What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-31 compared with 2023-05-01 · 134 added, 80 removed, 235 unchanged (48% of the section changed)

4 unchanged sentences

Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors.

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” as well as the disclosures under Part I, Item 1A in SJW Group’s Annual Report on Form 10-K for the year ended December 31, 2022 under “Risk Factors.”

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

2 unchanged sentences

The principal business of SJWC consists of the production, purchase, storage, purification, distribution, wholesale, and retail sale of water.

SJWC provides water ser vice to customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, and Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California.

SJWC provides water service to customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, and Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California.

SJWC distributes water to customers in accordance with accepted water utility methods which include pumping from storage and gravity feed from high elevation reservoirs.

15 unchanged sentences

Texas Water was previously doing business as Canyon Lake Water Service Company.

Texas Water’s service area comprises more than 268 square miles in Bandera, Blanco, Comal, Hays, Kendall, Medina and Travis Counties in the growing region between San Antonio and Austin, Texas.

Texas Water’s service area comprises more than 268 square miles in Bandera, Blanco, Comal, Hays, Kendall,

Medina and Travis Counties in the growing region between San Antonio and Austin, Texas.

Texas Water holds a 25% equity interest in Acequia Water Supply Corporation (“Acequia”).

Acequia has been determined to be a variable interest entity within

the scope of Accounting Standards Codification Topic 810 with Texas Water as the primary beneficiary.

Acequia has been determined to be a variable interest entity within the scope of Accounting Standards Codification Topic 810 with Texas Water as the primary beneficiary.

As a result, Acequia has been consolidated with Texas Water.

Texas Water is undergoing a corporate reorganization to separate regulated operations from non-tariffed activities.

In November 2021, SJWTX Holdings, Inc.

In 2021, SJWTX Holdings, Inc.

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, Inc.

In the second quarter of 2023, Texas Water Resources, LLC (“TWR”) was formed to hold wholesale water supply assets.

SJWTX Holdings, Inc.

is a wholly-owned subsidiary of SJW Group, incorporated to hold the investments in Texas Water and TWOS.

is a wholly-owned subsidiary of SJW Group, incorporated to hold the investments in Texas Water, TWOS and TWR.

SJW Land Company and Chester Realty, Inc.

1 unchanged sentence

SJW Land Company and Chester Realty, Inc.

owned the following real properties during the three months ended March 31, 2023:

% for Three months ended March 31, 2023 of

owned the following real properties during the six months ended June 30, 2023:

% for Six months ended June 30, 2023 of

Real Estate Services

26 unchanged sentences

SJW Land Company and Chester Realty, Inc.

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

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

Critical Accounting Policies:

1 unchanged sentence

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, 2022.

Our significant accounting policies are described in our notes to the 2022 Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2022.

There have been no changes to our critical or significant accounting policies during the three months ended March 31, 2023.

Our significant accounting policies are described in the notes to the 2022 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2022.

There have been no changes to our critical or significant accounting policies during the three and six ended June 30, 2023.

Results of Operations:

3 unchanged sentences

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 March 31, 2023, was $11,530, an increase of $7,793, or approximately 209%, from $3,737 for the same period in 2022.

The increase in net income was primarily driven by rate increases in California and Maine, and the delay in SJWC's 2022 General Rate Case, a decrease in depreciation and amortization primarily due to a one-time impact related to amortization on certain Cupertino concession assets in the first quarter 2022 net of increases in depreciation related to new utility plant additions, offset by a one-time gain on sale of nonutility properties of $5,450 in the first quarter 2022.

SJW Group’s consolidated net income for the three months ended June 30, 2023, was $18,286, an increase of $6,728, or approximately 58%, from $11,558 for the same period in 2022.

The increase in net income was primarily driven by rate increases in California and Maine, and the delay in SJWC's 2022 General Rate Case and a decrease in income taxes due to the partial release of uncertain tax position reserve, offset by a decrease from lower customer usage driven primarily by weather conditions, higher water production expenses, and higher debt interest expenses.

SJW Group’s consolidated net income for the six months ended June 30, 2023 was $29,816, an increase of $14,521, or approximately 95%, from $15,295 for the same period in 2022.

The increase in net income was primarily driven by rate increases in California and Maine, and the delay in SJWC's 2022 General Rate Case, a decrease in income taxes due to the partial release of uncertain tax position reserve, and a decrease in depreciation and amortization primarily due to a one-time impact related to amortization on certain Cupertino concession assets in 2022 net of increases in depreciation related to new utility plant additions, offset by a decrease from lower customer usage, a one-time gain on sale of nonutility properties of $5,450 in 2022, and higher water production expenses.

Operating Revenue

Operating Revenue by Segment

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Water Utility Services $ 155,470 147,675 $ 291,319 270,621

3 unchanged sentences

Three months ended

Increase/(decrease)

2022 Six months ended

Increase/(decrease) Increase/(decrease)

Water Utility Services:

12 unchanged sentences

Operating Expense by Segment

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Water Utility Services $ 124,467 121,227 $ 234,748 226,657

4 unchanged sentences

Three months ended

Increase/(decrease)

2022 Six months ended

Increase/(decrease) Increase/(decrease)

Water production expenses:

10 unchanged sentences

Gain on sale of nonutility properties — — % 5,450 2 %

$ 3,089 3 % $ 7,494 3 %

Sources of Water Supply

1 unchanged sentence

During normal rainfall years, purchased water provides approximately 40% to 50% of SJWC’s annual production.

An additional 40% to 50% of its water supply is pumped from the underground basin which is subject to a groundwater extraction charge paid to Valley Water.

An additional 40% to 50% of its water supply is pumped from the underground basin which is

subject to a groundwater extraction charge paid to Valley Water.

Surface supply, which during a normal rainfall year satisfies about 6% to 8% of SJWC’s annual water supply needs, provides approximately 1% of its water supply in a dry year and approximately 14% in a wet year.

In dry years, the decrease in water from surface run-off and diversion and the corresponding increase in purchased and pumped water increases production expenses substantially.

Due to many winter storms, Santa Clara County’s drought classification was changed in March 2023 from “Abnormally Dry” to “None.” In addition, the improved water conditions across the entire State of California have resulted in increased water allocations from the State Water Project (“SWP”) and the U.S Bureau of Reclamation’s Central Valley Project (“CVP”).

The SWP and CVP allocations are currently 75% of contracted amounts or 24,439 million gallons, and 100% of contracted amounts or 38,906 million gallons, respectively.

In April 2022, SWP allocation was 5% of contracted amounts or 1,629 million gallons, and CVP allocation was reduced to the Public Health and Safety limit due to an exceptionally dry beginning in 2022.

On April 1, 2023, Valley Water’s 10 reservoirs were 68% of capacity with 36,785 million gallons of water in storage.

Valley Water’s largest reservoir, Anderson, remains drained for a dam seismic retrofit project.

Valley Water also reported that the managed groundwater recharge from January to March in the Santa Clara Plain was 148% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 24 feet higher than March 2022.

In dry years, the decrease in availability of water from surface run-off and diversion and the corresponding increase in purchased and pumped water increases production expenses substantially.

The opposite is also true where water production expenses decrease in wet years.

In both instances, the impacts of surface water, purchased water, groundwater charges and purchased power are now tracked in SJWC’s Full Cost Balancing Account authorized in the 2022 GRC Decision.

Throughout the three months ended June 30, 2023 , Santa Clara County’s drought classification remained at “None.” As a result, Valley Water received 100% allocations of water from the State Water Project (“SWP”) and the U.S Bureau of Reclamation’s Central Valley Project (“CVP”).

In prior year period, SWP allocation was 5% of contracted amounts and the CVP allocation was reduced to the Public Health and Safety limit due to an exceptionally dry period beginning in 2022.

On July 1, 2023, Valley Water’s 10 reservoirs were 35% of capacity with 19.2 billion gallons of water in storage.

Valley Water’s largest reservoir, Anderson, remained drained for a dam seismic retrofit project.

Valley Water also reported that the managed groundwater recharge from January to June in the Santa Clara Plain was 181% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately 31 feet higher than June 2022.

According to Valley Water, the projected total groundwater storage at the end of 2023 is expected to be in the Normal Stage of the Water Shortage Contingency Plan.

As of March 31, 2023, SJWC’s Lake Elsman was 100.9% of capacity with 2,024 million gallons of water, approximately 160.7% of the five-year seasonal average.

In addition, the rainfall at SJWC’s Lake Elsman was measured at 79.59 inches for the period from July 1, 2022 through March 31, 2023, which is 239.2% of the five-year average.

SJWC’s Montevina Water Treatment Plant treated 1,469 million gallons of water through the first quarter, which is 238.8% of the five-year average.

SJWC’s Saratoga Water Treatment Plant treated 39 million gallons of water through the first quarter, which is 75% of the five-year average.

SJWC believes that its various sources of water supply will be sufficient to meet customer demand in 2023.

As of June 30, 2023, SJWC’s Lake Elsman was 96.7% of capacity with 1.9 billion gallons of water, approximately 189.1% of the five-year seasonal average.

In addition, the rainfall at SJWC’s Lake Elsman was measured at 82.52 inches for the period from July 1, 2022 through June 30, 2023, which is 224.2% of the five-year average.

SJWC’s Montevina Water Treatment Plant treated 2.9 billion gallons of water through the second quarter, which is 214.7% of the five-year average.

SJWC’s Saratoga Water Treatment Plant treated 0.1 billion gallons of water through the second quarter, which is 84.2% of the five-year average.

The Saratoga Water Treatment Plant was taken out of service and will remain offline until the next rain season.

SJWC believes that its various sources of water supply will be sufficient to meet customer demand through the remainder of 2023.

On April 11, 2023, Valley Water rescinded its water shortage emergency and 15% mandatory conservation target.

2 unchanged sentences

SJWC’s request to continue its WCMA and Water Conservation Expense Memorandum Account (“WCEMA”) under the voluntary call for conservation is pending before the CPUC.

California also faces long-term water supply challenges.

SJWC actively works with Valley Water to meet the challenges by continuing to educate customers on responsible water use practices and conducting long-range water supply planning.

SJWC continues to work with Valley Water to promote conservation, educate customers on responsible water use practices, and collaborate on long-range water supply planning.

Connecticut Water’s 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.

5 unchanged sentences

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.

In July 2023, Texas Water implemented its Drought Management Plan as approved the PUCT as a result of persistent drought conditions, decreasing water levels in Canyon Lake and groundwater wells, and water production levels operating at near-capacity level.

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

Maine Water has a water supply agreement with the Kennebec Water District expiring in 2040.

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

Three months ended March 31, Increase/

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

Three months ended June 30, Increase/

(decrease) % of Total Change Six months ended June 30, Increase/

(decrease) % of Total Change

2023 2022 2023 2022

Purchased water 5.3 5.3 — — % 8.7 9.0 (0.3) (1) %

4 unchanged sentences

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 March 31, 2023, and 2022 approximated 7.5% and 7.2%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2023 and 2022 approximated 10.1% and 7.5%, 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 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 March 31, 2023, and 2022 approximated 13.9% for each of the respective periods, as a percentage of total production.

CTWS’s unaccounted-for water on a 12-month-to-date basis for June 30, 2023 and 2022 approximated 13.8% and 13.5% 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 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 of $671 for the three months ended March 31, 2023, compared to the same period in 2022, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses, offset by a decrease in customer usage and an increase in available surface water for SJWC.

The change in water production expenses of $2,184 for the three months ended June 30, 2023, compared to the same period in 2022, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses and increases in SJWC’s regulatory Full Cost Balancing Account, offset by a decrease in customer usage and an increase in available surface water for SJWC.

Effective July 1, 2022, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.

The change in water production expenses of $2,855 for the six months ended June 30, 2023, compared to the same period in 2022, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses and increases in SJWC’s regulatory Full Cost Balancing Account, offset by a decrease in customer usage and an increase in available surface water for SJWC.

Effective July 1, 2022, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.

Other Operating Expenses

Operating expenses, excluding water production expenses, increased $3,734 for the three months ended March 31, 2023, compared to the same period in 2022.

The increase was primarily attributable to the $5,450 gain on sale of nonutility properties

recorded in the prior year, partially offset by decreases in depreciation and amortization due to a $2,400 one-time impact related to amortization on certain Cupertino concession assets in the first quarter 2022 net of increases in depreciation related to new utility plant additions, and a decrease in maintenance expenses due to the timing of contract work and materials expenses.

Operating expenses, excluding water production expenses, increased $905 for the three months ended June 30, 2023, compared to the same period in 2022.

The increase was primarily attributable to increases in depreciation related to new utility plant additions and an increase in taxes other than income taxes, offset by a decrease in maintenance expenses due to the timing of contract work and materials expenses.

Operating expenses, excluding water production expenses, increased $4,639 for the six months ended June 30, 2023, compared to the same period in 2022.

The increase was primarily attributable to the $5,450 gain on sale of nonutility properties recorded in the prior year, partially offset by decreases in depreciation and amortization due to a $2,400 one-time impact related to amortization on certain Cupertino concession assets net of increases in depreciation related to new utility plant additions.

In addition, there were decreases in maintenance expenses due to the timing of contract work and materials expenses.

Other (Expense) Income

For the three months ended March 31, 2023, compared to the same period in 2022, the change in other (expense) income was primarily due to a true-up on prior real estate sale transactions, an increase in the return from retirement plan assets, and an increase in pension non-service cost.

For the three months ended June 30, 2023, compared to the same period in 2022, the change in other (expense) income was primarily due to an increase in interest expense due to an increase in long-term debt balances, higher interest rates on lines of credit borrowings and an increase in pension non-service cost, offset by the changes in the Rabbi Trust and life insurance policy values.

For the six months ended June 30, 2023, compared to the same period in 2022, the change in other (expense) income was primarily due to a true-up on prior real estate sale transactions, an increase in interest expense due to an increase in long-term debt balances, higher interest rates on lines of credit borrowings and an increase in pension non-service cost, offset by the changes in the Rabbi Trust and life insurance policy values.

Provision for Income Taxes

For the three months ended March 31, 2023, compared to the same period in 2022, income tax expense increased by $11.

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.

For the three and six months ended June 30, 2023, compared to the same period in 2022, income tax expense decreased $3,880 and $3,869, respectively.

The decrease in income tax expense for the three and six months ended June 30, 2023 was primarily due to the partial release of an uncertain tax position reserve of $3,087.

The effective consolidated income tax rates were (9)% and 17% for the three months ended June 30, 2023 and 2022, respectively, and (1)% and 18% for the six months ended June 30, 2023 and 2022, respectively.

The lower effective tax rate for the three and six months ended June 30, 2023, was primarily due to the partial release of an uncertain tax position reserve of $3,087.

Regulation and Rates

10 unchanged sentences

Intervenors in this proceeding, namely the Public Advocates Office and Water Rate Advocates for Transparency, Equity, and Sustainability, have suggested a lower return on equity while the latter has also suggested a higher cost of debt and different capital structure as part of their testimonies.

If approved, new rates are expected to become effective in the third quarter of 2023.

On June 29, 2023, the CPUC approved Decision No.

23-06-025 in this proceeding.

The decision authorizes a rate of return of 7.28% based on a return on equity of 8.80%, a cost of debt of 5.46%, and a capital structure of approximately 45% debt and 55% equity.

The CPUC also authorized continuation of the Water Cost of Capital Mechanism (“WCCM”) in the same decision.

The WCCM provides for an adjustment in SJWC’s return on equity and cost of debt if the average Moody’s Aa utility bond index rate between October 1, 2021 and September 30, 2022 varies by more than 100 basis points when compared to the same period from the prior year.

The index rate difference between those periods increased 103 basis points, thereby triggering the WCCM.

Accordingly, SJWC filed a Tier 2 Advice Letter to trigger the WCCM on June 30, 2023.

This filing is pending before the CPUC.

On July 31, 2023, the company expects to file a Tier 1 Advice Letter to implement new rates.

The new rates will be prospectively effective on the date of the filing and reflect the WCCM-adjusted return on equity of 9.31%, a cost of debt of 5.26%, and an overall rate of return of 7.47%.

SJWC filed Advice Letter No.

3 unchanged sentences

SJWC filed Advice Letter No.

586 on November 18, 2022 to increase revenue requirement by $18,418 or 4% for the escalation year increase in accordance with the 2022 GRC Decision.

586 on November 18, 2022, to increase the authorized revenue requirement by $18,418 or 4% for the escalation year increase in accordance with the 2022 GRC Decision.

Advice Letter No.

1 unchanged sentence

SJWC filed Advice Letter No.

590 on April 6, 2023 to recover $14,196 under-collection in its Monterey-Water Revenue Adjustment Mechanism Balancing Account as of March 31, 2023.

590 on April 6, 2023, to recover a $14,196 under-collection in its Monterey Water Revenue Adjustment Mechanism Balancing Account as of March 31, 2023.

SJWC proposed that this amount be recovered via a 12-month volume surcharge.

1 unchanged sentence

SJWC filed Advice Letter No.

591 on April 11, 2023, to discontinue its drought allocation surcharges and move from Stage 3 to Stage 1 of its Schedule 14.1 Advice Letter No.

591 was approved with an effective date of April 11, 2023.

SJWC filed Advice Letter No.

592 on April 20, 2023, to continue its WCMA and WCEMA under Valley Water’s voluntary call for 15% conservation.

This filing is pending before the CPUC.

SJWC filed Advice Letter No.

596 on May 31, 2023, to increase the authorized revenue requirement by $27,607 to offset the increases to purchased potable water charges, the groundwater extraction fee, and purchased recycled water charges from its water wholesalers effective July 1, 2023.

Advice Letter No.

596 was approved with an effective date of July 1, 2023.

Connecticut Regulatory Affairs

On January 26, 2023, Connecticut Water filed for a Water Infrastructure Conservation Adjustment (“WICA”) increase of $3,253 in annualized revenues for approximately $27,775 in completed projects.

PURA approved the Company’s application on March 22, 2023.

On January 26, 2023, Connecticut Water filed for a Water Infrastructure Conservation Adjustment (“WICA”) increase of $3,253 in annualized revenues for $27,775 in completed projects.

PURA approved the Connecticut Water’s application on March 22, 2023.

On January 25, 2023, Connecticut Water filed its 2022 WICA reconciliation with PURA.

The reconciliation, approved by PURA on March 29, 2023 and effective for 12 months beginning April 1, 2023, replaced the expiring 2021 reconciliation credit of 0.02% with a credit of 0.16%.

The reconciliation,

approved by PURA on March 29, 2023 and effective for 12 months beginning April 1, 2023, replaced the expiring 2021 reconciliation credit of 0.02% with a credit of 0.16%.

The cumulative WICA surcharge as of April 1, 2023 is 6.19%, collecting $6,544 on an annual basis.

On February 27, 2023 Connecticut Water filed its 2022 Water Revenue Adjustment mechanism (“WRA”).

The mechanism reconciles 2022 revenues as authorized in the Company’s most recent rate case.

On February 27, 2023, Connecticut W ater filed its 2022 Water Revenue Adjustment mechanism (“WRA”).

The mechanism reconciles 2022 revenues as authorized in the Connecticut Water’s most recent rate case.

The 2022 WRA, as approved by PURA on March 24, 2023 and effective for 12 months beginning on April 1, 2023, imposes a 4.97% surcredit on customer bills to refund the 2022 revenue over-collection.

On July 27, 2023, Connecticut Water filed for a WICA increase of $1,259 in annualized revenues for $11,464 in completed projects.

If approved, the increase is expected to become effective in the fourth quarter of 2023 and t he cumulative WICA surcharge would be 7.38%.

Texas Regulatory Affairs

4 unchanged sentences

The SIC is projected to increase Texas Water’s water revenue by $1,596 and sewer revenue by $29 within one year of the approval from the PUCT.

The PUCT will determine the completeness of the application and sufficiency of the notices on April 11, 2023.

The PUCT will determine the completeness of the application and sufficiency of the notices on July 31, 2023.

Once the PUCT files the final order approving the SIC, Texas Water will be required to file a general rate case within four years.

Texas Water will incrementally increase its SIC annually until that rate case.

Texas Water expects to receive the final order during the second half of 2023.

Texas Water expects to receive the final order during the fourth quarter of 2023 or first quarter of 2024.

Notwithstanding the SIC filing, Texas Water will continue to file its annual adjustments for the Water Pass-through Charges (“WPC”) for Canyon Lake, Deer Creek and Kendall West customers.

All water supply cost increases are recoverable when the next annual WPC adjustment for each system is filed.

Texas Water plans to acquire a system owned by KT Water Development that provides service to approximately 570 residential connections using the fair market value process and filed rate doctrine.

Texas Water filed its Sales, Transfer, and Merger application with the PUCT on January 3, 2023 under Docket No.

The PUCT found the application to be administratively complete on March 7, 2023.

Texas Water mailed the customer notices to all KT Water customers on March 24, 2023.

On April 10, 2023, Texas Water filed an application with the PUCT to acquire the Elm Ridge water system that serves 21 residential customers.

Texas Water has asked for filed rate doctrine treatment, which allows the acquiring utility’s current rates to be applied at the time of acquisition.

On June 15, 2023, the PUCT approved the application for the transfer of 520 acres of water Certificate of Convenience and Necessity (“CCN”) and 314 acres of sewer CCN from the San Antonio Water System's to Texas Water's CCN.

No customers were transferred as part of the transaction.

On July 24, 2023, the PUCT approved Texas Water's application to acquire KT Water Development Ltd.

KT Water Development Ltd.

provides service to approximately 570 residential water connections.

We expect to close on the acquisition during the third quarter of 2023.

The PUCT's final decision that transfers the CCN to Texas Water is expected in the fourth quarter of 2023, which is when we anticipate approval of our request for fair market value and filed rate doctrine treatment.

Maine Regulatory Affairs

3 unchanged sentences

The third filing was submitted on March 31, 2023.

Step 3 of the planned multi-year rate filings for the Saco River Drinking Water Resource Center was filed in accordance with the Commission order on March 31, 2023.

The filing requested an increase in revenue requirement of $2,949, or 19.9% and requested that the increase be implemented over two years with a 12% increase effective July 1, 2023 followed by a 9% increase effective July 1, 2024 with a slight decrease in year three to reach the overall 19.9% requested.

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

On February 2, 2023, Maine Water Company received final decisions from the MPUC on four general rate cases filed in 2022.

Through a scheduling order, an Examiner’s report is expected to be issued in July regarding temporary rates effective July 1, 2023 while the areas of dispute in the case are more fully litigated into the fall.

A final decision is expected in the fourth quarter of 2023.

On February 2, 2023, Maine Water received final decisions from the MPUC on four general rate cases filed in 2022.

The rate increases are retroactively effective for January 1, 2023 and authorize a $692 increase in annual revenues.

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

On June 30, 2023, Maine Water filed a Water Infrastructure Surcharge for the Camden-Rockland division.

The requested surcharge is 2.34% or $158 with a rate effective date of August 1, 2023.

A decision is expected in the third quarter of 2023.

Cash Flow from Operating Activities

During the three months ended March 31, 2023, SJW Group generated cash flows from operations of approximately $50,600, compared to $45,300 for the same period in 2022.

During the six months ended June 30, 2023, SJW Group generated cash flows from operations of approximately $97,400, compared to approximately $83,600 for the same period in 2022.

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.

1 unchanged sentence

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

(1) general working capital and net income, adjusted for non-cash items, increased by $11,800, (2) an increase in collections from accounts receivable and accrued unbilled utility revenue of $3,900, and (3) an increase of $3,200 in regulatory assets primarily due to the recognition of balancing and memorandum accounts, offset by (4) payments of amounts previously invoiced and accrued including accrued production costs, decreased by $9,100, and (5) a decrease of $4,500 in other changes primarily due to prior funds received from the State of California Water and Wastewater Arrearages Payment Program.

As of March 31, 2023, Water Utility Services’ write-offs for uncollectible accounts represented 2% of its total revenue, increased from less than 1% as of March 31, 2022.

The increase in write-offs from prior year is due to the end of state moratoriums to halt collection efforts related to the COVID pandemic.

(1) general working capital and net income, adjusted for non-cash items, increased by $25,800, and (2) an increase in collections from accounts receivable and accrued unbilled utility revenue of $4,800, offset by (3) a decrease of $5,200 in regulatory assets primarily due to lower surcharge collections on balancing and memorandum accounts, (4) a decrease of $5,100 in other changes primarily due to prior funds received from the State of California Water and Wastewater Arrearages Payment Program, (5) a decrease in tax accruals of more than $3,300 than the prior period, and (6) a decrease in payments of amounts previously invoiced and accrued including accrued production costs of $3,200.

As of June 30, 2023, Water Utility Services’ write-offs for uncollectible accounts represented 1% of its total revenue, increased from less than 1% as of June 30, 2022.

The increase in write-offs from the prior year is due to the end of state moratoriums to halt collection efforts related to the COVID pandemic.

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

Cash Flow from Investing Activities

During the three months ended March 31, 2023, SJW Group used cash flows from investing activities of approximately $55,000, compared to $49,400 for the same period in 2022.

During the six months ended June 30, 2023, SJW Group used cash flows from investing activities of approximately $125,400, compared to approximately $117,100 for the same period in 2022.

SJW Group used approximately:

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Water Utility Services’ estimated capital expenditures for 2023, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $255,000.

As of March 31, 2023, approximately $52,400 or 21% of the $255,000 has been invested.

As of June 30, 2023, approximately $115,700 or 45% of the $255,000 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 expects to incur approximately $1,350,000 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 $1,630,000 in capital expenditures, which includes replacement of pipes and mains, maintaining water systems, and installing PFAS treatment.

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 three months ended March 31, 2023, increased by approximately $5,300 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on long-term debt of $70,200, and (2) an increase in net proceeds from our common stock equity offerings of $41,000, offset by (3) a decrease in net borrowings and repayments on our lines of credit of $100,100, and (4) $4,400 decrease in net cash receipts from advances and contributions in aid of construction.

Net cash provided by financing activities for the six months ended June 30, 2023 increased by approximately $7,100 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on long-term debt of $105,100, and (2) an increase in net proceeds from our common stock equity offerings of $63,800, offset by (3) a decrease in net borrowings and repayments on our lines of credit of $154,600, and (4) $4,700 decrease in net cash receipts from advances and contributions in aid of construction.

Sources of Capital:

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SJW Group and its subsidiaries have unsecured line of credit agreements where borrowings are used for long-term capital expenditure financing, working capital, and general corporate purposes.

A summary of the line of credit agreements as of March 31, 2023, are as follows:

A summary of the line of credit agreements as of June 30, 2023, are as follows:

Maturity Date Line Limit Amounts Outstanding Unused Portion

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Total syndicated credit agreement 300,000 37,000 263,000

CTWS credit agreement December 14, 2023 10,000 7,433 2,567

CTWS credit agreement August 2, 2027 10,000 6,310 3,690

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

$ 350,000 83,310 266,690

During the three months ended March 31, 2023, cost of borrowing on the lines of credit averaged 5.74% compared to 1.64% in the same period in 2022.

For the first half of 2023, cost of borrowing on the lines of credit averaged 5.96% compared to 1.44% in the same period in 2022.

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 March 31, 2023, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

As of June 30, 2023, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Long-term Financing Agreements

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Equity Financing Arrangements

On March 1, 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 to issue from the sale of shares as of March 31, 2023 under the Equity Distribution Agreement.

On March 1, 2023, SJW Group entered into Amendment No.

1 to the equity distribution agreement (the “Equity Distribution Agreement”), dated November 17, 2021, between SJW Group 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 SJW Group increased the aggregate gross sales price of shares of SJW Group’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 and six months ended June 30, 2023, SJW Group issued and sold a total of 312,683 and 860,503 shares of common stock, respectively, with a weighted average price of $74.60 and $75.56 per share, respectively, and received $22,782 and $63,779 in net proceeds, respectively, under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 1,745,354 shares of common stock with a weighted average price of $74.49 for a total net proceeds of $127,210 and has $109,995 remaining to issue from the sale of shares as of June 30, 2023 under the Equity Distribution Agreement.

Credit Rating

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While our ability to obtain financing will continue to be a risk, we believe that based on our 2023 and 2022 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 with a stable outlook is an A-, for SJWC with a stable outlook is an A, CTWS with a stable outlook is an A-, and Connecticut Water with a stable outlook is an A-.

The following table are the current Standard & Poor’s Rating Service assigned company ratings:

Entity Rating Outlook

SJW Group A- Stable

SJWC A Stable

CTWS A- Stable

Connecticut Water A- Stable

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