What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-07-31 · 152 added, 124 removed, 245 unchanged (53% of the section changed)

5 unchanged sentences

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:

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

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

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

and SJW Land Company.

SJWC is a public utility in the business of providing water service to approximately 233,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

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SJWC also provides non-tariffed services under agreements with municipalities and other utilities.

These non-tariffed services include water system operations, maintenance agreements, and antenna site leases.

These non-tariffed services include water system operations, maintenance agreements, and antenna site le ases.

SJWC has utility property including land held in fee, impounding reservoirs, diversion facilities, wells, distribution storage, and all water facilities, equipment, office buildings and other property necessary to serve its customers.

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CTWS, headquartered in Connecticut, serves as a holding company for water utility companies providing water service to approximately 142,000 connections that serve a population of approximately 462,000 people in 81 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut.

The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut Water”) and The Maine Water Company (“Maine Water”).

The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“CWC”) and The Maine Water Company (“MWC”).

The remaining two CTWS subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc., which provides contract water and sewer operations and other water related services.

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

In certain cases, Connecticut Water and Maine Water are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.

SJWTX, Inc., doing business as The Texas Water Company (“Texas Water”), is a public utility in the business of providing water service to approximately 26,000 connections that serve approximately 79,000 people and approximately 900 wastewater connections.

In 2022, SJWTX, Inc.

filed and was approved with the State of Texas an assumed named certificate to operate under the name The Texas Water Company.

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 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.

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 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.

In certain cases, CWC and MWC are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.

In the third quarter of 2023, the corporate reorganization of our water services organization in Texas was completed.

SJWTX Holdings, Inc.

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

is the holding company for SJWTX, Inc., doing business as The Texas Water Company (“TWC”), Texas Water Operation Services LLC (“TWOS”) and Texas Water Resources, LLC (“TWR”).

TWC is a public utility in the business of providing water service to approximately 28,000 connections that serve approximately 85,000 people and approximately 900 wastewater connections.

TWC’s service area comprises more than 271 square miles in Bandera, Blanco, Comal, Hays,

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

Comal, Kendall and Hays counties are three of the top five growth counties in the United States.

TWC also 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 TWC as the primary beneficiary.

As a result, Acequia has been consolidated with TWC.

TWOS was created for non-tariffed service operations and Texas Water Resources, LLC (“TWR”) was formed to hold wholesale water supply assets.

SJW Land Company and Chester Realty, Inc.

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SJW Land Company and Chester Realty, Inc.

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

% for Six months ended June 30, 2023 of

owned the following real properties during the nine months ended September 30, 2023:

% for Nine months ended September 30, 2023 of

Real Estate Services

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SJW Group focuses its business initiatives in three strategic areas:

(1) Regional regulated water utility operations;

(1) Regional regulated water utility operations to support the health, safety and quality of life of our customers;

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

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SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

Please also see Note 10 of “Notes to Condensed Consolidated Financial Statements” for SJW Group’s current acquisition activities.

Please also see Note 10 of “Notes to Condensed Consolidated Financial Statements” for SJW Group’s recent acquisition activities.

Real Estate Services:

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SJW Land Company and Chester Realty, Inc.

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

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

Critical Accounting Policies:

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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.

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

Results of Operations:

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

SJW Group’s consolidated net income for the three months ended 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.

SJW Group’s consolidated net income for the three months ended September 30, 2023 was $36,222, an increase of $11,188, or approximately 45%, from $25,034 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 an increase from higher customer usage driven primarily by weather conditions and the end of California mandatory water conservation requirements, offset by higher water production expenses, increase in income tax expense, less earnings from regulatory mechanisms and higher debt interest expenses.

SJW Group’s consolidated net income for the nine months ended September 30, 2023 was $66,038, an increase of $25,709, or approximately 64%, from $40,329 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 an 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 higher water production expenses, higher debt interest expenses, and a one-time gain on sale of nonutility properties of $5,532 in 2022.

Operating Revenue

Operating Revenue by Segment

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

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

2023 2022 2023 2022

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Real Estate Services 1,430 1,474 4,293 4,196

Total operating revenue

$ 204,843 175,981 $ 499,025 449,324

1 unchanged sentence

Three months ended

2022 Six months ended

September 30,

2022 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

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Real Estate Services (44) — % 97 — %

Total change in operating revenue

$ 28,862 16 % $ 49,701 11 %

1 unchanged sentence

Operating Expense by Segment

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

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

2023 2022 2023 2022

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All Other 1,107 573 2,645 2,444

Total operating expense

$ 148,237 138,379 $ 386,083 368,731

1 unchanged sentence

Three months ended

2022 Six months ended

September 30,

2022 Nine months ended

September 30,

Increase/(decrease) Increase/(decrease)

6 unchanged sentences

Administrative and general 530 — % 2,250 — %

Balance and memorandum account cost recovery 68 — % (1,314) (1) %

Balancing and memorandum account cost recovery

(551) — % (1,865) — %

Maintenance (608) — % (1,838) — %

2 unchanged sentences

Gain on sale of nonutility properties 82 — % 5,532 2 %

Total change in operating expense

$ 9,858 7 % $ 17,352 5 %

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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”).

As of September 30, 2023, Santa Clara County’s drought classification remained at “None.” The classification has remained the same since the first quarter of 2023, when it changed from “Abnormally Dry” due to winter storms.

As a result, this year 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.

On October 1, 2023, Valley Water’s 10 reservoirs were 29% of capacity, or 76% of restricted capacity, with 15.4 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 170% of the five-year average.

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

The groundwater level in the Santa Clara Plain is approximately 23 feet higher than September 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 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.

As of September 30, 2023, SJWC’s Lake Elsman was 77.4% of capacity with 1.55 billion gallons of water, approximately 272.0% of the five-year seasonal average.

In addition, the rainfall at SJWC’s Lake Elsman was measured at 0.15 inches for the period from July 1, 2023 through September 30, 2023, which is 40.5% of the five-year average.

SJWC’s Montevina Water Treatment Plant treated 3.4 billion gallons of water through the third quarter, which is 190.2% of the five-year average.

SJWC’s Saratoga Water Treatment Plant treated 0.1 billion gallons of water through the third quarter, which is 78% of the five-year average.

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

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

Valley Water also established a 15% voluntary call for conservation and retained certain watering and water waste rules.

Valley Water also established a 15% voluntary call for conservation and retained certain watering and water waste rules in recognition of precipitation volatility and reduced local storage.

On the same day, SJWC ended its Mandatory Conservation Plan, which included drought allocations and surcharges, and lowered its drought response from Stage 3 to Stage 1.

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.

On October 2, 2023, SJWC’s request to continue its WCMA and Water Conservation Expense Memorandum Account (“WCEMA”) under the voluntary call for conservation was approved effective April 20, 2023.

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.

In addition, Connecticut Water has water supply agreements to supplement its water supply with the South Central Connecticut Regional Water Authority and The Metropolitan District that expire 2058 and 2053, respectively.

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

Texas Water has long-term agreements with the Guadalupe-Blanco River Authority (“GBRA”), which expire in 2037, 2040, 2044 and 2050.

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

Texas Water also has raw water supply agreements with the Lower Colorado River Authority and West Travis Public Utility Agency expiring in 2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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

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.

CWC’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.

In addition, CWC has water supply agreements to supplement its water supply with the South Central Connecticut Regional Water Authority and The Metropolitan District that expire in 2058 and 2053, respectively.

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

TWC has long-term agreements with the Guadalupe-Blanco River Authority (“GBRA”), which expire in 2037, 2040, 2044 and 2050.

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

TWC also has raw water supply agreements with the Lower Colorado River Authority and West Travis Public Utility Agency expiring in 2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

Forty active 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 August 2023, TWOS acquired eight wells and the water rights of KT Water Resources LLC.

These wells have been projected to yield an additional 6,000 acre-feet per year or more.

In July 2023, TWC implemented its Drought Management Plan as approved by 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 MWC vary among the individual systems, but overall, approximately 90% of the total dependable yield comes from surface water supplies and 10% from wells.

MWC 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 billion gallons, for Water Utility Services:

Three months ended June 30, Increase/

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

Three months ended September 30, Increase/

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

(decrease) % of Total Change

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

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2023 and 2022 approximated 10.1% and 7.5%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for September 30, 2023 and 2022 approximated 7.9% and 8.6%, 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 June 30, 2023 and 2022 approximated 13.8% and 13.5% 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 September 30, 2023 and 2022 approximated 13.0% and 14.2% for each of the respective periods, as a percentage of total production.

The unaccounted-for water estimate is based on the results of past experience and the impact of flows through 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 $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.

The change in water production expenses of $9,038 for the three months ended September 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 increase in customer usage, offset by decreases in SJWC’s regulatory Full Cost Balancing Account 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.

The change in water production expenses of $11,893 for the nine months ended September 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 an increase in available surface water for SJWC and a decrease in customer usage.

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 $905 for the three months ended June 30, 2023, compared to the same period in 2022.

Operating expenses, excluding water production expenses, increased $820 for the three months ended September 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.

Operating expenses, excluding water production expenses, increased $5,459 for the nine months ended September 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.

1 unchanged sentence

Other (Expense) Income

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.

For the three months ended September 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 nine months ended September 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 and a true-up on prior real estate sale transactions.

Provision for Income Taxes

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.

For the three and nine months ended September 30, 2023, compared to the same period in 2022, income tax expense increased $4,338 and $469, respectively.

The increase in income tax expense for the three months ended September 30, 2023 was primarily due to a higher pre-tax income.

The effective consolidated income tax rates were 11% and 1% for the three months ended September 30, 2023 and 2022, respectively, and 6% and 8% for the nine months ended September 30, 2023 and 2022, respectively.

The higher effective tax rate for the three months ended September 30, 2023 was primarily due to the tax benefit relating to a tax accounting method change recorded in the third quarter of 2022.

There was no such benefit recorded in the third quarter of 2023.

The lower effective tax rate for the nine months ended September 30, 2023 was primarily due to higher flow-through tax benefits.

Regulation and Rates

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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%.

Accordingly, SJWC filed a Tier 2 Advice Letter No.

598 on June 30, 2023, which was subsequently approved with an effective date of July 31, 2023.

On July 31, 2023, SJWC filed a Tier 1 Advice Letter No.

599 to implement new rates.

The new rates became effective prospectively 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%.

Advice Letter No.

599 was approved with an effective date of July 31, 2023.

Between October 1, 2022 and September 30, 2023, the index rate increased approximately 140 basis points, surpassing the required WCCM trigger.

On October 13, 2023, SJWC filed Advice Letter No.

601 to trigger the WCCM for 2024.

SJWC expects a WCCM-adjusted return on equity of approximately 10.01%, less a 20 basis point reduction due to the reimplementation of the WCMA and WCEMA, to become effective on January 1, 2024.

SJWC filed Advice Letter No.

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

This filing is pending before the CPUC.

Advice Letter No.

590 was approved with an effective date of May 8, 2023.

SJWC filed Advice Letter No.

3 unchanged sentences

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.

On October 2, 2023, Advice Letter No.

592 was approved with an effective date of April 20, 2023.

SJWC filed Advice Letter No.

3 unchanged sentences

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 $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%.

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

PURA approved CWC’s application on March 22, 2023.

On January 25, 2023, CWC 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 cumulative WICA surcharge as of April 1, 2023 is 6.19%, collecting $6,544 on an annual basis.

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.

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

The mechanism reconciles 2022 revenues as authorized in the CWC’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%.

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

PURA approved the application, and effective October 1, 2023, the cumulative WICA surcharge is 7.38%.

On October 3, 2023, CWC filed an application with PURA to adjust customer rates.

If PURA approves the request as proposed, annual revenues of CWC will increase by approximately $21,400, or 18.1%, over current authorized revenues and would be effective on or about July 1, 2024.

Texas Regulatory Affairs

Texas Water has no current general rate case pending.

TWC has no current general rate case pending.

However, it filed its application to establish a System Improvement Charge (“SIC”) with the PUCT under Docket No.

54430 on December 30, 2022.

This filing will allow Texas Water to add certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case.

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 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 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.

This filing will allow TWC to add certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case.

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

On October 17, 2023, the PUCT found the application administratively complete.

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

TWC will incrementally increase its SIC annually until its next rate case.

TWC expects to receive the final order during the first quarter of 2024.

Notwithstanding the SIC filing, TWC 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.

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.

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

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

TWC expects to receive the PUC’s approval to close on the acquisition during the fourth quarter of 2023.

On May 17, 2023, TWC filed its application with the PUCT for an internal stock transfer.

As part of an internal restructure, SJW Group would transfer 100% of the stock held in TWC to SJWTX Holdings, Inc.

On September 18, 2023, the PUCT gave its approval for the transaction to proceed.

SJW Group completed the transfer on September 18, 2023.

On July 24, 2023, the PUCT approved TWC'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.

On August 14, 2023, TWC closed on the acquisition.

The PUCT's final decision that transfers the CCN to TWC 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

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The Saco River Drinking Water Resource Center began supplying the water distribution system on June 16, 2022.

As part of the stipulated agreement, Maine Water agreed to file a final phase of the rate case by April 1, 2023.

As part of the stipulated agreement, MWC agreed to file a final phase of the rate case by April 1, 2023.

The third filing was submitted on March 31, 2023.

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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.

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.

On August 25, 2023, the Commission issued an order granting a temporary rate increase of $1,495 or 10% while the case and the Company’s full request are litigated.

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.

On February 2, 2023, MWC 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.

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

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

The requested surcharge is 2.34% or $158.

The Commission is expected to issue a decision regarding the surcharge in November 2023.

Cash Flow from Operating Activities

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.

During the nine months ended September 30, 2023, SJW Group generated cash flows from operations of approximately $159,300, compared to approximately $129,300 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.

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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 $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.

(1) general working capital and net income, adjusted for non-cash items, increased by $37,100, (2) a decrease in payments of amounts previously invoiced and accrued including accrued production costs of $5,000, and (3) increased tax accruals of $2,500 compared to the prior period, offset by (4) a decrease of $5,700 in regulatory assets primarily due to lower surcharge collections on balancing and memorandum accounts, (5) a decrease in collections from accounts receivable and accrued unbilled utility revenue of $4,300, and (6) a decrease of $4,600 in other changes primarily due to prior funds received from the State of California Water and Wastewater Arrearages Payment Program and the partial release of uncertain tax position reserve.

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

Management believes that the collection rate for its accounts receivables will increase as service disconnections gradually return to normal operations.

Cash Flow from Investing Activities

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.

During the nine months ended September 30, 2023, SJW Group used cash flows from investing activities of approximately $241,700, compared to approximately $181,500 for the same period in 2022.

SJW Group used approximately:

(1) $115,700 of cash for company-funded capital expenditures, (2) $9,300 for developer-funded capital expenditures, and (3) $500 for utility plant retirements.

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 June 30, 2023, approximately $115,700 or 45% of the $255,000 has been invested.

(1) $195,900 of cash for company-funded utility capital expenditures, (2) $24,200 for nonutility properties, real estate investments and other intangible asset, (3) $13,600 for developer-funded utility capital expenditures, and (4) $7,300 for business acquisitions during the nine months ended September 30, 2023.

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

As of September 30, 2023, approximately $195,900 or 77% 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.

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Cash Flow from Financing Activities

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.

Net cash provided by financing activities for the nine months ended September 30, 2023 increased by approximately $38,000 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 $139,700, and (2) an increase in net proceeds from our common stock equity offerings of $72,200, offset by (3) a decrease in net borrowings and repayments on our lines of credit of $167,300, (4) $3,100 increase in dividends paid to stockholders, and (5) $2,700 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 June 30, 2023, are as follows:

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

Maturity Date Line Limit Amounts Outstanding Unused Portion

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CTWS 90,000 40,000 50,000

Texas Water 20,000 — 20,000

TWC 20,000 — 20,000

Total syndicated credit agreement 300,000 82,000 218,000

2 unchanged sentences

$ 350,000 128,433 221,567

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.

For the nine months ended September 30, 2023, cost of borrowing on the lines of credit averaged 6.16% compared to 2.79% 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 June 30, 2023, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

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

Long-term Financing Agreements

5 unchanged sentences

The closing of the note purchase agreement occurred on January 25, 2023.

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

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

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

As of September 30, 2023, SJW Group and its subsidiaries were in compliance with all covenants in their long-term debt agreements.

Equity Financing Arrangements

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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.

For the three and nine months ended September 30, 2023, SJW Group issued and sold a total of 169,421 and 1,029,924 shares of common stock, respectively, with a weighted average price of $69.57 and $74.57 per share, respectively, and received $11,505 and $75,284 in net proceeds, respectively, under the Equity Distribution Agreement.

Since the inception of the Equity

Distribution Agreement, SJW Group has issued and sold 1,914,775 shares of common stock with a weighted average price of $74.05 for a total net proceeds of $138,716 and has $98,209 remaining to issue from the sale of shares as of September 30, 2023 under the Equity Distribution Agreement.

Credit Rating

2 unchanged sentences

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.

SJW Group, CTWS and CWC were put on negative watch on September 19, 2023.

Standard & Poor’s noted the change in outlook is due to recent regulatory and legislative developments in Connecticut that are not consistent with Standard & Poor’s view of the regulatory framework for investor owned utilities.

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

Entity Rating Outlook

SJW Group A- Stable

SJW Group A- Negative

SJWC A Stable

CTWS A- Stable

Connecticut Water A- Stable

CTWS A- Negative

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