UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8966

SJW GROUP

(Exact name of registrant as specified in its charter)

Delaware

77-0066628

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

110 West Taylor Street,

San Jose,

95110

(Address of principal executive offices)

(Zip Code)

(408) 279-7800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SJW

New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Non-accelerated filer ☐

Accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of ~~October 22, 2021,~~April 25, 2022, there were ~~29,826,233~~30,237,145 shares of the registrant’s Common Stock outstanding.

FORWARD-LOOKING STATEMENTS

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. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.

The accuracy of such statements is subject to a number of risks, uncertainties and assumptions including, but not limited to, the following factors:

•the effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures and other decisions;

•changes in demand for water and other services;

•the impact of the Coronavirus (“COVID-19”) pandemic on our business operation and financial results;

•unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage;

•climate change and the effects thereof;

•unexpected costs, charges or expenses;

•our ability to successfully evaluate investments in new business and growth initiatives;

•contamination of our water supplies and damage or failure of our water equipment and infrastructure;

•the risk of work stoppages, strikes and other labor-related actions;

•catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic or other similar occurrences;

•changes in general economic, political, business and financial market conditions;

•the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness and general market and economic conditions; and

•legislative and general market and economic developments.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands, except share and per share data)


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021		2020			2022		2021
REVENUE	REVENUE	$	166,923	165,863	$	433,949	428,826	REVENUE		$	124,302	114,785
OPERATING EXPENSE:	OPERATING EXPENSE:							OPERATING EXPENSE:
Production Expenses:	Production Expenses:							Production Expenses:
Purchased water	Purchased water	33,121		35,130	76,434		76,953	Purchased water		19,217		15,645
Power	Power	4,179		3,994	10,573		10,145	Power		3,080		3,003
Groundwater extraction charges	Groundwater extraction charges	23,736		20,471	59,419		54,082	Groundwater extraction charges		13,928		15,545
Other production expenses	Other production expenses	11,069		10,092	30,302		30,465	Other production expenses		10,123		9,402
Total production expenses	Total production expenses	72,105		69,687	176,728		171,645	Total production expenses		46,348		43,595
Administrative and general	Administrative and general	22,713		19,529	64,932		58,917	Administrative and general		24,205		20,893
Maintenance	Maintenance	6,369		4,550	19,221		15,970	Maintenance		6,695		6,265
Property taxes and other non-income taxes	Property taxes and other non-income taxes	8,125		7,797	22,789		22,362	Property taxes and other non-income taxes		8,309		7,515
Depreciation and amortization	Depreciation and amortization	23,837		22,417	70,787		66,552	Depreciation and amortization		27,606		23,438

Gain on sale of nonutility properties								Gain on sale of nonutility properties		(5,450)		—
Total operating expense	Total operating expense	133,149		123,980	354,457		335,446	Total operating expense		107,713		101,706
OPERATING INCOME	OPERATING INCOME	33,774		41,883	79,492		93,380	OPERATING INCOME		16,589		13,079
OTHER (EXPENSE) INCOME:	OTHER (EXPENSE) INCOME:							OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense	Interest on long-term debt and other interest expense	(13,535)		(13,174)	(40,655)		(39,638)	Interest on long-term debt and other interest expense		(13,729)		(13,439)
Pension non-service cost	Pension non-service cost	334		(218)	999		(270)	Pension non-service cost		949		326

Gain on sale of Texas Water Alliance		—		—	3,000		—
Gain on sale of real estate investments		—		1,050	—		1,050

Other, net	Other, net	1,244		1,130	4,782		2,935	Other, net		995		1,754
Income before income taxes	Income before income taxes	21,817		30,671	47,618		57,457	Income before income taxes		4,804		1,720
Provision for income taxes		2,749		4,578	5,159		9,226
Provision (benefit) for income taxes								Provision (benefit) for income taxes		1,067		(896)
NET INCOME	NET INCOME	19,068		26,093	42,459		48,231	NET INCOME		3,737		2,616
Other comprehensive (loss) income, net	Other comprehensive (loss) income, net	(12)		76	133		(49)	Other comprehensive (loss) income, net		(181)		38
COMPREHENSIVE INCOME	COMPREHENSIVE INCOME	$	19,056	26,169	$	42,592	48,182	COMPREHENSIVE INCOME		$	3,556	2,654
EARNINGS PER SHARE	EARNINGS PER SHARE							EARNINGS PER SHARE
Basic	Basic	$	0.64	0.91	$	1.44	1.69	Basic		$	0.12	0.09
Diluted	Diluted	$	0.64	0.91	$	1.43	1.68	Diluted		$	0.12	0.09
DIVIDENDS PER SHARE	DIVIDENDS PER SHARE	$	0.34	0.32	$	1.02	0.96	DIVIDENDS PER SHARE		$	0.36	0.34
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING							WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	29,816,736		28,533,907	29,496,533		28,510,489	Basic		30,224,135		28,862,882
Diluted	Diluted	29,952,477		28,703,343	29,625,784		28,687,012	Diluted		30,335,974		28,990,203

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)


		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
ASSETS	ASSETS				ASSETS
Utility plant:	Utility plant:				Utility plant:
Land	Land	$	38,885	36,845	Land	$	39,900	39,004
Depreciable plant and equipment	Depreciable plant and equipment	3,318,451		3,198,060	Depreciable plant and equipment	3,420,850		3,381,908
Construction in progress	Construction in progress	163,262		109,976	Construction in progress	180,961		176,427
Intangible assets	Intangible assets	37,347		35,167	Intangible assets	36,290		36,276
		3,557,945		3,380,048		3,678,001		3,633,615
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	1,114,123		1,045,136	Less accumulated depreciation and amortization	1,160,758		1,136,116
		2,443,822		2,334,912		2,517,243		2,497,499
Real estate investments		58,765		58,129
Real estate investments and nonutility properties					Real estate investments and nonutility properties	57,673		57,632
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	15,655		14,783	Less accumulated depreciation and amortization	16,251		15,951
		43,110		43,346		41,422		41,681
CURRENT ASSETS:	CURRENT ASSETS:				CURRENT ASSETS:
Cash and cash equivalents:	Cash and cash equivalents:				Cash and cash equivalents:
Cash	Cash	14,019		5,269	Cash	17,487		10,908
Restricted cash	Restricted cash	2,202		4,000	Restricted cash	602		1,211
Accounts receivable:	Accounts receivable:				Accounts receivable:
Customers, net of allowances for uncollectible accounts of $4,272 and $3,891 on September 30, 2021 and December 31, 2020, respectively		58,725		46,832
Customers, net of allowances for uncollectible accounts of $5,113 and $4,600 on March 31, 2022 and December 31, 2021, respectively					Customers, net of allowances for uncollectible accounts of $5,113 and $4,600 on March 31, 2022 and December 31, 2021, respectively	53,942		53,699
Income tax	Income tax	2,148		7,041	Income tax	2,267		2,308
Other	Other	4,342		4,269	Other	4,470		4,735
Accrued unbilled utility revenue	Accrued unbilled utility revenue	52,631		44,950	Accrued unbilled utility revenue	39,506		44,026
Prepaid expenses	Prepaid expenses	13,048		8,097	Prepaid expenses	11,270		9,667
Current regulatory assets, net	Current regulatory assets, net	3,249		1,748	Current regulatory assets, net	4,370		2,629
Other current assets	Other current assets	5,149		5,125	Other current assets	4,021		4,902
		155,513		127,331		137,935		134,085
OTHER ASSETS:	OTHER ASSETS:				OTHER ASSETS:
Net regulatory assets, less current portion	Net regulatory assets, less current portion	178,861		156,482	Net regulatory assets, less current portion	147,566		151,992
Investments	Investments	15,289		14,367	Investments	15,866		15,784
Goodwill	Goodwill	628,144		628,144	Goodwill	640,311		640,471
Other	Other	5,002		6,883	Other	11,533		10,883
		827,296		805,876		815,276		819,130
		$	3,469,741	3,311,465		$	3,511,876	3,492,395

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)


		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES				CAPITALIZATION AND LIABILITIES
CAPITALIZATION:	CAPITALIZATION:				CAPITALIZATION:
Stockholders’ equity:	Stockholders’ equity:				Stockholders’ equity:
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 29,822,182 on September 30, 2021 and 28,556,605 on December 31, 2020		$	30	29
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 30,237,145 on March 31, 2022 and 30,181,348 on December 31, 2021					Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 30,237,145 on March 31, 2022 and 30,181,348 on December 31, 2021	$	30	30
Additional paid-in capital	Additional paid-in capital	581,201		510,158	Additional paid-in capital	607,637		606,392
Retained earnings	Retained earnings	420,411		408,037	Retained earnings	421,095		428,260
Accumulated other comprehensive income	Accumulated other comprehensive income	(931)		(1,064)	Accumulated other comprehensive income	(344)		(163)
Total stockholders’ equity	Total stockholders’ equity	1,000,711		917,160	Total stockholders’ equity	1,028,418		1,034,519
Long-term debt, less current portion	Long-term debt, less current portion	1,420,032		1,287,580	Long-term debt, less current portion	1,491,556		1,492,935
		2,420,743		2,204,740		2,519,974		2,527,454
CURRENT LIABILITIES:	CURRENT LIABILITIES:				CURRENT LIABILITIES:
Line of credit	Line of credit	122,072		175,094	Line of credit	75,997		62,996
Current portion of long-term debt	Current portion of long-term debt	26,288		76,241	Current portion of long-term debt	38,919		39,106
Accrued groundwater extraction charges, purchased water and power	Accrued groundwater extraction charges, purchased water and power	29,030		19,184	Accrued groundwater extraction charges, purchased water and power	19,340		17,200
Accounts payable	Accounts payable	37,410		34,200	Accounts payable	28,367		30,391
Accrued interest	Accrued interest	17,642		12,861	Accrued interest	18,500		14,174

Accrued payroll	Accrued payroll	13,231		14,012	Accrued payroll	8,746		11,583

Other current liabilities	Other current liabilities	21,612		19,203	Other current liabilities	27,984		27,821
		267,285		350,795		217,853		203,271
DEFERRED INCOME TAXES	DEFERRED INCOME TAXES	193,366		191,415	DEFERRED INCOME TAXES	203,186		200,451
ADVANCES FOR CONSTRUCTION	ADVANCES FOR CONSTRUCTION	132,228		125,027	ADVANCES FOR CONSTRUCTION	137,436		130,693
CONTRIBUTIONS IN AID OF CONSTRUCTION	CONTRIBUTIONS IN AID OF CONSTRUCTION	305,487		296,105	CONTRIBUTIONS IN AID OF CONSTRUCTION	317,494		316,479
POSTRETIREMENT BENEFIT PLANS	POSTRETIREMENT BENEFIT PLANS	125,005		121,597	POSTRETIREMENT BENEFIT PLANS	92,069		89,998

OTHER NONCURRENT LIABILITIES	OTHER NONCURRENT LIABILITIES	25,627		21,786	OTHER NONCURRENT LIABILITIES	23,864		24,049
COMMITMENTS AND CONTINGENCIES (See Note 12)		0		0
COMMITMENTS AND CONTINGENCIES					COMMITMENTS AND CONTINGENCIES	0		0
		$	3,469,741	3,311,465		$	3,511,876	3,492,395

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share data)


		Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income				Total Stockholders’ Equity			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income				Total Stockholders’ Equity
		Number of Shares	Amount								Total Stockholders’ Equity	Number of Shares				Amount	Additional Paid-in Capital
BALANCES, December 31, 2020		28,556,605	$	29	$	510,158	$	408,037	$	(1,064)			$	917,160
BALANCES, December 31, 2021															BALANCES, December 31, 2021	30,181,348			$	30	$	606,392	$	428,260	$	(163)			$	1,034,519
Net income	Net income	—	—		—		2,616		—				2,616		Net income	—	—		—		3,737		—				3,737
Unrealized gain on investment, net of tax of $14		—	—		—		—		38				38
Unrealized loss on investment, net of tax benefit of $67															Unrealized loss on investment, net of tax benefit of $67	—	—		—		—		(181)				(181)
Stock-based compensation	Stock-based compensation	—	—		1,280		(32)		—				1,248		Stock-based compensation	—	—		1,552		(20)		—				1,532
Issuance of restricted and deferred stock units	Issuance of restricted and deferred stock units	30,547	—		(964)		—		—				(964)		Issuance of restricted and deferred stock units	37,879	—		(1,269)		—		—				(1,269)
Employee stock purchase plan	Employee stock purchase plan	18,235	—		1,026		—		—				1,026		Employee stock purchase plan	17,918	—		1,049		—		—				1,049
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
Net income		—	—		—		20,775		—				20,775
Unrealized gain on investment, net of tax of $39		—	—		—		—		107				107
Stock-based compensation		—	—		791		(28)		—				763
Issuance of restricted and deferred stock units		15,040	—		(9)		—		—				(9)
Common stock issuance, net of costs		—	—		(120)		—		—				(120)
Dividends paid ($0.34 per share)		—	—		—		(10,133)		—				(10,133)
BALANCES, June 30, 2021		29,804,927	30		579,057		411,511		(919)				989,679
Net income		—	—		—		19,068		—				19,068
Unrealized loss on investment, net of tax benefit of $4		—	—		—		—		(12)				(12)
Stock-based compensation		—	—		1,130		(29)		—				1,101
Issuance of restricted and deferred stock units		186	—		14		—		—				14
Employee stock purchase plan		17,069	—		1,000		—		—				1,000
Dividends paid ($0.34 per share)		—	—		—		(10,139)		—				(10,139)
BALANCES, September 30, 2021		29,822,182	$	30	$	581,201	$	420,411	$	(931)			$	1,000,711
Common stock issuance costs															Common stock issuance costs	—	—		(87)		—		—				(87)
Dividends paid ($0.36 per share)															Dividends paid ($0.36 per share)	—	—		—		(10,882)		—				(10,882)
BALANCES, March 31, 2022															BALANCES, March 31, 2022	30,237,145	$	30	$	607,637	$	421,095	$	(344)			$	1,028,418

~~See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.~~

~~SJW GROUP AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(UNAUDITED)~~

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

Common Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Total
Stockholders’
Equity
Number of
Shares Amount
BALANCES, December 31, 2019 28,456,508 $ 28 $ 506,639 $ 383,191 $ 126 $ 889,984
Net income — — — 2,417 — 2,417
Unrealized loss on investment, net of tax benefit of $50 — — — — (135) (135)
Stock-based compensation — — 251 (43) — 208
Issuance of restricted and deferred stock units 25,781 — (785) — — (785)
Employee stock purchase plan 15,552 — 970 — — 970
Dividends paid ($0.32 per share) — — — (9,118) — (9,118)
BALANCES, March 31, 2020 28,497,841 28 507,075 376,447 (9) 883,541
Net income — — — 19,721 — 19,721
Unrealized gain on investment, net of tax of $4 — — — — 10 10
Stock-based compensation — — 1,009 (43) — 966
Issuance of restricted and deferred stock units 18,864 1 14 — — 15
Dividends paid ($0.32 per share) — — — (9,122) — (9,122)
BALANCES, June 30, 2020 28,516,705 29 508,098 387,003 1 895,131
Net income — — — 26,093 — 26,093
Unrealized gain on investment, net of tax of $28 — — — — 77 77
Stock-based compensation — — 1,058 (42) — 1,016
Issuance of restricted and deferred stock units 19,274 — (985) — — (985)
Employee stock purchase plan 16,198 — 860 — — 860
Dividends paid ($0.32 per share) — — — (9,131) — (9,131)
BALANCES, September 30, 2020 28,552,177 $ 29 $ 509,031 $ 403,923 $ 78 $ 913,061


	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 income on investment, net of taxes of $14	—	—		—		—		38		38
Stock-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

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


		Nine months ended September 30,				Three months ended March 31,
		2021		2020		2022		2021
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:				OPERATING ACTIVITIES:
Net income	Net income	$	42,459	48,231	Net income	$	3,737	2,616
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:				Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	71,912		68,683	Depreciation and amortization	28,081		23,931
Deferred income taxes	Deferred income taxes	4,140		(6,358)	Deferred income taxes	2,264		(762)
Stock-based compensation	Stock-based compensation	3,201		2,318	Stock-based compensation	1,552		1,280
Allowance for equity funds used during construction	Allowance for equity funds used during construction	(1,490)		—	Allowance for equity funds used during construction	(510)		(402)

Gain on sale of Texas Water Alliance and real estate investments		(3,000)		(1,050)
Gain on sale of nonutility properties					Gain on sale of nonutility properties	(5,450)		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:				Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue	Accounts receivable and accrued unbilled utility revenue	(19,647)		(34,491)	Accounts receivable and accrued unbilled utility revenue	4,311		7,725
Accounts payable and other current liabilities	Accounts payable and other current liabilities	3,697		(3,877)	Accounts payable and other current liabilities	(1,635)		(3,719)
Accrued groundwater extraction charges, purchased water and power	Accrued groundwater extraction charges, purchased water and power	9,846		10,396	Accrued groundwater extraction charges, purchased water and power	2,140		(1,040)
Tax receivable and payable, and other accrued taxes	Tax receivable and payable, and other accrued taxes	832		6,459	Tax receivable and payable, and other accrued taxes	1,135		3,333
Postretirement benefits	Postretirement benefits	265		408	Postretirement benefits	1,230		1,649
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits	Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits	(12,418)		(14,086)	Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits	5,124		(1,750)
Up-front service concession payment		—		(5,000)

Other changes, net	Other changes, net	458		(1,018)	Other changes, net	3,315		515
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	100,255		70,615	NET CASH PROVIDED BY OPERATING ACTIVITIES	45,294		33,376
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:				INVESTING ACTIVITIES:
Additions to utility plant:	Additions to utility plant:				Additions to utility plant:
Company-funded	Company-funded	(169,238)		(130,426)	Company-funded	(43,727)		(46,674)
Contributions in aid of construction	Contributions in aid of construction	(12,520)		(9,584)	Contributions in aid of construction	(4,782)		(4,653)
Additions to real estate investments	Additions to real estate investments	(606)		(391)	Additions to real estate investments	(40)		(152)
Payments to retire utility plant, net of salvage	Payments to retire utility plant, net of salvage	(3,535)		(1,877)	Payments to retire utility plant, net of salvage	(1,087)		(461)
Proceeds from sale of Texas Water Alliance and real estate investments		3,000		1,068

Proceeds from sale of nonutility properties					Proceeds from sale of nonutility properties	227		—
Payments for business acquisitions					Payments for business acquisitions	(33)		—
NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES	(182,899)		(141,210)	NET CASH USED IN INVESTING ACTIVITIES	(49,442)		(51,940)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:				FINANCING ACTIVITIES:
Borrowings on line of credit	Borrowings on line of credit	67,099		226,884	Borrowings on line of credit	15,377		28,637
Repayments on line of credit	Repayments on line of credit	(120,120)		(218,290)	Repayments on line of credit	(2,375)		(82,222)
Long-term borrowings	Long-term borrowings	137,000		85,000	Long-term borrowings	—		17,000
Repayments of long-term borrowings	Repayments of long-term borrowings	(52,700)		(9,589)	Repayments of long-term borrowings	(1,172)		(1,159)
Issuance of common stock, net of issuance costs	Issuance of common stock, net of issuance costs	66,775		—	Issuance of common stock, net of issuance costs	—		67,249
Debt issuance costs		(843)		(646)

Dividends paid	Dividends paid	(29,996)		(27,371)	Dividends paid	(10,882)		(9,724)
Receipts of advances and contributions in aid of construction	Receipts of advances and contributions in aid of construction	23,585		19,059	Receipts of advances and contributions in aid of construction	10,044		4,687
Refunds of advances for construction	Refunds of advances for construction	(2,179)		(2,121)	Refunds of advances for construction	(595)		(583)
Other changes, net	Other changes, net	975		(64)	Other changes, net	(279)		(80)
NET CASH PROVIDED BY FINANCING ACTIVITIES	NET CASH PROVIDED BY FINANCING ACTIVITIES	89,596		72,862	NET CASH PROVIDED BY FINANCING ACTIVITIES	10,118		23,805
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	6,952		2,267	NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	5,970		5,241
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	9,269		17,944	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	12,119		9,269
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	16,221		20,211	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	18,089		14,510
LESS RESTRICTED CASH, END OF PERIOD	LESS RESTRICTED CASH, END OF PERIOD	2,202		—	LESS RESTRICTED CASH, END OF PERIOD	602		3,104
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	14,019	20,211	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	17,487	11,406

Cash paid during the period for:	Cash paid during the period for:				Cash paid during the period for:
Interest	Interest	$	39,533	40,409	Interest	$	11,127	9,516
Income taxes	Income taxes	7,643		7,024	Income taxes	165		158
Supplemental disclosure of non-cash activities:	Supplemental disclosure of non-cash activities:				Supplemental disclosure of non-cash activities:
Accrued payables for additions to utility plant	Accrued payables for additions to utility plant	$	26,628	21,857	Accrued payables for additions to utility plant	$	20,472	16,720
Change in accrued payables for construction costs capitalized		(209)		1,997
Utility property installed by developers	Utility property installed by developers	1,527		5,051	Utility property installed by developers	546		202

Accrued additional common stock issuance costs					Accrued additional common stock issuance costs	—		353

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2021~~MARCH 31, 2022

(in thousands, except share and per share data)

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 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 Notes to Consolidated Financial Statements in SJW Group’s ~~2020~~2021 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

~~Recently Adopted Accounting Principles~~

~~In December 2019,~~SJW Group is a holding company with 5 wholly-owned subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc., SJW Land Company, and SJW Holdings, Inc. SJWNE LLC is the ~~Financial Accounting Standards Board~~holding company for Connecticut Water Service, Inc. (“~~FASB”~~CTWS”) ~~issued Accounting Standards Update~~whose wholly-subsidiaries are The Connecticut Water Company (“~~ASU”~~Connecticut Water”) ~~2019-12, “Simplifying the Accounting for Income Taxes”~~, ~~which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”~~The Maine Water Company (“Maine Water”), New England Water Utility Services, Inc. (“NEWUS”), and ~~clarifies certain aspects of the current guidance~~Chester Realty, Inc. SJWC, Connecticut Water, SJWTX, Inc. doing business as Canyon Lake Water Service Company (“CLWSC”), Maine Water and NEWUS are referred to ~~promote consistency among reporting entities. ASU 2019-12 was effective for~~as “Water Utility Services.” SJW ~~Group in the first quarter of fiscal 2021. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.~~Land Company and Chester Realty, Inc. are collectively referred to as “Real Estate Services.”

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 resulting in lower sales.

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


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021		2020			2022		2021
Revenue from contracts with customers	Revenue from contracts with customers	$	163,103	167,045	$	422,545	414,344	Revenue from contracts with customers		$	121,777	112,238
Alternative revenue programs, net	Alternative revenue programs, net	2,216		1,324	4,984		4,877	Alternative revenue programs, net		(1,927)		112
Other balancing and memorandum accounts, net	Other balancing and memorandum accounts, net	639		1,532	3,637		11,743	Other balancing and memorandum accounts, net		2,430		1,521
Other regulatory mechanisms, net	Other regulatory mechanisms, net	(438)		(5,441)	(1,284)		(6,355)	Other regulatory mechanisms, net		666		(430)
Rental income	Rental income	1,403		1,403	4,067		4,217	Rental income		1,356		1,344
		$	166,923	165,863	$	433,949	428,826			$	124,302	114,785

Real Estate Investments and Nonutility Properties

The major components of real estate investments and nonutility properties as of March 31, 2022, and December 31, 2021, are as follows:


	March 31, 2022		December 31, 2021
Land	$	12,615	12,615
Buildings and improvements	45,058		45,017

Subtotal	57,673		57,632
Less: accumulated depreciation and amortization	16,251		15,951
Total	$	41,422	41,681

On October 29, 2021, SJWC sold 2 nonutility properties located in San Jose, California for $13,150. SJW Group recognized a pre-tax gain on the sale of nonutility properties of $7,230, after selling expenses of $277 for one of the properties sold, and a gain of $5,442, after selling expenses of $178, was deferred on the other nonutility property pending CPUC review for the year

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2022

(in thousands, except share and per share data)

ended December 31, 2021. On February 15, 2022, the California Public Utilities Commission (“CPUC”) review was completed and $5,442 was recognized as gain on sale of nonutility properties.

Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2022, 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, 2022, approximates their carrying value as reported on the condensed consolidated balance sheets. The estimated fair value of such financial instruments were 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, 2022. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1.

The fair value of SJW Group’s long-term debt was approximately $1,493,425 and $1,651,825 as of March 31, 2022, and December 31, 2021, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was $1,530,475 and $1,532,041 as of March 31, 2022, and December 31, 2021, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.

Connecticut Water Service, Inc.’s (“CTWS”) additional retirement benefits under the supplemental executive retirement plans and retirement contracts are funded by investment assets held by a Rabbi Trust. The fair value of the money market funds, mutual funds and fixed income investments in the Rabbi Trust was $3,469 and $3,797 as of March 31, 2022, and December 31, 2021, respectively, and are categorized as Level 1 in the fair value hierarchy.

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 combination with ~~Connecticut Water Service, Inc. (“CTWS”),~~CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended ~~September 30,~~March 31, 2022 and 2021, 10,860and ~~2020, 1,558 and 1,029~~8,579 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively. ~~For the nine months ended September 30, 2021 and 2020, 14,441 and 20,220 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.~~

Note 2.Regulatory Matters

Regulatory assets, net are comprised of the following as of March 31, 2022, and December 31, 2021:


	March 31, 2022		December 31, 2021
Regulatory assets:
Income tax temporary differences, net	$	24,309	22,420
Postretirement pensions and other postretirement benefits	63,126		62,197
Business combinations debt premium, net	19,302		19,937
Balancing and memorandum accounts, net	33,800		38,334
Water Rate Adjustment	1,512		2,588
Other, net	9,887		9,145
Total regulatory assets, net in Condensed Consolidated Balance Sheets	151,936		154,621
Less: current regulatory assets, net	4,370		2,629
Total regulatory assets, net, less current portion	$	147,566	151,992

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September 30, 2021~~March 31, 2022

(in thousands, except share and per share data)

~~Real Estate Investments~~

~~The major components~~As of ~~real estate investments as of September 30, 2021,~~March 31, 2022, and December 31, ~~2020, are as follows:~~

September 30,
2021 December 31,
2020
Land $ 14,168 14,168
Buildings and improvements 44,597 43,961
Subtotal 58,765 58,129
Less: accumulated depreciation and amortization 15,655 14,783
Total $ 43,110 43,346

A former wholly owned subsidiary of SJW Group, Texas Water Alliance Limited was sold to Guadalupe-Blanco River Authority (“GBRA”) in 2017. The sales agreement with GBRA included a holdback amount of $3,000 to be paid to SJW Group on June 30, 2021, ~~subject to reduction under certain conditions. SJW Group received the holdback amount without reduction from the GBRA on June 29, 2021 and recognized a pre-tax gain on sale of $3,000.~~

On September 28, 2020, San Jose Water Company sold 6 nonutility properties located in Los Gatos, California for $1,075. SJW Group recognized a pre-tax gain on the sale of real estate investments of $1,048, net of selling expenses of $22.

~~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 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, San Jose Water Company (“SJWC”) filed Advice Letter 560 which includes such plan and the filing was approved on June 16, 2021. On June 11, 2021, Governor Newsom issued Executive Order N-08-21 which ends the suspension on customer disconnection activities on September 30, 2021. On June 16, 2021, the CPUC directed its regulated water utilities to extend the suspension on customer disconnection activities through September 30, 2021, in response to the Governor’s order. On June 23, 2021, SJWC filed Advice Letter 565 to extend Resolution M-4849’s emergency customer protections through September 30, 2021. This advice letter was approved on July 1, 2021. On September 23, 2021, Governor Newsom approved Senate Bill 155, which included a provision extending the water shutoff moratorium through December 31, 2021.

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.

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

SJWC’s currently authorized capital structure of approximately 47% debt and 53% equity to approximately 45% debt and 55% equity. If approved, rates are expected to be effective in the second quarter of 2022.

On May 27, 2021, SJWC filed Advice Letter No. 561/561A with the CPUC requesting authorization to increase revenue by $17,262 or 4.34% to recover the increases to purchased potable water charges, the groundwater extraction fee, and purchased recycled water charges implemented by Santa Clara Valley Water District (“Valley Water”) and South Bay Water Recycling.~~This advice letter was approved with an effective date of July 1, 2021.~~

On June 9, 2021, Valley Water declared a water shortage emergency and asked its retailers to reduce consumption by 15% based on 2019’s volume. On June 18, 2021, SJWC filed Advice Letter 563 with the CPUC to activate Stage 3 of its Rule 14.1, Water Shortage Contingency Plan, in response to Valley Water’s declaration of drought emergency and call for 15% mandatory conservation. Advice Letter 564 was also filed on June 9, 2021, to establish a Water Conservation Memorandum Account to track the revenue impact of authorized vs actual water consumption and the incremental expenses required to implement our mandatory water conservation plan. Similar memorandum accounts were authorized during the previous drought. Advice Letters 564 and 563 were approved with the effective dates of July 20, 2021, and August 5, 2021, respectively.

On August 5, 2021, SJWC filed Advice Letter 567 with the CPUC requesting authorization to update its Drought Allocations and Drought Surcharges program contained within its Schedule 14.1. This filing updates the program developed during the drought of 2014-2017. Advice Letter 567 was approved with an effective date of September 6, 2021. This approval does not authorize its activation. SJWC will submit another filing with the commission to activate the program should water supply conditions dictate or if it is required to do so by the CPUC and/or the State of California.

On October 15, 2021, SJWC filed Advice Letter 569 with the CPUC requesting authorization to activate Schedule 14.1 effective November 15, 2021, as approved in Advice Letter 567. If approved, drought surcharges collected will be used to offset the revenue losses tracked in the Water Conservation Memorandum Account authorized in Advice Letter 564. This filing is pending before the CPUC.

~~Connecticut Regulatory Affairs~~

On October 28, 2020, The 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 cumulative 7.03% surcharge for Connecticut Water which became effective on customers’ bills on April 1, 2021. The WICA surcharge was reset to zero as part of the July 28, 2021, rate case decision. On October 26, 2021, Connecticut Water filed for a WICA increase for approximately $21,746 in completed projects. Many of the projects were those that were not considered by PURA in the rate case because of the deadline in the proceeding for pro forma capital additions. If approved as submitted, Connecticut Water expects a WICA surcharge of 2.49% to be added to customer bills in January 2022 which is expected to generate approximately $2,581 in additional revenue. Prior to being reset to 0 concurrent with the new rates from the Connecticut Water rate proceeding effective July 28, 2021, WICA surcharges for Connecticut Water and its Avon Water division were 7.03% and 8.51%, respectively. The Heritage Village Water division did not have an approved WICA surcharge, but Connecticut Water is authorized in its July 28, 2021, rate case decision to include Heritage Village Water division in the WICA program in the future.

On January 15, 2021, Connecticut Water filed an application with PURA to amend rates for its customers, including the divisions of Avon Water and Heritage Village Water. 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. On July 28, 2021, Connecticut Water received the final decision approving an increase of $5,208 in annual revenues, a return on equity of 9.0%, with new rates effective July 28, 2021. The final decision also approved a low-income rate, tiered block rate structure for residential water customers and the cost of debt and equity percentage as requested. The final decision did not include all of the requested proforma plant in service due to the timing of its completion. However, no plant was disallowed. Connecticut Water will seek recovery for the projects in the future, including a portion of plant which is eligible for recovery through WICA. In addition, the final decision reset WICA, which was approaching its statutory caps to zero. On August 11, 2021, Connecticut Water filed a petition for reconsideration with PURA to consider matters specific to excess deferred income taxes contained in the July 28, 2021, decision. The proposed increased revenues associated with the petition is $2,229. On October 25, 2021, PURA issued a draft decision approving $1,752 of Connecticut Water’s request. A final decision on the matter is expected on November 10, 2021.

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

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 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 payoff maturing debt, as well as general working capital needs. Connecticut Water received approval of the financings from PURA on June 9, 2021.

~~Texas Regulatory Affairs~~

On January 29, 2021, SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”) submitted its Water Pass-Through Charge (“WPC”) true-up report for the 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 $0.70 dollars per thousand gallons which became effective on March 1, 2021. On August 18, 2021, the GBRA announced a 13% increase for treated water effective September 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 last submitted December 1, 2020, which resulted in a decrease in the usage charge from $2.02 to $1.84 dollars per thousand gallons, and 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 issued 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, and on June 15, 2021, removed the prohibition on disconnections for non-payment. The Texas Legislature passed Senate Bill 3 on August 6, 2021. Under this bill, utilities are obligated to report to the PUCT steps they are taking to mitigate for the type of long-term power outages experienced during the February 2021 storm. CLWSC expects to incur capital expenditures related to meeting these new requirements, largely for procurement of backup generators.

On June 28, 2021, CLWSC announced that it reached an agreement to acquire the Kendall West and Bandera East utilities in Bandera and Medina counties in Texas and that change in ownership applications had been filed with the PUCT under Docket No. 52281. The acquisition, pending approval by the PUCT, would grow CLWSC by 1,400 service connections. Rates will remain the same for those customers of the acquired Certificate of Convenience and Necessity. A decision by the PUCT is expected in the fourth quarter of 2021.

~~Maine Regulatory Affairs~~

On June 17, 2020, the Maine 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 a 3.51% rate increase effective July 1, 2021. The combined rate increase is 13.31%.

On November 23, 2020, The Maine Water Company (“Maine Water”) filed Water Infrastructure Surcharge (“WISC”) applications with the 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 22, 2020 and the surcharges became effective January 1, 2021.

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

new drinking water treatment facility on the Saco River. A decision on the requested revenue increase is expected in the second quarter of 2022, corresponding with the completion of the new water treatment facility.

~~Note 3.Regulatory Assets, Net~~

~~Regulatory assets, net are comprised of the following as of September 30, 2021, and December 31, 2020:~~

September 30, 2021 December 31, 2020
Regulatory assets:
Income tax temporary differences, net $ 15,772 6,230
Postretirement pensions and other medical benefits 99,213 95,559
Business combinations debt premium, net 20,573 22,479
Balancing and memorandum accounts, net 33,277 25,463
Water Rate Adjustment 5,489 323
Other, net 7,786 8,176
Total regulatory assets, net in Condensed Consolidated Balance Sheets 182,110 158,230
Less: current regulatory assets, net 3,249 1,748
Total regulatory assets, net, less current portion $ 178,861 156,482

~~As of September 30, 2021, and December 31, 2020,~~ SJW Group’s regulatory assets, net not earning a return primarily included postretirement pensions and other medical benefits unfunded amount, and ~~the~~ business ~~combinations~~combination debt ~~premium,~~premiums, net. The total amount of regulatory assets, net not earning a return at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was ~~$121,090~~$85,446 and ~~$119,236,~~$84,887, 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 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 (“MWRAM”) tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

( The Water Conservation Memorandum Account (“WCMA”) allows SJWC to track lost revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reductions. SJWC records the lost revenue captured in ~~thousands, except share and per share data)~~the WCMA balancing accounts. Drought surcharges collected will be used to offset the revenue losses tracked in the WCMA.

Balancing and memorandum accounts recorded to regulatory assets, net for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~ as follows:

Three months ended September 30, 2021 Three months ended September 30, 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:
MWRAM $ 15,278 363 — 15,641 $ 10,549 (1,124) 2,625 12,050
Cost of capital memorandum account (1,562) — — (1,562) (1,560) (1) — (1,561)
Tax memorandum account 333 — — 333 332 1 — 333
All others (829) 397 — (432) (1,034) 37 1 (996)
Total revenue accounts $ 13,220 760 — 13,980 $ 8,287 (1,087) 2,626 9,826
Cost-recovery accounts:
Water supply costs 9,895 388 — 10,283 5,899 1,222 1 7,122
Pension 4,210 366 — 4,576 2,985 (253) — 2,732
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) 928 — (121) 807 — 1,219 (8) 1,211
COVID-19 Catastrophic Event Memorandum Account (“CEMA”) 2,618 567 — 3,185 — — — —
All others 446 — — 446 444 — — 444
Total cost-recovery accounts $ 18,097 1,321 (121) 19,297 $ 9,328 2,188 (7) 11,509
Total $ 31,317 2,081 (121) 33,277 $ 17,615 1,101 2,619 21,335

Nine months ended September 30, 2021 Nine months ended September 30, 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:
MWRAM $ 12,077 3,563 1 15,641 $ 7,015 2,437 2,598 12,050
Cost of capital memorandum account (1,561) (1) — (1,562) (1,553) (8) — (1,561)
Tax memorandum account 333 — — 333 (6,643) (2) 6,978 333
All others (806) 369 5 (432) (759) (128) (109) (996)
Total revenue accounts $ 10,043 3,931 6 13,980 $ (1,940) 2,299 9,467 9,826
Cost-recovery accounts:
Water supply costs 8,123 2,159 1 10,283 4,328 2,827 (33) 7,122
Pension 3,478 1,098 — 4,576 2,449 261 22 2,732
PRVMA 1,108 — (301) 807 — 1,219 (8) 1,211
CEMA 2,266 919 — 3,185 — — — —
All others 445 1 — 446 446 2 (4) 444
Total cost-recovery accounts $ 15,420 4,177 (300) 19,297 $ 7,223 4,309 (23) 11,509
Total $ 25,463 8,108 (294) 33,277 $ 5,283 6,608 9,444 21,335

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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


	Three months ended March 31, 2022				Three months ended March 31, 2021
	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance
Revenue accounts:
MWRAM	$	16,866	2,193	1	19,060	$	12,077	1,776	—	13,853
WCMA	3,534		(100)	(6,495)	(3,061)	666		—	—	666
Cost of capital memorandum account	(1,563)		(1)	—	(1,564)	(1,561)		—	—	(1,561)
All others	(386)		312	1	(73)	(1,139)		(175)	1	(1,313)
Total revenue accounts	$	18,451	2,404	(6,493)	14,362	$	10,043	1,601	1	11,645
Cost-recovery accounts:
Water supply costs	10,545		244	—	10,789	8,123		787	—	8,910
Pension	4,941		65	—	5,006	3,478		366	—	3,844
PRVMA	707		1	(76)	632	1,108		—	(81)	1,027
CEMA	3,245		(807)	—	2,438	2,266		—	—	2,266
All others	445		128	—	573	445		—	—	445
Total cost-recovery accounts	$	19,883	(369)	(76)	19,438	$	15,420	1,153	(81)	16,492

Total	$	38,334	2,035	(6,569)	33,800	$	25,463	2,754	(80)	28,137

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 $66,775 from the Offering and the sale of option shares, after deducting the underwriting discounts and commissions and offering expenses. 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 included, among other things, financing infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations and working capital.

~~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. As of September 30, 2021, 174,154 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units and an additional 685,660 shares are available for award issuances under the Incentive Plan.

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: the CTWS 2014 Performance Stock Program, the CTWS 2004 Performance Stock Program and the CTWS 1994 Performance Stock Program (collectively, the “CTWS Plans”). As of September 30, 2021, approximately 56,326 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plans.

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 nine months ended September 30, 2021, and 2020:

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Compensation costs charged to income:
ESPP $ 176 152 $ 357 323
Restricted stock and deferred restricted stock 954 906 2,844 1,995
Total compensation costs charged to income $ 1,130 1,058 $ 3,201 2,318
ESPP proceeds $ 1,000 860 $ 2,026 1,830

~~Restricted Stock and Deferred Restricted Stock~~

For the three months ended September 30, 2021, and 2020, SJW Group granted under the Incentive Plan 1,134 and 761, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $69.20 and $58.63, respectively, per unit. For the nine months ended September 30, 2021, and 2020, SJW Group granted under the Incentive Plan 46,567 and 43,474, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $64.65 and $63.87, respectively, per unit.

For the three months ended September 30, 2021, and 2020, SJW Group granted under the Incentive Plan 0 and 58 target units, respectively, performance-based and market-based restricted stock awards with a weighted-average grant date fair value of $0.00 and $62.95, respectively, per unit. For the nine months ended September 30, 2021, and 2020, SJW Group granted under

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

the Incentive Plan 30,641 and 24,777 target units, respectively, performance-based and market-based restricted stock awards granted with a weighted-average grant date fair value of $66.33 and $65.02, 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 September 30, 2021, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $5,442. This cost is expected to be recognized over a weighted-average period of 1.72 years.

~~Employee Stock Purchase Plan~~

SJW Group’s recorded expenses were $91 and $265 for the three and nine months ended September 30, 2021, respectively, and $85 and $244 for the three and nine months ended September 30, 2020, respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends January 31, 2022, for the ESPP is approximately $124. This cost is expected to be recognized during the fourth quarter of 2021 and first quarter of 2022.

Note 7.3.Bank Borrowings and Long-Term Liabilities

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

~~Lines of Credit~~

On April 23, 2021, SJWC closed its $140,000 line of credit agreement which was set to 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 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 for general corporate purposes. The new SJWC Credit Agreement has a maturity date of December 31, 2023. The line of credit bears interest at variable rates. The SJWC Credit Agreement contains customary representations, warranties and events of default, as well as restrictive covenants customary for facilities of this type. The SJWC Credit Agreement also includes certain customary financial covenants such as a funded debt to capitalization ratio.

Also on April 23, 2021, SJW Group, as guarantor, and CLWSC closed its $5,000 line of credit agreement which was set to mature on June 1, 2021, and entered into a new $5,000 credit agreement (“SJWTX Credit Agreement”) with the 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.

~~Long-Term Debt~~

On March 2, 2021, Maine Water entered into a credit agreement with a commercial bank, pursuant to an existing master loan agreement under which the commercial bank issued Maine Water a promissory note on the same date with an aggregate principal amount of $17,000 and a fixed interest rate of 3.89%, due March 1, 2041. The notes are unsecured obligations of Maine Water. Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year. The promissory note contains customary representations and warranties. Under the promissory note, 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. Proceeds from the borrowing were received on March 18, 2021.

On May 13, 2021, CLWSC entered into a master credit agreement and promissory note with a commercial bank under which it entered into a borrowing agreement for an aggregate principal amount not to exceed $30,000, of which $20,000 was advanced at the closing date. The borrowing carries a fixed interest rate of 4.01% due on March 20, 2041. The remaining aggregate principal amount of the promissory note is to be advanced at the discretion of CLWSC before the maturity date. The notes are unsecured obligations of CLWSC. Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year. The promissory note contains customary representations and warranties. Under the promissory note, CLWSC 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.

1610

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September 30, 2021~~March 31, 2022

(in thousands, except share and per share data)

~~On June 25,~~Note 4.Income Taxes

Income tax expense (benefit) for the three months ended March 31, 2022, and 2021, ~~SJWC entered into a note purchase agreement with certain affiliates~~was $1,067 and $(896), respectively. The effective consolidated income tax rates were 22% and (52)% for the three months ended March 31, 2022, and 2021, respectively. The higher effective tax rate for the three months ended March 31, 2022, was primarily due to discrete tax expense items.

SJW Group had unrecognized tax benefits, before the impact of ~~New York Life Insurance (collectively the “Purchasers”), pursuant to which the company sold an aggregate principal amount~~deductions of ~~$50,000~~state taxes, excluding interest and penalties of ~~its 3.00% Senior Notes, Series N (“Series N Notes”) to the Purchasers. The Series N Notes are unsecured obligations~~approximately $8,014 and $7,961 as of SJWC and are due on June 25, 2051. Interest is payable semi-annually in arrears on January 1st and July 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series N Notes are outstanding. The Series N Notes are also subject to customary events of default, the occurrence of which may result in all of the Series N Notes then outstanding becoming immediately due and payable. The closing occurred simultaneously with the signing of the note purchase agreement.

On August 4, 2021, Connecticut Water entered into a note purchase agreement with certain affiliates of Metropolitan Life Insurance Company, New York Life Insurance Company, the Northwestern Mutual Life Insurance Company and Pacific Life Insurance Company, pursuant to which Connecticut Water sold on August 4, 2021, an aggregate principal amount of $50,000 of its 3.07% Senior Notes, Series 2021A, due 2051 (the “2021A Notes”) and will sell on December 1, 2021, an aggregate principal amount of $50,000 of its 3.10% Senior Notes, Series 2021B, due 2051 (the “2021B Notes” and together with the 2021A Notes, the “CWC Notes”). The closing on December 1, 2021, is subject to customary closing conditions. The CWC Notes are unsecured obligations of Connecticut Water, with the 2021A Notes due on June 1, 2051, and the 2021B Notes due on December 1, 2051. Interest on the CWC Notes is payable semi-annually in arrears on June 1stMarch 31, 2022, and December ~~1st of each year. The note purchase agreement contains customary representations and warranties. Connecticut Water has agreed~~31, 2021, respectively. SJW Group does not expect its unrecognized tax benefits to ~~customary affirmative and negative covenants for as long as~~change significantly within the CWC Notes are outstanding. The CWC Notes are also subject to customary events of default, the occurrence of which may result in all of the CWC Notes then outstanding becoming immediately due and payable. The proceeds from the sale of the CWC Notes will be used to repay outstanding short and/or long-term borrowings, to fund Connecticut Water’s capital expenditures, and/or for other general corporate purposes.

On August 4, 2021, SJWC entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which the company sold an aggregate principal amount of $50,000 of its 3.00% Senior Notes, Series O (“Series O Notes”), due December 1, 2051. The Series O Notes are unsecured obligations of SJWC. Interest is payable semi-annually in arrears on June 1st and December 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series O Notes are outstanding. The Series O Notes are also subject to customary events of default, the occurrence of which may result in all of the Series O Notes then outstanding becoming immediately due and payable. The closing of the note purchase agreement is expected to occur on December 1, 2021.next 12 months.

Note 8.5.Commitments and Contingencies

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.

Note 6.Benefit Plans

SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. 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. 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. Certain CTWS 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. 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.

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~ are as follows:


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021		2020			2022		2021
Service cost	Service cost	$	2,711	2,390	$	8,134	7,170	Service cost		$	2,652	2,735
Interest cost	Interest cost	2,556		2,860	7,666		8,580	Interest cost		2,860		2,580
Expected return on assets	Expected return on assets	(4,748)		(4,126)	(14,242)		(12,429)	Expected return on assets		(5,043)		(4,752)
Unrecognized actuarial loss	Unrecognized actuarial loss	1,788		1,296	5,362		3,888	Unrecognized actuarial loss		1,164		1,780
Amortization of prior service cost	Amortization of prior service cost	12		39	37		115	Amortization of prior service cost		4		12
Total	Total	$	2,319	2,459	$	6,957	7,324	Total		$	1,637	2,355

In ~~2021,~~2022, SJW Group expects to make required and discretionary cash contributions of up to ~~$9,043~~$7,842 to the pension plans and other postretirement benefits. For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, SJW Group has made ~~$3,517 and $4,997, respectively,~~no contributions to ~~such~~the plans.

Note 9.7.~~Income Taxes~~

For the three and nine months ended September 30, 2021, income tax expense was $2,749 and $5,159, respectively. Income tax expense for the three and nine months ended September 30, 2020, was $4,578 and $9,226, respectively. The effective consolidated income tax rates were 13% and 15% for the three months ended September 30, 2021 and 2020, respectively, and 11% and 16% for the nine months ended September 30, 2021, and 2020, respectively. The lower effective rates for the three and nine months ended September 30, 2021, were primarily due to flow-through tax benefits.

SJW Group had unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties of approximately $7,537 and $6,468 as of September 30, 2021, and December 31, 2020, respectively. SJW Group does not expect its unrecognized tax benefits to change significantly within the next 12 months.

On March 11, 2021, the American Rescue Plan Act (the “Act”) was signed into law. SJW Group has considered the income tax implications of the Act in its estimated tax provision and does not believe it will materially impact the company’s year-end tax rate.

~~Note 10.Fair Value Measurement~~Equity Plans

The ~~following instruments are not measured at fair value on~~Incentive Plan allows SJW ~~Group’s condensed consolidated balance sheets as~~Group to provide employees, non-employee board members or the board of ~~September 30, 2021, but require disclosure~~directors of ~~their fair values: cash~~any parent or subsidiary, consultants, and ~~cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of September 30, 2021, approximates their carrying value as reported on~~other independent advisors who provide services to the condensed consolidated balance sheets. The estimated 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 and nine months ended September 30, 2021. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1.

The fair value of SJW Group’s long-term debt was approximately $1,573,581 and $1,570,727 as of September 30, 2021, and December 31, 2020, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was $1,446,320 and $1,363,821 as of September 30, 2021, and December 31, 2020, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.

CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts are funded by investment assets held by a Rabbi Trust. The fair value of the money market funds, mutual funds and fixed income investments in the Rabbi Trust was $3,738 and $3,014 as of September 30, 2021, and December 31, 2020, respectively, and are categorized as Level 1 in the fair value hierarchy.

company or any parent or

~~SJW GROUP AND SUBSIDIARIES~~

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

~~September 30, 2021~~

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

~~Note 11.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) 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 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 reportable segments and distribution of regulated and non-tariffed business activities within the 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 not included in the reportable segments is included in the “All Other” category.
For Three Months Ended September 30, 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 $ 162,352 3,168 1,403 — 162,352 4,571 166,923
Operating expense 129,915 2,156 956 122 129,915 3,234 133,149
Operating income (loss) 32,437 1,012 447 (122) 32,437 1,337 33,774
Net income (loss) 20,625 879 294 (2,730) 20,625 (1,557) 19,068
Depreciation and amortization 23,209 113 292 223 23,209 628 23,837
Interest on long-term debt and other interest expense 8,805 — — 4,730 8,805 4,730 13,535
Provision (benefit) for income taxes 3,537 280 100 (1,168) 3,537 (788) 2,749
Assets $ 3,352,976 7,141 44,629 64,995 3,352,976 116,765 3,469,741
For Three Months Ended September 30, 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 $ 161,646 2,814 1,403 — 161,646 4,217 165,863
Operating expense 119,885 2,161 961 973 119,885 4,095 123,980
Operating income (loss) 41,761 653 442 (973) 41,761 122 41,883
Net income (loss) 25,053 827 310 (97) 25,053 1,040 26,093
Depreciation and amortization 21,782 116 296 223 21,782 635 22,417
Interest on long-term debt and other interest expense 8,112 — — 5,062 8,112 5,062 13,174
Provision (benefit) for income taxes 9,450 179 105 (5,156) 9,450 (4,872) 4,578
Assets $ 3,131,778 8,589 45,980 73,367 3,131,778 127,936 3,259,714

1911

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September 30, 2021~~March 31, 2022

(in thousands, except share and per share data)

For Nine Months Ended September 30, 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 $ 421,985 7,897 4,067 — 421,985 11,964 433,949
Operating expense 343,965 5,467 2,718 2,307 343,965 10,492 354,457
Operating income (loss) 78,020 2,430 1,349 (2,307) 78,020 1,472 79,492
Net income (loss) 46,909 2,278 913 (7,641) 46,909 (4,450) 42,459
Depreciation and amortization 68,913 332 872 670 68,913 1,874 70,787
Interest on long-term debt and other interest expense 25,323 — — 15,332 25,323 15,332 40,655
Provision (benefit) for income taxes 8,001 665 305 (3,812) 8,001 (2,842) 5,159
Assets $ 3,352,976 7,141 44,629 64,995 3,352,976 116,765 3,469,741

For Nine Months Ended September 30, 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 $ 416,085 8,524 4,217 — 416,085 12,741 428,826
Operating expense 323,087 5,281 2,642 4,436 323,087 12,359 335,446
Operating income (loss) 92,998 3,243 1,575 (4,436) 92,998 382 93,380
Net income (loss) 53,117 3,178 1,141 (9,205) 53,117 (4,886) 48,231
Depreciation and amortization 64,654 332 896 670 64,654 1,898 66,552
Interest on long-term debt and other interest expense 24,575 — — 15,063 24,575 15,063 39,638
Provision (benefit) for income taxes 16,101 909 361 (8,145) 16,101 (6,875) 9,226
Assets $ 3,131,778 8,589 45,980 73,367 3,131,778 127,936 3,259,714

~~____________________~~

~~(1) The “All Other” category for~~subsidiary the ~~nine months ended September 30, 2021 and September 30, 2020, includes the accounts of~~opportunity to acquire an equity interest in SJW Group. SJW Group ~~SJWNE LLC and CTWS on a stand-alone basis.~~

~~(2) As of September 30, 2021 and December 31, 2020, the Company has performed an allocation of goodwill associated~~also maintains stock plans in connection with ~~the~~its acquisition of CTWS ~~to 2 reporting units, Connecticut and Maine,~~ which are ~~both aggregated within~~no longer granting new awards under the ~~Regulated Water Utility Services reportable segment.~~plan. As of March 31, 2022, 179,833 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units and an additional 625,071 shares are available for award issuances under the Incentive Plan.

A summary of compensation costs charged to income and proceeds from the exercise of 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 months ended March 31, 2022, and 2021:


	Three months ended March 31,
		2022		2021
Compensation costs charged to income:
ESPP		$	185	181
Restricted stock and deferred restricted stock		1,367		1,099
Total compensation costs charged to income		$	1,552	1,280
ESPP proceeds		$	1,049	1,026

Restricted Stock and Deferred Restricted Stock

For the three months ended March 31, 2022, and 2021, SJW Group granted under the Incentive Plan 31,399 and 33,701, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $68.37 and $64.22, respectively, per unit.

For the three months ended March 31, 2022, and 2021, SJW Group granted under the Incentive Plan 33,621 and 29,459 target units, respectively, performance-based and market-based restricted stock awards granted with a weighted-average grant date fair value of $70.35 and $66.35, 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, 2022, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $7,618. This cost is expected to be recognized over a weighted-average period of 2.14 years.

Employee Stock Purchase Plan

SJW Group’s recorded expenses were $93 and $88 for the three months ended March 31, 2022 and 2021, respectively, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends July 29, 2022, for the ESPP is approximately $132. This cost is expected to be recognized during the second and third quarters of 2022.

Note ~~12.~~8.~~Commitments~~Segment and ~~Contingencies~~Non-Tariffed Business Reporting

SJW Group is ~~subject to ordinary routine litigation incidental~~a holding company with 5 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, (iv) SJWNE LLC a holding company for CTWS and its subsidiaries, The Connecticut Water Company, The Maine Water Company, New England Water Utility Services, Inc. and Chester Realty, Inc., and (v) SJWTX Holdings, Inc. which was formed for the purpose of effecting a corporate reorganization of the water utility operations in Texas. In accordance with FASB ASC Topic 280 - “Segment Reporting,” 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 first segment is providing water utility and utility-related services to its ~~business. There are no pending legal proceedings~~customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water, and NEWUS together referred to ~~which~~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 AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2022

(in thousands, except share and per share data)


	For Three Months Ended March 31, 2022
	Water Utility Services			Real Estate Services	All Other (1)	SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed	Regulated	Non-tariffed	Total
Operating revenue	$	120,518	2,428	1,356	—	120,518	3,784	124,302
Operating expense	101,451		3,979	909	1,374	101,451	6,262	107,713
Operating income (loss)	19,067		(1,551)	447	(1,374)	19,067	(2,478)	16,589
Net income (loss)	9,715		(1,317)	308	(4,969)	9,715	(5,978)	3,737
Depreciation and amortization	24,511		2,572	300	223	24,511	3,095	27,606
Interest on long-term debt and other interest expense	8,763		—	—	4,966	8,763	4,966	13,729
Provision (benefit) for income taxes	2,020		(437)	103	(619)	2,020	(953)	1,067
Assets	$	3,403,006	4,139	44,361	60,370	3,403,006	108,870	3,511,876


	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	—	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		—	—	5,268	8,171	5,268	13,439
Provision (benefit) 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

____________________

(1) The “All Other” category for the three months ended March 31, 2022, includes the accounts of ~~its subsidiaries is~~SJW Group, SJWNE LLC, CTWS and SJWTX Holdings, Inc. on a ~~party, or~~stand-alone basis. SJWTX Holdings, Inc. had no activity for the three months ended March 31, 2022 . For the three months ended March 31, 2021, “All Other” category includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis.

(2) As of March 31, 2022 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 ~~any of its properties is~~are both aggregated within the ~~subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.~~Regulated Water Utility Services reportable segment.

~~Note 13.Subsequent Events~~

On October 29, 2021, San Jose Water sold 2 non-utility properties located in San Jose, California for $13,150. Also, on the same date, SJW Land sold undeveloped land located in San Jose, California for $2,600. SJW Group will record an estimated pre-tax gain on the sale of real estate investments of $13,600 in the fourth quarter of 2021.

2013

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, ~~2020.~~2021.

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 Part II, Item 1A under “Risk Factors.”

General:

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

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

SJWC also has approximately ~~230~~234 acres of nonutility property which has been identified as no longer used and useful in providing utility services. The majority of the properties are located in the hillside areas adjacent to SJWC’s various watershed properties.

SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”). ~~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 140,000 connections that serve a population of approximately 457,000 people in 81 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut. The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut Water”) and The Maine Water Company (“Maine Water”). The 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 to eligible residential customers through NEWUS in Connecticut and Maine.~~

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~~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 ~~22,000~~24,000 connections that serve approximately ~~65,000~~72,000 people. CLWSC’s service area comprises more than ~~248~~266 square miles in ~~the southern region of the Texas Hill Country in~~Bandera, Blanco, Comal, Hays, Kendall, Medina and Travis

~~counties,~~ County in the growing region between San Antonio and Austin, Texas. ~~On July 1, 2021, CLWSC completed the asset purchase of Clear Water Estates Water System, LLC which added approximately 230 connections and 0.6 square miles to the service area. CLWSC has~~SJWTX, Inc. holds a 25% equity interest in Acequia Water Supply ~~Corporation (“Acequia”). The water supply corporation~~Corporation. Acequia has been determined to be a variable interest entity within the scope of ~~Accounting Standards Codification~~ASC Topic 810 with ~~CLWSC~~SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with ~~CLWSC.~~SJWTX, Inc. SJWTX, Inc is undergoing a corporate reorganization to separate regulated operations from non-tariffed activities. In November 2021, SJWTX Holdings,

Inc. (“SJWTX Holdings”) and Texas Water Operation Services LLC (“TWOS”) were formed for the purpose of effecting a corporate reorganization of our water services organization in Texas. TWOS was created for non-tariffed operations and is wholly-owned by SJWTX Holdings. SJWTX Holdings is a wholly-owned subsidiary of SJW Group, incorporated to hold the investments in SJWTX, Inc. and TWOS. In addition, in 2022, SJWTX Holdings intends to create a new subsidiary to hold future wholesale water supply assets.

SJW Land Company ~~owns~~and Chester Realty, Inc. own undeveloped land and ~~operates~~operate commercial buildings in ~~Tennessee.~~Tennessee, California and Connecticut. SJW Land Company owned the following real properties during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

% for Nine months ended September 30, 2021 of SJW Land Company
Description Location Acreage Square Footage Revenue Expense
Warehouse building Knoxville, Tennessee 30 361,500 48 % 44 %
Commercial building Knoxville, Tennessee 15 135,000 52 % 56 %
Undeveloped land and parking lot Knoxville, Tennessee 10 N/A N/A N/A
Undeveloped land (1) San Jose, California 103 N/A N/A N/A
~~____________________~~

(1) On October 29, 2021, SJW Land sold 1.93 acres of undeveloped land located in San Jose, California. See Note 13, “Subsequent Events” of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of the transaction.

~~As of September 30, 2021, Chester Realty, Inc. owns 23 acres of undeveloped land and a commercial building in the State of Connecticut.~~


				% for Three months ended March 31, 2022 of SJW Land Company
Description	Location	Acreage	Square Footage	Revenue		Expense
Warehouse building	Knoxville, Tennessee	30	361,500	49	%	43	%
Commercial building	Knoxville, Tennessee	15	135,000	50	%	56	%
Undeveloped land and parking lot	Knoxville, Tennessee	10	N/A	N/A		N/A
Undeveloped land	San Jose, California	101	N/A	N/A		N/A
Commercial building	Clinton, CT	22	9,000	1	%	1	%
Commercial building	Guilford, CT	1	1,300	—	%	—	%

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 California Public Utilities Commission (“CPUC”) in California, the Public Utilities Regulatory Authority (“PURA”) in Connecticut, the Public Utilities Commission of Texas (“PUCT”) in Texas, and the Maine Public Utilities Commission (“MPUC”) in Maine; 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. 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~~our financial position and operating results, entering markets in which ~~SJW Group has~~we have 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 and Chester Realty, Inc. As noted above, SJW Land Company owns undeveloped land and operates commercial buildings in Tennessee. Chester Realty, Inc. owns and operates land and commercial buildings in the State of Connecticut. SJW Land Company and Chester Realty, Inc. manage income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties.

Critical Accounting Policies:

The discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our ~~2020~~2021 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, ~~2020,~~2021, that was filed with the Securities and Exchange Commission on ~~March 1, 2021.~~February 25, 2022.

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, ~~2020. There have been no changes in our critical accounting policies.~~2021. Our significant accounting policies are described in our notes to the ~~2020~~2021 Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, ~~2020.~~

~~Recently Adopted Accounting Policies:~~

~~See Note 1 of the Notes~~2021. There have been no changes to ~~Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted~~our critical or significant accounting policies ~~for~~during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

Results of Operations:

Overview

SJW Group’s consolidated net income for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$19,068, a decrease~~$3,737, an increase of ~~$7,025,~~$1,121, or approximately ~~27%~~43%, from ~~$26,093~~$2,616 for the same period in ~~2020. SJW Group’s consolidated~~2021. Consolidated net income ~~for the nine months ended September 30, 2021, was $42,459, a decrease of $5,772, or approximately 12%,~~in 2022 includes $2,550 from $48,231 for the same period in 2020. The decrease in net income for the three months ended September 30, 2021, was primarily due to an increase in production costs due to increases in average per unit costs for purchased water, groundwater extraction, energy charges,ongoing operations and a decrease in available surface water at SJWC. In addition, administrative and general expenses increased due to higher compensation, contracted work charges and the impact of one-time credits in 2020 that not recur in 2021. The decrease in net income for the nine months ended September 30, 2021, was primarily due to an increase in production costs due to increases in average per unit costs for purchased water, groundwater extraction, energy charges and a decrease in available surface water at SJWC, and an increase in administrative and general expenses increased primarily due to the same factors noted for the three months ended September 30, 2021, as described above. These increases were partially offset by an increase in revenue of $5,123 or 1% from an increase in cumulative water rates and net recognition of other regulatory mechanisms and certain balancing and memorandum accounts, net of a decrease in customer usage. In addition, for the nine months ended September 30, 2021, SJW Group recorded a $3,000 pre-tax gain on ~~sale of utility property from the release of a holdback amount by Guadalupe-Blanco River Authority (“GBRA”) in connection with~~ the sale of ~~Texas~~nonutility property of $4,240, offset by the one-time impacts of $1,867 related to depreciation on certain Cupertino concession assets and $1,366 related to San Jose Water ~~Alliance Limited (“TWA”) that occurred in 2017.~~

~~Coronavirus (“COVID-19”) Update~~

The outbreak of COVID-19 has 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 accountCompany’s Order Instituting Investigation settlement expenses and ~~savings~~certain true-ups of deferred taxes and acquisition related to COVID-19. SJWC and CLWSC have determined that future recovery of the amount related to COVID-19 activities are probable and have recognized the related regulatory assets. Probability criteria have not yet been met for CTWS. If a state regulator disagrees with the calculation of recorded COVID-19 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. See Item 1A, “Risk Factors” for further discussion.

tax expenses.

Operating Revenue


		Operating Revenue by Segment								Operating Revenue by Segment
		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021		2020			2022		2021
Water Utility Services	Water Utility Services	$	165,520	164,460	$	429,882	424,609	Water Utility Services		$	122,946	113,441
Real Estate Services	Real Estate Services	1,403		1,403	4,067		4,217	Real Estate Services		1,356		1,344
		$	166,923	165,863	$	433,949	428,826			$	124,302	114,785

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

Three months ended
September 30,
2021 vs. 2020 Nine months ended
September 30,
2021 vs. 2020
Increase/(decrease) Increase/(decrease)
Water Utility Services:
Consumption changes (including unbilled utility revenue) $ (12,850) (8) % $ (14,215) (3) %
Increase in customers 909 1 % 2,027 — %
Rate increases 7,642 5 % 14,044 3 %
Texas winter storm customer credits — — % (839) — %
Balancing and memorandum accounts 1,847 1 % 1,632 — %
Other regulatory mechanisms 3,267 2 % 2,380 1 %
Other 245 — % 244 — %
Real Estate Services — — % (150) — %
$ 1,060 1 % $ 5,123 1 %

~~Operating Expense~~

Operating Expense by Segment
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Water Utility Services $ 132,071 122,046 $ 349,432 328,368
Real Estate Services 956 961 2,718 2,642
All Other 122 973 2,307 4,436
$ 133,149 123,980 $ 354,457 335,446


	Three months ended March 31, 2022 vs. 2021
	Increase/(decrease)
Water Utility Services:
Consumption changes (including unbilled utility revenue)		$	1,802	2	%
Increase in customers		2,464		2	%
Rate increases		5,163		5	%

Balancing and memorandum accounts		803		—	%


Other regulatory mechanisms		(826)		(1)	%
Other		100		—	%
Real Estate Services		11		—	%
		$	9,517	8	%

2416

Operating Expense


		Operating Expense by Segment
	Three months ended March 31,
		2022		2021
Water Utility Services		$	105,430	99,847
Real Estate Services		909		881
All Other		1,374		978
		$	107,713	101,706

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


		Three months ended September 30, 2021 vs. 2020				Nine months ended September 30, 2021 vs. 2020					Three months ended March 31, 2022 vs. 2021
		Increase/(decrease)				Increase/(decrease)					Increase/(decrease)
Water production expenses:	Water production expenses:									Water production expenses:
Change in surface water use	Change in surface water use	$	1,221	1	%	$	3,879	1	%	Change in surface water use		$	(1,846)	(2)	%
Change in usage and new customers	Change in usage and new customers	(7,451)		(6)	%	(5,763)		(1)	%	Change in usage and new customers		(311)		—	%
Purchased water and groundwater extraction charge, energy price change and other production expenses, net	Purchased water and groundwater extraction charge, energy price change and other production expenses, net	7,814		6	%	6,299		2	%	Purchased water and groundwater extraction charge, energy price change and other production expenses, net		4,495		5	%
Balancing and memorandum accounts cost recovery	Balancing and memorandum accounts cost recovery	834		1	%	668		—	%	Balancing and memorandum accounts cost recovery		415		—	%
Total water production expenses	Total water production expenses	2,418		2	%	5,083		2	%	Total water production expenses		2,753		3	%
Administrative and general	Administrative and general	4,370		4	%	7,770		3	%	Administrative and general		2,204		2	%
Balance and memorandum account cost recovery	Balance and memorandum account cost recovery	(1,186)		(1)	%	(1,755)		(1)	%	Balance and memorandum account cost recovery		1,108		1	%
Maintenance	Maintenance	600		—	%	2,032		1	%	Maintenance		430		—	%
Balance and memorandum account cost recovery		1,219		1	%	1,219		—	%
Property taxes and other non-income taxes	Property taxes and other non-income taxes	328		—	%	427		—	%	Property taxes and other non-income taxes		794		1	%
Depreciation and amortization	Depreciation and amortization	1,420		1	%	4,235		1	%	Depreciation and amortization		4,168		4	%
Gain on sale of nonutility properties										Gain on sale of nonutility properties		(5,450)		(5)	%
		$	9,169	7	%	$	19,011	6	%			$	6,007	6	%

Sources of Water Supply

SJWC’s water supply consists of imported water purchased from the Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 2051, groundwater from wells, surface water from watershed run-off and diversion, and reclaimed water. Surface water is the least expensive source of water. Changes and variations in quantities from each of these sources affect the overall mix of the water supply, thereby affecting water supply cost. In addition, the water rate for purchased water and the groundwater extraction charge may be increased by Valley Water at any time. If an increase occurs, then SJWC would file an advice letter with the California Public Utilities Commission (“CPUC”) seeking authorization to increase customer rates to offset the cost increase.

We are currently experiencing a severe drought in California that is expected to have a significant impact on the sources of our water supply. On ~~October~~April 1, ~~2021,~~2022, Valley Water’s 10 reservoirs were at approximately ~~12%~~25% of total capacity with ~~6,252~~13,595 million gallons of water in storage, which is ~~26%~~42% of the twenty-year average for this date. Valley Water’s largest reservoir, Anderson, remains drained ~~in preparation~~ for the 8-10 year Anderson Dam Seismic Retrofit Project. As reported by Valley Water, there was ~~zero~~7.95 inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2021. Rainfall at SJWC’s Lake Elsman was measured at ~~zero~~34.48 inches during the current rainfall season. Under normal hydrologic conditions, state and federal water allocations represent approximately 40% of the Valley Water’s total annual water supply. As of ~~October~~April 1, ~~2021,~~2022, Valley Water reported that allocations from the State Water Project was 5% or 1,629 million gallons. ~~Valley Water received conditional approval for~~Due to an ~~increase~~exceptionally dry start to 2022, the U.S. Bureau of Reclamation reduced the initial Central Valley Project allocation ~~from~~of 25% down to the ~~original allocation of 25%. Conditional approval is based on public health~~Public Health and ~~safety needs, and increases the total allocation to 23,298 million gallons.~~Safety limit. Valley Water reported that its Semitropic groundwater bank reserves are at ~~91%~~83% of capacity or ~~103,931~~94,388 million gallons, which can be used to perform water transfers with other state water contractors. Valley Water also reported that the managed groundwater recharge from January to ~~September~~March in the Santa Clara Plain was ~~46%~~108% of the five-year average. The groundwater level in the Santa Clara Plain is approximately 145 feet ~~lower~~higher than the five-year average. According to Valley Water, the projected total groundwater storage at the end of ~~2021~~2022 is expected to fall within the Alert Stage of ~~the~~ Valley Water’s Water Shortage Contingency Plan.

On ~~October~~April 1, ~~2021,~~2022, SJWC’s Lake Elsman contained ~~191~~1,471 million gallons of water, of which approximately 411,321 million gallons can be utilized for treatment in water production. This Lake Elsman volume represents ~~18%~~108% of the five-year ~~average which reflects the low winter rainfall we experienced in our Santa Cruz mountains watershed.~~average. Local surface water is a less costly source of water than groundwater or purchased water and its availability significantly impacts SJWC’s results of operations. Typically, SJWC will utilize surface water and additional water from its portfolio of groundwater supplies to supplement imported water from Valley Water. Production from the Montevina Surface Water Treatment Plant through the ~~third~~first quarter was ~~259~~575 million gallons, which is ~~14%~~115% of the five-year average. ~~On April 14, 2021, SJWC took the Montevina Surface Water Treatment Plant offline due to worsening hydrologic conditions in the local watershed. The plant remains offline.~~ Through the ~~third~~first quarter of 2022, there was no43 million gallons of water production at SJWC’s smaller Saratoga Water Treatment Plant. The Saratoga Water Treatment Plant was ~~unable to be placed into~~taken out of service due to lack of run-off from Saratoga Creek and remains offline.

Nonetheless, SJWC believes that its various other water supply sources will be sufficient to meet customer demand through the remainder of ~~2021.~~2022.

On June 9, 2021, Valley Water declared a water shortage emergency and asked its retailers to reduce consumption by 15% based on 2019 usage. In response to Valley Water’s declaration of drought emergency and call for conservation, SJWC filed with the CPUC to activate Stage 3 of its Rule 14.1 Water Shortage Contingency Plan. Like the most recent drought, the current restrictions center on outdoor water usage which typically accounts for half of a residential customer’s consumption. The restrictions include limits on watering days and times, use of potable water for washing structures and other non-porous surfaces except to protect public health and safety, and no outdoor watering during and up to 48 hours after measurable rainfall.

Connecticut ~~Water utility services’~~Water’s infrastructure consists of 65 noncontiguous water systems in the State of Connecticut. These systems, in total, consist of approximately 1,800 miles of water main and reservoir storage capacity of 2.4 billion gallons. The safe, dependable yield from our 235 active wells and 18 surface water supplies is approximately 65 million gallons per day. Water sources vary among the individual systems, but overall approximately ~~72%~~80% of the total dependable yield comes from ~~wells and 28% from~~ surface water ~~supplies.~~supplies and 20% from wells.

CLWSC’s water supply consists of groundwater from wells and purchased treated and untreated raw water from local water agencies. CLWSC has long-term agreements with the GBRA, which expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with an aggregate of ~~6,900~~7,650 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA. CLWSC also has raw water supply agreements with the Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in ~~2053~~2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies. Production wells located in a Comal Trinity Groundwater Conservation District, a regulated portion of the Trinity aquifer, are charged a groundwater pump tax based upon usage. CLWSC has recently updated its Drought Management Plan to better account for both climatic conditions within its service area and increased demand due to new developments. The updated Drought Management Plan has been approved by the Texas Commission for Environmental Quality. CLWSC believes that by following the Drought Management Plan water supply sources will be sufficient to meet customer demand through the remainder of 2021.

Maine Water’s infrastructure consists of 12 noncontiguous water systems in the State of Maine. These systems, in total, consist of approximately 600 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 14 active wells and 7 surface water supplies is approximately 120 million gallons per day. Water sources vary among the individual systems, but overall approximately 90% of the total dependable yield comes from surface water supplies and 10% from wells.

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


		Three months ended September 30,		Increase/ (decrease)		% of Total Change				Nine months ended September 30,				Increase/ (decrease)	% of Total Change										Three months ended March 31,		Increase/ (decrease)	% of Total Change
		2021	2020					2021			2020							2022		2021				Increase/ (decrease)
Purchased water	Purchased water	5,703	7,478		(1,775)			(10)	%		15,601		16,462						(861)		(2)	%	Purchased water						3,764		3,372		392	4	%
Groundwater	Groundwater	6,283	6,265	18		—	%			16,850		16,110		740	2	%	Groundwater									3,858	4,603	(745)		(7)		%
Surface water	Surface water	3,113	2,914	199		1	%			6,947		7,893		(946)	(2)	%	Surface water									2,567	2,107	460		5		%
Reclaimed water	Reclaimed water	341	326	15		—	%			669		605		64	—	%	Reclaimed water									125	85	40		—		%
		15,440	16,983	(1,543)		(9)	%			40,067		41,070		(1,003)	(2)	%										10,314	10,167	147		2		%

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

SJWC’s unaccounted-for water on a 12-month-to-date basis for ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~ approximated ~~6.9% and 6.6%, respectively,~~7.2% for each of the respective periods, as a percentage of total production. The unaccounted-for water estimate is based on the results of past experience and the impact of flows through the system, partially offset by SJWC’s main replacements and lost water reduction programs.

CTWS’s unaccounted-for water on a 12-month-to-date basis for ~~September 30,~~March 31, 2022, and 2021 was approximately ~~14.6%~~13.9% and 16.2%, respectively, as a percentage of total production. ~~Unaccounted-for water on an acquisition-to-date basis for the period ended September 30, 2020 was approximately 16.9%.~~ The unaccounted-for water estimate is based on the results of past experience and the impact of flows through CTWS’s systems, unadjusted for any required system flushing, partially offset by Water Infrastructure Conservation Adjustment and Water Infrastructure Surcharge main replacement programs and lost water reduction initiatives.

Water Production Expenses

The change in water production expenses for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, compared to the same period in ~~2020,~~2021, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses, ~~and a decrease~~offset by an increase in available surface water for ~~SJWC, offset by a decrease in~~

~~customer usage.~~SJWC. Effective July 1, 2021, Valley Water increased the unit price of purchased water by approximately 9.5% and the groundwater extraction charge by approximately 9.1%.

Other Operating Expenses

Operating expenses, excluding water production expenses, increased ~~$6,751~~$3,254 for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to the same period in ~~2020.~~2021. The increase was primarily attributable to increases of ~~$4,370~~$3,312 in administrative and general expenses primarily due to ~~a credit to expense for the Current Expected Credit Loss (“CECL”) adoption in prior year and~~ increases in labor ~~contracted work~~ and ~~rate case expenses, offset by lower accounting fees. In addition, maintenance~~pension expense, ~~increased $1,819 due to the reversal~~and an increase of ~~the Hydroturbine reserve in the prior year and depreciation and amortization expense increased $1,420 due to increases in utility plant.~~

Operating expenses, excluding water production expenses, increased $13,928 for the nine months ended September 30, 2021, compared to the same period in 2020. The increase was primarily attributable to increases of $7,770 in administrative and general expenses primarily due to a credit to expense for the CECL adoption in prior year and increases in labor, group insurance costs, rate case expenses and contracted work, offset by lower accounting fees, $4,235$4,168 in depreciation and amortization ~~expense~~ due to increases in utility plant and ~~$3,251~~a true up related to Cupertino assets to adjust the useful lives over the concession term, partially offset by $5,450 from the gain on sale of vacant land located in ~~maintenance expenses.~~California and nonutility property in Texas.

Other (Expense) Income

For the three months ended ~~September 30, 2021,~~March 31, 2022, compared to the same period in ~~2020,~~2021, the change in other (expense) income was primarily due to ~~gain~~an increase in interest on ~~sale~~long term debt and a decrease on the return from retirement plan assets, partially offset by income generated from pension non service cost and a decrease in interest on the line of ~~real estate investments recorded in prior year.~~

For the nine months ended September 30, 2021, compared to the same period in 2020, the change in other (expense) income was primarily due to a $3,000 pre-tax gain on sale from the release of a holdback amount by GBRA for the sale of TWA recorded in 2017.credit.

Provision for Income Taxes

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, compared to the same period in ~~2020,~~2021, income tax expense ~~decreased $1,829 and $4,067, respectively.~~increased $1,963. The ~~decrease~~increase in income tax expense was primarily due to a decrease in pre-tax book income and ~~flow-through~~discrete tax ~~benefits.~~expense items. The effective consolidated income tax rates were ~~13%~~22% and ~~15%~~(52)% for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020, respectively, and 11% and 16% for the nine months ended September 30, 2021, and 2020,~~ respectively. The ~~lower~~higher effective ~~rates~~rate for the three ~~and nine~~ months ended ~~September 30, 2021, were~~March 31, 2022, was also primarily due to ~~flow-through~~discrete tax ~~benefits.~~

On March 11, 2021, the American Rescue Plan Act (“Act”) was signed into law. SJW Group has considered the income tax implications of the Act in its estimated tax provision and does not believe it will materially impact the company’s year-end tax rate.expense items.

Regulation and Rates

Almost all of the operating revenue of SJW Group results from the sale of water at rates authorized by the subsidiaries’ respective state utilities commissions. The state utilities commissions set rates that are intended to provide revenue sufficient to recover operating expenses and the opportunity to achieve a specified return on common equity. The timing of rate decisions could have an impact on the results of operations.

~~See~~ Please also see Note 2 of ~~Notes~~“Notes to ~~Unaudited~~ Condensed Consolidated Financial ~~Statements~~Statements.”

California Regulatory Affairs

On January 4, 2021, SJWC filed General Rate Case Application No. 21-01-003 requesting authority for an increase of 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 ~~discussion~~$435,000 capital budget, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge. Review of ~~regulatory activities~~the application is currently underway by the CPUC and new rates, if approved, are expected to be effective in the third quarter of 2022. Due to the processing delay, SJWC filed Advice Letter No. 573 on December 30, 2021, to request interim rates effective January 1, 2022, which will allow SJWC to retroactively apply the final decision to January 1, 2022. Interim rates are proposed to be set equal to present rates in order to avoid customer confusion and short-term bill changes. This advice letter was approved with an effective date of January 1, 2022. SJWC and the Public Advocates Office filed a settlement agreement resolving all issues in the proceeding on January 13, 2022, which will be considered by the CPUC for adoption. The settlement provides a revenue increase of $54,131 over the three-year period with an increase of $25,074 in 2022. The settlement recognizes the need for continued investments in the water system to deliver safe and reliable water service, providing authorization of a three-year $350,000 capital budget. Additionally, it further aligns authorized and actual consumption, particularly for business customers, addresses our water supply mix variability, and provides greater revenue recovery in the fixed charge. The settlement also approves the recovery of $18,254 from balancing and memorandum accounts. New rates are anticipated in the third quarter of 2022.

On May 3, 2021, SJWC filed Application No. 21-05-004 requesting authority to adjust its cost of capital for the period from January 1, 2022 through December 31, 2024. The request seeks a revenue increase of $6,418 or 1.61% in 2022. The application also proposes a rate of return of 8.11%, an increase from the current rate of 7.64%, a decrease in the average cost of debt rate from 6.20% to 5.48%, and a return of equity of 10.30%, an increase from the current rate of 8.90%. In addition, the request seeks to adjust SJWC’s currently authorized capital structure of approximately 47% debt and 53% equity to approximately 45% debt and 55% equity. If approved, new rates are expected to be effective in the third quarter of 2022.

SJWC’s Advanced Metering Infrastructure (“AMI”) application is pending before the CPUC. An all-party settlement agreement was submitted to the CPUC for adoption that ~~have occurred~~would authorize the deployment of AMI outside of the capital budget requested in the 2021 GRC. A final decision is anticipated on the AMI proceeding in the second quarter of 2022.

Connecticut Regulatory Affairs

On October 26, 2021, Connecticut Water filed for a Water Infrastructure Conservation Adjustment (“WICA”) increase of approximately $21,746 in completed projects. Many of the projects were those that were not considered by PURA in the rate case because of the deadline in the proceeding for pro forma capital additions. On December 22, 2021, PURA approved a WICA surcharge of 2.44% to be added to bills of all Connecticut Water customers, including those of the former The Avon Water Company and The Heritage Village Water Company, effective January 1, 2022 which is expected to generate approximately $2,581 in additional revenue. On February 14, 2022 Connecticut Water filed its 2021 WICA reconciliation with PURA. The reconciliation, approved by PURA on March 16, 2022 and effective for 12 months beginning April 1, 2022, replaced the expiring 2020 reconciliation surcharge of 0.07% with a credit of (0.02)%. As a result, the net WICA surcharge, effective April 1, 2022 was 2.35%.

On February 28, 2022 Connecticut Water filed its 2021 Water Rate Adjustment mechanism (“WRA”). The mechanism reconciles 2021 revenues as authorized in the Company’s most recent rate cases. The 2021 WRA, as approved by PURA on March 30, 2022 and effective for 12 months beginning on April 1, 2022 imposed a 2.85% surcharge on customer bills to collect the 2021 revenue shortfall.

On April 26, 2022, Connecticut Water filed for a WICA increase of $9,779 in completed projects. If approved by PURA, the new WICA adjustment would be effective July 1, 2022 and would be expected to generate $963 in additional revenue.

Texas RegulatoryAffairs

CLWSC filed its annual Water Pass Through Charge (“WPC”) true-up report on January 31, 2022. The 2022 WPC usage rate will increase from $0.70 to $1.02 dollars per thousand gallons due to CLWSC under-collecting the actual cost of purchased water and GBRA increasing its rates. The PUCT modified the WPC formula which resulted in a new usage rate of $0.90 dollars per thousand gallons. The new usage rate was effective March 1, 2022.

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. CLWSC received notice of an increase of 4% for the Deer Creek purchased water cost from WTPUA, effective in October 2021. SJWTX also received notice from the LCRA of an increase of 7% per acre-foot for the firm water rate and the reservation rate. The WPC true-up report for this system was submitted on December 1, 2021, which will result in an increase in the usage charge from $1.84 to $1.87 dollars per thousand gallons, and an increase in the monthly base charge of $1.04 dollars per residential account effective January 1, 2022. The PUCT approved the new rates on March 25, 2022.

On September 3, 2021, Kendall West Utility filed its annual WPC true-up report under Docket No. 52521. The true-up report resulted in a decrease in its WPC from $2.75 to $2.39 per thousand gallons. The new rate was approved by the PUCT on January 24, 2022. The PUCT issued the stamped approved tariff on February 4. 2022.

Maine Regulatory Affairs

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 proposed a three step, multi-year rate plan designed to ease the transition to higher water bills over the period from July 2021 to July 2023. The primary 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 is expected to be in service in the second quarter of 2022. On June 23, 2021, the MPUC approved the first step in the plan by adopting the proposed rate smoothing mechanism and implementing a temporary 22.65% surcharge on all customer bills. The surcharge will be in effect for one year. On September 8, 2021, Maine Water filed a supplemental application to update its request to increase base rates, initiating the second step in the rate plan. The supplemental application updates the March application and seeks $6,880, or 80.1% in additional revenue and provides a bill credit funded by the year one surcharge to offset a portion of the increase. Like the surcharge, the bill credit will be in effect for one year. On April 5, 2022, the MPUC approved a stipulated agreement which authorized a rate increase of $6,313, or 72.5% with an effective date of July 1, 2022, sets a 9.70% return on equity to be applied across all of Maine Water’s divisions until amended in a future rate case, and approved the use of a bill credit to return the amount collected through surcharge, effectively reducing the full impact of the rate increase during the ~~quarter.~~one year credit period.

On October 28, 2021, Maine Water filed a Water Infrastructure Surcharge (“WISC”) application with the MPUC for the Skowhegan division requesting an increase of 3%, representing approximately $50 in additional revenues. The WISC application was approved on December 27, 2021, and the surcharge became effective January 1, 2022.

On February 28, 2022, Maine Water filed requests for general rate increases in the Camden-Rockland, Freeport, Millinocket and Oakland Divisions. The four filings collectively request $529 in new revenue and seek to reset the WISC in all four

divisions. Individually, the Camden Rockland Division request is $222, or 3.4%; the Freeport request is $51, or 6.1%; the Millinocket request is $184, or 14.5%; and the Oakland request is $72, or 9.9%. Decisions by the Commission in these filings are expected in the third quarter of 2022.

On March 14, 2022, Maine Water filed a request for approval to issue $15,000 in long term debt. If approved, the new debt would be used to reduce short term borrowings.

Liquidity:

Cash Flow from Operating Activities

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, SJW Group generated cash flows from operations of approximately ~~$100,300,~~$45,300, compared to ~~$70,600~~$33,400 for the same period in ~~2020.~~2021. Cash flow from operations is primarily generated by net income from revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, stock-based compensation, allowance for equity funds used during construction, gains or losses on the sale of assets, and changes in working capital items. Cash flow from operations increased by approximately ~~$29,700.~~$11,900. This increase was the result of a combination of the following factors: (1) an increase of $6,900 in regulatory assets primarily due to the recognition of balancing and memorandum accounts, (2) payments of amounts previously invoiced and accrued including accrued production costs, increased by $5,200, (3) an increase in other changes, net of $2,800 primarily due to the funds from the State of California Water and Wastewater Arrearages Payment Program, and (4) general working capital and net income, adjusted for non-cash items increased by $2,600, offset by (5) a decrease in collections from accounts receivable and accrued unbilled utility revenue of ~~$14,800, (2) payments of amounts previously invoiced~~$3,400, and accrued including accrued productions costs, increased by $7,000, (3) an up-front payment of $5,000 in the prior year for renewal of the Cupertino service concession agreement that did not reoccur in the current year, (4) net income adjusted for non-cash items increased by $5,400 primarily due to deferred income taxes, and (5) general working capital items increased $3,000, offset by, (6) ~~a decrease in~~ net collection of taxes receivable which was ~~$5,500.~~

$2,200 less than in prior year.

As of ~~September 30, 2021,~~March 31, 2022, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchanged from ~~September 30, 2020. In 2020,~~March 31, 2021. As of February 1, 2022, the ~~regulated utilities commissions of the respective states we operate initiated~~remaining state executive ~~orders~~order suspending water service disconnections due to non-payment ~~from~~by customers expired in ~~light of the then current stay-at-home orders, quarantines and similar governmental restrictions in response to the global COVID-19 pandemic. Some of the orders have been lifted and the anticipation~~California. There is no guarantee that the ~~remaining orders~~respective state regulators will ~~be lifted at the end of 2021. Once lifted, management~~not reinstate such orders. Management believes that the collection rate for its accounts receivables will gradually return to pre-pandemic ~~levels.~~levels now that service disconnections are allowable once again to mitigate payment delinquencies. On February 3, 2022, SJWC received $9,757 through the State of California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customers accounts greater that 60-days past due as of June 30, 2021. The financial impact of certain remaining past due accounts are being recorded for future recovery through the rate-making process. There is no guarantee that such recovery will be approved by the respective state regulatory utility commissions.

Cash Flow from Investing Activities

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, SJW Group used cash flows from investing activities of approximately ~~$182,900,~~$49,400, compared to ~~$141,200~~$51,900 for the same period in ~~2020.~~2021. SJW Group used approximately: (1) ~~$169,200~~$43,700 of cash for company-funded capital expenditures, (2) ~~$12,500~~$4,800 for developer-funded capital expenditures, and (3) ~~$3,500~~$1,100 for utility plant retirements.

Water Utility Services’ budgeted capital expenditures for ~~2021,~~2022, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately ~~$238,800.~~$223,000. As of ~~September 30, 2021,~~March 31, 2022, approximately ~~$169,200~~$43,700 or ~~71%~~20% of the ~~$238,800~~$223,000 has been invested.

Water Utility Services’ capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations. Over the next five years, Water Utility Services ~~expect~~expects to incur approximately ~~$1,400,000~~$1,300,000 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems. A significant portion of this amount is subject to future respective state regulatory utility commissions’ approval. Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return. Water Utility Services actual capital expenditures may vary from their projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies, and general economic conditions. Total additions to utility plant normally exceed Company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.

The Water Utility Services’ distribution systems were constructed during the period from the early 1900’s through today. Expenditure levels for renewal and modernization will occur as the components reach the end of their useful lives. In most cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services and increased regulation.

Cash Flow from Financing Activities

Net cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2021, increased~~March 31, 2022, decreased by approximately ~~$16,700~~$13,700 from the same period in the prior year, primarily as a result of (1) ~~an increase~~a decrease in net proceeds from our ~~recent~~ common stock equity offering in prior year of ~~$66,800,~~$67,200, (2) ~~an increase~~a decrease in net proceeds of ~~$8,900~~$17,000 from new long-term debt, offset by (3) an increase

in net borrowings and ~~(3) $4,600~~repayments on our lines of credit of $66,600, (4) $5,300 increase in net cash receipts from advances and contributions in aid of construction, ~~offset by (4) a decrease in net borrowings and repayments on our lines of credit of $61,600,~~ and (5) an increase of dividends paid to stockholders of ~~$2,600.~~$1,200.

Sources of Capital:

SJW Group’s ability to finance future construction programs and sustain dividend payments depends on its ability to maintain or increase internally generated funds and attract external financing. The level of future earnings and the related cash flow from operations is dependent, in large part, upon the timing and outcome of regulatory proceedings.

~~Long-term Financing Agreements~~

SJW Group’s 2011 unsecured senior note of $50,000 was paid in full at maturity on June 30, 2021. SJW Group’s remaining 2019 and 2020 unsecured senior note agreements have terms and conditions that restrict SJW Group from issuing additional funded debt if the funded consolidated debt would exceed 70% of total capitalization. SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions at September 30, 2021.

SJWC’s financing activity is designed to achieve a capital structure consistent with our CPUC authorized structure of approximately 47% debt and 53% equity. As of September 30, 2021, SJWC’s funded debt and equity were approximately 48% and 52%, respectively.

Funding for SJWC’s future capital expenditure program is expected to be provided primarily through internally-generated funds, the issuance of new long-term debt, and the issuance of equity, all of which will be consistent with regulator guidelines.

SJWC’s unsecured senior note agreements generally have terms and conditions that restrict SJWC from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest

charges for the trailing 12-month-calendar period would be less than 175% of interest charges. SJWC was not restricted from issuing future indebtedness as a result of these terms and conditions at September 30, 2021.

On June 25, 2021, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance (collectively the “Purchasers”), pursuant to which the company sold an aggregate principal amount of $50,000 of its 3.00% Senior Notes, Series N (“Series N Notes”) to the Purchasers. The Series N Notes are unsecured obligations of SJWC and are due on June 25, 2051. Interest is payable semi-annually in arrears on January 1st and July 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series N Notes are outstanding. The Series N Notes are also subject to customary events of default, the occurrence of which may result in all of the Series N Notes then outstanding becoming immediately due and payable. The closing occurred simultaneously with the signing of the note purchase agreement. As of September 30, 2021, SJWC was in compliance with all such covenants.

SJWC’s loan agreements with the California Pollution Control Financing Authority contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, including, among other things, complying with certain disclosure obligations and covenants relating to the tax exempt status of the interest on the bonds and limitations and prohibitions relating to the transfer of the projects funded by the loan proceeds and the assignment of the loan agreement. As of September 30, 2021, SJWC was in compliance with all such covenants.

CTWS has outstanding term loans with a commercial bank, and under the master loan agreement CTWS is required to comply with certain financial ratio and customary affirmative and negative covenants. The most restrictive of these covenants is to maintain a consolidated (CTWS and its subsidiaries) debt to capitalization ratio of not more than 60%. As of September 30, 2021, CTWS was in compliance with all covenants under the master loan agreement.

Connecticut Water has outstanding term loans with a commercial bank, and under its master loan agreement Connecticut Water is required to comply with financial and customary affirmative and negative covenants substantially identical to those found in CTWS’s master loan agreement. Connecticut Water is required to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1. As of September 30, 2021, Connecticut Water was in compliance with all covenants under its master loan agreement.

Connecticut Water has tax-exempt and taxable Water Facilities Revenue Bonds issued through Connecticut Innovations (formerly the Connecticut Development Authority). The bond indentures and loan agreements contain customary affirmative and negative covenants and also provide for the acceleration of the Revenue Bonds upon the occurrence of stated events of default. As of September 30, 2021, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

Connecticut Water’s unsecured senior notes have terms and conditions that restrict Connecticut Water from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default. The senior note agreements also require Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1. As of September 30, 2021, Connecticut Water was in compliance with all covenants under this agreement.

On August 4, 2021, Connecticut Water entered into a note purchase agreement with certain affiliates of Metropolitan Life Insurance Company, New York Life Insurance Company, the Northwestern Mutual Life Insurance Company and Pacific Life Insurance Company, pursuant to which Connecticut Water sold on August 4, 2021, an aggregate principal amount of $50,000 of its 3.07% Senior Notes, Series 2021A, due 2051 (the “2021A Notes”) and will sell on December 1, 2021, an aggregate principal amount of $50,000 of its 3.10% Senior Notes, Series 2021B, due 2051 (the “2021B Notes” and together with the 2021A Notes, the “CWC Notes”). The closing on December 1, 2021, is subject to customary closing conditions. The CWC Notes are unsecured obligations of Connecticut Water, with the 2021A Notes due on June 1, 2051, and the 2021B Notes due on December 1, 2051. Interest on the CWC Notes is payable semi-annually in arrears on June 1st and December 1st of each year. The note purchase agreement contains customary representations and warranties. Connecticut Water has agreed to customary affirmative and negative covenants for as long as the CWC Notes are outstanding. The CWC Notes are also subject to customary events of default, the occurrence of which may result in all of the CWC Notes then outstanding becoming immediately due and payable. The proceeds from the sale of the CWC Notes will be used to repay outstanding short and/or long-term borrowings, to fund Connecticut Water’s capital expenditures, and/or for other general corporate purposes. As of September 30, 2021, Connecticut Water was in compliance with all covenants under this agreement.

CLWSC’s unsecured senior note agreement has terms and conditions that restrict CLWSC from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-month-calendar period would be less than 175% of interest charges. In addition, SJW Group is a guarantor of CLWSC’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005. As of September 30, 2021, CLWSC and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

Maine Water has First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and First Mortgage Bonds issued to One America. The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets 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% and an interest coverage ratio of no less than 3 to 1, required compliance with other various financial covenants, and a provision for maturity acceleration upon the occurrence of stated events of default. As of September 30, 2021, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

Maine Water has outstanding term loans with a commercial bank and under its master loan agreement, Maine Water is required to comply with financial and customary affirmative and negative covenants substantially identical to those found in CTWS and Connecticut Water’s master loan agreements. Maine Water is required to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1. As of September 30, 2021, Maine Water was in compliance with all covenants under its master loan agreement.

Short-term Financing Agreements

~~As of September 30, 2021,~~ SJW Group and its subsidiaries ~~had~~have unsecured ~~bank lines of credit, allowing aggregate short-term borrowings of up to $260,000, of which $5,000 was available to CLWSC under a single~~ line of credit ~~$140,000 was available~~agreements where borrowings are used to ~~SJWC under a single~~refinance existing debt, for working capital, and for general corporate purposes. A summary of the line of credit ~~and $40,000 and $75,000, respectively, under~~agreements as of March 31, 2022, are as follows:


	Maturity Date	Line Limit		Amounts Outstanding	Unused Portion
SJWC credit agreement (a)	December 31, 2023	$	140,000	—	140,000
CTWS credit agreement	December 14, 2023	75,000		35,997	39,003
CTWS credit agreement	May 15, 2025	40,000		40,000	—
SJWTX, Inc. credit agreement (b)	December 31, 2023	5,000		—	5,000
		$	260,000	75,997	184,003

___________________________________

(a)Credit agreement also provides for a ~~third and fourth line~~letter of credit ~~was available to CTWS. At September 30, 2021, SJW Group and its subsidiaries had available unused short-term bank lines~~sublimit of $15,000.

(b)Credit agreement also provides for a letter of credit ~~totaling $137,928. The lines~~sublimit of credit bear interest at variable rates. On April 23, 2021, the $140,000 line of credit of SJWC, which was set to mature and expire on June 1, 2021, was closed and replaced by a new $140,000 line of credit that will expire on December 31, 2023. On April 23, 2021, the $5,000 line of credit of CLWSC, which was set to mature and expired on June 1, 2021, was closed and replaced by a new $5,000 line of credit that will expire on December 31, 2023. The $40,000 and $75,000 lines of credit for CTWS expire May 15, 2025 and December 14, 2023, respectively. $1,000.

During 2021, ~~the~~ cost of borrowing on ~~SJW Group’s short-term~~the lines of credit ~~facilities has~~ averaged ~~1.34%~~1.64%.

All of SJW Group’s and subsidiaries lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes. All of the lines of credit also include certain customary financial covenants such as a funded debt to capitalization ratio and a minimum interest coverage ratio. As of ~~September 30, 2021,~~March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

Long-term Financing Agreements

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

The debt and credit agreements of SJW Group and its subsidiaries contain various financial and other covenants. Non-compliance with these covenants could result in accelerated due dates and termination of the agreements. In addition, the credit agreements contain customary representations and warranties and are subject to customary events of default, which may result in the outstanding debt becoming immediately due and payable. As of March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants related to its long-term debt agreements.

Equity Financing ~~Agreement~~Arrangements

On ~~March 8,~~November 17, 2021, SJW Group entered into an ~~underwriting~~equity distribution agreement (the “Equity Distribution Agreement”) with J.P. Morgan Securities LLC, asJanney Montgomery Scott LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (each a “Sales Agent” and, collectively, the ~~representative~~“Sales Agents”), pursuant to which the company may offer and sell shares of ~~the several underwriters named therein~~its common stock, $0.001 par value per share (the ~~“Underwriters”~~“Shares”), ~~which provided for the issuance and sale by SJW Group~~from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $100,000. Pursuant to the ~~Underwriters~~Equity Distribution Agreement, the Shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of ~~1,030,000 shares~~1933, as amended, including sales by means of ~~our common stock, par value $0.001 per share,~~ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices, in ~~an underwritten public offering (the “Offering”). The shares in~~block transactions, or as otherwise agreed upon by 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 our common stock, which was exercised in full. The Offering closed on March 10, 2021,company and the ~~offering of option shares closed on March 16, 2021.~~

~~SJW Group received net proceeds of approximately $66,775~~Sales Agents. Proceeds from ~~the Offering and~~ the sale of ~~option~~the shares ~~after deducting~~under the ~~underwriting discounts and commissions and offering expenses. SJW Group~~Equity Distribution Agreement can be used in the ~~proceeds from the offerings to pay down a bank line~~financing 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~~acquisitions, infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations, and working ~~capital.~~capital over the term of the Equity Distribution Agreement as such needs arise. As of March 31, 2022, SJW Group has $75,000 remaining on the Equity Distribution agreement. No shares were sold in the first quarter of 2022.

Credit Rating

The condition of the capital and credit markets or the strength of financial institutions could impact SJW Group’s ability to draw on its lines of credit, issue long-term debt, sell its equity or earn interest income. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost of capital. While our ability to obtain financing will continue to be a ~~key~~ risk, we believe that based on our 2022 and 2021 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future. The current Standard & Poor’s ~~Ratings~~Rating Service assigned ~~the~~ company rating for SJW Group asis an A-, with a stable outlook, for SJWC asis an A, with a stable outlook, for CTWS is an A- with a stable outlook, and for Connecticut Water asis an A- with a stable outlook.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SJW Group is subject to market risks in the normal course of business, including changes in interest rates, pension plan asset values, and equity prices. The exposure to changes in interest rates can result from the issuance of debt and short-term funds obtained through the company’s variable rate lines of credit. SJWC and Connecticut Water sponsor noncontributory pension plans for its employees. Pension costs and the funded status of the plans are affected by a number of factors including the discount rate, mortality rates of plan participants, investment returns on plan assets, and pension reform legislation.

SJW Group has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk.

ITEM 4. CONTROLS AND PROCEDURES

SJW Group’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of SJW Group’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that SJW Group’s disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by SJW Group in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. SJW Group believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There has been no change in internal control over financial reporting during the ~~third~~first fiscal quarter of ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting of SJW Group.

3123

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

ITEM 1A.RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” in SJW Group’s Form 10-K for the year ended December 31, ~~2020~~2021 and our other public filings, which could materially affect our business, financial condition or future results. Other than the risk factor below, there has been no material changes from risk factors previously disclosed in “Risk Factors” in SJW Group’s Form 10-K for the year ended December 31, ~~2020 and Forms 10-Q for the quarters ended March 31, 2021 and June 30,~~ 2021.

~~Fluctuations in customer demand for water due to seasonality, restrictions of use, weather, and lifestyle can adversely affect operating results.~~

Water Utility Services are seasonal, thus quarterly fluctuation in results of operations may be significant. Rainfall and other weather conditions also affect Water Utility Services. Water consumption typically increases during the third quarter of each year when weather tends to be warm and dry. In periods of drought, if customers are encouraged or required to conserve water due to a shortage of water supply or restriction of use, revenue tends to be lower. Similarly, in unusually wet periods, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues. Furthermore, certain lifestyle choices made by customers can affect demand for water. For example, a significant portion of residential water use is for outside irrigation of lawns and landscaping. If there is a decreased desire by customers to maintain landscaping for their homes or restrictions are placed on outside irrigation, residential water demand would decrease, which would result in lower revenues.

Conservation efforts and construction codes, which require the use of low-flow plumbing fixtures, could diminish water consumption and result in reduced revenue. In addition, in time of drought, water conservation may become a regulatory requirement that impacts the water usage of our customers. Weather conditions can also affect the sources of water supply, including the need to use more purchased water than surface water during a drought, which may increase our operating expenses. For example, in response to the current drought in California, on June 9, 2021, the Valley Water declared a drought emergency and requested retailers conserve 15% of their 2019 consumption. On July 8, 2021, Governor Gavin Newsom issued a proclamation declaring a drought emergency in fifty California Counties, including Santa Clara County. San Jose Water Company has activated our Water Shortage Contingency Plan to achieve the 15% conservation target.

The implementation of mandatory or voluntary conservation measures during the current drought has resulted and is expected to result in lower water usage by our customers which may adversely affect our results of operation. If the current conservation measures continue, or if new measures are imposed in response to drought conditions in the future, we may experience fluctuations in the timing of or a reduction in customer revenue. In addition, the current drought reduced the amount of available surface water, which required us to incur more costs to extract groundwater or obtain purchased water, which can significantly impact our results of operations.

Furthermore, the CPUC may approve memorandum accounts, such as a Water Conservation Memorandum Account (“WCMA”), to allow companies to recover revenue reductions due to water conservation activities and certain conservation related costs. However, collection of such memorandum accounts are subject to a review and approval process by CPUC, which can be lengthy, and there is no assurance that we will be able to recover in a timely manner all or some of the revenue and costs recorded in the memorandum accounts. When drought conditions ease and the California State Water Board and Valley Water no longer mandate water conservation, the company may no longer be allowed to recover revenue lost due to continued conservation activities under the WCMA account and would therefore be exposed to differences between actual and authorized usage. This could result in lower revenues.

Our business, financial condition, and results of operations have been and will continue to be negatively impacted by the COVID-19 pandemic.

We are subject to risks associated with the COVID-19 pandemic. In 2020 and ~~early parts of~~ 2021, numerous governmental jurisdictions, including the States of California, Connecticut, Maine and Texas where we operate our water utility services, imposed “shelter-in-place” orders, quarantines, executive orders and similar governmental orders and restrictions for their residents to control the spread of COVID-19 disease. Such orders and restrictions resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, travel restrictions

and cancellation of events, among other effects, thereby negatively impacting our suppliers, employees and ~~customers, among others.~~customers. Since the start of the second quarter of 2021, there has been increased availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government functions, which resulted in gradual resumption of economic and commercial activities. On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus remain a ~~risk. Accordingly, federal~~risk, including the Delta and ~~state governments may~~most recently the Omicron variants which have increased the spread and transmission of COVID-19 disease and prompted government agencies to reinstate or impose public health measures and restrictions that were previously lifted. The continuation of such restrictions or ~~reverse their~~reversal of prior orders to ~~lift~~ease restrictions ~~in response to rising infection rates, which~~ will have a negative effect on our business operations and results of operations.

In response to the pandemic, federal and state governments have and may continue to take actions to impose utility termination moratoriums which prohibit water companies from turning off water supplies for nonpayment of water bills. These and other events associated with the COVID-19 pandemic have reduced the incentive and ability of certain of our residential and commercial customers to pay their water services bills on time, if at all, which could negatively impact our result of operations. Recently, state governments have acted to end existing utility termination moratoriums. ~~For example, Governor Newsom~~In California, the remaining state executive order suspending water service disconnections due to non-payment by customers expired February 1, 2022. There are currently no such orders remaining in California issued Executive Order N-08-21 which was anticipated to end the suspension on customer disconnection activities on September 30, 2021. The CPUC also directed its regulated water utilities to extend the suspension on customer disconnection activities through September 30, 2021, in response to the Governor’s order. The required transition plan regarding shutoffs and terminations with customers once the moratorium end was filed and approved by the CPUC through Advice Letter 560. On September 24, 2021, the moratorium on customer disconnections in California was extended to December 31, 2021. In Connecticut, the March 12, 2020, the Public Utilities Regulatory Authority of Connecticut (“PURA”) moratorium ruling to halt shutoff for nonpayment expired on October 1, 2020. However, all public service utilities were required to submit for PURA approval their termination process, including customer communications, before resuming shutoffs for nonpayment. Connecticut Water received PURA approval of our plan for terminations on September 30, 2021, subject to the filing of specific revised customer communications. The company submitted the revised communications to PURA on October 14, 2021 and expects to resume terminationseffect in the ~~fourth quarter of 2021.~~states where we operate on suspending water service disconnections due to non-payment. However, if COVID-19 infection rates rise and health officials recommend more stringent measures to stop spread of the disease, state governments may decide to reverse these actions which may prolong our inability to collect fully water services bills from customers. Furthermore, a significant portion of our revenue is derived from water usage by commercial customers. As many of these customers have suspended, altered or terminated their business operations, their water usage may decline significantly or cease, which could adversely affect our revenue. Even though many of these legal restrictions have been eased and lifted in certain jurisdictions, including California, some of our commercial customers may decide not to open fully or at all due to their ongoing concerns with health and safety of employees at the workplace, in which case their water usage may remain at a lower level and continue to adversely impact our revenue.

The regulators in states we operate have approved mechanisms to either record a regulatory asset or track, in a memorandum account, expenses and savings related to COVID-19. If a state regulator disagrees with our calculation of recorded COVID-19 account balances, we may be required to make adjustments that could adversely affect our results of operations. While we expect to recover some of the revenue loss and costs through the rate-making processes, there is no guarantee that such recovery will be approved by the regulated utility authorities in a timely manner, or at all.

Recently federal and state governments have issued orders and regulations directing employers to require their employees to be vaccinated as a condition to continuing employment, which may adversely affect our operations. In November 2021, and in response to the order by President Joseph Biden, the federal Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard mandating that all employers with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or produce a negative COVID test on a weekly basis. However, on January 13, 2022, the U.S. Supreme Court invalidated President Biden’s federal vaccine mandate holding that OSHA had exceeded its authority. Accordingly, the implementation of such federal vaccine mandate is suspended, but similar state and local mandates may continue to be enforced and implemented. In response to these regulatory developments and the need to protect the health and

safety of our employees, we implemented a policy requiring our employees, subject to certain exemptions, to be vaccinated. On January 22, 2022, SJWC received a letter from the National Labor Relations Board (“NLRB”) stating that it would investigate the allegations from the Utility Workers Union of America Local 259 (“Union”) that SJWC failed to bargain in good faith by imposing a COVID vaccine mandate and threatening to terminate noncompliant employees and for failing to bargain over its decision to impose the mandate. Subsequent to the notice, NLRB chose not to investigate and denied the claim instructing the Union to seek a mediation process to resolve the matter. The Union has appealed the NLRB’s decision and is currently awaiting further response from the NLRB on the matter. These regulatory requirements and company policies may result in increased operating costs, labor disruptions or employee attrition, and if we lose employees, it may be difficult in the current competitive labor market to recruit and hire replacement employees, all of which may have an adverse effect on our business operations and financial conditions.

In addition to ~~loss of revenue,~~the above risks, we are subject to the following risks resulting from the COVID-19 pandemic and related events:

•if governments impose or reinstate “shelter-in-place” orders and quarantines, our planned infrastructure improvement projects could be temporarily interrupted by supply shortages, lack of sufficient workforce and disruption in transportation. This may negatively impact our ability to maintain and improve our infrastructure and provide reliable services to customers. In addition, our expenditures on capital improvements could be reduced, which may in turn impact rate decisions by state regulators.

•wide-spread COVID-19 disease could impact the health of our employees and management team, which may disrupt our business operations;

•a recession, stock market correction, or debt market disruptions resulting from the spread of COVID-19 could materially affect our business, results of operations, cash flow, and the value of our common stock, which may make it more difficult for us to raise capital in equity or debt markets;

•we may experience higher uncollectible accounts receivables and increased costs from COVID-19 related prevention activities.

In addition, the COVID-19 pandemic has resulted in widespread global supply chain disruptions to vendors and suppliers, which may negatively affect our business operations, including delays in procuring materials and supplies that are required for capital additions and operations. The full extent of the future impact of COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors, many of which are outside our control, including, without limitation the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on state and local economy and customer

behaviors. Any of these factors may continue to adversely affect our business and financial conditions, and there is no guarantee that we will be able to quickly return to our normal operations.

ITEM 5.OTHER INFORMATION

Quarterly Dividend

On ~~October 28, 2021,~~April 27, 2022, the Board of Directors of SJW Group declared the regular quarterly dividend of ~~$0.34~~$0.36 per share of common stock. The dividend will be paid on ~~December~~June 1, ~~2021,~~2022, to stockholders of record as of the close of business on ~~November 8, 2021.~~May 9, 2022.

Information Web Sites

SJW Group ~~post~~posts information about the operating and financial performance of SJW Group and its subsidiaries on its web sites at www.sjwgroup.com, www.sjwater.com, www.ctwater.com, www.sjwtx.com and www.mainewater.com from time to time. The information on our web sites is not a part of and should not be considered incorporated by reference into this Form 10-Q.

ITEM 6.EXHIBITS


Exhibit Number						Description

~~10.1~~						~~Note Purchase Agreement among The Connecticut Water Company and Purchasers listed therein, dated August 4, 2021. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on~~ ~~August~~ 5 ~~, 2021~~.

~~10.2~~						~~Fourth Amendment to the Formulaic Equity Award Program for Non-Employee Board Members dated September 8, 2021~~.~~Incorporated by reference to Exhibit 10.1 to Form 8-K filed on~~ ~~September~~14 ~~, 2021.~~ ~~(2)~~

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)

101.INS						XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document

(1)Filed currently herewith.

~~(2)Management contract or compensatory plan or agreement.~~

3426

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SJW GROUP

DATE:

~~October~~April 29, ~~2021~~2022

By:

/s/ ~~JAMES P. LYNCH~~ANDREW F. WALTERS

~~James P. Lynch~~Andrew F. Walters

Chief Financial Officer and Treasurer
(Principal financial officer)

3527


	September 30, 2021		December 31, 2020
Regulatory assets:
Income tax temporary differences, net	$	15,772	6,230
Postretirement pensions and other medical benefits	99,213		95,559
Business combinations debt premium, net	20,573		22,479
Balancing and memorandum accounts, net	33,277		25,463
Water Rate Adjustment	5,489		323
Other, net	7,786		8,176
Total regulatory assets, net in Condensed Consolidated Balance Sheets	182,110		158,230
Less: current regulatory assets, net	3,249		1,748
Total regulatory assets, net, less current portion	$	178,861	156,482


	Three months ended September 30, 2021				Three months ended September 30, 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:
MWRAM	$	15,278	363	—	15,641	$	10,549	(1,124)	2,625	12,050


Cost of capital memorandum account	(1,562)		—	—	(1,562)	(1,560)		(1)	—	(1,561)
Tax memorandum account	333		—	—	333	332		1	—	333
All others	(829)		397	—	(432)	(1,034)		37	1	(996)
Total revenue accounts	$	13,220	760	—	13,980	$	8,287	(1,087)	2,626	9,826
Cost-recovery accounts:
Water supply costs	9,895		388	—	10,283	5,899		1,222	1	7,122
Pension	4,210		366	—	4,576	2,985		(253)	—	2,732
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”)	928		—	(121)	807	—		1,219	(8)	1,211
COVID-19 Catastrophic Event Memorandum Account (“CEMA”)	2,618		567	—	3,185	—		—	—	—
All others	446		—	—	446	444		—	—	444
Total cost-recovery accounts	$	18,097	1,321	(121)	19,297	$	9,328	2,188	(7)	11,509

Total	$	31,317	2,081	(121)	33,277	$	17,615	1,101	2,619	21,335


	Nine months ended September 30, 2021				Nine months ended September 30, 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:
MWRAM	$	12,077	3,563	1	15,641	$	7,015	2,437	2,598	12,050


Cost of capital memorandum account	(1,561)		(1)	—	(1,562)	(1,553)		(8)	—	(1,561)
Tax memorandum account	333		—	—	333	(6,643)		(2)	6,978	333
All others	(806)		369	5	(432)	(759)		(128)	(109)	(996)
Total revenue accounts	$	10,043	3,931	6	13,980	$	(1,940)	2,299	9,467	9,826
Cost-recovery accounts:
Water supply costs	8,123		2,159	1	10,283	4,328		2,827	(33)	7,122
Pension	3,478		1,098	—	4,576	2,449		261	22	2,732
PRVMA	1,108		—	(301)	807	—		1,219	(8)	1,211
CEMA	2,266		919	—	3,185	—		—	—	—
All others	445		1	—	446	446		2	(4)	444
Total cost-recovery accounts	$	15,420	4,177	(300)	19,297	$	7,223	4,309	(23)	11,509

Total	$	25,463	8,108	(294)	33,277	$	5,283	6,608	9,444	21,335


	For Three Months Ended September 30, 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	$	162,352	3,168	1,403	—	162,352	4,571	166,923
Operating expense	129,915		2,156	956	122	129,915	3,234	133,149
Operating income (loss)	32,437		1,012	447	(122)	32,437	1,337	33,774
Net income (loss)	20,625		879	294	(2,730)	20,625	(1,557)	19,068
Depreciation and amortization	23,209		113	292	223	23,209	628	23,837
Interest on long-term debt and other interest expense	8,805		—	—	4,730	8,805	4,730	13,535
Provision (benefit) for income taxes	3,537		280	100	(1,168)	3,537	(788)	2,749
Assets	$	3,352,976	7,141	44,629	64,995	3,352,976	116,765	3,469,741