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 March 31, 2021

OR

☐ 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,	CA	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 April 23, 2021, there were 29,789,887 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.

2

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 March 31,
	2021		2020
REVENUE	$	114,785	115,754
OPERATING EXPENSE:
Production Expenses:
Purchased water	15,645		15,934
Power	3,003		2,725
Groundwater extraction charges	15,545		15,028
Other production expenses	9,402		10,093
Total production expenses	43,595		43,780
Administrative and general	20,893		21,262
Maintenance	6,265		6,086
Property taxes and other non-income taxes	7,515		7,463
Depreciation and amortization	23,438		21,382
Merger related expenses	—		354
Total operating expense	101,706		100,327
OPERATING INCOME	13,079		15,427
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense	(13,439)		(13,284)
Pension non-service cost	326		(45)
Other, net	1,754		757
Income before income taxes	1,720		2,855
(Benefit) provision for income taxes	(896)		438
NET INCOME	2,616		2,417
Other comprehensive income (loss), net	38		(135)
COMPREHENSIVE INCOME	$	2,654	2,282
EARNINGS PER SHARE
Basic	$	0.09	0.08
Diluted	$	0.09	0.08
DIVIDENDS PER SHARE	$	0.34	0.32
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	28,862,882		28,489,357
Diluted	28,990,203		28,674,221

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

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

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

 

	March 31, 2021		December 31, 2020
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Stockholders’ equity:
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 29,789,887 on March 31, 2021 and 28,556,605 on December 31, 2020	$	30	29
Additional paid-in capital	578,395		510,158
Retained earnings	400,897		408,037
Accumulated other comprehensive income	(1,026)		(1,064)
Total stockholders’ equity	978,296		917,160
Long-term debt, less current portion	1,303,028		1,287,580
	2,281,324		2,204,740
CURRENT LIABILITIES:
Line of credit	121,509		175,094
Current portion of long-term debt	76,285		76,241
Accrued groundwater extraction charges, purchased water and power	18,144		19,184
Accounts payable	25,636		34,200
Accrued interest	17,102		12,861
Accrued payroll	11,911		14,012
Other current liabilities	19,148		19,203
	289,735		350,795
DEFERRED INCOME TAXES	189,531		191,415
ADVANCES FOR CONSTRUCTION	125,967		125,027
CONTRIBUTIONS IN AID OF CONSTRUCTION	297,390		296,105
POSTRETIREMENT BENEFIT PLANS	124,265		121,597
OTHER NONCURRENT LIABILITIES	23,930		21,786
COMMITMENTS AND CONTINGENCIES	—		—
	$	3,332,142	3,311,465

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

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

 

	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)
Share-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

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Three months ended March 31,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	2,616	2,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,931		22,482
Deferred income taxes	(762)		(344)
Stock-based compensation	1,280		251
Allowance for equity funds used during construction	(402)		—
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue	7,725		5,498
Accounts payable and other current liabilities	(3,719)		(8,755)
Accrued groundwater extraction charges, purchased water and power	(1,040)		(4,292)
Tax receivable and payable, and other accrued taxes	3,333		1,875
Postretirement benefits	1,649		2,445
Regulatory assets and liabilities related to balancing and memorandum accounts	(1,750)		(10,158)
Up-front service concession payment	—		(5,000)
Other changes, net	515		1,510
NET CASH PROVIDED BY OPERATING ACTIVITIES	33,376		7,929
INVESTING ACTIVITIES:
Additions to utility plant:
Company-funded	(46,674)		(38,314)
Contributions in aid of construction	(4,653)		(3,629)
Additions to real estate investments	(152)		(255)
Payments to retire utility plant, net of salvage	(461)		(271)
NET CASH USED IN INVESTING ACTIVITIES	(51,940)		(42,469)
FINANCING ACTIVITIES:
Borrowings on line of credit	28,637		47,424
Repayments on line of credit	(82,222)		(33,231)
Long-term borrowings	17,000		35,000
Repayments of long-term borrowings	(1,159)		(1,171)
Issuance of common stock, net of issuance costs	67,249		—
Dividends paid	(9,724)		(9,118)
Receipts of advances and contributions in aid of construction	4,687		6,416
Refunds of advances for construction	(583)		(557)
Other changes, net	(80)		106
NET CASH PROVIDED BY FINANCING ACTIVITIES	23,805		44,869
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	5,241		10,329
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	9,269		17,944
CASH, CASH EQUIVALENTS AND RESTRICTED CASH , END OF PERIOD	14,510		28,273
LESS RESTRICTED CASH, END OF PERIOD	3,104		—
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,406	28,273
Cash paid during the period for:
Interest	$	9,516	9,373
Income taxes	158		(50)
Supplemental disclosure of non-cash activities:
Change in accrued payables for construction costs capitalized	$	(6,601)	(2,601)
Utility property installed by developers	202		3,076
Accrued additional common stock issuance costs	353		—

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(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 (“GAAP”) and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). The Notes to Consolidated Financial Statements in SJW Group’s 2020 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

Recently Adopted Accounting Principles

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 was effective for 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.

Impacts of Coronavirus (“COVID-19”)

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

Revenue

Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater, and lower in the winter months when cooler temperatures and increased precipitation curtail water usage resulting in lower sales.

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

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

Earnings per Share

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

8

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

combination with CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended March 31, 2021 and 2020, 8,579 and 17,573 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

Utility Plant Depreciation

A portion of depreciation expense is allocated to administrative and general expense. For the three months ended March 31, 2021, and 2020, the amounts allocated to administrative and general expense were $493 and $1,098, respectively.

Real Estate Investments

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

	March 31, 2021		December 31, 2020
Land	$	14,168	14,168
Buildings and improvements	44,112		43,961
Subtotal	58,280		58,129
Less: accumulated depreciation and amortization	15,072		14,783
Total	$	43,208	43,346

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

Note 2.Regulatory Rate Filings

California Regulatory Affairs

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

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

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

On January 5, 2021, SJWC, along with three other California water utilities, filed a joint request for an additional one-year deferment on its Cost of Capital filing which would otherwise be due on May 1, 2021. Postponing the filing an additional year would have alleviated administrative processing costs on the utilities as well as the CPUC staff, and provided relief for both CPUC and utility resources already strained by numerous other proceedings and COVID-19. The request was conditioned on no changes being made as a result of the current Water Cost of Capital Mechanism in place during the one-year deferment. The request was denied on February 22, 2021. SJWC expects to file its Cost of Capital application on May 3, 2021, as required by the CPUC.

9

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

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. As of March 31, 2021, WICA surcharges for Connecticut Water and its Avon Water division were 5.75% and 9.31%, respectively.  The Heritage Village Water (“HVWC”) division does not have an approved WICA surcharge. 

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

Long-term debt issuances for Connecticut Water require regulatory authorization which is typically obtained for a specified amount of debt to be issued during a specified period of time. On March 16, 2021, Connecticut Water filed for PURA approval for the 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 expects to receive a decision from PURA within 60 days of its filing.

Texas Regulatory Affairs

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

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

Maine Regulatory Affairs

On June 17, 2020, the Main Public Utilities Commission (“MPUC”) approved a general rate increase for Skowhegan Division customers allowing $198 in additional revenue.  Per the MPUC decision, the increase will be implemented in two steps: an initial 9.80% rate increase effective June 15, 2020, and 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.

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

10

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

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, and a decision on the requested revenue increase is expected in the second quarter of 2022, in alignment with the completion of the new water treatment facility.

Note 3.Regulatory Assets, Net

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

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

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

Note 4.Balancing and Memorandum Accounts

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

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

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

11

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

	Three months ended March 31, 2021					Three months ended March 31, 2020
	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance	Beginning Balance		Regulatory Asset Increase (Decrease)	Refunds (Collections) Adjustments	Ending Balance
Revenue accounts:
Monterey WRAM	$	12,077	1,776	—	13,853	$	7,015	1,970	(27)	8,958
2014-2017 WCMA	666		—	—	666	708		—	(43)	665
2012 General Rate Case true-up	752		—	1	753	752		—	—	752
Cost of capital memorandum account	(1,561)		—	—	(1,561)	(1,553)		(5)	—	(1,558)
Tax memorandum account	333		—	—	333	(6,643)		(3)	6,978	332
All others	(2,224)		(175)	—	(2,399)	(2,219)		(205)	(67)	(2,491)
Total revenue accounts	$	10,043	1,601	1	11,645	$	(1,940)	1,757	6,841	6,658
Cost-recovery accounts:
Water supply costs	8,123		787	—	8,910	4,328		767	(34)	5,061
Pension	3,478		366	—	3,844	2,449		415	22	2,886
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”)	1,108		—	(81)	1,027	—		—	—	—
COVID-19 Catastrophic Event Memorandum Account (“CEMA”)	2,266		—	—	2,266	—		—	—	—
All others	445		—	—	445	446		1	(4)	443
Total cost-recovery accounts	$	15,420	1,153	(81)	16,492	$	7,223	1,183	(16)	8,390
Total	$	25,463	2,754	(80)	28,137	$	5,283	2,940	6,825	15,048

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

Note 5.Capitalization

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

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

12

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

Note 6.Equity Plans

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

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

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

Stock compensation costs charged to income are recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from the exercise of any restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three months ended March 31, 2021, and 2020.

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

Restricted Stock and Deferred Restricted Stock

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

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

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

Employee Stock Purchase Plan

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

13

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

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

Note 7.Long-Term Liabilities and Bank Borrowings

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

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. As of March 31, 2021, Maine Water was in compliance with all financial, affirmative and negative covenants under this agreement.

Note 8.Benefit Plans

SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. San Jose Water Company (“SJWC”) and CTWS employees hired before March 31, 2008, and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the 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.

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

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

14

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

In 2021, SJW Group expects to make required and discretionary cash contributions of up to $9,043 to the pension plans and Social Welfare Plan. For the three months ended March 31, 2021, SJW Group has made no contributions to such plans.

Note 9.Income Taxes

For the three months ended March 31, 2021, income tax benefit was $896. Income tax expense for the three months ended March 31, 2020, was $438. The effective consolidated income tax rates were (52)% and 15% for the three months ended March 31, 2021, and 2020, respectively. The lower effective rates for the three months ended March 31, 2021, were primarily due to excess tax benefits relating to share-based payment awards, state tax credits and other discrete tax items.

SJW Group had unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties of approximately $6,511 and $6,468 as of March 31, 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 was signed into law. SJW Group is currently evaluating the impact this legislation may have on the consolidated financial results.

Note 10.Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2021, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2021, approximates their carrying value as reported on the condensed consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. There have been no changes in valuation techniques during the three months ended March 31, 2021. The fair value of these instruments would be 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 $1,486,355 and $1,570,727 as of March 31, 2021, and December 31, 2020, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was $1,379,313 and $1,363,821 as of March 31, 2021, and December 31, 2020, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts by major categories as of March 31, 2021, and December 31, 2020: 

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

15

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

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

Note 11.Segment and Non-Tariffed Business Reporting

SJW Group is a holding company with four 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 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
(Benefit) provision for income taxes	(116)		182	109	(1,071)	(116)	(780)	(896)
Assets	$	3,218,536	7,625	44,763	61,218	3,218,536	113,606	3,332,142

16

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2021

(in thousands, except share and per share data)

	For Three Months Ended March 31, 2020
	Water Utility Services			Real Estate Services	All Other (1)	SJW Group
	Regulated		Non-tariffed	Non-tariffed	Non-tariffed	Regulated	Non-tariffed	Total
Operating revenue	$	111,367	3,017	1,370	—	111,367	4,387	115,754
Operating expense	96,017		1,361	831	2,118	96,017	4,310	100,327
Operating income (loss)	15,350		1,656	539	(2,118)