SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE 30, 2020~~MARCH 31, 2021

(in thousands, except share and per share data)


~~Note 1.~~	~~General~~

Note 1.General

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods.

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). The Notes to Consolidated Financial Statements in SJW Group’s ~~2019~~2020 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

Recently Adopted Accounting ~~Pronouncements~~Principles

In ~~June 2016,~~December 2019, the ~~Financial~~FASB issued ASU 2019-12, “Simplifying the Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement~~for Income Taxes”, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”, and clarifies certain aspects of ~~Credit Losses on Financial Instruments,” and subsequent amendments. Topic 326 requires measurement and recognition of expected credit losses for financial assets held.~~the current guidance to promote consistency among reporting entities. ASU ~~2016-13~~2019-12 was effective for SJW Group in the first quarter of fiscal ~~2020.~~2021. The adoption of ASU ~~2016-13~~2019-12 did not have a material impact on the consolidated financial statements.

Impacts of Coronavirus (“COVID-19”)

The outbreak of COVID-19 had significant impact on the global economy. Financial impacts experienced by SJW Group due to the COVID-19 pandemic include higher uncollectible accounts receivables and increased costs from COVID-19 related prevention activities. The regulators in the states SJW Group operates have approved mechanisms to either record a regulatory asset or track in a memorandum account expenses and savings related to COVID-19. San Jose Water Company (“SJWC”) and SJWTX, Inc. doing business as Canyon Lake Water Company (“CLWSC”) have determined that future recovery of the account is probable and have recognized the related regulatory assets. Probability criteria has not yet been met for Connecticut Water Service, Inc. (“CTWS”). If a state regulator disagrees with the calculation of recorded account balances, we may be required to make adjustments that could adversely affect our results of operations. SJW Group continues to monitor COVID-19 developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary.

Revenue

Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. 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~~resulting in lower sales.

The major streams of revenue for SJW Group are as follows:

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Revenue from contracts with customers $ 142,163
104,299
$ 247,299
183,227
Alternative revenue programs, net 3,049
(327 ) 3,553
(2,306 )
Other balancing and memorandum accounts revenue, net 553
(2,376 ) 9,297
(3,009 )
Rental income 1,444
1,369
2,814
2,735
$ 147,209
102,965
$ 262,963
180,647


	Three months ended March 31,
		2021		2020
Revenue from contracts with customers		$	112,238	105,136
Alternative revenue programs, net		112		504
Other balancing and memorandum accounts revenue, net		1,091		8,744
Rental income		1,344		1,370
		$	114,785	115,754

Earnings per Share

Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with restricted common stock awards under SJW Group’s Long-Term Incentive Plan (as amended, the “Incentive Plan”), shares potentially issuable under the performance stock plans assumed through the business

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

combination with ~~Connecticut Water Service, Inc. (“CTWS”),~~CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended ~~June 30,~~March 31, 2021 and 2020, 8,579 and 2019, 9,397 and 2,217 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively. For the six months ended June 30, 2020 and 2019, 19,191 and 9,63417,573 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

Utility Plant Depreciation

A portion of depreciation expense is allocated to administrative and general expense. For the three months ended ~~June 30,~~March 31, 2021, and 2020, ~~and 2019,~~ the amounts allocated to administrative and general expense were ~~$370~~$493 and ~~$673, respectively. For the six months ended June 30, 2020, and 2019, the amounts allocated to administrative and general expense were $1,469 and $1,330,~~$1,098, respectively.

Real Estate Investments

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~


~~Note 2.~~	~~Equity Plans~~

SJW Group accounts for stock-based compensation based on the grant date fair value of awards issued to employees in accordance with FASB ASC Topic 718 - “Compensation - Stock Compensation,” which requires the measurement and recognition of compensation expense based on the estimated fair value of stock-based payment awards.

The Incentive Plan allows SJW Group to provide employees, non-employee board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. The types of awards included in the Incentive Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. As of June 30, 2020, 179,913 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 745,492 shares are available for award issuances under the Incentive Plan. In addition, shares are issued to employees under the company’s ESPP.

In connection with the merger with CTWS on October 9, 2019, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans: CTWS 2014 Performance Stock Program, CTWS 2004 Performance Stock Program and CTWS 1994 Performance Stock Program (collectively, the “CTWS Plan”). As of June 30, 2020, approximately 101,711 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plan.

Stock compensation costs charged to income are recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from the exercise of any restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three and six months ended June 30, 2020, and 2019.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Adjustments to additional paid-in capital and common stock for:
Compensation costs charged to income:
ESPP $ —
—
$ 171
143
Restricted stock and deferred restricted stock 1,009
718
1,089
1,461
Total compensation costs charged to income $ 1,009
718
$ 1,260
1,604
ESPP proceeds $ —
—
$ 970
811

~~Stock, Restricted Stock and Deferred Restricted Stock~~

For the three months ended June 30, 2020, and 2019, SJW Group granted under the Incentive Plan 14,346 and 9,114, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $60.17 and $51.69, respectively, per unit.

For the six months ended June 30, 2020, and 2019, SJW Group granted under the Incentive Plan 42,713 and 26,565, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $63.97 and $51.42, respectively, per unit.

Performance-based and market-based restricted stock awards granted for the three months ended June 30, 2020, and 2019 were 138 and 0 target units, respectively, with a weighted-average grant date fair value of $66.99 and $0 respectively, per unit.

Performance-based and market-based restricted stock awards granted for the six months ended June 30, 2020, and 2019 were 24,719 and 30,401 target units, respectively, with a weighted-average grant date fair value of $72.01 and $60.46, respectively, per unit. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0% to 150% of the target number of shares for performance-based restricted stock awards, or between 0% and 200% of the target number of shares for market-based restricted stock awards.

As of June 30, 2020, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $6,050. This cost is expected to be recognized over a weighted-average period of 2.03 years.

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

~~Employee Stock Purchase Plan~~

The ESPP allows eligible employees to purchase shares of SJW Group’s common stock at 85% of the fair value of shares on the purchase date. Under the ESPP, employees can designate up to a maximum of 10% of their base compensation for the purchase of shares of common stock, subject to certain restrictions. A total of 400,000 shares of common stock have been reserved for issuance under the ESPP.

SJW Group’s recorded expenses were $74 and $160 for the three and six months ended June 30, 2020, respectively, and $65 and $141 for the three and six months ended June 30, 2019, respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends July 31, 2020, for the ESPP is approximately $25. This cost is expected to be recognized during the third quarter of 2020.


~~Note 3.~~	~~Real Estate Investments~~

The major components of real estate investments as of ~~June 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, are as follows:

June 30,
2020 December 31,
2019
Land $ 14,168
14,168
Buildings and improvements 43,855
43,531
Subtotal 58,023
57,699
Less: accumulated depreciation and amortization 14,197
13,597
Total $ 43,826
44,102


	March 31, 2021		December 31, 2020
Land	$	14,168	14,168
Buildings and improvements	44,112		43,961

Subtotal	58,280		58,129
Less: accumulated depreciation and amortization	15,072		14,783
Total	$	43,208	43,346

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years. Substantially all of the real estate investments relate to assets that are currently subject to operating leases.

Note 2.Regulatory Rate Filings

California Regulatory Affairs

On March 17, 2020, the California Public Utilities Commission (“CPUC”) ordered its regulated water utilities to halt customer disconnection activities in connection with the COVID-19 pandemic. On April ~~6, 2017, 444 West Santa Clara Street, L.P. sold all~~2, 2020, California Governor Gavin Newsom issued Executive Order N-42-20 suspending customer disconnection activities until further notice. On April 16, 2020, the CPUC issued Resolution M-4842 directing utilities to implement emergency customer protections to assist customers such as waiving reconnection deposits, offering payment arrangements, and suspending disconnections for nonpayment. This resolution was effective for up to one year, or April 15, 2021, with the option to extend. On February 11, 2021, the CPUC approved Resolution M-4849 extending customer protections required in Resolution M-4842 through June 30, 2021. The resolution also requires water utilities to develop a transition plan regarding shutoffs and terminations with customers once the moratorium ends. On April 1, 2021, SJWC filed Advice Letter 560 which includes such plan.

SJWC filed Advice Letter 556 on November 16, 2020, with the CPUC requesting authorization to increase its revenue requirement by 11,750 or 3.04% in 2021 for the final escalation year authorized in our 2018 General Rate Case Decision 18-011-025 which established rates for 2019, 2020, and 2021. This advice letter was approved on December 17, 2020, and new rates became effective January 1, 2021.

On January 4, 2021, SJWC filed General Rate Case Application No. 21-01-003 requesting authority for an increase of ~~its interest~~revenue of $51,585 or 13.35% in 2022, $16,932 or 3.88% in 2023, and $19,195 or 4.24% in 2024. The application also includes requests to recover $18,499 from balancing and memorandum accounts, authorization for a $435,000 capital budget, further alignment between actual and authorized usage, and a shift to greater revenue collection in the ~~commercial building~~service charge. The application will undergo a year-long review process and ~~land~~new rates, if approved, are expected to be effective in the ~~partnership owned and operated. In connection~~first quarter of 2022.

On January 5, 2021, SJWC, along with ~~this sale,~~three other California water utilities, filed a joint request for an additional one-year deferment on its Cost of Capital filing which would otherwise be due on May 1, 2021. Postponing the ~~partnership was required to deposit $750 into~~filing an escrow account for estimated repairs to the creek next to the land the partnership sold. On April 22, 2019, all creek repairs were completed and a reimbursement of $745 was provided to the partnership. SJW Land Company holds a 70% limited partner interest in 444 West Santa Clara Street, L.P. SJW Land Company and the noncontrolling interest recognized a pre-tax gainadditional year would have alleviated administrative processing costs on the ~~creek reimbursement~~utilities as well as the CPUC staff, and provided relief for both CPUC and utility resources already strained by numerous other proceedings and COVID-19. The request was conditioned on no changes being made as a result of ~~$521 and $224, respectively,~~the current Water Cost of Capital Mechanism in place during the one-year deferment. The request was denied on February 22, 2021. SJWC expects to file its Cost of Capital application on May 3, 2021, as required by the ~~transaction.~~


~~Note 4.~~	~~Defined Benefit Plan~~

SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. San Jose Water Company (“SJWC”) and CTWS employees hired before March 31, 2008, and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the employee’s years of service and compensation. Certain employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefits based on the employee’s years of service and compensation. For SJWC employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee. CTWS employees hired on or after January 1, 2009, are entitled to an additional 1.5% of eligible compensation to their company sponsored savings plan. SJW Group does not have multi-employer plans.

In addition, senior management hired before March 31, 2008, for SJWC and January 1, 2009, for CTWS are eligible to receive additional retirement benefits under supplemental executive retirement plans and retirement contracts. SJWC’s senior management hired on or after March 31, 2008, are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan. The supplemental retirement plans and Cash Balance Executive Supplemental Retirement Plan are non-qualified plans in which only senior management and other designated members of management may participate. SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits other than pension plans.CPUC.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~June 30, 2020~~March 31, 2021

(in thousands, except share and per share data)

Connecticut Regulatory Affairs

On October 28, 2020, The ~~components~~Connecticut Water Company (“Connecticut Water”) filed a Water Infrastructure Conservation Adjustment (“WICA”) application representing an additional 1.11% surcharge or approximately $956 increase in revenues, for a cumulative WICA surcharge of 6.94%. The Public Utilities Regulatory Authority of Connecticut (“PURA”) approved the requested increase with an April 1, 2021 effective date. Additionally, on February 1, 2021, Connecticut Water filed its annual WICA reconciliation which called for a 0.09% increase of the WICA surcharge. On March 3, 2021, PURA approved the reconciliation, resulting in a net ~~periodic benefit~~cumulative 7.03% surcharge for Connecticut Water which became effective on customers’ bills on April 1, 2021. As of March 31, 2021, WICA surcharges for Connecticut Water and its Avon Water division were 5.75% and 9.31%, respectively. The Heritage Village Water (“HVWC”) division does not have an approved WICA surcharge.

On January 15, 2021, Connecticut Water filed an application with PURA to amend rates for its customers, including the divisions of Avon Water and HVWC. The filing requests an increase of $20,206 in annual revenues that includes more than $265,514 in completed infrastructure investments that are not currently in approved rates and surcharges. The filing proposes a new rate that would provide a 15% reduction in water bills for income-eligible customers, which would be the first low-income rate for a Connecticut water utility, if approved. The filing also includes a tiered block rate structure for residential water customers to promote water conservation. The proposed increase will be applied across the company but may differ by rate divisions, meter size and between customer rate categories. The application also reflects the costs of operating and maintaining the utility, including expenditures on power and treatment additives that have increased since the company’s last general rate case decision in 2010. PURA has 200 days from the filing date to review the application, and the approved rates will go into effect soon thereafter. Connecticut Water expects to receive a decision in the third quarter of 2021.

Long-term debt issuances for Connecticut Water require regulatory authorization which is typically obtained for a specified amount of debt to be issued during a specified period of time. On March 16, 2021, Connecticut Water filed for PURA approval for the ~~defined benefit plans~~issuance of up to $100,000 of long-term borrowings in 2021. Connecticut Water anticipates to use the proceeds to pay down line of credit borrowings and ~~other postretirement benefits~~payoff maturing debt, as well as general working capital needs. Connecticut Water expects to receive a decision from PURA within 60 days of its filing.

Texas Regulatory Affairs

On January 29, 2021, CLWSC submitted its Water Pass-Through Charge (“WPC”) true-up report for the ~~three~~Canyon Lake area water systems’ 2020 purchased water costs. The WPC is the annual filing to change the monthly per thousand gallons charge for changes in purchased water costs since the last annual true-up report. The 2020 WPC true-up report resulted in a reduction of the WPC usage rate from $0.95 dollars to $0.7 dollars per thousand gallons which became effective on March 1, 2021. The Deer Creek Ranch water system has a separate WPC. A WPC filing for Deer Creek Ranch is required only when there is a change in purchased water costs. The WPC true-up report for this system was submitted December 1, 2020, which resulted in a decrease in the usage charge from $2.02 to $1.84 dollars per thousand gallons, and ~~six months ended~~an increase in the monthly base charge of $0.51 dollars per residential account. The Deer Creek Ranch WPC rate changes became effective February 25, 2021.

A disaster declaration was declared on February 12, 2021 by the Public Utilities Commission of Texas (“PUCT”) because of severe winter weather. The PUCT issued orders under Docket No. 51812-6 which prohibited disconnections for non-payment, suspended the rules for late fees and interest, and allowed for estimated billing for the duration of the disaster declaration. On March 5, 2021, the PUCT reinstituted the utilities’ ability to resume charging late fees.

Maine Regulatory Affairs

On June ~~30,~~17, 2020, the Main Public Utilities Commission (“MPUC”) approved a general rate increase for Skowhegan Division customers allowing $198 in additional revenue. Per the MPUC decision, the increase will be implemented in two steps: an initial 9.80% rate increase effective June 15, 2020, and ~~2019 are as follows:~~a 3.51% rate increase effective July 1, 2021. The combined rate increase is 13.31%.

Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Service cost $ 2,337
1,479
$ 4,780
2,958
Interest cost 2,816
2,113
5,720
4,225
Other cost (4,183 ) 1,117
(8,303 ) 2,235
Expected return on assets 1,169
(2,310 ) 2,668
(4,619 )
$ 2,139
2,399
$ 4,865
4,799

On November 23, 2020, The ~~following tables summarize~~Maine Water Company (“Maine Water”) filed Water Infrastructure Surcharge (“WISC”) applications with the ~~fair values of plan assets by major categories as of June 30,~~MPUC in five divisions requesting an increase between 1.1% and 5%, representing approximately $304 in additional revenues. The WISC applications were approved on December 15, 2020 and December ~~31, 2019:~~22, 2020 and the surcharges became effective January 1, 2021.

On March 10, 2021, Maine Water filed a general rate increase application for the Biddeford Saco Division seeking approximately $6,659, or 77.5%, in additional revenue. The application has proposed a multi-year rate plan that is designed to

Fair Value Measurements at June 30, 2020

Quoted
Prices in
Active
Markets for
Identical
Assets

Significant
Observable
Inputs

Significant
Unobservable
Inputs
Asset Category Total (Level 1) (Level 2) (Level 3)
Cash and cash equivalents $ 6,237
6,237
—
—
Equity securities (a) 146,407
142,839
3,568
—
Fixed income (b) 85,941
31,165
54,776
—
Total $ 238,585
180,241
58,344
—


~~(a)~~	~~Actively managed portfolio of equity securities with the goal to exceed the benchmark performance~~


~~(b)~~	~~Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance~~

Fair Value Measurements at December 31, 2019

Quoted
Prices in
Active
Markets for
Identical
Assets

Significant
Observable
Inputs

Significant
Unobservable
Inputs
Asset Category Total (Level 1) (Level 2) (Level 3)
Cash and cash equivalents $ 11,801
11,801
—
—
Equity securities (a) 157,050
149,265
7,785
—
Fixed income (b) 91,896
31,686
60,210
—
Total $ 260,747
192,752
67,995
—


~~(a)~~	~~Actively managed portfolio of equity securities with the goal to exceed the benchmark performance~~


~~(b)~~	~~Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance~~

In 2020, SJW Group expects to make required and discretionary cash contributions of up to $8,594 to the pension plans and Social Welfare Plan. For the three and six months ended June 30, 2020, SJW Group has made 0 contributions to such plans.


~~Note 5.~~	~~Segment and Non-Tariffed Business Reporting~~

SJW Group is a holding company with 4 subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) SJWTX, Inc. which is doing business as Canyon Lake Water Service Company (“CLWSC”), a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, and (iv) as of October 9, 2019, SJWNE LLC a holding company for CTWS and its

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~June 30, 2020~~March 31, 2021

(in thousands, except share and per share data)

~~subsidiaries,~~ease the transition to higher water bills over the period from July 2021 to July, 2023 . The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”), New England Water Utility Services, Inc. (“NEWUS”) and Chester Realty, Inc. In accordance with FASB ASC Topic 280 - “Segment Reporting,” The chief operating decision maker of SJW Group has determinedprimary driver for the increase in rates is the support for a new drinking water treatment facility on the Saco River, a $60,000 project to replace the existing facility that ~~it has 2 reportable business segments. The first segment~~ is ~~that of providing water utility and utility-related services~~expected to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water, HVWC, Avon Water, and NEWUS together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.”

SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his executive staff.

The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, such as goodwill, and revenue and expenses have been includedbe in service in the ~~reportable segment amounts. Other business activity~~second quarter of ~~SJW Group not included~~2022, and a decision on the requested revenue increase is expected in the ~~reportable segments is included~~second quarter of 2022, in ~~the “All Other” category.~~

For Three Months Ended June 30, 2020
Water Utility Services Real Estate Services All Other* SJW Group
Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total
Operating revenue $ 143,072
2,693
1,444
—
143,072
4,137
147,209
Operating expense 107,185
1,759
850
1,345
107,185
3,954
111,139
Operating income (loss) 35,887
934
594
(1,345 ) 35,887
183
36,070
Net income (loss) 22,236
881
443
(3,839 ) 22,236
(2,515 ) 19,721
Depreciation and amortization 22,123
108
298
224
22,123
630
22,753
Senior note and other interest expense 8,289
—
—
4,891
8,289
4,891
13,180
Income tax expense (benefit) in net income 5,449
260
124
(1,623 ) 5,449
(1,239 ) 4,210
Assets $ 3,079,118
9,913
44,889
76,057
3,079,118
130,859
3,209,977

For Three Months Ended June 30, 2019
Water Utility Services Real Estate Services All Other* SJW Group
Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total
Operating revenue $ 99,773
1,823
1,369
—
99,773
3,192
102,965
Operating expense 75,564
1,356
1,008
3,066
75,564
5,430
80,994
Operating income (loss) 24,209
467
361
(3,066 ) 24,209
(2,238 ) 21,971
Net income (loss) 13,662
336
662
(1,122 ) 13,662
(124 ) 13,538
Depreciation and amortization 14,698
105
298
—
14,698
403
15,101
Senior note, mortgage and other interest expense 6,170
—
—
544
6,170
544
6,714
Income tax expense (benefit) in net income 4,154
130
220
(312 ) 4,154
38
4,192
Assets $ 1,537,404
6,149
46,510
413,587
1,537,404
466,246
2,003,650

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

For Six Months Ended June 30, 2020
Water Utility Services Real Estate Services All Other* SJW Group
Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total
Operating revenue $ 254,439
5,710
2,814
—
254,439
8,524
262,963
Operating expense 203,202
3,120
1,681
3,463
203,202
8,264
211,466
Operating income (loss) 51,237
2,590
1,133
(3,463 ) 51,237
260
51,497
Net income (loss) 28,064
2,351
831
(9,108 ) 28,064
(5,926 ) 22,138
Depreciation and amortization 42,872
216
600
447
42,872
1,263
44,135
Senior note and other interest expense 16,463
—
—
10,001
16,463
10,001
26,464
Income tax expense (benefit) in net income 6,651
730
256
(2,989 ) 6,651
(2,003 ) 4,648
Assets $ 3,079,118
9,913
44,889
76,057
3,079,118
130,859
3,209,977

For Six Months Ended June 30, 2019
Water Utility Services Real Estate Services All Other* SJW Group
Regulated Non-tariffed Non-tariffed Non-tariffed Regulated Non-tariffed Total
Operating revenue $ 174,920
2,992
2,735
—
174,920
5,727
180,647
Operating expense 136,149
2,197
1,899
6,023
136,149
10,119
146,268
Operating income (loss) 38,771
795
836
(6,023 ) 38,771
(4,392 ) 34,379
Net income (loss) 19,762
572
980
(1,903 ) 19,762
(351 ) 19,411
Depreciation and amortization 29,447
202
597
—
29,447
799
30,246
Senior note and other interest expense 11,390
—
—
1,115
11,390
1,115
12,505
Income tax expense (benefit) in net income 6,230
222
350
(565 ) 6,230
7
6,237
Assets $ 1,537,404
6,149
46,510
413,587
1,537,404
466,246
2,003,650

* The “All Other” category for the six months ended June 30, 2020, includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis. For the three months ended June 30, 2019, the “All Other” category includes the accounts of SJW Group and Hydro Sub, Inc. on a stand-alone basis. For the three months ended June 30, 2019, Hydro Sub, Inc. had no recorded revenue or expenses and as of June 30, 2019 held no assets and incurred no liabilities. Hydro Sub. Inc. was a subsidiary created solely to facilitate the mergeralignment with ~~CTWS and was dissolved following~~ the completion of ~~merger in October 2019.~~the new water treatment facility.

Note 3.Regulatory Assets, Net

Regulatory assets, net are comprised of the following as of March 31, 2021, and December 31, 2020:


	March 31, 2021		December 31, 2020
Regulatory assets:
Income tax temporary differences, net	$	7,345	6,230
Postretirement pensions and other medical benefits	96,682		95,559
Business combinations debt premium, net	21,843		22,479
Balancing and memorandum accounts, net	28,137		25,463
Water Rate Adjustment (“WRA”)	174		323
Other, net	7,437		8,176
Total regulatory assets, net in Consolidated Balance Sheets	161,618		158,230
Less: current regulatory asset, net	226		1,748
Total regulatory assets, net, less current portion	$	161,392	156,482

At March 31, 2021 and December 31, 2020, SJW Group’s regulatory assets, net not earning a return primarily included the postretirement pensions and other medical benefits unfunded amount, and business combinations debt premium, net. The total amount of regulatory assets, net not earning a return at March 31, 2021 and December 31, 2020, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $119,745 and $119,236, respectively.

Note 4.Balancing and Memorandum Accounts

SJWC has established balancing accounts for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC. The Monterey Water Revenue Adjustment Mechanism (“WRAM”) tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. In addition, in the case of special revenue programs such as the Water Conservation Memorandum Account (“WCMA”) and Water Revenue Adjustment (“WRA”), SJWC and CTWS follow the requirements of ASC Topic 980-605-25—“Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded. A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period. This reserve is based on an estimate of actual usage over the recovery period.

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980-340-25—“Other Assets and Deferred Costs” recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support, the balances are recorded in SJW Group’s condensed consolidated financial statements.

~~Note 6.~~

~~Long-Term Liabilities and Bank Borrowings~~

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)


	Three months ended March 31, 2021				Three months ended March 31, 2020
	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance

Revenue accounts:
Monterey WRAM	$	12,077	1,776	0	13,853	$	7,015	1,970	(27)	8,958
2014-2017 WCMA	666		0	0	666	708		0	(43)	665
2012 General Rate Case true-up	752		0	1	753	752		0	0	752
Cost of capital memorandum account	(1,561)		0	0	(1,561)	(1,553)		(5)	0	(1,558)
Tax memorandum account	333		0	0	333	(6,643)		(3)	6,978	332
All others	(2,224)		(175)	0	(2,399)	(2,219)		(205)	(67)	(2,491)
Total revenue accounts	$	10,043	1,601	1	11,645	$	(1,940)	1,757	6,841	6,658
Cost-recovery accounts:
Water supply costs	8,123		787	0	8,910	4,328		767	(34)	5,061
Pension	3,478		366	0	3,844	2,449		415	22	2,886
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”)	1,108		0	(81)	1,027	0		0	0	0
COVID-19 Catastrophic Event Memorandum Account (“CEMA”)	2,266		0	0	2,266	0		0	0	0
All others	445		0	0	445	446		1	(4)	443
Total cost-recovery accounts	$	15,420	1,153	(81)	16,492	$	7,223	1,183	(16)	8,390

Total	$	25,463	2,754	(80)	28,137	$	5,283	2,940	6,825	15,048

All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next general rate case or at the time an individual account balance reaches a threshold of 2% of authorized revenue, whichever occurs first.

Note 5.Capitalization

On March 8, 2021, SJW Group entered into an underwriting agreement with J.P. Morgan Securities LLC, as the representative of the several underwriters named therein (the “Underwriters”), which provided for the issuance and sale by SJW Group to the Underwriters 1,030,000 shares of our common stock, par value $0.001 per share, in an underwritten public offering (the “Offering”). The shares in the Offering were sold at a public offering price of $59.00 per share. SJW Group also granted the Underwriters an option to purchase up to 154,500 additional shares of common stock, which was exercised in full. The Offering closed on March 11, 2021 and the offering of option shares closed on March 16, 2021.

SJW Group received net proceeds of approximately $58,122 from the Offering and received additional net proceeds of approximately $8,774 from the sale of the option shares, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group. SJW Group used the proceeds from the offerings to pay down a bank line of credit agreement, dated as of June 1, 2016, between SJWC and JPMorgan Chase Bank, N.A. and for general corporate purposes, which include, among other things, financing infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations and working capital.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

Note 6.Equity Plans

The Incentive Plan allows SJW Group to provide employees, non-employee board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. The types of awards included in the Incentive Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. As of March 31, 2021, 187,170 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 688,365 shares are available for award issuances under the Incentive Plan. In addition, shares are issued to employees under the company’s ESPP.

In connection with the merger with Connecticut Water Service, Inc. (“CTWS”) on October 9, 2019, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans: CTWS 2014 Performance Stock Program, CTWS 2004 Performance Stock Program and CTWS 1994 Performance Stock Program (collectively, the “CTWS Plans”). As of March 31, 2021, approximately 55,761 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plans.


	Three months ended March 31,
		2021		2020
Adjustments to additional paid-in capital and common stock for:
Compensation costs charged to income:
ESPP		$	181	171
Restricted stock and deferred restricted stock		1,099		80
Total compensation costs charged to income		$	1,280	251
ESPP proceeds		$	1,026	970

Restricted Stock and Deferred Restricted Stock

For the three months ended March 31, 2021, and 2020, SJW Group granted under the Incentive Plan 33,701 and 28,367, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $64.22 and $65.89, respectively, per unit.

Performance-based and market-based restricted stock awards granted for the three months ended March 31, 2021, and 2020 were 29,459 and 24,581 target units, respectively, with a weighted-average grant date fair value of $66.35 and $73.85, respectively, per unit. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0% to 150% of the target number of shares for performance-based restricted stock awards, or between 0% and 200% of the target number of shares for market-based restricted stock awards.

As of March 31, 2021, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $7,203. This cost is expected to be recognized over a weighted-average period of 2.20 years.

Employee Stock Purchase Plan

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

SJW Group’s recorded expenses were $88 and $86 for the three months ended March 31, 2021 and 2020, respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends July 30, 2021, for the ESPP is approximately $123. This cost is expected to be recognized during the second and third quarters of 2021.

Note 7.Long-Term Liabilities and Bank Borrowings

SJW Group’s contractual obligations and commitments include senior notes, bank term loans, revenue bonds, state revolving fund loans, mortgages, and other obligations. Water Utility Services have received advance deposit payments from its customers on certain construction projects and the refunds of the advance deposit payments constitute an obligation of the respective subsidiaries.

~~Lines of Credit~~

On April 24, 2020, SJW Group and SJW Land Company entered into a Termination and Payoff agreement with JPMorgan Chase Bank, N.A. as the lender (the “Lender”) to terminate the SJW Group and SJW Land Company $15,000 credit agreement, effective as of April 29, 2020.

On May 11, 2020, the SJWC entered into a Second Amendment (the “Second Amendment”) to SJWC’s existing $125,000 credit agreement, dated as of June 1, 2016, with the Lender, as amended by the First Amendment, dated January 12, 2018, (collectively, the “Existing SJWC Credit Agreement”), with the Lender. The Second Amendment amends the existing SJWC Credit Agreement to, among other things, increase the total commitment by $15,000, from $125,000 to $140,000.

Also on May 11, 2020, SJWC entered into a $50,000 credit agreement (the “New SJWC Credit Agreement”) with the Lender. Proceeds of borrowings under the New SJWC Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes. The New SJWC Credit Agreement has a maturity date of November 11, 2020.

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

Borrowings under the New SJWC Credit Agreement bear interest at either the Alternate Base Rate (“ABR”) or the LIBOR (as defined in the New SJWC Credit Agreement) rate. ABR borrowings (which are borrowings bearing interest at a rate determined by reference to the ABR) will bear interest at a rate per annum equal to (i) the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate on such day plus 0.5%, and (c) the adjusted LIBOR rate for a one-month interest period on such day plus 1% plus (ii) the Applicable Rate (as defined in the New SJWC Credit Agreement), which is determined based on a pricing grid that is dependent upon the credit rating of SJWC as determined by either S&P or Moody’s. Eurodollar borrowings under the New SJWC Credit Agreement will bear interest at a rate per annum equal to (i) the adjusted LIBOR rate for the interest period in effect plus (ii) the Applicable Rate.

The New SJWC Credit Agreement contains customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes. The New SJWC Credit Agreement also includes certain financial covenants that require SJWC to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio and to limit SJWC’s maximum consolidated cash balance.

On May 29, 2020, the CTWS entered into a Second Amendment to the CTWS’s existing $15,000 credit agreement, dated as of August 6, 2014, with the CoBank, ACB (“CoBank), as amended by the First Amendment, dated October 28, 2015. The Second Amendment amends the prior agreement to, among other things, increase the total commitment by $25,000, from $15,000 to $40,000 and extended the maturity date to May 15, 2025.

~~Long-Term Debt~~

On March ~~12, 2020, Connecticut~~2, 2021, Maine Water entered into a ~~note purchase~~credit agreement with ~~the purchasers listed in the agreement,~~a commercial bank, pursuant to an existing master loan agreement under which ~~Connecticut~~the commercial bank issued Maine Water ~~sold~~a promissory note on the same date with an aggregate principal amount of ~~$35,000~~$17,000 and a fixed interest rate of ~~its 3.51% Senior Notes,~~3.89%, due March ~~12, 2050.~~1, 2041. The notes are unsecured obligations of ~~Connecticut~~Maine Water. Interest is payable ~~semi-annually~~quarterly in arrears on ~~March 12th~~the 20th day of January, April, July and ~~September 12th~~October of each year. The promissory note ~~purchase agreement~~ contains customary representations and warranties. Under the promissory note, ~~purchase agreement, Connecticut~~Maine Water is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding. The notes are also subject to customary events of default, the occurrence of which may result in all of the notes then outstanding becoming immediately due and payable. ~~The notes have terms and conditions that restrict Connecticut Water~~Proceeds from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default. The note purchase agreement also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio at each fiscal quarter end of no less than three-to-one.the borrowing were received on March 18, 2021. As of ~~June 30, 2020, Connecticut~~March 31, 2021, Maine Water was in compliance with all financial, ~~ratio and operational covenants under this note purchase agreement.~~

On December 19, 2019, Maine Water issued $5,000 of Series S First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund. The Series S bonds mature on October 1, 2039, and carry 1% interest. The Series S First Mortgage Bond covenants are the same as all other First Mortgage Bonds. The proceeds were held as restricted cash by a trustee to be used for pre-approved projects primarily related to preliminary engineering and design work of a water treatment plant in Maine Water’s Biddeford and Saco division. Proceeds were held by a trustee for the bond and until conditions were met. On February 3, 2020, and March 11, 2020, the trustee released proceeds of $4,114 and $886, respectively, from the bond. The associated bond indentures and loan agreements contain customary affirmative and negative covenants ~~including a prohibition~~under this agreement.

Note 8.Benefit Plans

SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. San Jose Water Company (“SJWC”) and CTWS employees hired before March 31, 2008, and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the ~~issuance~~employee’s years of ~~indebtedness secured by assets~~service and compensation. For SJWC employees, hired on or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65%, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.


~~Note 7.~~	~~Fair Value Measurement~~

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of June 30, 2020, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of June 30, 2020, approximates their carrying value as reported on the condensed consolidated balance sheets. The fair value of such financial instrumentsafter March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee. Certain CTWS employees hired before March 1, 2012, and covered by a plan merged into the ~~income approach~~CTWS plan in 2013 are also entitled to benefits based on the ~~present value~~employee’s years of ~~estimated future cash flows. There~~service and compensation. CTWS employees hired on or after January 1, 2009, are entitled to an additional 1.5% of eligible compensation to their company sponsored savings plan. SJW Group does not have ~~been no changes~~multi-employer plans.

In addition, senior management hired before March 31, 2008, for SJWC and January 1, 2009, for CTWS are eligible to receive additional retirement benefits under supplemental executive retirement plans and retirement contracts. SJWC’s senior management hired on or after March 31, 2008, are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan. The supplemental retirement plans and Cash Balance Executive Supplemental Retirement Plan are non-qualified plans in ~~valuation techniques during~~which only senior management and other designated members of management may participate. SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits other than pension plans.

The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three ~~and six~~ months ended ~~June 30, 2020. The fair value of these instruments would be categorized~~March 31, 2021, and 2020 are as ~~Level 2 in the fair value hierarchy,~~follows:


	Three months ended March 31,
		2021		2020
Service cost		$	2,735	2,443
Interest cost		2,580		2,904
Expected return on assets		(4,752)		(4,120)
Unrecognized actuarial loss		1,780		758
Amortization of prior service cost		12		741
Total		$	2,355	2,726

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~June 30, 2020~~March 31, 2021

(in thousands, except share and per share data)

In 2021, SJW Group expects to make required and discretionary cash contributions of up to $9,043 to the pension plans and Social Welfare Plan. For the three months ended March 31, 2021, SJW Group has made 0 contributions to such plans.

~~with~~

Note 9.Income Taxes

For the ~~exception of cash~~three months ended March 31, 2021, income tax benefit was $896. Income tax expense for the three months ended March 31, 2020, was $438. The effective consolidated income tax rates were (52)% and ~~cash equivalents, which would be categorized as Level 1.~~15% for the three months ended March 31, 2021, and 2020, respectively. The ~~fair value of pension plan assets is discussed in Note 4.~~lower effective rates for the three months ended March 31, 2021, were primarily due to excess tax benefits relating to share-based payment awards, state tax credits and other discrete tax items.

SJW Group ~~has investments in company owned life insurance which are valued at cash surrender value~~had unrecognized tax benefits, before the impact of ~~the policies as reported by the insurer. These contracts are based principally on a referenced pool~~deductions of ~~investment funds that actively redeem shares, are observable~~state taxes, excluding interest and ~~measurable,~~penalties of approximately $6,511 and are presented in “Investments” on SJW Group’s consolidated balance sheets. As of June 30, 2020, the value of the company owned life insurance was $7,282 of which $3,739 was related to assets to fund CTWS’s supplemental retirement plan agreements. As of December 31, 2019, the value of the company owned life insurance was $7,086 of which $3,829 was related to assets to fund CTWS’s supplemental retirement plan agreements. In addition to life insurance contracts, CTWS’s supplemental retirement plan agreements are also funded with a Rabbi Trust.

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts by major categories$6,468 as of ~~June 30, 2020,~~March 31, 2021 and December 31, ~~2019:~~2020, respectively. SJW Group does not expect its unrecognized tax benefits to change significantly within the next 12 months.

Fair Value Measurements at June 30, 2020
Asset Category Total
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Money market funds $ 146
146
—
—
Mutual funds 801
801
—
—
Fixed income 2,017
2,017
—
—
Total $ 2,964
2,964
—
—

Fair Value Measurements at December 31, 2019
Asset Category Total
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Money market funds $ 20
20
—
—
Mutual funds 834
834
—
—
Fixed income 2,329
2,329
—
—
Total $ 3,183
3,183
—
—

~~The fair value of~~On March 11, 2021, the American Rescue Plan Act was signed into law. SJW ~~Group’s long-term debt was approximately $1,516,139 and $1,396,205 as of June 30, 2020, and December 31, 2019, respectively, and was determined using a discounted cash flow analysis, based~~Group is currently evaluating the impact this legislation may have on the ~~current rates for similar~~consolidated financial instruments of the same duration and creditworthiness of the company. The book value of the long-term debt was $1,338,333 and $1,305,869 as of June 30, 2020, and December 31, 2019, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.results.


~~Note 8.~~	~~Regulatory Rate Filings~~

~~California Regulatory Affairs~~Note 10.Fair Value Measurement

~~On July 20, 2018, the California Public Utilities Commission (“CPUC”) issued an Order Instituting Investigation (“OII”) No. 18-07-007 concerning~~The following instruments are not measured at fair value on SJW Group’s ~~then proposed merger with CTWS. A Scoping Memorandum was issued~~condensed consolidated balance sheets as of March 31, 2021, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2021, approximates their carrying value as reported on ~~September 7, 2018, which identified~~ the ~~issues to~~condensed consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. There have been no changes in valuation techniques during the three months ended March 31, 2021. The fair value of these instruments would be ~~considered~~categorized as Level 2 in the proceeding as to whether the proposed merger is subject to CPUC approval and to evaluate the merger’s likely impacts within California. On September 14, 2018, SJW Group and SJWC submitted joint comments in response to the issues identified in accordancefair value hierarchy, with the ~~Scoping Memorandum’s adopted schedule,~~exception of cash and ~~reply comments were submitted~~cash equivalents, which would be categorized as Level 1.

The fair value of SJW Group’s long-term debt was approximately $1,486,355 and $1,570,727 as of March 31, 2021, and December 31, 2020, respectively, and was determined using a discounted cash flow analysis, based on ~~October 19, 2018. A Public Participation Hearing~~the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was ~~held on January~~$1,379,313 and $1,363,821 as of March 31, ~~2019. On~~2021, and December 31, 2020, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.


	Fair Value Measurements at March 31, 2021
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Money market funds	$	145	145	0	0
Mutual funds	2,034		2,034	0	0
Fixed income	830		830	0	0
Total	$	3,009	3,009	0	0

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~June 30, 2020~~March 31, 2021

(in thousands, except share and per share data)


	Fair Value Measurements at December 31, 2020
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Money market funds	$	83	83	0	0
Mutual funds	2,101		2,101	0	0
Fixed income	830		830	0	0
Total	$	3,014	3,014	0	0

~~March~~

Note 11.Segment and Non-Tariffed Business Reporting

SJW Group is a holding company with 4 ~~2019,~~subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) CLWSC, a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, and (iv) SJWNE LLC a holding company for CTWS and its subsidiaries, Connecticut Water, Maine Water, New England Water Utility Services, Inc. (“NEWUS”) and Chester Realty, Inc. In accordance with FASB ASC Topic 280 - “Segment Reporting,” SJW Group’s reportable segments have been determined based on information used by the ~~CPUC suspended this proceeding due~~chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his executive staff. The first segment is providing water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water, and NEWUS together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.”

The following tables set forth information relating to SJW Group’s ~~announcement~~reportable segments and distribution of ~~its intention to file a new merger approval application with~~regulated and non-tariffed business activities within the ~~Connecticut Public Utilities Regulatory Authority (“PURA”). On April 3, 2019,~~reportable segments. Certain allocated assets, such as goodwill, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group and CTWS jointly filed a new merger application with PURA. After securing the required approvals from both PURA and the Maine Public Utilities Commission (“MPUC”), SJW Group announced the close of the merger on October 9, 2019, and notified the CPUC accordingly. As of June 30, 2020, the OII is still pending with the CPUC.

On September 14, 2018, the CPUC issued OII No. 18-09-003 to which SJWC was named as Respondent. The OII was to determine whether the company unlawfully overcharged customers over a 30-year period by failing to pro-rate service charges when increases occurred during a billing period, and whether the company double-billed service charges during one billing period when allegedly switching from billing such charges in advance to billing in arrears. The OII resulted from a report by the CPUC’s Consumer Protection and Enforcement Division (“CPED”), dated August 16, 2018, recommending an investigation into SJWC’s billing practice. CPED calculated a refund obligation of approximately $2,061 for the years 2014 to 2016 that had been the subject of SJWC’s Advice Letter No. 510. CPED calculated a further refund obligation of approximately $1,990 for the years 1987 to 2013. CPED also asserted that the company double-billed its customers during a billing period when it allegedly converted from billing in advance to billing in arrears, assumed that such double-billing occurred in January 2011, and calculated a refund obligation of approximately $4,935. The OII notes these estimates and identifies the proper refund amount as an issuenot included in the proceeding. The OII also identifies the CPUC’s authority to consider imposing penalties on SJWC in amounts ranging from $0.5 to $50 per offense, per day. On July 24, 2019, SJWC and CPED jointly filed a motion for CPUC approval of a Settlement Agreement (“Agreement”) over SJWC’s past customer billing practices. The Agreement requires the company to pay approximately $2,100 in customer credits, consisting of $1,757 for refunds during the period from 1987 to 2011 and an additional $350 in customer credits to low income water customers, and invest $5,000 in utility plant thatreportable segments is not allowed an investment return or rate recovery. The Agreement was subject to final approval by the CPUC. A CPUC Presiding Officer’s Decision approved the Agreement in December 2019, but an appeal was filed in January 2020 by a group of SJWC customers. A final CPUC decision approving the Agreement and dismissing the appeal was approved on February 27, 2020, and concluded this proceeding. Advice Letter No. 545 was filed on March 13, 2020, requesting authorization to provide refunds to customers. For a typical residential customer with a 3/4-inch meter, the one-time refund will be $5.52 dollars. This advice letter was approved effective April 12, 2020, and SJWC completed issuing refunds in mid-June 2020.

On June 19, 2019, the CPUC issued its final decision resolving the remaining issues in SJWC’s general rate case for 2019. Decision 19-06-010 denied the establishment of a WRAM/SRM and authorized the recovery of the Hydro Generation Research, Development and Demonstration Memorandum Account balance as of September 30, 2016. SJWC filed Advice Letter No. 534 on August 1, 2019, to recover the $1,243 balance as of September 30, 2017, via a surcharge over a three-year period. The CPUC rejected the advice letter on October 10, 2019, citing an errorincluded in the name of the memorandum account and recommended a correction and a new filing for recovery. SJWC filed to correct the record and received the CPUC’s decision on April 10, 2020. Advice Letter 548 was filed on April 24, 2020, requesting recovery of $1,224 via a 36-month surcharge. The adjustment in the memorandum account balance reflected project costs incurred after September 30, 2016, which are not allowable per Decision 19-06-010. This request is pending before the CPUC.“All Other” category.

SJWC filed Advice Letter No. 537 with the CPUC requesting authorization to refund the balance in its 2018 Tax Accounting Memorandum Account as required by the general rate case decision on October 18, 2019. On December 3, 2019, Advice Letter 537-A was filed to refund the balance via a one-time surcredit. For a typical residential customer with a 3/4-inch meter, the one-time refund will be $20.84 dollars per customer. This advice letter was approved effective January 21, 2020, and refunds to customers began on January 27, 2020.

SJWC filed Advice Letter No. 541 on November 20, 2019, with the CPUC requesting authorization to increase its revenue requirement by $8,600 or 2.28% in 2020 for the first escalation year authorized in our 2018 General Rate Case Decision 18-011-025 which established rates for 2019, 2020, and 2021. This advice letter was approved on December 26, 2019, and new rates became effective January 1, 2020.

On December 6, 2019, SJWC filed Application No. 19-12-002 with the CPUC requesting approval for cost recovery to deploy Advanced Metering Infrastructure throughout its service area. The application seeks revenue increases of $2,315 or 0.61% in 2021, $3,960 or 1.04% in 2022, $2,510 or 0.65% in 2023, and $341 or 0.09% in 2024 based on current rates in effect. A decision from the CPUC is anticipated in the fourth quarter of 2020.

On January 22, 2020, SJWC, along with three other California water utilities, filed a joint request for a one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2020. Postponing the filing one year would alleviate administrative processing costs on the utilities as well as the CPUC staff, and provide relief for both CPUC and utility resources


	For Three Months Ended March 31, 2021
	Water Utility Services			Real Estate Services	All Other (1)	SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed	Regulated	Non-tariffed	Total
Operating revenue	$	111,396	2,045	1,344	0	111,396	3,389	114,785
Operating expense	98,478		1,369	881	978	98,478	3,228	101,706
Operating income (loss)	12,918		676	463	(978)	12,918	161	13,079
Net income (loss)	5,699		722	323	(4,128)	5,699	(3,083)	2,616
Depreciation and amortization	22,817		109	289	223	22,817	621	23,438
Interest on long-term debt and other interest expense	8,171		0	0	5,268	8,171	5,268	13,439
(Benefit) provision for income taxes	(116)		182	109	(1,071)	(116)	(780)	(896)
Assets	$	3,218,536	7,625	44,763	61,218	3,218,536	113,606	3,332,142

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~June 30, 2020~~March 31, 2021

(in thousands, except share and per share data)


	For Three Months Ended March 31, 2020
	Water Utility Services			Real Estate Services	All Other (1)	SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed	Regulated	Non-tariffed	Total
Operating revenue	$	111,367	3,017	1,370	0	111,367	4,387	115,754
Operating expense	96,017		1,361	831	2,118	96,017	4,310	100,327
Operating income (loss)	15,350		1,656	539	(2,118)	15,350	77	15,427
Net income (loss)	5,828		1,470	388	(5,269)	5,828	(3,411)	2,417
Depreciation and amortization	20,749		108	302	223	20,749	633	21,382
Interest on long-term debt and other interest expense	8,174		0	0	5,110	8,174	5,110	13,284
Provision (benefit) for income taxes	1,202		470	132	(1,366)	1,202	(764)	438
Assets	$	3,054,474	9,170	46,436	64,218	3,054,474	119,824	3,174,298

~~already strained by numerous other proceedings.~~____________________

(1) The ~~request was conditioned~~“All Other” category for the three months ended March 31, 2021 and March 31, 2020, includes the accounts of SJW Group, SJWNE LLC and CTWS on ~~no changes~~a stand-alone basis.

(2) As of March 31, 2021 and December 31, 2021, the Company has performed an allocation of goodwill associated with the acquisition of CTWS to 2 reporting units, Connecticut and Maine, which are both aggregated within the ~~current~~Regulated Water ~~Cost of Capital Mechanism in place during the one-year deferment. On March 11, 2020, the CPUC approved the request.~~Utility Services reportable segment.

Note 12.Subsequent Events

On ~~March 19, 2020,~~April 23, 2021, SJWC ~~filed Advice Letter 546~~paid off its existing $140,000 line of credit agreement which was set to ~~extend customer protections listed in~~mature on June 1, 2021, and entered into a new $140,000 credit agreement (“SJWC Credit Agreement”) with JPMorgan Chase Bank, N.A., as the ~~company’s Disaster Relief Customer Protections~~lender (the “Lender”). The SJWC Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $15,000. Proceeds of borrowings under the SJWC Credit Agreement may be used to refinance existing debt, for working capital, and ~~Outreach Plan~~for general corporate purposes. The new SJWC Credit Agreement has a maturity date of December 31, 2023. The SJWC Credit Agreement contains customary representations, warranties and events of default, as ~~required by~~well as a restrictive covenants customary for facilities of this type. The SJWC Credit Agreement also includes certain financial covenants that requires the CPUC in response to the COVID-19 pandemic. The filing also activated SJWC’s Catastrophic Event Memorandum Account (“CEMA”) to track costs related to SJWC’s response which includes labor and materials, anticipated increase in bad debt from the suspension of shutoffs for non-payment, waived deposits and reconnection fees, and divergence from actual versus authorized usage. The customer protections and CEMA were approved effective March 4, 2020. SJWC anticipates requesting recovery of the COVID-19 pandemic response costs in a future general rate case or other filings.

~~Connecticut Regulatory Affairs~~

As of June 30, 2020, Water Infrastructure Conservation Adjustment (“WICA”) surcharges for Connecticut Water and Avon Water were 5.75% and 9.31%, respectively. HVWC does not currently have an approved WICA surcharge. On January 28, 2020, Connecticut Water filed a WICA application representing an additional 2.6% surcharge, for a cumulative WICA surcharge of 5.84%. Additionally, on February 7, 2020, Connecticut Water filed its annual WICA reconciliation which called for a 0.09% reduction of the WICA surcharge. On March 25, 2020, PURA approved a net cumulative 5.75% surcharge for Connecticut Water which became effective on customers’ bills on April 1, 2020.

On March 3, 2020, Connecticut Water filed an application, Docket No. 20-03-04, with PURA to merge Avon Water and HVWC with and into Connecticut Water. The application is to streamline borrowings, regulatory filings and internal administrative tasks associated with maintaining separate corporate entities. The company has responded to several interrogatories and has attended a hearing on the merger application. Connecticut Water anticipates a final decision on the proceeding in the third quarter of 2020.

On March 12, 2020, PURA issued Docket No. 20-03-15 to establish a State of Emergency Utility Shut-off Moratorium for the COVID-19 pandemic. The moratorium ordered regulated utility companies to refrain from terminating utility service to residential customers, except for safety reasons until August 1, 2020, or until such other time as determined by the PURA. In the same docket, PURA further directed the public service companiesCompany to maintain a ~~detailed record~~maximum funded debt to capitalization ratio.

Also on April 23, 2021, SJW Group, as guarantor, and SJWTX paid off its existing $5,000 line of ~~costs incurred~~credit agreement which was set to mature on June 1, 2021, and revenues lost as a result of implementing its orders in the docket and may establish a regulatory asset to track incurred costs. Approval for recovery of additional costs incurred and/or revenues lost relating to the COVID-19 pandemic would be considered for recovery in the Connecticut Water’s next general rate case proceeding.

~~Texas Regulatory Affairs~~

As required, CLWSC submitted on January 27, 2020, its Water Pass-Through Charge (“WPC”) true-up report for the Canyon Lake area systems 2019 purchased water costs. The WPC is the annual filing to change the component of CLWSC’s water rates for changes in purchased water costs since the last annual true-up report. The changes in the purchased water costs for the Deer Creek Ranch water system resulted in a decrease in the usage charge from $2.19 dollars to $2.02 dollars per thousand gallons, and an increase in the monthly base charge of $3.04 dollars per residential account. The Deer Creek Ranch rate changes became effective October 1, 2019. The 2019 WPC true-up report for the water systems located in the Canyon Lake area resulted in a reduction of the WPC usage rate from $1.05 dollars to $0.95 dollars per thousand gallons which became effective on February 1, 2020. The WPC filings for Deer Creek Ranch and the Canyon Lake area were approved by the Public Utilities Commission of Texas (“PUCT”) andentered into a new ~~tariff~~$5,000 credit agreement (“SJWTX Credit Agreement”) with the ~~WPC rates was issued in May 2020.~~Lender. The SJWTX Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $1,000. The new SJWTX Credit Agreement has a maturity date of December 31, 2023.

In connection with the disaster declaration in Texas, the PUCT issued Order No. 50664-106 to mitigate the impact of the COVID-19 pandemic on residential water utility customers. CLWSC responded to these orders by stopping disconnections for nonpayment of utility bills, and not charging fees for late payment. The PUCT allowed this order to expire on June 13, 2020. The PUCT also issued Accounting Orders under No. 50664-108, which instructs utilities to record the incremental costs and lost revenues from the~~COVID-19 pandemic in a regulatory tracking account for recovery in future rates. These amounts will be considered by the PUCT for recovery in each utility’s next rate application.~~

~~Maine Regulatory Affairs~~

On December 20, 2019, Maine Water filed for a general a rate increase for their Skowhegan Division seeking approximately $221, or 14.7%, in additional revenue with the MPUC. On June 17, 2020, the MPUC approved a general rate increase for Skowhegan Division customers allowing $198 in additional revenue. Per the MPUC decision, the increase will be implemented

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

~~in two steps: an initial 9.80% rate increase effective June 15, 2020, and a 3.51% rate increase effective July 1, 2021. The combined rate increase is 13.31%.~~

On January 20, 2020, Maine Water filed Water Infrastructure Surcharge (“WISC”) applications with the MPUC in four divisions requesting an increase between 1.76% and 3.00%, representing approximately $371 in additional revenues. The WISC applications were approved on February 26, 2020, and the surcharges became effective March 1, 2020.

On March 16, 2020, MPUC issued an emergency moratorium on utility disconnection activities in connection to the COVID-19 pandemic. The moratorium directed public utility companies not to engage in any disconnection activities including disconnection notices for all classes of customers until further notice from MPUC. Maine Water is tracking COVID-19 related costs for potential future recovery in rates charged to customers.


~~Note 9.~~	~~Balancing and Memorandum Accounts~~

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support, the balances are recorded in SJW Group’s consolidated financial statements.

On December 19, 2019, the CPUC denied the recovery of the 2018 WCMA in Advice Letter No. 532 and no longer approved the tracking of WCMA balances. Due to the decision, SJWC believes WCMA tracking no longer meets the probability criteria under ASC Topic 980-605-25. For the three and six months ended June 30, 2019, SJWC recognized regulatory assets of $1,320 and $568, respectively, due to lost revenues accumulated in the 2019 WCMA account net of a reserve of $11 for the estimated amount that will not be collected within the 24-month period, as required by the guidance. 2018 WCMA activity for the three and six months ended June 30, 2019, represents interest and reserve activity on the accumulated balance. For the three and six months ended June 30, 2019, a reserve of $94 and $174, respectively, was recorded. The amounts have been reflected in the 2018 WCMA and 2019 WCMA balances shown in the table below.

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

Three months ended June 30, 2020 Three months ended June 30, 2019
Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance

Revenue accounts:
Monterey WRAM $ 8,958
1,591
—
10,549
$ 7,878
2,109
(1,001 ) 8,986
2014-2017 WCMA 665
—
—
665
6,912
—
(1,597 ) 5,315
2018 WCMA —
—
—
—
8,997
(39 ) —
8,958
2019 WCMA —
—
—
—
(752 ) 1,309
—
557
2012 General Rate Case true-up 752
—
—
752
10,152
—
(2,421 ) 7,731
Cost of capital memorandum account (1,558 ) (2 ) —
(1,560 ) (1,532 ) (8 ) —
(1,540 )
Tax memorandum account 332
—
—
332
(6,545 ) (40 ) —
(6,585 )
All others (2,491 ) 40
—
(2,451 ) (1,629 ) (78 ) (87 ) (1,794 )
Total revenue accounts $ 6,658
1,629
—
8,287
$ 23,481
3,253
(5,106 ) 21,628
Cost-recovery accounts:
Water supply costs 5,061
838
—
5,899
8,217
(1,058 ) (1,247 ) 5,912
Pension 2,886
99
—
2,985
(1,237 ) 199
805
(233 )
All others 443
1
—
444
1,015
3
(148 ) 870
Total cost-recovery accounts $ 8,390
938
—
9,328
$ 7,995
(856 ) (590 ) 6,549

Total $ 15,048
2,567
—
17,615
$ 31,476
2,397
(5,696 ) 28,177

Six months ended June 30, 2020 Six months ended June 30, 2019
Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance Beginning Balance Regulatory Asset Increase (Decrease) Refunds (Collections) Adjustments Ending Balance

Revenue accounts:
Monterey WRAM $ 7,015
3,561
(27 ) 10,549
$ 6,847
3,666
(1,527 ) 8,986
2014-2017 WCMA 708
—
(43 ) 665
7,750
—
(2,435 ) 5,315
2018 WCMA —
—
—
—
9,386
(428 ) —
8,958
2019 WCMA —
—
—
—
—
557
—
557
2012 General Rate Case true-up 752
—
—
752
11,328
96
(3,693 ) 7,731
Cost of capital memorandum account (1,553 ) (7 ) —
(1,560 ) (1,523 ) (17 ) —
(1,540 )
Tax memorandum account (6,643 ) (3 ) 6,978
332
(6,504 ) (81 ) —
(6,585 )
All others (2,219 ) (165 ) (67 ) (2,451 ) (1,735 ) 72
(131 ) (1,794 )
Total revenue accounts $ (1,940 ) 3,386
6,841
8,287
$ 25,549
3,865
(7,786 ) 21,628
Cost-recovery accounts:
Water supply costs 4,328
1,605
(34 ) 5,899
9,617
(1,803 ) (1,902 ) 5,912
Pension 2,449
514
22
2,985
(1,843 ) 383
1,227
(233 )
All others 446
2
(4 ) 444
1,090
6
(226 ) 870
Total cost-recovery accounts $ 7,223
2,121
(16 ) 9,328
$ 8,864
(1,414 ) (901 ) 6,549

Total $ 5,283
5,507
6,825
17,615
$ 34,413
2,451
(8,687 ) 28,177

As of June 30, 2020, the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $1,759. All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in SJWC’s next

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

~~general rate case or at the time an individual account balance reaches a threshold of 2% of authorized revenue, whichever occurs first.~~


~~Note 10.~~	~~Regulatory Assets~~

~~Regulatory assets are comprised of the following as of June 30, 2020, and December 31, 2019:~~

June 30, 2020 December 31, 2019
Regulatory assets:
Income tax temporary differences, net $ 6,500
2,433
Postretirement pensions and other medical benefits 76,439
73,525
Business combinations debt premium, net 23,749
25,020
Balancing and memorandum accounts, net 17,615
5,283
WRA 7,466
9,108
Other, net 6,461
5,048
Total regulatory assets, net in Consolidated Balance Sheets 138,230
120,417
Less: current regulatory asset, net 5,691
6,472
Total regulatory assets, net, less current portion $ 132,539
113,945


~~Note 11.~~	~~Business Combination~~

On October 9, 2019, SJW Group completed its previously announced acquisition of CTWS pursuant to the terms of the Second Amended and Restated Agreement and Plan of Merger, dated as of August 5, 2018, by and among SJW Group, Hydro Sub, Inc., a Connecticut corporation and a wholly-owned subsidiary of SJW Group, and CTWS. CTWS provides water service to approximately 138,000 connections that serve a population of approximately 480,000 people in 80 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut. In addition, CTWS has a real estate company in Connecticut which provides property management services.

SJW Group acquired all of the outstanding stock of CTWS for $70.00 per share in cash (without interest and less any applicable withholding taxes). The total cash purchase price was approximately $838,476, less cash received of $3,011, and approximately $6,384 related to outstanding awards of restricted stock units and deferred share units assumed in connection with the merger. SJW Group financed the acquisition with net proceeds from its December 2018 sale of 7,762,000 shares of common stock of approximately $411,077, and the October 2019 issuance of $427,398 in new fixed rate term loans. SJW Group raised an additional $18,463 in the debt financing to partially finance transaction costs incurred in connection with the CTWS acquisition. Along with the acquisition debt financing, SJW Group raised $60,000 of new proceeds used to partially refinance certain CTWS short-term borrowings on its existing lines of credit after the CTWS acquisition closed.

Management estimated the preliminary fair values of net tangible and intangible assets acquired and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The preliminary value of the acquired deferred tax assets and deferred tax liabilities are based on a preliminary analysis, and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). In addition, management is still gathering information necessary to complete the recognition and measurement of the opening balance sheet.

~~SJW GROUP AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~June 30, 2020~~

~~(in thousands, except share and per share data)~~

~~The following table summarizes the estimated preliminary fair value of assets acquired and liabilities assumed as of June 30, 2020.~~

Fair Value
Assets acquired:
Utility plant, net $ 750,703
Nonutility plant 848
Current assets 42,673
Investments 12,489
Regulatory assets and deferred charges, less current portion 83,132
Other intangible assets 17,181
Other assets 2,592
Goodwill 626,548
Total assets acquired 1,536,166
Liabilities assumed:
Long-term debt 281,009
Current liabilities, including maturities of long-term debt 125,797
Deferred income taxes 107,789
Postretirement benefit plans 31,789
Contributions in aid of construction and construction advances 137,327
Other long-term liabilities 10,607
Total liabilities assumed 694,318
Assumed equity $ 841,848

~~Other intangible assets primarily consists of customer relationships.~~

The goodwill balance is primarily attributable to assembled workforce and diversification of markets both from a geographic and regulatory perspective. We do not expect the goodwill recognized in connection with the transaction will be deductible for income tax purposes.

Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed.


~~Note 12.~~	~~Legal Proceedings~~

Note 13.Legal Proceedings

SJW Group is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in thousands, except per share amounts and otherwise noted)

The information in this Item 2 should be read in conjunction with the financial information and the notes thereto included in Item 1 of this Form 10-Q and the condensed consolidated financial statements and notes thereto and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in SJW Group’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of SJW Group and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Group and its subsidiaries and the industries in which SJW Group and its subsidiaries operate and the beliefs and assumptions of the management of SJW Group. Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. For more information about such forward-looking statements, including some of the factors that may affect our actual results, please see our disclosures under “Forward-Looking Statements,” and elsewhere in this Form 10-Q, including Item 1A under “Risk Factors.”

General:

SJW Group is a holding company with four wholly-owned subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc. and SJW Land Company.

SJWC is a public utility in the business of providing water service to approximately 231,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

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 leases.

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 supply 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 ~~411~~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 ~~which is a wholly-owned subsidiary of SJW Group,~~ is the holding company for Connecticut Water Service, Inc. (“CTWS”). CTWS became a wholly-owned subsidiary of SJWNE LLC as part of the merger transaction between SJW Group and CTWS that was completed on October 9, 2019. CTWS, headquartered in Connecticut, serves as a holding company for water utility companies providing water service to approximately ~~138,000~~139,000 connections that serve a population of approximately ~~484,000~~486,000 people in 8081 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut. The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut Water”)~~, The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”)~~ and The Maine Water Company (“Maine Water”). During the third quarter of 2020, Connecticut Water completed the merger of The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) with and into Connecticut Water, with Connecticut Water as the surviving entity. HVWC and Avon Water were previously wholly owned subsidiaries of CTWS prior to merger into Connecticut Water. The purpose of the merger was to streamline borrowings, regulatory filings and internal administrative tasks associated with maintaining and operating separate corporate entities. The remaining two CTWS subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc. (“NEWUS”), which provides contract water and sewer operations and other water related services.

CTWS also offers Linebacker, an optional service line protection program ~~offered by CTWS~~ to eligible residential customers through NEWUS in Connecticut and Maine Water in ~~Maine covering~~Maine. Linebacker covers the cost of repairs for leaking or broken water service lines which provide drinking water to a customer’s home. For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line and related equipment. Additionally, NEWUS offers expanded coverage to Connecticut Water

customers for failure of in-home plumbing, sewer and septic drainage lines and implemented modified terms and conditions with limitations on certain coverages.

The properties of CTWS’s subsidiaries consist of land, easements, rights (including water rights), buildings, reservoirs, standpipes, dams, wells, supply lines, water treatment plants, pumping plants, transmission and distribution mains and other

facilities and equipment used for the collection, purification, storage and distribution of water throughout Connecticut and Maine. In certain cases, Connecticut Water and Maine Water are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.

SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”), is a public utility in the business of providing water service to approximately ~~19,000~~20,000 connections that serve approximately ~~55,000~~61,000 people. CLWSC’s service area comprises more than 247 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis counties, the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation (“Acequia”). The water supply corporation has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee. SJW Land Company also owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P. which operated a California commercial property that was sold in the second quarter of 2017. The limited partnership has been determined to be a variable interest entity within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 - “Consolidation” with SJW Land Company as the primary beneficiary, and as a result, has been consolidated with SJW Land Company.

SJW Land Company owned the following real properties during the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:


				% for Six months ended June 30, 2020 of SJW Land Company								% for Three months ended March 31, 2021 of SJW Land Company
Description	Location	Acreage	Square Footage	Revenue		Expense		Description	Location	Acreage	Square Footage	Revenue		Expense
Warehouse building	Knoxville, Tennessee	30	361,500	46	%	40	%	Warehouse building	Knoxville, Tennessee	30	361,500	47	%	44	%
Commercial building	Knoxville, Tennessee	15	135,000	54	%	60	%	Commercial building	Knoxville, Tennessee	15	135,000	53	%	56	%
Undeveloped land and parking lot	Knoxville, Tennessee	10	N/A	N/A		N/A		Undeveloped land and parking lot	Knoxville, Tennessee	10	N/A	N/A		N/A
Undeveloped land	San Jose, California	103	N/A	N/A		N/A		Undeveloped land	San Jose, California	103	N/A	N/A		N/A

As of ~~June 30, 2020,~~March 31, 2021, Chester Realty, Inc. owns ~~less than 100~~23 acres of ~~property~~undeveloped land and a commercial building in the State of Connecticut.

Business Strategy for Water Utility Services:

SJW Group focuses its business initiatives in three strategic areas:


~~(1)~~	~~Regional regulated water utility operations;~~


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


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

(1)Regional regulated water utility operations;

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

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

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and ~~assets, including the recent CTWS merger which closed on October 9, 2019.~~assets. However, we cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities. 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 SJW Group’s financial position and operating results, entering markets in which SJW Group has no or limited direct 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. Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations,

reduce our operating margins and adversely affect our internal controls. SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

Real Estate Services:

SJW Group’s real estate investment activity is conducted through SJW Land ~~Company.~~Company and Chester Realty, Inc. As noted above, SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee. SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P. The partnership had a commercial building in San Jose, California that was sold in the second quarter of 2017. SJW Land Company manages its income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties. Chester Realty, Inc. owns and operates land and commercial buildings in the State of Connecticut. Chester Realty, Inc. manages its income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties. SJW Land Company and Chester Realty, Inc.’s real estate investments diversify SJW Group’s asset base.

Critical Accounting Policies:

The discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our ~~2019~~2020 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our annual report on Form 10-K for the year ended December 31, ~~2019,~~2020, that was filed with the SEC on March ~~2, 2020.~~1, 2021.

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, ~~2019.~~2020. There have been no changes in our critical accounting policies. Our significant accounting policies are described in our notes to the ~~2019~~2020 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~New~~Recently Adopted Accounting ~~Pronouncements:~~Policies:

~~In August 2018,~~See Note 1 of the ~~FASB issued Accounting Standards Update (“ASU”) 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20: “Disclosure Framework - Changes~~Notes to ~~the Disclosure Requirements~~Unaudited Condensed Consolidated Financial Statements for ~~Defined Benefit Plans,” which aims to improve the overall usefulness~~a discussion of ~~disclosure to financial statement users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures. This update is effective for SJW Group’s Form 10-K~~recently adopted accounting policies for the ~~year ending December~~three months ended March 31, ~~2020. Retrospective adoption is required and early adoption is permitted. Management is currently evaluating the effect that the new standard will have on its defined benefit plan disclosures.~~ 2021.

Results of Operations:

Overview

SJW Group’s consolidated net income for the three months ended March 31, 2021, was $2,616, an increase of $199, or approximately 8%, from $2,417 for the same period in 2020. The change in net income for the three months ended March 31, 2021, was primarily due to a decrease in revenue of $969 or 1% from a decrease in customer usage and the impact of the February ice storm in the Texas service area, partially offset by an increase in cumulative water rates authorized by our California 2019 General Rate Case and a Water Infrastructure Surcharge authorized in Maine, and customer growth in Texas. In addition, depreciation increased due to assets placed in service in 2020 and a decrease in available low cost surface water due to dry weather conditions in our California service area. The lower revenue and increased expenses were offset by income tax expense as a result of lower pre-tax income and income tax benefits relating to share-based payments awards, state tax credits and other tax benefits.

Coronavirus (“COVID-19”) Update

~~In 2020, the~~The outbreak of COVID-19 has had significant impact on the global economy. Financial impacts experienced by SJW Group has taken precautions to protect the health and safety of employees, customers and the community while continuing to deliver safe and reliable water service as we are deemed to be an essential service provider. SJW Group’s responsedue to the COVID-19 ~~outbreak continues~~pandemic include higher uncollectible accounts receivables and increased costs from COVID-19 related prevention activities. The regulators in the states SJW Group operates have approved mechanisms to ~~rapidly evolve~~either record a regulatory asset or track in a memorandum account expenses and savings related to COVID-19. SJWC and CLWSC have determined that future recovery of the account is probable and have recognized the related regulatory assets. Probability criteria has ~~included: (i) suspending service disconnections~~not yet been met for ~~non-payments pursuant to orders from certain~~CTWS. If a state ~~regulators, which will remain in effect over other existing requirements governing disconnections for specified durations~~regulator disagrees with the ~~longest extending~~calculation of recorded account balances, we may be required to April 2021; (ii) waiving reconnection or facilities fees for affected customers and suspending deposit requirements for affected customers who must reconnect to the systems; (iii) the temporary closuremake adjustments that could adversely affect our results of our walk-in customer payment centers where they were provided; (iv) increasing the number of employees telecommuting; and (v) delaying some capital improvement projects at our water utilities. Although, we do not believe the COVID-19 pandemic has materially adversely affected SJW Group’s financial results and business operations for the six months ended June 30, 2020, the full impact of the pandemic is uncertain.operations. SJW Group continues to monitor COVID-19 developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary.

~~Overview~~

SJW Group’s consolidated net income for the three months ended June 30, 2020, was $19,721, an increase of $6,183, or approximately 46%, from $13,538 for the same period in 2019. SJW Group’s consolidated net income for the six months ended June 30, 2020, was $22,138, an increase of $2,727, or approximately 14%, from $19,411 for the same period in 2019. The increase in net income for the three and six months ended June 30, 2020, was primarily due to addition of net income from the

company’s new SJWNE LLC’s subsidiary CTWS as a result of the merger and an increase in revenue at SJWC due to increased customer usage and higher average rates, partially offset by an increase in production expenses at SJWC due to a decrease in the use of available surface water and an increase in customer usage, an increase in interest on long-term debt due to the debt issued to acquire CTWS and issuance of SJWC’s Series M Note, and an increase in depreciation expense due to assets placed in service in 2019.

Operating Revenue


	Operating Revenue by Segment								Operating Revenue by Segment
	Three months ended June 30,			Six months ended June 30,				Three months ended March 31,
	2020		2019	2020		2019			2021		2020
Water Utility Services	$	145,765	101,596	$	260,149	177,912	Water Utility Services		$	113,441	114,384
Real Estate Services	1,444		1,369	2,814		2,735	Real Estate Services		1,344		1,370
	$	147,209	102,965	$	262,963	180,647			$	114,785	115,754


	Three months ended March 31,
		2021		2020
REVENUE		$	114,785	115,754
OPERATING EXPENSE:
Production Expenses:
Purchased water		15,645		15,934
Power		3,003		2,725
Groundwater extraction charges		15,545		15,028
Other production expenses		9,402		10,093
Total production expenses		43,595		43,780
Administrative and general		20,893		21,262
Maintenance		6,265		6,086
Property taxes and other non-income taxes		7,515		7,463
Depreciation and amortization		23,438		21,382
Merger related expenses		0		354
Total operating expense		101,706		100,327
OPERATING INCOME		13,079		15,427
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense		(13,439)		(13,284)
Pension non-service cost		326		(45)


Other, net		1,754		757
Income before income taxes		1,720		2,855
(Benefit) provision for income taxes		(896)		438
NET INCOME		2,616		2,417
Other comprehensive income (loss), net		38		(135)
COMPREHENSIVE INCOME		$	2,654	2,282
EARNINGS PER SHARE
Basic		$	0.09	0.08
Diluted		$	0.09	0.08
DIVIDENDS PER SHARE		$	0.34	0.32
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		28,862,882		28,489,357
Diluted		28,990,203		28,674,221



	Three months ended June 30,					Six months ended June 30,
	2020			2019		2020			2019
REVENUE	$	147,209		102,965		$	262,963		180,647
OPERATING EXPENSE:
Production Expenses:
Purchased water	25,889			26,381		41,823			40,043
Power	3,426			1,493		6,151			2,653
Groundwater extraction charges	18,583			9,100		33,611			15,963
Other production expenses	10,280			5,159		20,373			10,258
Total production expenses	58,178			42,133		101,958			68,917
Administrative and general	17,772			13,408		39,388			25,699
Maintenance	5,334			4,729		11,420			9,054
Property taxes and other non-income taxes	7,102			3,848		14,565			7,976
Depreciation and amortization	22,753			15,101		44,135			30,246
Merger related expenses	—			1,775		—			4,376
Total operating expense	111,139			80,994		211,466			146,268
OPERATING INCOME	36,070			21,971		51,497			34,379
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense	(13,180		)	(6,714	)	(26,464		)	(12,505	)
Pension non-service cost	(7		)	(907	)	(52		)	(1,828	)
Interest income on money market fund	—			2,342		—			4,174
Gain on sale of real estate investments	—			745		—			745
Other, net	1,048			517		1,805			907
Income before income taxes	23,931			17,954		26,786			25,872
Provision for income taxes	4,210			4,192		4,648			6,237
NET INCOME BEFORE NONCONTROLLING INTEREST	19,721			13,762		22,138			19,635
Less net income attributable to the noncontrolling interest	—			224		—			224
SJW GROUP NET INCOME	19,721			13,538		22,138			19,411
Other comprehensive income (loss), net	10			—		(125		)	—
SJW GROUP COMPREHENSIVE INCOME	$	19,731		13,538		$	22,013		19,411
SJW GROUP EARNINGS PER SHARE
Basic	$	0.69		0.48		$	0.78		0.68
Diluted	$	0.69		0.47		$	0.77		0.68
DIVIDENDS PER SHARE	$	0.32		0.30		$	0.64		0.60
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	28,507,940			28,440,221		28,498,649			28,431,764
Diluted	28,683,208			28,526,022		28,678,715			28,516,927


	March 31, 2021		December 31, 2020
ASSETS
Utility plant:
Land	$	38,339	36,845
Depreciable plant and equipment	3,223,736		3,198,060
Construction in progress	126,678		109,976
Intangible assets	35,167		35,167
	3,423,920		3,380,048
Less accumulated depreciation and amortization	1,068,852		1,045,136
	2,355,068		2,334,912
Real estate investments	58,280		58,129
Less accumulated depreciation and amortization	15,072		14,783
	43,208		43,346
CURRENT ASSETS:
Cash and cash equivalents:
Cash	11,406		5,269
Restricted cash	3,104		4,000
Accounts receivable:
Customers, net of allowances for uncollectible accounts of $3,614 and $3,891 on March 31, 2021 and December 31, 2020, respectively	45,583		46,832
Income tax	4,671		7,041
Other	5,455		4,269
Accrued unbilled utility revenue	37,288		44,950
Prepaid expenses	10,634		8,097
Current regulatory assets, net	226		1,748
Other current assets	5,100		5,125
	123,467		127,331
OTHER ASSETS:
Net regulatory assets, less current portion	161,392		156,482
Investments	15,161		14,367
Goodwill	628,144		628,144
Other	5,702		6,883
	810,399		805,876
	$	3,332,142	3,311,465



	June 30, 2020		December 31, 2019
ASSETS
Utility plant:
Land	$	34,929	34,395
Depreciable plant and equipment	3,031,451		2,988,454
Construction in progress	144,429		112,232
Intangible assets	32,826		33,424
	3,243,635		3,168,505
Less accumulated depreciation and amortization	1,004,776		962,019
	2,238,859		2,206,486
Real estate investments	58,023		57,699
Less accumulated depreciation and amortization	14,197		13,597
	43,826		44,102
CURRENT ASSETS:
Cash and cash equivalents:
Cash	23,317		12,944
Restricted cash	—		5,000
Accounts receivable:
Customers, net of allowances for uncollectible accounts	44,880		36,305
Income tax	2,783		8,837
Other	2,043		2,833
Accrued unbilled utility revenue	55,398		40,102
Current regulatory assets, net	5,691		6,472
Other current assets	11,431		9,553
	145,543		122,046
OTHER ASSETS:
Net regulatory assets, less current portion	132,539		113,945
Investments	13,493		12,928
Goodwill	628,343		628,287
Other	7,374		4,676
	781,749		759,836
	$	3,209,977	3,132,470


	March 31, 2021		December 31, 2020
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Stockholders’ equity:
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 29,789,887 on March 31, 2021 and 28,556,605 on December 31, 2020	$	30	29
Additional paid-in capital	578,395		510,158
Retained earnings	400,897		408,037
Accumulated other comprehensive income	(1,026)		(1,064)
Total stockholders’ equity	978,296		917,160
Long-term debt, less current portion	1,303,028		1,287,580
	2,281,324		2,204,740
CURRENT LIABILITIES:
Line of credit	121,509		175,094
Current portion of long-term debt	76,285		76,241
Accrued groundwater extraction charges, purchased water and power	18,144		19,184
Accounts payable	25,636		34,200
Accrued interest	17,102		12,861

Accrued payroll	11,911		14,012

Other current liabilities	19,148		19,203
	289,735		350,795
DEFERRED INCOME TAXES	189,531		191,415
ADVANCES FOR CONSTRUCTION	125,967		125,027
CONTRIBUTIONS IN AID OF CONSTRUCTION	297,390		296,105
POSTRETIREMENT BENEFIT PLANS	124,265		121,597

OTHER NONCURRENT LIABILITIES	23,930		21,786
COMMITMENTS AND CONTINGENCIES	0		0
	$	3,332,142	3,311,465


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Number of Shares	Amount
BALANCES, December 31, 2020	28,556,605	$	29	$	510,158	$	408,037	$	(1,064)	$	917,160
Net income	—	—		—		2,616		—		2,616
Unrealized gain on investment, net of tax benefit of $14	—	—		—		—		38		38
Share-based compensation	—	—		1,280		(32)		—		1,248
Issuance of restricted and deferred stock units	30,547	—		(964)		—		—		(964)
Employee stock purchase plan	18,235	—		1,026		—		—		1,026
Common stock issuance, net of costs	1,184,500	1		66,895		—		—		66,896
Dividends paid ($0.34 per share)	—	—		—		(9,724)		—		(9,724)
BALANCES, March 31, 2021	29,789,887	30		578,395		400,897		(1,026)		978,296



	Fair Value Measurements at June 30, 2020
			Quoted Prices in Active Markets for Identical Assets	Significant Observable Inputs	Significant Unobservable Inputs
Asset Category	Total		(Level 1)	(Level 2)	(Level 3)
Cash and cash equivalents	$	6,237	6,237	—	—
Equity securities (a)	146,407		142,839	3,568	—
Fixed income (b)	85,941		31,165	54,776	—
Total	$	238,585	180,241	58,344	—



	For Three Months Ended June 30, 2020
	Water Utility Services			Real Estate Services	All Other*		SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed		Regulated	Non-tariffed		Total
Operating revenue	$	143,072	2,693	1,444	—		143,072	4,137		147,209
Operating expense	107,185		1,759	850	1,345		107,185	3,954		111,139
Operating income (loss)	35,887		934	594	(1,345	)	35,887	183		36,070
Net income (loss)	22,236		881	443	(3,839	)	22,236	(2,515	)	19,721
Depreciation and amortization	22,123		108	298	224		22,123	630		22,753
Senior note and other interest expense	8,289		—	—	4,891		8,289	4,891		13,180
Income tax expense (benefit) in net income	5,449		260	124	(1,623	)	5,449	(1,239	)	4,210
Assets	$	3,079,118	9,913	44,889	76,057		3,079,118	130,859		3,209,977



	For Three Months Ended June 30, 2019
	Water Utility Services			Real Estate Services	All Other*		SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed		Regulated	Non-tariffed		Total
Operating revenue	$	99,773	1,823	1,369	—		99,773	3,192		102,965
Operating expense	75,564		1,356	1,008	3,066		75,564	5,430		80,994
Operating income (loss)	24,209		467	361	(3,066	)	24,209	(2,238	)	21,971
Net income (loss)	13,662		336	662	(1,122	)	13,662	(124	)	13,538
Depreciation and amortization	14,698		105	298	—		14,698	403		15,101
Senior note, mortgage and other interest expense	6,170		—	—	544		6,170	544		6,714
Income tax expense (benefit) in net income	4,154		130	220	(312	)	4,154	38		4,192
Assets	$	1,537,404	6,149	46,510	413,587		1,537,404	466,246		2,003,650



	For Six Months Ended June 30, 2020
	Water Utility Services			Real Estate Services	All Other*		SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed		Regulated	Non-tariffed		Total
Operating revenue	$	254,439	5,710	2,814	—		254,439	8,524		262,963
Operating expense	203,202		3,120	1,681	3,463		203,202	8,264		211,466
Operating income (loss)	51,237		2,590	1,133	(3,463	)	51,237	260		51,497
Net income (loss)	28,064		2,351	831	(9,108	)	28,064	(5,926	)	22,138
Depreciation and amortization	42,872		216	600	447		42,872	1,263		44,135
Senior note and other interest expense	16,463		—	—	10,001		16,463	10,001		26,464
Income tax expense (benefit) in net income	6,651		730	256	(2,989	)	6,651	(2,003	)	4,648
Assets	$	3,079,118	9,913	44,889	76,057		3,079,118	130,859		3,209,977



	For Six Months Ended June 30, 2019
	Water Utility Services			Real Estate Services	All Other*		SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed		Regulated	Non-tariffed		Total
Operating revenue	$	174,920	2,992	2,735	—		174,920	5,727		180,647
Operating expense	136,149		2,197	1,899	6,023		136,149	10,119		146,268
Operating income (loss)	38,771		795	836	(6,023	)	38,771	(4,392	)	34,379
Net income (loss)	19,762		572	980	(1,903	)	19,762	(351	)	19,411
Depreciation and amortization	29,447		202	597	—		29,447	799		30,246
Senior note and other interest expense	11,390		—	—	1,115		11,390	1,115		12,505
Income tax expense (benefit) in net income	6,230		222	350	(565	)	6,230	7		6,237
Assets	$	1,537,404	6,149	46,510	413,587		1,537,404	466,246		2,003,650



	Three months ended June 30, 2020								Three months ended June 30, 2019
	Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments	Ending Balance		Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments		Ending Balance

Revenue accounts:
Monterey WRAM	$	8,958		1,591		—	10,549		$	7,878		2,109		(1,001	)	8,986
2014-2017 WCMA	665			—		—	665		6,912			—		(1,597	)	5,315
2018 WCMA	—			—		—	—		8,997			(39	)	—		8,958
2019 WCMA	—			—		—	—		(752		)	1,309		—		557
2012 General Rate Case true-up	752			—		—	752		10,152			—		(2,421	)	7,731
Cost of capital memorandum account	(1,558		)	(2	)	—	(1,560	)	(1,532		)	(8	)	—		(1,540	)
Tax memorandum account	332			—		—	332		(6,545		)	(40	)	—		(6,585	)
All others	(2,491		)	40		—	(2,451	)	(1,629		)	(78	)	(87	)	(1,794	)
Total revenue accounts	$	6,658		1,629		—	8,287		$	23,481		3,253		(5,106	)	21,628
Cost-recovery accounts:
Water supply costs	5,061			838		—	5,899		8,217			(1,058	)	(1,247	)	5,912
Pension	2,886			99		—	2,985		(1,237		)	199		805		(233	)
All others	443			1		—	444		1,015			3		(148	)	870
Total cost-recovery accounts	$	8,390		938		—	9,328		$	7,995		(856	)	(590	)	6,549

Total	$	15,048		2,567		—	17,615		$	31,476		2,397		(5,696	)	28,177



	Six months ended June 30, 2020									Six months ended June 30, 2019
	Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments		Ending Balance		Beginning Balance			Regulatory Asset Increase (Decrease)		Refunds (Collections) Adjustments		Ending Balance

Revenue accounts:
Monterey WRAM	$	7,015		3,561		(27	)	10,549		$	6,847		3,666		(1,527	)	8,986
2014-2017 WCMA	708			—		(43	)	665		7,750			—		(2,435	)	5,315
2018 WCMA	—			—		—		—		9,386			(428	)	—		8,958
2019 WCMA	—			—		—		—		—			557		—		557
2012 General Rate Case true-up	752			—		—		752		11,328			96		(3,693	)	7,731
Cost of capital memorandum account	(1,553		)	(7	)	—		(1,560	)	(1,523		)	(17	)	—		(1,540	)
Tax memorandum account	(6,643		)	(3	)	6,978		332		(6,504		)	(81	)	—		(6,585	)
All others	(2,219		)	(165	)	(67	)	(2,451	)	(1,735		)	72		(131	)	(1,794	)
Total revenue accounts	$	(1,940	)	3,386		6,841		8,287		$	25,549		3,865		(7,786	)	21,628
Cost-recovery accounts:
Water supply costs	4,328			1,605		(34	)	5,899		9,617			(1,803	)	(1,902	)	5,912
Pension	2,449			514		22		2,985		(1,843		)	383		1,227		(233	)
All others	446			2		(4	)	444		1,090			6		(226	)	870
Total cost-recovery accounts	$	7,223		2,121		(16	)	9,328		$	8,864		(1,414	)	(901	)	6,549

Total	$	5,283		5,507		6,825		17,615		$	34,413		2,451		(8,687	)	28,177



	June 30, 2020		December 31, 2019
Regulatory assets:
Income tax temporary differences, net	$	6,500	2,433
Postretirement pensions and other medical benefits	76,439		73,525
Business combinations debt premium, net	23,749		25,020
Balancing and memorandum accounts, net	17,615		5,283
WRA	7,466		9,108
Other, net	6,461		5,048
Total regulatory assets, net in Consolidated Balance Sheets	138,230		120,417
Less: current regulatory asset, net	5,691		6,472
Total regulatory assets, net, less current portion	$	132,539	113,945



	Fair Value
Assets acquired:
Utility plant, net	$	750,703
Nonutility plant	848
Current assets	42,673
Investments	12,489
Regulatory assets and deferred charges, less current portion	83,132
Other intangible assets	17,181
Other assets	2,592
Goodwill	626,548
Total assets acquired	1,536,166
Liabilities assumed:
Long-term debt	281,009
Current liabilities, including maturities of long-term debt	125,797
Deferred income taxes	107,789
Postretirement benefit plans	31,789
Contributions in aid of construction and construction advances	137,327
Other long-term liabilities	10,607
Total liabilities assumed	694,318
Assumed equity	$	841,848


~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~



	Three months ended June 30, 2020 vs. 2019					Six months ended June 30, 2020 vs. 2019
	Increase/(decrease)					Increase/(decrease)
Water Utility Services:
Consumption changes	$	8,386		8	%	$	14,415		8	%
Increase in customers	511			1	%	936			1	%
Rate increases	1,566			1	%	5,074			3	%
OII customer rate credits	2,200			2	%	2,200			1	%
Balancing and memorandum accounts:
Water Conservation Memorandum Account (“WCMA”)	(1,269		)	(1	)%	(129		)	—	%
All others	(67		)	—	%	(505		)	—	%
SJWNE LLC	32,842			32	%	60,246			33	%
Real Estate Services	75			—	%	79			—	%
	$	44,244		43	%	$	82,316		46	%


	Three months ended March 31, 2021 vs. 2020
	Increase/(decrease)
Water Utility Services:
Consumption changes (including unbilled utility revenue)		$	(2,792)	(2)	%
Increase in customers		446		—	%
Rate increases		2,841		2	%
Winter storm customer credits		(690)		(1)	%
Balancing and memorandum accounts		(635)		—	%


Other		(113)		—	%
Real Estate Services		(26)		—	%
		$	(969)	(1)	%


	Operating Expense by Segment								Operating Expense by Segment
	Three months ended June 30,			Six months ended June 30,				Three months ended March 31,
	2020		2019	2020		2019			2021		2020
Water Utility Services	$	108,944	76,920	$	206,322	138,346	Water Utility Services		$	99,847	97,378
Real Estate Services	850		1,008	1,681		1,899	Real Estate Services		881		831
All Other	1,345		3,066	3,463		6,023	All Other		978		2,118
	$	111,139	80,994	$	211,466	146,268			$	101,706	100,327


	Three months ended June 30,		Increase/ (decrease)			% of Total Change			Six months ended June 30,					Increase/ (decrease)		% of Total Change									Three months ended March 31,			Increase/ (decrease)			% of Total Change
	2020	2019						2020			2019												2021	2020		Increase/ (decrease)
Purchased water	5,891	5,941		(50	)		—	%		9,526			9,103						423	2	%	Purchased water							3,646	3,635		11			—	%
Groundwater	5,499	2,402	3,097			30	%		9,844			4,235		5,609		33	%	Groundwater									4,603	4,345			258		3	%
Surface water	2,387	1,885	502			5	%		4,438			3,462		976		6	%	Surface water									1,833	2,051			(218)		(2)	%
Reclaimed water	86	179	(93	)		(1	)%		172			224		(52	)	—	%	Reclaimed water									85	86			(1)		—	%
	13,863	10,407	3,456			34	%		23,980			17,024		6,956		41	%										10,167	10,117			50		1	%


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Description

~~Exhibit~~ ~~Number~~ 1.1		~~Description~~

~~10.1~~	~~Credit~~Underwriting Agreement, dated ~~May 11, 2020, between San Jose Water Company and JPMorgan Chase Bank, N.A.~~ as of March 8, 2021 .Incorporated by reference to Exhibit ~~10.1~~1.1 to Form ~~10-Q for the quarter ended~~ 8-K filed on March ~~31, 2020.~~9, 2021 .

~~10.2~~10.1		~~Second~~Third Amendment to ~~Credit Agreement,~~the SJW Group Long-Term Incentive Plan dated ~~May 11, 2020, between San Jose Water Company and JPMorgan Chase Bank, N.A.~~ January 28, 2021. Incorporated by reference to Exhibit ~~10.2~~10.3 1 to Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, ~~2020.~~20 20 .

~~31.1~~10.2		First Amendment to the Executive Officer Short-Term Incentive Plan dated January 28, 2021. Incorporated by reference to Exhibit 10.3 9 to Form 10-K for the year ended December 31, 2020.

31.1		Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chairman, President and Chief Executive Officer. (1)

31.2		Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer and Treasurer. (1)

32.1		Certification Pursuant to 18 U.S.C. Section 1350 by Chairman, President and Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

32.2		Certification Pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer and Treasurer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

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