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, ~~2022~~2023

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

For the transition period from to

Commission file number 1-8966

SJW GROUP

(Exact name of registrant as specified in its charter)

Delaware

77-0066628

(State or other jurisdiction of incorporation or organization)

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

110 West Taylor Street,

San Jose,

95110

(Address of principal executive offices)

(Zip Code)

(408) 279-7800

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SJW

New York Stock Exchange LLC

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

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

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

Large accelerated filer ☒ Non-accelerated filer ☐

Accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October 24, ~~2022,~~2023, there were ~~30,319,317~~31,933,003 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, ~~2022~~2023

(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 ~~2021~~2022 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-owned~~four 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-subsidiaries~~wholly 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 Water~~TWOS, 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 properties~~In 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 on~~Knoxville, Tennessee. The company reclassified the ~~sale of nonutility~~Tennessee 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, ~~2022~~2023

(in thousands, except share and per share data)

~~Commission (“CPUC”) review~~2023. 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 ~~CPUC~~California 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. ~~The~~Of 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 ~~dilutive~~diluted 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 ~~dilutive~~diluted earnings per share calculation, respectively.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, ~~2022~~2023

(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 recovery~~the continuation of ~~$18,174 in balancing~~WCMA 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, net~~Water 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 sell~~aggregate gross sales price of shares of ~~its~~SJW 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 ~~47,608~~169,421 and 1,029,924 shares of common stock, ~~with~~respectively, 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 ~~402,723~~1,914,775 shares of common stock ~~with~~at 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 syndicate~~which 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 bear~~weighted-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 equal~~2023 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 company~~SJWC 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~~of 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 satisfaction~~the 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, ~~2022~~2023 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 regarding~~position reserve of $3,087 which was recorded in the ~~non-network asset~~second 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.

1412

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, ~~2022~~2023

(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 considered~~had unrecognized tax benefits, before the ~~income~~impact 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 ~~implications~~positions 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 ~~2021~~2022 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 to~~Group’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, 179,848~~2023, 150,882 shares are issuable upon the vesting of outstanding restricted stock units and deferred restricted stock units and an additional ~~612,738~~1,136,979 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.

1514

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, ~~2022~~2023

(in thousands, except share and per share data)

~~A summary of compensation costs charged to income and proceeds from~~For 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 Plan~~31,345 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 ~~1.78~~1.81 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 ~~ESPP~~employee 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 ~~five~~four 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, and~~holding 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 the~~and 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 providing~~provides 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, ~~2022~~2023

(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 for~~post-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-owned~~four 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 ~~232,000~~233,000 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 ~~141,000~~142,000 connections that serve a population of approximately ~~460,000~~462,000 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 Water~~CWC and ~~Maine Water~~MWC 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 Lake~~The 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 ~~25,000~~28,000 connections that serve approximately ~~76,000~~85,000 people and approximately 900 wastewater connections. ~~CLWSC’s~~TWC’s service area comprises more than ~~267~~271 square miles in Bandera, Blanco, Comal, Hays,

Kendall, Medina and Travis ~~County~~Counties 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 ~~ASC~~Accounting 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, incorporated~~Texas 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 ~~2021~~2022 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 ~~our~~the notes to the ~~2021 Consolidated Financial Statements~~2022 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 ~~months~~and nine ended September 30, ~~2022.~~2023.

Results of Operations:

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. Consolidated~~2022. The increase in net income ~~for~~was 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 impact~~General 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 settlement~~California 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. Consolidated~~2022. The increase in net income was primarily driven by rate increases in California and Maine, and the delay in SJWC's 2022 ~~includes~~General Rate Case, a ~~gain on~~decrease in income taxes due to the ~~sale~~partial release of ~~nonutility property of $5,072, offset by the~~an uncertain tax position reserve, and a decrease in depreciation and amortization primarily due to a one-time ~~impacts of $2,200~~impact related to ~~depreciation~~amortization on certain Cupertino concession assets ~~and $1,196~~in 2022 net of increases in depreciation related to ~~SJWC’s Order Instituting Investigation settlement~~new utility plant additions, offset by higher water production expenses, higher debt interest expenses, and ~~certain true-ups~~a 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, surface~~extraction 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 ~~watershed~~surface run-off and diversion and ~~reclaimed water. Surface~~the 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 source~~impacts of ~~water. Changes and variations in quantities from each of these sources affect the overall mix of the~~surface 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 by~~U.S Bureau of Reclamation’s Central Valley ~~Water at any time. If~~Project (“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 ~~total~~capacity, or 76% of restricted capacity, with ~~9,277 million~~15.4 billion gallons of water in ~~storage, which is 40% of the twenty-year average for this date.~~storage. Valley Water’s largest reservoir, Anderson, ~~remains~~remained 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 ~~September~~June 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 ~~2022~~2023 is expected to ~~fall within~~be in the Normal Stage of ~~Valley Water’s~~the Water Shortage Contingency Plan.

~~On October 1, 2022,~~As of September 30, 2023, SJWC’s Lake Elsman ~~contained 679 million~~was 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. This~~the 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. ~~Through~~SJWC’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 ~~other~~sources 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 a~~rescinded its water shortage emergency and ~~asked its retailers to reduce consumption by~~ 15% ~~based on 2019 usage. In response to~~mandatory conservation target. Valley ~~Water’s declaration of drought emergency and~~Water 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 activate~~ended 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 14.1~~WCMA and Water ~~Shortage Contingency Plan. Like~~Conservation Expense Memorandum Account (“WCEMA”) under the ~~most recent drought, the current restrictions center~~voluntary call for conservation was approved effective April 20, 2023. SJWC continues to work with Valley Water to promote conservation, educate customers on ~~outdoor~~responsible water ~~usage which typically accounts for half of a residential customer’s consumption. The restrictions include limits~~use practices, and collaborate on ~~watering days and times, use of potable~~long-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’s~~CWC’s water sources vary among the individual systems, but overall, approximately 80% of the total dependable yield comes from surface water supplies and 20% from wells. In addition, ~~Connecticut Water~~CWC has water supply agreements to supplement its water supply with the South Central Connecticut Regional Water Authority and The Metropolitan District that expire in 2058 and 2053, respectively.

~~CLWSC’s~~TWC’s water supply consists of groundwater from wells and purchased treated and untreated raw water from local water agencies. ~~CLWSC~~TWC 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 ~~CLWSC~~TWC with an aggregate of 7,650 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA. ~~CLWSC~~TWC 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. ~~Production~~Forty active production wells located in a Comal Trinity Groundwater Conservation District, a regulated portion of the Trinity aquifer, are charged a groundwater pump tax based upon usage.

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 Water~~MWC vary among the individual systems, but overall, approximately 90% of the total dependable yield comes from surface water supplies and 10% from wells. ~~Maine Water~~MWC 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 ~~million~~billion 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 decrease~~and 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 due~~related to ~~increases in~~new utility plant ~~$1,196 in administrative and general expenses primarily due to increases in labor,~~additions and an increase ~~of $696~~in 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 ~~increases~~the $5,450 gain on sale of ~~$7,555~~nonutility 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 by~~due to the ~~gain on sale~~timing of ~~vacant land located in California~~contract 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 from~~expense 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 reduction~~an 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 gain~~an increase in interest expense due to an increase in long-term debt balances, higher interest rates on ~~sale from the release~~lines of ~~a holdback amount by GBRA for the sale of TWA in prior year~~credit borrowings and ~~a decrease in the return from retirement plan assets, partially offset by a reduction~~an 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 $2,526~~increased $4,338 and ~~$1,501,~~$469, respectively. The ~~decrease~~increase in income tax expense for the three ~~and nine~~ months ended September 30, ~~2022~~2023 was primarily due to ~~discrete tax items and, for the nine months ended September 30, 2022, lower~~a 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 ~~lower~~higher 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 related~~recorded 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 income~~higher 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 be~~became effective inprospectively on the ~~fourth quarter~~date 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 ~~Application~~Advice Letter No. ~~19-12-002~~601 to ~~deploy Advanced Metering Infrastructure (“AMI”) throughout its service area. On August 5, 2021, an all-party settlement agreement was submitted~~trigger 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 outside~~reimplementation of the ~~capital budget requested in the 2022 GRC. A final decision approving the settlement agreement was issued~~WCMA and WCEMA, to become effective on ~~June 10, 2022.~~January 1, 2024.

SJWC filed Advice Letter No. ~~577~~585 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. ~~577~~596 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 October~~January 26, ~~2021, Connecticut Water~~2023, 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, effective~~CWC’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 Water~~25, 2023, CWC filed its ~~2021~~2022 WICA reconciliation with PURA. The reconciliation, approved by PURA on March ~~16, 2022~~29, 2023 and effective for 12 months beginning April 1, ~~2022,~~2023, replaced the expiring ~~2020~~2021 reconciliation ~~surcharge~~credit of ~~0.07%~~0.02% with a credit of ~~0.02%~~0.16%. ~~As a result, the net~~The cumulative WICA surcharge ~~effective~~as of April 1, ~~2022 was 2.35%.~~2023 is 6.19%, collecting $6,544 on an annual basis.

On February ~~28, 2022 Connecticut Water~~27, 2023, CWC filed its ~~2021~~2022 Water ~~Rate~~Revenue Adjustment mechanism (“WRA”). The mechanism reconciles ~~2021~~2022 revenues as authorized in the ~~Company’s~~CWC’s most recent rate ~~cases.~~case. The ~~2021~~2022 WRA, as approved by PURA on March ~~30, 2022~~24, 2023 and effective for 12 months beginning on April 1, ~~2022 imposed~~2023, imposes a ~~2.85% surcharge~~4.97% surcredit on customer bills to ~~collect~~refund the ~~2021~~2022 revenue ~~shortfall.~~over-collection.

On ~~April 26, 2022, Connecticut Water~~July 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. The~~and effective October 1, 2023, the cumulative WICA ~~charge~~surcharge 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 an~~Texas 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 Through~~establish 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 modified~~SIC 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~~

~~increasing~~approval 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 by~~the PUCT. On October 17, 2023, the PUCT ~~on May 10, 2022~~found 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, 2022~~is filed.

On April 10, 2023, TWC filed an application with the PUCT ~~under Docket No. 53751. CLWSC requested~~to acquire the Elm Ridge water system that serves 21 residential customers. TWC has asked for filed rate doctrine treatment, which allows the acquiring utility’s current rates to be applied at the time of acquisition. TWC 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 $2.39~~internal stock transfer. As part of an internal restructure, SJW Group would transfer 100% of the stock held in TWC to ~~$3.69 per thousand gallons~~SJWTX 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 increased~~PUCT'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 Water~~MWC 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 $532~~requested 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 ~~$100,300~~approximately $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 ~~decreased~~of $5,000, and (3) increased tax accruals of $2,500 compared to the prior period, offset by ~~$4,500,~~ (4) ~~increase~~a 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 $2,900~~in 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, ~~unchanged~~increased 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 ~~$182,900~~approximately $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’ ~~budgeted~~estimated 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-financed~~company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.

The Water Utility Services’ distribution systems were constructed during the period from the early 1900’s through today. Expenditure levels for renewal and modernization will occur as the components reach the end of their useful lives. In most cases, replacement ~~cost~~costs will significantly exceed the original installation ~~cost~~costs 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, decreased~~2023 increased by approximately ~~$36,400~~$38,000 from the same period in the prior year, primarily as a result of (1) ~~a decrease~~an 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 decrease~~an increase in net proceeds from our common stock equity ~~offering in prior year~~offerings 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.

~~During~~For 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 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 in~~of 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 its~~in 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 sell~~aggregate 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 Shares~~that 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 ~~47,608~~169,421 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 ~~$71,845~~to 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 ~~2022~~2023 and ~~2021~~2022 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:

Entity

Rating

Outlook

SJW Group

A-

Negative

SJWC

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 Water~~SJW 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 ~~2022~~2023 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, ~~2021~~2022 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.com~~www.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


Exhibit Number						Description

10.1						~~Credit~~Transition and S eparation Agreement and Relea se, dated ~~August~~July 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-K~~8-K filed on ~~August 5, 2022.~~July 7, 2023.

10.2						F irst Amendment ~~Letter, effective October 6, 2022,~~ to Credit Agreement, dated August 2, 2023, betwe en SJW Group, San Jose Water Company, SJWTX, Inc., C onnecticut 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~~ Exhibi t 10.1 to Form 8-K filed on ~~October 7, 2022.~~August 2, 2023. ~~(2)~~

~~10.3~~						~~SJW Group Amended and Restated Director Compensation and Expense Reimbursement Policies effective as of January 1, 2023~~ ~~(1)(2)~~

~~10.4~~						~~Amended and Restated Formulaic Equity Award Program for Non-Employee Board Members effective as of January 1, 2023~~ ~~(1)(2)~~

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

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

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

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

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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.

SJW GROUP

DATE:

October ~~28, 2022~~30, 2023

By:

/s/ ANDREW F. WALTERS

Andrew F. Walters

Chief Financial Officer and Treasurer
(Principal financial officer)


	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


	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