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

•	changes in demand for water and other services;

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

•	unanticipated weather conditions and changes in seasonality;

•	climate change and the effects thereof;

•	the risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. (the “Merger”) will not be realized;

•	the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated;

•	the outcome of the California Public Utilities Commission’s investigation into the Merger;

•	unexpected costs, charges or expenses resulting from the Merger or otherwise;

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

•	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, 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 stock market conditions; and

•	legislative and general market and economic developments.

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PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

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Note 1.	General

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods.

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). The Notes to Consolidated Financial Statements in SJW Group’s 2019 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments. Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This was effective for SJW Group in the first quarter of fiscal 2020. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements. 

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 and sales.

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

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	Three months ended March 31,
	2020				2019
Revenue from contracts with customers	$	105,136			78,926
Alternative revenue programs, net	504				(1,979	)
Other balancing and memorandum accounts revenue, net	8,744				(631	)
Rental income	1,370				1,366
	$	115,754			77,682

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”) and under the performance stock plans assumed through the business combination with Connecticut Water Service, Inc. (“CTWS”) and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended March 31, 2020 and 2019, 17,573 and 7,417 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

Utility Plant Depreciation

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Note 2.	Equity Plans

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

The Incentive Plan allows SJW Group to provide employees, non-employee board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group. The types of awards included in the Incentive Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. As of March 31, 2020, 184,130 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 759,976 shares are available for award issuances under the Incentive Plan. In addition, shares are issued to employees under the company’s ESPP.

In connection with the merger with CTWS on October 9, 2019, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans: CTWS 2014 Performance Stock Program, CTWS 2004 Performance Stock Program and CTWS 1994 Performance Stock Program (collectively, the “CTWS Plan”). As of March 31, 2020, approximately 101,647 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plan.

Stock compensation costs charged to income are recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from the exercise of any restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three months ended March 31, 2020, and 2019.

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	Three months ended March 31,
	2020				2019
Adjustments to additional paid-in capital and common stock for:
Compensation costs charged to income:
ESPP	$	171			143
Restricted stock and deferred restricted stock	80				743
Total compensation costs charged to income	$	251			886
ESPP proceeds	$	970			811

Stock, Restricted Stock and Deferred Restricted Stock

For the three months ended March 31, 2020 and 2019, SJW Group granted under the Incentive Plan 28,367 and 17,451, respectively, three year service-based restricted stock awards with a weighted-average grant date fair value of $65.89 and $51.28, respectively, per unit.

Performance-based and market-based restricted stock awards granted for the three months ended March 31, 2020 and 2019 were 24,581 and 30,401 target units with a weighted-average grant date fair value of $73.85 and $60.46 respectively, per unit. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0% to 150% of the target number of shares for performance-based restricted stock awards, or between 0% and 200% of the target number of shares for market-based restricted stock awards.

As of March 31, 2020, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $6,113. This cost is expected to be recognized over a weighted-average period of 2.33 years.

Employee Stock Purchase Plan

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

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SJW Group’s recorded expenses were $86 and $76 for the three months ended March 31, 2020 and 2019, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends July 31, 2020, for the ESPP is approximately $102. This cost is expected to be recognized during the second and third quarters of 2020.

Note 3.	Real Estate Investments

The major components of real estate investments as of March 31, 2020, and December 31, 2019, are as follows: 

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	March 31, 2020				December 31, 2019
Land	$	14,168			14,168
Buildings and improvements	43,786				43,531
Subtotal	57,954				57,699
Less: accumulated depreciation and amortization	13,899				13,597
Total	$	44,055			44,102

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

Note 4.	Defined Benefit Plan

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. Certain employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefit 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. 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 the 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. Both of the plans are non-qualified plans in which only senior management and other designated members of management may participate. SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits other than pension plans.

The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three months ended March 31, 2020, and 2019 are as follows:

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	Three months ended March 31,
	2020				2019
Service cost	$	2,443			1,479
Interest cost	2,904				2,112
Other cost	1,499				1,118
Expected return on assets	(4,120		)		(2,309	)
	$	2,726			2,400

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The following tables summarize the fair values of plan assets by major categories as of March 31, 2020, and December 31, 2019: 

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	Fair Value Measurements at March 31, 2020
					Quoted Prices in Active Markets for Identical Assets				Significant Observable Inputs				Significant Unobservable Inputs
Asset Category	Total				(Level 1)				(Level 2)				(Level 3)
Cash and cash equivalents	$	6,115			$	6,115			$	—			$	—
Equity securities (a)	122,326				116,326				6,000				—
Fixed income (b)	92,218				28,516				63,702				—
Total	$	220,659			$	150,957			$	69,702			$	—

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(a)	Actively managed portfolio of equity securities with the goal to exceed the benchmark performance

(b)	Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance

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	Fair Value Measurements at December 31, 2019
					Quoted Prices in Active Markets for Identical Assets				Significant Observable Inputs				Significant Unobservable Inputs
Asset Category	Total				(Level 1)				(Level 2)				(Level 3)
Cash and cash equivalents	$	11,801			$	11,801			$	—			$	—
Equity securities (a)	157,050				149,265				7,785				—
Fixed income (b)	91,896				31,686				60,210				—
Total	$	260,747			$	192,752			$	67,995			$	—

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(a)	Actively managed portfolio of equity securities with the goal to exceed the benchmark performance

(b)	Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance

In 2020, SJW Group expects to make required and discretionary cash contributions of up to $9,238 to the pension plans and Social Welfare Plan. For the three months ended March 31, 2020, SJW Group has made no contributions to such plans.

Note 5.	Segment and Non-Tariffed Business Reporting

SJW Group is a holding company with four subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) SJWTX, Inc. which is doing business as Canyon Lake Water Service Company (“CLWSC”), a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, and (iv) as of October 9, 2019, SJWNE LLC a holding company for CTWS and its subsidiaries, The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”), New England Water Utility Services (“NEWUS”), Inc. and Chester Realty, Inc. In accordance with FASB ASC Topic 280 - “Segment Reporting,” The chief operating decision maker of SJW Group has determined that it has two reportable business segments. The first segment is that of providing water utility and utility-related services to its customers through SJW Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water, HVWC, Avon Water, and NEWUS together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.”

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.

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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, and 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.

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	For Three Months Ended March 31, 2020
	Water Utility Services							Real Estate Services			All Other*			SJW Group
	Regulated				Non-tariffed			Non-tariffed			Non-tariffed			Regulated			Non-tariffed			Total
Operating revenue	$	111,367			3,017			1,370			—			111,367			4,387			115,754
Operating expense	96,017				1,361			831			2,118			96,017			4,310			100,327
Operating income (loss)	15,350				1,656			539			(2,118	)		15,350			77			15,427
Net income (loss)	5,828				1,470			388			(5,269	)		5,828			(3,411	)		2,417
Depreciation and amortization	20,749				108			302			223			20,749			633			21,382
Senior note and other interest expense	8,174				—			—			5,110			8,174			5,110			13,284
Income tax expense (benefit) in net income	1,202				470			132			(1,366	)		1,202			(764	)		438
Assets	$	3,054,474			9,170			46,436			64,218			3,054,474			119,824			3,174,298

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	For Three Months Ended March 31, 2019
	Water Utility Services							Real Estate Services			All Other*			SJW Group
	Regulated				Non-tariffed			Non-tariffed			Non-tariffed			Regulated			Non-tariffed			Total
Operating revenue	$	75,147			1,169			1,366			—			75,147			2,535			77,682
Operating expense	60,585				841			891			2,957			60,585			4,689			65,274
Operating income (loss)	14,562				328			475			(2,957	)		14,562			(2,154	)		12,408
Net income (loss)	6,100				236			318			(781	)		6,100			(227	)		5,873
Depreciation and amortization	14,749				97			299			—			14,749			396			15,145
Senior note and other interest expense	5,220				—			—			571			5,220			571			5,791
Income tax expense (benefit) in net income	2,076				92			130			(253	)		2,076			(31	)		2,045
Assets	$	1,492,643			5,825			46,862			413,477			1,492,643			466,164			1,958,807

 * The “All Other” category for the three months ended March 31, 2020, includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis. For the three months ended March 31, 2019, the “All Other” category includes the accounts of SJW Group and Hydro Sub, Inc. on a stand-alone basis. For the three months ended March 31, 2019, Hydro Sub, Inc. had no recorded revenue or expenses and as of March 31, 2019 held no assets and has incurred no liabilities. Hydro Sub. Inc. was a subsidiary created solely to facilitate the merger with CTWS and was dissolved following the completion of merger in October 2019.

Note 6.	Long-Term Liabilities and Bank Borrowings

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

On March 12, 2020 Connecticut Water entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which Connecticut Water sold an aggregate principal amount of $35,000 of its 3.51% Senior Notes, due March 12, 2050. The notes are unsecured obligations of Connecticut Water. Interest is payable semi-annually in arrears on March 12th and September 12th of each year. The note purchase agreement contains customary representations and warranties. Under the note purchase agreement, Connecticut 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

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result in all of the notes then outstanding becoming immediately due and payable. The notes have terms and conditions that restrict Connecticut Water from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default. The senior note agreement also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio at each fiscal quarter end of no less than three-to-one. As of March 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement. The closing occurred simultaneously with the signing of the note purchase agreement.

On December 19, 2019, Maine Water issued $5,000 of Series S First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund. The Series S bonds mature on October 1, 2039 and carry 1% interest. The Series S First Mortgage Bond covenants are the same as all other First Mortgage Bonds. The proceeds were held as restricted cash by a trustee to be used for pre-approved projects primarily related to preliminary engineering and design work of a water treatment plant in Maine’s Biddeford and Saco division. Proceeds were held by a trustee for the bond and until conditions were met. On February 3, 2020 and March 11, 2020, the trustee released proceeds of $4,114 and $886, respectively, from the bond. The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65%, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

Note 7.	Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2020, but require disclosure of their fair values: cash and cash equivalents, a money market fund, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2020, approximates their carrying value as reported on the condensed consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. There have been no changes in valuation techniques during the three months ended March 31, 2020. 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 pension plan assets is discussed in Note 4.

SJW Group has investments in company owned life insurance which are valued at cash surrender value of the policies as reported by the insurer. These contracts are based principally on a referenced pool of investment funds that actively redeem shares, are observable and measurable, and are presented in “Investments” on SJW Group’s consolidated balance sheets. As of March 31, 2020, the value of the company owned life insurance was $7,207 of which $3,650 was related to assets to fund CTWS’s supplemental retirement plan agreements. As of December 31, 2019, the value of the company owned life insurance was $7,086 of which $3,829 was related to assets to fund CTWS’s supplemental retirement plan agreements. In addition to life insurance contracts, CTWS’s supplemental retirement plan agreements are also funded with a Rabbi Trust.

The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts by major categories as of March 31, 2020, and December 31, 2019: 

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						Fair Value Measurements at March 31, 2020
Asset Category		Total				Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Money market funds		$	132			132			—			—
Mutual funds		1,802				1,802			—			—
Fixed income		672				672			—			—
Total		$	2,606			2,606			—			—

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Fair Value Measurements at December 31, 2019

Asset Category

Total

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Money market funds

$

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