What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 177 added, 209 removed, 158 unchanged (71% of the section changed)

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

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

San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc.

and SJW Land Company.

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

San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc., SJW Land Company, and SJWTX Holdings, Inc.

SJWC is a public utility in the business of providing water service to approximately 231,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

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SJWNE LLC is the holding company for Connecticut Water Service, Inc.

CTWS became a wholly-owned subsidiary of SJWNE LLC as part of the merger transaction between SJW Group and CTWS that was completed on October 9, 2019.

CTWS, headquartered in Connecticut, serves as a holding company for water utility companies providing water service to approximately 140,000 connections that serve a population of approximately 457,000 people in 81 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut.

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

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

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

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SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”), is a public utility in the business of providing water service to approximately 24,000 connections that serve approximately 72,000 people.

CLWSC’s service area comprises more than 248 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis

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

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

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

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

As a result, Acequia has been consolidated with CLWSC.

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

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

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

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

holds a 25% equity 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,

(“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.

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

SJW Land Company and Chester Realty, Inc.

own undeveloped land and operate commercial buildings in Tennessee, California and Connecticut.

SJW Land Company owned the following real properties during the three months ended March 31, 2022:

% for Three months ended March 31, 2022 of SJW Land Company

Description Location Acreage Square Footage Revenue Expense

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Undeveloped land San Jose, California 101 N/A N/A N/A

____________________

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

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

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

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

Commercial building Clinton, CT 22 9,000 1 % 1 %

Commercial building Guilford, CT 1 1,300 — % — %

Business Strategy for Water Utility Services:

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(1) Regional regulated water utility operations;

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

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

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

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In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations.

We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results, entering markets in which SJW Group has no or limited direct prior experience and the potential loss of key employees of any acquired company.

We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on our financial position and operating results, entering markets in which we have no or limited direct prior experience and the potential loss of key employees of any acquired company.

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

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Critical Accounting Policies:

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

The discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2021 consolidated financial statements and accompanying notes that were prepared in accordance with

accounting principles generally accepted in the United States of America and included as part of our annual report on Form 10-K for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission on February 25, 2022.

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2021.

There have been no changes in our critical accounting policies.

Our significant accounting policies are described in our notes to the 2021 Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2021.

Recently Adopted Accounting Policies:

See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting policies for the nine months ended September 30, 2021.

There have been no changes to our critical or significant accounting policies during the three months ended March 31, 2022.

Results of Operations:

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

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

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

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

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

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

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

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

Coronavirus (“COVID-19”) Update

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

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

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

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

Probability criteria have not yet been met for CTWS.

If a state regulator disagrees with the calculation of recorded COVID-19 account balances, we may be required to make adjustments that could adversely affect our results of operations.

SJW Group continues to monitor COVID-19 developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary.

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

SJW Group’s consolidated net income for the three months ended March 31, 2022, was $3,737, an increase of $1,121, or approximately 43%, from $2,616 for the same period in 2021.

Consolidated net income in 2022 includes $2,550 from ongoing operations and a gain on the sale of nonutility property of $4,240, offset by the one-time impacts of $1,867 related to depreciation on certain Cupertino concession assets and $1,366 related to San Jose Water Company’s Order Instituting Investigation settlement expenses and certain true-ups of deferred taxes and acquisition related tax expenses.

Operating Revenue

Operating Revenue by Segment

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

2021 2020 2021 2020

Three months ended March 31,

Water Utility Services $ 122,946 113,441

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Three months ended

September 30,

2020 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

Increase/(decrease)

Water Utility Services:

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Rate increases 5,163 5 %

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

Balancing and memorandum accounts 803 — %

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Real Estate Services 11 — %

$ 1,060 1 % $ 5,123 1 %

Operating Expense

Operating Expense by Segment

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

2021 2020 2021 2020

Three months ended March 31,

Water Utility Services $ 105,430 99,847

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Three months ended

September 30,

2020 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

Increase/(decrease)

Water production expenses:

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Maintenance 430 — %

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

Property taxes and other non-income taxes 794 1 %

Depreciation and amortization 4,168 4 %

$ 9,169 7 % $ 19,011 6 %

Gain on sale of nonutility properties (5,450) (5) %

Sources of Water Supply

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

On October 1, 2021, Valley Water’s 10 reservoirs were at approximately 12% of total capacity with 6,252 million gallons of water in storage, which is 26% of the twenty-year average for this date.

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

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

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

On April 1, 2022, Valley Water’s 10 reservoirs were at approximately 25% of total capacity with 13,595 million gallons of water in storage, which is 42% of the twenty-year average for this date.

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

As reported by Valley Water, there was 7.95 inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2021.

Rainfall at SJWC’s Lake Elsman was measured at 34.48 inches during the current rainfall season.

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

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

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

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

As of April 1, 2022, Valley Water reported that allocations from the State Water Project was 5% or 1,629 million gallons.

Due to an exceptionally dry start to 2022, the U.S.

Bureau of Reclamation reduced the initial Central Valley Project allocation of 25% down to the Public Health and Safety limit.

Valley Water reported that its Semitropic groundwater bank reserves are at 83% of capacity or 94,388 million gallons, which can be used to perform water transfers with other state water contractors.

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

The groundwater level in the Santa Clara Plain is approximately 14 feet lower than the five-year average.

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

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

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

Valley Water also reported that the managed groundwater recharge from January to March in the Santa Clara Plain was 108% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 5 feet higher than the five-year average.

According to Valley Water, the projected total groundwater storage at the end of 2022 is expected to fall within the Alert Stage of Valley Water’s Water Shortage Contingency Plan.

On April 1, 2022, SJWC’s Lake Elsman contained 1,471 million gallons of water, of which approximately 1,321 million gallons can be utilized for treatment in water production.

This Lake Elsman volume represents 108% of the five-year average.

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

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

Production from the Montevina Surface Water Treatment Plant through the third quarter was 259 million gallons, which is 14% of the five-year average.

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

The plant remains offline.

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

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

Production from the Montevina Surface Water Treatment Plant through the first quarter was 575 million gallons, which is 115% of the five-year average.

Through the first quarter of 2022, there was 43 million gallons of water production at SJWC’s smaller Saratoga Water Treatment Plant.

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

Nonetheless, SJWC believes that its various other water supply sources will be sufficient to meet customer demand through the remainder of 2022.

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

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

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

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

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

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

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

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

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

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The agreements, which are take-or-pay contracts, provide CLWSC with an aggregate of 7,650 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA.

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

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, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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

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

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

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

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

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

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

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

Water sources vary among the individual systems, but overall approximately 90% of the total dependable yield comes from surface water supplies and 10% from wells.

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

Three months ended September 30, Increase/

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

Three months ended March 31, Increase/

(decrease) % of Total Change

2021 2020 2021 2020

Purchased water 3,764 3,372 392 4 %

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

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

SJWC’s unaccounted-for water on a 12-month-to-date basis for March 31, 2022, and 2021 approximated 7.2% for each of the respective periods, as a percentage of total production.

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

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

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

CTWS’s unaccounted-for water on a 12-month-to-date basis for March 31, 2022, and 2021 was approximately 13.9% and 16.2%, respectively, as a percentage of total production.

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

Water Production Expenses

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

customer usage.

The change in water production expenses for the three months ended March 31, 2022, compared to the same period in 2021, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses, offset by an increase in available surface water for SJWC.

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

Other Operating Expenses

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

The increase was primarily attributable to increases of $4,370 in administrative and general expenses primarily due to a credit to expense for the Current Expected Credit Loss (“CECL”) adoption in prior year and increases in labor, contracted work and rate case expenses, offset by lower accounting fees.

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

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

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

Operating expenses, excluding water production expenses, increased $3,254 for the three months ended March 31, 2022, compared to the same period in 2021.

The increase was primarily attributable to increases of $3,312 in administrative and general expenses primarily due to increases in labor and pension expense, and an increase of $4,168 in depreciation and amortization due to increases in utility plant and a true up related to Cupertino assets to adjust the useful lives over the concession term, partially offset by $5,450 from the gain on sale of vacant land located in California and nonutility property in Texas.

Other (Expense) Income

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

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

For the three months ended March 31, 2022, compared to the same period in 2021, the change in other (expense) income was primarily due to an increase in interest on long term debt and a decrease on the return from retirement plan assets, partially offset by income generated from pension non service cost and a decrease in interest on the line of credit.

Provision for Income Taxes

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

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

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

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

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

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

For the three months ended March 31, 2022, compared to the same period in 2021, income tax expense increased $1,963.

The increase in income tax expense was primarily due to a decrease in pre-tax book income and discrete tax expense items.

The effective consolidated income tax rates were 22% and (52)% for the three months ended March 31, 2022, and 2021, respectively.

The higher effective rate for the three months ended March 31, 2022, was also primarily due to discrete tax expense items.

Regulation and Rates

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The timing of rate decisions could have an impact on the results of operations.

See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of regulatory activities that have occurred during the quarter.

Please also see Note 2 of “Notes to Condensed Consolidated Financial Statements.”

California Regulatory Affairs

On January 4, 2021, SJWC filed General Rate Case Application No.

21-01-003 requesting authority for an increase of revenue of $51,585 or 13.35% in 2022, $16,932 or 3.88% in 2023, and $19,195 or 4.24% in 2024.

The application also includes requests to recover $18,499 from balancing and memorandum accounts, authorization for a $435,000 capital budget, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge.

Review of the application is currently underway by the CPUC and new rates, if approved, are expected to be effective in the third quarter of 2022.

Due to the processing delay, SJWC filed Advice Letter No.

573 on December 30, 2021, to request interim rates effective January 1, 2022, which will allow SJWC to retroactively apply the final decision to January 1, 2022.

Interim rates are proposed to be set equal to present rates in order to avoid customer confusion and short-term bill changes.

This advice letter was approved with an effective date of January 1, 2022.

SJWC and the Public Advocates Office filed a settlement agreement resolving all issues in the proceeding on January 13, 2022, which will be considered by the CPUC for adoption.

The settlement provides a revenue increase of $54,131 over the three-year period with an increase of $25,074 in 2022.

The settlement recognizes the need for continued investments in the water system to deliver safe and reliable water service, providing authorization of a three-year $350,000 capital budget.

Additionally, it further aligns authorized and actual consumption, particularly for business customers, addresses our water supply mix variability, and provides greater revenue recovery in the fixed charge.

The settlement also approves the recovery of $18,254 from balancing and memorandum accounts.

New rates are anticipated in the third quarter of 2022.

On May 3, 2021, SJWC filed Application No.

21-05-004 requesting authority to adjust its cost of capital for the period from January 1, 2022 through December 31, 2024.

The request seeks a revenue increase of $6,418 or 1.61% in 2022.

The application also proposes a rate of return of 8.11%, an increase from the current rate of 7.64%, a decrease in the average cost of debt rate from 6.20% to 5.48%, and a return of equity of 10.30%, an increase from the current rate of 8.90%.

In addition, the request seeks to adjust SJWC’s currently authorized capital structure of approximately 47% debt and 53% equity to approximately 45% debt and 55% equity.

If approved, new rates are expected to be effective in the third quarter of 2022.

SJWC’s Advanced Metering Infrastructure (“AMI”) application is pending before the CPUC.

An all-party settlement agreement was submitted to the CPUC for adoption that would authorize the deployment of AMI outside of the capital budget requested in the 2021 GRC.

A final decision is anticipated on the AMI proceeding in the second quarter of 2022.

Connecticut Regulatory Affairs

On October 26, 2021, Connecticut Water filed for a Water Infrastructure Conservation Adjustment (“WICA”) increase of approximately $21,746 in completed projects.

Many of the projects were those that were not considered by PURA in the rate case because of the deadline in the proceeding for pro forma capital additions.

On December 22, 2021, PURA approved a WICA surcharge of 2.44% to be added to bills of all Connecticut Water customers, including those of the former The Avon Water Company and The Heritage Village Water Company, effective January 1, 2022 which is expected to generate approximately $2,581 in additional revenue.

On February 14, 2022 Connecticut Water filed its 2021 WICA reconciliation with PURA.

The reconciliation, approved by PURA on March 16, 2022 and effective for 12 months beginning April 1, 2022, replaced the expiring 2020 reconciliation surcharge of 0.07% with a credit of (0.02)%.

As a result, the net WICA surcharge, effective April 1, 2022 was 2.35%.

On February 28, 2022 Connecticut Water filed its 2021 Water Rate Adjustment mechanism (“WRA”).

The mechanism reconciles 2021 revenues as authorized in the Company’s most recent rate cases.

The 2021 WRA, as approved by PURA on March 30, 2022 and effective for 12 months beginning on April 1, 2022 imposed a 2.85% surcharge on customer bills to collect the 2021 revenue shortfall.

On April 26, 2022, Connecticut Water filed for a WICA increase of $9,779 in completed projects.

If approved by PURA, the new WICA adjustment would be effective July 1, 2022 and would be expected to generate $963 in additional revenue.

Texas Regulatory Affairs

CLWSC filed its annual Water Pass Through Charge (“WPC”) true-up report on January 31, 2022.

The 2022 WPC usage rate will increase from $0.70 to $1.02 dollars per thousand gallons due to CLWSC under-collecting the actual cost of purchased water and GBRA increasing its rates.

The PUCT modified the WPC formula which resulted in a new usage rate of $0.90 dollars per thousand gallons.

The new usage rate was effective March 1, 2022.

The Deer Creek Ranch water system has a separate WPC.

A WPC filing for Deer Creek Ranch is required only when there is a change in purchased water costs.

CLWSC received notice of an increase of 4% for the Deer Creek purchased water cost from WTPUA, effective in October 2021.

SJWTX also received notice from the LCRA of an increase of 7% per acre-foot for the firm water rate and the reservation rate.

The WPC true-up report for this system was submitted on December 1, 2021, which will result in an increase in the usage charge from $1.84 to $1.87 dollars per thousand gallons, and an increase in the monthly base charge of $1.04 dollars per residential account effective January 1, 2022.

The PUCT approved the new rates on March 25, 2022.

On September 3, 2021, Kendall West Utility filed its annual WPC true-up report under Docket No.

The true-up report resulted in a decrease in its WPC from $2.75 to $2.39 per thousand gallons.

The new rate was approved by the PUCT on January 24, 2022.

The PUCT issued the stamped approved tariff on February 4.

Maine Regulatory Affairs

On March 10, 2021, Maine Water filed a general rate increase application for the Biddeford Saco Division seeking approximately $6,659, or 77.5%, in additional revenue.

The application proposed a three step, multi-year rate plan designed to ease the transition to higher water bills over the period from July 2021 to July 2023.

The primary driver for the increase in rates is the support for a new drinking water treatment facility on the Saco River, a $60,000 project to replace the existing facility that is expected to be in service in the second quarter of 2022.

On June 23, 2021, the MPUC approved the first step in the plan by adopting the proposed rate smoothing mechanism and implementing a temporary 22.65% surcharge on all customer bills.

The surcharge will be in effect for one year.

On September 8, 2021, Maine Water filed a supplemental application to update its request to increase base rates, initiating the second step in the rate plan.

The supplemental application updates the March application and seeks $6,880, or 80.1% in additional revenue and provides a bill credit funded by the year one surcharge to offset a portion of the increase.

Like the surcharge, the bill credit will be in effect for one year.

On April 5, 2022, the MPUC approved a stipulated agreement which authorized a rate increase of $6,313, or 72.5% with an effective date of July 1, 2022, sets a 9.70% return on equity to be applied across all of Maine Water’s divisions until amended in a future rate case, and approved the use of a bill credit to return the amount collected through surcharge, effectively reducing the full impact of the rate increase during the one year credit period.

On October 28, 2021, Maine Water filed a Water Infrastructure Surcharge (“WISC”) application with the MPUC for the Skowhegan division requesting an increase of 3%, representing approximately $50 in additional revenues.

The WISC application was approved on December 27, 2021, and the surcharge became effective January 1, 2022.

On February 28, 2022, Maine Water filed requests for general rate increases in the Camden-Rockland, Freeport, Millinocket and Oakland Divisions.

The four filings collectively request $529 in new revenue and seek to reset the WISC in all four

Individually, the Camden Rockland Division request is $222, or 3.4%;

the Freeport request is $51, or 6.1%;

the Millinocket request is $184, or 14.5%;

and the Oakland request is $72, or 9.9%.

Decisions by the Commission in these filings are expected in the third quarter of 2022.

On March 14, 2022, Maine Water filed a request for approval to issue $15,000 in long term debt.

If approved, the new debt would be used to reduce short term borrowings.

Cash Flow from Operating Activities

During the nine months ended September 30, 2021, SJW Group generated cash flows from operations of approximately $100,300, compared to $70,600 for the same period in 2020.

During the three months ended March 31, 2022, SJW Group generated cash flows from operations of approximately $45,300, compared to $33,400 for the same period in 2021.

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

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

(1) an increase in collections from accounts receivable and accrued unbilled utility revenue of $14,800, (2) payments of amounts previously invoiced and accrued including accrued productions costs, increased by $7,000, (3) an up-front payment of $5,000 in the prior year for renewal of the Cupertino service concession agreement that did not reoccur in the current year, (4) net income adjusted for non-cash items increased by $5,400 primarily due to deferred income taxes, and (5) general working capital items increased $3,000, offset by, (6) a decrease in net collection of taxes receivable which was $5,500.

As of September 30, 2021, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchanged from September 30, 2020.

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

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

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

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

(1) an increase of $6,900 in regulatory assets primarily due to the recognition of balancing and memorandum accounts, (2) payments of amounts previously invoiced and accrued including accrued production costs, increased by $5,200, (3) an increase in other changes, net of $2,800 primarily due to the funds from the State of California Water and Wastewater Arrearages Payment Program, and (4) general working capital and net income, adjusted for non-cash items increased by $2,600, offset by (5) a decrease in collections from accounts receivable and accrued unbilled utility revenue of $3,400, and (6) net collection of taxes receivable which was $2,200 less than in prior year.

As of March 31, 2022, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchanged from March 31, 2021.

As of February 1, 2022, the remaining state executive order suspending water service disconnections due to non-payment by customers expired in California.

There is no guarantee that the respective state regulators will not reinstate such orders.

Management believes that the collection rate for its accounts receivables will gradually return to pre-pandemic levels now that service disconnections are allowable once again to mitigate payment delinquencies.

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

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

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

Cash Flow from Investing Activities

During the nine months ended September 30, 2021, SJW Group used cash flows from investing activities of approximately $182,900, compared to $141,200 for the same period in 2020.

During the three months ended March 31, 2022, SJW Group used cash flows from investing activities of approximately $49,400, compared to $51,900 for the same period in 2021.

SJW Group used approximately:

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Water Utility Services’ budgeted capital expenditures for 2022, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $223,000.

As of September 30, 2021, approximately $169,200 or 71% of the $238,800 has been invested.

As of March 31, 2022, approximately $43,700 or 20% of the $223,000 has been invested.

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

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

Over the next five years, Water Utility Services expects to incur approximately $1,300,000 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems.

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

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Cash Flow from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2021, increased by approximately $16,700 from the same period in the prior year, primarily as a result of (1) an increase in net proceeds from our recent common stock equity offering of $66,800, (2) an increase in net proceeds of $8,900 from new long-term debt, and (3) $4,600 increase in net cash receipts from advances and contributions in aid of construction, offset by (4) a decrease in net borrowings and repayments on our lines of credit of $61,600, and (5) an increase of dividends paid to stockholders of $2,600.

Net cash provided by financing activities for the three months ended March 31, 2022, decreased by approximately $13,700 from the same period in the prior year, primarily as a result of (1) a decrease in net proceeds from our common stock equity offering in prior year of $67,200, (2) a decrease in net proceeds of $17,000 from new long-term debt, offset by (3) an increase

in net borrowings and repayments on our lines of credit of $66,600, (4) $5,300 increase in net cash receipts from advances and contributions in aid of construction, and (5) an increase of dividends paid to stockholders of $1,200.

Sources of Capital:

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

Long-term Financing Agreements

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

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

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

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

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

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

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

(1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest

charges for the trailing 12-month-calendar period would be less than 175% of interest charges.

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

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

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

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

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

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

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

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

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

The Series O Notes are unsecured obligations of SJWC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The note purchase agreement contains customary representations and warranties.

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

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

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

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

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

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

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

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

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

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

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

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

The notes are unsecured obligations of CLWSC.

Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year.

The promissory note contains customary representations and warranties.

Under the promissory note, CLWSC is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding.

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

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

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

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

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

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

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

On March 2, 2021, Maine Water entered into a credit agreement with a commercial bank, pursuant to an existing master loan agreement under which the commercial bank issued Maine Water a promissory note on the same date with an aggregate principal amount of $17,000 and a fixed interest rate of 3.89%, due March 1, 2041.

The notes are unsecured obligations of Maine Water.

Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year.

The promissory note contains customary representations and warranties.

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

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

Proceeds from the borrowing were received on March 18, 2021.

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

Short-term Financing Agreements

As of September 30, 2021, SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $260,000, of which $5,000 was available to CLWSC under a single line of credit, $140,000 was available to SJWC under a single line of credit, and $40,000 and $75,000, respectively, under a third and fourth line of credit was available to CTWS.

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

The lines of credit bear interest at variable rates.

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

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

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

During 2021, the cost of borrowing on SJW Group’s short-term credit facilities has averaged 1.34%.

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

A summary of the line of credit agreements as of March 31, 2022, are as follows:

Maturity Date Line Limit Amounts Outstanding Unused Portion

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

CTWS credit agreement December 14, 2023 75,000 35,997 39,003

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

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

$ 260,000 75,997 184,003

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(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.

During 2021, cost of borrowing on the lines of credit averaged 1.64%.

All of SJW Group’s and subsidiaries lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes.

All of the lines of credit also include certain customary financial covenants such as a funded debt to capitalization ratio and a minimum interest coverage ratio.

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

Equity Financing Agreement

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

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

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

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

The Offering closed on March 10, 2021, and the offering of option shares closed on March 16, 2021.

SJW Group received net proceeds of approximately $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 include, among other things, financing infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations and working capital.

As of March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Long-term Financing Agreements

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

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

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

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

As of March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants related to its long-term debt agreements.

Equity Financing Arrangements

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

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

Pursuant to the Equity Distribution Agreement, the Shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices, in block transactions, or as otherwise agreed upon by the company and the Sales Agents.

Proceeds from the sale of the shares under the Equity Distribution Agreement can be used in the financing of acquisitions, 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.

As of March 31, 2022, SJW Group has $75,000 remaining on the Equity Distribution agreement.

No shares were sold in the first quarter of 2022.

Credit Rating

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

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

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

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

While our ability to obtain financing will continue to be a risk, we believe that based on our 2022 and 2021 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis