What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-26 · 125 added, 114 removed, 238 unchanged (50% of the section changed)

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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, 2023 under “Risk Factors.”

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 232,000 connections that serve a population of approximately one million people in an area comprising approximately 140 square miles in the metropolitan San Jose, California area.

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

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

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

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 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.

Under Section 851 of the California Public Utilities Code, properties currently used and useful in providing utilities services cannot be disposed of unless California Public Utilities Commission (“CPUC”) approval is obtained.

SJWC also has approximately 234 acres of nonutility property which has been identified as no longer used and useful in providing utility services.

The majority of the properties are located in the hillside areas adjacent to SJWC’s various watershed properties.

SJWNE LLC is the holding company for Connecticut Water Service, Inc.

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

SJWTX Holdings, Inc.

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 1,000 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 TWR was formed to hold wholesale water supply assets.

SJW Land Company and Chester Realty, Inc.

own undeveloped land and operate commercial buildings in Tennessee, California and Connecticut.

SJW Land Company and Chester Realty, Inc.

owned the following real properties during the three months ended March 31, 2024:

% for Three months ended March 31, 2024 of

Real Estate Services

Description Location Acreage Square Footage Revenue Expense

Warehouse building Knoxville, Tennessee 30 361,500 61 % 52 %

Commercial building Knoxville, Tennessee 15 135,000 38 % 47 %

Undeveloped land and parking lot Knoxville, Tennessee 10 N/A N/A N/A

Undeveloped land San Jose, California 101 N/A N/A N/A

Commercial building Clinton, CT 22 9,000 1 % 1 %

Commercial building Guilford, CT 1 1,300 — % — %

SJW Group is a holding company whose primary business involves ownership of public utilities that provide water and wastewater services, including the production, purchase, storage, purification, distribution, wholesale and retail sale of water.

The water utility business of SJW Group is conducted through four wholly owned subsidiaries:

San Jose Water Company (“SJWC”), Connecticut Water Company (“CWC”), The Maine Water Company (“MWC”) and SJWTX, Inc.

doing business as Texas Water Company (“TWC”).

These subsidiaries provide water service to approximately 403,000 connections and wastewater service to approximately 4,000 connections and serve a combined population of over 1.5 million people in California, Connecticut, Maine and Texas.

Water utility services provided by these businesses are subject to regulation by the applicable state public utility commissions.

These subsidiaries also engage in non-tariffed operations that are not subject to public utility commission regulation, including contract water and sewer operations, maintenance agreements, and antenna site leases.

Collectively, these water utility and utility-related services form our “Water Utility Services” segment.

SJW Group’s second segment, “Real Estate Services,” consists of property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., which own undeveloped land and operate commercial buildings in California and Connecticut.

In the second quarter of 2024, SJW Land Company completed the sale of its Tennessee properties.

Business Strategy for Water Utility Services:

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SJW Group’s real estate investment activity is conducted through SJW Land Company and Chester Realty, Inc.

SJW Land Company owns undeveloped land in California and Tennessee and owns and operates commercial buildings in Tennessee.

SJW Land Company owns undeveloped land in California.

At the end of the second quarter of 2024, all of Tennessee properties have been sold.

Chester Realty, Inc.

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Our significant accounting policies are described in the notes to the 2023 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2023.

There have been no changes to our critical or significant accounting policies during the three months ended March 31, 2024.

There have been no changes to our critical or significant accounting policies during the three and six months ended June 30, 2024.

New Accounting Pronouncements:

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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 precipitation curtail water usage and sales.

SJW Group’s consolidated net income for the three months ended March 31, 2024 was $11,699, an increase of $169, or approximately 1%, from $11,530 for the same period in 2023.

The increase in net income was primarily driven by rate increases in California and Maine, increases in the infrastructure recovery mechanism in Connecticut, and an increase from higher customer usage driven primarily by weather conditions and the end of California mandatory water conservation requirements.

These factors were offset by higher water production expenses, increased depreciation and amortization for new utility plant placed in service, and higher interest expense and compensation costs.

SJW Group’s consolidated net income for the three months ended June 30, 2024 was $20,696, an increase of $2,410, or approximately 13%, from $18,286 for the same period in 2023.

SJW Group’s consolidated net income for the six months ended June 30, 2024 was $32,395, an increase of $2,579, or approximately 9%, from $29,816 for the same period in 2023.

The increase in net income in both periods was primarily driven by rate increases in California, increases in Texas from customer growth, and an increase from higher customer usage driven primarily by weather conditions and the end of California mandatory water conservation requirements in April 2023.

These factors were offset by higher water production expenses, increased depreciation and amortization for new utility plant placed in service, and higher interest and income tax expense.

Operating Revenue

Operating Revenue by Segment

Three months ended March 31,

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

2024 2023 2024 2023

Water Utility Services $ 175,397 155,470 $ 323,004 291,319

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Total operating revenue $ 176,174 156,886 $ 325,556 294,182

$ 149,382 137,296

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

Increase/(decrease) in Operating Revenues

Three months ended

Increase/(decrease)

Six months ended

Water Utility Services:

Consumption changes

$ 3,816 2 % $ 5,613 2 %

Increase in customers 839 1 % 1,630 1 %

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Regulatory mechanisms

2,242 2 % 1,452 — %

Real Estate Services (639) — % (311) — %

Total change in operating revenue

$ 19,288 12 % $ 31,374 11 %

Operating Expense

Operating Expense by Segment

Three months ended March 31,

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

2024 2023 2024 2023

Water Utility Services $ 134,628 124,467 $ 254,019 234,748

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Total operating expense $ 135,604 125,728 $ 257,073 237,846

$ 121,469 112,118

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

Increase/(decrease) in Operating Expense

Three months ended

Increase/(decrease)

Six months ended

Water production expenses:

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Total change in operating expense

$ 9,876 8 % $ 19,227 8 %

Sources of Water Supply

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

In both instances, the impacts of surface water, purchased water, groundwater charges and purchased power are tracked in SJWC’s Full Cost Balancing Account authorized in the Decision No.

22-10-005 (“2022 GRC Decision”).

Throughout the three months ended March 31, 2024, water conditions improved across the State of California.

As a result, the California Department of Water Resources announced an increase in the State Water Project allocation from 15% to 30% of contract amount for 2024 and the U.S Bureau of Reclamation announced an increase in the Central Valley Project allocation from 65% to 75%.

On April 1, 2024, Valley Water’s 10 reservoirs were 37% of capacity, or 99% of restricted capacity, with 20.2 billion gallons of water in storage.

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

For the six months ended June 30, 2024, water conditions remained positive across the State of California.

As a result, the California Department of Water Resources (“DWR”) announced an increase in the State Water Project allocation from 15% to 30% of contract amount during the first quarter of 2024 and the U.S Bureau of Reclamation announced an increase in the Central Valley Project allocation from 65% to 75% during the same period.

The DWR further announced an increase in the State Water Project allocation from 30% to 40% of contract amount during the second quarter of 2024 while the U.S Bureau of Reclamation’s Central Valley Project allocation remained at 75% during the same period.

On July 1, 2024, Valley Water’s 10 reservoirs were 34% of capacity, or 91% of restricted capacity, with 18.6 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 March in the Santa Clara Plain was 146% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately three feet higher than March 2023.

Valley Water also reported that the managed groundwater recharge from January to June in the Santa Clara Plain was 142% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately four feet lower than June 2023.

According to Valley Water, the projected total groundwater storage at the end of 2024 is expected to be in the Normal Stage of the Water Shortage Contingency Plan.

As of March 31, 2024, SJWC’s Lake Elsman was 100.8% of capacity with 2.0 billion gallons of water, approximately 160.4% of the five-year seasonal average.

In addition, the rainfall at SJWC’s Lake Elsman was measured at 46.31 inches for the period from July 1, 2023 through March 31, 2024, which is 106.7% of the five-year average.

SJWC’s Montevina Water Treatment Plant treated 1.3 billion gallons of water through the first quarter, which is 154.6% of the five-year average.

SJWC’s Saratoga Water Treatment Plant remains offline until the updated operations plan is granted approval by the California Division of

Drinking Water.

As of June 30, 2024, SJWC’s Lake Elsman was 98.1% of capacity with 2.0 billion gallons of water, approximately 173.8% of the five-year seasonal average.

In addition, the rainfall at SJWC’s Lake Elsman was measured at 49.98 inches for the period from July 1, 2023 through June 30, 2024, which is 106.3% of the five-year average.

SJWC’s Montevina Water Treatment Plant treated 2.2 billion gallons of water for the six months ended June 30, 2024, which is 140% of the five-year average.

SJWC’s Saratoga Water Treatment Plant remains offline until the next rain season (November to March).

SJWC believes that its various sources of water supply will be sufficient to meet customer demand through the remainder of 2024.

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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 KT Water Resources LLC.

Development of the KT Water System continues with eight wells and the associated water rights.

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.

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

The Texas service area is currently experiencing drought conditions;

current day activities include a stoppage of bulk hauling and enacting Stage 4 drought restrictions halting all outdoor watering in July.

These water usage restrictions will likely impact revenue in 2024.

TWC began a water supply study to update its Drought Management Plan submitted previously to the Texas Commission of Environmental Quality.

Based on draft results, future capital investment of transmission main and storage is planned with TWC working to further develop supply sources to meet customer demands.

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.

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

Three months ended March 31, Increase/

Three months ended June 30, Increase/

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

(decrease) % of Total Change

(billion gallons)

2024 2023 2024 2023

(billion gallons) (billion gallons)

Purchased water 4.4 5.3 (0.9) (7) % 6.5 8.7 (2.2) (10) %

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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 March 31, 2024 and 2023 approximated 7.9% and 7.5%, respectively, as a percentage of total production.

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2024 and 2023 approximated 7.4% and 10.1%, respectively, as a percentage of total production.

The unaccounted-for water estimate is based on the results of past experience and the impact of flows through the system, partially offset by SJWC’s main replacements and lost water reduction programs.

CTWS’s unaccounted-for water on a 12-month-to-date basis for March 31, 2024 and 2023 approximated 13.4% and 13.9%, respectively, as a percentage of total production.

Connecticut Water Service, Inc.

(“CTWS”)’s unaccounted-for water on a 12-month-to-date basis for June 30, 2024 and 2023 approximated 13.6% and 13.8%, 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 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 $4,775 for the three months ended March 31, 2024, compared to the same period in 2023, was primarily attributable to increases in customer usage, average per unit costs for purchased water, groundwater extraction, and other production expenses and increases resulting to the surface water mix net of regulatory adjustments.

The change in water production expenses of $8,584 for the three months ended June 30, 2024, compared to the same period in 2023, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses, and increases in customer usage, offset by decreases resulting from other production costs and regulatory adjustments for SJWC’s Full Cost Balancing Account.

The change in water production expenses of $13,359 for the six months ended June 30, 2024, compared to the same period in 2023, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses, customer usage, and increases resulting from other production costs and regulatory adjustments.

Effective July 1, 2023, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.

SJWC was notified by Valley Water that the unit price of purchased water and the groundwater extraction charge was increased 12% and 13%, respectively, effective July 1, 2024.

Other Operating Expenses

Operating expenses, excluding water production expenses, increased $4,576 for the three months ended March 31, 2024, compared to the same period in 2023.

The increase was primarily attributable to an increase in depreciation and amortization for new utility plant placed in service and increased compensation costs.

Operating expenses, excluding water production expenses, increased $1,292 for the three months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to increases in depreciation related to new utility plant additions, adjustments to certain regulatory assets as a result of the final decision in the CWC rate case, and security expenses, offset by decreases in administrative and general expenses primarily from decreases in the allowance for credit losses of $5,009 and higher allocations to construction activities, offset by inflationary increases.

Operating expenses, excluding water production expenses, increased $5,868 for the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to increases in depreciation and amortization for new utility plant placed in service, adjustments to certain regulatory assets as a result of the final decision in the CWC rate case, security expenses, and compensation costs offset by decreases in administrative and general expenses primarily from decreases in the allowance for credit losses of $6,261 and higher allocations to construction activities, offset by inflationary increases.

The higher allocations and inflationary increases are expected to impact the remainder of 2024.

Other (Expense) Income

For the three months ended March 31, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to an increase in interest expense due to higher interest rates and higher average balances on lines of credit borrowings, and an increase in long-term debt balances, offset by decreases in pension non-service cost.

For the three months ended June 30, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to an increase in interest expense due to an increase in higher average balances and interest rates on lines of credit borrowings and a $909 loss on sale of real estate investments.

For the six months ended June 30, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to an increase in interest expense due to higher average balances and interest rates, decreases in pension non-service cost, decreases in gains from real estate sale transactions of $1,473, and increases from changes in the Rabbi Trust and life insurance policy values.

Provision for Income Taxes

For the three months ended March 31, 2024, compared to the same period in 2023, income tax expense increased by $1,153.

The effective consolidated income tax rates were 16% and 9% for the three months ended March 31, 2024 and 2023, respectively.

The higher income tax expense and effective tax rate for the three months ended March 31, 2024 were primarily due to tax deficiencies recorded in the first quarter of 2024 for share-based payments and other discrete tax items.

For the three and six months ended June 30, 2024, compared to the same period in 2023, income tax expense increased $5,236 and $6,389, respectively.

The increase in income tax expense for the three and six months ended June 30, 2024 was primarily due to the higher pre-tax income in 2024 and partial release of an uncertain tax position reserve in the second quarter of 2023.

The effective consolidated income tax rates were 15% and (9)% for the three months ended June 30, 2024 and 2023, respectively, and 16% and (1)% for the six months ended June 30, 2024 and 2023, respectively.

The higher effective tax rate for the three and six months ended June 30, 2024, was primarily due to the partial release of an uncertain tax position reserve in the second quarter of 2023 and other discrete tax items.

Regulation and Rates

Almost all of the operating revenue of SJW Group results from the sale of water at rates authorized by the subsidiaries’ respective state utilities commissions.

The state utilities commissions set rates that are intended to provide revenue sufficient to recover operating expenses and the opportunity to achieve a specified return on common equity.

The state utilities commissions set rates that are intended to provide revenue sufficient to

recover operating expenses and the opportunity to achieve a specified return on common equity.

The timing of rate decisions could have an impact on the results of operations.

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California Regulatory Affairs

The CPUC approved the settlement in SJWC’s 2021 General Rate Case application on October 6, 2022 and issued 2022 GRC Decision on October 11, 2022.

SJWC received authority for an increase of revenue requirement by $25,074 or 6.03% in 2022, $12,955 or 2.94% in 2023, and $16,102 or 3.56% in 2024.

The application included requests to recover $18,174 from balancing and memorandum accounts and authorization for a $350,000 capital budget.

Additionally, it further aligned authorized and actual consumption, particularly for business customers, addressed the water supply mix variability, and provided greater revenue recovery in the fixed charge.

SJWC filed Advice Letter No.

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On December 15, 2023, SJWC, along with three other California water utilities, filed a joint request for one-year deferment on the cost of capital filings which would otherwise be due on May 1, 2024.

Postponing the filing a year alleviates administrative processing costs on the utilities as well as the CPUC staff, and provide relief for both CPUC and utility resources already strained by numerous other proceedings.

Postponing the filing a year alleviates administrative processing costs on the utilities as well as the CPUC staff, and provides relief for both CPUC and utility resources already strained by numerous other proceedings.

The request is conditioned on leaving the current WCCM in place such that any adjustments will be made to the respective utilities’ cost of capital during the one-year deferment based on the mechanism.

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The application will undergo a year-long review process and new rates, if approved, are expected to be effective January 1, 2025.

On June 14, 2024, SJWC notified the CPUC that it had reached an all-party settlement agreement in principle with the Public Advocates Office and Water Rate Advocates for Transparency, Equity and Sustainability, also known as WRATES, in its 2025 through 2027 general rate case application on all but two policy issues that will be litigated.

Per the procedural ruling, the formal settlement motion and agreement will be submitted by August 19, 2024.

Briefs on the two policy issues will also be submitted by August 19, 2024.

A decision on the GRC and/or the settlement agreement is expected by the CPUC in the fourth quarter of 2024.

SJWC filed Advice Letter No.

609 on May 16, 2024, to increase the authorized revenue requirement by $28,275, or 5.3%, to offset the increases to purchased potable water charges, the groundwater extraction fee, and purchased recycled water charges from its water wholesalers effective July 1, 2024.

Advice Letter No.

609 was approved with an effective date of July 1, 2024.

SJWC filed Advice Letter No.

610/610A on May 23, 2024, to increase the authorized revenue requirement by $768, or 0.14%, to recover revenue related the plant additions for the Advanced Metering Infrastructure project.

Advice Letter No.

610/610A was approved with an effective date of July 1, 2024.

Connecticut Regulatory Affairs

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.

A final decision is scheduled for June 28, 2024.

The proposal requested an increase in annual revenues of approximately $21,400, or 18.1%, over current authorized revenues.

On June 28, 2024, PURA issued a final decision authorizing an increase in annual revenues of $6,455, or 5.5%, with the ability to earn additional revenue of $1,116 through the annual Water Revenue Adjustment (“WRA”) filing for achievement of certain performance metrics.

In addition, the decision authorized a return on equity of 9.3% on a capital structure comprised of 53% equity and 47% long term debt.

New rates became effective on July 1, 2024.

On November 14, 2023, CWC submitted an application to PURA for the approval to issue unsecured notes in the amount of $25,000.

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The cumulative WICA surcharge as of April 1, 2024 is 7.41%, collecting $7,835 on an annual basis.

On February 28, 2024, CWC filed its 2023 Water Revenue Adjustment (“WRA”).

Based on the general rate case decision, as of July 1, 2024, the base

WICA surcharge will be reset to zero;

however, the credit of 0.13% for 2023 reconciliation will continue to apply into 2025.

On February 28, 2024, CWC filed its 2023 WRA.

The mechanism reconciles 2023 revenues as authorized in the CWC’s most recent rate case.

The 2023 WRA, as approved by PURA on March 11, 2024 and effective for 12 months beginning on April 1, 2024, imposed a 2.11% sur-credit on customer bills to refund the 2022 revenues over-collection.

On June 21, 2024, CWC submitted an application to PURA for the approval to issue unsecured notes in an amount of up to $150,000.

PURA has 60 days to issue an order in the docket.

Texas Regulatory Affairs

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Additionally, TWC is required to file a general rate case within four years.

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

TWC plans to incrementally increase its SIC annually until its next rate case.

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.

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11, which allowed TWC to proceed and the acquisition closed on January 26, 2024.

The final order, which transfers the Certificate of Convenience and Necessity (“CCN”) and allows filed rate doctrine, is expected to be approved during the second quarter of 2024.

The final order, which transfers the Certificate of Convenience and Necessity (“CCN”) and allows filed rate doctrine, is expected to be approved during the third quarter of 2024.

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

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TWC requested fair market value and to apply TWC’s existing rates to the customers being acquired.

TWC expects to receive approval to close on the acquisition during the third quarter of 2024.

TWC received the PUCT’s approval to proceed with the transaction and expects to close during the second half of 2024.

Maine Regulatory Affairs

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The MPUC approved the stipulation in deliberations on January 5, 2024, with an increase in authorized annual revenue of $2,603, or 17.6%, effective January 1, 2024.

The Biddeford and Saco division’s increase in rates is based on an authorized return on equity of 9.5% along with a capital structure of 49% debt and 51% equity.

The Biddeford Saco division’s increase in rates is based on an authorized return on equity of 9.5% along with a capital structure of 49% debt and 51% equity.

This return on equity and capital structure will be used for any future Water Infrastructure Surcharge (“WISC”) calculations for all divisions until the MPUC has authorized or approved a different return on equity structure in a different proceeding.

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The MPUC issued an order approving the surcharge on March 22, 2024.

On June 24, 2024, MWC filed a WISC in both the Freeport and Oakland divisions.

The combined requested surcharge is 3.00% or $52.

The MPUC is expected to issue a decision in the third quarter of 2024.

Other Regulatory Matters

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Environmental Protection Agency issued final new national primary drinking water regulations for six PFAS.

The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water systems for six PFAS chemicals under the Safe Drinking Water Act.

The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water systems for six

PFAS chemicals under the Safe Drinking Water Act.

The final regulation requires water systems to comply with PFAS monitoring and reporting requirements by 2027, and to comply with the maximum contaminant levels by 2029.

estimates capital expenditures of approximately $230,000 for treatment based on the maximum contaminant levels in the previously proposed regulation.

SJW Group estimates capital expenditures of approximately $230,000 for PFAS treatment based on finalized maximum contaminant levels.

See discussion below under “Liquidity” for additional information on capital expenditures.

Cash Flow from Operating Activities

During the three months ended March 31, 2024, SJW Group generated cash flows from operations of approximately $51,200, compared to approximately $50,600 for the same period in 2023.

During the six months ended June 30, 2024, SJW Group generated cash flows from operations of approximately $100,500, compared to approximately $97,400 for the same period in 2023.

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) an increase in collections from accounts receivable and accrued unbilled utility revenue of $3,700, and (2) increased tax accruals of $2,400 compared to the prior period, offset by (3) a decrease of $2,800 attributable to changes in payments of amounts previously invoiced and accrued including accrued production costs, (4) a decrease of $2,600 attributable to changes in regulatory assets and liabilities, including the effect of lower surcharge collections on balancing and memorandum accounts, and (5) general working capital and net income, adjusted for non-cash items, decreased by $100.

As of March 31, 2024, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, which decreased from 2% as of March 31, 2023.

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

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 second quarter of 2024 after the State of California Water and Wastewater Arrearages Payment Program completes the review of this application.

(1) increased tax accruals of $7,000 compared to the prior period, and (2) an increase of $3,000 attributable to changes in payments of amounts previously invoiced and accrued including accrued production costs, (3) general working capital and net income, adjusted for non-cash items, increased by $2,800, and offset by (4) a decrease of $3,600 attributable to changes in regulatory assets and liabilities, including the effect of lower surcharge collections on balancing and memorandum accounts, and (5) a decrease attributable to accounts receivable and accrued unbilled utility revenue of $6,100, primarily related to the decrease in the allowance for credit losses.

As of June 30, 2024, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, which decreased from 1% as of June 30, 2023.

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

On December 28, 2023, SJWC submitted the application 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 received $9,130 in the second quarter of 2024 under the State of California Water and Wastewater Arrearages Payment Program.

Cash Flow from Investing Activities

During the three months ended March 31, 2024, SJW Group used cash flows from investing activities of approximately $74,300, compared to approximately $55,000 for the same period in 2023.

This increase was primarily driven by additions to utility plant.

During the six months ended June 30, 2024, SJW Group used cash flows from investing activities of approximately $131,000, compared to approximately $125,400 for the same period in 2023.

This increase was primarily driven by additions to utility plant, offset by proceeds of $40,600 for the completed sales of the Tennessee properties.

SJW Group used approximately:

(1) $68,900 of cash for company-funded utility capital expenditures and (2) $4,600 for developer-funded utility capital expenditures during the three months ended March 31, 2024.

(1) $158,400 of cash for company-funded utility capital expenditures and (2) $11,800 for developer-funded utility capital expenditures during the six months ended June 30, 2024.

For the same period in 2023, SJW Group used approximately:

(1) 52,384 of cash for company-funded utility capital expenditures and (2) 2,703 for developer-funded utility capital expenditures.

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

Water Utility Services’ estimated utility capital expenditures for 2024, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $332,000.

As of March 31, 2024, approximately $68,900 or 21% of the $332,000 has been invested.

As of June 30, 2024, approximately $158,400, or 48%, of the $332,000 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 three months ended March 31, 2024 increased by approximately $2,500 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on our lines of credit of $125,500, offset by (2) a decrease in net borrowings and repayments on long-term debt of $85,000, and (3) a decrease in net proceeds from our common stock equity offerings of $34,000.

Net cash provided by financing activities for the six months ended June 30, 2024 increased by approximately $2,400 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on our lines of credit of $121,400, offset by (2) a decrease in net borrowings and repayments on long-term debt of $84,900, and (3) a decrease in net proceeds from our common stock equity offerings of $31,500.

Sources of Capital:

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SJW Group and its subsidiaries have unsecured line of credit agreements where borrowings are used to refinance existing debt, for working capital, and for general corporate purposes.

A summary of the line of credit agreements as of March 31, 2024 are as follows:

A summary of the line of credit agreements as of June 30, 2024 are as follows:

Maturity Date Line Limit Amounts Outstanding Unused Portion

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$ 350,000 217,495 132,505

For the three months ended March 31, 2024, cost of borrowing on the lines of credit averaged 6.54% compared to 5.74% in the same period in 2023.

For the six months ended June 30, 2024, cost of borrowing on the lines of credit averaged 6.53% compared to 5.96% in the same period in 2023.

All of SJW Group’s and subsidiaries’ lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes.

All of the lines of credit also include certain customary financial covenants such as a funded debt to capitalization ratio and a minimum interest coverage ratio.

As of March 31, 2024, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

As of June 30, 2024, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Long-term Financing Agreements

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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 March 31, 2024, SJW Group and its subsidiaries were in compliance with all covenants in their long-term debt agreements.

As of June 30, 2024, SJW Group and its subsidiaries were in compliance with all covenants in their long-term debt agreements.

During the balance of 2024, SJW Group subsidiaries plan to raise approximately $160,000 in long-term debt to pay down the line of credit agreements.

Equity Financing Arrangements

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

In March, 2023, SJW Group entered into Amendment No.

1 to the equity distribution agreement (the “Equity Distribution Agreement”), dated November 17, 2021, between SJW Group and J.P.

Morgan Securities LLC, Janney Montgomery Scott LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (each a “Sales Agent” and, collectively, the “Sales Agents”), pursuant to which SJW Group increased the aggregate gross sales price of shares of SJW Group’s common stock, $0.001 par value per share, that may be sold under the Equity Distribution Agreement from $100,000 to $240,000.

For the three months ended March 31, 2024, SJW Group issued and sold a total of 126,025 shares of common stock with a weighted average price of $57.13 per share and received $7,006 in net proceeds under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 2,130,682 shares of common stock with a weighted average

price of $72.60 for a total net proceeds of $151,004 and has $85,309 remaining to issue from the sale of shares as of March 31, 2024 under the Equity Distribution Agreement.

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 $240,000.

For the three and six months ended June 30, 2024, SJW Group issued and sold a total of 458,605 and 584,630 shares of common stock, respectively, with a weighted average price of $56.13 and $56.35 per share, respectively, and received $25,296 and $32,302 in net proceeds, respectively, under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 2,589,287 shares of common stock at a weighted average

price of $69.68 for a total net proceeds of $176,299 and has $59,567 of aggregate gross sales price of shares remaining to issue under the Equity Distribution Agreement.

Credit Rating

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis