What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-28 compared with 2024-07-25 · 153 added, 102 removed, 261 unchanged (49% of the section changed)

6 unchanged sentences

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.

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

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

doing business as Texas Water Company (“TWC”) and National Water Utility Service, LLC (“National Water Utility”).

National Water Utility is the contracting entity for shared services among the SJW Group affiliates formed in October 2024.

The remaining subsidiaries provide water service to approximately 403,000 connections and wastewater service to approximately 4,000 connections and serve a combined population of over 1.6 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.

1 unchanged sentence

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

In September 2024, SJWC entered into a 12-year agreement with the City of Cupertino effective on October 1, 2024 pursuant to which SJWC will operate the City of Cupertino municipal water system, replacing the previous agreement with the City of Cupertino.

The agreement can be extended for an additional term of eight years.

In accordance with the new agreement, SJWC will pay an upfront concession fee of $22,100 in the fourth quarter of 2024.

Additionally, SJWC agreed to pay an annual investment rent of $1,800, subject to increases each year based on a specified construction cost index.

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.

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(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, the Public Utilities Regulatory Authority (“PURA”) in Connecticut, the Public Utilities Commission of Texas (“PUCT”) in Texas, and the Maine Public Utilities Commission (“MPUC”) in Maine;

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

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

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In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations.

We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on our financial position and operating results, entering markets in which we have no or limited direct prior experience and the potential loss of key employees of any acquired company.

prior experience and the potential loss of key employees of any acquired company.

Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations.

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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 and six months ended June 30, 2024.

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

SJW Group’s consolidated net income for the three months ended September 30, 2024 was $38,652, an increase of $2,430, or approximately 7%, from $36,222 for the same period in 2023.

SJW Group’s consolidated net income for the nine months ended September 30, 2024 was $71,047, an increase of $5,009, or approximately 8%, from $66,038 for the same period in 2023.

The increase in net income for the three months ended September 30, 2024 was primarily driven by rate increases in California and Connecticut and lower income tax expense attributable to a tax accounting method change.

These factors were offset by higher water production expenses and increased other operating expenses as discussed below, lower customer usage in our Texas service areas driven primarily by weather conditions, and decreased real estate revenue due to the Tennessee properties that were sold in the second quarter of 2024.

The increase in net income for the nine months ended September 30, 2024 was also primarily driven by rate increases in California and Connecticut, as well as growth in customers, primarily in Texas.

These factors were offset by decreased real estate revenue due to the Tennessee properties that were sold in the second quarter of 2024, higher water production expenses, higher interest expense and an increase in other operating expenses as discussed below.

Operating Revenue

Operating Revenue by Segment

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

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

2024 2023 2024 2023

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Total operating revenue $ 225,063 204,843 $ 550,619 499,025

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

Increase/(decrease) in Operating Revenues

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

Increase/(decrease) in Operating Revenue

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Water Utility Services:

Consumption changes $ (863) — % $ 4,751 1 %

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

Increase in customers 812 — % 2,442 — %

Rate increases 13,030 7 % 22,990 8 %

Rate increases for:

Pass-through water costs 1

8,463 4 % 19,169 4 %

All other increases 2

8,514 4 % 20,798 4 %

Regulatory mechanisms (845) — % 456 — %

Service and other revenue

5,547 3 % 5,697 1 %

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____________________

(1) Consists of rate increases specifically associated with changes in the water supply costs that are passed through to customers.

(2) Primarily associated with general rate cases and related annual escalation adjustments, infrastructure surcharges, and cost of capital adjustments.

Operating Expense

Operating Expense by Segment

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

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

2024 2023 2024 2023

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Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Water production expenses:

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Total change in operating expense $ 18,473 12 % $ 37,700 8 %

$ 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 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.

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 California Public Utilities Commission (“CPUC”).

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

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.

Water allocations for the State Water Project and the Central Valley Project remained at 40% and 75%, respectively, during the third quarter of 2024.

On October 1, 2024, Valley Water’s 10 reservoirs were 27% of capacity, or 71% of restricted capacity, with 14.5 billion gallons of water in storage.

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

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

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

Valley Water also reported that the managed groundwater recharge from January to September in the Santa Clara Plain was 122% of the five-year average.

The groundwater level in the Santa Clara Plain is approximately three feet lower than September 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 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.

As of September 30, 2024, SJWC’s Lake Elsman was 74.2% of capacity with 1.5 billion gallons of water, approximately 220.3% of the five-year seasonal average.

However, the rainfall at SJWC’s Lake Elsman was measured at zero inches for the period from July 1, 2024 through September 30, 2024.

SJWC’s Montevina Water Treatment Plant treated 2.7 billion gallons of water for the nine months ended September 30, 2024, which is 131.7% of the five-year average.

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

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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.

In addition, CWC has water supply agreements to supplement its water supply

with the South Central Connecticut Regional Water Authority and The Metropolitan District that expire in 2058 and 2053, respectively.

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

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

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

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

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

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

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.

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.

In August 2023, a non-regulated subsidiary, Texas Water Resources, LLC (“TWR”), acquired eight wells and the associated water rights of KT Water Resources, LLC.

In connection with a transaction in the third quarter of 2024, TWC purchased these assets from TWR for use in utility operations.

Accordingly, SJW Group reclassified $28,386 related to indefinite life water rights from other intangible assets to utility plant intangible assets and $11,684 from nonutility property to utility plant.

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

Development of the KT Water System continues.

The Texas service area is currently experiencing drought conditions that result in water usage restrictions for customers .

These water usage restrictions will likely impact revenue for the remainder of 2024.

Significant future capital investment of transmission main and storage facilities in addition to developing additional supply sources is planned for 2025 and beyond.

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 June 30, Increase/

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

Three months ended September 30, Increase/

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

(decrease) % of Total Change

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

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

SJWC’s unaccounted-for water on a 12-month-to-date basis for September 30, 2024 and 2023 approximated 8.9% and 7.9%, 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.

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.

(“CTWS”)’s unaccounted-for water on a 12-month-to-date basis for September 30, 2024 and 2023 approximated 14.4% and 13.0%, 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 $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.

The change in water production expenses of $13,064 for the three months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to increases in average per unit costs for purchased water and groundwater extraction, and increases in production volume, offset by decreases resulting from regulatory adjustments through SJWC’s Full Cost Balancing Account.

The change in water production expenses of $26,423 for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to increases in average per unit costs for purchased water and groundwater extraction, and production volume, offset by decreases resulting from regulatory adjustments.

Effective July 1, 2024, Valley Water increased the unit price of purchased water by approximately 12% and the groundwater extraction charge by approximately 13% for SJWC.

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 $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.

Operating expenses, excluding water production expenses, increased $5,409 for the three months ended September 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to increases in expenses related to contracted work for others, increases in general and administrative expenses for contracted work and inflationary increases offset by higher allocations to construction activities, and increases in depreciation and amortization for new utility plant placed in service.

Operating expenses, excluding water production expenses, increased $11,277 for the nine months ended September 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 and higher maintenance expenses related to contracted work for others, security expenses, and adjustments to certain regulatory assets as a result of the final decision in the Connecticut general rate case (“GRC”), and a slight increase in administrative and general expenses.

The general and administrative expenses change is primarily from inflationary increases offset by decreases in the allowance for credit losses of $6,847 and higher allocations to construction activities.

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

Other (Expense) Income

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.

For the three months ended September 30, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to lower income from certain service and other activities and higher interest expense on long-term debt, offset by an increase in return on pension plan assets.

For the nine months ended September 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 gains from real estate sale transactions of $2,054 and lower income from certain service and other activities, offset by an increase in return on pension plan assets.

Provision for Income Taxes

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.

For the three and nine months ended September 30, 2024, compared to the same period in 2023, income tax expense decreased $2,633 and increased $3,756, respectively.

The decrease in income tax expense for the three months ended September 30, 2024 was primarily due to a tax accounting method change.

The increase in income tax expense for the nine months ended September 30, 2024 was primarily due to a higher pre-tax income in 2024.

The effective consolidated income tax rates were 5% and 11% for the three months ended September 30, 2024 and 2023, respectively, and 10% and 6% for the nine months ended September 30, 2024 and 2023, respectively.

The lower effective tax rate for the three months ended September 30, 2024 was primarily due to a tax accounting method change related to the repairs deduction.

The higher effective tax rate for the nine months ended September 30, 2024 was primarily due to lower discrete tax benefits in 2024.

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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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 provides 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.

The request was approved on February 2, 2024.

Based on the change in the average Moody’s Aa utility bond index rate between the 12 months ended September 30, 2023 and September 30, 2024, there will be no adjustment to SJWC’s cost of capital for 2025.

On January 2, 2024, SJWC filed General Rate Case Application No.

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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.

On August 13, 2024, WRATES notified the CPUC that it would not join in the settlement agreement.

Per the procedural ruling, the formal settlement motion and agreement between SJWC and the Public Advocates Office was submitted on August 19, 2024 and updated on September 27, 2024.

The settlement agreement provides for rate increases of $21,305 or 3.91% in 2025, $14,427 or 2.55% in 2026, and $17,347 or 2.98% in 2027.

The settlement agreement also provides a three-year capital budget of $450,000 and recovery of $15,792 in memorandum and balancing accounts.

Briefs on the two policy issues were also submitted on August 19, 2024.

A decision on the GRC is expected by the CPUC in the fourth quarter of 2024.

SJWC filed Advice Letter No.

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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.

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

Advice Letter No.

1 unchanged sentence

Connecticut Regulatory Affairs

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

On October 3, 2023, CWC filed an application with Public Utilities Regulatory Authority (“PURA”) in Connecticut to adjust customer rates.

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

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

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

WICA surcharge will be reset to zero;

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.

3 unchanged sentences

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.

PURA approved the application on August 14, 2024.

On July 26, 2024, CWC filed for a WICA increase of $4,300 in annualized revenue for $41,900 in completed infrastructure projects.

PURA approved the application, and effective October 1, 2024, the cumulative WICA surcharge is 3.43%.

Texas Regulatory Affairs

TWC has no current general rate case pending.

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

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

54430 on December 30, 2022.

2 unchanged sentences

As a result of the final order, the SIC is projected to increase TWC’s water revenue by $1,574 and sewer revenue by $28 within one year of the approval.

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

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.

On September 12, 2024, TWC filed its application to amend its SIC with the

PUCT under Docket No.

Its amended SIC will apply to all customers and seeks to increase its annual water revenue by $4,115 and its annual sewer revenue by $202, in addition to the original SIC filed with the PUCT under Docket No.

54430 on December 30, 2022.

On October 14, 2024, the PUCT notified TWC that the filing was administratively complete in order to establish a procedural schedule.

TWC expects to receive the final approval from the PUCT in the first half of 2025.

Additionally, TWC is required to file a general rate case on or before March 21, 2028.

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

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

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

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

TWC has asked to acquire the Elm Ridge customers using TWC’s existing rates.

On December 12, 2023, the Administrative Law Judge filed Order No.

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 third quarter of 2024.

On July 23, 2024, the PUCT filed the final approval which allowed TWC to charge its existing rates to customers of Elm Ridge.

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

2 unchanged sentences

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

On March 7, 2024, the PUCT filed the final order which transferred the CCN to TWC, approved the fair market value, and allowed TWC to charge its existing rates to the customers of KT Water Development.

On March 7, 2024, the PUCT filed the final order which transferred the Certificate of Convenience and Necessity to TWC, approved the fair market value, and allowed TWC to charge its existing rates to the customers of KT Water Development.

On January 5, 2024, TWC filed an application with the PUCT to acquire the 3009 Water Company LLC water system that serves approximately 270 residential connections.

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

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

TWC received the PUCT’s approval to proceed with the transaction.

The closing date has not been scheduled.

Maine Regulatory Affairs

3 unchanged sentences

The third filing was submitted on March 31, 2023.

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

Step 3 of the planned multi-year rate filings for the Saco River Drinking Water Resource Center was filed in accordance with the Maine Public Utilities Commission (“MPUC”) order on March 31, 2023.

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

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The combined requested surcharge is 3.00% or $52.

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

The MPUC issued an order approving the surcharges on August 1, 2024.

On September 30, 2024, MWC filed a WISC for the Millinocket division.

The requested surcharge is 3.00% or $46.

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

On October 25, 2024, MWC filed an application with MPUC to adjust customer rates in the Camden Rockland division.

The proposal requested an increase in annual revenues of approximately $1,057, or 15.9%, over current authorized revenues.

A decision is expected in the second quarter of 2025.

Other Regulatory Matters

In April 2024, the U.S.

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.

Environmental Protection Agency issued final new national primary drinking water regulations for six polyfluroralkyl substances (“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 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.

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Cash Flow from Operating Activities

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.

During the nine months ended September 30, 2024, SJW Group generated cash flows from operations of approximately $154,100, compared to approximately $159,300 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.

Cash flow from operations increased by approximately $3,100.

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

(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.

Cash flow from operations decreased by approximately $5,200.

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

(1) a decrease of $15,300 attributable to changes in regulatory assets and liabilities, including the effect of lower surcharge collections on balancing and memorandum accounts, (2) a decrease of $2,300 attributable to changes in payments for accounts payable and other current liabilities, offset by (3) general working capital and net income, adjusted for non-cash items and tax accruals, increased by $12,100, and (4) an increase attributable to accounts receivable and accrued unbilled utility revenue of $300.

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

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

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Cash Flow from Investing Activities

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.

During the nine months ended September 30, 2024, SJW Group used cash flows from investing activities of approximately $232,700, compared to approximately $241,700 for the same period in 2023.

This decrease was primarily driven by additions to utility plant, offset by proceeds of $40,700 for the completed sales of the Tennessee properties.

SJW Group used approximately:

(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.

(1) $252,300 of cash for company-funded utility capital expenditures and (2) $18,800 for developer-funded utility capital expenditures during the nine months ended September 30, 2024.

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

(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.

(1) $195,900 of cash for company-funded utility capital expenditures and (2) $24,200 for nonutility properties, real estate investments and other intangible asset, and (3) $13,600 for developer-funded utility capital expenditures.

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 June 30, 2024, approximately $158,400, or 48%, of the $332,000 has been invested.

As of September 30, 2024, approximately $252,300, or 76%, 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 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.

Net cash provided by financing activities for the nine months ended September 30, 2024 decreased by approximately $18,300 from the same period in the prior year, primarily as a result of (1) a decrease in net borrowings on our lines of credit of $48,000, (2) a decrease in net proceeds from our common stock equity offerings of $12,000, offset by (3) an increase in net borrowings and repayments on long-term debt of $40,300.

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 June 30, 2024 are as follows:

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

Maturity Date Line Limit Amounts Outstanding Unused Portion

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$ 350,000 93,235 256,765

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.

In August 2024, SJW Group, SJWC, TWC, and CTWS entered into an amendment to its credit agreement with JPMorgan Chase Bank and a syndicate of banks, which provided, among other matters, for an extension of the maturity date from August 2, 2028 to August 2, 2029.

For the nine months ended September 30, 2024, cost of borrowing on the lines of credit averaged 6.53% compared to 6.16% 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 June 30, 2024, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

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

Long-term Financing Agreements

On November 15, 2023, CWC entered into a note purchase agreement with certain affiliates of American United Life Insurance, The State Life Insurance, Mutual of Omaha Insurance, and United of Omaha Life Insurance, pursuant to which the company sold an aggregate principal amount of $25,000 of its 6.46% Senior Notes, Series 2023 (“Series 2023 Notes”).

On November 15, 2023, CWC entered into a note purchase agreement with certain institutional investors, pursuant to which the company sold an aggregate principal amount of $25,000 of its 6.46% Senior Notes, Series 2023 (“Series 2023 Notes”).

The Series 2023 Notes are unsecured obligations of CWC and are due on January 1, 2054.

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The closing of the notes purchase agreement occurred on January 22, 2024.

On July 31, 2024, SJWC entered into and closed a note purchase agreement with certain institutional investors, pursuant to which the company sold an aggregate principal amount of $75,000 of its 5.63% Senior Notes, Series Q (“Series Q Notes”).

The Series Q Notes are unsecured obligations of SJWC and are due on July 31, 2054.

Interest is payable semi-annually in arrears on January 31st and July 31st of each year.

The Series Q Notes are also subject to customary events of default.

On July 31, 2024, CWC entered into a note purchase agreement with certain institutional investors, pursuant to which the company sold $50,000 of its 5.78% Senior Notes, Series 2024 (“Series 2024 Notes”).

The Series 2024 Notes are unsecured obligations of CWC and are due on July 31, 2054.

Interest is payable semi-annually in arrears on January 31st and July 31st of each year.

The closing of the notes purchase agreement occurred in August 2024.

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

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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 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.

As of September 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 $35,000 in long-term debt to pay down the line of credit agreements, subject to market conditions.

Equity Financing Arrangements

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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, 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.

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 nine months ended September 30, 2024, SJW Group issued and sold a total of 535,345 and 1,119,975 shares of common stock, respectively, with a weighted average price of $59.17 and $57.70 per share, respectively, and received $31,007 and $63,309 in net proceeds, respectively, under the Equity Distribution Agreement.

Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 3,124,632 shares of common stock at a weighted average price of $67.88 for a total net proceeds of $207,307 and has $27,889 of aggregate gross sales price of shares remaining to issue under the Equity Distribution Agreement as of September 30, 2024.

The Equity Distribution Agreement is set to expire on November 17, 2024.

Prior to this date, SJW Group intends to enter into a new equity distribution agreement to establish a new “at-the-market” offering program.

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