SJW GROUP

Previous wording

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

Current wording

SJW Group is a holding company whose primary business involves ownership of public utilities that provide water and wastewater services, including the production, purchase, storage, purification, distribution, wholesale and retail sale of water. The water utility business of SJW Group is conducted through four wholly owned subsidiaries: San Jose Water Company (“SJWC”), Connecticut Water Company (“CWC”), The Maine Water Company (“MWC”) and SJWTX, Inc. doing business as Texas Water Company (“TWC”). These subsidiaries provide water service to approximately 403,000 connections and wastewater service to approximately 4,000 connections and serve a combined population of over 1.5 million people in California, Connecticut, Maine and Texas. Water utility services provided by these businesses are subject to regulation by the applicable state public utility commissions. These subsidiaries also engage in non-tariffed operations that are not subject to public utility commission regulation, including contract water and sewer operations, maintenance agreements, and antenna site leases. Collectively, these water utility and utility-related services form our “Water Utility Services” segment.

Previous wording

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 three months ended March 31, 2024:

Current wording

SJW Group’s second segment, “Real Estate Services,” consists of property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., which own undeveloped land and operate commercial buildings in California and Connecticut. In the second quarter of 2024, SJW Land Company completed the sale of its Tennessee properties.

Previous wording

SJW Group’s real estate investment activity is conducted through SJW Land Company and Chester Realty, Inc. SJW Land Company owns undeveloped land in California and Tennessee and owns 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 their acquired income producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties.

Current wording

SJW Group’s real estate investment activity is conducted through SJW Land Company and Chester Realty, Inc. SJW Land Company owns undeveloped land in California. At the end of the second quarter of 2024, all of Tennessee properties have been sold. Chester Realty, Inc. owns and operates land and commercial buildings in Connecticut. SJW Land Company and Chester Realty, Inc. manage their acquired income-producing and other properties until such time a determination is made to reinvest proceeds from the sale of such properties.

Previous wording

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, 2023. Our significant accounting policies are described in the notes to the 2023 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2023. There have been no changes to our critical or significant accounting policies during the three months ended March 31, 2024.

Current wording

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, 2023. Our significant accounting policies are described in the notes to the 2023 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2023. There have been no changes to our critical or significant accounting policies during the three and six months ended June 30, 2024.

Previous wording

SJW Group’s consolidated net income for the three months ended March 31, 2024 was $11,699, an increase of $169, or approximately 1%, from $11,530 for the same period in 2023. The increase in net income was primarily driven by rate increases in California and Maine, increases in the infrastructure recovery mechanism in Connecticut, and an increase from higher customer usage driven primarily by weather conditions and the end of California mandatory water conservation requirements. These factors were offset by higher water production expenses, increased depreciation and amortization for new utility plant placed in service, and higher interest expense and compensation costs.

Current wording

SJW Group’s consolidated net income for the three months ended June 30, 2024 was $20,696, an increase of $2,410, or approximately 13%, from $18,286 for the same period in 2023. SJW Group’s consolidated net income for the six months ended June 30, 2024 was $32,395, an increase of $2,579, or approximately 9%, from $29,816 for the same period in 2023. The increase in net income in both periods was primarily driven by rate increases in California, increases in Texas from customer growth, and an increase from higher customer usage driven primarily by weather conditions and the end of California mandatory water conservation requirements in April 2023. These factors were offset by higher water production expenses, increased depreciation and amortization for new utility plant placed in service, and higher interest and income tax expense.

Previous wording

SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 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 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 surface run-off and diversion and 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 impacts of surface water, purchased water, groundwater charges and purchased power are tracked in SJWC’s Full Cost Balancing Account authorized in the Decision No. 22-10-005 (“2022 GRC Decision”).

Current wording

SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from Santa Clara Valley Water District (“Valley Water”) under the terms of a master contract with Valley Water expiring in 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 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 surface run-off and diversion and 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 impacts of surface water, purchased water, groundwater charges and purchased power are tracked in SJWC’s Full Cost Balancing Account authorized by the CPUC.

Previous wording

Throughout the three months ended March 31, 2024, water conditions improved across the State of California. As a result, the California Department of Water Resources announced an increase in the State Water Project allocation from 15% to 30% of contract amount for 2024 and the U.S Bureau of Reclamation announced an increase in the Central Valley Project allocation from 65% to 75%. On April 1, 2024, Valley Water’s 10 reservoirs were 37% of capacity, or 99% of restricted capacity, with 20.2 billion gallons of water in storage. Valley Water’s largest reservoir, Anderson, remained drained for a dam seismic retrofit project. Valley Water also reported that the managed groundwater recharge from January to March in the Santa Clara Plain was 146% of the five-year average. The groundwater level in the Santa Clara Plain is approximately three feet higher than March 2023. According to Valley Water, the projected total groundwater storage at the end of 2024 is expected to be in the Normal Stage of the Water Shortage Contingency Plan.

Current wording

For the six months ended June 30, 2024, water conditions remained positive across the State of California. As a result, the California Department of Water Resources (“DWR”) announced an increase in the State Water Project allocation from 15% to 30% of contract amount during the first quarter of 2024 and the U.S Bureau of Reclamation announced an increase in the Central Valley Project allocation from 65% to 75% during the same period. The DWR further announced an increase in the State Water Project allocation from 30% to 40% of contract amount during the second quarter of 2024 while the U.S Bureau of Reclamation’s Central Valley Project allocation remained at 75% during the same period. On July 1, 2024, Valley Water’s 10 reservoirs were 34% of capacity, or 91% of restricted capacity, with 18.6 billion gallons of water in storage. Valley Water’s largest reservoir, Anderson, remained drained for a dam seismic retrofit project. Valley Water also reported that the managed groundwater recharge from January to June in the Santa Clara Plain was 142% of the five-year average. The groundwater level in the Santa Clara Plain is approximately four feet lower than June 2023. According to Valley Water, the projected total groundwater storage at the end of 2024 is expected to be in the Normal Stage of the Water Shortage Contingency Plan.

Previous wording

As of March 31, 2024, SJWC’s Lake Elsman was 100.8% of capacity with 2.0 billion gallons of water, approximately 160.4% of the five-year seasonal average. In addition, the rainfall at SJWC’s Lake Elsman was measured at 46.31 inches for the period from July 1, 2023 through March 31, 2024, which is 106.7% of the five-year average. SJWC’s Montevina Water Treatment Plant treated 1.3 billion gallons of water through the first quarter, which is 154.6% of the five-year average. SJWC’s Saratoga Water Treatment Plant remains offline until the updated operations plan is granted approval by the California Division of

Current wording

As of June 30, 2024, SJWC’s Lake Elsman was 98.1% of capacity with 2.0 billion gallons of water, approximately 173.8% of the five-year seasonal average. In addition, the rainfall at SJWC’s Lake Elsman was measured at 49.98 inches for the period from July 1, 2023 through June 30, 2024, which is 106.3% of the five-year average. SJWC’s Montevina Water Treatment Plant treated 2.2 billion gallons of water for the six months ended June 30, 2024, which is 140% of the five-year average. SJWC’s Saratoga Water Treatment Plant remains offline until the next rain season (November to March). SJWC believes that its various sources of water supply will be sufficient to meet customer demand through the remainder of 2024.

Previous wording

In August 2023, SJWTX Holdings Inc.’s unregulated subsidiary, TWR 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. TWC staff is currently working on acquiring easements and routing of the waterline and infrastructure needed to get this water into our Triple Peak water system to serve existing customers and planned new developments.

Current wording

Development of the KT Water System continues with eight wells and the associated water rights. These wells have been projected to yield an additional 6,000 acre-feet per year or more. Our staff is currently working on acquiring easements and routing of the waterline and infrastructure needed to move this water into our Triple Peak water system to serve existing customers and planned new developments.

Previous wording

SJWC’s unaccounted-for water on a 12-month-to-date basis for March 31, 2024 and 2023 approximated 7.9% and 7.5%, 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.

Current wording

SJWC’s unaccounted-for water on a 12-month-to-date basis for June 30, 2024 and 2023 approximated 7.4% and 10.1%, 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.

Previous wording

CTWS’s unaccounted-for water on a 12-month-to-date basis for March 31, 2024 and 2023 approximated 13.4% and 13.9%, 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 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.

Current wording

Connecticut Water Service, Inc. (“CTWS”)’s unaccounted-for water on a 12-month-to-date basis for June 30, 2024 and 2023 approximated 13.6% and 13.8%, 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 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.

Previous wording

The change in water production expenses of $4,775 for the three months ended March 31, 2024, compared to the same period in 2023, was primarily attributable to increases in customer usage, average per unit costs for purchased water, groundwater extraction, and other production expenses and increases resulting to the surface water mix net of regulatory adjustments. Effective July 1, 2023, Valley Water increased the unit price of purchased water by approximately 14% and the groundwater extraction charge by approximately 15%.

Current wording

The change in water production expenses of $13,359 for the six months ended June 30, 2024, compared to the same period in 2023, was primarily attributable to increases in average per unit costs for purchased water, groundwater extraction, and other production expenses, customer usage, and increases resulting from other production costs and regulatory adjustments.

Previous wording

Operating expenses, excluding water production expenses, increased $4,576 for the three months ended March 31, 2024, compared to the same period in 2023. The increase was primarily attributable to an increase in depreciation and amortization for new utility plant placed in service and increased compensation costs.

Current wording

Operating expenses, excluding water production expenses, increased $5,868 for the six months ended June 30, 2024, compared to the same period in 2023. The increase was primarily attributable to increases in depreciation and amortization for new utility plant placed in service, adjustments to certain regulatory assets as a result of the final decision in the CWC rate case, security expenses, and compensation costs offset by decreases in administrative and general expenses primarily from decreases in the allowance for credit losses of $6,261 and higher allocations to construction activities, offset by inflationary increases. The higher allocations and inflationary increases are expected to impact the remainder of 2024.

Previous wording

For the three months ended March 31, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to an increase in interest expense due to higher interest rates and higher average balances on lines of credit borrowings, and an increase in long-term debt balances, offset by decreases in pension non-service cost.

Current wording

For the three months ended June 30, 2024, compared to the same period in 2023, the change in other (expense) income was primarily due to an increase in interest expense due to an increase in higher average balances and interest rates on lines of credit borrowings and a $909 loss on sale of real estate investments.

Previous wording

For the three months ended March 31, 2024, compared to the same period in 2023, income tax expense increased by $1,153. The effective consolidated income tax rates were 16% and 9% for the three months ended March 31, 2024 and 2023, respectively. The higher income tax expense and effective tax rate for the three months ended March 31, 2024 were primarily due to tax deficiencies recorded in the first quarter of 2024 for share-based payments and other discrete tax items.

Current wording

For the three and six months ended June 30, 2024, compared to the same period in 2023, income tax expense increased $5,236 and $6,389, respectively. The increase in income tax expense for the three and six months ended June 30, 2024 was primarily due to the higher pre-tax income in 2024 and partial release of an uncertain tax position reserve in the second quarter of 2023. The effective consolidated income tax rates were 15% and (9)% for the three months ended June 30, 2024 and 2023, respectively, and 16% and (1)% for the six months ended June 30, 2024 and 2023, respectively. The higher effective tax rate for the three and six months ended June 30, 2024, was primarily due to the partial release of an uncertain tax position reserve in the second quarter of 2023 and other discrete tax items.

Previous wording

On December 15, 2023, SJWC, along with three other California water utilities, filed a joint request for one-year deferment on the cost of capital filings which would otherwise be due on May 1, 2024. Postponing the filing a year alleviates administrative processing costs on the utilities as well as the CPUC staff, and provide relief for both CPUC and utility resources already strained by numerous other proceedings. The request is conditioned on leaving the current WCCM in place such that any adjustments will be made to the respective utilities’ cost of capital during the one-year deferment based on the mechanism. The request was approved on February 2, 2024.

Current wording

On December 15, 2023, SJWC, along with three other California water utilities, filed a joint request for one-year deferment on the cost of capital filings which would otherwise be due on May 1, 2024. Postponing the filing a year alleviates administrative processing costs on the utilities as well as the CPUC staff, and provides relief for both CPUC and utility resources already strained by numerous other proceedings. The request is conditioned on leaving the current WCCM in place such that any adjustments will be made to the respective utilities’ cost of capital during the one-year deferment based on the mechanism. The request was approved on February 2, 2024.

Previous wording

On January 2, 2024, SJWC filed General Rate Case Application No. 24-01-001 with the CPUC to increase rates charged for water service by $55,196 or 11.11% in 2025, by $22,041 or 3.99% in 2026, and by $25,809 or 4.49% in 2027. The application proposed a $540,000 three-year capital budget and includes requests to recover $23,462 from balancing and memorandum accounts, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge. The application will undergo a year-long review process and new rates, if approved, are expected to be effective January 1, 2025.

Current wording

On January 2, 2024, SJWC filed General Rate Case Application No. 24-01-001 with the CPUC to increase rates charged for water service by $55,196 or 11.11% in 2025, by $22,041 or 3.99% in 2026, and by $25,809 or 4.49% in 2027. The application proposed a $540,000 three-year capital budget and includes requests to recover $23,462 from balancing and memorandum accounts, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge. The application will undergo a year-long review process and new rates, if approved, are expected to be effective January 1, 2025. On June 14, 2024, SJWC notified the CPUC that it had reached an all-party settlement agreement in principle with the Public Advocates Office and Water Rate Advocates for Transparency, Equity and Sustainability, also known as WRATES, in its 2025 through 2027 general rate case application on all but two policy issues that will be litigated. Per the procedural ruling, the formal settlement motion and agreement will be submitted by August 19, 2024. Briefs on the two policy issues will also be submitted by August 19, 2024. A decision on the GRC and/or the settlement agreement is expected by the CPUC in the fourth quarter of 2024.

Previous wording

On November 14, 2023, CWC submitted an application to PURA for the approval to issue unsecured notes in the amount of

Current wording

On November 14, 2023, CWC submitted an application to PURA for the approval to issue unsecured notes in the amount of $25,000. A decision from PURA approving the application was received on January 10, 2024.

Previous wording

On February 26, 2024, CWC filed its 2023 Water Infrastructure Conservation Adjustment (“WICA”) reconciliation with PURA. The reconciliation, approved by PURA on March 27, 2024 and effective for 12 months beginning April 1, 2024, replaced the expiring 2022 reconciliation credit of 0.16% with a credit of 0.13%. The cumulative WICA surcharge as of April 1, 2024 is 7.41%, collecting $7,835 on an annual basis.

Current wording

On February 26, 2024, CWC filed its 2023 Water Infrastructure Conservation Adjustment (“WICA”) reconciliation with PURA. The reconciliation, approved by PURA on March 27, 2024 and effective for 12 months beginning April 1, 2024, replaced the expiring 2022 reconciliation credit of 0.16% with a credit of 0.13%. The cumulative WICA surcharge as of April 1, 2024 is 7.41%, collecting $7,835 on an annual basis. Based on the general rate case decision, as of July 1, 2024, the base

Previous wording

On February 28, 2024, CWC filed its 2023 Water Revenue Adjustment (“WRA”). The mechanism reconciles 2023 revenues as authorized in the CWC’s most recent rate case. The 2023 WRA, as approved by PURA on March 11, 2024 and effective for 12 months beginning on April 1, 2024, imposed a 2.11% sur-credit on customer bills to refund the 2022 revenues over-collection.

Current wording

On February 28, 2024, CWC filed its 2023 WRA. The mechanism reconciles 2023 revenues as authorized in the CWC’s most recent rate case. The 2023 WRA, as approved by PURA on March 11, 2024 and effective for 12 months beginning on April 1, 2024, imposed a 2.11% sur-credit on customer bills to refund the 2022 revenues over-collection.

Previous wording

TWC has no current general rate case pending. However, it filed its application to establish a System Improvement Charge (“SIC”) with the PUCT under Docket No. 54430 on December 30, 2022. SIC filings are used to include certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case. On March 21, 2024, the PUCT filed the final order approving TWC’s request to implement its SIC. As a result of the final order, the SIC is projected to increase TWC’s water revenue by $1,574 and sewer revenue by $28 within one year of the approval. Additionally, TWC is required to file a general rate case within four years. TWC will incrementally increase its SIC annually until its next rate case. 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 Kendall West customers. All water supply cost increases are recoverable when the next annual WPC adjustment for each system is filed.

Current wording

TWC has no current general rate case pending. However, it filed its application to establish a System Improvement Charge (“SIC”) with the PUCT under Docket No. 54430 on December 30, 2022. SIC filings are used to include certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case. On March 21, 2024, the PUCT filed the final order approving TWC’s request to implement its SIC. As a result of the final order, the SIC is projected to increase TWC’s water revenue by $1,574 and sewer revenue by $28 within one year of the approval. Additionally, TWC is required to file a general rate case within four years. TWC plans to incrementally increase its SIC annually until its next rate case. 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 Kendall West customers. All water supply cost increases are recoverable when the next annual WPC adjustment for each system is filed.

Previous wording

On April 10, 2023, TWC filed an application with the PUCT 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. On December 12, 2023, the Administrative Law Judge filed Order No. 11, which allowed TWC to proceed and the acquisition closed on January 26, 2024. The final order, which transfers the Certificate of Convenience and Necessity (“CCN”) and allows filed rate doctrine, is expected to be approved during the second quarter of 2024.

Current wording

On April 10, 2023, TWC filed an application with the PUCT 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. On December 12, 2023, the Administrative Law Judge filed Order No. 11, which allowed TWC to proceed and the acquisition closed on January 26, 2024. The final order, which transfers the Certificate of Convenience and Necessity (“CCN”) and allows filed rate doctrine, is expected to be approved during the third quarter of 2024.

Previous wording

On January 5, 2024, TWC filed an application with the PUCT to acquire the 3009 Water Company LLC water system that serves approximately 270 residential connections. TWC requested fair market value and to apply TWC’s existing rates to the customers being acquired. TWC expects to receive approval to close on the acquisition during the third quarter of 2024.

Current wording

On January 5, 2024, TWC filed an application with the PUCT to acquire the 3009 Water Company LLC water system that serves approximately 270 residential connections. TWC requested fair market value and to apply TWC’s existing rates to the customers being acquired. TWC received the PUCT’s approval to proceed with the transaction and expects to close during the second half of 2024.

Previous wording

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 MPUC 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 MPUC issued an order granting a temporary rate increase of $1,495 or 10% while the case and the Company’s full request were litigated. The company reached a settlement agreement with staff and the Office of the Public Advocate and filed a stipulated settlement agreement with the MPUC on December 22, 2023. The MPUC approved the stipulation in deliberations on January 5, 2024, with an increase in authorized annual revenue of $2,603, or 17.6%, effective January 1, 2024. The Biddeford and Saco division’s increase in rates is based on an authorized return on equity of 9.5% along with a capital structure of 49% debt and 51% equity. This return on equity and capital structure will be used for any future Water Infrastructure Surcharge (“WISC”) calculations for all divisions until the MPUC has authorized or approved a different return on equity structure in a different proceeding.

Current wording

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 MPUC 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 MPUC issued an order granting a temporary rate increase of $1,495 or 10% while the case and the company’s full request were litigated. The company reached a settlement agreement with staff and the Office of the Public Advocate and filed a stipulated settlement agreement with the MPUC on December 22, 2023. The MPUC approved the stipulation in deliberations on January 5, 2024, with an increase in authorized annual revenue of $2,603, or 17.6%, effective January 1, 2024. The Biddeford Saco division’s increase in rates is based on an authorized return on equity of 9.5% along with a capital structure of 49% debt and 51% equity. This return on equity and capital structure will be used for any future Water Infrastructure Surcharge (“WISC”) calculations for all divisions until the MPUC has authorized or approved a different return on equity structure in a different proceeding.

Previous wording

In April 2024, the U.S. Environmental Protection Agency issued final new national primary drinking water regulations for six PFAS. The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water systems for six PFAS chemicals under the Safe Drinking Water Act. The final regulation requires water systems to comply with PFAS monitoring and reporting requirements by 2027, and to comply with the maximum contaminant levels by 2029. SJW Group estimates capital expenditures of approximately $230,000 for treatment based on the maximum contaminant levels in the previously proposed regulation. See discussion below under “Liquidity” for additional information on capital expenditures.

Current wording

PFAS chemicals under the Safe Drinking Water Act. The final regulation requires water systems to comply with PFAS monitoring and reporting requirements by 2027, and to comply with the maximum contaminant levels by 2029. SJW Group estimates capital expenditures of approximately $230,000 for PFAS treatment based on finalized maximum contaminant levels. See discussion below under “Liquidity” for additional information on capital expenditures.

Previous wording

During the three months ended March 31, 2024, SJW Group generated cash flows from operations of approximately $51,200, compared to approximately $50,600 for the same period in 2023. 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 $600. This increase was the result of a combination of the following factors: (1) an increase in collections from accounts receivable and accrued unbilled utility revenue of $3,700, and (2) increased tax accruals of $2,400 compared to the prior period, offset by (3) a decrease of $2,800 attributable to changes in payments of amounts previously invoiced and accrued including accrued production costs, (4) a decrease of $2,600 attributable to changes in regulatory assets and liabilities, including the effect of lower surcharge collections on balancing and memorandum accounts, and (5) general working capital and net income, adjusted for non-cash items, decreased by $100.

Current wording

During the six months ended June 30, 2024, SJW Group generated cash flows from operations of approximately $100,500, compared to approximately $97,400 for the same period in 2023. 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 $3,100. This increase was the result of a combination of the following factors: (1) increased tax accruals of $7,000 compared to the prior period, and (2) an increase of $3,000 attributable to changes in payments of amounts previously invoiced and accrued including accrued production costs, (3) general working capital and net income, adjusted for non-cash items, increased by $2,800, and offset by (4) a decrease of $3,600 attributable to changes in regulatory assets and liabilities, including the effect of lower surcharge collections on balancing and memorandum accounts, and (5) a decrease attributable to accounts receivable and accrued unbilled utility revenue of $6,100, primarily related to the decrease in the allowance for credit losses.

Previous wording

As of March 31, 2024, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, which decreased from 2% as of March 31, 2023. Management believes that the collection rate will continue for its accounts receivables as service disconnections return to normal operations. On December 28, 2023, SJWC submitted the application to receive $10,237 through the State of California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customer accounts greater than 60-days past due as of December 31, 2022. We anticipate the funds to be received in the second quarter of 2024 after the State of California Water and Wastewater Arrearages Payment Program completes the review of this application.

Current wording

As of June 30, 2024, Water Utility Services’ write-offs for uncollectible accounts represented less than 1% of its total revenue, which decreased from 1% as of June 30, 2023. Management believes that the collection rate will continue to improve for its accounts receivables as service disconnections return to normal operations. On December 28, 2023, SJWC submitted the application through the State of California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customer accounts greater than 60-days past due as of December 31, 2022. We received $9,130 in the second quarter of 2024 under the State of California Water and Wastewater Arrearages Payment Program.

Previous wording

During the three months ended March 31, 2024, SJW Group used cash flows from investing activities of approximately $74,300, compared to approximately $55,000 for the same period in 2023. This increase was primarily driven by additions to utility plant. SJW Group used approximately: (1) $68,900 of cash for company-funded utility capital expenditures and (2) $4,600 for developer-funded utility capital expenditures during the three months ended March 31, 2024. For the same period in 2023, SJW Group used approximately: (1) 52,384 of cash for company-funded utility capital expenditures and (2) 2,703 for developer-funded utility capital expenditures.

Current wording

During the six months ended June 30, 2024, SJW Group used cash flows from investing activities of approximately $131,000, compared to approximately $125,400 for the same period in 2023. This increase was primarily driven by additions to utility plant, offset by proceeds of $40,600 for the completed sales of the Tennessee properties. SJW Group used approximately: (1) $158,400 of cash for company-funded utility capital expenditures and (2) $11,800 for developer-funded utility capital expenditures during the six months ended June 30, 2024. For the same period in 2023, SJW Group used approximately: (1) $115,700 of cash for company-funded utility capital expenditures and (2) $9,300 for developer-funded utility capital expenditures, and (3) $500 for utility plant retirements.

Previous wording

Water Utility Services’ estimated utility capital expenditures for 2024, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $332,000. As of March 31, 2024, approximately $68,900 or 21% of the $332,000 has been invested.

Current wording

Water Utility Services’ estimated utility capital expenditures for 2024, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $332,000. As of June 30, 2024, approximately $158,400, or 48%, of the $332,000 has been invested.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 increased by approximately $2,500 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on our lines of credit of $125,500, offset by (2) a decrease in net borrowings and repayments on long-term debt of $85,000, and (3) a decrease in net proceeds from our common stock equity offerings of $34,000.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 increased by approximately $2,400 from the same period in the prior year, primarily as a result of (1) an increase in net borrowings and repayments on our lines of credit of $121,400, offset by (2) a decrease in net borrowings and repayments on long-term debt of $84,900, and (3) a decrease in net proceeds from our common stock equity offerings of $31,500.

Previous wording

For the three months ended March 31, 2024, cost of borrowing on the lines of credit averaged 6.54% compared to 5.74% in the same period in 2023.

Current wording

For the six months ended June 30, 2024, cost of borrowing on the lines of credit averaged 6.53% compared to 5.96% in the same period in 2023.

Previous wording

On March 1, 2023, SJW Group entered into Amendment No. 1 to the equity distribution agreement (the “Equity Distribution Agreement”), 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 aggregate gross sales price of shares of SJW Group’s common stock, $0.001 par value per share, that may be sold under the Equity Distribution Agreement from $100,000 to $240,000. For the three months ended March 31, 2024, SJW Group issued and sold a total of 126,025 shares of common stock with a weighted average price of $57.13 per share and received $7,006 in net proceeds under the Equity Distribution Agreement. Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 2,130,682 shares of common stock with a weighted average price of $72.60 for a total net proceeds of $151,004 and has $85,309 remaining to issue from the sale of shares as of March 31, 2024 under the Equity Distribution Agreement.

Current wording

In March, 2023, SJW Group entered into Amendment No. 1 to the equity distribution agreement (the “Equity Distribution Agreement”), 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, pursuant to which the company may offer and sell shares of its common stock, $0.001 par value per share, from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $240,000. For the three and six months ended June 30, 2024, SJW Group issued and sold a total of 458,605 and 584,630 shares of common stock, respectively, with a weighted average price of $56.13 and $56.35 per share, respectively, and received $25,296 and $32,302 in net proceeds, respectively, under the Equity Distribution Agreement. Since the inception of the Equity Distribution Agreement, SJW Group has issued and sold 2,589,287 shares of common stock at a weighted average price of $69.68 for a total net proceeds of $176,299 and has $59,567 of aggregate gross sales price of shares remaining to issue under the Equity Distribution Agreement.