What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 179 added, 220 removed, 338 unchanged (54% of the section changed)

2 unchanged sentences

The following discussion and analysis of our financial condition and results of operations should be read together with “Forward-Looking Statements,” Part 1, Item 1 “Business,” Part I, Item 1A “Risk Factors,” and our consolidated financial statements and notes included under Item 8 of this Annual Report on Form 10-K.

The following sections include a discussion of results for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The comparative results for the year ended December 31, 2022 with for the year ended December 31, 2021 generally have not been included in this Form 10-K but may be found in “Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Business Strategy for Water Utility Services

1 unchanged sentence

(1) Investing in 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, PURA in Connecticut, PUCT in Texas, and MPUC in Maine;

(2) Regional non-tariffed water utility related services provided in accordance with the guidelines established by the applicable state public utility commissions;

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

Regional Regulated Activities

SJW Group’s regulated utility operation is conducted through SJWC, Connecticut Water, SJWTX and Maine Water.

SJW Group’s regulated utility operation is conducted through SJWC, CWC, TWC and MWC.

SJW Group plans and applies a diligent and disciplined approach to maintaining and improving its water system infrastructures and also seeks to acquire regulated water systems adjacent to or near its existing service territory.

Connecticut Water and SJWTX also provides regulated wastewater services.

CWC and TWC also provide regulated wastewater services.

The United States water utility industry is largely fragmented and is dominated by municipal-owned water systems.

2 unchanged sentences

Regional Non-tariffed Activities

Operating in accordance with guidelines established by the CPUC, SJWC provides non-tariffed services, such as water system operations, maintenance agreements and antenna site leases under agreements with municipalities and other utilities.

SJWTX provides non-tariffed wholesale water service to adjacent utilities and non-tariffed wastewater services.

SJWC provides non-tariffed services, such as water system operations, maintenance agreements and antenna site leases under agreements with municipalities and other utilities.

TWC provides non-tariffed wholesale water service to adjacent utilities and non-tariffed wastewater services.

CTWS provides non-tariffed services, such as water system operations and maintenance under agreements with municipalities and other utilities.

35 unchanged sentences

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980.

In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred.

Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process.

The regulatory assets and liabilities recorded by Water Utility Services primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates.

The company primarily adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts on a monthly basis.

The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes.

In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records regulatory assets for incurred costs that are deemed probable of recovery from customers.

Also, Water Utility Services recognizes regulatory liabilities for amounts expected to be refunded to customers in the rate-making process and for amounts collected in advance of the related expenditures.

Regulatory assets or liabilities are also recognized for special revenue programs such as WCMA and WRA in accordance with guidance on alternative revenue programs under ASC Topic 980, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded.

A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period.

This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges.

Application of ASC Topic 980, including determining whether recovery is probable, requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate the recovery or refund is probable.

The regulatory assets and liabilities recorded by Water Utility Services primarily relate to asset removal costs, the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, pensions and other postretirement benefits, and employee benefit costs.

The disallowance of any asset in future ratemaking, including regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes.

No disallowances were recognized during the years ended December 31, 2023, 2022 and 2021.

3 unchanged sentences

Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for expense items for which revenue offsets have been authorized.

Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process.

Balancing accounts are currently being maintained for the following items:

1 unchanged sentence

The amount in the water production balancing accounts varies with the seasonality of the water utility business such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection, while during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection.

The pension balancing account is intended to capture the

difference between actual pension expense and the amount approved in rates by the CPUC.

The pension balancing account is intended to capture the difference between actual pension expense and the amount approved in rates by the CPUC.

The general rate case true-up accounts are a result of revenue shortfalls authorized for collection or refund by the CPUC due to delayed rate case and cost of capital decisions.

SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC.

The Monterey Water Revenue Adjustment Mechanism tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

In addition, in the case of special revenue programs such as the WCMA, SJWC follows the requirements of ASC Topic 980-605-25—“Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded.

A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period.

This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges.

The MWRAM tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

SJWC also maintains memorandum accounts to track impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC.

The WCMA allows SJWC to track revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reduction.

SJWC records the lost revenue captured in the WCMA balancing accounts.

Applicable drought surcharges collected are used to offset the revenue losses tracked in the WCMA.

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria.

1 unchanged sentence

When such evidence provides sufficient support, the balances are recorded in SJW Group’s financial statements.

It is typical for the CPUC to incorporate any over-collected and/or under-collected balances in balancing or memorandum accounts into customer rates at the time rate decisions are made as part of SJWC’s general rate case proceedings by assessing temporary surcredits and/or surcharges.

In the case where SJWC’s balancing or memorandum-type accounts that have been authorized by the CPUC reach certain thresholds or have termination dates, SJWC can request the CPUC to recognize the amounts in customer rates prior to the next regular general rate case proceeding by filing an advice letter.

5 unchanged sentences

If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed.

SJW Group’s goodwill is primarily associated with the 2019 acquisition of CTWS.

SJW Group performed an impairment analysis as of October 1, 2023.

The qualitative assessment found no indicators of impairment and therefore did not perform the quantitative impairment test.

No impairments occurred during 2022, 2021 or 2020.

No impairments occurred during the years ended December 31, 2023, 2022 or 2021.

Factors Affecting Our Results of Operations

20 unchanged sentences

Upon CPUC approval, acquiring utilities can include the Fair Market Value in rate base.

Pursuant to Connecticut regulations, Connecticut Water employs a historical test year.

Pursuant to Connecticut regulations, CWC employs a historical test year.

To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Connecticut.

1 unchanged sentence

Further, to mitigate risks from variations in revenues from changes in customer usage, the Connecticut State Legislature has approved a WRA to provide for recovery of the company’s authorized revenues.

Pursuant to Texas regulation, SJWTX employs a historical test year.

Pursuant to Texas regulation, TWC employs a historical test year.

To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Texas, provided there is no current rate case outstanding.

1 unchanged sentence

Additionally, to mitigate regulatory lag for capital improvements, Texas seeks to implement its first SIC.

The SIC will allow SJWTX to earn a return on some of its capital improvements made after 2020 through a surcharge to its customers.

The SIC will allow TWC to earn a return on some of its capital improvements made after 2020 through a surcharge to its customers.

The SIC is a cost recovery mechanism recently adopted in Texas that avoids the immediate need for a general rate case.

3 unchanged sentences

This allows water utilities the option of applying their previously approved rates to the customers of newly acquired systems, which encourages consolidation by minimizing rate case expenses.

Pursuant to Maine regulations, Maine Water employs a historical test year.

Pursuant to Maine regulations, MWC employs a historical test year.

To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Maine.

6 unchanged sentences

SJW Group relies upon lines of credit to fund capital expenditures in the short term and has historically issued long-term debt to refinance our short-term debt.

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

While our ability to obtain financing will continue to be a key risk, we believe that based on our successful 2023 activities, we will have access to the external funding sources necessary to implement our ongoing capital investment programs in the future.

Compliance with Environmental, Health and Safety Standards

2 unchanged sentences

The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water.

Water Utility Services has implemented monitoring activities and installed specific

water treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations.

Water Utility Services has implemented monitoring activities and installed specific water

treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations.

However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act.

7 unchanged sentences

These expenses include power, which is used to operate pumps and other equipment, purchased water and groundwater extraction charges.

For 2022, production expenses accounted for approximately 48% of our total operating expenses.

For 2023, production expenses accounted for 49% of our total operating expenses.

Price increases associated with these production inputs would adversely impact our results of operations until rate relief is granted.

2 unchanged sentences

(i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories.

During 2022, we had cash outflows of $433 for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base.

During 2023, we had cash outflows of $7,537 for business acquisitions which we believe will allow SJW Group to expand our regulated customer base.

Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety, and water quality standards.

1 unchanged sentence

Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices, all of which could affect Water Utility Services’ results of operations.

SJWC residential usage decreased 11.1% and 11.4% from 2021 to 2022 and from 2020 to 2021, respectively.

SJWC business usage decreased 5.7% and 2.7% from 2021 to 2022 and from 2020 to 2021, respectively.

Residential and business usage was lower by 12.50% and 2.40%, respectively, than the amount authorized in our 2022-2024 general rate case.

SJWC’s service area is currently under mandatory 15% reduction of 2019 water consumption since 2021.

The following is the change in customer usage in 2023 compared to 2022:

• SJWC residential usage decreased 2.9% and business usage decreased 0.8%.

• TWC residential and business usage decreased 8.8%.

• CWC residential usage decreased 7.9% and business usage decreased 3.3%.

• MWC residential usage decreased 7.3% and business usage decreased 14.3%.

For the year ended December 31, 2023, SJWC’s residential and business usage was lower by 15.0% and 3.2%, respectively, than the amount authorized in our 2022-2024 general rate case.

SJWC’s service area is currently under voluntary 15% reduction of water consumption.

To address the difference between conservation usage and authorized usage in the rate case, the CPUC has approved the activation of the WCMA which tracks the divergence between authorized versus actual consumption in a balancing account for future recovery.

SJWTX residential and business usage increased 8.5% from 2021 to 2022 and decreased 8.5% from 2020 to 2021.

Connecticut Water residential usage decreased 0.5% and 10.2% from 2021 to 2022 and from 2020 to 2021, respectively.

Connecticut Water business usage increased 26% and 4% from 2021 to 2022 and from 2020 to 2021, respectively.

With the availability of the WRA in Connecticut, which allows for recovery of authorized revenues, decreases in consumption year to year do not present the same financial risk as in our other water utility services utilities.

Maine Water residential usage decreased 5.4% and 0.2% from 2021 to 2022 and from 2020 to 2021, respectively.

Maine Water business usage increased 12.2% and 5.7% from 2021 to 2022 and from 2020 to 2021, respectively.

Weather Conditions, Seasonality and Sources of Water Supply

4 unchanged sentences

In periods of drought, if customers are encouraged or required to conserve water due to a shortage of supply or restriction of use, revenue tends to be lower.

Water use restrictions may be imposed at a regional or state level and may affect our service areas regardless of our readiness to meet unrestricted customer demands.

Water use restrictions may be imposed at a regional or state level and may affect our service areas regardless of our readiness to meet

unrestricted customer demands.

Similarly, in unusually wet periods, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues.

1 unchanged sentence

In addition, SJWC actively works with Valley Water to address California’s long-term water supply challenges by continuing to educate customers on responsible water use practices and to conduct long-range water supply planning.

Connecticut Water and Maine Water believes that they will be able to meet customer demand for 2023 with their existing water supply which consists of groundwater from wells, surface water in reservoirs and purchased water treated by neighboring water utilities.

SJWTX believes that it will be able to meet customer demand for 2023 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

CWC and MWC believes that they will be able to meet customer demand for 2024 with their existing water supply which consists of groundwater from wells, surface water in reservoirs and purchased water treated by neighboring water utilities.

TWC believes that it will be able to meet customer demand for 2024 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

Results of Operations

Among other things, water sales are seasonal in nature and influenced by weather conditions.

Water sales are seasonal in nature and influenced by weather conditions.

The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly.

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.

See Item 1 , “Business” and Item 1A , “Risk Factors” for a discussion of SJW Group’s general business and regulatory activities as well the ongoing drought in California.

See Item 1 , “Business” and Item 1A , “Risk Factors” for a discussion of SJW Group’s general business and regulatory activities.

SJW Group’s consolidated net income for the year ended December 31, 2023 was $84,987, compared to $73,828 for the same period in 2022.

This represents an increase of $11,159 or 15%, from 2022.

Consolidated net income in 2022 includes a gain on the sale of nonutility property of $5,557, offset by the impacts of $3,596 related to SJWC’s Order Instituting Investigation (“OII”) settlement and $2,200 related to depreciation on certain Cupertino concession assets.

The increase in net income was primarily driven by rate filings in California and Maine, lower maintenance costs due in part to prior year incurred costs related to the Order of Instituting Investigation settlement agreement, and a decrease in income taxes due to the partial release of an uncertain tax position reserve, partially offset by higher water production expenses, higher debt interest expenses, increased allowances for credit losses, higher depreciation and amortization expense related to new utility plant additions, and a gain on sale of nonutility properties of $6,197 in 2022 that did not recur in 2023.

Operating Revenue

1 unchanged sentence

Operating Revenue

2022 2021 2020

Water Utility Services $ 664,679 615,093

Real Estate Services 5,684 5,605

Total operating revenue

$ 670,363 620,698

The change in consolidated operating revenues was due to the following factors:

Increase/(decrease) 2021 vs.

Increase/(decrease)

3 unchanged sentences

Rate increases 46,592 8 %

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

Balancing and memorandum accounts:

Water Conservation Memorandum Account 798 — % 3,243 1 %

2022 GRC true-up memorandum account 20,650 4 % — — %

All other 1,254 — % 698 — %

Other regulatory mechanisms 1,875 — %

1 unchanged sentence

Real Estate Services 79 — %

$ 47,012 8 % $ 9,160 2 %

Total change in operating revenue

The revenue increase consists of $49,586 from Water Utility Services and $79 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase in authorized rates which resulted in $38,706 of additional revenue, $20,650 increase in 2022 GRC true-up memorandum account in California, a net increase in revenue recognized from certain balancing and memorandum accounts of $2,052, an increase due to new customers of $5,082, and an increase of $839 from the winter storm credits in Texas recorded in the prior year, partially offset by a decreases of $14,302 due to lower usage and $6,406 in other regulatory mechanisms.

The revenue increase consists of $9,313 from Water Utility Services offset by a $153 decrease from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase in authorized rates which resulted in $25,179 of additional revenue, a net increase in revenue recognized from certain balancing and memorandum accounts of $3,941, an increase due to new customers of $2,896, and an increase in other regulatory mechanisms of $2,491, partially offset by a decrease in revenue of $24,702 due to lower usage and a decrease of $839 from the winter storm credits in Texas.

The revenue increase for Water Utility Services is primarily due to an increase in authorized rates in California and Maine which resulted in $46,592 of additional revenue, an increase of $3,780 from new customers, balancing and memorandum accounts increases were primarily due to WCMA for $1,994 and $1,187 for all other balancing and memorandum accounts, and increases in other regulatory mechanisms by $1,875, partially offset by decreases of $6,624 due to lower usage.

Water Utility Services’ Operating Revenue and Customer Counts

1 unchanged sentence

Operating Revenue by Customer Group

2022 2021 2020

Residential and business $ 566,651 509,284

5 unchanged sentences

Number of Customers

2022 2021 2020

Residential and business 387,616 384,346

6 unchanged sentences

Operating Expense

2022 2021 2020

Water Utility Services $ 514,375 482,679

3 unchanged sentences

The change in consolidated operating expenses was due to the following factors:

Increase/(decrease) 2021 vs.

Increase/(decrease)

Water production expenses:

Change in surface water supply $ (7,262) (2) % $ 3,897 1 %

Change in surface water use

$ (11,510) (2) %

Change in usage and new customers (9,716) (2) %

Purchased water and groundwater extraction charge and energy price increase 28,576 6 % 11,626 3 %

Balance and memorandum account cost recovery (2,296) — % 1,302 — %

Purchased water and groundwater extraction charge, energy price change and other production expenses, net

Balancing and memorandum account cost recovery

Total water production expenses 23,410 5 %

Administrative and general 3,252 1 %

Balance and memorandum account cost recovery 1,496 — % 942 — %

Maintenance (5,005) (1) %

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

Property taxes and other non-income taxes 1,903 — %

Depreciation and amortization 1,451 — %

Impairment of long lived assets (2,211) — % 2,211 — %

Sale of nonutility property 1,297 — % (7,494) (2) %

$ 27,193 6 % $ 15,671 3 %

Gain on sale of nonutility property

Sources of Water Supply

SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from Valley Water under the terms of a master contract with Valley Water expiring in 2051.

Surface water is sourced from SJWC’s 6,400 acre of watershed in the Santa Cruz mountains.

In 2022, SJWC’s general rate case decision approved the use of the Full Cost Balancing Account which mitigates the cost of the water supply from changes and variations in quantities from each of these sources affect the overall mix of the water supply.

Surface water is sourced from SJWC’s 6,400 acres of watershed in the Santa Cruz mountains.

The water rates for purchased water and the groundwater extraction charge may be increased by Valley Water at any time.

If an increase occurs, then SJWC would file an advice letter with the CPUC seeking authorization to increase revenues to offset the rate increase.

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 in 2058 and 2053, respectively.

SJWTX’s water supply consists of groundwater from wells and purchased treated and raw water from the GBRA.

SJWTX has long-term agreements with the GBRA, which expire in 2037, 2040, 2044 and 2050.

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

SJWTX also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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 raw water from the GBRA.

TWC has long-term agreements with the 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 LCRA and WTPUA expiring in 2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

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, SJWTX Holdings Inc.’s unregulated subsidiary, TWR acquired eight wells and the water rights of KTR.

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

TWC staff is currently working on acquiring easements and routing of the waterline and infrastructure needed to get this water into our Triple Peak water system to serve existing customers and planned new developments.

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 sources of water supply for water utility services:

Source of Water Supply

2022 2021 2020

(million gallons) (MG)

(billion gallons)

Purchased water 19.5 19.7

2 unchanged sentences

Reclaimed water 0.8 0.9

49,333 51,041 53,604

Average water production expense per MG $ 4,719 4,488 4,212

Average water production expense per billion gallons

$5.420 million

$4.719 million

The percentages of water supply by source excluding reclaimed water by state is presented below:

5 unchanged sentences

Texas 17 % 28 % 34 % 28 % 49 % 44 %

Water production in 2022 for water utility services decreased 1,708 million gallons from 2021.

Water production in 2021 for water utility services decreased 2,563 million gallons from 2020.

The changes are primarily attributable to changes in consumption by customers and are consistent with the changes in the related water production expenses.

Water production in 2023 for Water Utility Services decreased 2.0 billion gallons from 2022.

The changes are primarily attributable to changes in consumption by customers driven primarily by weather conditions in California, Maine and Texas.

The contract water rates for SJWC are determined by Valley Water.

These rates are adjusted periodically and coincide with Valley Water’s fiscal year, which ends on June 30.

The contract water rate for Valley Water’s fiscal years 2023, 2022 and 2021 was $5.6, $5.0 and $4.5 per million gallons, respectively.

The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $5.3, $4.6 and $4.2 per million gallons for Valley Water’s fiscal years 2023, 2022 and 2021, respectively.

The contract water rate for Valley Water’s fiscal years 2024, 2023 and 2022 was $6.411 million, $5.644 million and $4.953 million per billion gallons, respectively.

The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $6.058 million, $5.290 million and $4.600 million per billion gallons for Valley Water’s fiscal years 2024, 2023 and 2022, respectively.

SJWC’s unaccounted-for water for 2023 and 2022 approximated 8.4% and 8.9%, respectively, as a percentage of 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 water loss reduction programs.

Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA.

CWC has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA.

The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective.

In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement, $2.621 per million gallons as of December 31, 2022.

Connecticut Water has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system.

In addition, CWC is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement, $3.1 million per billion gallons as of December 31, 2023.

CWC has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system.

The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service.

Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC at the published retail rate, $4.09 per hundred cubic feet as of December 31, 2022.

Maine Water has an agreement with the Kennebec Water District for potable water service.

CWC has agreed to purchase 0.28 billion gallons of water annually from MDC at the published retail rate, three dollars and eighty cents per hundred cubic feet as of December 31, 2023.

MWC has an agreement with the Kennebec Water District for potable water service.

The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate was $1.51 per hundred cubic feet as of December 31, 2022.

MWC guarantees a minimum consumption of 0.05 billion gallons of water annually.

Water sales to MWC are billed at a wholesale discount of twenty cents per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate was one dollar and fifty-one cents per hundred cubic feet as of December 31, 2023.

CTWS’s unaccounted-for water for 2023 and 2022 approximated 13.1% and 14.2%, respectively, as a percentage of production.

2 unchanged sentences

Water production expenses

Water production expenses increased $28,576 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, offset by decreases of $15,311 due to lower customer usage, $7,262 as a result of increased availability of California surface water in 2022 compared to 2021, and $2,296 due to changes in water production balancing and memorandum accounts.

Water production expenses increased $11,626 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, $3,897 as a result of decreased availability of California surface water in 2021 compared to 2020, and $1,302 due to changes in water production balancing and memorandum accounts, offset by a decrease of $13,534 due to a decrease in customer usage.

Water production expenses increased $31,767 in higher per unit costs paid for purchased water, groundwater extraction, energy price charges and other production expenses and increased $12,869 in water production balancing and memorandum accounts for the Full Cost Balancing Account, offset by decreases of $11,510 as a result of increased availability of California surface water in 2023 compared to 2022 and $9,716 due to lower customer usage.

Administrative and General Expense

Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, legal fees, regulatory utility commissions’ expenses, expenses associated with being a public company, and general corporate expenses.

Administrative and general expense increased $8,072 in 2022, or 2% of the total operating expenses in 2021.

The increase consisted primarily of $3,974 increase in compensation, $595 increase in materials and supplies, $576 in regulatory surcharge, $572 in uninsured losses, $446 in bank fees, $434 in corporate expenses, $316 in liability insurance, $314 in travel, $263 increase in uncollectible accounts, and $209 increase in telephone expenses.

Administrative and general expense increased $7,591 in 2021, or 2% of the total operating expenses in 2020.

The increase consisted primarily of $1,928 in group health insurance costs, $1,542 increase in compensation, $1,229 increase in insurance expense, $1,108 increase in uncollectible accounts due to a credit recorded in 2020 for the Current Expected Credit Loss adoption, $1,104 increase in contracted work, and $703 increase in rate case expenses.

Administrative and general expense increased $3,252 in 2023, or 1% of the total operating expenses in 2022 primarily due to an increase in allowances for customer credit losses.

Maintenance Expense

Maintenance expense increased $4,703 in 2022, or 1% of the total operating expenses in 2021, and increased $3,873 in 2021, or 1% of the total operating expenses in 2020.

The increase in 2022 was primarily due to increases of $3,680 in contract and materials expense related to the OII settlement agreement.

The increase in 2021 was primarily due to increases of $2,402 in contract, repairs and maintenance, and materials expense as a result of increased leaks, $1,298 due to a favorable change in the probability assessment of regulatory recovery of a hydro-turbine generator project reserve established in a prior year, and $408 increase in compensation.

Maintenance expenses decreased $5,005 or 1%, primarily due to prior year incurred costs related to the Order of Instituting Investigation settlement agreement.

In addition, proactive asset management and advanced leak detection reducing emergency projects and replacing them with scheduled improvements that are no longer temporary in nature reduced maintenance expenses for the year.

Property Taxes and Other Non-income Taxes

Property taxes and other non-income taxes for 2022 and 2021 increased $1,608, and $1,078 from the prior years, respectively.

The increase in 2022 was primarily the result of increased property taxes due to utility plant additions, an increase in payroll taxes due to increases in wages and a one-time increase in transfer tax.

The increase in 2021 was primarily a result of increased utility plant.

SJW Group anticipates increases in 2023 for property taxes and other non-income taxes due to increases in utility plant.

Property taxes and other non-income taxes for 2023 increased $1,903 from 2022.

The increase was primarily the result of increased property taxes due to utility plant additions, and an increase in payroll taxes due to increases in wages.

Depreciation and Amortization

Depreciation and amortization expense increased $10,017 in 2022, or 2% of the total operating expenses in 2021, and increased $5,121 in 2021, or 1% of the total operating expenses in 2020.

The increases were primarily due to increases in utility plant.

SJW Group anticipates increases in 2023 for depreciation expense due to increases in utility plant.

Impairment of long-lived asset

Impairment of long-lived asset decreased $2,211 in 2022 in comparison to 2021, and increased the same amount in 2021 in comparison to 2020, due to the 2021 write-off of a customer care and billing system implementation in Texas.

Depreciation and amortization expense increased $1,451 in 2023.

The increases were primarily due to increases in depreciation related to new utility plant additions;

partially offset by a $2,400 one-time impact related to amortization on certain Cupertino concession assets in 2022.

Sale of nonutility properties

Gain on sale of nonutility properties decreased $1,297 in 2022 primarily due to the lower total value of sales of multiple vacant land properties located in California.

Gain on sale of nonutility properties decreased $6,197 in 2023 primarily due to the recording of a non-recurring sale of non-utility properties in 2022, and no recorded gain on the sale of nonutility properties in 2023.

Other Income and Expense

The change in other (expense) income in 2022 compared to 2021 was primarily due to a $3,000 pre-tax gain on sale from the release of a holdback amount by GBRA for the sale of Texas Water Alliance (“TWA”) recorded in 2021, an increase in other interest due to higher short term borrowing rates, and a decrease in investment income from retirement plan assets and life insurance policies, partially offset by a decrease in pension non-service cost due to an increase on the return of pension assets and an increase in the discount rate.

The change in other (expense) income in 2021 compared to 2020 was primarily due to a $3,000 pre-tax gain on sale from the release of a holdback amount by GBRA for the sale of TWA recorded in 2017 and $1,704 decrease in pension non-service cost due to an increase on the return of pension assets and an increase in the discount rate.

SJW Group’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs, was 4.0%, 4.1% and 4.3% for the years ended December 31, 2022 and 2021 and 2020.

Cost of borrowing on the lines of credit averaged 3.41%, 1.32% and 1.78% as of December 31, 2022, 2021 and 2020, respectively.

The change in other (expense) income in 2023 compared to 2022 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.

SJW Group’s consolidated weighted-average cost of long-term debt, including the amortization of debt issuance costs, was 3.97% and 4.0% for the years ended December 31, 2023 and 2022.

Cost of borrowing on the lines of credit averaged 6.29% and 3.41% for the years ended December 31, 2023 and 2022, respectively.

Provision for Income Taxes

1 unchanged sentence

The effective consolidated income tax rate was 7% for 2023 and 10% for 2022.

The effective income tax rate decreased from 2021 primarily due to tax accounting method change related to non-network repairs deduction.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law.

SJW Group has considered the income tax implications of the IRA in its estimated tax provision.

The Act did not have a material impact to the year-end tax rate.

Please refer to Note 7 , “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of actual to expected income tax expense.

The decrease in income tax expense and the effective income tax rate was primarily due to the partial release of an uncertain tax position reserve.

Please refer to Note 7 , “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of income tax computed at the federal statutory rate to actual income tax expense.

Other Comprehensive Income

The change in other comprehensive income in 2022 and 2021 was primarily due to the change in the benefit obligation for Connecticut Water’s supplemental executive retirement agreements as a result of a change in the discount rate.

The change in other comprehensive income in 2023 compared to 2022 was primarily due to the change in the benefit obligation for CWC’s supplemental executive retirement plan primarily as a result of changes in the discount rate and the unrealized gain on its investments.

Liquidity and Capital Resources

1 unchanged sentence

Water Utility Services bills the majority of its customers on a bi-monthly basis.

Payments from customers are impacted by the general economic conditions in the areas where SJW Group operates.

Payment delinquencies are mitigated by service interruptions due to non-payment prior to the COVID-19 pandemic.

During 2022, the remaining state orders to suspend water service disconnections expired.

As of December 31, 2022, the change in allowance for doubtful accounts was primarily due to slower collections on payments from customers.

Impacts to allowance for doubtful accounts related to COVID-19 have been recorded for future recovery through the rate-making process.

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

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

Bill credits were applied to the customer accounts filed in the state payment program that were still outstanding and the excess of $3,272 was returned to the State of California.

Although the COVID-19 state moratoriums restrictions on water service disconnections from non-payment ended in February 2022 in California, there has been a delayed start to disconnections from non-payment.

Write-offs for uncollectible accounts remain less than 1% of total revenue consistent with prior year.

Management believes the collection rate will gradually return to pre-pandemic levels when service disconnections are fully active again to mitigate payment delinquencies.

Management believes that the collection rate for its accounts receivables will increase as service disconnections gradually return to normal operations following the expiration of remaining state orders to suspend water service disconnections in 2022 that were instituted as a result of the COVID-19 pandemic.

On December 28, 2023, SJWC submitted the application to receive $10,237 through the State of California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customer accounts greater than 60-days past due as of December 31, 2022.

We anticipate the funds to be received in the first quarter of 2024 after the State of California Water and Wastewater Arrearages Payment Program completes the review of this application.

Funds collected from Water Utility Services’ customers are used to pay for water production expenses, in addition to costs associated with general operations.

Funds were also generated from borrowings.

In 2022, SJW Group and its subsidiaries obtained $55,000 in funds from new long-term debt and $39,085 in fund from equity issuances.

In 2023, SJW Group and its subsidiaries obtained $70,000 in funds from new long-term debt and $80,659 in funds from equity issuances.

From these amounts, SJW Group funded its 2023 capital expenditure programs, refinanced certain short and long-term borrowings, and funded working capital.

See Note 4 and Note 6 of “Notes to Consolidated Financial Statements” for discussion on the equity and debt financing

activities of SJW Group.

In addition, SJW Group paid cash dividends of approximately $43,582 during the year ended December 31, 2022.

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

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

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

See Note 4 and Note 6 of “Notes to Consolidated Financial Statements” for discussion on the equity and debt financing activities of SJW Group.

In addition, SJW Group paid cash dividends of $47,905 during the year ended December 31, 2023.

In 2023, the common dividends declared and paid on SJW Group’s common stock represented 56% of net income.

2 unchanged sentences

Cash Flow from Operations

In 2022, SJW Group generated cash flow from operations of approximately $166,200 compared to $130,000 in 2021 and $104,051 in 2020.

In 2023, SJW Group generated cash flow from operations of approximately $190,800 compared to $166,200 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, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets, and other changes in working capital items.

1 unchanged sentence

The increase was primarily due to a combination of the following factors:

(1) an increase in general working capital and net income adjusted for non-cash items increase by $31,600, and (2) an increase in collections against our regulatory assets which generated an increase of $16,300, offset by (3) payments of previously invoiced and accrued payables or amounts, increased by $6,200, and (4) net collection of taxes receivable was $5,500 less than in prior year.

Cash flow from operations increased in 2021 by approximately $26,000.

The increase was primarily due to a combination of the following factors:

(1) increase in collections of previously billed and accrued receivables by $13,000, (2) an increase in general working capital and net income adjusted for non-cash items increase by $6,800, (3) payments of previously invoiced and accrued payables or amounts, decreased by $5,200, and (4) a $5,000 up-front service concession payment that occurred in the previous year, offset by (5) an increase in accrued groundwater extraction charges, purchased water and power of $4,000.

(1) an increase of $16,100 due to higher net income adjusted for non-cash items and general working capital changes, (2) an increase in collections against our regulatory assets and liabilities which generated an increase of $10,600, (3) an increase from postretirement benefits assets and obligations of $5,600, and (4) an increase from other noncurrent assets and noncurrent liabilities of $2,800, offset by (5) a decrease of $10,500 attributable to tax accruals compared to the prior period.

Cash Flow from Investing Activities

In 2023, SJW Group used approximately $271,800 of cash for Company funded capital expenditures, $16,900 for developer funded capital expenditures, $24,200 and $7,537 for nonutility assets and business acquisitions, respectively, primarily for ongoing business and asset acquisition activities in Texas, and $2,100 in utility plant retirement costs.

In 2022, SJW Group used approximately $218,800 of cash for Company funded capital expenditures, $22,900 for developer funded capital expenditures, $2,500 in utility plant retirement costs, $600 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee, and $400 for ongoing business and asset acquisition activities in Texas.

These uses were offset by cash proceeds of $1,000 from the sale of various nonutility properties during the year.

In 2021, SJW Group used approximately $234,000 of cash for Company funded capital expenditures, $23,600 for SJWTX’s acquisition of Kendall West Utility and Bandera East Utility, $17,100 for developer funded capital expenditures, $2,800 in utility plant retirement costs, and $800 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee.

These uses were offset by cash proceeds of $18,200 from the sale of TWA, real estate investments and nonutility properties.

Water Utility Services budgeted capital expenditures for 2023, excluding capital expenditures financed by customer contributions and advances is estimated as follows:

Water Utility Services has budgeted 2024 capital expenditures of approximately $332,000, excluding capital expenditures financed by customer contributions and advances.

The 2024 budget is comprised of as follows:

Budgeted Capital

Water treatment $ 29,943 12 %

Wastewater treatment 1,136 — %

Source of supply 10,700 4 %

Reservoirs and tanks 17,521 7 %

Pump stations and equipment 14,945 6 %

Equipment and other 61,671 24 %

Distribution system 119,137 47 %

$ 255,053 100 %

Total capital expenditures

The 2024 capital expenditures budget is concentrated in main replacements.

Included in the distribution system budgeted capital expenditures of $119,137 is approximately $89,412 that is planned to be spent to replace Water Utility Services’ pipes and mains.

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

1 unchanged sentence

A significant portion of this amount is subject to future approval from the Regulators.

Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return.

Capital expenditures have the effect of

increasing utility plant rate base on which Water Utility Services earns a return.

Water Utility Services’ actual capital expenditures may vary from projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies and general economic conditions.

4 unchanged sentences

Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022, decreased by approximately $54,500 from the same period in the prior year, primarily as a result of decrease in cash proceeds from long-term debt and issuances of common stock, an increase in payments of dividends, and decreases in cash receipts of advances and contributions in aid of construction, partially offset by an increase in the amount of net borrowings on our lines of credit.

Net cash provided by financing activities for the year ended December 31, 2023, increased by approximately $50,500 from the same period in the prior year, primarily as a result of increase in cash proceeds from long-term debt and issuances of common stock, partially offset by an increase in the amount of net borrowings on our lines of credit, and an increase in payments of dividends.

SJW Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit.

18 unchanged sentences

CTWS 90,000 53,000 37,000 20,000

SJWTX 20,000 — 20,000 —

TWC 20,000 2,500 17,500 —

Total syndicated credit agreement 300,000 121,500 178,500 115,000

CTWS credit agreement December 14, 2023 10,000 4,578 5,422 22,996

CTWS credit agreement August 2, 2028 10,000 10,000 — 4,578

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

$ 350,000 171,500 178,500 159,578

On August 2, 2022, SJW Group, SJWC, SJWTX, and CTWS entered into a $300,000 credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent (“JP Morgan”), Wells Fargo Bank, National Association, as Documentation Agent, and a syndicate of banks.

Proceeds of borrowings under the Credit Agreement will be used for refinancing existing debt, working capital, and general corporate purposes.

The Credit Agreement has a maturity date of August 2, 2027.

Under the terms of the Credit Agreement, each of SJW Group, SJWC, SJWTX, and CTWS is a borrower with several and not joint liability.

Each borrower has an initial borrowing entitlement, or sublimit, which can be periodically adjusted from time to time as set forth in the Credit Agreement.

The initial sublimit of each borrower is as presented in the table above.

Borrowings under the Credit Agreement bear interest at either the Alternative Base Rate (as defined in the Credit Agreement and hereinafter referred to as “ABR”) or Adjusted Term Secured Overnight Financing Rate (“SOFR”).

ABR borrowings (which are borrowings bearing interest at a rate determined by reference to ABR) will bear interest at a rate per annum equal to ABR plus the applicable rate.

SOFR borrowings (which are borrowings bearing interest at a rate determined by reference to SOFR) will bear interest at a rate per annum equal to SOFR plus the applicable rate.

The applicable rate and pricing is variable depending on credit ratings of the borrower.

The Credit Agreement contains customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, asset sales, and fundamental changes.

The Credit Agreement also includes a financial covenant that requires each of the borrowers to maintain its funded debt to capitalization ratio at or below 70%.

This Credit Agreement replaces the existing $140,000 credit agreement, dated April 23, 2021, between SJWC and JP Morgan and the existing $5,000 credit agreement, dated April 23, 2021, between SJWTX and JP Morgan, with SJW Group as guarantor, both of which were terminated upon entering into the Credit Agreement and were set to mature on December 31, 2023.

In addition, on August 2, 2022, CTWS and Citizens Bank, National Association, entered into a fourth modification to the amended and restated revolving credit facility, dated December 18, 2019, as amended, pursuant to which the credit commitment was reduced from $75,000 to $10,000.

On October 31, 2022, CTWS and Citizens Bank, National Association, entered into a fifth modification to the amended and restated revolving credit facility to update the interest rate from London Interbank Offered Rate (“LIBOR”) plus the applicable rate to SOFR plus the applicable rate.

On February 6, 2023, CTWS modified its existing $40,000 credit agreement with CoBank to update the interest rate from LIBOR plus the applicable rate to SOFR plus the applicable rate.

On February 6, 2023, CTWS entered into a third amendment to the amended and restated promissory note and supplement with CoBank to update the one of the stated terms regarding one of interest rate options from LIBOR plus the applicable rate to SOFR plus the applicable rate.

CTWS previously locked the interest rate under this agreement such that this amendment has no impact.

Cost of borrowing on the lines of credit averaged 3.41% and 1.32% as of December 31, 2022 and 2021, respectively.

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.

Cost of borrowing on the lines of credit averaged 6.29% and 3.41% for the years ended of December 31, 2023 and 2022, respectively.

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

For additional information on SJW Group’s lines of credit, see Note 5 of “Notes to Consolidated Financial Statements.”

Long-term Financing Arrangements

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

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

The following table summarizes the long-term debt issuances and repayments for the year ended December 31, 2023:

Issuance (Repayment) Activity Date Maturity Date

California Pollution Control Financing Authority Revenue Bonds, 5.10% $ (50,000) May 2022 June 2040

Senior note, Series A, 8.58% (20,000) July 2022 July 2022

Bank term loan, 4.09% (1,322) 2022 December 2027

Bank term loan, 4.15% (585) 2022 August 2037

Connecticut Water:

Bank term loan, 3.51% (14,795) September 2022 September 2022

Senior note, Series 2022, 4.71% 25,000 December 2022 December 2052

Bank term loan, 5.54% 15,000 October 2022 May 2052

Bank term loan, 4.54% 15,000 May 2022 May 2042

Senior Note, Series G, 8.95% (900) December 2022 December 2024

Senior note, Series P, 4.85%

$ 70,000 Jan 2023

Bank term loan, 4.09% (1,377) 2023

December 2027

Bank term loan, 4.15% (610) 2023

Senior Note, Series G, 8.95% (900) Nov 2023

December 2024

State revolving fund loans, various series, 0.00%-2.58% (1,460) 2023

Additionally, on August 14, 2023, in connection with the KT Water Resources acquisition, TWR entered into a post-closing production payment obligation to pay a total amount of $29,000 to the seller over a period up to 29 years.

The repayment schedule is based on the quantity of groundwater produced from the acquired wells, subject to certain provisions in the purchase agreement.

On January 22, 2024, CWC sold an aggregate principal amount of $25,000,000 of its 6.46% Senior Notes, Series 2023 due January 1, 2054.

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

2 unchanged sentences

As of December 31, 2023, SJW Group and its subsidiaries were in compliance with all covenants related to its long-term debt agreements.

For additional information, see Note 6 of “Notes to Consolidated Financial Statements.”

Equity Financing Arrangements

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

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

For the twelve months ended months ended December 31, 2022, SJW Group issued and sold a total of 529,736 shares of common stock with a weighted average price of $75.49 per share and received approximately $39,179 in net proceeds under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 884,851 shares of common stock with a weighted average price of $73.44 for a total net proceeds of $63,432 and has a remaining $35,012 under the Equity Distribution Agreement to issue into shares.

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 year ended December 31, 2023, SJW Group issued and sold a total of 1,119,806 shares of common stock with a weighted average price of $73.68 per share and received $80,659 in net proceeds under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 2,004,657 shares of common stock with a weighted average price of $73.57 for a total net proceeds of $143,998 and has a remaining $92,509 under the Equity Distribution Agreement.

Credit Rating

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

While our ability to obtain financing will continue to be a risk, we believe that based on our 2023 and 2022 activities, we will have access to the external funding sources necessary to implement our ongoing 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- Negative

SJWC A Stable

CTWS A- Negative

Off-Balance Sheet Arrangement/Contractual Obligations

6 unchanged sentences

California Pollution Control Financing Authority Revenue Bond, SJWC 70,000 — — — 70,000

Connecticut Innovations Revenue Bonds, Connecticut Water 22,050 — — — 22,050

State revolving fund loans, Maine Water 15,699 1,472 2,994 2,234 8,999

Connecticut Innovations Revenue Bonds, CWC

22,050 — — 9,550 12,500

State revolving fund loans, MWC

14,239 1,504 2,546 2,396 7,793

Senior notes, SJW Group 560,000 — — — 560,000

Bank term loans, CTWS 16,457 2,071 4,405 1,873 8,108

Seller financing debt, TWR (2)

29,000 — 437 1,642 26,921

Total contractual cash obligation $ 1,644,416 52,009 33,236 53,001 1,506,170

1 unchanged sentence

___________________________________

(1) As of December 31, 2022, advances for construction was $137,696 of which $46,380 was related to non-refundable advances for construction and $28,427 was related to advances which are refundable based on service connections made.

In regards to uncertain tax positions, we are unable to predict the timing of tax settlements as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

(1) As of December 31, 2023, advances for construction were $146,582 of which $55,170 was related to non-refundable advances for construction and $30,437 was related to advances which are refundable based on service connections made.

(2) The timing of payments on the seller financing shown in the table above reflects management’s current estimate.

The actual timing of payments will be based upon the actual quantities of groundwater produced from the acquired wells.

With regard to uncertain tax positions, we are unable to predict the timing of tax settlements as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

For further discussion on uncertain tax positions, please see Note 7 of “Notes to Consolidated Financial Statements.”

2 unchanged sentences

Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with Valley Water.

For the years ended December 31, 2022, 2021 and 2020, SJWC purchased from Valley Water 18,183 million gallons ($96,793), 19,365 million gallons ($91,938) and 21,269 million gallons ($96,212), respectively, of contract water.

For the years ended December 31, 2023, 2022 and 2021, SJWC purchased from Valley Water 18.3 billion gallons ($111,173), 18.2 billion gallons ($96,793) and 19.4 billion gallons ($91,938), respectively, of contract water.

On June 16, 2022, Valley Water Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 23% through June 30, 2024.

Based on current prices and estimated deliveries, SJWC is committed to purchase from Valley Water a minimum of 90% of the reduced delivery schedule, or 18,864 million gallons ($106,463) of water at the current contract water rate of $5.6 per million gallons in the year ending December 31, 2023.

Based on current prices and estimated deliveries, SJWC is committed to purchase from Valley Water a minimum of 90% of the reduced delivery schedule, or 18.9 billion gallons ($121,182) of water at the current contract water rate of $6.41 million per billion gallons in the year ending December 31, 2024.

Additionally, SJWC purchases non-contract water from Valley Water on an “as needed” basis if the water supply is available.

1 unchanged sentence

These rates are adjusted periodically and coincide with Valley Water’s fiscal year, which ends on June 30.

The contract water rate for Valley Water’s fiscal years 2023, 2022 and 2021 was $5.6, $5.0 and $4.5 per million gallons, respectively.

The contract water rate for Valley Water’s fiscal years 2024, 2023 and 2022 was $6.411 million, $5.644 million and $4.953 million per billion gallons, respectively.

SJWC also pumps water from the local groundwater basin.

2 unchanged sentences

In addition to the Valley Water groundwater extraction charge, SJWC also incurs power costs to pump the groundwater from the basin.

Connecticut Water has an agreement with the RWA to purchase water.

CWC has an agreement with the RWA to purchase water.

The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective.

Connecticut Water will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement.

In addition, Connecticut Water has the option, but is under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement ($2.6 per million gallons as of December 31, 2022).

Connecticut Water has an agreement with the MDC to purchase water from MDC to serve the Unionville system.

CWC will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement.

In addition, CWC has the option, but is under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement ($3.1 million per billion gallons as of December 31, 2023).

CWC has an agreement with the MDC to purchase water from MDC to serve the Unionville system.

The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service.

Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC.

The rate charged by the MDC at December 31, 2022 were $4.09 per hundred cubic feet.

Maine Water has an agreement with the Kennebec Water District for potable water service.

CWC has agreed to purchase 0.28 billion gallons of water annually from MDC.

The rate charged by the MDC at December 31, 2023 were three dollars and eighty cents per hundred cubic feet.

MWC has an agreement with the Kennebec Water District for potable water service.

The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years.

Maine Water guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate wa s $1.51 per hundred cubic feet as of December 31, 2022.

SJWTX has long-term contracts with the GBRA.

MWC guarantees a minimum consumption of 50 million gallons of water annually.

Water sales to MWC are billed at a wholesale discount of twenty cents per hundred cubic feet of water below Kennebec Water District's tariffed rates.

The current tariff rate was one dollar and fifty-one cents per hundred cubic feet as of December 31, 2023.

TWC has long-term contracts with the GBRA.

The agreements expire in 2037, 2040, 2044 and 2050.

The agreements, which are take-or-pay contracts, provide SJWTX with 7,650 acre-feet per year of water supply from Canyon Lake.

The water rate may be adjusted by GBRA at any time, provided GBRA gives SJWTX a 60-day written notice on the proposed adjustment.

SJWTX also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, for 350 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

The agreements, which are take-or-pay contracts, provide TWC with 7,650 acre-feet per year of water supply from Canyon Lake.

The water rate may be adjusted by GBRA at any time, provided GBRA gives TWC a 60-day written notice on the proposed adjustment.

TWC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, for 350 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

Employee Benefit Arrangements

12 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis