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, 20222023
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 October 24, 2022,2023, there were 30,319,31731,933,003 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 regulatory 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;
•the effect of the impact of climate change and the effects thereof;change;
•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 September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
REVENUE | REVENUE | $ | 175,981 | | | 166,923 | | | $ | 449,324 | | | 433,949 | | REVENUE | $ | 204,843 | | | 175,981 | | | $ | 499,025 | | | 449,324 | |
OPERATING EXPENSE: | OPERATING EXPENSE: | | OPERATING EXPENSE: | |
Production Expenses: | Production Expenses: | | Production Expenses: | |
Purchased water | Purchased water | 38,744 | | | 33,121 | | | 84,313 | | | 76,434 | | Purchased water | 46,044 | | | 38,744 | | | 101,054 | | | 84,313 | |
Power | Power | 3,913 | | | 4,179 | | | 10,387 | | | 10,573 | | Power | 2,785 | | | 3,913 | | | 7,363 | | | 10,387 | |
Groundwater extraction charges | Groundwater extraction charges | 19,059 | | | 23,736 | | | 51,347 | | | 59,419 | | Groundwater extraction charges | 21,398 | | | 19,059 | | | 46,751 | | | 51,347 | |
Other production expenses | Other production expenses | 11,888 | | | 11,069 | | | 33,607 | | | 30,302 | | Other production expenses | 12,415 | | | 11,888 | | | 36,379 | | | 33,607 | |
Total production expenses | Total production expenses | 73,604 | | | 72,105 | | | 179,654 | | | 176,728 | | Total production expenses | 82,642 | | | 73,604 | | | 191,547 | | | 179,654 | |
Administrative and general | Administrative and general | 23,909 | | | 22,713 | | | 71,374 | | | 64,932 | | Administrative and general | 23,888 | | | 23,909 | | | 71,759 | | | 71,374 | |
Maintenance | Maintenance | 7,065 | | | 6,369 | | | 20,651 | | | 19,221 | | Maintenance | 6,457 | | | 7,065 | | | 18,813 | | | 20,651 | |
Property taxes and other non-income taxes | Property taxes and other non-income taxes | 8,354 | | | 8,125 | | | 24,242 | | | 22,789 | | Property taxes and other non-income taxes | 8,795 | | | 8,354 | | | 25,092 | | | 24,242 | |
Depreciation and amortization | Depreciation and amortization | 25,529 | | | 23,837 | | | 78,342 | | | 70,787 | | Depreciation and amortization | 26,455 | | | 25,529 | | | 78,872 | | | 78,342 | |
Gain on sale of nonutility properties | (82) | | | — | | | (5,532) | | | — | | |
Gain on sale of nonutility property | | Gain on sale of nonutility property | — | | | (82) | | | — | | | (5,532) | |
Total operating expense | Total operating expense | 138,379 | | | 133,149 | | | 368,731 | | | 354,457 | | Total operating expense | 148,237 | | | 138,379 | | | 386,083 | | | 368,731 | |
OPERATING INCOME | OPERATING INCOME | 37,602 | | | 33,774 | | | 80,593 | | | 79,492 | | OPERATING INCOME | 56,606 | | | 37,602 | | | 112,942 | | | 80,593 | |
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 | (14,190) | | | (13,535) | | | (42,160) | | | (40,655) | | Interest on long-term debt and other interest expense | (16,744) | | | (14,190) | | | (48,913) | | | (42,160) | |
Pension non-service cost | 970 | | | 334 | | | 2,860 | | | 999 | | |
Gain on sale of Texas Water Alliance | — | | | — | | | — | | | 3,000 | | |
Pension non-service (cost) credit | | Pension non-service (cost) credit | (740) | | | 970 | | | (906) | | | 2,860 | |
| | Other, net | Other, net | 875 | | | 1,244 | | | 2,694 | | | 4,782 | | Other, net | 1,661 | | | 875 | | | 7,042 | | | 2,694 | |
Income before income taxes | Income before income taxes | 25,257 | | | 21,817 | | | 43,987 | | | 47,618 | | Income before income taxes | 40,783 | | | 25,257 | | | 70,165 | | | 43,987 | |
Provision for income taxes | Provision for income taxes | 223 | | | 2,749 | | | 3,658 | | | 5,159 | | Provision for income taxes | 4,561 | | | 223 | | | 4,127 | | | 3,658 | |
NET INCOME | NET INCOME | 25,034 | | | 19,068 | | | 40,329 | | | 42,459 | | NET INCOME | 36,222 | | | 25,034 | | | 66,038 | | | 40,329 | |
Other comprehensive (loss) income, net | (173) | | | (12) | | | (602) | | | 133 | | |
Other comprehensive income (loss), net | | Other comprehensive income (loss), net | 318 | | | (173) | | | 420 | | | (602) | |
COMPREHENSIVE INCOME | COMPREHENSIVE INCOME | $ | 24,861 | | | 19,056 | | | $ | 39,727 | | | 42,592 | | COMPREHENSIVE INCOME | $ | 36,540 | | | 24,861 | | | $ | 66,458 | | | 39,727 | |
| EARNINGS PER SHARE | EARNINGS PER SHARE | | | | | | | | EARNINGS PER SHARE | |
Basic | Basic | $ | 0.83 | | | 0.64 | | | $ | 1.33 | | | 1.44 | | Basic | $ | 1.14 | | | 0.83 | | | $ | 2.10 | | | 1.33 | |
Diluted | Diluted | $ | 0.82 | | | 0.64 | | | $ | 1.33 | | | 1.43 | | Diluted | $ | 1.13 | | | 0.82 | | | $ | 2.09 | | | 1.33 | |
DIVIDENDS PER SHARE | DIVIDENDS PER SHARE | $ | 0.36 | | | 0.34 | | | $ | 1.08 | | | 1.02 | | DIVIDENDS PER SHARE | $ | 0.38 | | | 0.36 | | | $ | 1.14 | | | 1.08 | |
WEIGHTED AVERAGE SHARES OUTSTANDING | WEIGHTED AVERAGE SHARES OUTSTANDING | | WEIGHTED AVERAGE SHARES OUTSTANDING | |
Basic | Basic | 30,269,462 | | | 29,816,736 | | | 30,246,201 | | | 29,496,533 | | Basic | 31,862,518 | | | 30,269,462 | | | 31,436,077 | | | 30,246,201 | |
Diluted | Diluted | 30,392,295 | | | 29,952,477 | | | 30,358,268 | | | 29,625,784 | | Diluted | 31,934,636 | | | 30,392,295 | | | 31,526,732 | | | 30,358,268 | |
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, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | ASSETS | | | |
Utility plant: | Utility plant: | | Utility plant: | |
Land | Land | $ | 39,885 | | | 39,004 | | Land | $ | 41,427 | | | 39,982 | |
Depreciable plant and equipment | Depreciable plant and equipment | 3,596,198 | | | 3,381,908 | | Depreciable plant and equipment | 3,879,507 | | | 3,661,285 | |
Construction in progress | Construction in progress | 127,528 | | | 176,427 | | Construction in progress | 113,204 | | | 116,851 | |
Intangible assets | Intangible assets | 35,960 | | | 36,276 | | Intangible assets | 35,946 | | | 35,959 | |
Total utility plant | | Total utility plant | 4,070,084 | | | 3,854,077 | |
Less accumulated depreciation and amortization | | Less accumulated depreciation and amortization | 1,305,134 | | | 1,223,760 | |
Net utility plant | | Net utility plant | 2,764,950 | | | 2,630,317 | |
| | 3,799,571 | | | 3,633,615 | | | | | |
Nonutility properties and real estate investments | | Nonutility properties and real estate investments | 13,072 | | | 58,033 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | 1,206,690 | | | 1,136,116 | | Less accumulated depreciation and amortization | 192 | | | 17,158 | |
| 2,592,881 | | | 2,497,499 | | |
Real estate investments and nonutility properties | 58,012 | | | 57,632 | | |
Less accumulated depreciation and amortization | 16,855 | | | 15,951 | | |
Net nonutility properties and real estate investments | | Net nonutility properties and real estate investments | 12,880 | | | 40,875 | |
| | 41,157 | | | 41,681 | | | | | |
CURRENT ASSETS: | CURRENT ASSETS: | | | | CURRENT ASSETS: | |
Cash and cash equivalents: | | |
Cash | 13,190 | | | 10,908 | | |
Restricted cash | — | | | 1,211 | | |
Cash and cash equivalents | | Cash and cash equivalents | 21,067 | | | 12,344 | |
| Accounts receivable: | Accounts receivable: | | Accounts receivable: | |
Customers, net of allowances for uncollectible accounts of $5,665 and $4,600 on September 30, 2022 and December 31, 2021, respectively | 63,760 | | | 53,699 | | |
Income tax | — | | | 2,308 | | |
Customers, net of allowances for uncollectible accounts of $6,661 and $5,753 on September 30, 2023 and December 31, 2022, respectively | | Customers, net of allowances for uncollectible accounts of $6,661 and $5,753 on September 30, 2023 and December 31, 2022, respectively | 70,374 | | | 59,172 | |
| Other | Other | 7,300 | | | 4,735 | | Other | 4,381 | | | 5,560 | |
Accrued unbilled utility revenue | Accrued unbilled utility revenue | 53,682 | | | 44,026 | | Accrued unbilled utility revenue | 62,253 | | | 45,722 | |
Assets held for sale | | Assets held for sale | 40,850 | | | — | |
Prepaid expenses | Prepaid expenses | 12,964 | | | 9,667 | | Prepaid expenses | 14,996 | | | 9,753 | |
Current regulatory assets, net | Current regulatory assets, net | 738 | | | 2,629 | | Current regulatory assets, net | 8,573 | | | 16,068 | |
Other current assets | Other current assets | 6,266 | | | 4,902 | | Other current assets | 6,277 | | | 6,095 | |
| | 157,900 | | | 134,085 | | | 228,771 | | | 154,714 | |
OTHER ASSETS: | OTHER ASSETS: | | | | OTHER ASSETS: | | | |
Net regulatory assets, less current portion | Net regulatory assets, less current portion | 145,945 | | | 151,992 | | Net regulatory assets, less current portion | 131,420 | | | 127,275 | |
Investments | Investments | 14,438 | | | 15,784 | | Investments | 15,901 | | | 14,819 | |
Other intangible asset | | Other intangible asset | 28,386 | | | — | |
Goodwill | Goodwill | 640,311 | | | 640,471 | | Goodwill | 640,311 | | | 640,311 | |
Other | Other | 12,072 | | | 10,883 | | Other | 20,809 | | | 24,313 | |
| | 812,766 | | | 819,130 | | | 836,827 | | | 806,718 | |
| | $ | 3,604,704 | | | 3,492,395 | | | $ | 3,843,428 | | | 3,632,624 | |
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, 2022 | | December 31, 2021 |
CAPITALIZATION AND LIABILITIES | | | |
CAPITALIZATION: | | | |
Stockholders’ equity: | | | |
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 30,315,265 on September 30, 2022 and 30,181,348 on December 31, 2021 | $ | 30 | | | 30 | |
Additional paid-in capital | 614,226 | | | 606,392 | |
Retained earnings | 435,856 | | | 428,260 | |
Accumulated other comprehensive income | (765) | | | (163) | |
Total stockholders’ equity | 1,049,347 | | | 1,034,519 | |
Long-term debt, less current portion | 1,453,748 | | | 1,492,935 | |
| 2,503,095 | | | 2,527,454 | |
CURRENT LIABILITIES: | | | |
Line of credit | 199,170 | | | 62,996 | |
Current portion of long-term debt | 4,340 | | | 39,106 | |
Accrued groundwater extraction charges, purchased water and power | 27,694 | | | 17,200 | |
Accounts payable | 29,765 | | | 30,391 | |
Accrued interest | 17,905 | | | 14,174 | |
| | | |
Accrued payroll | 11,524 | | | 11,583 | |
Income tax payable | 3,859 | | | — | |
Other current liabilities | 24,453 | | | 27,821 | |
| 318,710 | | | 203,271 | |
DEFERRED INCOME TAXES | 208,130 | | | 200,451 | |
ADVANCES FOR CONSTRUCTION | 140,842 | | | 130,693 | |
CONTRIBUTIONS IN AID OF CONSTRUCTION | 319,866 | | | 316,479 | |
POSTRETIREMENT BENEFIT PLANS | 89,610 | | | 89,998 | |
| | | |
OTHER NONCURRENT LIABILITIES | 24,451 | | | 24,049 | |
COMMITMENTS AND CONTINGENCIES | | | |
| $ | 3,604,704 | | | 3,492,395 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
CAPITALIZATION AND LIABILITIES | | | |
CAPITALIZATION: | | | |
Stockholders’ equity: | | | |
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 31,933,003 on September 30, 2023 and 30,801,912 on December 31, 2022 | $ | 32 | | | 31 | |
Additional paid-in capital | 729,740 | | | 651,004 | |
Retained earnings | 488,585 | | | 458,356 | |
Accumulated other comprehensive income | 1,896 | | | 1,477 | |
Total stockholders’ equity | 1,220,253 | | | 1,110,868 | |
Long-term debt, less current portion | 1,533,769 | | | 1,491,965 | |
| 2,754,022 | | | 2,602,833 | |
| | | |
CURRENT LIABILITIES: | | | |
Lines of credit | 128,433 | | | 159,578 | |
Current portion of long-term debt | 43,464 | | | 4,360 | |
Accrued groundwater extraction charges, purchased water and power | 33,170 | | | 19,707 | |
Accounts payable | 35,926 | | | 29,581 | |
Accrued interest | 19,165 | | | 13,907 | |
Accrued payroll | 11,264 | | | 11,908 | |
Income tax payable | 11,809 | | | 2,696 | |
Other current liabilities | 24,885 | | | 22,913 | |
| 308,116 | | | 264,650 | |
| | | |
DEFERRED INCOME TAXES | 234,558 | | | 218,155 | |
ADVANCES FOR CONSTRUCTION | 143,810 | | | 137,696 | |
CONTRIBUTIONS IN AID OF CONSTRUCTION | 328,633 | | | 323,668 | |
POSTRETIREMENT BENEFIT PLANS | 51,150 | | | 59,738 | |
| | | |
OTHER NONCURRENT LIABILITIES | 23,139 | | | 25,884 | |
COMMITMENTS AND CONTINGENCIES | | | |
| $ | 3,843,428 | | | 3,632,624 | |
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, 2021 | 30,181,348 | | | $ | 30 | | | $ | 606,392 | | | $ | 428,260 | | | $ | (163) | | | | | $ | 1,034,519 | |
Net income | — | | | — | | | — | | | 3,737 | | | — | | | | | 3,737 | |
Unrealized loss on investment, net of tax benefit of $67 | — | | | — | | | — | | | — | | | (181) | | | | | (181) | |
Stock-based compensation | — | | | — | | | 1,552 | | | (20) | | | — | | | | | 1,532 | |
Issuance of restricted and deferred stock units | 37,879 | | | — | | | (1,269) | | | — | | | — | | | | | (1,269) | |
Employee stock purchase plan | 17,918 | | | — | | | 1,049 | | | — | | | — | | | | | 1,049 | |
Common stock issuance costs | — | | | — | | | (87) | | | — | | | — | | | | | (87) | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,882) | | | — | | | | | (10,882) | |
BALANCES, March 31, 2022 | 30,237,145 | | | 30 | | | 607,637 | | | 421,095 | | | (344) | | | | | 1,028,418 | |
Net income | — | | | — | | | — | | | 11,558 | | | — | | | | | 11,558 | |
Unrealized loss on investment, net of tax of $0 | — | | | — | | | — | | | — | | | (248) | | | | | (248) | |
Stock-based compensation | — | | | — | | | 1,041 | | | (23) | | | | | | | 1,018 | |
Issuance of restricted and deferred stock units | 10,529 | | | — | | | (6) | | | — | | | — | | | | | (6) | |
Common stock issuance costs | — | | | — | | | (6) | | | — | | | — | | | | | (6) | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,889) | | | — | | | | | (10,889) | |
BALANCES, June 30, 2022 | 30,247,674 | | | 30 | | | 608,666 | | | 421,741 | | | (592) | | | | | 1,029,845 | |
Net income | — | | | — | | | — | | | 25,034 | | | — | | | | | 25,034 | |
Unrealized loss on investment, net of tax benefit of $154 | — | | | — | | | — | | | — | | | (173) | | | | | (173) | |
Stock-based compensation | — | | | — | | | 1,398 | | | (23) | | | — | | | | | 1,375 | |
Issuance of restricted and deferred stock units | 1,316 | | | — | | | 13 | | | — | | | — | | | | | 13 | |
Employee stock purchase plan | 18,667 | | | — | | | 1,042 | | | — | | | — | | | | | 1,042 | |
Common stock issuance, net of costs | 47,608 | | | — | | | 3,107 | | | — | | | — | | | | | 3,107 | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,896) | | | — | | | | | (10,896) | |
BALANCES, September 30, 2022 | 30,315,265 | | | $ | 30 | | | $ | 614,226 | | | $ | 435,856 | | | $ | (765) | | | | | $ | 1,049,347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | | | Total Stockholders’ Equity |
Number of Shares | | Amount | |
BALANCES, December 31, 2022 | 30,801,912 | | | $ | 31 | | | $ | 651,004 | | | $ | 458,356 | | | $ | 1,477 | | | | | $ | 1,110,868 | |
Net income | — | | | — | | | — | | | 11,530 | | | — | | | | | 11,530 | |
Unrealized gain on investment, net of taxes of $0 | — | | | — | | | — | | | — | | | 93 | | | | | 93 | |
Stock-based compensation | — | | | — | | | 1,199 | | | (22) | | | — | | | | | 1,177 | |
Issuance of restricted and deferred stock units | 38,776 | | | — | | | (1,538) | | | — | | | — | | | | | (1,538) | |
Employee stock purchase plan | 16,410 | | | — | | | 1,080 | | | — | | | — | | | | | 1,080 | |
Common stock issuance, net of costs | 570,026 | | | — | | | 40,997 | | | — | | | — | | | | | 40,997 | |
Dividends paid ($0.38 per share) | — | | | — | | | — | | | (11,722) | | | — | | | | | (11,722) | |
BALANCES, March 31, 2023 | 31,427,124 | | | 31 | | | 692,742 | | | 458,142 | | | 1,570 | | | | | 1,152,485 | |
Net income | — | | | — | | | — | | | 18,286 | | | — | | | | | 18,286 | |
Unrealized gain on investment, net of taxes of $(37) | — | | | — | | | — | | | — | | | 8 | | | | | 8 | |
Stock-based compensation | — | | | — | | | 1,139 | | | (17) | | | | | | | 1,122 | |
Issuance of restricted and deferred stock units | 13,429 | | | — | | | (20) | | | — | | | — | | | | | (20) | |
Common stock issuance, net of costs | 290,477 | | | 1 | | | 22,781 | | | — | | | — | | | | | 22,782 | |
Dividends paid ($0.38 per share) | — | | | — | | | — | | | (11,947) | | | — | | | | | (11,947) | |
BALANCES, June 30, 2023 | 31,731,030 | | | 32 | | | 716,642 | | | 464,464 | | | 1,578 | | | | | 1,182,716 | |
Net income | — | | | — | | | — | | | 36,222 | | | — | | | | | 36,222 | |
Unrealized gain on investment, net of taxes of $193 | — | | | — | | | — | | | — | | | 318 | | | | | 318 | |
Stock-based compensation | — | | | — | | | 1,238 | | | (8) | | | — | | | | | 1,230 | |
Issuance of restricted and deferred stock units | 14,840 | | | — | | | (706) | | | — | | | — | | | | | (706) | |
Employee stock purchase plan | 17,712 | | | — | | | 1,061 | | | — | | | — | | | | | 1,061 | |
Common stock issuance, net of costs | 169,421 | | | — | | | 11,505 | | | — | | | — | | | | | 11,505 | |
Dividends paid ($0.38 per share) | — | | | — | | | — | | | (12,093) | | | — | | | | | (12,093) | |
BALANCES, September 30, 2023 | 31,933,003 | | | $ | 32 | | | $ | 729,740 | | | $ | 488,585 | | | $ | 1,896 | | | | | $ | 1,220,253 | |
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, 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 | |
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 | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | | Total Stockholders’ Equity |
Number of Shares | | Amount | |
BALANCES, December 31, 2021 | 30,181,348 | | | $ | 30 | | | $ | 606,392 | | | $ | 428,260 | | | $ | (163) | | | | | $ | 1,034,519 | |
Net income | — | | | — | | | — | | | 3,737 | | | — | | | | | 3,737 | |
Unrealized loss on investment, net of taxes of $67 | — | | | — | | | — | | | — | | | (181) | | | | | (181) | |
Stock-based compensation | — | | | — | | | 1,552 | | | (20) | | | — | | | | | 1,532 | |
Issuance of restricted and deferred stock units | 37,879 | | | — | | | (1,269) | | | — | | | — | | | | | (1,269) | |
Employee stock purchase plan | 17,918 | | | — | | | 1,049 | | | — | | | — | | | | | 1,049 | |
Common stock issuance, net of costs | — | | | — | | | (87) | | | — | | | — | | | | | (87) | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,882) | | | — | | | | | (10,882) | |
BALANCES, March 31, 2022 | 30,237,145 | | | 30 | | | 607,637 | | | 421,095 | | | (344) | | | | | 1,028,418 | |
Net income | — | | | — | | | — | | | 11,558 | | | — | | | | | 11,558 | |
Unrealized loss on investment, net of taxes of $0 | — | | | — | | | — | | | — | | | (248) | | | | | (248) | |
Stock-based compensation | — | | | — | | | 1,041 | | | (23) | | | | | | | 1,018 | |
Issuance of restricted and deferred stock units | 10,529 | | | — | | | (6) | | | — | | | — | | | | | (6) | |
Common stock issuance, net of costs | — | | | — | | | (6) | | | — | | | — | | | | | (6) | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,889) | | | — | | | | | (10,889) | |
BALANCES, June 30, 2022 | 30,247,674 | | | 30 | | | 608,666 | | | 421,741 | | | (592) | | | | | 1,029,845 | |
Net income | — | | | — | | | — | | | 25,034 | | | — | | | | | 25,034 | |
Unrealized loss on investment, net of taxes of $154 | — | | | — | | | — | | | — | | | (173) | | | | | (173) | |
Stock-based compensation | — | | | — | | | 1,398 | | | (23) | | | — | | | | | 1,375 | |
Issuance of restricted and deferred stock units | 1,316 | | | — | | | 13 | | | — | | | — | | | | | 13 | |
Employee stock purchase plan | 18,667 | | | — | | | 1,042 | | | — | | | — | | | | | 1,042 | |
Common stock issuance, net of costs | 47,608 | | | — | | | 3,107 | | | — | | | — | | | | | 3,107 | |
Dividends paid ($0.36 per share) | — | | | — | | | — | | | (10,896) | | | — | | | | | (10,896) | |
BALANCES, September 30, 2022 | 30,315,265 | | | $ | 30 | | | $ | 614,226 | | | $ | 435,856 | | | $ | (765) | | | | | $ | 1,049,347 | |
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, |
| 2022 | | 2021 |
OPERATING ACTIVITIES: | | | |
Net income | $ | 40,329 | | | 42,459 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 79,862 | | | 71,912 | |
Deferred income taxes | 7,135 | | | 4,140 | |
Stock-based compensation | 3,991 | | | 3,201 | |
Allowance for equity funds used during construction | (1,324) | | | (1,490) | |
| | | |
Gain on sale of nonutility properties and Texas Water Alliance | (5,532) | | | (3,000) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable and accrued unbilled utility revenue | (22,511) | | | (19,647) | |
Accounts payable and other current liabilities | (1,475) | | | 3,697 | |
Accrued groundwater extraction charges, purchased water and power | 10,494 | | | 9,846 | |
Tax receivable and payable, and other accrued taxes | (1,851) | | | 832 | |
Postretirement benefits | (2,719) | | | 265 | |
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits | 21,776 | | | (12,418) | |
Up-front service concession payment | (1,600) | | | — | |
Other changes, net | 2,774 | | | 458 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 129,349 | | | 100,255 | |
INVESTING ACTIVITIES: | | | |
Additions to utility plant: | | | |
Company-funded | (160,515) | | | (169,238) | |
Contributions in aid of construction | (17,773) | | | (12,520) | |
Additions to real estate investments | (610) | | | (606) | |
Payments to retire utility plant, net of salvage | (2,432) | | | (3,535) | |
Proceeds from sale of nonutility properties and Texas Water Alliance | 310 | | | 3,000 | |
Payments for business acquisitions | (433) | | | — | |
NET CASH USED IN INVESTING ACTIVITIES | (181,453) | | | (182,899) | |
FINANCING ACTIVITIES: | | | |
Borrowings on line of credit | 152,655 | | | 67,099 | |
Repayments on line of credit | (16,481) | | | (120,120) | |
Long-term borrowings | 15,000 | | | 137,000 | |
Repayments of long-term borrowings | (87,757) | | | (52,700) | |
Issuance of common stock, net of issuance costs | 3,107 | | | 66,775 | |
| | | |
Dividends paid | (32,667) | | | (29,996) | |
Receipts of advances and contributions in aid of construction | 21,593 | | | 23,585 | |
Refunds of advances for construction | (2,177) | | | (2,179) | |
Other changes, net | (98) | | | 132 | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 53,175 | | | 89,596 | |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 1,071 | | | 6,952 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 12,119 | | | 9,269 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | 13,190 | | | 16,221 | |
LESS RESTRICTED CASH, END OF PERIOD | — | | | 2,202 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 13,190 | | | 14,019 | |
| | | |
Cash paid during the period for: | | | |
Interest | $ | 42,473 | | | 39,533 | |
Income taxes | 572 | | | 7,643 | |
Supplemental disclosure of non-cash activities: | | | |
Accrued payables for additions to utility plant | $ | 22,044 | | | 26,628 | |
Utility property installed by developers | 976 | | | 1,527 | |
| | | |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
OPERATING ACTIVITIES: | | | |
Net income | $ | 66,038 | | | 40,329 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 80,544 | | | 79,862 | |
Deferred income taxes | 12,996 | | | 7,135 | |
Stock-based compensation | 3,576 | | | 3,991 | |
Allowance for equity funds used during construction | (1,649) | | | (1,324) | |
| | | |
Gain on sale of nonutility asset | — | | | (5,532) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable and accrued unbilled utility revenue | (26,782) | | | (22,511) | |
Accounts payable and other current liabilities | 557 | | | (1,475) | |
Accrued groundwater extraction charges, purchased water and power | 13,463 | | | 10,494 | |
Tax receivable and payable, and other accrued taxes | 690 | | | (1,851) | |
Postretirement benefits | (1,851) | | | (2,719) | |
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits | 16,092 | | | 21,776 | |
Up-front service concession payment | — | | | (1,600) | |
Other changes, net | (4,371) | | | 2,774 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 159,303 | | | 129,349 | |
INVESTING ACTIVITIES: | | | |
Additions to utility plant: | | | |
Company-funded | (195,937) | | | (160,515) | |
Contributions in aid of construction | (13,604) | | | (17,773) | |
Additions to nonutility assets | (24,244) | | | (610) | |
Payments to retire utility plant, net of salvage | (908) | | | (2,432) | |
Proceeds from sale of nonutility properties | — | | | 310 | |
Payments for business acquisitions | (7,286) | | | (433) | |
Other changes, net | 238 | | | — | |
NET CASH USED IN INVESTING ACTIVITIES | (241,741) | | | (181,453) | |
FINANCING ACTIVITIES: | | | |
Borrowings on line of credit | 102,655 | | | 152,655 | |
Repayments on line of credit | (133,800) | | | (16,481) | |
Long-term borrowings | 70,000 | | | 15,000 | |
Repayments of long-term borrowings | (3,062) | | | (87,757) | |
Issuance of common stock, net of issuance costs | 75,284 | | | 3,107 | |
| | | |
Dividends paid | (35,762) | | | (32,667) | |
Receipts of advances and contributions in aid of construction | 18,889 | | | 21,593 | |
Refunds of advances for construction | (2,148) | | | (2,177) | |
Other changes, net | (895) | | | (98) | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 91,161 | | | 53,175 | |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 8,723 | | | 1,071 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 12,344 | | | 12,119 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | 21,067 | | | 13,190 | |
LESS RESTRICTED CASH, END OF PERIOD | — | | | — | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 21,067 | | | 13,190 | |
Cash paid during the period for: | | | |
Interest | $ | 44,132 | | | 42,473 | |
Income taxes | 818 | | | 572 | |
| | | |
Supplemental disclosure of non-cash activities: | | | |
Accrued payables for additions to utility plant | $ | 26,315 | | | 22,044 | |
Utility property installed by developers | 1,295 | | | 976 | |
Seller financing in asset acquisition, net of discount | 15,400 | | | — | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20222023
(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 20212022 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.
SJW Group is a holding company with five wholly-ownedfour wholly owned subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX Holdings, Inc., SJW Land Company, and SJWNE LLC. SJWTX Holdings, Inc., is a holding company for its wholly owned subsidiaries, SJWTX, Inc., doing business as The Texas Water Company (“TWC”), Texas Water Operation Services, LLC, (“TWOS”) and Texas Water Resources, LLC (“TWR”). SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”) whose wholly-subsidiarieswholly owned subsidiaries are The Connecticut Water Company (“Connecticut Water”CWC”), The Maine Water Company (“Maine Water”MWC”), New England Water Utility Services, Inc. (“NEWUS”), and Chester Realty, Inc. SJWC, Connecticut Water, SJWTX, Inc. doing business as Canyon Lake Water Service Company (“CLWSC”)CWC, TWC, Maine WaterTWOS, TWR, MWC and NEWUS are referred to as “Water Utility Services.”Services”. SJW 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 September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue from contracts with customers | Revenue from contracts with customers | $ | 169,972 | | | 163,103 | | | $ | 440,406 | | | 422,545 | | Revenue from contracts with customers | $ | 211,716 | | | 169,972 | | | $ | 507,276 | | | 440,406 | |
Alternative revenue programs, net | Alternative revenue programs, net | 3,172 | | | 2,216 | | | (1,737) | | | 4,984 | | Alternative revenue programs, net | 957 | | | 3,172 | | | (2,638) | | | (1,737) | |
Other balancing and memorandum accounts, net | Other balancing and memorandum accounts, net | 1,857 | | | 639 | | | 6,719 | | | 3,637 | | Other balancing and memorandum accounts, net | (8,742) | | | 1,857 | | | (8,564) | | | 6,719 | |
Other regulatory mechanisms, net | Other regulatory mechanisms, net | (494) | | | (438) | | | (260) | | | (1,284) | | Other regulatory mechanisms, net | (518) | | | (494) | | | (1,342) | | | (260) | |
Rental income | Rental income | 1,474 | | | 1,403 | | | 4,196 | | | 4,067 | | Rental income | 1,430 | | | 1,474 | | | 4,293 | | | 4,196 | |
| | $ | 175,981 | | | 166,923 | | | $ | 449,324 | | | 433,949 | | | $ | 204,843 | | | 175,981 | | | $ | 499,025 | | | 449,324 | |
Nonutility Properties and Real Estate Investments and Nonutility Properties
The major components of real estate investments and nonutility properties as of September 30, 2022,2023 and December 31, 2021,2022, are as follows:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Land | Land | $ | 12,615 | | | 12,615 | | Land | $ | 4,137 | | | 12,615 | |
Wholesale water supply assets | | Wholesale water supply assets | 8,465 | | | — | |
Buildings and improvements | Buildings and improvements | 45,397 | | | 45,017 | | Buildings and improvements | 470 | | | 45,418 | |
| Subtotal | Subtotal | 58,012 | | | 57,632 | | Subtotal | 13,072 | | | 58,033 | |
Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | 16,855 | | | 15,951 | | Less: accumulated depreciation and amortization | 192 | | | 17,158 | |
Total | Total | $ | 41,157 | | | 41,681 | | Total | $ | 12,880 | | | 40,875 | |
On October 29, 2021, SJWC sold two nonutility propertiesIn March 2023, SJW Land Company entered into a broker agreement to sell its warehouse buildings and land property located in San Jose, California for $13,150. SJW Group recognized a pre-tax gain onKnoxville, Tennessee. The company reclassified the sale of nonutilityTennessee 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 California Public Utilitiesfrom held-and-used to held-for-sale at March 31,
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 20222023
(in thousands, except share and per share data)
Commission (“CPUC”) review2023. The company’s intention is to complete the sale of these assets within a twelve month period. The company recorded the Tennessee properties at the lower of their carrying value or estimated fair value less cost to sell, and also stopped recording depreciation on assets held for sale. The company's broker provided the year ended December 31, 2021. estimated fair value of the Tennessee properties. The estimated costs to sell was subtracted to estimate the fair value. The resulting net fair value of the Tennessee properties exceeded their carrying value, and accordingly no impairment was recorded.
The sale of the Tennessee properties does not represent a strategic shift that has or will have a major effect on SJW Group; therefore, the sale does not qualify for treatment as a discontinued operation.
The Tennessee warehouse buildings and land property is included in SJW Group’s “Real Estate Services” reportable segment in Note 9, “Segment and Non-Tariffed Business Reporting”. The following represents the major components of the Tennessee warehouse building and land property recorded in assets held-for-sale on the condensed consolidated balance sheets as of September 30, 2023: | | | | | | | |
| September 30, 2023 | | |
Land | $ | 13,170 | | | |
Buildings and improvements | 44,950 | | | |
| | | |
Subtotal | 58,120 | | | |
Less: accumulated depreciation and amortization | 17,270 | | | |
Total | $ | 40,850 | | | |
On February 15, 2022, the CPUCCalifornia Public Utilities Commission (“CPUC”) review on a SJWC nonutility property sold in October 2021 was completed and the deferred gain of $5,442 was recognized as gain on sale in the first quarter of the second nonutility property.
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 $3,000.2022.
Fair Value Measurement
The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of September 30, 2022,2023, 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 September 30, 2022,2023 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 and nine months ended September 30, 2022.2023. 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 $1,247,530$1,299,114 and $1,651,825$1,294,354 as of September 30, 2022,2023 and December 31, 2021,2022, 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 $1,458,088$1,577,233 and $1,532,041$1,496,325 as of September 30, 2022,2023 and December 31, 2021,2022, respectively. TheOf the total fair value of long-term debt,$1,283,602 would be categorized as Level 2 in the fair value hierarchy and $15,512 would be categorized as Level 3 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 $2,790$2,808 and $3,797$2,809 as of September 30, 2022,2023 and December 31, 2021,2022, 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”),long-term incentive plans, shares potentially issuable under the performance stock plans assumed through the business combination with CTWS, and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”).SJW Group’s employee stock purchase plans. For the three months ended September 30, 2023 and 2022, 1,826 and 2021, 2,416 and 1,558 anti-dilutive restricted common stock units were excluded from the dilutivediluted earnings per share calculation, respectively. For the nine months ended September 30, 2023 and 2022, 12,524 and 2021, 18,240 and 14,441 anti-dilutive restricted common stock units were excluded from the dilutivediluted earnings per share calculation, respectively.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 20222023
(in thousands, except share and per share data)
Note 2.Regulatory Matters
Regulatory assets, net are comprised of the following as of September 30, 2022,2023 and December 31, 2021:2022:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Regulatory assets: | | | | |
Income tax temporary differences, net | | $ | 33,811 | | | 22,420 | |
Postretirement pensions and other postretirement benefits | | 64,934 | | | 62,197 | |
Business combinations debt premium, net | | 18,031 | | | 19,937 | |
Balancing and memorandum accounts, net | | 22,583 | | | 38,334 | |
Water Rate Adjustment | | (2,800) | | | 2,588 | |
Other, net | | 10,124 | | | 9,145 | |
Total regulatory assets, net in Condensed Consolidated Balance Sheets | | 146,683 | | | 154,621 | |
Less: current regulatory assets, net | | 738 | | | 2,629 | |
Total regulatory assets, net, less current portion | | $ | 145,945 | | | 151,992 | |
| | | | |
| | | | |
| | | | |
| | | | |
As of September 30, 2022, and December 31, 2021, SJW Group’s regulatory assets, net, not earning a return primarily included postretirement pensions and the unfunded amount of other medical benefits, and business combination debt premiums, net. The total amount of regulatory assets, net not earning a return at September 30, 2022, and December 31, 2021, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $86,113 and $84,887, respectively.
Balancing and Memorandum Accounts | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
Regulatory assets: | | | | |
Income tax temporary differences, net | | $ | 62,745 | | | 43,434 | |
Postretirement pensions and other postretirement benefits | | 30,076 | | | 31,493 | |
Business combinations debt premium, net | | 15,490 | | | 17,396 | |
Monterey Water Revenue Adjustment Mechanism (“MWRAM”) | | 12,162 | | | 10,864 | |
Water Conservation Memorandum Account (“WCMA”) | | (7,683) | | | (5,039) | |
2022 General Rate Case Interim Memorandum Account | | 9,513 | | | 20,650 | |
Cost recovery balancing and memorandum accounts | | 8,267 | | | 16,545 | |
All other balancing and memorandum accounts | | 4,344 | | | 2,749 | |
Water Revenue Adjustment (“WRA”) | | (5,428) | | | (4,488) | |
Other, net | | 10,507 | | | 9,739 | |
Total regulatory assets, net in Condensed Consolidated Balance Sheets | | 139,993 | | | 143,343 | |
Less: current regulatory assets, net | | 8,573 | | | 16,068 | |
Total regulatory assets, net, less current portion | | $ | 131,420 | | | 127,275 | |
| | | | |
| | | | |
| | | | |
| | | | |
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. In 2022, SJWC’s general rate case decision approved the use of the Full Cost Balancing Account to track the water supply costs and energy consumption. The MWRAM balancing account 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.
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. The Water Conservation Memorandum Account (“WCMA”)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 the WCMA balancing accounts. Drought surcharges collected are used to offset the revenue losses tracked in the WCMA. Mandatory water conservation requirements from Santa Clara Valley Water District ended on April 11, 2023, which also ended SJWC’s Mandatory Conservation Plan, that included drought allocations and surcharges. On October 11, 2022,2, 2023, the CPUC issued General Rate Case Decision No. 22-10-005, which approved a recoverythe continuation of $18,174 in balancingWCMA and memorandum accounts from customers.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2022
(in thousands, except share and per share data)
Balancing and memorandum accounts recorded to regulatory assets, netWater Conservation Expense Memorandum Account under the voluntary call for the three and nine months ended September 30, 2022, and 2021 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 | | Three months ended September 30, 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 | $ | 21,096 | | | 1,381 | | | — | | | | | 22,477 | | | $ | 15,278 | | | 363 | | | — | | | | | 15,641 | |
WCMA | (14,961) | | | 3,868 | | | (8,708) | | | | | (19,801) | | | 668 | | | — | | | — | | | | | 668 | |
Cost of capital memorandum account | (1,568) | | | (8) | | | — | | | | | (1,576) | | | (1,562) | | | — | | | — | | | | | (1,562) | |
All others | 417 | | | 590 | | | — | | | | | 1,007 | | | (1,164) | | | 397 | | | — | | | | | (767) | |
Total revenue accounts | 4,984 | | | 5,831 | | | (8,708) | | | | | 2,107 | | | 13,220 | | | 760 | | | — | | | | | 13,980 | |
Cost-recovery accounts: | | | | | | | | | | | | | | | | | | | |
Water supply costs | 11,111 | | | 391 | | | — | | | | | 11,502 | | | 9,895 | | | 388 | | | — | | | | | 10,283 | |
Pension | 5,069 | | | 59 | | | — | | | | | 5,128 | | | 4,210 | | | 366 | | | — | | | | | 4,576 | |
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) | 543 | | | 3 | | | (106) | | | | | 440 | | | 928 | | | — | | | (121) | | | | | 807 | |
COVID-19 Catastrophic Event Memorandum Account (“CEMA”) | 2,586 | | | 420 | | | — | | | | | 3,006 | | | 2,618 | | | 567 | | | — | | | | | 3,185 | |
All others | 479 | | | (79) | | | — | | | | | 400 | | | 446 | | | — | | | — | | | | | 446 | |
Total cost-recovery accounts | 19,788 | | | 794 | | | (106) | | | | | 20,476 | | | 18,097 | | | 1,321 | | | (121) | | | | | 19,297 | |
| | | | | | | | | | | | | | | | | | | |
Total | $ | 24,772 | | | 6,625 | | | (8,814) | | | | | 22,583 | | | $ | 31,317 | | | 2,081 | | | (121) | | | | | 33,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2022 | | Nine months ended September 30, 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 | | | 5,610 | | | 1 | | | | | 22,477 | | | $ | 12,077 | | | 3,563 | | | 1 | | | | | 15,641 | |
WCMA | 3,534 | | | 2,768 | | | (26,103) | | | | | (19,801) | | | 666 | | | — | | | 2 | | | | | 668 | |
Cost of capital memorandum account | (1,563) | | | (13) | | | — | | | | | (1,576) | | | (1,561) | | | (1) | | | — | | | | | (1,562) | |
All others | (386) | | | 1,392 | | | 1 | | | | | 1,007 | | | (1,139) | | | 369 | | | 3 | | | | | (767) | |
Total revenue accounts | 18,451 | | | 9,757 | | | (26,101) | | | | | 2,107 | | | 10,043 | | | 3,931 | | | 6 | | | | | 13,980 | |
Cost-recovery accounts: | | | | | | | | | | | | | | | | | | | |
Water supply costs | 10,545 | | | 957 | | | — | | | | | 11,502 | | | 8,123 | | | 2,159 | | | 1 | | | | | 10,283 | |
Pension | 4,941 | | | 187 | | | — | | | | | 5,128 | | | 3,478 | | | 1,098 | | | — | | | | | 4,576 | |
PRVMA | 707 | | | 5 | | | (272) | | | | | 440 | | | 1,108 | | | — | | | (301) | | | | | 807 | |
CEMA | 3,245 | | | (239) | | | — | | | | | 3,006 | | | 2,266 | | | 919 | | | — | | | | | 3,185 | |
All others | 445 | | | (45) | | | — | | | | | 400 | | | 445 | | | 1 | | | — | | | | | 446 | |
Total cost-recovery accounts | 19,883 | | | 865 | | | (272) | | | | | 20,476 | | | 15,420 | | | 4,177 | | | (300) | | | | | 19,297 | |
| | | | | | | | | | | | | | | | | | | |
Total | $ | 38,334 | | | 10,622 | | | (26,373) | | | | | 22,583 | | | $ | 25,463 | | | 8,108 | | | (294) | | | | | 33,277 | |
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2022
(in thousands, except share and per share data)
conservation effective April 20, 2023. All balancing accounts and memorandum 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.
CWC has been authorized by the Connecticut Public Utilities Regulatory Authority to utilize a WRA, a decoupling mechanism, to mitigate risk with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows the company to implement a surcharge or surcredit as necessary to recover or refund the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings.
As of September 30, 2023 and December 31, 2022, SJW Group’s regulatory assets, net, not earning a return primarily included postretirement pensions and the unfunded amount of other medical benefits, and business combination debt premiums, net. The total amount of regulatory assets, net not earning a return at September 30, 2023 and December 31, 2022, either by interest on the regulatory asset/liability or as a component of rate base at the allowed rate of return was $48,954 and $52,066, respectively.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2023
(in thousands, except share and per share data)
Note 3.Capitalization
On November 17, 2021,In March 2023, SJW Group entered into anAmendment No. 1 to the equity distribution agreement (the “Equity Distribution Agreement”) with, dated November 17, 2021, between SJW Group and J.P. Morgan Securities LLC, Janney Montgomery Scott LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (each a “Sales Agent” and, collectively, the “Sales Agents”), pursuant to which SJW Group increased the company may offer and sellaggregate gross sales price of shares of itsSJW Group’s common stock, $0.001 par value per share, that may be sold under the Equity Distribution Agreement from time$100,000 to time in “at-the-market” offerings, having an aggregate gross sales price of up to $100,000.$240,000. For the three and nine months ended September 30, 2022,2023, SJW Group issued and sold a total of 47,608169,421 and 1,029,924 shares of common stock, withrespectively, at a weighted average price of $66.26$69.57 and $74.57 per share, respectively, and received approximately $3,107$11,505 and $75,284 in net proceeds, respectively, under the Equity Distribution Agreement. Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 402,7231,914,775 shares of common stock withat a weighted average price of $69.91$74.05 for a total net proceeds of $27,360$138,716 and has a$98,209 remaining $71,845 under the Equity Distribution Agreement to issue into shares.
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.
Note 4.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 has received advance deposit payments from its customers and developers on certain construction projects. The refunds of the advance deposit payments constitute an obligation of the respective entities.
Short-term Financing Agreements
OnIn August 2, 2022,2023, SJW Group, SJWC, SJWTX, Inc.,TWC, and CTWS entered into a $300,000 syndicated line of credit agreement (the “Credit Agreement”)the First Amendment to Credit Agreement with JPMorgan Chase Bank N.A., as Administrative Agent (“JP Morgan”), Wells Fargo Bank, National Association, as Documentation Agent, and a syndicatewhich provided for, among other matters, an extension of banks. Proceeds of borrowings under the Credit Agreement will be used for refinancing existing debt, working capital, and general corporate purposes. The Credit Agreement has a maturity date offrom August 2, 2027.2027 to August 2, 2028.
Under the terms of the Credit Agreement, each of SJW Group, SJWC, SJWTX, Inc., and CTWS is a borrower with several and not joint liability. Each borrower has an initial borrowing entitlement, or sublimit, which can be periodically adjusted from time to time as set forth in the Credit Agreement. The initial sublimit of each borrower is as follows:
| | | | | |
| Initial Sublimit |
SJW Group | $ | 50,000 | |
SJWC | 140,000 | |
CTWS | 90,000 | |
SJWTX, Inc. | 20,000 | |
| $ | 300,000 | |
Borrowings under the Credit Agreement bearweighted-average interest rate on short-term borrowings outstanding at either the Alternative Base Rate (as defined in the Credit Agreement and hereinafter referred to as “ABR”) or the Adjusted Term Secured Overnight Financing Rate (as defined in the Credit Agreement and hereinafter referred to as “SOFR”). ABR borrowings (which are borrowings bearing interest at a rate determined by reference to ABR) will bear interest at a rate per annum equal to ABR plus the applicable rate. SOFR borrowings (which are borrowings bearing interest at a rate determined by reference to SOFR) will bear interest at a rate per
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2022
(in thousands, except share and per share data)
annum equal2023 was 6.48% compared to SOFR plus the applicable rate. The applicable rate and pricing is variable depending on the credit ratings of the borrower.
The Credit Agreement contains customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, asset sales, and fundamental changes. The Credit Agreement also includes a financial covenant that requires each of the borrowers to maintain its funded debt to capitalization ratio5.40% at or below 70%.
This Credit Agreement replaces the existing $140,000 credit agreement, dated April 23, 2021, between SJWC and JP Morgan and the existing $5,000 credit agreement, dated April 23, 2021, between SJWTX and JP Morgan, with SJW Group as guarantor, both of which were terminated upon entering into the Credit Agreement and were set to mature on December 31, 2023. In addition, on August 2, 2022, CTWS and Citizens Bank, National Association, entered into a fourth modification to the amended and restated revolving credit facility, dated December 18, 2019, as amended, pursuant to which the credit commitment was reduced from $75,000 to $10,000.2022.
Long-term Financing Agreements
On April 6, 2022, 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 $15,000 at a fixed interest rate of 4.54%, due May 31, 2042. The notes are unsecured obligations of Maine Water. Interest is payable quarterly in arrears on the 20th day of January, April,In 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 May 13, 2022.
On June 28, 2022, Connecticut Water entered into a note purchase agreement with certain affiliates of New York Life Insurance Company, pursuant to which Connecticut Water sold an aggregate principal amount of $25,000 of its 4.71% Senior Notes, Series 2022, due 2052. The closing of the note purchase agreement is expected to occur on December 15, 2022, and is subject to customary closing conditions. The Series 2022 Notes are unsecured obligations of Connecticut Water. Interest is payable semi-annually in arrears on June 15th and December 15th 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 Series 2022 Notes are outstanding. The Series 2022 Notes are also subject to customary events of default, the occurrence of which may result in all of the Series 2022 Notes then outstanding becoming immediately due and payable.
On July 14, 2022, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance, Metropolitan Life Insurance, Northwestern Mutual Life Insurance, and John Hancock Life Insurance (collectively the “Purchasers”), pursuant to which the companySJWC will sell an aggregate principal amount of $70,000 of its 4.85% Senior Notes, Series P (“Series P Notes”) to the Purchasers. The Series P Notes are unsecured obligations of SJWC and are due on February 1, 2053. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series P Notes are outstanding. The Series P Notes are also subject to customary events of default. The closing is expectedof the note purchase agreement occurred on January 25, 2023.
In August 2023, TWR closed on an asset acquisition from KT Water Resources L.P. which included of an obligation for a post-closing production payment of $29,000 to occur in January 2023 upon satisfactionthe seller over a period of customary closing conditions.up to 29 years. This obligation was recorded at its fair value of $15,400 as of the date of the acquisition. Please see Note 10 of “Notes to Condensed Consolidated Financial Statements” for additional information about this obligation.
Note 5.Income Taxes
For the three and nine months ended September 30, 2022,2023, income tax expense was $223$4,561 and $3,658,$4,127, respectively. Income tax expense for the three and nine months ended September 30, 2021,2022 was $2,749$223 and $5,159,$3,658, respectively. The effective consolidated income tax rates were 1%11% and 13%1% for the three months ended September 30, 20222023 and 2021,2022, respectively, and 8%6% and 11%8% for the nine months ended September 30, 2023 and 2022, and 2021, respectively. The higher effective tax rate for the three months ended September 30, 2023 was primarily due to the tax benefit relating to a tax accounting method change recorded in the third quarter 2022. There was no such benefit recorded in the third quarter of 2023. The lower effective tax rate for the three and nine months ended September 30, 2022,2023 was primarily due to higher flow-through tax benefits.
In April 2023, the Internal Revenue Service issued additional tax guidance that has allowed the company to revisit certain historical income tax reserves. Pursuant to the issuance of this guidance, which provided additional clarification regarding some of the uncertain tax areas, the company re-evaluated the risk relating to repair deductions. The result of the analysis led to a partial release of an uncertain tax accounting method change at CTWS regardingposition reserve of $3,087 which was recorded in the non-network assetsecond quarter of 2023. The release relates to repairs deduction.
SJW Group unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties, of approximately $8,937 and $7,961 as of September 30, 2022, and December 31, 2021, respectively. SJW Group doesexpenditures that are more likely than not expect its unrecognized tax benefits to change significantly within the next 12 months.be sustained on audit.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 20222023
(in thousands, except share and per share data)
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. SJW Group has consideredhad unrecognized tax benefits, before the incomeimpact of deductions of state taxes, excluding interest and penalties, of approximately $5,981 and $9,004 as of September 30, 2023 and December 31, 2022, respectively.
SJW Group currently does not expect uncertain tax implicationspositions to change significantly over the next 12 months, except in the case of a lapse of the IRA in its estimated tax provision and does not believe it will materially impact the company’s year-end tax rate.statute of limitations.
Note 6.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 7.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. Starting in 2023, TWC employees are also eligible to participate under SJWC’s cash balance plan. 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 that are not pension plans.
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, 2022,2023 and 20212022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits |
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Service cost | Service cost | $ | 2,652 | | | 2,711 | | | $ | 7,956 | | | 8,134 | | Service cost | $ | 1,892 | | | 2,397 | | | $ | 160 | | | 255 | |
Interest cost | Interest cost | 2,860 | | | 2,556 | | | 8,581 | | | 7,666 | | Interest cost | 3,557 | | | 2,642 | | | 317 | | | 218 | |
Expected return on assets | Expected return on assets | (5,044) | | | (4,748) | | | (15,132) | | | (14,242) | | Expected return on assets | (3,442) | | | (4,823) | | | (217) | | | (221) | |
Unrecognized actuarial loss | Unrecognized actuarial loss | 1,182 | | | 1,788 | | | 3,546 | | | 5,362 | | Unrecognized actuarial loss | 554 | | | 1,257 | | | (87) | | | (75) | |
Amortization of prior service cost | Amortization of prior service cost | 4 | | | 12 | | | 12 | | | 37 | | Amortization of prior service cost | 4 | | | 4 | | | — | | | — | |
Total | Total | $ | 1,654 | | | 2,319 | | | $ | 4,963 | | | 6,957 | | Total | $ | 2,565 | | | 1,477 | | | $ | 173 | | | 177 | |
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2023
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 5,676 | | | 7,191 | | | $ | 480 | | | 765 | |
Interest cost | 10,672 | | | 7,925 | | | 951 | | | 656 | |
Expected return on assets | (11,580) | | | (14,469) | | | (651) | | | (663) | |
Unrecognized actuarial loss | 1,662 | | | 3,772 | | | (263) | | | (226) | |
Amortization of prior service cost | 11 | | | 12 | | | — | | | — | |
Total | $ | 6,441 | | | 4,431 | | | $ | 517 | | | 532 | |
In 2022,2023, SJW Group expects to make required and discretionary cash contributions of up to $7,842$8,653 to the pension plans and other postretirement benefits. For the three and nine months ended September 30, 2022,2023, SJW Group has made $2,577$3,567 and $4,538,$7,627, respectively, of contributions to such plans.
Note 8.Equity Plans
The Incentive Plan allows SJW Group toGroup’s long-term incentive plans 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. SJW Group also maintains stock plans in connection with its acquisition of CTWS which are no longer granting new stock awards. In addition, shares are issued to employees under SJW Group’s employee stock purchase plan. As of September 30, 2022, 179,8482023, 150,882 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units and an additional 612,7381,136,979 shares are available for award issuances under the long-term incentive plans.
On April 26, 2023, SJW Group adopted the successor plans, the 2023 Long-Term Incentive Plan.Plan and the 2023 Employee Stock Purchase Plan, to replace the Amended and Restated Long-Term Incentive Plan (the, “Predecessor Incentive Plan”) and the 2014 Employee Stock Purchase Plan (the, “Predecessor ESPP”), respectively. The Predecessor Incentive Plan terminated on April 23, 2023 and the Predecessor ESPP terminated on July 31, 2023. Each outstanding award under the Predecessor Incentive Plan will remain outstanding under the Predecessor Incentive Plan and shall be governed solely by the terms of the documents evidencing such awards. The 2023 Long-Term Incentive Plan reserves a total of 1,142,000 shares of SJW Group’s common stock for issuance to 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 SJW Group and its subsidiaries. The 2023 Employee Stock Purchase Plan reserves for a total of 500,000 shares of SJW Group’s common stock for issuance for eligible employees to purchase common stock at a discount through accumulated payroll deductions. Remaining reserves for both of the predecessor plans were terminated with the adoption of the successor plans.
A summary of compensation costs charged to income, by award type, and proceeds from the ESPP, are presented below for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Compensation costs charged to income: | | | | | | | |
ESPP | $ | 187 | | | 184 | | | $ | 378 | | | 369 | |
Restricted stock and deferred restricted stock | 1,051 | | | 1,214 | | | 3,198 | | | 3,622 | |
Total compensation costs charged to income | $ | 1,238 | | | 1,398 | | | $ | 3,576 | | | 3,991 | |
ESPP proceeds | $ | 1,061 | | | 1,042 | | | $ | 2,141 | | | 2,091 | |
Restricted Stock and Deferred Restricted Stock
For the three months ended September 30, 2023 and 2022, SJW Group granted 968 and 1,723, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value per unit of $63.96 and $62.56, respectively. For the nine months ended September 30, 2023 and 2022, SJW Group granted 38,310 and 45,726, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value per unit of $76.88 and $65.31, respectively.
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 20222023
(in thousands, except share and per share data)
A summary of compensation costs charged to income and proceeds fromFor 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 and nine months ended September 30, 2022, and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Compensation costs charged to income: | | | | | | | |
ESPP | $ | 184 | | | 176 | | | $ | 369 | | | 357 | |
Restricted stock and deferred restricted stock | 1,214 | | | 954 | | | 3,622 | | | 2,844 | |
Total compensation costs charged to income | $ | 1,398 | | | 1,130 | | | $ | 3,991 | | | 3,201 | |
ESPP proceeds | $ | 1,042 | | | 1,000 | | | $ | 2,091 | | | 2,026 | |
Restricted Stock and Deferred Restricted Stock
2023, no performance-based or market-based restricted stock awards were granted. For the three months ended September 30, 2022, and 2021, SJW Group granted under the Incentive Plan 1,723 and 1,134, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $62.56 and $69.20, respectively, per unit. For the nine months ended September 30, 2022, and 2021, SJW Group granted under the Incentive Plan 45,726 and 46,567, respectively, one year and three year service-based restricted stock awards with a weighted-average grant date fair value of $65.31 and $64.65, respectively, per unit.
For the three months ended September 30, 2022, and 2021, SJW Group granted under the Incentive Plan 2,193 and 0 target units respectively, performance-based and market-based restricted stock awards with a weighted-average grant date fair value per unit of $69.70 and $0.00, respectively, per unit.$69.70. For the nine months ended September 30, 2022,2023 and 2021,2022, SJW Group granted under the Incentive Plan31,345 and 35,846 and 30,641 target units, respectively, performance-based and market-based restricted stock awards granted with a weighted-average grant date fair value per unit of $80.05 and $70.31, and $66.33, respectively, per unit.respectively. 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, 2022,2023, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $5,660.was $5,734. This cost is expected to be recognized over a weighted-average period of 1.781.81 years.
Employee Stock Purchase Plan
SJW Group’s recorded expenses for its ESPP were $81 and $277 for the three and nine months ended September 30, 2023, respectively, and $94 and $276 for the three and nine months ended September 30, 2022, respectively, and $91 and $265 for the three and nine months ended September 30, 2021, respectively. The total unrecognized compensation costs related to the semi-annual offering period that ends January 31, 2023,2024, for the ESPPemployee stock purchase plan is approximately $131.$130. This cost is expected to be recognized during the fourth quarter of 2022 and first quarter of 2023.
Note 9.Segment and Non-Tariffed Business Reporting
SJW Group is a holding company with fivefour subsidiaries: (i) SJWC, (ii) SJWTX Holdings, Inc., a water utility operation with both regulated and non-tariffed businesses, (ii) CLWSC, a regulated water utility located in Canyon Lake, Texas, andholding company for TWC its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, TWOS and TWR, (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, The Connecticut Water Company, The Maine Water Company, New England Water Utility Services, Inc.CWC, MWC, NEWUS and Chester Realty, Inc., and (v) SJWC, SJWTX Holdings, Inc. which was formed for the purpose of effecting a corporate reorganization of theand SJWNE LLC are water utility operations in Texas. In accordance with FASB ASC Topic 280 - “Segment Reporting,”both regulated and non-tariffed businesses. 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 providingprovides water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water,CWC, TWC, MWC, and NEWUS together referred to as “Water Utility Services.”Services”. The second segment isconsists of 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)
September 30, 2022
(in thousands, except share and per share data)
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, 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 | $ | 171,044 | | | 3,463 | | | 1,474 | | | — | | | 171,044 | | | 4,937 | | | 175,981 | |
Operating expense | 134,739 | | | 2,092 | | | 975 | | | 573 | | | 134,739 | | | 3,640 | | | 138,379 | |
Operating income (loss) | 36,305 | | | 1,371 | | | 499 | | | (573) | | | 36,305 | | | 1,297 | | | 37,602 | |
Net income (loss) | 29,176 | | | (10) | | | 367 | | | (4,499) | | | 29,176 | | | (4,142) | | | 25,034 | |
Depreciation and amortization | 24,919 | | | 84 | | | 302 | | | 224 | | | 24,919 | | | 610 | | | 25,529 | |
Interest on long-term debt and other interest expense | 9,111 | | | — | | | — | | | 5,079 | | | 9,111 | | | 5,079 | | | 14,190 | |
Provision (benefit) for income taxes | 103 | | | 392 | | | 128 | | | (400) | | | 103 | | | 120 | | | 223 | |
Assets | $ | 3,498,396 | | | 5,302 | | | 43,017 | | | 57,989 | | | 3,498,396 | | | 106,308 | | | 3,604,704 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 Nine Months Ended September 30, 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 | $ | 435,823 | | | 9,305 | | | 4,196 | | | — | | | 435,823 | | | 13,501 | | | 449,324 | |
Operating expense | 355,620 | | | 7,868 | | | 2,799 | | | 2,444 | | | 355,620 | | | 13,111 | | | 368,731 | |
Operating income (loss) | 80,203 | | | 1,437 | | | 1,397 | | | (2,444) | | | 80,203 | | | 390 | | | 80,593 | |
Net income (loss) | 51,656 | | | 441 | | | 998 | | | (12,766) | | | 51,656 | | | (11,327) | | | 40,329 | |
Depreciation and amortization | 73,888 | | | 2,821 | | | 903 | | | 730 | | | 73,888 | | | 4,454 | | | 78,342 | |
Interest on long-term debt and other interest expense | 27,676 | | | — | | | — | | | 14,484 | | | 27,676 | | | 14,484 | | | 42,160 | |
Provision (benefit) for income taxes | 4,844 | | | 398 | | | 341 | | | (1,925) | | | 4,844 | | | (1,186) | | | 3,658 | |
Assets | $ | 3,498,396 | | | 5,302 | | | 43,017 | | | 57,989 | | | 3,498,396 | | | 106,308 | | | 3,604,704 | |
| | | | | | | | | | | | | |
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2023
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For Three Months Ended September 30, 2023 |
| Water Utility Services | | Real Estate Services | | All Other (1) | | SJW Group |
| Regulated | | Non-tariffed | | Non-tariffed | | Non-tariffed | | Regulated | | Non-tariffed | | Total |
Operating revenue | $ | 199,537 | | | 3,876 | | | 1,430 | | | — | | | 199,537 | | | 5,306 | | | 204,843 | |
Operating expense | 144,102 | | | 2,337 | | | 691 | | | 1,107 | | | 144,102 | | | 4,135 | | | 148,237 | |
Operating income (loss) | 55,435 | | | 1,539 | | | 739 | | | (1,107) | | | 55,435 | | | 1,171 | | | 56,606 | |
Net income (loss) | 37,545 | | | 2,198 | | | 563 | | | (4,084) | | | 37,545 | | | (1,323) | | | 36,222 | |
Depreciation and amortization | 26,147 | | | 84 | | | 1 | | | 223 | | | 26,147 | | | 308 | | | 26,455 | |
Interest on long-term debt and other interest expense | 10,839 | | | 112 | | | — | | | 5,793 | | | 10,839 | | | 5,905 | | | 16,744 | |
Provision (benefit) for income taxes | 5,933 | | | 428 | | | 196 | | | (1,996) | | | 5,933 | | | (1,372) | | | 4,561 | |
Assets | 3,706,359 | | | 43,872 | | | 44,560 | | | 48,637 | | | 3,706,359 | | | 137,069 | | | 3,843,428 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For Three Months Ended September 30, 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 | 171,044 | | | 3,463 | | | 1,474 | | | — | | | 171,044 | | | 4,937 | | | 175,981 | |
Operating expense | 134,739 | | | 2,092 | | | 975 | | | 573 | | | 134,739 | | | 3,640 | | | 138,379 | |
Operating income (loss) | 36,305 | | | 1,371 | | | 499 | | | (573) | | | 36,305 | | | 1,297 | | | 37,602 | |
Net income (loss) | 29,176 | | | (10) | | | 367 | | | (4,499) | | | 29,176 | | | (4,142) | | | 25,034 | |
Depreciation and amortization | 24,919 | | | 84 | | | 302 | | | 224 | | | 24,919 | | | 610 | | | 25,529 | |
Interest on long-term debt and other interest expense | 9,111 | | | — | | | — | | | 5,079 | | | 9,111 | | | 5,079 | | | 14,190 | |
Provision (benefit) for income taxes | 103 | | | 392 | | | 128 | | | (400) | | | 103 | | | 120 | | | 223 | |
Assets | 3,498,396 | | | 5,302 | | | 43,017 | | | 57,989 | | | 3,498,396 | | | 106,308 | | | 3,604,704 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For Nine Months Ended September 30, 2023 |
| Water Utility Services | | Real Estate Services | | All Other (1) | | SJW Group |
| Regulated | | Non-tariffed | | Non-tariffed | | Non-tariffed | | Regulated | | Non-tariffed | | Total |
Operating revenue | 485,334 | | | 9,398 | | | 4,293 | | | — | | | 485,334 | | | 13,691 | | | 499,025 | |
Operating expense | 375,647 | | | 5,540 | | | 2,251 | | | 2,645 | | | 375,647 | | | 10,436 | | | 386,083 | |
Operating income (loss) | 109,687 | | | 3,858 | | | 2,042 | | | (2,645) | | | 109,687 | | | 3,255 | | | 112,942 | |
Net income (loss) | 71,277 | | | 3,412 | | | 1,532 | | | (10,183) | | | 71,277 | | | (5,239) | | | 66,038 | |
Depreciation and amortization | 77,644 | | | 253 | | | 305 | | | 670 | | | 77,644 | | | 1,228 | | | 78,872 | |
Interest on long-term debt and other interest expense | 32,232 | | | 112 | | | — | | | 16,569 | | | 32,232 | | | 16,681 | | | 48,913 | |
Provision (benefit) for income taxes | 8,759 | | | 1,071 | | | 581 | | | (6,284) | | | 8,759 | | | (4,632) | | | 4,127 | |
Assets | 3,706,359 | | | 43,872 | | | 44,560 | | | 48,637 | | | 3,706,359 | | | 137,069 | | | 3,843,428 | |
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2023
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For Nine Months Ended September 30, 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 | 435,823 | | | 9,305 | | | 4,196 | | | — | | | 435,823 | | | 13,501 | | | 449,324 | |
Operating expense | 355,620 | | | 7,868 | | | 2,799 | | | 2,444 | | | 355,620 | | | 13,111 | | | 368,731 | |
Operating income (loss) | 80,203 | | | 1,437 | | | 1,397 | | | (2,444) | | | 80,203 | | | 390 | | | 80,593 | |
Net income (loss) | 51,656 | | | 441 | | | 998 | | | (12,766) | | | 51,656 | | | (11,327) | | | 40,329 | |
Depreciation and amortization | 73,888 | | | 2,821 | | | 903 | | | 730 | | | 73,888 | | | 4,454 | | | 78,342 | |
Interest on long-term debt and other interest expense | 27,676 | | | — | | | — | | | 14,484 | | | 27,676 | | | 14,484 | | | 42,160 | |
Provision (benefit) for income taxes | 4,844 | | | 398 | | | 341 | | | (1,925) | | | 4,844 | | | (1,186) | | | 3,658 | |
Assets | 3,498,396 | | | 5,302 | | | 43,017 | | | 57,989 | | | 3,498,396 | | | 106,308 | | | 3,604,704 | |
| | | | | | | | | | | | | |
____________________
(1) The “All Other” category for the three and nine months ended September 30, 2023 and 2022, includes the accounts of SJW Group, SJWNE LLC, CTWS and SJWTX Holdings, Inc. on a stand-alone basis.
Note 10.Acquisitions
On January 13, 2023, TWC reached an agreement to acquire KT Water Development Ltd. (“KT Water Development”) and SJWTX Holdings, Inc. reached an agreement to acquire KT Water Resources L.P. (“KT Water Resources”). The agreement between SJWTX Holdings, Inc. and KT Water Resources, LP, was assigned to TWR prior to closing. KT Water Development is an investor-owned water utility providing water to approximately 1,725 people through over 570 service connections in the Rockwall Ranch subdivision in southern Comal County, Texas. KT Water Resources L.P. is a wholesale groundwater resource supplier to KT Water Development formed to develop wholesale water supplies for the fast-growing utilities of Comal County, Texas. The Public Utility Commission of Texas (“PUCT”) approved the proposed KT Water Development acquisition on July 24, 2023. The acquisition of KT Water Resources did not require PUCT approval. Both transactions closed on August 14, 2023. Further information regarding each of the acquisitions is set forth below.
KT Water Development
The purchase price of KT Water Development was $7,338, all of which was cash, and was determined in accordance with a fair market value process defined under the Texas Water Code. The transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805—“Business Combinations.” Based on the preliminary purchase price allocation, the transaction consideration was allocated to utility plant. The final allocation will be completed within one year from the acquisition date. Transaction costs were not material. The results of KT Water Development are included in SJW Group’s consolidated statements of comprehensive income since the acquisition date and were not material. Pro forma financial information has not been presented because the acquisition was not material to SJW Group’s consolidated financial statements.
KT Water Resources
The total purchase price of KT Water Resources of $39,891 and consisted of a $24,491 up-front cash payment and an obligation for a post-closing production payment with an acquisition date fair value of $15,400. Considering transaction costs of $170, the total cost of the acquisition was $40,061. The KT Water Resources acquisition was accounted for as an asset acquisition in accordance with ASC Topic 805.
The total cost was allocated as follows based on the fair values of the assets acquired: $28,386 to other intangible asset, $11,684 to nonutility property, and $9 to other current liabilities. The other intangible asset represents indefinite life water rights that will not be amortized, but instead will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The nonutility property consists of wells, land, easements, and construction in progress.
The post-closing production payment represents an obligation to pay a total amount of $29,000 to the seller over a period up to 29 years. The repayment schedule is based on the quantity of groundwater produced from the acquired wells, subject to certain provisions in the purchase agreement. The fair value of the post-closing payment as of the acquisition date was determined by discounting forecasted repayments based on management’s estimates of future groundwater production. The difference
SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 20222023
(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 | |
| | | | | | | | | | | | | |
____________________
(1)between the fair value of $15,400 and the gross obligation of $29,000 is recorded as a debt discount and is being amortized as interest expense using the effective interest method over the life of the obligation. The “All Other” category forpost-closing production payment obligation is classified as long-term debt in the nine months ended September 30, 2022, includes the accounts of SJW Group, SJWNE LLC, CTWS and SJWTX Holdings, Inc. on a stand-alone basis. SJWTX Holdings, Inc. had no activity for the nine months ended September 30, 2022 . For the nine months ended September 30, 2021, “All Other” category includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis.
(2) As of September 30, 2022 and December 31, 2021, the Company has performed an allocation of goodwill associated with the acquisition of CTWS to two reporting units, Connecticut and Maine, which are both aggregated within the Regulated Water Utility Services reportable segment.condensed consolidated balance sheets.
Note 10.Subsequent Event
The CPUC approved the settlement of SJWC’s General Rate Case Application No. 21-01-003 (“2022 GRC”) on October 6, 2022 and issued Decision No. 22-10-005 (“2022 GRC Decision”) on October 11, 2022. SJWC received authority for an increase of $25,074 or 6.03% in 2022, $12,955 or 2.94% in 2023, and $16,102 or 3.56% in 2024. The application included requests to recover $18,174 from balancing and memorandum accounts and authorization for a $350,000 capital budget. Additionally, it further aligns authorized and actual consumption, particularly for business customers, addresses the water supply mix variability, and provides greater revenue recovery in the fixed charge. The 2022 approved revenue increase is effective retrospectively to January 1, 2022. SJWC will be filing advice letters to implement new rates and to recover interim revenue and balancing and memorandum accounts in accordance with the 2022 GRC Decision.
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, 2021.2022.
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” as well as the disclosures under Part I, Item 1A in SJW Group’s Annual Report on Form 10-K for the year ended December 31, 2022 under “Risk Factors.”
General:
SJW Group is a holding company with five wholly-ownedfour wholly owned subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX Holdings, Inc., and SJW Land Company, and SJWTX Holdings, Inc.Company.
SJWC is a public utility in the business of providing water service to approximately 232,000233,000 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.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 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, headquartered in Connecticut, serves as a holding company for water utility companies providing water service to approximately 141,000142,000 connections that serve a population of approximately 460,000462,000 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”CWC”) and The Maine Water Company (“Maine Water”MWC”). 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.
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 WaterCWC and Maine WaterMWC are or may be a party to limited contractual arrangements for the provision of water supply from neighboring utilities.
In the third quarter of 2023, the corporate reorganization of our water services organization in Texas was completed. SJWTX Holdings, Inc. is the holding company for SJWTX, Inc., doing business as Canyon LakeThe Texas Water Service Company (“CLWSC”TWC”), Texas Water Operation Services LLC (“TWOS”) and Texas Water Resources, LLC (“TWR”). TWC is a public utility in the business of providing water service to approximately 25,00028,000 connections that serve approximately 76,00085,000 people and approximately 900 wastewater connections. CLWSC’sTWC’s service area comprises more than 267271 square miles in Bandera, Blanco, Comal, Hays,
Kendall, Medina and Travis CountyCounties in the growing region between San Antonio and Austin, Texas. SJWTX, Inc.Comal, Kendall and Hays counties are three of the top five growth counties in the United States. TWC also holds a 25% equity interest in Acequia Water Supply Corporation.Corporation (“Acequia”). Acequia has been determined to be a variable interest entity within the scope of ASCAccounting Standards Codification Topic 810 with SJWTX, Inc.TWC as the primary beneficiary. As a result, Acequia has been consolidated with 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.TWC. TWOS was created for non-tariffed service operations and is wholly-owned by SJWTX Holdings. SJWTX Holdings is a wholly-owned subsidiary of SJW Group, incorporatedTexas Water Resources, LLC (“TWR”) was formed to hold the investments in SJWTX, Inc. and TWOS. In addition, SJWTX Holdings intends to create a new subsidiary to hold future wholesale water supply assets prior to the end of 2022.assets.
SJW Land Company and Chester Realty, Inc. own undeveloped land and operate commercial buildings in Tennessee, California and Connecticut. SJW Land Company and Chester Realty, Inc. owned the following real properties during the nine months ended September 30, 2022:2023:
| | | | | | | | | | % for Nine months ended September 30, 2022 of Real Estate Services | | | | | | | | | % for Nine months ended September 30, 2023 of Real Estate Services |
Description | Description | | Location | | Acreage | | Square Footage | | Revenue | | Expense | Description | | Location | | Acreage | | Square Footage | | Revenue | | Expense |
Warehouse building | Warehouse building | | Knoxville, Tennessee | | 30 | | 361,500 | | 52 | % | | 43 | % | Warehouse building | | Knoxville, Tennessee | | 30 | | 361,500 | | 53 | % | | 46 | % |
Commercial building | Commercial building | | Knoxville, Tennessee | | 15 | | 135,000 | | 47 | % | | 56 | % | Commercial building | | Knoxville, Tennessee | | 15 | | 135,000 | | 46 | % | | 54 | % |
Undeveloped land and parking lot | Undeveloped land and parking lot | | Knoxville, Tennessee | | 10 | | N/A | | N/A | | N/A | Undeveloped land and parking lot | | Knoxville, Tennessee | | 10 | | N/A | | N/A | | N/A |
Undeveloped land | Undeveloped land | | San Jose, California | | 101 | | N/A | | N/A | | N/A | Undeveloped land | | San Jose, California | | 101 | | N/A | | N/A | | N/A |
Commercial building | Commercial building | | Clinton, CT | | 22 | | 9,000 | | 1 | % | | 1 | % | Commercial building | | Clinton, CT | | 22 | | 9,000 | | 1 | % | | — | % |
Commercial building | Commercial building | | Guilford, CT | | 1 | | 1,300 | | — | % | | — | % | 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;operations to support the health, safety and quality of life of our customers;
(2)Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California, the Public Utilities Regulatory Authority (“PURA”) in Connecticut, the Public Utilities Commission of Texas (“PUCT”) in Texas, and the Maine Public Utilities Commission (“MPUC”) in Maine; 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 our financial position and operating results, entering markets in which we have no or limited direct prior experience and the potential loss of key employees of any acquired company. 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.
Please also see Note 10 of “Notes to Condensed Consolidated Financial Statements” for SJW Group’s recent acquisition activities. 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 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 20212022 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, 2021,2022, that was filed with the Securities and Exchange Commission on February 28, 2022.24, 2023.
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, 2021.2022. Our significant accounting policies are described in ourthe notes to the 2021 Consolidated Financial Statements2022 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2021.2022. There have been no changes to our critical or significant accounting policies during the three monthsand nine ended September 30, 2022.2023.
Results of Operations:
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 rainfall curtail water usage and sales.
Overview
SJW Group’s consolidated net income for the three months ended September 30, 2022,2023 was $25,034,$36,222, an increase of $5,966,$11,188, or approximately 31%45%, from $19,068$25,034 for the same period in 2021. Consolidated2022. The increase in net income forwas primarily driven by rate increases in California and Maine, and the three months ended September 30,delay in SJWC's 2022 includes a one-time impactGeneral Rate Case and an increase from higher customer usage driven primarily by weather conditions and the end of $355 related to SJWC’s Order Instituting Investigation settlementCalifornia mandatory water conservation requirements, offset by higher water production expenses, increase in income tax expense, less earnings from regulatory mechanisms and higher debt interest expenses. SJW Group’s consolidated net income for the nine months ended September 30, 2022,2023 was $40,329, a decrease$66,038, an increase of $2,130,$25,709, or approximately 5%64%, from $42,459$40,329 for the same period in 2021. Consolidated2022. The increase in net income was primarily driven by rate increases in California and Maine, and the delay in SJWC's 2022 includesGeneral Rate Case, a gain ondecrease in income taxes due to the salepartial release of nonutility property of $5,072, offset by thean uncertain tax position reserve, and a decrease in depreciation and amortization primarily due to a one-time impacts of $2,200impact related to depreciationamortization on certain Cupertino concession assets and $1,196in 2022 net of increases in depreciation related to SJWC’s Order Instituting Investigation settlementnew utility plant additions, offset by higher water production expenses, higher debt interest expenses, and certain true-upsa one-time gain on sale of deferred taxes and acquisition related tax expenses.nonutility properties of $5,532 in 2022.
Operating Revenue
| | | Operating Revenue by Segment | | Operating Revenue by Segment |
Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Water Utility Services | Water Utility Services | $ | 174,507 | | | 165,520 | | | $ | 445,128 | | | 429,882 | | Water Utility Services | $ | 203,413 | | | 174,507 | | | $ | 494,732 | | | 445,128 | |
Real Estate Services | Real Estate Services | 1,474 | | | 1,403 | | | 4,196 | | | 4,067 | | Real Estate Services | 1,430 | | | 1,474 | | | 4,293 | | | 4,196 | |
| $ | 175,981 | | | 166,923 | | | $ | 449,324 | | | 433,949 | | |
Total operating revenue | | Total operating revenue | $ | 204,843 | | | 175,981 | | | $ | 499,025 | | | 449,324 | |
The change in consolidated operating revenues was due to the following factors:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 vs. 2021 | | Nine months ended September 30, 2022 vs. 2021 |
Increase/(decrease) | | Increase/(decrease) |
Water Utility Services: | | | | | | | |
Consumption changes (including unbilled utility revenue) | $ | (4,256) | | | (3) | % | | $ | (9,085) | | | (2) | % |
Increase in customers | 842 | | | 1 | % | | 3,723 | | | 1 | % |
Rate increases | 9,485 | | | 6 | % | | 22,172 | | | 5 | % |
Texas winter storm customer credits | 838 | | | — | % | | 838 | | | — | % |
Balancing and memorandum accounts | | | | | | | |
Monterey Water Revenue Adjustment Mechanism (“MWRAM”) | 1,019 | | | 1 | % | | 2,047 | | | 1 | % |
Water Conservation Memorandum Account (“WCMA”) | 3,868 | | | 2 | % | | 2,768 | | | 1 | % |
Other | 184 | | | — | % | | 1,011 | | | — | % |
Other regulatory mechanisms | (2,967) | | | (2) | % | | (8,466) | | | (2) | % |
Other | (26) | | | — | % | | 239 | | | — | % |
Real Estate Services | 71 | | | — | % | | 128 | | | — | % |
| $ | 9,058 | | | 5 | % | | $ | 15,375 | | | 4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2023 vs. 2022 | | Nine months ended September 30, 2023 vs. 2022 |
Increase/(decrease) | | Increase/(decrease) |
Water Utility Services: | | | | | | | |
Consumption changes (including unbilled utility revenue) | $ | 8,307 | | | 5 | % | | $ | (7,338) | | | (2) | % |
Increase in customers | 1,075 | | | 1 | % | | 2,978 | | | 1 | % |
Rate increases | 22,624 | | | 12 | % | | 54,728 | | | 12 | % |
Balancing and memorandum accounts: | | | | | | | |
Monterey Water Revenue Adjustment Mechanism | (1,138) | | | (1) | % | | 448 | | | — | % |
Water Conservation Memorandum Account (“WCMA”) | (3,970) | | | (2) | % | | (2,569) | | | — | % |
Other | 210 | | | — | % | | 754 | | | — | % |
Other regulatory mechanisms | 1,731 | | | 1 | % | | 586 | | | — | % |
Other | 67 | | | — | % | | 17 | | | — | % |
Real Estate Services | (44) | | | — | % | | 97 | | | — | % |
Total change in operating revenue | $ | 28,862 | | | 16 | % | | $ | 49,701 | | | 11 | % |
| | | | | | | |
| | | | | | | |
Operating Expense
| | | Operating Expense by Segment | | Operating Expense by Segment |
Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Water Utility Services | Water Utility Services | $ | 136,831 | | | 132,071 | | | $ | 363,488 | | | 349,432 | | Water Utility Services | $ | 146,439 | | | 136,831 | | | $ | 381,187 | | | 363,488 | |
Real Estate Services | Real Estate Services | 975 | | | 956 | | | 2,799 | | | 2,718 | | Real Estate Services | 691 | | | 975 | | | 2,251 | | | 2,799 | |
All Other | All Other | 573 | | | 122 | | | 2,444 | | | 2,307 | | All Other | 1,107 | | | 573 | | | 2,645 | | | 2,444 | |
| $ | 138,379 | | | 133,149 | | | $ | 368,731 | | | 354,457 | | |
Total operating expense | | Total operating expense | $ | 148,237 | | | 138,379 | | | $ | 386,083 | | | 368,731 | |
The change in consolidated operating expense was due to the following factors:
| | | Three months ended September 30, 2022 vs. 2021 | | Nine months ended September 30, 2022 vs. 2021 | | Three months ended September 30, 2023 vs. 2022 | | Nine months ended September 30, 2023 vs. 2022 |
Increase/(decrease) | | 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 | $ | (1,794) | | | (1) | % | | $ | (5,445) | | | (2) | % | Change in surface water use | $ | (1,143) | | | (1) | % | | $ | (11,187) | | | (3) | % |
Change in usage and new customers | Change in usage and new customers | (6,044) | | | (5) | % | | (13,267) | | | (4) | % | Change in usage and new customers | 1,386 | | | 1 | % | | (9,899) | | | (3) | % |
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 | 9,250 | | | 7 | % | | 20,381 | | | 6 | % | Purchased water and groundwater extraction charge, energy price change and other production expenses, net | 10,044 | | | 7 | % | | 22,866 | | | 6 | % |
Balancing and memorandum accounts cost recovery | Balancing and memorandum accounts cost recovery | 87 | | | — | % | | 1,257 | | | 1 | % | Balancing and memorandum accounts cost recovery | (1,249) | | | (1) | % | | 10,113 | | | 3 | % |
Total water production expenses | Total water production expenses | 1,499 | | | 1 | % | | 2,926 | | | 1 | % | Total water production expenses | 9,038 | | | 6 | % | | 11,893 | | | 3 | % |
Administrative and general | Administrative and general | 756 | | | 1 | % | | 4,387 | | | 1 | % | Administrative and general | 530 | | | — | % | | 2,250 | | | — | % |
Balance and memorandum account cost recovery | 440 | | | — | % | | 2,055 | | | 1 | % | |
Balancing and memorandum account cost recovery | | Balancing and memorandum account cost recovery | (551) | | | — | % | | (1,865) | | | — | % |
Maintenance | Maintenance | 696 | | | 1 | % | | 1,430 | | | — | % | Maintenance | (608) | | | — | % | | (1,838) | | | — | % |
Property taxes and other non-income taxes | Property taxes and other non-income taxes | 229 | | | — | % | | 1,453 | | | 1 | % | Property taxes and other non-income taxes | 441 | | | — | % | | 850 | | | — | % |
Depreciation and amortization | Depreciation and amortization | 1,692 | | | 1 | % | | 7,555 | | | 2 | % | Depreciation and amortization | 926 | | | 1 | % | | 530 | | | — | % |
Gain on sale of nonutility properties | Gain on sale of nonutility properties | (82) | | | — | % | | (5,532) | | | (2) | % | Gain on sale of nonutility properties | 82 | | | — | % | | 5,532 | | | 2 | % |
Total change in operating expense | | Total change in operating expense | $ | 9,858 | | | 7 | % | | $ | 17,352 | | | 5 | % |
| | $ | 5,230 | | | 4 | % | | $ | 14,274 | | | 4 | % | |
|
Sources of Water Supply
SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 2051,2051. During normal rainfall years, purchased water provides approximately 40% to 50% of SJWC’s annual production. An additional 40% to 50% of its water supply is pumped from the underground basin which is
subject to a groundwater from wells, surfaceextraction charge paid to Valley Water. Surface supply, which during a normal rainfall year satisfies about 6% to 8% of SJWC’s annual water supply needs, provides approximately 1% of its water supply in a dry year and approximately 14% in a wet year. In dry years, the decrease in availability of water from watershedsurface run-off and diversion and reclaimed water. Surfacethe corresponding increase in purchased and pumped water increases production expenses substantially. The opposite is also true where water production expenses decrease in wet years. In both instances, the least expensive sourceimpacts of water. Changes and variations in quantities from each of these sources affect the overall mix of thesurface water, supply, thereby affecting water supply cost. In addition, the water rate for purchased water, groundwater charges and purchased power are now tracked in SJWC’s Full Cost Balancing Account authorized in the 2022 GRC Decision.
As of September 30, 2023, Santa Clara County’s drought classification remained at “None.” The classification has remained the same since the first quarter of 2023, when it changed from “Abnormally Dry” due to winter storms. As a result, this year Valley Water received 100% allocations of water from the State Water Project (“SWP”) and the groundwater extraction charge may be increased byU.S Bureau of Reclamation’s Central Valley Water at any time. IfProject (“CVP”). In prior year period, SWP allocation was 5% of contracted amounts and the CVP allocation was reduced to the Public Health and Safety limit due to an increase occurs, then SJWC would file an advice letter with the CPUC seeking authorization to increase customer rates to offset the cost increase. Such water supply cost and rate changes are expected to be mitigatedexceptionally dry period beginning in the future as a result of the water cost balancing account adopted in SJWC’s general rate case decision on October 6, 2022.
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 1, 2022,2023, Valley Water’s 10 reservoirs were at approximately 17%29% of totalcapacity, or 76% of restricted capacity, with 9,277 million15.4 billion gallons of water in storage, which is 40% of the twenty-year average for this date.storage. Valley Water’s largest reservoir, Anderson, remainsremained drained for a dam seismic retrofit project. As reported by Valley Water, there was 0.51 inches of rainfall in San Jose during the current annual rainfall season that commenced on July 1, 2022. Rainfall at SJWC’s Lake Elsman was measured at 1.68 inches during the current rainfall season compared to the five-year average of 0.04 inches. Under normal hydrologic conditions, state and federal water allocations represent approximately 40% of the Valley Water’s total annual water supply. As of October 1, 2022, Valley Water reported that allocations from the State Water Project was 5% or 1,629 million gallons and an additional allocation of human health and safety water has been secured. The U.S. Bureau of Reclamation allocation remains at public health and safety water only. Valley Water reported that its Semitropic groundwater bank reserves are at 80% of capacity or 90,747 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 SeptemberJune in the Santa Clara Plain was 112%170% of the five-year average. The groundwater level in the Santa Clara Plain is approximately 2123 feet higher than September 2021.2022. According to Valley Water, the projected total groundwater storage at the end of 20222023 is expected to fall withinbe in the Normal Stage of Valley Water’sthe Water Shortage Contingency Plan.
On October 1, 2022,As of September 30, 2023, SJWC’s Lake Elsman contained 679 millionwas 77.4% of capacity with 1.55 billion gallons of water, approximately 272.0% of which approximately 529 million gallons can be released for treatment in water production and to maintain downstream bypass flow regulatory requirements. Thisthe five-year seasonal average. In addition, the rainfall at SJWC’s Lake Elsman volume represents 82%was measured at 0.15 inches for the period from July 1, 2023 through September 30, 2023, which is 40.5% of the five-year 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 treated 3.4 billion gallons of water through the third quarter, was 1,340 million gallons, which is 88%190.2% of the five-year average. ThroughSJWC’s Saratoga Water Treatment Plant treated 0.1 billion gallons of water through the third quarter, which is 78% of 2022, there was 43 million gallons of water production at SJWC’s smaller Saratoga Water Treatment Plant.the five-year average. The Saratoga Water Treatment Plant was taken out of service due to lack of run-off from Saratoga Creek and remains offline. Nonetheless,will remain offline until the next rain season. SJWC believes that its various othersources of water supply sources will be sufficient to meet customer demand through the remainder of 2022.2023.
On June 9, 2021,April 11, 2023, Valley Water declared arescinded its water shortage emergency and asked its retailers to reduce consumption by 15% based on 2019 usage. In response tomandatory conservation target. Valley Water’s declaration of drought emergency andWater also established a 15% voluntary call for conservation and retained certain watering and water waste rules in recognition of precipitation volatility and reduced local storage. On the same day, SJWC filed with the CPUC to activateended its Mandatory Conservation Plan, which included drought allocations and surcharges, and lowered its drought response from Stage 3 ofto Stage 1. On October 2, 2023, SJWC’s request to continue its Rule 14.1WCMA and Water Shortage Contingency Plan. LikeConservation Expense Memorandum Account (“WCEMA”) under the most recent drought, the current restrictions centervoluntary call for conservation was approved effective April 20, 2023. SJWC continues to work with Valley Water to promote conservation, educate customers on outdoorresponsible water usage which typically accounts for half of a residential customer’s consumption. The restrictions include limitsuse practices, and collaborate on watering days and times, use of potablelong-range 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.supply planning.
Connecticut Water’sCWC’s water sources vary among the individual systems, but overall, approximately 80% of the total dependable yield comes from surface water supplies and 20% from wells. In addition, Connecticut WaterCWC has water supply agreements to supplement its water supply with the South Central Connecticut Regional Water Authority and The Metropolitan District that expire in 2058 and 2053, respectively.
CLWSC’sTWC’s water supply consists of groundwater from wells and purchased treated and untreated raw water from local water agencies. CLWSCTWC has long-term agreements with the GBRA,Guadalupe-Blanco River Authority (“GBRA”), which expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSCTWC with an aggregate of 7,650 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA. CLWSCTWC also has raw water supply agreements with the Lower Colorado River Authority (“LCRA”) and West Travis Public Utility Agency (“WTPUA”) expiring in 2059 and 2046, respectively, to provide for 350 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies. ProductionForty active production wells located in a Comal Trinity Groundwater Conservation District, a regulated portion of the Trinity aquifer, are charged a groundwater pump tax based upon usage.
In August 2023, TWOS acquired eight wells and the water rights of KT Water Resources LLC. These wells have been projected to yield an additional 6,000 acre-feet per year or more.
In July 2023, TWC implemented its Drought Management Plan as approved by the PUCT as a result of persistent drought conditions, decreasing water levels in Canyon Lake and groundwater wells, and water production levels operating at near-capacity level.
Water sources at Maine WaterMWC vary among the individual systems, but overall, approximately 90% of the total dependable yield comes from surface water supplies and 10% from wells. Maine WaterMWC has a water supply agreement with the Kennebec Water District expiring in 2040.
The following table presents the change in sources of water supply, in millionbillion 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 September 30, | | Increase/ (decrease) | | % of Total Change | | Nine months ended September 30, | | Increase/ (decrease) | | % of Total Change |
2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | |
Purchased water | Purchased water | 7,098 | | | 5,703 | | | 1,395 | | | 9 | % | | 16,136 | | | 15,601 | | | 535 | | | 1 | % | Purchased water | 6.7 | | 7.1 | 7.1 | | | (0.4) | | | (3) | % | | 15.4 | | | 16.1 | | | (0.7) | | | (2) | % |
Groundwater | Groundwater | 4,870 | | | 6,283 | | | (1,413) | | | (9) | % | | 13,790 | | | 16,850 | | | (3,060) | | | (8) | % | Groundwater | 4.8 | | 2.9 | 4.9 | | | (0.1) | | | (1) | % | | 10.0 | | | 13.8 | | | (3.8) | | | (10) | % |
Surface water | Surface water | 2,866 | | | 3,113 | | | (247) | | | (2) | % | | 8,153 | | | 6,947 | | | 1,206 | | | 3 | % | Surface water | 3.1 | | 4.9 | 2.9 | | | 0.2 | | | 1 | % | | 10.0 | | | 8.2 | | | 1.8 | | | 5 | % |
Reclaimed water | Reclaimed water | 322 | | | 341 | | | (19) | | | — | % | | 694 | | | 669 | | | 25 | | | — | % | Reclaimed water | 0.4 | | 0.3 | 0.3 | | | 0.1 | | | 1 | % | | 0.6 | | | 0.7 | | | (0.1) | | | — | % |
| | 15,156 | | | 15,440 | | | (284) | | | (2) | % | | 38,773 | | | 40,067 | | | (1,294) | | | (4) | % | | 15.0 | | 15.2 | 15.2 | | | (0.2) | | | (2) | % | | 36.0 | | | 38.8 | | | (2.8) | | | (7) | % |
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, 2023 and 2022 approximated 7.9% and 2021 approximated 8.6% and 6.9%, respectively, as a percentage of total production. The unaccounted-for water estimate is based on the results of past experience and the impact of flows through the system, partially offset by SJWC’s main replacements and lost water reduction programs.
CTWS’s unaccounted-for water on a 12-month-to-date basis for September 30, 2023 and 2022 approximated 13.0% and 2021 was approximately 14.2% and 14.6%, respectively,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 CTWS’s systems, unadjusted for any required system flushing, partially offset by Water Infrastructure Conservation Adjustment and Water Infrastructure Surcharge main replacement programs and lost water reduction initiatives.
Water Production Expenses
The change in water production expenses of $9,038 for the three and nine months ended September 30, 2022,2023, compared to the same period in 2021,2022, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction,
energy charges and other production expenses offset by a decreaseand increase in customer usage, offset by decreases in SJWC’s regulatory Full Cost Balancing Account and an increase in available surface water for SJWC. Effective July 1, 2022, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.
The change in water production expenses of $11,893 for the nine months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses and increases in SJWC’s regulatory Full Cost Balancing Account, offset by an increase in available surface water for SJWC and a decrease in customer usage. Effective July 1, 2022, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.
Other Operating Expenses
Operating expenses, excluding water production expenses, increased $3,731$820 for the three months ended September 30, 2022,2023, compared to the same period in 2021.2022. The increase was primarily attributable to increases of $1,692 in depreciation and amortization duerelated to increases innew utility plant $1,196 in administrative and general expenses primarily due to increases in labor,additions and an increase of $696in taxes other than income taxes, offset by a decrease in maintenance expenses due to the timing of contract work and materials expenses.
Operating expenses, excluding water production expenses, increased $11,348$5,459 for the nine months ended September 30, 2022,2023, compared to the same period in 2021.2022. The increase was primarily attributable to increasesthe $5,450 gain on sale of $7,555nonutility properties recorded in the prior year, partially offset by decreases in depreciation and amortization due to a $2,400 one-time impact related to amortization on certain Cupertino concession assets net of increases in depreciation related to new utility plant and a true up related to Cupertino assets to adjust the useful lives over the concession term, an increase of $6,442 in administrative and general expenses primarily due to increases in labor and changes in cost recovery balancing and memorandum accounts, an increase of $1,453 in taxes other than income due to utility plant increases and an increase of $1,430additions. In addition, there were decreases in maintenance expenses partially offset bydue to the gain on saletiming of vacant land located in Californiacontract work and nonutility property in Texas.materials expenses.
Other (Expense) Income
For the three months ended September 30, 2022 ,2023, compared to the same period in 2021,2022, the change in other (expense) income was primarily due to an increase in interest on the line of credit resulting fromexpense due to an increase in long-term debt balances, higher interest rates on lines of credit borrowings and higher short term borrowing rates, partially offset by a reductionan increase in pension non-service cost.cost, offset by the changes in the Rabbi Trust and life insurance policy values.
For the nine months ended September 30, 2022 ,2023, compared to the same period in 2021,2022, the change in other (expense) income was primarily due to the $3,000 pre-tax gainan increase in interest expense due to an increase in long-term debt balances, higher interest rates on sale from the releaselines of a holdback amount by GBRA for the sale of TWA in prior yearcredit borrowings and a decrease in the return from retirement plan assets, partially offset by a reductionan increase in pension non-service cost.cost, offset by the changes in the Rabbi Trust and life insurance policy values and a true-up on prior real estate sale transactions.
Provision for Income Taxes
For the three and nine months ended September 30, 2022,2023, compared to the same period in 2021,2022, income tax expense decreased $2,526increased $4,338 and $1,501,$469, respectively. The decreaseincrease in income tax expense for the three and nine months ended September 30, 20222023 was primarily due to discrete tax items and, for the nine months ended September 30, 2022, lowera higher pre-tax income.
The effective consolidated income tax rates were 1%11% and 13%1% for the three months ended September 30, 2022,2023 and 2021,2022, respectively, and 8%6% and 11%8% for the nine months ended September 30, 2022,2023 and 2021,2022, respectively. The lowerhigher effective tax rate for the three and nine months ended September 30, 2022,2023 was primarily due to the tax benefit relating to a tax accounting method change at CTWS relatedrecorded in the third quarter of 2022. There was no such benefit recorded in the third quarter of 2023. The lower effective tax rate for the nine months ended September 30, 2023 was primarily due to the non-network assets repairs deduction.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. SJW Group has considered the incomehigher flow-through tax implications of the IRA in its estimated tax provision and does not believe it will materially impact the company’s year-end tax rate.benefits.
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.
Please also see Note 2 of “Notes to Condensed Consolidated Financial Statements.” California Regulatory Affairs
SJWC filed General Rate Case Application No. 21-01-003 (“2022 GRC”) on January 4, 2021, 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 included 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. Due to the delayed CPUC decision, SJWC was approved for interim rates effective January 1, 2022 via Advice Letter No. 573 on December 30, 2021. The authorization of interim rates allows SJWC to retroactively apply the final decision to January 1, 2022. The interim rates approved were set to equal the present rates in effect to avoid customer confusion and short-term bill changes. SJWC and the Public Advocates Office filed an amended settlement agreement resolving all issues in the proceeding on February 4, 2022, for the CPUC’s consideration and adoption. The settlement provides a revenue increase of $54,131 over the three-year period with an increase of $25,074 in 2022 and a recovery of $18,174 from balancing and memorandum accounts. 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 the water supply mix variability, and provides greater revenue recovery in the fixed charge. The CPUC approved the settlement on October 6, 2022 and issued Decision No. 22-10-005 (“2022 GRC Decision”) on October 11, 2022. SJWC will be filing advice letters to implement new rates and to recover interim revenue and balancing and memorandum accounts in accordance with the 2022 GRC Decision.
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%, which is 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. IfIntervenors in this proceeding, namely the Public Advocates Office and Water Rate Advocates for Transparency, Equity, and Sustainability, have suggested a lower return on equity while the latter has also suggested a higher cost of debt and different capital structure as part of their testimonies. On June 29, 2023, the CPUC approved Decision No. 23-06-025 in this proceeding. The decision authorizes a rate of return of 7.28% based on a return on equity of 8.80%, a cost of debt of 5.46%, and a capital structure of approximately 45% debt and 55% equity. The CPUC also authorized continuation of the Water Cost of Capital Mechanism (“WCCM”) in the same decision. The WCCM provides for an adjustment in SJWC’s return on equity and cost of debt if the average Moody’s Aa utility bond index rate between October 1, 2021 and September 30, 2022 varies by more than 100 basis points when compared to the same period from the prior year. The index rate difference between those periods increased 103 basis points, thereby triggering the WCCM. Accordingly, SJWC filed a Tier 2 Advice Letter No. 598 on June 30, 2023, which was subsequently approved with an effective date of July 31, 2023. On July 31, 2023, SJWC filed a Tier 1 Advice Letter No. 599 to implement new rates. The new rates are expected to bebecame effective inprospectively on the fourth quarterdate of 2022.
the filing and reflect the WCCM-adjusted return on equity of 9.31%, a cost of debt of 5.26%, and an overall rate of return of 7.47%. Advice Letter No. 599 was approved with an effective date of July 31, 2023. Between October 1, 2022 and September 30, 2023, the index rate increased approximately 140 basis points, surpassing the required WCCM trigger. On December 6, 2019,October 13, 2023, SJWC filed ApplicationAdvice Letter No. 19-12-002601 to deploy Advanced Metering Infrastructure (“AMI”) throughout its service area. On August 5, 2021, an all-party settlement agreement was submittedtrigger the WCCM for 2024. SJWC expects a WCCM-adjusted return on equity of approximately 10.01%, less a 20 basis point reduction due to the CPUC for adoption that would authorize the deployment of AMI outsidereimplementation of the capital budget requested in the 2022 GRC. A final decision approving the settlement agreement was issuedWCMA and WCEMA, to become effective on June 10, 2022.January 1, 2024.
SJWC filed Advice Letter No. 577585 on May 24,November 10, 2022, to recover $20,554 in the Interim Rates Memorandum Account in accordance with the 2022 GRC Decision. Advice Letter No. 585 was approved with an effective date of January 1, 2023.
SJWC filed Advice Letter No. 586 on November 18, 2022, to increase the authorized revenue requirement by $24,331$18,418 or 5.9%4% for the escalation year increase in accordance with the 2022 GRC Decision. Advice Letter No. 586 was approved with an effective date of January 1, 2023.
SJWC filed Advice Letter No. 590 on April 6, 2023, to recover a $14,196 under-collection in its Monterey Water Revenue Adjustment Mechanism Balancing Account as of March 31, 2023. SJWC proposed that this amount be recovered via a 12-month volume surcharge. Advice Letter No. 590 was approved with an effective date of May 8, 2023.
SJWC filed Advice Letter No. 591 on April 11, 2023, to discontinue its drought allocation surcharges and move from Stage 3 to Stage 1 of its Schedule 14.1 Advice Letter No. 591 was approved with an effective date of April 11, 2023.
SJWC filed Advice Letter No. 592 on April 20, 2023, to continue its WCMA and WCEMA under Valley Water’s voluntary call for 15% conservation. On October 2, 2023, Advice Letter No. 592 was approved with an effective date of April 20, 2023.
SJWC filed Advice Letter No. 596 on May 31, 2023, to increase the authorized revenue requirement by $27,607 to offset the increases to purchased potable water charges, the groundwater extraction fee, and purchased recycled water charges from its water wholesalers effective July 1, 2022.2023. Advice Letter No. 577596 was approved on June 30, 2022.with an effective date of July 1, 2023.
Connecticut Regulatory Affairs
On October 12, 2022, SJWC filed Advice Letter No. 581 to recover $18,174 in balancing and memorandum accounts in accordance to the 2022 GRC Decision. This filing is pending before the CPUC.
On October 12, 2022, SJWC filed Advice Letter No. 582 to refund $19,921 accumulated in its WCMA and its Water Conservation Expense Memorandum Account (“WCEMA”) through August 31, 2022. This refund amount will offset the $18,174 requested in Advice Letter No. 581 resulting in a net refund to customers of $1,747. Netting the two balances against each other allows for immediate recovery of the balancing and memorandum accounts and results in less confusion on customer bills. The approvals of both Advice Letter No. 581 and 582 are conditioned on this approach and are pending before the CPUC.
On October 13, 2022, SJWC filed Advice Letter No. 583 to increase revenue requirement by $25,074 or 6% and implement new water rates in accordance with the 2022 GRC Decision. This filing is anticipated to become effective November 1, 2022, pending the CPUC’s approval.
Connecticut Regulatory Affairs
On OctoberJanuary 26, 2021, Connecticut Water2023, CWC filed for a Water Infrastructure Conservation Adjustment (“WICA”) increase of approximately $21,746$3,253 in annualized revenues for $27,775 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, effectiveCWC’s application on March 22, 2023. On January 1, 2022 which is expected to generate approximately $2,581 in additional revenue. On February 14, 2022 Connecticut Water25, 2023, CWC filed its 20212022 WICA reconciliation with PURA. The reconciliation, approved by PURA on March 16, 202229, 2023 and effective for 12 months beginning April 1, 2022,2023, replaced the expiring 20202021 reconciliation surchargecredit of 0.07%0.02% with a credit of 0.02%0.16%. As a result, the netThe cumulative WICA surcharge effectiveas of April 1, 2022 was 2.35%.2023 is 6.19%, collecting $6,544 on an annual basis.
On February 28, 2022 Connecticut Water27, 2023, CWC filed its 20212022 Water RateRevenue Adjustment mechanism (“WRA”). The mechanism reconciles 20212022 revenues as authorized in the Company’sCWC’s most recent rate cases.case. The 20212022 WRA, as approved by PURA on March 30, 202224, 2023 and effective for 12 months beginning on April 1, 2022 imposed2023, imposes a 2.85% surcharge4.97% surcredit on customer bills to collectrefund the 20212022 revenue shortfall.over-collection.
On April 26, 2022, Connecticut WaterJuly 27, 2023, CWC filed for a WICA increase of $9,779$1,259 in annualized revenues for $11,464 in completed projects. PURA approved the Company’s application, on June 22, 2022. Theand effective October 1, 2023, the cumulative WICA chargesurcharge is 7.38%.
On October 3, 2023, CWC filed an application with PURA to adjust customer rates. If PURA approves the request as proposed, annual revenues of CWC will increase by approximately $21,400, or 18.1%, over current authorized revenues and would be effective on or about July 1, 2022 is 3.26%, collecting $3,448 on an annual basis.2024.
On June 17, 2022, Connecticut Water submitted anTexas Regulatory Affairs
TWC has no current general rate case pending. However, it filed its application to PURA for the approval to issue unsecured notes in the amount of $25,000. The notes carry an interest rate of 4.71% and the closing is expected to occur on December 15, 2022. A decision from PURA approving the application was received on August 10, 2022.
Texas RegulatoryAffairs
CLWSC filed its 2022 Water Pass Throughestablish a System Improvement Charge (“WPC”SIC”) true-up report for its Canyon Lake water system on January 31, 2022 with the PUCT under Docket No. 53173.54430 on December 30, 2022. This filing will allow TWC to add certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case. The PUCT modifiedSIC is projected to increase TWC’s water revenue by $1,596 and sewer revenue by $29 within one year of the WPC formula which resulted in a new usage rate
increasingapproval from $0.70 to $0.90 dollars per thousand gallons. The new usage rate was effective March 1, 2022. The true-up report was approved bythe PUCT. On October 17, 2023, the PUCT on May 10, 2022found the application administratively complete. Once the PUCT files the final order approving the SIC, TWC will be required to file a general rate case within four years. TWC will incrementally increase its SIC annually until its next rate case. TWC expects to receive the final order during the first quarter of 2024. Notwithstanding the SIC filing, TWC will continue to file its annual adjustments for the Water Pass-through Charges (“WPC”) for Canyon Lake, Deer Creek and CLWSC received approval of the new tariff on May 24, 2022.
CLWSC filed its 2022 WPC true-up report for its Kendall West customers. All water supply cost increases are recoverable when the next annual WPC adjustment for each system on June 29, 2022is filed.
On April 10, 2023, TWC filed an application with the PUCT under Docket No. 53751. CLWSC requestedto acquire the Elm Ridge water system that serves 21 residential customers. TWC has asked for filed rate doctrine treatment, which allows the acquiring utility’s current rates to be applied at the time of acquisition. TWC expects to receive the PUC’s approval to close on the acquisition during the fourth quarter of 2023.
On May 17, 2023, TWC filed its application with the PUCT for an increase from $2.39internal stock transfer. As part of an internal restructure, SJW Group would transfer 100% of the stock held in TWC to $3.69 per thousand gallonsSJWTX Holdings, Inc. On September 18, 2023, the PUCT gave its approval for the WPC. transaction to proceed. SJW Group completed the transfer on September 18, 2023.
On July 24, 2023, the PUCT approved TWC's application to acquire KT Water Development Ltd. KT Water Development Ltd. provides service to approximately 570 residential water connections. On August 14, 2023, TWC closed on the acquisition. The WPC increasedPUCT's final decision that transfers the CCN to TWC is expected in the fourth quarter of 2023, which is when we anticipate approval of our request for fair market value and filed rate from $2.39 to $2.56 per thousand gallons on October 1, 2022.doctrine treatment.
Maine Regulatory Affairs
The rates approved in the Biddeford Saco division by the April 5, 2022 stipulated agreement, which authorized a rate increase of $6,313, or 72.5% went into effect on July 1, 2022. The Saco River Drinking Water Resource Center began supplying the water distribution system on June 16, 2022. As part of the stipulated agreement, MWC agreed to file a final phase of the rate case by April 1, 2023. The third filing was submitted on March 31, 2023. Step 3 of the planned multi-year rate filings for the Saco River Drinking Water Resource Center was filed in accordance with the Commission order on March 31, 2023. The filing requested an increase in revenue requirement of $2,949, or 19.9% and requested that the increase be implemented over two years with a 12% increase effective July 1, 2023 followed by a 9% increase effective July 1, 2024 with a slight decrease in year three to reach the overall 19.9% requested. On August 25, 2023, the Commission issued an order granting a temporary rate increase of $1,495 or 10% while the case and the Company’s full request are litigated. A final decision is expected in the fourth quarter of 2023.
On February 2, 2023, MWC received final decisions from the MPUC on four general rate cases filed in 2022. The rate increases are retroactively effective for January 1, 2023 and authorize a $692 increase in annual revenues. On February 28, 2022, Maine WaterMWC filed requests for general rate increases in the Camden-Rockland, Freeport, Millinocket and Oakland Divisions.
On June 30, 2023, MWC filed a Water Infrastructure Surcharge for the Camden-Rockland division. The four filings collectively request $532requested surcharge is 2.34% or $158. The Commission is expected to issue a decision regarding the surcharge in new revenue and seek to reset the WISC in all four divisions. The four cases, while docketed separately, are proceeding through the adjudication process together. Decisions by the Commission in these filings are expected in the fourth quarter of 2022.November 2023.
Liquidity:
Cash Flow from Operating Activities
During the nine months ended September 30, 2022,2023, SJW Group generated cash flows from operations of approximately $129,300,$159,300, compared to $100,300approximately $129,300 for the same period in 2021.2022. 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 $29,000.$30,000. This increase was the result of a combination of the following factors: (1) an increase of $34,200 in regulatory assets primarily due to the recognition of balancing and memorandum accounts, and (2) general working capital and net income, adjusted for non-cash items, increased by $5,200, offset by (3)$37,100, (2) a decrease in payments of amounts previously invoiced and accrued including accrued production costs decreasedof $5,000, and (3) increased tax accruals of $2,500 compared to the prior period, offset by $4,500, (4) increasea decrease of payments for postretirement benefits of $3,000,$5,700 in regulatory assets primarily due to lower surcharge collections on balancing and memorandum accounts, (5) a decrease of $2,900in collections from higher accounts receivable balances.and accrued unbilled utility revenue of $4,300, and (6) a decrease of $4,600 in other changes primarily due to prior funds received from the State of California Water and Wastewater Arrearages Payment Program and the partial release of uncertain tax position reserve.
As of September 30, 2022,2023, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, unchangedincreased from less than 1% as of September 30, 2021. As of February 1, 2022, the remaining state executive order suspending water service disconnections due to non-payment by customers expired in California. There is no guarantee that the respective state regulators will not reinstate such orders.2022. Management believes that the collection rate for its accounts receivables will increase as service disconnections gradually return to pre-pandemic 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. Bill credits were applied to customer accounts that remained outstanding and the excess of $3,272 was returned to the State of California. 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.normal operations.
Cash Flow from Investing Activities
During the nine months ended September 30, 2022,2023, SJW Group used cash flows from investing activities of approximately $181,500,$241,700, compared to $182,900approximately $181,500 for the same period in 2021.2022. SJW Group used approximately: (1) $160,500$195,900 of cash for company-funded utility capital expenditures, (2) $17,800$24,200 for nonutility properties, real estate investments and other intangible asset, (3) $13,600 for developer-funded utility capital expenditures, and (3) $2,400(4) $7,300 for utility plant retirements.business acquisitions during the nine months ended September 30, 2023.
Water Utility Services’ budgetedestimated utility capital expenditures for 2022,2023, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $223,000.$255,000. As of September 30, 2022,2023, approximately $160,500$195,900 or 72%77% of the $223,000$255,000 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 expects to incur approximately $1,300,000$1,630,000 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems.systems, and installing PFAS treatment. 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-financedcompany-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 costcosts will significantly exceed the original installation costcosts 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 months ended September 30, 2022, decreased2023 increased by approximately $36,400$38,000 from the same period in the prior year, primarily as a result of (1) a decreasean increase in net proceeds of $157,100 from lower borrowings and repayments on long-term debt of $139,700, and increase of payments to long-term debt, (2) a decreasean increase in net proceeds from our common stock equity offering in prior yearofferings of $63,700, (3) an increase of dividends paid to stockholders of $2,700,$72,200, offset by (4) an increase(3) a decrease in net borrowings and repayments on our lines of credit of $189,200.$167,300, (4) $3,100 increase in dividends paid to stockholders, and (5) $2,700 decrease in net cash receipts from advances and contributions in aid of construction.
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.
Short-term Financing Agreements
SJW Group and its subsidiaries have unsecured line of credit agreements where borrowings are used for long-term capital expenditure financing, working capital, and general corporate purposes.
A summary of the line of credit agreements as of September 30, 2022,2023 are as follows:
| | | Maturity Date | | Line Limit | | Amounts Outstanding | | Unused Portion | | Maturity Date | | Line Limit | | Amounts Outstanding | | Unused Portion |
| Syndicated credit agreement: | Syndicated credit agreement: | August 2, 2027 | | Syndicated credit agreement: | August 2, 2028 | |
SJW Group | SJW Group | | $ | 50,000 | | | — | | | 50,000 | | SJW Group | | $ | 50,000 | | | — | | | 50,000 | |
SJWC | SJWC | | 140,000 | | | 95,000 | | | 45,000 | | SJWC | | 140,000 | | | 42,000 | | | 98,000 | |
CTWS | CTWS | | 90,000 | | | 56,000 | | | 34,000 | | CTWS | | 90,000 | | | 40,000 | | | 50,000 | |
SJWTX, Inc. | | 20,000 | | | 1,500 | | | 18,500 | | |
TWC | | TWC | | 20,000 | | | — | | | 20,000 | |
Total syndicated credit agreement | Total syndicated credit agreement | | 300,000 | | | 152,500 | | | 147,500 | | Total syndicated credit agreement | | 300,000 | | | 82,000 | | | 218,000 | |
CTWS credit agreement | CTWS credit agreement | December 14, 2023 | | 10,000 | | | 6,670 | | | 3,330 | | CTWS credit agreement | August 2, 2028 | | 10,000 | | | 6,433 | | | 3,567 | |
CTWS credit agreement | CTWS credit agreement | May 15, 2025 | | 40,000 | | | 40,000 | | | — | | CTWS credit agreement | May 25, 2025 | | 40,000 | | | 40,000 | | | — | |
| | $ | 350,000 | | | 199,170 | | | 150,830 | | | $ | 350,000 | | | 128,433 | | | 221,567 | |
On August 2, 2022, SJW Group, SJWC, SJWTX, Inc., and CTWS entered into a $300,000 credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent (“JP Morgan”), Wells Fargo Bank, National Association, as Documentation Agent, and a syndicate of banks. Proceeds of borrowings under the Credit Agreement will be used for refinancing existing debt, working capital, and general corporate purposes. The Credit Agreement has a maturity date of August 2, 2027.
Under the terms of the Credit Agreement, each of SJW Group, SJWC, SJWTX, Inc., and CTWS is a borrower with several and not joint liability. Each borrower has an initial borrowing entitlement, or sublimit, which can be periodically adjusted from time to time as set forth in the Credit Agreement. The initial sublimit of each borrower is as presented in the table above.
Borrowings under the Credit Agreement bear interest at either the Alternative Base Rate (as defined in the Credit Agreement and hereinafter referred to as “ABR”) or the Adjusted Term Secured Overnight Financing Rate (as defined in the Credit Agreement and hereinafter referred to as “SOFR”). ABR borrowings (which are borrowings bearing interest at a rate determined by reference to ABR) will bear interest at a rate per annum equal to ABR plus the applicable rate. SOFR borrowings (which are borrowings bearing interest at a rate determined by reference to SOFR) will bear interest at a rate per annum equal to SOFR plus the applicable rate. The applicable rate and pricing is variable depending on credit ratings of the borrower.
The Credit Agreement contains customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, asset sales, and fundamental changes. The Credit Agreement also includes a financial covenant that requires each of the borrowers to maintain its funded debt to capitalization ratio at or below 70%.
This Credit Agreement replaces the existing $140,000 credit agreement, dated April 23, 2021, between SJWC and JP Morgan and the existing $5,000 credit agreement, dated April 23, 2021, between SJWTX and JP Morgan, with SJW Group as guarantor, both of which were terminated upon entering into the Credit Agreement and were set to mature on December 31, 2023. In addition, on August 2, 2022, CTWS and Citizens Bank, National Association, entered into a fourth modification to the amended and restated revolving credit facility, dated December 18, 2019, as amended, pursuant to which the credit commitment was reduced from $75,000 to $10,000.
DuringFor the nine months ended September 30, 2022,2023, cost of borrowing on the lines of credit averaged 2.79%6.16% compared to 1.34%2.79% in the same period in 2021.2022.
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, 2022,2023, 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, long-term capital expenditure financing and working capital, and refinancing of maturing long-term debt.
On April 6, 2022, 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 $15,000 at a fixed interest rate of 4.54%, due May 31, 2042. 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 May 13, 2022.
On June 28, 2022, Connecticut Water entered into a note purchase agreement with certain affiliates of New York Life Insurance Company, pursuant to which Connecticut Water sold an aggregate principal amount of $25,000 of its 4.71% Senior Notes, Series 2022, due 2052. The closing of the note purchase agreement is expected to occur on December 15, 2022, and is subject to customary closing conditions. The Series 2022 Notes are unsecured obligations of Connecticut Water. Interest is payable semi-annually in arrears on June 15th and December 15th 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 Series 2022 Notes are outstanding. The Series 2022 Notes are also subject to customary events of default, the occurrence of which may result in all of the Series 2022 Notes then outstanding becoming immediately due and payable.
On July 14, 2022, SJWC entered into a note purchase agreement with certain affiliates of New York Life Insurance, Metropolitan Life Insurance, Northwestern Mutual Life Insurance, and John Hancock Life Insurance (collectively the “Purchasers”), pursuant to which the company will sell an aggregate principal amount of $70,000 of its 4.85% Senior Notes, Series P (“Series P Notes”) to the Purchasers. The Series P Notes are unsecured obligations of SJWC and are due on February 1, 2053. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. The note purchase agreement contains customary affirmative and negative covenants for as long as the Series P Notes are outstanding. The Series P Notes are also subject to customary events of default. The closing is expected to occur inof the note purchase agreement occurred on January 2023 upon satisfaction of customary closing conditions.25, 2023.
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 September 30, 2022,2023, SJW Group and its subsidiaries were in compliance with all covenants related to itsin their long-term debt agreements.
Equity Financing Arrangements
On November 17, 2021,March 1, 2023, SJW Group entered into anAmendment No. 1 to the equity distribution agreement (the “Equity Distribution Agreement”) with, dated November 17, 2021, between SJW Group and J.P. Morgan Securities LLC, Janney Montgomery Scott LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (each a “Sales Agent” and, collectively, the “Sales Agents”), pursuant to which SJW Group increased the company may offer and sellaggregate gross sales price of shares of its
SJW Group’s common stock, $0.001 par value per share, (the “Shares”), from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $100,000. Pursuant to the Equity Distribution Agreement, the Sharesthat 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 1933, as amended, including sales by means of 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 block transactions, or as otherwise agreed upon by the company and the Sales Agents. Proceeds from the sale of the shares under the Equity Distribution Agreement can be used in the financing of acquisitions, infrastructure improvements and other capital expenditures, repayment of debt or other corporate obligations, and working capital over the term of the Equity Distribution Agreement as such needs arise.from $100,000 to $240,000. For the three and nine months ended September 30, 2022,2023, SJW Group issued and sold a total of 47,608169,421 and 1,029,924 shares of common stock, respectively, with a weighted average price of $69.57 and $74.57 per share, respectively, and received $11,505 and $75,284 in net proceeds, respectively, under the Equity Distribution Agreement. Since the inception of the Equity
Distribution Agreement, SJW Group has issued and sold 1,914,775 shares of common stock with a weighted average price of $66.26 per share and received approximately $3,107 in net proceeds under the Equity Distribution Agreement. Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 402,723 shares of common stock with a weighted average price of $69.91$74.05 for a total net proceeds of $27,360$138,716 and has a$98,209 remaining $71,845to issue from the sale of shares as of September 30, 2023 under the Equity Distribution Agreement to issue into shares.Agreement.
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 risk, we believe that based on our 20222023 and 20212022 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future. SJW Group, CTWS and CWC were put on negative watch on September 19, 2023. Standard & Poor’s noted the change in outlook is due to recent regulatory and legislative developments in Connecticut that are not consistent with Standard & Poor’s view of the regulatory framework for investor owned utilities.
The following table are the current Standard & Poor’s Rating Service assigned company rating for SJW Group is an A-, with a stable outlook, for SJWC is an A, with a stable outlook, CTWS is an A- with a stable outlook, and Connecticut Water is an A- with a stable outlook.ratings:
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Entity | | Rating | | Outlook |
SJW Group | | A- | | Negative |
SJWC | | A | | Stable |
CTWS | | A- | | Negative |
CWC | | A- | | Negative |
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 WaterSJW Group’s subsidiaries sponsor noncontributory pension and other post-retirement plans for its employees. Pension and other post-retirement costs and the funded status of the plans may be 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 fiscal quarter of 20222023 that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting of SJW Group.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
SJW Group is subject to ordinary routine litigation incidental to its business. In October 2023, The Connecticut Water Company, a subsidiary of SJW Group, was named as a defendant in a class action lawsuit alleging that the water provided by Connecticut Water contained contaminants.Connecticut Water intends to vigorously defend itself in this lawsuit.There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.
ITEM 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 annual report on Form 10-K for the year ended December 31, 20212022 and our other public filings, which could materially affect our business, financial condition or future results. There has been no material changes from risk factors previously disclosed in “Risk Factors” in SJW Group’s annual report on Form 10-K for the year ended December 31, 2021 and any Form 10-Q filed after Form 10-K for the quarterly periods in 2022.
ITEM 5.OTHER INFORMATION
Quarterly Dividend
On October 26, 2022,25, 2023, the Board of Directors of SJW Group declared the regular quarterly dividend of $0.36$0.38 per share of common stock. The dividend will be paid on December 1, 2022,2023, to stockholders of record as of the close of business on November 7, 2022.6, 2023.
Information Web Sites
SJW Group 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.comwww.txwaterco.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
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Exhibit Number | | Description |
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10.1 | | CreditTransition and Separation Agreement and Release, dated AugustJuly 6, 2 2022,023, by Andrew R. Gere and among the Company, San Jose Water Company, SJWTX, Inc., Connecticut Water Service Inc., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association.Company. Incorporated by reference to Exhibit 10.1 to Form 8-K8-K filed on August 5, 2022.July 7, 2023. |
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10.2 | | First Amendment Letter, effective October 6, 2022, to Credit Agreement, dated August 2, 2023, between SJW Group, San Jose Water Company, SJWTX, Inc., Connecticut Water Service, Inc., JPMorgan Chase Bank, N.A., as administrative agent and a lender, and the Amended and Restated Employment Agreement of Maureen Westbrook.other lenders party thereto. Incorporated by reference to Exhibit Exhibit 10.1 to Form 8-K filed on October 7, 2022.August 2, 2023. (2) |
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10.3 | | |
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10.4 | | |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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32.2 | | |
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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. |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document |
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(1)Filed currently herewith.
(2)Management contract or compensatory plan or agreement.
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.
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| | | | SJW GROUP |
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DATE: | October 28, 202230, 2023 | By: | | /s/ ANDREW F. WALTERS |
| | | | Andrew F. Walters |
| | | | Chief Financial Officer and Treasurer (Principal financial officer) |