized over the estimated useful lives of the related property. Advances for Construction and Contributions in Aid of Construction In California, advances for construction received after 1981 are primarily refunded ratably over 40 years. In Connecticut and Maine, advances for construction are refunded as services are connected to the main, over periods not exceeding 15 years and in Texas advances for construction are non-refundable. Estimated refunds for the next five years and thereafter are shown below: Estimated Refunds 2022 $ 3,609 2023 3,548 2024 3,282 2025 3,030 2026 2,809 Thereafter 49,582 As of December 31, 2021, advances for construction were $ 130,693 of which $ 36,388 was related to non-refundable advances for construction and $ 28,445 was related to advances which are refunded based on service connections made. As of December 31, 2021 and 2020, the fair value of the advances for construction refunded ratably over 40 years is $ 51,067 and $ 50,391 , respectively. Contributions in aid of construction represent funds received from developers that are not refundable under applicable regulations. Depreciation applicable to utility plant constructed with these contributions is charged to contributions in aid of construction. Customer advances and contributions in aid of construction received subsequent to 1986 and prior to June 12, 1996, generally must be included in federal taxable income, except for CTWS. Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances and over the tax depreciable life of the related asset for contributions. Receipts subsequent to June 12, 1996, are generally exempt from federal taxable income, unless specifically prescribed under treasury regulations, including CTWS. Advances and contributions received subsequent to 1991 and prior to 1997 are included in state taxable income, except for CTWS. Asset Retirement Obligation SJW Group’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects principally the retirement costs of wells and other anticipated clean-up costs, which by law, must be remediated upon retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, a regulatory asset is also recorded. 62 As of December 31, 2021 and 2020, the asset retirement obligation is as follows: 2021 2020 Retirement obligation $ 4,511 4,619 Discount rate 6 % 6 % Retirement obligation, present value $ 925 939 Revenue Management has determined that the company has principally five categories of revenues. The first category is recognized in accordance with ASC Topic 606- “Revenue from Contracts with Customers” and represents metered revenue of Water Utility Services which includes billings to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period. SJW Group satisfies its performance obligation upon delivery of water to the customer at which time the customer consumes the benefits provided by the company. The customer is typically billed on a quarterly or bi-monthly basis after water delivery has occurred. The customer is charged both a service charge which is based upon meter size and covers a portion of the fixed costs of furnishing water to the customer and a consumption charge based on actual water usage. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. As the company has the right to bill for services that it has provided, SJW Group estimates the dollar value of deliveries during the unbilled period and recognizes the associated revenue. Actual results could differ from those estimates, which may result in an adjustment to revenue when billed in a subsequent period. The second category is recognized in accordance with ASC Topic 980-605-25, “Alternative Revenue Programs”. Under Programs established by the CPUC and Public Utilities Regulatory Authority of Connecticut (“PURA”), allowing for automatic adjustment of future rates, the company recognizes revenue when it is objectively determinable, probable of recovery and expected to be collected within 24 months of the year-end in which the revenue is recognized. A reserve, based on an estimate of actual usage over the recovery period, is recorded for amounts SJW Group estimates will not be collected within the 24-month period. SJW Group’s alternative revenue programs include SJWC’s Water Conservation Memorandum Account (“WCMA”) and CTWS’s Water Rate Adjustment mechanism (“WRA”). • The WCMA allows SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reductions. SJWC records the lost revenue captured in the WCMA balancing accounts. In 2021, with the declaration of a drought emergency and conservation mandates in California by Governor Gavin Newsom and Santa Clara Valley Water District (“Valley Water”), SJWC obtained approval to reestablish a WCMA effective July 20, 2021. For the year ended December 31, 2021, SJWC recognized $ 3,243 in lost revenues accumulated in the WCMA. In December 2019, CPUC denied SJWC’s request to recover the 2018 WCMA balance due to drought mandatory conservation mandates that ended in 2017. As a result of the decision, during the year ended December 31, 2019, SJWC wrote off a total balance of $ 9,386 related to 2018 lost revenue and $ 639 related to 2019 lost revenue that was recorded in the 2018 and 2019 WCMA accounts, respectively. • The WRA allows Connecticut Water to mitigate risk associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings. The third and fourth category represents the impact of other balancing and memorandum accounts and other regulatory mechanisms that are accounted for under FASB ASC Topic 980 - “Regulated Operations”. Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. The last category, rental income, represents lease rental income. Tenants pay monthly in accordance with lease agreements and SJW Group recognizes the income ratably over the lease term as this is the most representative of the pattern in which the benefit is expected to be derived from SJW Group’s underlying asset. 63 The major streams of revenue for SJW Group are as follows: 2021 2020 2019 Revenue from contracts with customers $ 559,568 549,270 447,720 Alternative revenue programs, net 5,304 ( 493 ) ( 18,232 ) Other balancing and memorandum accounts, net 5,138 11,856 ( 30,092 ) Other regulatory mechanisms, net ( 1,703 ) ( 1,639 ) 15,689 Rental income 5,379 5,532 5,397 $ 573,686 564,526 420,482 Revenue also includes a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses. For the years ended December 31, 2021, 2020 and 2019, the surcharge was $ 5,691 , $ 4,911 and $ 4,955 , respectively. Share-Based Compensation SJW Group calculates the fair value of service-based and performance-based restricted stock awards based on the grant date fair value of the company’s stock price reduced by the present value of the dividends expected to be declared on outstanding shares. SJW Group utilizes the Monte Carlo valuation model, which requires the use of subjective assumptions, to compute the fair value of market-vesting restricted stock units. The compensation cost for service-based restricted stock awards are charged to income on a straight-line basis over the requisite service period, which is the vesting period. For performance-based stock awards, compensation expense is charged to income on a straight-line basis over the requisite service period based on expected attainment of performance targets. Changes in the estimates of the expected attainment of performance targets will result in a change in the number of shares that are expected to vest which may cause a cumulative catch up for the amount of share-based compensation expense during each reporting period in which such estimates are altered. Forfeitures are accounted for as they occur. Earnings per Share Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with deferred restricted common stock awards under SJW Group’s Long-Term Incentive Plan and shares potentially issuable under the Employee Stock Purchase Plans. Restricted common stock units of 16,347 , 22,396 and 27,082 as of December 31, 2021, 2020 and 2019, respectively, were excluded from the dilutive earnings per share calculation as their effect would have been anti-dilutive. Note 3. Regulatory Matters Regulation Water Utility Services are subject to rate regulation based on cost recovery and meets the criteria of accounting guidance for rate-regulated operations, which considers the timing of the recognition of certain revenues and expenses. SJW Group’s consolidated financial statements reflect the effects of the rate-making process. The rate-making process is intended to provide revenues sufficient to recover normal operating expenses, provide funds for replacement of water infrastructure and produce a fair and reasonable return on stockholder common equity. Regulatory Assets, Net Water Utility Services recognizes regulatory assets and liabilities for amounts that are deemed probable of recovery from, or refund to, customers. Determining probability requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate that recovery or refund is probable. If the utility determines that it is no longer probable that regulatory assets would be recovered or reflected in future rates, or if the utility ceased to be subject to rate regulation, the regulatory assets would be charged against income in the period in which that determination was made. If regulatory accounting did not apply, the utility’s future financial results could become more volatile as compared to historical financial results due to the differences in the timing of expense or revenue recognition. 64 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. Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when it is determined that the asset is no longer probable of recovery. SJW Group continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows. SJW Group’s net regulatory assets not earning a return primarily included postretirement pensions and other medical benefits unfunded amounts, and business combinations debt premium, net. The total amount of net regulatory assets not earning a return at December 31, 2021 and 2020, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $ 84,887 and $ 119,236 , respectively. Regulatory assets, net are comprised of the following as of December 31: 2021 2020 Regulatory assets: Income tax temporary differences, net (a) $ 22,420 6,230 Postretirement pensions and other medical benefits 62,197 94,362 Business combinations debt premium 19,937 22,479 Balancing and memorandum accounts, net 38,334 25,463 WRA (b) 2,588 323 Other, net (c) 9,145 9,373 Total regulatory assets, net 154,621 158,230 Less: current regulatory asset, net 2,629 1,748 Total regulatory assets, net, less current portion $ 151,992 156,482 ___________________________________ (a) The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years. (b) WRA is a Connecticut Water decoupling mechanism that qualifies as an alternative revenue program. It is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case. (c) Other, net includes other regulatory mechanisms, accrued benefits for vacation, and asset retirement obligations that have not yet been passed through in rates. Balancing and Memorandum Accounts In California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC. All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2 % of authorized revenue, whichever occurs first. As of December 31, 2021, the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $ 2,312 . 65 SJWC met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded regulatory assets, net, as follows: For the year ended December 31, 2021 Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance Revenue accounts: Monterey Water Revenue Adjustment Mechanism (“MWRAM”) $ 12,077 4,788 1 16,866 WCMA (a) 666 3,243 ( 375 ) 3,534 Cost of capital memorandum accounts ( 1,561 ) ( 2 ) — ( 1,563 ) Tax memorandum account 333 — — 333 All others ( 1,472 ) 750 3 ( 719 ) Total revenue accounts 10,043 8,779 ( 371 ) 18,451 Cost-recovery accounts: Water supply costs 8,123 2,421 1 10,545 Pension 3,478 1,464 ( 1 ) 4,941 PRVMA (b) 1,108 1 ( 402 ) 707 CEMA (c) 2,266 979 — 3,245 All others 445 — — 445 Total cost-recovery accounts 15,420 4,865 ( 402 ) 19,883 Total $ 25,463 13,644 ( 773 ) 38,334 For the year ended December 31, 2020 Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance Revenue accounts: MWRAM $ 7,015 2,464 2,598 12,077 WCMA 708 — ( 42 ) 666 Cost of capital memorandum accounts ( 1,553 ) ( 8 ) — ( 1,561 ) Tax memorandum account ( 6,643 ) ( 2 ) 6,978 333 All others ( 1,467 ) 62 ( 67 ) ( 1,472 ) Total revenue accounts ( 1,940 ) 2,516 9,467 10,043 Cost-recovery accounts: Water supply costs 4,328 3,828 ( 33 ) 8,123 Pension 2,449 1,008 21 3,478 PRVMA (b) — 1,219 ( 111 ) 1,108 CEMA (c) — 2,266 — 2,266 All others 446 3 ( 4 ) 445 Total cost-recovery accounts 7,223 8,324 ( 127 ) 15,420 Total $ 5,283 10,840 9,340 25,463 ___________________________________ (a) In 2021, with the declaration of a drought emergency and conservation mandates in California by Governor Gavin Newsom and Valley Water, SJWC obtained approval to reestablish a WCMA effective July 20, 2021. For the year ended December 31, 2021, SJWC recognized $ 3,243 in lost revenues accumulated in the WCMA. (b) On August 27, 2020, the Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) costs of $ 1,219 were approved for recovery by the CPUC. (c) On March 4, 2020, the California Governor declared a State of Emergency related to COVID-19. In response, the CPUC ordered its regulated water utilities to implement emergency customer protections in accordance with the Company’s Disaster Relief Customer Protections and Outreach Plan, including waiving reconnection deposits, offering payment arrangements, suspending water service disconnections due to non-payment and requiring water utilities to develop a transition plan regarding shutoffs and terminations with customers once the moratorium ends. The customer protections currently extend through February 1, 2022. As a result, CPUC authorized water utilities to activate a COVID-19 Catastrophic Event Memorandum Account (“CEMA") in order to track savings and costs related to SJWC’s response, which includes labor and materials, increases in bad debt from the suspension of shutoffs for non-payment, waived deposits and reconnection fees, and divergence from actual versus authorized 66 usage. The CEMA was activated for SJWC through the filing of Advice Letter 546 on March 19, 2020. SJWC anticipates requesting recovery of the COVID-19 pandemic response costs in a future general rate case or other filings. SJWC has determined that future recovery of the account is probable and recognized a regulatory asset of $ 979 and $ 2,266 in the years ended December 31, 2021 and 2020, respectively. Note 4. Capitalization SJW Group is authorized to issue 70,000,000 shares of common stock of $ 0.001 par value per share. At December 31, 2021 and 2020, 30,181,348 and 28,556,605 , respectively, shares of common stock were issued and outstanding. As of December 31, 2021 and 2020, 1,000,000 shares of preferred stock of $ 0.001 par value per share were authorized for SJW Group. At December 31, 2021 and 2020, no shares of preferred stock were issued or outstanding. 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 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 (the “Offering”). 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. Note 5. Lines of Credit 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 agreements as of December 31, 2021 and 2020 are as follows: 2021 2020 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 SJWTX, Inc. 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 . 67 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. 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 the lines of credit. 68 Note 6. Long-Term Debt Long-term debt as of December 31 was as follows: Description Rate Maturity 2021 2020 SJW Group Senior notes (a) 2.47 % - 3.53 % 2029 - 2039 $ 560,000 610,000 SJWC: Senior notes (a) 3.00 % - 8.58 % 2022 - 2051 420,000 320,000 California Pollution Control Financing Authority Revenue Bonds 4.75 %, 5.10 % 2040, 2046 120,000 120,000 Total SJWC 540,000 440,000 CTWS bank term loans 4.09 %, 4.15 % 2027, 2037 20,351 22,169 Connecticut Water: Connecticut Innovations Revenue Bonds, variable rate 2028 - 2029 22,050 22,050 Connecticut Innovations Revenue Bonds, fixed rate — 22,260 Senior notes (a) 3.07 % - 3.53 % 2037 - 2051 170,000 70,000 Bank term loans 3.51 % - 4.75 % 2022 - 2036 111,090 111,090 Total Connecticut Water 303,140 225,400 SJWTX, Inc.: Senior note (a) 6.27 % 2036 15,000 15,000 Bank term loans 4.01 %, 4.11 % 2041 30,000 — Total SJWTX, Inc. 45,000 15,000 Maine Water: State revolving fund loans 0.00 % - 2.58 % 2022 - 2048 17,264 18,651 Other First Mortgage Bond 8.95 % 2024 2,700 3,600 Bank term loans 3.89 % - 5.51 % 2024 - 2043 34,500 17,500 Total Maine Water 54,464 39,751 Total debt 1,522,955 1,352,320 Unamortized debt premium, net (b) 19,937 22,479 Unamortized debt issuance costs ( 10,851 ) ( 10,978 ) Current portion ( 39,106 ) ( 76,241 ) Total long-term debt, less current portion $ 1,492,935 1,287,580 ___________________________________ (a) Senior notes held by institutional investors are unsecured obligations of SJW Group, SJWC, Connecticut Water, SJWTX, Inc. and Maine Water and require interest-only payments until maturity. To minimize issuance costs, the companies’ debt has primarily been placed privately. (b) Consists of fair value adjustments recognized through purchase accounting for the completed merger with CTWS on October 9, 2019. The following is a table of the consolidated company’s schedule of principal payments: Year 2022 $ 39,179 2023 4,360 2024 48,983 2025 3,648 2026 23,303 Thereafter 1,403,482 The estimated fair value of long-term debt as of December 31, 2021 and 2020 was approximately $ 1,651,825 and $ 1,570,727 , respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the Company. The fair value of long-term debt would be categorized as Level 2 of the fair value hierarchy. 69 SJW Group 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. SJWC On June 25, 2021, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance (collectively the “Purchasers”), pursuant to which the company sold an aggregate principal amount of $ 50,000 of its 3.00 % Senior Notes, Series N (“Series N Notes”) to the Purchasers. The Series N Notes are unsecured obligations of SJWC and are due on June 25, 2051. Interest is payable semi-annually in arrears on January 1st and July 1st of each year. The closing occurred simultaneously with the signing of the note purchase agreement. 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 closing of the note purchase agreement occurred on December 1, 2021. Connecticut Water 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 on December 1, 2021, sold 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 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 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. On March 12, 2020, Connecticut Water entered into a note purchase agreement with NYL Investors, LLC as agent of 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. SJWTX, Inc. On May 13, 2021, CLWSC entered into a master credit agreement and promissory note with a commercial bank under which it entered into a borrowing agreement for an aggregate principal amount not to exceed $ 30,000 , of which $ 20,000 was advanced at the closing date. The borrowing carries a fixed interest rate of 4.01 % due on March 20, 2041. On December 1, 2021, the remaining aggregate principal amount of the promissory note, $ 10,000 , was advanced to CLWSC at a fixed interest rate of 4.11 %. The notes are unsecured obligations of CLWSC. Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year. Maine Water On March 2, 2021, Maine Water entered into a credit agreement with a commercial bank, pursuant to an existing master loan agreement under which the commercial bank issued Maine Water a promissory note on the same date with an aggregate principal amount of $ 17,000 and a fixed interest rate of 3.89 %, due March 1, 2041. The notes are unsecured obligations of Maine Water. Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year. Proceeds from the borrowing were received on March 18, 2021. 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 were 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. Financial Covenants 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 70 agreements contain customary representations and warranties and subject to customary events of default, which may result in outstanding notes 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. Note 7. Income Taxes The components of income tax expense were: 2021 2020 2019 Current: Federal $ 8,587 11,349 7,577 State 2,633 2,528 2,126 Deferred: Federal ( 3,811 ) ( 8,073 ) ( 1,929 ) State 960 2,576 680 $ 8,369 8,380 8,454 The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $ 68,847 , $ 69,895 and $ 32,081 in 2021, 2020 and 2019: 2021 2020 2019 Income tax at federal statutory rate $ 14,458 14,678 6,737 Increase (decrease) in taxes attributable to: State taxes, net of federal income tax benefit 4,572 4,142 2,251 Uncertain tax positions 1,678 1,351 323 Property flow-through ( 8,573 ) ( 9,215 ) ( 2,054 ) Capitalized merger costs — ( 296 ) 5,350 Tax reform - rate change impact on deferred taxes — — 77 Reversal of excess deferred taxes recognized in regulatory liability ( 3,295 ) ( 2,912 ) ( 2,355 ) Pension flow-through 429 92 ( 1,244 ) Stock-based compensation ( 331 ) ( 333 ) ( 223 ) Other items, net ( 569 ) 873 ( 408 ) $ 8,369 8,380 8,454 71 The components of the net deferred tax liability as of December 31 was as follows: 2021 2020 Deferred tax assets: Advances and contributions $ 24,584 22,573 Unamortized investment tax credit 599 619 Pensions, postretirement benefits and stock-based compensation 32,396 41,180 Debt premium, net 5,579 6,290 California franchise tax 514 756 Net operating loss — 550 Other 8,128 6,792 Total deferred tax assets 71,800 78,760 Deferred tax liabilities: Utility plant 216,497 209,541 Pension and postretirement 24,779 31,227 Deferred gain and other-property 5,901 5,875 Regulatory asset - business combinations debt premium, net 5,579 6,290 Intangibles 3,193 3,443 Deferred revenue 773 297 Regulatory asset - income tax temporary differences, net 6,867 1,195 Section 481(a) adjustments 3,111 4,763 Other 5,551 7,544 Total deferred tax liabilities 272,251 270,175 Net deferred tax liabilities $ 200,451 191,415 Management evaluates the realizability of deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is more likely than not that SJW Group will realize the benefits of its deferred tax assets. Accordingly, the valuation allowance relating to deferred tax assets acquired from CTWS was released in 2020 through purchase accounting adjustments made within the measurement period. Net operating loss carryforwards expire beginning in 2032 and ending in 2039. As of December 31, 2021, the estimated amount of net operating loss carryforwards available to offset future taxable income for Connecticut purposes is $ 26,820 . The estimated state tax credit carryforwards are $ 667 which will expire beginning in 2023 and ending in 2040. The change in the net deferred tax liabilities of $ 9,036 in 2021 included other non-cash items primarily consisting of regulatory assets and liabilities relating to income tax temporary differences. The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $ 7,961 and $ 6,468 as of December 31, 2021 and 2020, respectively. The amount of tax benefits, net of any federal benefits for state taxes that would impact the effective rate, if recognized, is approximately $ 7,009 and $ 5,600 as of December 31, 2021 and 2020, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2021 2020 2019 Balance at beginning of year $ 6,468 3,834 1,382 Increase related to tax positions taken during the current year 1,376 1,104 351 Increase related to tax positions taken during a prior year 117 1,530 3,483 Reductions related to tax positions taken in a prior year — — ( 1,382 ) Balance at end of year $ 7,961 6,468 3,834 The increase in gross unrecognized tax benefits in 2021 was primarily due to the uncertain tax position relating to repairs tax deductions. 72 SJW Group’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $ 376 as of December 31, 2021. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2021 was an increase to expense of $ 270 . SJW Group does not foresee material changes to its gross uncertain tax liability within the next 12 months following December 31, 2021. SJW Group files U.S. federal income tax returns and income tax returns in various states and is subject to ordinary statute of limitation of three years for federal and three or four years for different state returns. However, due to tax attribute carryforwards, SJW Group is subject to examination for tax years 2009 forward for federal and 2012 forward for state returns of CTWS and its subsidiaries. The statute of limitation for SJW Group returns is closed for these extended years and remains open for 2018 and forward for federal and 2017 or 2018 and forward for different states. Note 8. Utility Plant Intangible Assets Intangible assets consist of a concession fee paid to the City of Cupertino of $ 6,800 for operating the City of Cupertino municipal water system, $ 13,400 related to the purchase premium for customer relationships and other intangibles of $ 16,076 as of December 31, 2021. Other intangibles primarily consist of $ 4,290 which was paid for service area and water rights by CLWSC, $ 5,984 for infrastructure related to the Cupertino service concession arrangement, $ 1,400 for customer relationships and $ 1,040 incurred in conjunction with Valley Water water contracts related to the operation of SJWC. All intangible assets are recorded at cost and are primarily being amortized using the straight-line method over the legal or estimated economic life of the assets ranging from 5 to 70 years. Amortization expense for the intangible assets was $ 1,553 , $ 1,401 and $ 745 for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization expense for 2022 through 2026 and thereafter is anticipated to be $ 1,553 per year. The costs of intangible assets as of December 31, 2021 and 2020 are as follows: 2021 2020 Concession fees $ 6,800 6,800 Purchase premium customer relationships 13,400 13,400 Other intangibles 16,076 14,967 Intangible assets 36,276 35,167 Less: Accumulated amortization Concession fees 6,596 6,324 Purchase premium customer relationships 1,988 1,094 Other intangibles 7,042 6,479 Net intangible assets $ 20,650 21,270 Note 9. Commitments SJWC purchases water from Valley Water under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with Valley Water. For the years ended December 31, 2021, 2020 and 2019, SJWC purchased from Valley Water 19,365 million gallons ($ 91,938 ), 21,269 million gallons ($ 96,212 ) and 21,862 million gallons ($ 96,285 ), respectively, of contract water. On June 24, 2021, the 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 for the year ending December 31, 2022. Additionally, SJWC purchases non-contract water from Valley Water on an “as needed” basis if the water supply is available. In 1997, SJWC entered into a 25-year contract agreement with the City of Cupertino to operate the City’s municipal water system. SJWC paid a one-time, upfront concession fee of $ 6,800 to the City of Cupertino which is amortized over the contract term. Under the terms of the contract agreement, SJWC assumed responsibility for maintenance and operating costs, while receiving all payments for water service. SJWC and the City of Cupertino signed an amendment to the lease agreement dated 73 January 8, 2020. Under the terms of the amended lease agreement, SJWC agreed to an incremental up-front payment of $ 5,000 to be used by the City of Cupertino for capital improvements to the City’s municipal water system prior to the expiration of the lease in September 2022. Any unspent funds at lease termination remain the property of the City. On November 2, 2021, the City of Cupertino approved another amendment to the current lease agreement executed on January 8, 2020. This second amendment provides the City of Cupertino options to extend the lease agreement by periods of six months , two years , or three years with modifications of additional capital improvement funds of $ 350 , $ 1,600 and $ 2,500 , respectively, depending on the lease extension period option. These options are intended to provide the City of Cupertino more time, if needed, to complete its Request For Proposals process for a new lease term and conduct analyses of other alternatives for the operation of the water system. 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, $ 2.6 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 agrees to purchase 283 million gallons of water annually from MDC. The rate charged by the MDC at December 31, 2021 were $ 4.05 per hundred cubic feet. CLWSC has long-term contracts with the GBRA. The terms of the agreements expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 7,650 acre-feet per year of water supply from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60-day written notice on the proposed adjustment. CLWSC also has raw water supply agreements with the Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in 2059 and 2046, respectively, for 250 acre-feet of water under each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies. Maine Water has an agreement with the Kennebec Water District for potable water service. 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 Kennebec Water District's tariffed rates. The current tariff rate wa s $ 1.51 per hundred cubic feet as of December 31, 2021. As of December 31, 2021, SJWC had 362 employees, of whom 226 were members of unions. On November 12, 2019 and February 20, 2020, SJWC reached three-year bargaining agreements with the International Union of Operating Engineers, representing certain employees in the engineering department, and the Utility Workers of America, representing the majority of all nonadministrative employees at SJWC covering January 1, 2020 through December 31, 2022. The agreements include a 3 % wage increase in 2020, 3 % in 2021 and 4 % in 2022 for members of both unions. The current three-year bargaining agreements will expire on December 31, 2022, and negotiations will be begin in 2022 for the upcoming period, 2023 through 2025. Note 10. Contingencies SJW Group and its subsidiaries are subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows. Note 11. Benefit Plans Pension Plans SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. SJWC and CTWS employees hired before March 31, 2008 and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the employee’s years of service and compensation. For SJWC employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee. Interest is credited based on the annual yield on 30-year Treasury bonds as of October for the preceding plan year with a minimum annual rate of 3.25% and a maximum annual rate of 6.00%. For the year ended December 31, 2021, interest credits assumption was 3.50%. Certain employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefits based on the employee’s years of service and compensation. CTWS employees hired on or after January 1, 2009 are entitled to 74 an additional 1.5 % of eligible compensation to their company sponsored savings plan. SJW Group does not have multi-employer plans. The pension plans are administered by their respective committees where the investment strategy of the investments of the various pension and post-retirement benefit plans are reviewed and approved to achieve the goals of income generation and long-term capital preservation. SJW Group engages third-party investment managers to assist with, among other things, asset allocation strategy, investment policy advice, performance monitoring, and investment manager due diligence. Individual investment decisions have been delegated by the pension plan committees to the investment managers who are also monitored by an investment consultant. Investment managers are not permitted to invest outside of the asset class or strategy under the pension plans’ investment guidelines. The committees ensure that the plans establish a target mix that is expected to achieve its investment objectives, by assuring a broad diversification of investment assets among investment types, while minimizing volatility of the target asset mix, unless market conditions make such a change appropriate to reduce risk. The pension plans require a minimum portion of plan assets to be allocated to fixed income securities and provide guidelines and restrictions on equity investments for the assets. Plan assets are marked to market at each measurement date, resulting in unrealized actuarial gains or losses. Unrealized actuarial gains and losses on pension assets are amortized over the expected future working lifetime of participants for actuarial expense calculation purposes. Market gains in 2020 decreased pension expense by approximately $ 2,442 in 2021 and market gains in 2019 decreased pension expense by approximately $ 5,464 in 2020. For the year ended December 31, 2021, the net actuarial gain of the benefit obligation was related primarily a gain from changes of discount rate of $ 20,017 , a $ 11,913 loss from pension data changes, and a loss from mortality changes of $ 593 . Generally, it is expected of the investment managers that the performance of the assets held in the pension plans, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three -to- five-year period and/or full market cycle. These standards include specific absolute and risk-adjusted performance standards over a three -to- five-year period and/or full market cycle. The expected long-term rate of return on the pension plan assets is between 6.50 % and 6.75 % for the year ended December 31, 2021. SJW Group calculates the market-related value of defined benefit pension plan assets, which is defined under FASB ASC Topic 715—“Compensation—Retirement Benefits” as a balance used to calculate the expected return on plan assets, using fair value. The fair value is based on quoted prices in active markets for identical assets and significant observable inputs. Senior management hired before March 31, 2008 for SJWC and January 1, 2009 for CTWS are eligible to receive additional retirement benefits under the supplemental executive retirement plans and retirement contracts (collectively, “SERP”). SJWC’s senior management hired on or after March 31, 2008 are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan ("Cash Balance Executive Supplemental Retirement Plan"). Both of the plans are non-qualified plans in which only senior management and other designated members of management may participate. The annual cost of the plans has been included in the determination of the net periodic benefit cost shown below. The SERP and Cash Balance Executive Supplemental Retirement Plan had a projected benefit obligation of $ 50,742 and $ 50,757 as of December 31, 2021 and 2020, respectively, and net periodic pension cost of $ 4,456 , $ 4,480 and $ 3,219 for 2021, 2020 and 2019, respectively. For the year ended December 31, 2021, 2020 and 2019, the amounts not recognized as a component of net periodic benefit cost was $ 901 , $( 1,190 ), and $( 788 ), respectively, recorded as other comprehensive income on the consolidated financial statements. SJWC’s plans are unfunded while CTWS’s SERP is funded through investments consisting primarily of life insurance contracts and assets in a Rabbi Trust. As of December 31, 2021 and 2020, total investments made to fund CTWS’s SERP was $ 8,147 and $ 7,470 , respectively, which is included in “Investments” in SJW Group’s Consolidated Balance Sheets. The life insurance contracts are valued at cash surrender value of the policies as reported by the insurer. As of December 31, 2021 and 2020, the value of the life insurance contracts was $ 4,191 and $ 4,311 , respectively. 75 The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s SERP by major categories as of December 31, 2021 and 2020 : Fair Value Measurements at December 31, 2021 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market funds $ 186 186 — — Mutual funds 2,691 2,691 — — Fixed income 920 920 — — Total $ 3,797 3,797 — — Fair Value Measurements at December 31, 2020 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market funds $ 83 83 — — Mutual funds 2,101 2,101 — — Fixed income 830 830 — — Total $ 3,014 3,014 — — Other Postretirement Benefits In addition to providing pension and savings benefits, the company also provides health care and life insurance benefits for eligible retired employees under the respective employer-sponsored post-retirement benefits other than pension plans. The benefits are paid by the company and not from plan assets due to limitations imposed by Internal Revenue Service. Flexible Spending Plan SJW Group sponsors flexible spending account plans for its employees for the purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the plans. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account (“HCSA”) and/or a Dependent Care Spending Account (“DCSA”) to help defray the cost of out-of-pocket medical and dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $ 2.5 and $ 5 , respectively. Savings Plans for Employees SJW Group also sponsors salary deferral plans which are defined contribution plans that allow employees to defer and contribute a portion of their earnings to the plan. Contributions, not to exceed set limits, are matched by the company. For CTWS’s employees hired on or after January 1, 2009 and ineligible to participate in the defined benefit pension plan, CTWS contributes an additional 1.5 % of eligible contributions. SJW Group contributions were $ 2,822 , $ 2,824 and $ 2,046 in 2021, 2020 and 2019, respectively. All of the company’s contributions are invested at the direction of the employees in funds offered under the plans. Special Deferral Election Plans and Deferral Election Program SJW Group maintains a special deferral election plan and a deferred compensation plan and agreements for senior management and a deferral election program for non-employee directors allowing for the deferral of a portion of their earnings each year and to realize an investment return on those funds during the deferral period. Senior management and non-employee directors have to make an election on the deferral and distribution method of the deferrals before services are rendered. CTWS’s deferred compensation plan allows the company to make discretionary contributions. Senior management and non-employee directors 76 had deferred $ 6,237 , $ 6,144 and $ 7,834 under the plans as of December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021 and 2020, $ 4,599 and $ 4,130 , respectively, of the total amount deferred is related to CTWS agreements. Assumptions Utilized on Actuarial Calculations Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions: Pension Benefits Other Benefits 2021 2020 2019 2021 2020 2019 % % % % % % Discount rate 2.29 - 2.48 3.05 - 3.23 3.04 - 4.16 2.18 - 2.41 2.59 - 3.18 2.52 - 4.09 Expected return on plan assets 6.50 , 6.75 6.50 , 6.75 7.00 , 7.25 4.20 , 6.50 4.20 , 6.50 4.00 , 7.00 Rate of compensation increase 4.00 4.00 4.00 N/A N/A N/A The expected rate of return on plan assets was determined based on a review of historical returns, for the pension plans and for medium- to large-sized defined benefit pension funds with similar asset allocations. This review generated separate expected returns for each asset class. These expected future returns were then blended based on the pension plans’ target asset allocations. Benefit obligations for the defined benefit plans and other postretirement benefits were calculated using the following weighted-average assumptions as of December 31: Pension Benefits Other Benefits 2021 2020 2021 2020 % % % % Discount rate 2.65 - 2.82 2.29 - 2.48 2.61 - 2.76 2.18 - 2.41 Rate of compensation increase 4.00 4.00 N/A N/A SJW Group utilized each plan’s projected benefit stream in conjunction with the FTSE Pension Discount Curve (formerly the Citigroup Pension Discount Curve) and the FTSE Above Median Double-A Curve for SJWC and CTWS, respectively, in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date. In 2021 and 2020, SJW Group adopted the newly then issued MP-2021 and MP-2020, respectively, Mortality Improvement Scales to determine mortality assumptions. The tables and scales reflect increasing life expectancies of participants in the United States. See also “Reconciliation of Funded Status” below. Net Periodic Pension Costs Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was as follows: Pension Benefits Other Benefits 2021 2020 2019 2021 2020 2019 Components of net periodic benefit cost Service cost $ 9,730 8,659 5,947 $ 1,115 900 581 Interest cost 9,415 10,484 8,506 806 956 775 Expected return on assets ( 18,019 ) ( 15,715 ) ( 10,118 ) ( 970 ) ( 857 ) ( 475 ) Amortization of prior service cost 41 41 48 — 97 197 Recognized actuarial loss 6,901 4,971 3,984 257 229 240 Net periodic benefit cost $ 8,068 8,440 8,367 $ 1,208 1,325 1,318 77 Reconciliation of Funded Status For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation and the accumulated benefit obligation, respectively. The projected benefit obligations and the funded status of the defined benefit pension and other postretirement plans as of December 31 were as follows: Pension Benefits Other Benefits 2021 2020 2021 2020 Change in benefit obligation Benefit obligation at beginning of year $ 386,091 338,240 $ 35,794 32,546 Service cost 9,730 8,659 1,115 900 Interest cost 9,415 10,484 806 956 Actuarial (gain)/loss ( 5,477 ) 42,164 ( 2,235 ) 2,421 Implicit rate subsidy — — ( 222 ) ( 211 ) Plan participants contributions — — 171 254 Administrative expenses paid ( 144 ) ( 163 ) — — Benefits paid ( 15,777 ) ( 13,293 ) ( 1,017 ) ( 1,072 ) Benefit obligation at end of year $ 383,838 386,091 $ 34,412 35,794 Change in plan assets Fair value of assets at beginning of year $ 278,124 243,521 $ 19,479 17,226 Actual return on plan assets 34,826 32,869 2,460 2,383 Employer contributions 13,147 16,609 669 675 Plan participants contributions — — 171 254 Administrative expenses paid ( 144 ) ( 163 ) ( 63 ) ( 54 ) Benefits paid ( 15,777 ) ( 14,712 ) ( 949 ) ( 1,005 ) Fair value of plan assets at end of year 310,176 278,124 21,767 19,479 Funded status at end of year $ ( 73,662 ) ( 107,967 ) $ ( 12,645 ) ( 16,315 ) The amounts recognized on the balance sheet as of December 31 were as follows: Pension Benefits Other Benefits 2021 2020 2021 2020 Noncurrent assets $ 6,422 — $ — — Current liabilities ( 2,782 ) ( 2,760 ) ( 139 ) ( 133 ) Noncurrent liabilities ( 77,302 ) ( 105,207 ) ( 12,506 ) ( 16,182 ) $ ( 73,662 ) ( 107,967 ) $ ( 12,645 ) ( 16,315 ) SJW Group recorded a regulatory asset on the projected benefit obligation of the postretirement benefit plans as follows: 2021 2020 Funded status of obligation $ 86,307 124,282 Accrued benefit cost ( 24,110 ) ( 29,920 ) Regulatory asset, amount to be recovered in future rates $ 62,197 94,362 As of December 31, 2021 and 2020, the amounts deferred in regulatory assets that have not yet been recognized as components of net periodic benefit cost include net loss of $ 62,270 and $ 94,476 , respectively, and prior service cost of $ 73 and $ 114 , respectively. 78 Plan Assets Plan assets as of December 31 were as follows: Pension Benefits Other Benefits 2021 2020 2021 2020 Fair value of assets at end of year: Debt securities $ 100,036 95,935 $ 5,541 5,684 32 % 35 % 25 % 29 % Equity securities 197,248 170,747 14,932 12,762 64 % 61 % 69 % 66 % Cash and equivalents 12,892 11,442 1,294 1,033 4 % 4 % 6 % 5 % Total $ 310,176 278,124 $ 21,767 19,479 The following tables summarize the fair values of plan assets by major categories as of December 31, 2021 and 2020: Fair Value Measurements at December 31, 2021 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 14,186 14,186 — — Equity securities (a) 212,180 212,180 — — Fixed Income (b) 105,577 38,608 66,969 — Total $ 331,943 264,974 66,969 — ___________________________________ (a) Actively managed portfolio of equity securities with the goal to exceed the benchmark performance. (b) Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance Fair Value Measurements at December 31, 2020 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 12,475 12,475 — — Equity securities (a) 183,509 183,509 — — Fixed Income (b) 101,619 36,012 65,607 — Total $ 297,603 231,996 65,607 — ___________________________________ (a) Actively managed portfolio of equity securities with the goal to exceed the benchmark performance. (b) Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance In 2022, SJW Group expects to make required and discretionary cash contributions of up to $ 8,820 to the pension plans and other postretirement benefit plans. 79 Benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are: Pension Plan Other Postretirement Benefit Plan 2022 $ 16,220 $ 1,497 2023 16,385 1,632 2024 16,632 1,697 2025 16,896 1,722 2026 18,915 1,763 2027 - 2031 96,506 9,117 Note 12. Equity Plans Common Stock SJW Group has a Long-Term Stock Incentive Plan (the “Plan”), which has 1,800,000 shares of common stock reserved for issuance. The Plan was initially adopted by the Board of Directors on March 6, 2002. On January 30, 2013, the amended and restated Plan was adopted by the Board and became effective on April 24, 2013. The Plan was subsequently amended and restated by the Board on July 29, 2015, and thereafter amended on November 15, 2016, October 28, 2020 and January 28, 2021. SJW Group also maintains stock plans in connection with the merger with CTWS which are no longer granting new awards under those plans. The Plan allows SJW Group to provide employees, non-employee Board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the Company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. A participant in the Plan generally may not receive Plan awards covering an aggregate of more than 600,000 shares of common stock in any calendar year. Additionally, awards granted under the Plan may be conditioned upon the attainment of specified Company performance goals. The types of awards included in the Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. In addition, shares are issued to employees under the Employee Stock Purchase Plan (“ESPP”) that was approved by SJW Group stockholders. As of December 31, 2021, 2020 and 2019, 946,086 , 880,495 and 819,340 shares have been issued pursuant to the Plan, and 168,721 , 178,106 and 174,764 shares are issuable upon the vesting of outstanding restricted stock units, performance-based stock units, and deferred restricted stock units for the years ended 2021, 2020 and 2019, respectively. The remaining shares available for issuance under the Plan are 685,193 as of December 31, 2021. The compensation costs charged to income is recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from share based compensation, that are recorded to additional paid-in capital and common stock, by award type, are presented below for the years ended December 31: 2021 2020 2019 Compensation costs charged to income: ESPP $ 357 323 283 Restricted stock and deferred restricted stock 3,889 3,230 3,123 Total compensation costs charged to income $ 4,246 3,553 3,406 ESPP proceeds $ 2,026 1,830 1,603 80 Restricted Stock and Deferred Restricted Stock A summary of SJW Group’s restricted and deferred restricted stock awards under the Plan as of December 31, 2021, and changes during the year ended December 31, 2021, are presented below: Units Weighted- Average Grant- Date Fair Value Outstanding as of January 1, 2021 178,106 $ 53.43 Granted 78,235 $ 65.17 Issued ( 65,591 ) $ 51.52 Forfeited ( 22,029 ) $ 62.54 Outstanding as of December 31, 2021 168,721 $ 58.43 Shares vested as of December 31, 2021 45,311 $ 36.65 A summary of the status of SJW Group’s nonvested restricted and deferred restricted stock awards under the Plan as of December 31, 2021, and changes during the year ended December 31, 2021, are presented below: Units Weighted- Average Grant- Date Fair Value Nonvested as of January 1, 2021 109,789 $ 65.18 Granted 78,235 $ 65.17 Vested ( 51,802 ) $ 62.15 Forfeited ( 12,812 ) $ 65.34 Nonvested as of December 31, 2021 123,410 $ 66.43 Total fair value of restricted stock awards for all plans that were vested for the years ended 2021, 2020 and 2019 were $ 3,332 , $ 3,333 and $ 2,420 , respectively. As of December 31, 2021, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $ 4,421 . This cost is expected to be recognized over a weighted-average period of 1.56 years. For the years ended December 31, 2021, 2020 and 2019, 7,327 , 5,327 and 6,120 , respectively, of performance-based and market-based restricted stock awards were issued upon the attainment of certain performance metrics and service-based vesting under the Plan. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0 % to 150 % of the target number of shares for performance-based restricted stock awards, or between 0 % and 200 % of the target number of shares for market-based restricted stock awards. As of December 31, 2021, 15,577 performance-based and market-based restricted stock awards vested and 51,160 remained outstanding. Employee Stock Purchase Plan The ESPP allows eligible employees to purchase shares of SJW Group’s common stock at 85 % of the fair value of shares on the purchase date. Under the ESPP, employees can designate up to a maximum of 10 % of their base compensation for the purchase of shares of common stock, subject to certain restrictions. A total of 400,000 shares of SJW Group’s common stock have been reserved for issuance under the ESPP. The remaining shares available for issuance under the ESPP are 185,509 as of December 31, 2021. As of December 31, 2021, the ESPP had fourteen purchase intervals since its inception. For the year ended December 31, 2021, 2020 and 2019, a total of 35,304 , 31,750 and 30,255 shares, respectively, were issued under the ESPP. The plan has no look-back provisions. For the years ended December 31, 2021, 2020 and 2019, SJW Group’s recorded expenses were $ 361 , $ 342 and $ 294 , respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ended January 31, 2022, for the ESPP is approximately $ 162 . This cost is expected to be recognized during the first quarter of 2022. Note 13. Segment and Non-Tariffed Businesses Reporting SJW Group is a holding company with four subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) SJWTX, Inc. which is doing business as CLWSC, a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company, 81 and (iv) SJWNE LLC a holding company for CTWS and its subsidiaries, Connecticut Water, Maine Water, NEWUS and Chester Realty, Inc. In accordance with FASB ASC Topic 280—“Segment Reporting,” SJW Group has determined that it has two reportable business segments. The first segment is that of providing water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water and NEWUS, together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.” SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chair, President and Chief Executive Officer, and his executive staff. The executive staff reviews financial information presented on a consolidated basis that is accompanied by disaggregated information about operating revenue, net income and total assets, by subsidiary. The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category. For the year ended December 31, 2021 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated (2) Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 558,154 10,153 5,379 — 558,154 15,532 573,686 Operating expense 449,401 7,138 3,585 2,403 449,401 13,126 462,527 Operating income (loss) 108,753 3,015 1,794 ( 2,403 ) 108,753 2,406 111,159 Net income (loss) 67,530 3,309 1,950 ( 12,311 ) 67,530 ( 7,052 ) 60,478 Depreciation and amortization 91,896 443 1,168 893 91,896 2,504 94,400 Senior note and other interest expense 34,308 — — 20,031 34,308 20,031 54,339 Income tax expense (benefit) in net income 10,327 369 619 ( 2,946 ) 10,327 ( 1,958 ) 8,369 Assets 3,380,637 6,916 43,383 61,459 3,380,637 111,758 3,492,395 For the year ended December 31, 2020 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 548,013 10,981 5,532 — 548,013 16,513 564,526 Operating expense 431,375 6,943 3,510 5,028 431,375 15,481 446,856 Operating income (loss) 116,638 4,038 2,022 ( 5,028 ) 116,638 1,032 117,670 Net income (loss) 69,245 4,099 1,455 ( 13,284 ) 69,245 ( 7,730 ) 61,515 Depreciation and amortization 86,758 442 1,186 893 86,758 2,521 89,279 Senior note and other interest expense 33,877 — — 20,378 33,877 20,378 54,255 Income tax expense (benefit) in net income 16,563 998 467 ( 9,648 ) 16,563 ( 8,183 ) 8,380 Assets 3,197,626 8,869 44,405 60,565 3,197,626 113,839 3,311,465 82 For the year ended December 31, 2019 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non- tariffed Non- tariffed Non- tariffed Regulated Non- tariffed Total Operating revenue $ 407,116 7,969 5,397 — 407,116 13,366 420,482 Operating expense 329,520 5,443 3,751 24,289 329,520 33,483 363,003 Operating income (loss) 77,596 2,526 1,646 ( 24,289 ) 77,596 ( 20,117 ) 57,479 Net income (loss) 42,691 2,019 1,623 ( 22,930 ) 42,691 ( 19,288 ) 23,403 Depreciation and amortization 63,775 420 1,196 201 63,775 1,817 65,592 Senior note and other interest expense 25,073 — — 6,723 25,073 6,723 31,796 Income tax expense (benefit) in net income 8,382 708 486 ( 1,122 ) 8,382 72 8,454 Assets 3,016,846 5,507 46,778 63,339 3,016,846 115,624 3,132,470 ____________________ (1) The “All Other” category for the years ended December 31, 2021, 2020 and 2019, includes the accounts of SJW Group, SJWNE, LLC and CTWS, Inc. on a stand-alone basis. (2) As of December 31, 2021, the Company has performed an allocation of goodwill associated with the acquisition of CTWS to two reporting units, Connecticut and Maine, which are both aggregated within the Regulated Water Utility Services reportable segment. Note 14. Business Combinations Kendall West Utility and Bandera East Utility 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, add approximately 5,000 people through 1,600 service connections in a service area approximately 19 square miles to CLWSC’s operations. The total net cash price was approximately $ 23,587 . The preliminary purchase price allocation for these acquisitions primarily consisted of acquired utility plant of approximately $ 9,400 and goodwill of approximately $ 12,300 . The results of Kendall West Utility and Bandera East Utility are included in SJW Group’s consolidated statements of comprehensive income since the acquisition date, including revenues and net loss, and were not material. Pro forma financial information has not been presented because the acquisition was not material to SJW Group’s consolidated financial statements. CTWS On October 9, 2019, SJW Group completed the merger with CTWS, a company that provides water service throughout Connecticut and Maine. In addition, CTWS has a real estate company in Connecticut which provides property management services. SJW Group acquired all of the outstanding stock of CTWS for $ 70.00 per share in cash (without interest and less any applicable withholding taxes). The total cash purchase price was approximately $ 838,476 , less cash received of $ 3,011 , and approximately $ 6,384 related to outstanding awards of restricted stock units and deferred share units assumed in connection with the merger. 83 The following table summarizes the purchase price and recording of fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments as of December 31, 2020. Amounts Previously Recognized as of Acquisition Date (a) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted) Assets acquired: Utility plant, net $ 750,703 — 750,703 Nonutility plant 848 — 848 Current assets 42,673 ( 785 ) 41,888 Investments 12,489 — 12,489 Regulatory assets and deferred charges, less current portion 83,132 ( 4,346 ) 78,786 Other intangible assets 17,181 — 17,181 Other assets 2,592 — 2,592 Goodwill 626,523 ( 114 ) 626,409 Total assets acquired 1,536,141 ( 5,245 ) 1,530,896 Liabilities assumed: Long-term debt 281,009 — 281,009 Current liabilities, including maturities of long-term debt 125,772 25 125,797 Deferred income taxes 107,789 ( 5,411 ) 102,378 Postretirement benefit plans 31,789 — 31,789 Contributions in aid of construction and construction advances 137,327 — 137,327 Other long-term liabilities 10,607 141 10,748 Total liabilities assumed 694,293 ( 5,245 ) 689,048 Assumed equity $ 841,848 — 841,848 ______________________________________ (a) As previously reported in the SJW Group’s 10-K for the period ended December 31, 2019. Other intangible assets primarily consists of customer relationships. The goodwill balance is primarily attributable to assembled workforce and diversification of markets both from a geographic and regulatory perspective. We do not expect the goodwill recognized in connection with the transaction will be deductible for income tax purposes. The company analyzed and revalued the acquired opening deferred tax asset and liability balances within the measurement period which resulted in a decrease to goodwill of $ 114 . The revaluation of acquired deferred tax assets and liabilities and related uncertain tax positions based upon facts and circumstances that existed as of the acquisition date resulted in adjustments that were recorded to goodwill. In addition, tax related valuation allowances assumed in connection with a business combination were initially estimated as of the acquisition date. Revaluation within the measurement period resulted in release of the valuation allowance as it is more likely than not that the new combined group will be able to utilize the acquired deferred tax assets. There was no impact associated with the measurement period adjustments to the consolidated statement of comprehensive income for the year ended December 31, 2020. 84 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 Assets Investments in subsidiaries $ 1,607,952 1,536,106 Current assets: Cash and cash equivalents 2,859 436 Intercompany receivables — 258 Intercompany notes receivable 6,015 15,680 Other current assets 530 124 9,404 16,498 $ 1,617,356 1,552,604 Capitalization and Liabilities Capitalization: Stockholders’ equity: Common stock, $ 0.001 par value; authorized 70,000,000 shares in 2021 and 2020; issued and outstanding 30,181,348 shares in 2021 and 28,556,605 shares in 2020 $ 30 29 Additional paid-in capital 606,392 510,158 Retained earnings 428,260 408,037 Accumulated other comprehensive income ( 163 ) ( 1,064 ) Total stockholders’ equity 1,034,519 917,160 Long-term debt, less current portion 556,225 555,824 1,590,744 1,472,984 Current liabilities: Current portion of long-term debt — 49,929 Intercompany payables 2,097 — Intercompany notes payable 9,712 19,540 Accrued interest 3,223 3,195 Income tax payable 8,017 3,268 Other current liabilities 313 422 23,362 76,354 Deferred income taxes 2,471 2,623 Other noncurrent liabilities 779 643 Commitments and contingencies $ 1,617,356 1,552,604 See Accompanying Notes to Schedule I 85 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 (in thousands) 2021 2020 2019 Operating revenue $ — — — Operating expense: Administrative and general 2,050 3,110 8,130 Property taxes and other non-income taxes ( 38 ) 250 250 Merger related expenses — — 14,849 Total operating expense 2,012 3,360 23,229 Operating loss ( 2,012 ) ( 3,360 ) ( 23,229 ) Other (expense) income: Interest on long-term debt, mortgage and other interest expense ( 18,673 ) ( 19,430 ) ( 6,615 ) Gain on sale of Texas Water Alliance 3,000 — — Interest income on money market fund — — 6,536 Other, net ( 160 ) ( 250 ) 89 Loss before income taxes and equity earnings from subsidiaries ( 17,845 ) ( 23,040 ) ( 23,219 ) Income tax benefit ( 4,660 ) ( 6,414 ) ( 1,431 ) Equity earnings from subsidiaries, net of taxes 73,663 78,141 45,191 SJW Group net income 60,478 61,515 23,403 Other comprehensive income (loss), net 901 ( 1,190 ) 126 SJW Group comprehensive income $ 61,379 60,325 23,529 See Accompanying Notes to Schedule I 86 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands) 2021 2020 2019 Operating activities: Net income $ 60,478 61,515 23,403 Adjustments to reconcile net income to net cash used in operating activities: Earnings from investment in subsidiaries ( 73,663 ) ( 78,141 ) ( 45,191 ) Deferred income taxes ( 185 ) 162 4,606 Share-based compensation 679 466 141 Gain on sale of TWA ( 3,000 ) — — Changes in operating assets and liabilities, net of acquired assets and liabilities: Accounts payable and other current liabilities ( 226 ) ( 1,532 ) 255 Intercompany receivables ( 1,586 ) ( 2,607 ) 2,045 Tax receivable and accrued taxes 4,782 10,759 ( 6,779 ) Accrued interest 28 ( 553 ) 3,742 Return on capital from investments in subsidiaries 45,900 47,800 28,600 Other changes, net 605 367 808 Net cash provided by operating activities 33,812 38,236 11,630 Investing activities: Proceeds to subsidiaries for notes receivable ( 75,986 ) ( 10,353 ) ( 102,522 ) Repayments from subsidiaries for notes receivable 85,651 1,400 95,795 Investments in subsidiaries ( 35,118 ) ( 37,952 ) ( 62,262 ) Proceeds from sale of TWA 3,000 — — Payments for business acquisition — — ( 837,903 ) Net cash used in investing activities ( 22,453 ) ( 46,905 ) ( 906,892 ) Financing activities: Borrowings from subsidiaries for notes payable 34,317 54,837 29,865 Repayments to subsidiaries for notes payable ( 44,145 ) ( 59,762 ) ( 17,705 ) Long-term borrowings — 50,000 510,000 Repayments of long-term borrowings ( 50,000 ) — — Issuance of common stock, net of issuance costs 91,029 — ( 10 ) Debt issuance costs — ( 496 ) ( 3,957 ) Dividends paid ( 40,137 ) ( 36,509 ) ( 34,134 ) Net cash (used in) provided by financing activities ( 8,936 ) 8,070 484,059 Net change in cash and cash equivalents 2,423 ( 599 ) ( 411,203 ) Cash and cash equivalents, beginning of year 436 1,035 412,238 Cash and cash equivalents, end of year $ 2,859 436 1,035 Cash paid during the year for: Interest $ 18,518 19,442 2,203 Income taxes $ ( 4,998 ) 3,466 689 Supplemental disclosure of non-cash activities: Share-based compensation from investment in subsidiaries $ 4,413 2,894 4,663 See Accompanying Notes to Schedule I 87 FINANCIAL STATEMENT SCHEDULE Schedule I SJW Group (Parent Only) NOTES TO CONDENSED FINANCIAL STATEMENTS Years ended December 31, 2021, 2020 and 2019 (Dollars in thousands, except share and per share data) Restrictions on Dividends and Other Distributions SJW Group is a legal entity separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, SJW Group’s principal sources of funds are dividends or other distributions from its operating subsidiaries, borrowings and the issuance of equity. The rights of SJW Group and, consequently, its creditors and shareholders, to participate in any distribution of assets of any of its subsidiaries are subject to certain prior claims of creditors of such subsidiary. The abilities of certain of SJW Group’s subsidiaries to transfer funds to SJW Group in the form of cash dividends, loans or advances are subject to certain contractual and regulatory restrictions. SJW Group and its subsidiaries are subject to debt covenants that could limit their respective abilities to pay dividends. For a discussion on these covenants, see Note 6 , “Long-term Debt” to SJW Group and Subsidiaries Notes to Consolidated Financial Statements. In addition, Connecticut Water Service, Inc. (“CTWS”) and its regulated subsidiaries are prohibited from paying dividends if not in compliance with minimum equity requirements under commitments made by SJW Group as part of the approval granted by the Connecticut Public Utilities Regulatory Authority and the Maine Public Utilities Commission in connection with the acquisition of CTWS. As of December 31, 2021, the restricted net assets of SJW Group’s subsidiaries was approximately $ 337,787 or 33 % of consolidated net assets of SJW Group. 88 SJW Group and Subsidiaries FINANCIAL STATEMENT SCHEDULE Schedule II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Years ended December 31, 2021, 2020 and 2019 (in thousands) Description 2021 2020 2019 Allowance for doubtful accounts: Balance, beginning of period $ 3,891 1,512 272 Opening balance, SJWNE, LLC — — 1,283 Charged to expense 932 ( 177 ) 520 Charged to regulatory asset 1,610 3,032 — Accounts written off ( 2,394 ) ( 800 ) ( 875 ) Recoveries of accounts written off 561 324 312 Balance, end of period $ 4,600 3,891 1,512 Reserve for litigation and claims: Balance, beginning of period $ 684 2,898 2,181 Charged to expense 916 958 3,221 Revision to accrual, due to settlements ( 50 ) ( 122 ) ( 135 ) Payments ( 943 ) ( 3,050 ) ( 2,369 ) Balance, end of period $ 607 684 2,898 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.