H2O AMERICA 10-Q

ITEM 1. FINANCIAL STATEMENTS SJW GROUP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands, except share and per share data) Three months ended March 31, 2023 2022 REVENUE $ 137,296 124,302 OPERATING EXPENSE: Production Expenses: Purchased water 22,418 19,217 Power 2,199 3,080 Groundwater extraction charges 10,359 13,928 Other production expenses 12,043 10,123 Total production expenses 47,019 46,348 Administrative and general 24,344 24,205 Maintenance 6,058 6,695 Property taxes and other non-income taxes 8,401 8,309 Depreciation and amortization 26,296 27,606 Gain on sale of nonutility properties — ( 5,450 ) Total operating expense 112,118 107,713 OPERATING INCOME 25,178 16,589 OTHER (EXPENSE) INCOME: Interest on long-term debt and other interest expense ( 15,772 ) ( 13,729 ) Pension non-service cost ( 64 ) 949 Other, net 3,266 995 Income before income taxes 12,608 4,804 Provision for income taxes 1,078 1,067 NET INCOME 11,530 3,737 Other comprehensive income (loss), net 93 ( 181 ) COMPREHENSIVE INCOME $ 11,623 3,556 EARNINGS PER SHARE Basic $ 0.37 0.12 Diluted $ 0.37 0.12 DIVIDENDS PER SHARE $ 0.38 0.36 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 30,936,476 30,224,135 Diluted 31,040,897 30,335,974 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 SJW GROUP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share data) March 31, 2023 December 31, 2022 ASSETS Utility plant: Land $ 40,820 39,982 Depreciable plant and equipment 3,706,176 3,661,285 Construction in progress 121,309 116,851 Intangible assets 35,947 35,959 Total utility plant 3,904,252 3,854,077 Less accumulated depreciation and amortization 1,250,101 1,223,760 Net utility plant 2,654,151 2,630,317 Real estate investments and nonutility properties 1,388 58,033 Less accumulated depreciation and amortization 190 17,158 Net real estate investments and nonutility properties 1,198 40,875 CURRENT ASSETS: Cash and cash equivalents: Cash 23,333 12,344 Accounts receivable: Customers, net of allowances for uncollectible accounts of $ 5,851 and $ 5,753 on March 31, 2023 and December 31, 2022, respectively 56,468 59,172 Other 5,145 5,560 Accrued unbilled utility revenue 40,437 45,722 Assets held for sale 40,850 — Prepaid expenses 11,380 9,753 Current regulatory assets, net 10,019 16,068 Other current assets 6,216 6,095 193,848 154,714 OTHER ASSETS: Net regulatory assets, less current portion 127,339 127,275 Investments 15,923 14,819 Goodwill 640,311 640,311 Other 19,728 24,313 803,301 806,718 $ 3,652,498 3,632,624 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 SJW GROUP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share data) March 31, 2023 December 31, 2022 CAPITALIZATION AND LIABILITIES CAPITALIZATION: Stockholders’ equity: Common stock, $ 0.001 par value; authorized 70,000,000 shares; issued and outstanding share s 31,427,124 on March 31, 2023 and 30,801,912 on December 31, 2022 $ 31 31 Additional paid-in capital 692,742 651,004 Retained earnings 458,142 458,356 Accumulated other comprehensive income 1,570 1,477 Total stockholders’ equity 1,152,485 1,110,868 Long-term debt, less current portion 1,520,362 1,491,965 2,672,847 2,602,833 CURRENT LIABILITIES: Lines of credit 72,433 159,578 Current portion of long-term debt 44,274 4,360 Accrued groundwater extraction charges, purchased water and power 11,739 19,707 Accounts payable 25,974 29,581 Accrued interest 19,071 13,907 Accrued payroll 9,076 11,908 Income tax payable 4,608 2,696 Other current liabilities 25,790 22,913 212,965 264,650 DEFERRED INCOME TAXES 220,111 218,155 ADVANCES FOR CONSTRUCTION 137,668 137,696 CONTRIBUTIONS IN AID OF CONSTRUCTION 327,016 323,668 POSTRETIREMENT BENEFIT PLANS 55,914 59,738 OTHER NONCURRENT LIABILITIES 25,977 25,884 COMMITMENTS AND CONTINGENCIES $ 3,652,498 3,632,624 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 SJW GROUP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders’ Equity Number of Shares Amount BALANCES, December 31, 2022 30,801,912 $ 31 $ 651,004 $ 458,356 $ 1,477 $ 1,110,868 Net income — — — 11,530 — 11,530 Unrealized gain on investment, net of taxes of $ 0 — — — — 93 93 Stock-based compensation — — 1,199 ( 22 ) — 1,177 Issuance of restricted and deferred stock units 38,776 — ( 1,538 ) — — ( 1,538 ) Employee stock purchase plan 16,410 — 1,080 — — 1,080 Common stock issuance, net of costs 570,026 — 40,997 — — 40,997 Dividends paid ($ 0.38 per share) — — — ( 11,722 ) — ( 11,722 ) BALANCES, March 31, 2023 31,427,124 $ 31 $ 692,742 $ 458,142 $ 1,570 $ 1,152,485 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Number of Shares Amount BALANCES, December 31, 2021 30,181,348 $ 30 $ 606,392 $ 428,260 $ ( 163 ) $ 1,034,519 Net income — — — 3,737 — 3,737 Unrealized loss on investment, net of taxes of $ 67 — — — — ( 181 ) ( 181 ) Stock-based compensation — — 1,552 ( 20 ) — 1,532 Issuance of restricted and deferred stock units 37,879 — ( 1,269 ) — — ( 1,269 ) Employee stock purchase plan 17,918 — 1,049 — — 1,049 Common stock issuance, net of costs — — ( 87 ) — — ( 87 ) Dividends paid ($ 0.36 per share) — — — ( 10,882 ) — ( 10,882 ) BALANCES, March 31, 2022 30,237,145 $ 30 $ 607,637 $ 421,095 $ ( 344 ) $ 1,028,418 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 6 SJW GROUP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Three months ended March 31, 2023 2022 OPERATING ACTIVITIES: Net income $ 11,530 3,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,842 28,081 Deferred income taxes 1,052 2,264 Stock-based compensation 1,199 1,552 Allowance for equity funds used during construction ( 180 ) ( 510 ) Gain on sale of nonutility property — ( 5,450 ) Changes in operating assets and liabilities: Accounts receivable and accrued unbilled utility revenue 8,177 4,311 Accounts payable and other current liabilities ( 650 ) ( 1,635 ) Accrued groundwater extraction charges, purchased water and power ( 7,968 ) 2,140 Tax receivable and payable, and other accrued taxes 1,727 1,135 Postretirement benefits 1,667 1,230 Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits 8,367 5,124 Other changes, net ( 1,156 ) 3,315 NET CASH PROVIDED BY OPERATING ACTIVITIES 50,607 45,294 INVESTING ACTIVITIES: Additions to utility plant: Company-funded ( 52,384 ) ( 43,727 ) Contributions in aid of construction ( 2,703 ) ( 4,782 ) Payments to retire utility plant, net of salvage ( 167 ) ( 1,087 ) Other changes, net 225 154 NET CASH USED IN INVESTING ACTIVITIES ( 55,029 ) ( 49,442 ) FINANCING ACTIVITIES: Borrowings on line of credit 12,238 15,377 Repayments on line of credit ( 99,383 ) ( 2,375 ) Long-term borrowings 70,000 — Repayments of long-term borrowings ( 956 ) ( 1,172 ) Issuance of common stock, net of issuance costs 40,997 — Dividends paid ( 11,722 ) ( 10,882 ) Receipts of advances and contributions in aid of construction 5,597 10,044 Refunds of advances for construction ( 589 ) ( 595 ) Other changes, net ( 771 ) ( 279 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 15,411 10,118 NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 10,989 5,970 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 12,344 12,119 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD 23,333 18,089 LESS RESTRICTED CASH, END OF PERIOD — 602 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,333 17,487 Cash paid during the period for: Interest $ 12,062 11,127 Income taxes 198 165 Supplemental disclosure of non-cash activities: Accrued payables for additions to utility plant $ 19,906 20,472 Utility property installed by developers 656 546 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 7 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 (in thousands, except share and per share data) Note 1. General In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods. The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission. The Notes to Consolidated Financial Statements in SJW Group’s 2022 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements. 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. SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”) whose wholly-subsidiaries are The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), New England Water Utility Services, Inc. (“NEWUS”), and Chester Realty, Inc. SJWC, Connecticut Water, SJWTX, Inc. doing business as The Texas Water Company (“Texas Water”), Maine Water and NEWUS are referred to as “Water Utility Services”. SJW Land Company and Chester Realty, Inc. are collectively referred to as “Real Estate Services.” Revenue Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. 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 precipitation curtail water usage resulting in lower sales. The major streams of revenue for SJW Group are as follows: Three months ended March 31, 2023 2022 Revenue from contracts with customers $ 135,836 121,777 Alternative revenue programs, net ( 1,391 ) ( 1,927 ) Other balancing and memorandum accounts, net 1,795 2,430 Other regulatory mechanisms, net ( 391 ) 666 Rental income 1,447 1,356 $ 137,296 124,302 Real Estate Investments and Nonutility Properties The major components of real estate investments and nonutility properties as of March 31, 2023, and December 31, 2022, are as follows: March 31, 2023 December 31, 2022 Land $ 918 12,615 Buildings and improvements 470 45,418 Subtotal 1,388 58,033 Less: accumulated depreciation and amortization 190 17,158 Total $ 1,198 40,875 In March 2023, SJW Land Company entered into a broker agreement to sell its warehouse buildings and land property located in Knoxville, Tennessee. The company reclassified the Tennessee properties from held-and-used to held-for-sale at March 31, 2023. The company’s intention is to complete the sale of these assets within a twelve month period. The company recorded the Tennessee properties at the lower of their carrying value or estimated fair value less cost to sell, and also stopped recording 8 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) depreciation on assets held for sale. The company's broker provided the estimated fair value of the Tennessee properties and we subtracted the estimated costs to sell from that calculated fair value. The resulting net fair value of the Tennessee properties exceeded their carrying value, and accordingly no impairment was recorded. The sale of the Tennessee properties does not represent a strategic shift that has or will have a major effect on SJW Group; therefore, the sale does not qualify for treatment as a discontinued operation. The Tennessee warehouse buildings and land property is included in SJW Group’s “Real Estate Services” reportable segment in Note 9 , “Segment and Non-Tariffed Business Reporting.” The following represents the major components of the Tennessee warehouse building and land property recorded in assets held-for-sale on the condensed consolidated balance sheets as of March 31, 2023: March 31, 2023 Land $ 13,170 Buildings and improvements 44,950 Subtotal 58,120 Less: accumulated depreciation and amortization 17,270 Total $ 40,850 On February 15, 2022, the California Public Utilities Commission (“CPUC”) review on a SJWC nonutility property sold in October 2021 was completed and the deferred gain of $ 5,442 was recognized as gain on sale in the first quarter of 2022. Fair Value Measurement The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2023, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2023, approximates their carrying value as reported on the condensed consolidated balance sheets. There have been no changes in valuation techniques during the three months ended March 31, 2023. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1. The fair value of SJW Group’s long-term debt was approximately $ 1,383,468 and $ 1,294,354 as of March 31, 2023, and December 31, 2022, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was $ 1,564,636 and $ 1,496,325 as of March 31, 2023, and December 31, 2022, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy. CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts are funded by investment assets held by a Rabbi Trust. The fair value of the money market funds, mutual funds and fixed income investments in the Rabbi Trust was $ 2,848 and $ 2,809 as of March 31, 2023, and December 31, 2022, respectively, and are categorized as Level 1 in the fair value hierarchy. Earnings per Share Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with restricted common stock awards under SJW Group’s Long-Term Incentive Plan (as amended, the “Incentive Plan”), shares potentially issuable under the performance stock plans assumed through the business combination with CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended March 31, 2023 and 2022, 8,855 and 10,860 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively. 9 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) Note 2. Regulatory Matters Regulatory assets, net are comprised of the following as of March 31, 2023, and December 31, 2022: March 31, 2023 December 31, 2022 Regulatory assets: Income tax temporary differences, net $ 46,601 43,434 Postretirement pensions and other postretirement benefits 31,021 31,493 Business combinations debt premium, net 16,761 17,396 Monterey Water Revenue Adjustment Mechanism (“MWRAM”) 14,171 10,864 Water Conservation Memorandum Account (“WCMA”) ( 7,150 ) ( 5,039 ) 2022 General Rate Case Interim Memorandum Account 18,716 20,650 Cost recovery accounts 11,308 16,545 All other balancing and memorandum accounts 3,267 2,749 Water Revenue Adjustment (“WRA”) ( 7,283 ) ( 4,488 ) Other, net 9,946 9,739 Total regulatory assets, net in Condensed Consolidated Balance Sheets 137,358 143,343 Less: current regulatory assets, net 10,019 16,068 Total regulatory assets, net, less current portion $ 127,339 127,275 SJWC has established balancing accounts for the purpose of tracking the under-collection or over-collection associated with expense changes and revenue authorized by the CPUC to offset those expense changes. In 2022, SJWC’s general rate case decision approved the use of the Full Cost Balancing Account to track the water supply costs and energy consumption. The MWRAM balancing account tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect. SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC. The WCMA allows SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reductions. SJWC records the lost revenue captured in the WCMA balancing accounts. Drought surcharges collected are used to offset the revenue losses tracked in the WCMA. All balancing accounts and memorandum accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2 % of authorized revenue, whichever occurs first. Connecticut Water has established WRA, a decoupling mechanism, to mitigate risk associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows the company to implement a surcharge or surcredit as necessary to recover or refund the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings. As of March 31, 2023, and December 31, 2022, SJW Group’s regulatory assets, net, not earning a return primarily included postretirement pensions and the unfunded amount of other medical benefits, and business combination debt premiums, net. The total amount of regulatory assets, net not earning a return at March 31, 2023, and December 31, 2022, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $ 51,002 and $ 52,066 , respectively. 10 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) Note 3. Capitalization In March 2023, SJW Group entered into an Amendment No. 1 to the equity distribution agreement (the “Equity Distribution Agreement”), dated November 17, 2021, between the Company and 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 increased the aggregate gross sales price of shares of the Company’s common stock, $ 0.001 par value per share, that may be sold under the Equity Distribution Agreement from $ 100,000 to $ 240,000 . For the three months ended March 31, 2023, SJW Group issued and sold a total of 547,820 shares of common stock with a weighted average price of $ 76.10 per share and received approximately $ 40,997 in net proceeds under the Equity Distribution Agreement. Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 1,432,671 shares of common stock with a weighted average price of $ 74.46 for a total net proceeds of $ 104,429 and has $ 133,323 remaining under the Equity Distribution Agreement to issue into shares. Note 4. Bank Borrowings and Long-Term Liabilities SJW Group’s contractual obligations and commitments include senior notes, bank term loans, revenue bonds, state revolving fund loans and other obligations. Water Utility Services has received advance deposit payments from its customers and developers on certain construction projects. The refunds of the advance deposit payments constitute an obligation of the respective entities. Long-term Financing Agreements In July 2022, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance, Metropolitan Life Insurance, Northwestern Mutual Life Insurance, and John Hancock Life Insurance (collectively the “Purchasers”), pursuant to which the company will sell an aggregate principal amount of $ 70,000 of its 4.85 % Senior Notes, Series P (“Series P Notes”) to the Purchasers. The Series P Notes are unsecured obligations of SJWC and are due on February 1, 2053. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series P Notes are outstanding. The Series P Notes are also subject to customary events of default. The closing of the note purchase agreement occurred on January 25, 2023. Note 5. Income Taxes For the three months ended March 31, 2023, and 2022, income tax expense was $ 1,078 and $ 1,067 , respectively. The effective consolidated income tax rates were 9 % and 22 % for the three months ended March 31, 2023 and 2022, respectively. The lower effective tax rate for the three months ended March 31, 2023, was primarily due to discrete tax items. SJW Group unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties, of approximately $ 9,203 and $ 9,004 as of March 31, 2023, and December 31, 2022, respectively. SJW Group currently does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of a lapse of the statute of limitations. Note 6. Commitments and Contingencies SJW Group is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows. Note 7. Benefit Plans SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. SJWC and CTWS employees hired before March 31, 2008, and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the employee’s years of service and compensation. For SJWC employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee. Starting in 2023, Texas Water employees are also eligible to participate under SJWC’s cash balance plan. Certain CTWS employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefits based on the employee’s years of service and compensation. CTWS employees hired on or after January 1, 2009, are entitled to an additional 1.5 % of eligible compensation to their company sponsored savings plan. SJW Group does not have multi-employer plans. 11 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) In addition, senior management hired before March 31, 2008 for SJWC and January 1, 2009 for CTWS, are eligible to receive additional retirement benefits under supplemental executive retirement plans and retirement contracts. SJWC’s senior management hired on or after March 31, 2008, are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan. The supplemental retirement plans and Cash Balance Executive Supplemental Retirement Plan are non-qualified plans in which only senior management and other designated members of management may participate. SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits that are not pension plans. The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three months ended March 31, 2023, and 2022 are as follows: Three months ended March 31, 2023 2022 Service cost $ 2,052 2,652 Interest cost 3,874 2,860 Expected return on assets ( 4,286 ) ( 5,043 ) Unrecognized actuarial loss 466 1,164 Amortization of prior service cost 4 4 Total $ 2,110 1,637 In 2023, SJW Group expects to make required and discretionary cash contributions of up to $ 8,120 to the pension plans and other postretirement benefits. For the three months ended March 31, 2023, SJW Group has made no contributions to such plans. Note 8. Equity Plans The Incentive Plan allows SJW Group to provide employees, non-employee board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. SJW Group also maintains stock plans in connection with its acquisition of CTWS which are no longer granting new stock awards. In addition, shares are issued to employees under the ESPP that was approved by SJW Group stockholders. As of March 31, 2023, 160,381 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units and an additional 573,558 shares are available for award issuances under the Incentive Plan. On April 26, 2023, SJW Group adopted the successor plans for the Incentive Plan and ESPP (collectively, the “Predecessor Plans”) to replace the Predecessor Plans. The Incentive Plan terminated on April 23, 2023 and ESPP will terminate on July 31, 2023. The 2023 Long-Term Incentive Plan reserves for a total of 1,142,000 shares of SJW Group’s common stock for issuance to employees, non-employee board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the SJW Group and its subsidiaries. The 2023 Employee Stock Purchase Plan reserves for a total of 500,000 shares of SJW Group’s common stock for issuance for eligible employees to purchase common stock at a discount through accumulated payroll deductions. Remaining reserves for both of the Predecessor Plans will be terminated with the adoption of the successor plans. 12 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) A summary of compensation costs charged to income and proceeds from the exercise of restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three months ended March 31, 2023, and 2022: Three months ended March 31, 2023 2022 Compensation costs charged to income: ESPP $ 191 185 Restricted stock and deferred restricted stock 1,008 1,367 Total compensation costs charged to income $ 1,199 1,552 ESPP proceeds $ 1,080 1,049 Restricted Stock and Deferred Restricted Stock For the three months ended March 31, 2023, and 2022, SJW Group granted under the Incentive Plan 27,732 and 31,399 , respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value per unit of $ 77.88 and $ 68.37 , respectively. For the three months ended March 31, 2023, and 2022, SJW Group granted under the Incentive Plan 31,345 and 33,621 target units, respectively, performance-based and market-based restricted stock awards granted with a weighted-average grant date fair value per unit of $ 80.05 and $ 70.35 , respectively. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0 % to 150 % of the target number of shares for performance-based restricted stock awards, or between 0 % and 200 % of the target number of shares for market-based restricted stock awards. As of March 31, 2023, the total unrecognized compensation costs related to restricted and deferred restricted stock plans was $ 7,537 . This cost is expected to be recognized over a weighted-average period of 2.26 years. Employee Stock Purchase Plan SJW Group’s recorded expenses for its ESPP were $ 90 and $ 93 for the three months ended March 31, 2023 and 2022, respectively. The total unrecognized compensation costs related to the semi-annual offering period that ends July 31, 2023, for the ESPP is approximately $ 133 . This cost is expected to be recognized during the second and third quarters of 2023. Note 9. Segment and Non-Tariffed Business Reporting SJW Group is a holding company with five subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) Texas Water, a regulated water and non-tariffed wastewater utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, (iv) SJWNE LLC, a holding company for CTWS and its subsidiaries, Connecticut Water, Maine Water, NEWUS and Chester Realty, Inc., and (v) SJWTX Holdings, Inc. which was formed for the purpose of effecting a corporate reorganization of the water utility operations in Texas. SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his executive staff. The first segment provides water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, Texas Water, Maine Water, and NEWUS together referred to as “Water Utility Services”. The second segment consists of property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.” 13 SJW GROUP AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) March 31, 2023 (in thousands, except share and per share data) The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, such as goodwill, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category. For Three Months Ended March 31, 2023 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total Operating revenue $ 133,272 2,577 1,447 — 133,272 4,024 137,296 Operating expense 108,867 1,414 899 938 108,867 3,251 112,118 Operating income (loss) 24,405 1,163 548 ( 938 ) 24,405 773 25,178 Net income (loss) 13,222 618 425 ( 2,735 ) 13,222 ( 1,692 ) 11,530 Depreciation and amortization 25,686 84 303 223 25,686 610 26,296 Interest on long-term debt and other interest expense 10,547 — — 5,225 10,547 5,225 15,772 Provision (benefit) for income taxes 2,724 323 142 ( 2,111 ) 2,724 ( 1,646 ) 1,078 Assets $ 3,552,767 3,967 43,660 52,104 3,552,767 99,731 3,652,498 For Three Months Ended March 31, 2022 Water Utility Services Real Estate Services All Other (1) SJW Group Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total Operating revenue $ 120,518 2,428 1,356 — 120,518 3,784 124,302 Operating expense 101,451 3,979 909 1,374 101,451 6,262 107,713 Operating income (loss) 19,067 ( 1,551 ) 447 ( 1,374 ) 19,067 ( 2,478 ) 16,589 Net income (loss) 9,715 ( 1,317 ) 308 ( 4,969 ) 9,715 ( 5,978 ) 3,737 Depreciation and amortization 24,511 2,572 300 223 24,511 3,095 27,606 Interest on long-term debt and other interest expense 8,763 — — 4,966 8,763 4,966 13,729 Provision (benefit) for income taxes 2,020 ( 437 ) 103 ( 619 ) 2,020 ( 953 ) 1,067 Assets $ 3,403,006 4,139 44,361 60,370 3,403,006 108,870 3,511,876 ____________________ (1) The “All Other” category for the three months ended March 31, 2023, includes the accounts of SJW Group, SJWNE LLC, CTWS and SJWTX Holdings, Inc. on a stand-alone basis. SJWTX Holdings, Inc. had no activity for the three months ended March 31, 2023. For the three months ended March 31, 2022, “All Other” category includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis. Note 10. Acquisitions On January 13, 2023, Texas Water reached agreements to acquire KT Water Development Ltd. and KT Water Resource L.P. for the purchase price of $ 7,338 and $ 53,500 , respectively. KT Water Development Ltd. is an investor-owned water utility providing water to approximately 1,725 people through over 570 service connections in the Rockwall Ranch subdivision in southern Comal County, Texas. KT Water Resources L.P. is a privately-held company formed to develop wholesale water supplies for the fast-growing utilities of Comal County, Texas. The transaction is expected to close in the third quarter of 2023, pending the Public Utility Commission of Texas approval of the KT Water Development Ltd. acquisition. 14