10-Q 1 sjw-20220630.htm 10-Q sjw-20220630
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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 June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to
Commission file number 1-8966
SJW GROUP
(Exact name of registrant as specified in its charter)
 
Delaware 77-0066628
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
110 West Taylor Street,San Jose,CA 95110
(Address of principal executive offices) (Zip Code)
(408) 279-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareSJWNew 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 July 25, 2022, there were 30,247,674 shares of the registrant’s Common Stock outstanding.



FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of SJW Group and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Group and its subsidiaries and the industries in which SJW Group and its subsidiaries operate and the beliefs and assumptions of the management of SJW Group. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.
The accuracy of such statements is subject to a number of risks, uncertainties and assumptions including, but not limited to, the following factors:
the effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures and other decisions;
changes in demand for water and other services;
the impact of the Coronavirus (“COVID-19”) pandemic on our business operation and financial results;
unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage;
climate change and the effects thereof;
unexpected costs, charges or expenses;
our ability to successfully evaluate investments in new business and growth initiatives;
contamination of our water supplies and damage or failure of our water equipment and infrastructure;
the risk of work stoppages, strikes and other labor-related actions;
catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic or other similar occurrences;
changes in general economic, political, business and financial market conditions;
the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness and general market and economic conditions; and
legislative and general market and economic developments.
Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.



2


PART I. FINANCIAL INFORMATION
 
ITEM 1.FINANCIAL STATEMENTS

SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share data)
 
 Three months ended June 30,Six months ended June 30,
 2022202120222021
REVENUE$149,041 152,241 $273,343 267,026 
OPERATING EXPENSE:
Production Expenses:
Purchased water26,352 27,668 45,569 43,313 
Power3,394 3,391 6,474 6,394 
Groundwater extraction charges18,360 20,138 32,288 35,683 
Other production expenses11,596 9,831 21,719 19,233 
Total production expenses59,702 61,028 106,050 104,623 
Administrative and general23,260 21,326 47,465 42,219 
Maintenance6,891 6,587 13,586 12,852 
Property taxes and other non-income taxes7,579 7,149 15,888 14,664 
Depreciation and amortization25,207 23,512 52,813 46,950 
Gain on sale of nonutility properties  (5,450) 
Total operating expense122,639 119,602 230,352 221,308 
OPERATING INCOME26,402 32,639 42,991 45,718 
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense(14,241)(13,681)(27,970)(27,120)
Pension non-service cost941 339 1,890 665 
Gain on sale of Texas Water Alliance 3,000  3,000 
Other, net824 1,784 1,819 3,538 
Income before income taxes13,926 24,081 18,730 25,801 
Provision for income taxes2,368 3,306 3,435 2,410 
NET INCOME11,558 20,775 15,295 23,391 
Other comprehensive (loss) income, net (248)107 (429)145 
COMPREHENSIVE INCOME$11,310 20,882 $14,866 23,536 
EARNINGS PER SHARE
Basic$0.38 0.70 $0.51 0.80 
Diluted$0.38 0.69 $0.50 0.79 
DIVIDENDS PER SHARE$0.36 0.34 $0.72 0.68 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic30,244,511 29,799,499 30,234,381 29,333,776 
Diluted30,346,040 29,924,191 30,341,065 29,459,782 






See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3


SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
 
June 30,
2022
December 31,
2021
ASSETS
Utility plant:
Land$39,900 39,004 
Depreciable plant and equipment3,468,240 3,381,908 
Construction in progress192,580 176,427 
Intangible assets36,220 36,276 
3,736,940 3,633,615 
Less accumulated depreciation and amortization1,183,159 1,136,116 
2,553,781 2,497,499 
Real estate investments and nonutility properties58,234 57,632 
Less accumulated depreciation and amortization16,553 15,951 
41,681 41,681 
CURRENT ASSETS:
Cash and cash equivalents:
Cash12,049 10,908 
Restricted cash602 1,211 
Accounts receivable:
Customers, net of allowances for uncollectible accounts of $5,222 and $4,600 on June 30, 2022 and December 31, 2021, respectively
58,815 53,699 
Income tax 2,308 
Other4,079 4,735 
Accrued unbilled utility revenue47,824 44,026 
Prepaid expenses8,106 9,667 
Current regulatory assets, net2,841 2,629 
Other current assets4,476 4,902 
138,792 134,085 
OTHER ASSETS:
Net regulatory assets, less current portion139,312 151,992 
Investments15,011 15,784 
Goodwill640,311 640,471 
Other12,159 10,883 
806,793 819,130 
$3,541,047 3,492,395 








See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4


SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
 
June 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 30,247,674 on June 30, 2022 and 30,181,348 on December 31, 2021
$30 30 
Additional paid-in capital608,666 606,392 
Retained earnings421,741 428,260 
Accumulated other comprehensive income(592)(163)
Total stockholders’ equity1,029,845 1,034,519 
Long-term debt, less current portion1,455,709 1,492,935 
2,485,554 2,527,454 
CURRENT LIABILITIES:
Line of credit141,336 62,996 
Current portion of long-term debt38,966 39,106 
Accrued groundwater extraction charges, purchased water and power24,798 17,200 
Accounts payable26,580 30,391 
Accrued interest14,615 14,174 
Accrued payroll9,814 11,583 
Income tax payable1,087  
Other current liabilities20,633 27,821 
277,829 203,271 
DEFERRED INCOME TAXES203,561 200,451 
ADVANCES FOR CONSTRUCTION138,430 130,693 
CONTRIBUTIONS IN AID OF CONSTRUCTION319,564 316,479 
POSTRETIREMENT BENEFIT PLANS92,060 89,998 
OTHER NONCURRENT LIABILITIES24,049 24,049 
COMMITMENTS AND CONTINGENCIES
$3,541,047 3,492,395 









See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5


SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share and per share data)
 
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Number of
Shares
Amount
BALANCES, December 31, 202130,181,348 $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 units37,879 — (1,269)— — (1,269)
Employee stock purchase plan17,918 — 1,049 — — 1,049 
Common stock issuance costs— — (87)— — (87)
Dividends paid ($0.36 per share)
— — — (10,882)— (10,882)
BALANCES, March 31, 202230,237,145 30 607,637 421,095 (344)1,028,418 
Net income— — — 11,558 — 11,558 
Unrealized gain on investment, net of tax of $
— — — — (248)(248)
Stock-based compensation— — 1,041 (23)1,018 
Issuance of restricted and deferred stock units10,529 — (6)— — (6)
Common stock issuance, net of costs— — (6)— — (6)
Dividends paid ($0.36 per share)
— — — (10,889)— (10,889)
BALANCES, June 30, 202230,247,674 $30 $608,666 $421,741 $(592)$1,029,845 



















See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
6


SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share and per share data)

 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Number of
Shares
Amount
BALANCES, December 31, 202028,556,605 $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 units30,547 — (964)— — (964)
Employee stock purchase plan18,235 — 1,026 — — 1,026 
Common stock issuance, net of costs1,184,500 1 66,895 — — 66,896 
Dividends paid ($0.34 per share)
— — — (9,724)— (9,724)
BALANCES, March 31, 202129,789,887 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 units15,040 — (9)— — (9)
Common stock issuance, net of costs— — (120)— — (120)
Dividends paid ($0.34 per share)
— — — (10,133)— (10,133)
BALANCES, June 30, 202129,804,927 $30 $579,057 $411,511 $(919)$989,679 





























See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
7


SJW GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Six months ended June 30,
 20222021
OPERATING ACTIVITIES:
Net income $15,295 23,391 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization53,830 48,406 
Deferred income taxes2,239 903 
Stock-based compensation2,593 2,071 
Allowance for equity funds used during construction(1,084)(916)
Gain on sale of nonutility properties and Texas Water Alliance(5,450)(3,000)
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue(8,487)(7,812)
Accounts payable and other current liabilities(1,158)553 
Accrued groundwater extraction charges, purchased water and power7,598 7,106 
Tax receivable and payable, and other accrued taxes(22)2,647 
Postretirement benefits459 1,955 
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits17,284 (8,231)
Other changes, net501 23 
NET CASH PROVIDED BY OPERATING ACTIVITIES83,598 67,096 
INVESTING ACTIVITIES:
Additions to utility plant:
Company-funded(101,611)(100,057)
Contributions in aid of construction(13,332)(7,357)
Additions to real estate investments(546)(230)
Payments to retire utility plant, net of salvage(1,836)(909)
Proceeds from sale of nonutility properties and Texas Water Alliance227 3,000 
Payments for business acquisitions(33)(1,452)
NET CASH USED IN INVESTING ACTIVITIES(117,131)(107,005)
FINANCING ACTIVITIES:
Borrowings on line of credit88,664 45,669 
Repayments on line of credit(10,324)(82,222)
Long-term borrowings15,000 87,000 
Repayments of long-term borrowings(51,612)(51,617)
Issuance of common stock, net of issuance costs 66,775 
Debt issuance costs (296)
Dividends paid(21,771)(19,857)
Receipts of advances and contributions in aid of construction15,769 14,673 
Refunds of advances for construction(1,345)(1,363)
Other changes, net(316)(21)
NET CASH PROVIDED BY FINANCING ACTIVITIES34,065 58,741 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH532 18,832 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD12,119 9,269 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD12,651 28,101 
LESS RESTRICTED CASH, END OF PERIOD602 2,659 
CASH AND CASH EQUIVALENTS, END OF PERIOD$12,049 25,442 
Cash paid during the period for:
Interest$30,189 29,266 
Income taxes458 1,020 
Supplemental disclosure of non-cash activities:
Accrued payables for additions to utility plant$18,502 29,123 
Utility property installed by developers1,066 1,230 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
8


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(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 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 subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc., SJW Land Company, and SJWTX Holdings, Inc. SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”) whose wholly-subsidiaries are The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), 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”), Maine Water and NEWUS are referred to as “Water Utility 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 June 30,Six months ended June 30,
 2022202120222021
Revenue from contracts with customers$148,657 147,204 $270,434 259,442 
Alternative revenue programs, net(2,982)2,656 (4,909)2,768 
Other balancing and memorandum accounts, net2,432 1,477 4,862 2,998 
Other regulatory mechanisms, net(432)(416)234 (846)
Rental income1,366 1,320 2,722 2,664 
$149,041 152,241 $273,343 267,026 
Real Estate Investments and Nonutility Properties
The major components of real estate investments and nonutility properties as of June 30, 2022, and December 31, 2021, are as follows: 
June 30,
2022
December 31,
2021
Land$12,900 12,615 
Buildings and improvements45,334 45,017 
Subtotal58,234 57,632 
Less: accumulated depreciation and amortization16,553 15,951 
Total$41,681 41,681 
On October 29, 2021, SJWC sold two nonutility properties located in San Jose, California for $13,150. SJW Group recognized a pre-tax gain on the sale of nonutility 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 Utilities
9


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 30, 2022
(in thousands, except share and per share data)

Commission (“CPUC”) review for the year ended December 31, 2021. On February 15, 2022, the CPUC review was completed and $5,442 was recognized as gain on sale 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.
Fair Value Measurement
The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of June 30, 2022, 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 June 30, 2022, 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 six months ended June 30, 2022. 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 $1,348,114 and $1,651,825 as of June 30, 2022, and December 31, 2021, 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 $1,494,675 and $1,532,041 as of June 30, 2022, and December 31, 2021, respectively. The fair value of long-term debt would be categorized as Level 2 in the fair value hierarchy.
CTWS 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 $3,117 and $3,797 as of June 30, 2022, and December 31, 2021, 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”), 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”). For the three months ended June 30, 2022 and 2021, 4,964 and 4,304 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively. For the six months ended June 30, 2022 and 2021, 15,824 and 12,883 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.

10


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 30, 2022
(in thousands, except share and per share data)

Note 2.Regulatory Matters
Regulatory assets, net are comprised of the following as of June 30, 2022, and December 31, 2021:
June 30, 2022December 31, 2021
Regulatory assets:
Income tax temporary differences, net$25,946 22,420 
Postretirement pensions and other postretirement benefits64,022 62,197 
Business combinations debt premium, net18,667 19,937 
Balancing and memorandum accounts, net24,772 38,334 
Water Rate Adjustment(1,176)2,588 
Other, net9,922 9,145 
Total regulatory assets, net in Condensed Consolidated Balance Sheets142,153 154,621 
Less: current regulatory assets, net2,841 2,629 
Total regulatory assets, net, less current portion$139,312 151,992 
As of June 30, 2022, and December 31, 2021, SJW Group’s regulatory assets, net not earning a return primarily included postretirement pensions and other medical benefits unfunded amount, and business combination debt premiums, net. The total amount of regulatory assets, net not earning a return at June 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 $85,798 and $84,887, respectively.
Balancing and Memorandum Accounts
SJWC has established balancing accounts for the purpose of tracking the under-collection or over-collection associated with expense changes and revenue authorized by the CPUC to offset those expense changes. SJWC also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, water conservation, water tariffs, and other approved activities or as directed by the CPUC. The Monterey Water Revenue Adjustment Mechanism (“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”) 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 will be used to offset the revenue losses tracked in the WCMA.
11


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 30, 2022
(in thousands, except share and per share data)

Balancing and memorandum accounts recorded to regulatory assets, net for the three and six months ended June 30, 2022, and 2021 as follows:
 Three months ended June 30, 2022Three months ended June 30, 2021
Beginning BalanceRegulatory Asset Increase (Decrease)Refunds (Collections) AdjustmentsEnding BalanceBeginning BalanceRegulatory Asset Increase (Decrease)Refunds (Collections) AdjustmentsEnding Balance
Revenue accounts:
MWRAM$19,060 2,036  21,096 $13,853 1,424 1 15,278 
WCMA(3,061)(1,000)(10,900)(14,961)666  2 668 
Cost of capital memorandum account(1,564)(4) (1,568)(1,561)(1) (1,562)
All others(73)490  417 (1,313)147 2 (1,164)
Total revenue accounts$14,362 1,522 (10,900)4,984 $11,645 1,570 5 13,220 
Cost-recovery accounts:
Water supply costs10,789 322  11,111 8,910 984 1 9,895 
Pension5,006 63  5,069 3,844 366  4,210 
Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”)
632 1 (90)543 1,027  (99)928 
COVID-19 Catastrophic Event Memorandum Account (“CEMA”)2,438 148  2,586 2,266 352  2,618 
All others573 (94) 479 445 1  446 
Total cost-recovery accounts$19,438 440 (90)19,788 $16,492 1,703 (98)18,097 
Total$33,800 1,962 (10,990)24,772 $28,137 3,273 (93)31,317 
 Six months ended June 30, 2022Six months ended June 30, 2021
Beginning BalanceRegulatory Asset Increase (Decrease)Refunds (Collections) AdjustmentsEnding BalanceBeginning BalanceRegulatory Asset Increase (Decrease)Refunds (Collections) AdjustmentsEnding Balance
Revenue accounts:
MWRAM$16,866 4,229 1 21,096 $12,077 3,200 1 15,278 
WCMA3,534 (1,100)(17,395)(14,961)666  2 668 
Cost of capital memorandum account(1,563)(5) (1,568)(1,561)(1) (1,562)
All others(386)802 1 417 (1,139)(28)3 (1,164)
Total revenue accounts$18,451 3,926 (17,393)4,984 $10,043 3,171 6 13,220 
Cost-recovery accounts:
Water supply costs10,545 566  11,111 8,123 1,771 1 9,895 
Pension4,941 128  5,069 3,478 732  4,210 
PRVMA
707 2 (166)543 1,108  (180)928 
CEMA3,245 (659) 2,586 2,266 352  2,618 
All others445 34  479 445 1  446 
Total cost-recovery accounts$19,883 71 (166)19,788 $15,420 2,856 (179)18,097 
Total$38,334 3,997 (17,559)24,772 $25,463 6,027 (173)31,317 
12


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 30, 2022
(in thousands, except share and per share data)

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

Note 3.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 had received advance deposit payments from its customers on certain construction projects. The refunds of the advance deposit payments constitute an obligation of the respective entities.
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 and a fixed interest rate of 4.54%, due May 31, 2042. The notes are unsecured obligations of Maine Water. Interest is payable quarterly in arrears on the 20th day of January, April, July and October of each year. The promissory note contains customary representations and warranties. Under the promissory note, Maine Water is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding. The notes are also subject to customary events of default, the occurrence of which may result in all of the notes then outstanding becoming immediately due and payable. Proceeds from the borrowing were received on May 13, 2022.
On June 28, 2022, Connecticut Water entered into a note purchase agreement with certain affiliates of New York Life Insurance Company, pursuant to which Connecticut Water sold an aggregate principal amount of $25,000 of its 4.71% Senior Notes, Series 2022, due 2052. The closing of the note purchase agreement is expected to occur on December 15, 2022, and is subject to customary closing conditions and regulatory approval. 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.

Note 4.Income Taxes
For the three and six months ended June 30, 2022, income tax expense was $2,368 and $3,435, respectively. Income tax expense for the three and six months ended June 30, 2021, was $3,306 and $2,410, respectively. The effective consolidated income tax rates were 17% and 14% for the three months ended June 30, 2022 and 2021, respectively, and 18% and 9% for the six months ended June 30, 2022, and 2021, respectively. The higher effective tax rate for the three and six months ended June 30, 2022, was primarily due to discrete tax expense items.
SJW Group had unrecognized tax benefits, before the impact of deductions of state taxes, excluding interest and penalties, of approximately $8,221 and $7,961 as of June 30, 2022, and December 31, 2021, respectively. SJW Group does not expect its unrecognized tax benefits to change significantly within the next 12 months.

Note 5.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 6.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. 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
13


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 30, 2022
(in thousands, except share and per share data)

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 six months ended June 30, 2022, and 2021 are as follows:
 Three months ended June 30,Six months ended June 30,
 2022202120222021
Service cost$2,652 2,688 $5,304 5,423 
Interest cost2,861