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Our Water Utility Services are regulated public utilities.
−Removed: The operating revenue of SJWC, Connecticut Water, CLWSC and Maine Water is generated primarily from the sale of water at rates authorized by t he CPUC, PURA, PUCT and MPUC (the “Regulators”).
+Added: The operating revenue of SJWC, Connecticut Water, SJWTX and Maine Water is generated primarily from the sale of water at rates authorized by t he CPUC, PURA, PUCT and MPUC (the “Regulators”).
The Regulators set rates that are 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.
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In addition, policies and regulations promulgated by the Regulators govern the recovery of capital expenditures, the treatment of gains from the sale of real utility property, the offset of production and operating costs, the recovery of the cost of debt, the optimal equity structure, and the financial and operational flexibility to engage in non-tariffed operations.
−Removed: If the regulators implement policies and regulations that will not allow SJWC, Connecticut Water, CLWSC and Maine Water to accomplish some or all of the items listed above, Water Utility Services’ future operating results may be adversely affected.
+Added: If the regulators implement policies and regulations that will not allow SJWC, Connecticut Water, SJWTX and Maine Water to accomplish some or all of the items listed above, Water Utility Services’ future operating results may be adversely affected.
Further, from time to time, the commissioners at the Regulators may change.
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Maine legislature enacted a law that allows Maine Water expedited recovery of investments in water systems infrastructure replacement, both treatment and distribution, through WISC, similar to WICA in Connecticut.
−Removed: Maine Water began to use the WISC during 2014.
−Removed: There is no guarantee that these regulatory authorities will approve our applications
−Removed: to recover all or a portion of our capital expenditure or infrastructure investment through such rate adjustment mechanisms, and their failure to do so will adversely affect our financial conditions and results of operations.
+Added: There is no guarantee that these regulatory authorities will approve our applications to recover all or a portion of our capital expenditure or infrastructure investment through such rate adjustment mechanisms, and their failure to do so will adversely affect our financial conditions and results of operations.
Recovery of regulatory assets is subject to adjustment by regulatory agencies and could impact the operating results of Water Utility Services.
−Removed: Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by FASB ASC Topic 980—“Regulated Operations.” In accordance with ASC Topic 980, Water Utility Services record deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recovered in the ratemaking process in a period different from when the costs and credits were incurred.
+Added: Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by FASB ASC Topic 980—“Regulated Operations.” In accordance with ASC Topic 980, Water Utility Services record deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recovered or refunded in the ratemaking process in a period different from when the costs and credits were incurred.
Please refer to Note 3 of the “Notes to Consolidated Financial Statements” for a summary of net regulatory assets.
−Removed: If the assessment of the probability of recovery in the ratemaking process is incorrect and the applicable ratemaking body determines that a deferred cost is not recoverable through future rate increases, the regulatory assets or liabilities would need to be adjusted, which could have an adverse effect on our results of operations and financial condition.
+Added: If the assessment of the probability of recovery in the ratemaking process is incorrect and the applicable ratemaking body determines that a deferred cost is not recoverable through future rate increases, the regulatory assets would need to be adjusted, which could have an adverse effect on our results of operations and financial condition.
Streamflow regulations in Connecticut could potentially impact our ability to serve our customers.
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Currently, downstream releases are made at two locations.
+Added: The next streamflow releases will be initiated by October 2024 and will affect two additional reservoirs.
No groundwater supply wells are affected by the regulations.
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Under the federal Safe Drinking Water Act, Water Utility Services is subject to regulation by the EPA relating to the quality of water it sells and treatment techniques it uses to make the water potable.
−Removed: The EPA promulgates, from time to time, nationally
−Removed: applicable standards, including maximum contaminant levels for drinking water.
+Added: The EPA promulgates, from time to time, nationally applicable standards, including maximum contaminant levels for drinking water.
Additional or more stringent requirements may be adopted by each state.
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There are currently limited regulatory mechanisms and procedures available to us for the recovery of such costs and there can be no assurance that such costs will be fully recovered and failure to do so may adversely affect our operating results.
−Removed: Climate change laws and regulations have been passed and are being proposed that require compliance with greenhouse gas emissions standards, as well as other climate change initiatives, which could increase Water Utility Services’ operating costs and affect our business.
+Added: The impact of climate change and climate change laws and regulations have been passed and are being proposed that require compliance with greenhouse gas emissions standards, as well as other climate change initiatives, which could increase Water Utility Services’ operating costs and affect our business.
Climate change is receiving ever increasing attention worldwide.
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Although these future expenditures and costs for regulatory compliance may be recovered in the form of higher rates, there can be no assurance that the various state utility commissions that govern our business would approve rate increases to enable us to recover such expenditures and costs.
+Added: Climate change may also impact water supply.
+Added: For example, severity of drought conditions may impact the availability of water to all Water Utility Services and rising sea levels may impact the availability of groundwater to Water Utility Services.
We may be at risk for litigation under the principle of inverse condemnation for activities in the normal course of business which have a damaging effect on private property.
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A court finding of inverse condemnation does not obligate the CPUC to allow SJWC to recover damage awards or pass on costs to ratepayers.
+Added: Insurance coverage for inverse condemnation may not be available or may not be sufficient.
SJWC ’ s liquidity, earnings, and operations may be adversely affected if we are unable to recover the costs of paying claims for damages caused by the operation and maintenance of our property from customers or through insurance.
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Risks Relating To Business Operations
−Removed: Our business, financial condition, and results of operations have been and will continue to be negatively impacted by the COVID-19 pandemic.
−Removed: We are subject to risks associated with the COVID-19 pandemic.
−Removed: In 2020 and 2021, numerous governmental jurisdictions, including the States of California, Connecticut, Maine and Texas where we operate our water utility services, imposed “shelter-in-place” orders, quarantines, executive orders and similar governmental orders and restrictions for their residents to control the spread of COVID-19 disease.
−Removed: Such orders and restrictions resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our suppliers, employees and customers.
−Removed: Since the start of the second quarter of 2021, there has been increased availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government functions, which resulted in gradual resumption of economic and commercial activities.
−Removed: On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus remain a risk, including the Delta and most recently the Omicron variants which has increased the spread and transmission of COVID-19 disease and prompted government agencies to reinstate or impose public health measures and restrictions that were previously lifted.
−Removed: The continuation of such restrictions or reversal of prior orders to ease restrictions will have a negative effect on our business operations and results of operations.
−Removed: In response to the pandemic, federal and state governments have and may continue to take actions to impose utility termination moratoriums which prohibit water companies from turning off water supplies for nonpayment of water bills.
−Removed: These and other events associated with the COVID-19 pandemic have reduced the incentive and ability of certain of our residential and commercial customers to pay their water services bills on time, if at all, which could negatively impact our result of operations.
−Removed: Recently, state governments have acted to end existing utility termination moratoriums.
−Removed: In California, the most recent state executive order suspending water service disconnections due to non-payment by customers expired December 31, 2021.
−Removed: However, the CPUC directed that regulated water utilities continue to suspend customer disconnections until February 1, 2022.
−Removed: There are currently no such orders remaining in effect in the other states where we operate on suspending water service disconnections due to non-payment.
−Removed: However, if COVID-19 infection rates rise and health officials recommend more stringent measures to stop spread of the disease, state governments may decide to reverse these actions which may prolong our inability to collect fully water services bills from customers.
−Removed: Furthermore, a significant portion of our revenue is derived from water usage by commercial customers.
−Removed: As many of these customers have suspended, altered or terminated their business operations, their water usage may decline significantly or cease, which could adversely affect our revenue.
−Removed: Even though many of these legal restrictions have been eased and lifted in certain jurisdictions, including California, some of our commercial customers may decide not to open fully or at all due to their ongoing concerns with health and safety of employees at the workplace, in which case their water usage may remain at a lower level and continue to adversely impact our revenue.
−Removed: The regulators in states we operate have approved mechanisms to either record a regulatory asset or track, in a memorandum account, expenses and savings related to COVID-19.
−Removed: If a state regulator disagrees with our calculation of recorded COVID-19 account balances, we may be required to make adjustments that could adversely affect our results of operations.
−Removed: While we expect to recover some of the revenue loss and costs through the rate-making processes, there is no guarantee that such recovery will be approved by the regulated utility authorities in a timely manner, or at all.
−Removed: Recently federal and state governments have issued orders and regulations directing employers to require their employees to be vaccinated as a condition to continuing employment, which may adversely affect our operations.
−Removed: In November 2021, and in response to the order by President Joseph Biden, the federal Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard (“ETS”) mandating that all employers with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or produce a negative COVID test on a weekly basis.
−Removed: However, on January 13, 2022, the U.S.
−Removed: Supreme Court invalidated President Biden’s federal vaccine mandate holding that OSHA had exceeded its authority.
−Removed: Accordingly, the implementation of such federal vaccine mandate is suspended, but similar state and local mandates may continue to be enforced and implemented.
−Removed: In response to these regulatory developments and the need to protect the health and safety of our employees, we implemented a policy requiring our employees, subject to certain exemptions, to be vaccinated.
−Removed: On January 22, 2022, SJWC received a letter from the National Labor Relations Board (“NLRB”) stating that it would investigate the allegations from the Utility Workers Union of America Local 259 that SJWC failed to bargain in good faith by imposing a COVID vaccine mandate and threatening to terminate noncompliant employees and for, otherwise, failing to bargain over its decision to impose the mandate.
−Removed: SJWC intends to cooperate with the NLRB’s investigation requests for affidavits from SJWC management and relevant documents.
−Removed: These regulatory requirements and company policies may result in increased operating costs, labor disruptions or employee attrition, and if we lose employees, it may be difficult in the current competitive labor market to recruit and hire replacement employees, all of which may have an adverse effect on our business operations and financial conditions.
−Removed: In addition to the above risks, we are subject to the following risks resulting from the COVID-19 pandemic and related events:
−Removed: • if governments impose or reinstate “shelter-in-place” orders and quarantines, our planned infrastructure improvement projects could be temporarily interrupted by supply shortages, lack of sufficient workforce and disruption in transportation.
−Removed: This may negatively impact our ability to maintain and improve our infrastructure and provide reliable services to customers.
−Removed: In addition, our expenditures on capital improvements could be reduced, which may in turn impact rate decisions by state regulators.
−Removed: • wide-spread COVID-19 disease could impact the health of our employees and management team, which may disrupt our business operations;
−Removed: • a recession, stock market correction, or debt market disruptions resulting from the spread of COVID-19 could materially affect our business, results of operations, cash flow, and the value of our common stock, which may make it more difficult for us to raise capital in equity or debt markets;
−Removed: • we may experience higher uncollectible accounts receivables and increased costs from COVID-19 related prevention activities.
−Removed: In addition, the COVID-19 pandemic has resulted in widespread global supply chain disruptions to vendors and suppliers, which may negatively affect our business operations, including delays in procuring materials and supplies that are required for capital additions and operations.
−Removed: The full extent of the future impact of COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors, many of which are outside our control, including, without limitation the timing, extent, trajectory and duration of the pandemic;
−Removed: the availability, distribution and effectiveness of vaccines;
−Removed: the imposition of protective public safety measures;
−Removed: and the impact of the pandemic on state and local economy and customer behaviors.
−Removed: Any of these factors may continue to adversely affect our business and financial conditions, and there is no guarantee that we will be able to quickly return to our normal operations.
−Removed: Changes in water supply, water supply costs or the mix of water supply could adversely affect the operating results and business of Water Utility Services.
−Removed: SJWC’s supply of water primarily relies upon three main sources:
−Removed: treated water purchased from Valley Water, surface water from its watershed in the Santa Cruz Mountains, and water pumped from the local groundwater basin.
−Removed: Changes and variations in quantities from each of these three sources including changes due to production assets being taken off-line for renovation or non-compliance with regulations affect the overall mix of the water supply, thereby affecting the cost of the water supply.
−Removed: If there is an adverse change to the mix of water supply and SJWC is not allowed by CPUC to recover the additional or increased water supply costs, its operating results may be adversely affected.
−Removed: Valley Water receives an allotment of water from state and federal water projects.
−Removed: If SJWC has difficulties obtaining a high quality water supply from Valley Water due to availability, environmental, legal or regulatory actions or other restrictions (see also Part I, Item 1 , “Water Supply”), it may not be able to fully satisfy customer demand in its service area and its operating results and business may be adversely affected.
−Removed: Additionally, the availability of water from SJWC’s Santa Cruz Mountains watershed depends on the weather and fluctuates with each season.
−Removed: In a normal year, surface water supply provides 6% to 8% of the total water supply of the system.
−Removed: In a season with little rainfall, such as the record drought conditions in California in 2021, water supply from surface water sources may be low, thereby causing SJWC to increase the amount of water purchased from outside sources at a higher cost than surface water, thus increasing water production expenses.
−Removed: When drought conditions occur, we may be required to rely more heavily on purchased water than surface water, which would increase our costs and adversely affect our results of operations.
−Removed: In addition, SJWC’s ability to use surface water is subject to regulations regarding water quality and volume limitations.
−Removed: If new regulations are imposed or existing regulations are changed or given new interpretations, the availability of surface water may be materially reduced.
−Removed: A reduction in surface water could result in the need to procure more costly water from other sources, thereby increasing overall water production expenses and adversely affecting our operating results.
−Removed: Because the extraction of water from the groundwater basin and the operation of the water distribution system require a significant amount of energy, increases in energy prices could increase operating expenses of SJWC.
−Removed: The cost of energy is beyond our control and can change unpredictably and substantially based on load supply and demand.
−Removed: Therefore, SJWC cannot be certain that it will be able to contain energy costs into the future.
−Removed: SJWC continues to utilize Pacific Gas & Electric’s time of use rate schedules to minimize its overall energy costs primarily for groundwater pumping.
−Removed: Optimization and energy management efficiency are achieved through the implementation of software applications that control pumps based on demand and cost of energy.
−Removed: An increase in demand or a reduction in the availability of surface water or import water could result in the need to pump more water during peak hours which will increase the cost of energy and therefore adversely affect the operating results of SJWC.
−Removed: SJWC has been granted permission by CPUC to employ certain balancing accounts to track various water supply expenses and revenues.
−Removed: There is no assurance that CPUC will allow recovery or refund of these balances when submitted by SJWC.
−Removed: CLWSC’s primary water supply is 7,650 acre-feet of water which is pumped from Canyon Lake at three lake intakes or delivered as treated water from GBRA’s Western Canyon Pipeline, in accordance with the terms of its contracts with the GBRA, which are long-term take-or-pay contracts.
−Removed: This supply is supplemented by groundwater pumped from wells.
−Removed: CLWSC has a small secondary water supply specific to a distinct system located in Hays and Travis counties.
−Removed: This supply of 350 acre-feet is also a long-term take or pay contract.
−Removed: While the contracts provides a committed long-term water supply for future demand, CLWSC customers currently do not use the volume of water allowed under the contracts which increases the cost of water for existing customers, and there is no assurance that future demands up to the committed supply volume will occur.
−Removed: Texas faces long-term water supply constraints similar to California as described above and while current water supply exceeds demand, CLWSC may not be able to obtain adequate water supply to meet customer demand or may be required to procure more costly water from other sources.
−Removed: The Connecticut regulated operations derive their rights and franchises to operate from state laws that are subject to alteration, amendment or repeal.
−Removed: Our franchises are free from restrictions, are unlimited as to time, and authorize us to sell potable water in all towns we now serve.
−Removed: Under Connecticut law, these rights and franchises are transferred to the surviving corporation in any merger.
−Removed: None of the Connecticut regulated operations were parties in the recent merger between the parent companies CTWS and SJW Group and no conditions were imposed that would adversely impact those rights and franchises.
−Removed: The companies further rely on environmental permits or registrations authorizing the use of water supplies in Connecticut, and those were not altered as a result of the merger with SJW Group.
−Removed: There is a possibility that the state could revoke our franchises and allow a governmental entity to take over some or all of our systems or could modify laws related to water supply use.
−Removed: From time to time such legislation has been contemplated in the past.
−Removed: The Connecticut regulated operations do not face long-term water supply constraints, but in times of persistent dry weather and continued drought conditions, Connecticut Water has requested that customers voluntarily reduce water usage.
−Removed: Climate change may also impact water supply.
−Removed: For example, severity of drought conditions may impact the availability of water to all Water Utility Services and rising sea levels may impact the availability of groundwater available to SJWC and CLWSC.
Fluctuations in customer demand for water due to seasonality, restrictions of use, weather, and lifestyle can adversely affect operating results.
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In addition, in time of drought, water conservation may become a regulatory requirement that impacts the water usage of our customers.
−Removed: Weather conditions can also affect the sources of water supply, including the need to use more purchased water than surface water during a drought, which may increase our operating expenses.
On July 8, 2021, Governor Gavin Newsom issued a proclamation declaring a drought emergency in fifty California Counties, including Santa Clara County.
−Removed: San Jose Water Company has activated our Water Shortage Contingency Plan to achieve the 15% conservation target.
+Added: SJWC has activated our Water Shortage Contingency Plan to achieve the 15% conservation target.
+Added: On July 9, 2021 Valley Water, the water supply agency for Santa Clara County, declared a water shortage emergency and requested its retailers enact conservation measures to achieve a mandatory 15% reduction compared to 2019 water consumption.
+Added: SJWC has activated our Water Shortage Contingency Plan to achieve the 15% conservation target.
+Added: On January 4, 2022, the State Water Resource Control Board (“State Water Board”) adopted emergency water use regulations that prohibit certain outdoor wasteful water practices.
+Added: SJWC’s drought response through our Water Shortage Contingency Plan includes the same restrictions on wasteful water practices.
+Added: On June 10, 2022, the State Water Board’s Second Water Conservation Emergency Declaration of 2022 became effective.
+Added: This declaration prohibits the use of potable water for irrigation of non-functional turf at commercial, industrial, and institutional properties.
+Added: SJWC is currently collaborating with our wholesaler and utility peers to engage and inform customers.
+Added: Both water conservation emergency declarations will remain in effect for one year.
The implementation of mandatory or voluntary conservation measures during the current drought has resulted and is expected to result in lower water usage by our customers which may adversely affect our results of operation.
If the current conservation measures continue, or if new measures are imposed in response to drought conditions in the future, we may experience fluctuations in the timing of or a reduction in customer revenue.
−Removed: In addition, the current drought reduced the amount of available surface water, which required us to incur more costs to extract groundwater or obtain purchased water, which can significantly impact our results of operations.
−Removed: Furthermore, the CPUC may approve memorandum accounts, such as a Water Conservation Memorandum Account (“WCMA”), to allow companies to recover revenue reductions due to water conservation activities and certain conservation related costs.
−Removed: However, collection of such memorandum accounts is subject to a review and approval process by CPUC, which can be lengthy, and there is no assurance that we will be able to recover in a timely manner all or some of the revenue and costs
−Removed: recorded in the memorandum accounts.
+Added: Furthermore, the CPUC may approve memorandum accounts, such as a WCMA, to allow companies to recover revenue reductions due to water conservation activities and certain conservation related costs.
+Added: However, collection of such memorandum accounts is subject to a review and approval process by CPUC, which can be lengthy, and there is no assurance that we will be able to recover in a timely manner all or some of the revenue and costs recorded in the memorandum accounts.
When drought conditions ease and the California State Water Board and Valley Water no longer mandate water conservation, the company may no longer be allowed to recover revenue lost due to continued conservation activities under the WCMA account and would therefore be exposed to differences between actual and authorized usage.
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A declining volume of residential water usage may have a negative impact on our operating revenues in the future if regulators do not reflect usage declines in the rate setting design process.
−Removed: Although the legislatures in Maine and Connecticut have provided enabling legislation for water utilities to implement revenue adjustment mechanisms to allow for recovery of authorized rates where conservation has occurred and consumption has declined and such a mechanism has been approved by PURA and implemented for Connecticut Water, this mechanism has yet to be implemented at Maine Water.
+Added: Although the legislatures in Maine and Connecticut have provided legislation for water utilities to implement revenue adjustment mechanisms to allow for recovery of authorized rates where conservation has occurred and consumption has declined and such a mechanism has been approved by PURA and implemented for Connecticut Water, this mechanism has yet to be implemented at Maine Water.
A contamination event or other decline in source water quality could affect the water supply of Water Utility Services and therefore adversely affect our business and operating results.
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There can be no assurance that Water Utility Services will continue to comply fully with all applicable water quality requirements or detect contamination timely or at all.
+Added: In addition, our facilities and infrastructure, including water towers, reservoirs and wells, may be subject to vandalism, break-ins or attacks, which may cause contamination or damage to our water supply.
+Added: While we have taken measures to maintain physical security of our facilities, there is no guarantee that such measures will be effective to prevent such events.
In the event a contamination is detected, Water Utility Services must either commence treatment to remove the contaminant or procure water from an alternative source.
Either of these results may be costly, may increase future capital expenditures and there can be no assurance that the regulators would approve a rate increase to enable us to recover the costs arising from such remedies.
−Removed: In addition, we could be held liable for consequences arising from hazardous substances or contamination in our water supplies or other environmental damages.
−Removed: Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.
−Removed: CTWS’s wastewater operations, wastewater collection and treatment and septage pumping and sludge hauling also involve various risks that could impact our company.
−Removed: If collection or treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby streams and rivers, causing various damages and injuries, including environmental damage and health hazards.
−Removed: These risks are most acute during periods of substantial rainfall or flooding, which are the main causes of wastewater overflow and system failure.
−Removed: Liabilities resulting from such damages and injuries could harm our business, financial condition, and results of operations.
−Removed: Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.
−Removed: CTWS’s source water quality could be negatively impacted by a contamination event or a decline in source water quality beyond the capacity of existing treatment systems, causing the treated water to no longer meet state and federal drinking water standards.
−Removed: On a temporary basis, such an event could result in a Do Not Drink or Do Not Use order by state regulators.
−Removed: On a permanent basis, such an event could require additional treatment or the replacement of the source water supply.
−Removed: In either case, such an event or occurrence could cause a decline in consumer trust, significant investment or expense for remediation efforts and potential claims from customers.
+Added: In addition, we could be held liable for consequences arising from hazardous substances or contamination in our water supplies or other environmental damages and our reputation may be harmed by the public disclosures or media reports of these events.
Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.
−Removed: Operating under contract water and waste systems in Maine and Connecticut subject us to risks.
−Removed: CTWS operates a number of water and wastewater systems under operation and maintenance contracts.
+Added: Operating under contract water and waste systems subject us to risks.
+Added: Water Utility Services operates a number of water and wastewater systems under operation and maintenance contracts.
Pursuant to these contracts, such systems are operated according to the standards set forth in the applicable contract, and it is generally the responsibility of the owner of the system to undertake capital improvements over which we may not have control.
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In addition, we must comply with privacy rights regulations such as The California Consumer Privacy Act (“CCPA”), a state statute that became effective January 1, 2020, which enhances the privacy rights and consumer protections for California residents.
−Removed: Among other things, the CCPA establishes statutory damages for victims of data security breaches, and provides additional rights for consumers to obtain their data from any business that has their personally identifying information.
−Removed: If we fail to comply with CCPA, it may lead to investigations, claims, and proceedings by governmental entities and private parties, damages for breach, and cause us to incur other significant costs, penalties, and other liabilities, as well as harm to our reputation.
+Added: Among other things, the CCPA establishes statutory damages for victims of data security breaches, and provides
+Added: additional rights for consumers to obtain their data from any business that has their personally identifying information.
+Added: On January 1, 2023 the California Privacy Rights Act (“CPRA”) took effect.
+Added: The CPRA amended the CCPA to create new rights for consumers and impose additional obligations on businesses.
+Added: We will also be subject to Connecticut’s Act Concerning Personal Data Privacy and Online Monitoring (the “Connecticut Privacy Act”), a similar law that takes effect July 1, 2023.
+Added: Implementing regulations have not yet been finalized under the CPRA and no regulations are expected pursuant to the Connecticut Privacy Act, creating a significant amount of uncertainty.
+Added: Despite our efforts to comply with these laws, we may fail to do so which may lead to investigations, claims, and proceedings by governmental entities and private parties, damages for breach, and cause us to incur other significant costs, penalties, and other liabilities, as well as harm to our reputation.
A failure of our reservoirs, storage tanks, mains or distribution networks could result in losses and damages that may adversely affect our financial condition and reputation.
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Such failures and shutdowns may limit our ability to supply water in sufficient quantities to our customers and to meet the water delivery requirements prescribed by governmental regulators, which could adversely affect our financial condition, results of operations, cash flow, liquidity and reputation.
−Removed: We also own and operate numerous dams throughout Connecticut and Maine, and a failure of such dams could result in losses and damages that may adversely effect our financial condition and reputation.
+Added: We also own and operate numerous dams in California, Connecticut and Maine, and a failure of such dams could result in losses and damages that may adversely affect our financial condition and reputation.
Any business interruption or other losses might not be covered by existing insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.
Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.
+Added: Our business and financial performance may be adversely affected by high inflation.
+Added: Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve increases in the rates we charge our customers.
+Added: There is no guarantee that any future rate increase requests will be approved and granted in a timely manner and/or will be sufficient to cover costs for the impact of high inflation.
+Added: The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor and other similar effects.
+Added: As a result of inflation, we have experienced and may continue to experience, cost increases.
+Added: Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected.
+Added: Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
SJW Land Company and Chester Realty, Inc.
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There is no guarantee that we will be able to execute the strategy successfully and failure to do so may adversely affect our operating results and financial condition.
−Removed: Work stoppages, other labor relations matters and epidemic or pandemic illness events could adversely affect our business and operating results.
+Added: Work stoppages and other labor relations matters could adversely affect our business and operating results.
As of December 31, 2022, 215 of our 757 total employees were union members.
−Removed: Most of our unionized employees are represented by the Utility Workers of America, except certain employees in the engineering department who are represented by the International Union of Operating Engineers.
+Added: Most of our unionized employees are represented by the OWUA, except certain employees in the engineering department who are represented by the OE.
Only employees at SJWC are union members.
−Removed: The current three-year bargaining agreements will expire on December 31, 2022 and negotiations will begin in 2022 for the upcoming period, 2023 through 2025.
+Added: The current three-year bargaining agreements expired on December 31, 2022 and a tentative agreement has been negotiated and will begin in 2023 for the upcoming period, 2023 through 2025.
+Added: Acceptance of the OE and the OWUA bargaining agreements are anticipated in the first quarter of 2023.
We may experience difficulties and delays in the collective bargaining process to reach suitable agreements with union employees, particularly in light of increasing healthcare and pension costs.
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Our ability to raise capital through equity or debt may be affected by the economy and condition of the debt and equity markets.
−Removed: Disruptions in the capital and credit markets or deteriorations in the strength of financial institutions could adversely affect SJW Group’s ability to draw on its lines of credit, issue long-term debt or sell its equity.
+Added: Disruptions in the capital and credit markets or deterioration in the strength of financial institutions could adversely affect SJW Group’s ability to draw on its lines of credit, issue long-term debt or sell its equity.
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.
Furthermore, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of SJW Group and its subsidiaries.
−Removed: We incurred substantial additional indebtedness to finance our acquisition of CTWS, which may reduce our business and operational flexibility and increase our borrowing costs.
−Removed: Our increased indebtedness and higher debt-to-equity ratio in comparison to that of our recent historical basis may have the effect, among other things, of:
+Added: We have incurred substantial additional indebtedness that may reduce our business and operational flexibility and increase our borrowing costs.
+Added: We have incurred substantial indebtedness resulting in higher debt-to-equity ratio, which may have the effect, among other things, of:
reducing our flexibility to respond to changing business, industry and economic conditions;
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In addition, the terms and conditions of such indebtedness, including financial covenants and restrictive covenants, may reduce our business flexibility and adversely affect our business, financial condition, results of operations and prospects.
−Removed: The agreements governing the indebtedness incurred in connection with the merger contain covenants that impose significant operating and financial limitations and restrictions on us, including restrictions on the ability to enter particular transactions and engage in other activities that we may believe will be advisable or necessary for the combined company’s business.
+Added: The agreements governing the indebtedness contain covenants that impose significant operating and financial limitations and restrictions on us, including restrictions on the ability to enter particular transactions and engage in other activities that we may believe will be advisable or necessary for our business.
In addition, failure to comply with any of the covenants in our existing or future debt agreements could result in a default under those agreements and under other existing agreements containing cross-default provisions.
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Under certain circumstances, we may not have sufficient funds or other resources to satisfy all of our obligations under our indebtedness, including principal and interest payments, which, if not cured, may cause an event of default.
−Removed: The senior note borrowings of SJW Group, SJWC and CLWSC include certain financial covenants regarding a maximum debt to equity ratio and an interest coverage requirement.
+Added: The senior note borrowings of SJW Group, SJWC and SJWTX include certain financial covenants regarding a maximum debt to equity ratio and an interest coverage requirement.
In the event the relevant borrower exceeds the maximum debt to equity ratio or interest coverage requirement, we may be restricted from issuing future debt.
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Additionally, Maine Water has restrictions on cash dividends paid based on restricted net assets.
−Removed: In the event that we violate any of these covenants, an event of default may occur and all amounts due under such bonds may be called by the Trustee, which would have an adverse effect on our business operations and financial conditions.
−Removed: The phaseout of the London Interbank Offered Rate ( “ LIBOR ” ), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.
−Removed: On July 27, 2017, the Financial Conduct Authority (“FCA”), the authority that regulates LIBOR, announced that it would phaseout LIBOR by the end of 2021.
−Removed: In March 2021, the FCA announced an extension of certain panels of LIBOR to continue until the end of June 2023.
−Removed: However, in November 2021, the FCA confirmed that it will prohibit the use of LIBOR in new contracts written after December 31, 2021.
−Removed: In the United States, the Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR.
−Removed: It is not presently known whether SOFR or any other alternative reference rates that have been proposed will attain market acceptance as replacements of LIBOR.
−Removed: Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs for both our existing debt agreements that include LIBOR interest rates and future loan agreements that we may enter into.
−Removed: In addition, uncertainty as to the nature of such phase out and selection of an alternative reference rate can result in disruptions in the overall financial market, which could negatively impact our ability to obtain debt financing at favorable rates.
−Removed: We cannot predict how the LIBOR transition will impact the interest rates and other terms of our existing debt agreements, and such transition may materially and adversely affect SJW Group’s results of operations, cash flows and liquidity.
+Added: In the event that we violate any of these covenants, an event of default may occur and all amounts due under such loans, senior notes or bonds may come due, which would have an adverse effect on our business operations and financial conditions.
SJW Group has committed to certain “ring-fencing” measures which will enhance CTWS’s separateness from SJW Group, which may limit SJW Group’s ability to influence the management and policies of CTWS (beyond the limitations included in other existing governance mechanisms).
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Our pension costs and the funded status of the plans are affected by a number of factors including the discount rate, applicable mortality tables, mortality rates of plan participants, investment returns on plan assets, and pension reform legislation.
−Removed: Any change in such factors could result in an
−Removed: increase in future pension costs and an increase in our pension liabilities, requiring an increase in plan contributions which may adversely affect our financial conditions and results of operations.
+Added: Any change in such factors could result in an increase in future pension costs and an increase in our pension liabilities, requiring an increase in plan contributions which may adversely affect our financial conditions and results of operations.
SJW Group’s dividend policy is subject to the discretion of our board of directors and may be limited by legal and contractual requirements.
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General Risk Factors
−Removed: We operate in areas subject to natural disasters or that may be the target of terrorist activities.
+Added: We operate in areas subject to natural disasters, and we may be the target of terrorist activities and other physical threats.
We operate in areas that are prone to earthquakes, fires, floods, extreme weathers and other natural disasters.
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We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business.
+Added: In addition, because our operation requires us to interact extensively with the general public, we may be subject to complaints, threats and potentially violent actions by our customers or the public, which may disrupt our business activities and damage our reputation.
We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies.
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It is possible that wildfires and other fire hazards may occur more frequently, be of longer duration or impact larger areas as a result of drought-damaged plants and trees, lower humidity or higher winds that might be occurring as result of changed weather patterns.
−Removed: The effects of these natural disasters in California’s drought-prone areas, such as the Santa Cruz Mountains, the watershed where SJWC obtains up to 10% of its water supply, may temporarily compromise its surface water supply resulting in disruption in our services and litigation which could adversely affect our business, operating results, and financial condition.
+Added: The effects of these natural disasters in California’s drought-prone areas, such as the Santa Cruz Mountains,
+Added: the watershed where SJWC typically obtains approximately up to 10% of its water supply, may temporarily compromise its surface water supply resulting in disruption in our services and litigation which could adversely affect our business, operating results, and financial condition.
If our surface water supply is compromised, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an alternative water source.
−Removed: If there is an adverse change to the mix of water supply, it may cause an increase in our purchased and pumped water and increase our production expenses substantially, which would adversely affect the operating results of SJWC.
−Removed: There can be no assurance that the CPUC will allow SJWC to recover the additional or increased production expenses.
In addition, we may incur significant costs in order to treat the impacted source through expansion of our current treatment facilities, or development of new treatment methods.
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The trading price of our common stock may fluctuate in the future based on a variety of factors, many of which are beyond our control and unrelated to our financial results.
−Removed: Factors that could cause fluctuations in the trading price of our common stock include volatility of the general stock market or the utility index, regulatory developments, public announcement of material development in strategic transactions general economic conditions and trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or
−Removed: anticipated developments in our competitors’ businesses or the competitive landscape generally, litigation involving us or our industry, and major catastrophic event(s) or sales of large blocks of our stock.
+Added: Factors that could cause fluctuations in the trading price of our common stock include volatility of the general stock market or the utility index, regulatory developments, public announcement of material development in strategic transactions general economic conditions and trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or anticipated developments in our competitors’ businesses or the competitive landscape generally, litigation involving us or our industry, and major catastrophic event(s) or sales of large blocks of our stock.
Furthermore, we believe that stockholders invest in public stocks in part because they seek reliable dividend payments.
−Removed: If there is an over supply of stock of public utilities in the market relative to demand by such investors, the trading price of our common stock may decrease.
+Added: If there is an oversupply of stock of public utilities in the market relative to demand by such investors, the trading price of our common stock may decrease.
Additionally, if interest rates rise above the dividend yield offered by our common stock, demand for our stock and its trading price may also decrease.
We must continue to attract and retain qualified technical and managerial personnel in order to succeed.
−Removed: Our future success depends largely upon our ability to attract and retain highly skilled technical, operational and financial managers.
+Added: Our future success depends substantially upon our ability to attract and retain highly skilled technical, operational and financial managers.
There is a significant competition for such personnel in our industry.
+Added: Our ability to recruit and retain qualified personnel depends on many factors, including but are not limited to, our ability to provide competitive compensation and benefit packages, availability of talents in our industry, general workforce trends and macroeconomic conditions.
The loss of the services of any member of our management team or the inability to hire and retain experienced management personnel could have an adverse effect on our business, as our management team has knowledge of our industry and customers and would be difficult to replace.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.