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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollar amounts in thousands, except where otherwise noted)

Description of Business

SJW Group is a publicly traded company and is a holding company with four subsidiaries:

SJWC, a wholly-owned subsidiary of SJW Group, is a public utility in the business of providing water service to approximately 231,000 connections that serve a population of approximately one million people in an area comprising approximately 139 square miles in the metropolitan San Jose, California area.

SJWNE LLC is a wholly-owned subsidiary of SJW Group. On October 9, 2019, CTWS became a wholly-owned subsidiary of SJWNE LLC. CTWS is a holding company whose subsidiaries are primarily public utilities providing water service to approximately 139,000 service connections that serve a population of approximately 485,000 people in 81 municipalities with a service area of approximately 269 square miles throughout Connecticut and Maine and 3,000 wastewater connections in Southbury, Connecticut.

SJWTX, Inc., a wholly owned subsidiary of SJW Group, doing business as Canyon Lake Water Service Company, is a public utility in the business of providing water service to approximately 20,000 connections that serve approximately 59,000 people. CLWSC’s service area comprises more than 247 square miles in Blanco, Comal, Hays and Travis County in the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company, a wholly owned subsidiary of SJW Group, owns undeveloped land in the states of California and Tennessee, owns and operates commercial buildings in Tennessee and has a 70% limited partnership interest in 444 West Santa Clara Street, L.P. 444 West Santa Clara Street, L.P. has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary. As a result, 444 West Santa Clara Street L.P. has been consolidated with SJW Land Company. In 2017, 444 West Santa Clara Street, L.P. sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company also sold certain undeveloped land located in San Jose, California. The limited partnership is expected to dissolve in 2021.

Business Strategy for Water Utility Services

SJW Group focuses its business initiatives in three strategic areas:

(1)Regional regulated water utility operations;

(2)Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California, PURA in Connecticut, PUCT in Texas, and MPUC in Maine; and

(3)Out-of-region water and utility related services.

Regional Regulated Activities

SJW Group’s regulated utility operation is conducted through SJWC, Connecticut Water, CLWSC and Maine Water. SJW Group plans and applies a diligent and disciplined approach to maintaining and improving its water system infrastructures and also seeks to acquire regulated water systems adjacent to or near its existing service territory. Connecticut Water also provides regulated wastewater services.

The United States water utility industry is largely fragmented and is dominated by municipal-owned water systems. The water industry is regulated, and provides a life-sustaining product. This makes water utilities subject to lower business cycle risks than non-tariffed industries.

Regional Non-tariffed Activities

Operating in accordance with guidelines established by the CPUC, SJWC provides non-tariffed services, such as water system operations, maintenance agreements and antenna site leases under agreements with municipalities and other utilities. CLWSC provides non-tariffed wholesale water service to adjacent utilities and non-tariffed wastewater services. CTWS provides non-tariffed services, such as water system operations and maintenance agreements under agreements with municipalities and other utilities. Additionally, CTWS offers Linebacker, an optional service line protection program offered by CTWS to eligible residential customers through NEWUS in Connecticut and Maine Water in Maine covering the cost of repairs for leaking or broken water service lines which provide drinking water to a customer’s home. For customers who enroll in this program, CTWS will repair or replace a leaking or broken water service line, curb box, curb box cover, meter pit, meter pit cover, meter pit valve plus in-home water main shut off valve before the meter. Additionally, NEWUS offers expanded coverage to

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Connecticut Water customers for failure of in-home plumbing, sewer and septic drainage lines and implemented modified terms and conditions with limitations on certain coverages.

SJW Group also seeks appropriate non-tariffed business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations. SJW Group seeks opportunities to fully utilize its capabilities and existing capacity by providing services to other regional water systems, which also will benefit its existing regional customers.

Out-of-Region Opportunities

SJW Group also from time to time pursues opportunities to participate in out-of-region water and utility related services, particularly regulated water businesses. SJW Group evaluates out-of-region and out-of-state opportunities that meet SJW Group’s risk and return profile.

The factors SJW Group considers in evaluating such opportunities include:

•Potential profitability;

•Regulatory environment;

•Additional growth opportunities within the region;

•Water supply, water quality and environmental issues;

•Capital requirements;

•General economic conditions; and

•Synergy potential.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets, for example the merger with CTWS in 2019. However, we cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities. In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations. We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results, entering markets in which SJW Group has no or limited direct prior experience and the potential loss of key employees of any acquired company. Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our internal controls. SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

Real Estate Services

SJW Group’s real estate investment activity is conducted through SJW Land Company and Chester Realty, Inc. SJW Land Company owns undeveloped land in Tennessee and owns and operates commercial buildings in Tennessee. SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P. The partnership owned a commercial building in San Jose, California. In 2017, 444 West Santa Clara Street, L.P. sold all of its interests in the commercial building and land the partnership owned and operated and SJW Land Company sold the undeveloped land located in San Jose, California. The limited partnership is expected to dissolve in 2021. SJW Land Company manages its acquired income producing and other properties until such time a determination is made to reinvest proceeds from sale of such properties. Chester Realty, Inc. owns and operates land and commercial buildings in the State of Connecticut. Chester Realty, Inc. manages its income producing and other properties until such time a determination is made to reinvest proceeds from sale of such properties. SJW Land Company and Chester Realty, Inc.’s real estate investments diversify SJW Group’s asset base.

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Critical Accounting Policies

SJW Group has identified accounting policies delineated below as the policies critical to its business operations and the understanding of the results of operations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. SJW Group bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. For a detailed discussion on the application of these and other accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.” SJW Group’s critical accounting policies are as follows:

Recognition of Regulatory Assets and Liabilities

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates. The company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly. The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes. In December 2019, CPUC denied SJWC’s request in Advice Letter No. 532 to recover the 2018 balances of WCMA and was ordered to remove the WCMA accounts from the preliminary statement book. As a result of the decision, SJWC wrote off the total 2018 WCMA balance of $9.4 million and $0.6 million recorded in its 2019 WCMA memorandum accounts. (See also Note 1, “Summary of Accounting Principles” in the consolidated financial statements). No other disallowances were recognized during the years ending December 31, 2020 and 2019.

Recognition of Balancing and Memorandum Accounts

Balancing and memorandum accounts are utilized by our California operations. The purpose of a balancing account is to track the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for expense items for which revenue offsets have been authorized.

Balancing accounts are currently being maintained for the following items: purchased water, purchased power, groundwater extraction charges, pensions, and general rate case and cost of capital true-ups. The amount in the water production balancing accounts varies with the seasonality of the water utility business such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection, while during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection. The pension balancing account is intended to capture the difference between actual pension expense and the amount approved in rates by the CPUC. The general rate case true-up accounts are a result of revenue shortfalls authorized for collection or refund by the CPUC due to delayed rate case and cost of capital decisions.

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 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.

Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. In addition, in the case of special revenue programs such as the WCMA, SJWC follows the requirements of ASC Topic 980-605-25—“Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded. A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period. This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges. In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980

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subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support, the balances are recorded in SJW Group’s financial statements.

It is typical for the CPUC to incorporate any over-collected and/or under-collected balances in balancing or memorandum accounts into customer rates at the time rate decisions are made as part of SJWC’s general rate case proceedings by assessing temporary surcredits and/or surcharges. In the case where SJWC’s balancing or memorandum-type accounts that have been authorized by the CPUC reach certain thresholds or have termination dates, SJWC can request the CPUC to recognize the amounts in customer rates prior to the next regular general rate case proceeding by filing an advice letter.

Goodwill

Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. SJW Group’s goodwill is primarily associated with the recent merger with CTWS on October 9, 2019. SJW Group performed an impairment analysis as of October 1, 2020. The qualitative assessment found no indicators of impairment and therefore did not perform the quantitative impairment test. No impairments occurred during 2020, 2019 or 2018.

Business Combinations

SJW Group applies the provisions of ASC Topic 805—“Business Combinations” for the purchase accounting related to the merger with CTWS on October 9, 2019. Topic 805 requires SJW Group to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While SJW Group used our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates were inherently uncertain and subject to refinement. As a result, during the one year measurement period from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments were recorded to our Consolidated Statements of Comprehensive Income. Accounting for business combinations requires SJW Group to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies. Although SJW Group believes that the assumptions and estimates we make are reasonable and appropriate, they are based in part on historical experience and information obtained from CTWS’s management and are inherently uncertain. Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets. Although SJW Group believes the assumptions and estimates made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to: future expected cash flows from services; historical and expected customer attrition rates and anticipated growth in revenue from acquired customers; the expected use of the acquired assets; and discount rates. SJW Group analyzed and revalued the acquired opening deferred tax asset and liability balances within the measurement period which resulted in a decrease to goodwill of $114. There was no impact associated with the measurement period adjustments to the consolidated statement of comprehensive income for the year ended December 31, 2020.

Factors Affecting Our Results of Operations

SJW Group’s financial condition and results of operations are influenced by a variety of factors including the following:

•Economic utility regulation;

•Infrastructure investment;

•Compliance with environmental, health and safety standards;

•Production expenses;

•Customer growth;

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•Water usage per customer;

•Weather conditions, seasonality and sources of water supply; and

•Merger and acquisition activities, if any.

Economic Utility Regulation

Water Utility Services is generally subject to economic regulation by the Regulators overseeing public utilities. Regulatory policies vary from state to state and may change over time. In addition, there may be regulatory lag between the time a capital investment is made, a consumption decrease occurs, or an operating expense increases and when those items are adjusted in utility rates.

SJWC employs a forward-looking test year and has been authorized to use several mechanisms to mitigate risks faced due to regulatory lag and new and changing legislation, policies and regulation. These include 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. Rate recovery for the balances in these memorandum accounts is generally allowed in a subsequent general rate case. SJWC also maintains balancing accounts to track changes in purchased water, purchased power, groundwater extraction charges and pension costs for later rate recovery.

Regulatory risk is mitigated in California by use of a forward-looking test year which allows the return on and return of utility plant on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.

Pursuant to Connecticut regulations, Connecticut Water employs a historical test year. To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Connecticut. Additionally, to mitigate regulatory lag for pipeline replacement and conservation related projects, the Connecticut State Legislature has approved WICA that allows for a surcharge to be added to customer bills semi-annually for certain eligible pre-approved projects. Further to mitigate risks from variations in revenues from changes in customer usage, the Connecticut State Legislature has approved a WRA to provide for recovery of the company’s authorized revenues.

Pursuant to Texas regulation, CLWSC employs a historical test year. To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Texas, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months.

Pursuant to Maine regulations, Maine Water employs a historical test year. To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Maine. Additionally, to mitigate regulatory lag for all infrastructure replacements (except meters), the Maine State Legislature has approved of WISC that allows for a surcharge to be added to customer bills semi-annually for certain pre-approved projects.

Infrastructure Investment

The water utility business is capital-intensive. In 2020 and 2019, company-funded capital improvements were $195,323 and $164,325, respectively, for additions to, or replacements of, property, plant and equipment for our Water Utility Services. We plan to spend approximately $238,800 in 2020 and $1,384,386 over the next five years for capital improvements, subject to CPUC, PURA, PUCT, and MPUC approval. SJW Group funds these expenditures through a variety of sources, including earnings received from operations, debt and equity issuances, and borrowings. SJW Group relies upon lines of credit to fund capital expenditures in the short term and has historically issued long-term debt to refinance our short-term debt. While our ability to obtain financing will continue to be a key risk, we believe that based on our 2020 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

Compliance with Environmental, Health and Safety Standards

Water Utility Services’ operations are subject to water quality and pollution control regulations issued by the EPA and environmental laws and regulations administered by the respective states and local regulatory agencies. Under the federal Safe Drinking Water Act, Water Utility Services is subject to regulation by the EPA of the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water. Water Utility Services has implemented monitoring activities and installed specific water treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act. Water Utility Services incur substantial costs associated with compliance with environmental, health and safety and water quality regulation to which our water services are subject.

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Environmental, health and safety and water quality regulations are complex and change frequently, and the overall trend has been that they have become more stringent over time. It is possible that new or more stringent environmental standards and water quality regulations could be imposed that will increase Water Utility Services’ water quality compliance costs, hamper Water Utility Services’ available water supplies, and increase future capital expenditures. Future drinking water regulations may require increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent performance standards for treatment plants and procedures to further reduce levels of disinfection by-products. In the past, Water Utility Services have generally been able to recover expenses associated with compliance related to environmental, health and safety standards, but future recoveries could be affected by regulatory lag and the corresponding uncertainties surrounding rate recovery.

Production Expenses

Water Utility Services’ operations require significant production inputs which result in substantial production expenses. These expenses include power, which is used to operate pumps and other equipment, purchased water and groundwater extraction charges. For 2020, production expenses accounted for approximately 51% of our total operating expenses. Price increases associated with these production inputs would adversely impact our results of operations until rate relief is granted.

Customer Growth

Customer growth in our water Water Utility Services’ is driven by: (i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories. During 2019 and 2018, we had cash outflows of $835,465 and $2,496, respectively, for business acquisitions and water rights which we believe will allow SJW Group to expand our regulated customer base. In 2020, there was no cash outflows for business acquisitions and water rights. Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety and water quality standards.

Water Usage Per Customer

Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices, all of which could affect Water Utility Services’ results of operations. SJWC residential usage increased 13.3% from 2019 to 2020 and decreased 0.8% from 2018 to 2019. SJWC business usage increased 1.4% and decreased 1.0% from 2019 to 2020 and from 2018 to 2019, respectively. In addition, 2020 residential and business usage was 12.75% higher and 2.57% lower, respectively, than the amount authorized in our 2019-2021 general rate case. Residential usage and business usage in 2019 was 0.4% and 3.94%, respectively, lower than the amount authorized in our 2019-2021 general rate case. CLWSC residential and business usage increased 13.6% from 2019 to 2020 and increased 2.1% from 2018 to 2019. CTWS residential and business usage per cubic feet was 78.86 and 232.43, respectively, for the year ended December 31, 2020. From the date of merger, October 9, 2019, to December 31, 2019, CTWS residential and business usage per cubic feet was 16.59 and 57.72, respectively. With the availability of the WRA in Connecticut that allows for recovery of authorized revenues, decreases in consumption year to year do not present the same financial risk as had historically been the case.

Weather Conditions, Seasonality and Sources of Water Supply

Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water. Drought, governmental restrictions, overuse of sources of water, the protection of threatened species or habitats or other factors may limit the availability of ground and surface water. Also, customer usage of water is affected by weather conditions, in particular during the warmer months. Our water systems experience higher demand in the summer due to the warmer temperatures and increased usage by customers for outside irrigation of lawns and landscaping. In periods of drought, if customers are encouraged or required to conserve water due to a shortage of supply or restriction of use, revenue tends to be lower. Water use restrictions may be imposed at a regional or state level and may affect our service areas regardless of our readiness to meet unrestricted customer demands. Similarly, in unusually wet periods, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues.

SJWC believes that its various sources of water supply, which consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and purchased imported water, will be sufficient to meet customer demand for 2021. In addition, SJWC actively works with Valley Water to address California’s long-term water supply challenges by continuing to educate customers on responsible water use practices and to conduct long-range water supply planning. Connecticut Water and Maine Water believes that they will be able to meet customer demand for 2021 with their existing water supply which consists of groundwater from wells, surface water in reservoirs and purchased water treated by neighboring water utilities. CLWSC believes that it will be able to meet customer demand for 2021 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

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Merger and Acquisition Activities

From time to time there may be opportunities to acquire businesses and assets. We cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities. We expect to incur costs in connection with the execution of this pursuit and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results. Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our internal controls. SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

Results of Operations

Among other things, 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. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater and lower in the winter months when cooler temperatures and increased rainfall curtail water usage and sales.

See Item 1, “Business” for a discussion of SJW Group’s general business and regulatory activities.

COVID-19 Update

In 2020, the outbreak of COVID-19 has had significant impact on the global economy. SJW Group has taken precautions to protect the health and safety of employees, customers and the community while continuing to deliver safe and reliable water service as we are deemed to be an essential service provider. SJW Group’s response to the COVID-19 outbreak continues to evolve and has included: (i) suspending service disconnections for non-payments pursuant to orders from certain state regulators, which will remain for specified durations with the longest extending to June 30, 2021; (ii) waiving reconnection or facilities fees for affected customers and suspending deposit requirements for affected customers who must reconnect to the systems; (iii) the temporary closure of our walk-in customer payment centers where they were provided; (iv) increasing the number of employees telecommuting; and (v) delaying some capital improvement projects at our water utilities. The Regulators have approved regulatory mechanisms to either record a regulatory asset or track in memorandum account for expenses and savings related to COVID-19. SJWC and CLWSC have determined that future recovery of the account is probable and recognized the regulatory assets. Probability criteria has not been met for CTWS. If the Regulators disagrees with our calculation of these accounts, we may be required to make adjustments that could adversely affect our results of operations. SJW Group continues to monitor developments affecting our business, employees and suppliers and will take additional precautions as management believes is necessary. Please see other risks related to COVID-19 under Item 1A, “Risk Factors.”

Overview

SJW Group’s consolidated net income for the year ended December 31, 2020 was $61,515, compared to $23,403 for the same period in 2019. This represents an increase of $38,112 or 163%, from 2019. The increase in net income was primarily due to addition of net income from CTWS and an increase in revenue at SJWC due to increased customer usage, cumulative water rate increases, there were no merger related expenses, and a write -off recorded in the prior year for the 2018 and 2019 Water Conservation Memorandum Account as we determined these costs were no longer probable of recovery. The net increase in revenue was partially offset by an increase in productions expenses at SJWC due to a decrease of available surface water supply and an increase in customer usage, higher depreciation expenses due to assets placed in service in 2019, and an increase in interest on long-term debt due to the debt issued to acquire SJWNE LLC and issuance of SJWC’s Series M Note.

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Operating Revenue

Operating revenue by segment was as follows:

Operating Revenue

The change in consolidated operating revenues was due to the following factors:

Water Utility Services:

Balancing and memorandum accounts:

Cost of capital memorandum account 22 — % 1,349 — %

Water Conservation Memorandum Account 9,386 2 % (19,841) (5) %

Revenue from acquisition of SJWNE LLC — — % 21,660 5 %

Real Estate Services 135 — % (85) — %

2020 vs. 2019

The revenue increase consists of $143,909 from Water Utility Services and $135 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase of $111,183 due to higher customer usage, an increase in authorized rates which resulted in $12,234 of additional revenue and an increase from customer rate credits of $4,964. In addition, a write-off of the 2018 and 2019 Water Conservation Memorandum Account balances was recorded in prior year as we determined these costs were no longer probable of recovery.

2019 vs. 2018

The revenue increase consists of $22,868 from Water Utility Services offset by a decrease of $85 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to the merger with CTWS which generated an increase of $21,660, an increase in authorized rates which resulted in $13,877 of additional revenue, and an increase of $2,673 due to new customers. These increases were partially offset by a net decrease in revenue recognized from certain balancing and memorandum accounts, which included a decrease of $19,841 in WCMA, partially offset by increases of $6,366 from the Tax Act and $1,349 in the Cost of Capital Memorandum Account.

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Water Utility Services’ Operating Revenue and Customer Counts

The following tables present operating revenues and number of customers by customer group of Water Utility Services:

Operating Revenue by Customer Group

Number of Customers

Operating Expense

Operating expense by segment was as follows:

Operating Expense

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The change in consolidated operating expenses was due to the following factors:

Water production expenses:

Change in usage and new customers 33,864 10 % (795) — %

Balance and memorandum account cost recovery (3,421) (1) % 1,211 — %

Production expenses related to acquisition of SJWNE LLC — — % 5,850 2 %

Balance and memorandum account cost recovery 311 — % 477 — %

Property taxes and other non-income taxes 10,818 3 % 4,093 1 %

Sources of Water Supply

SJWC’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from Valley Water under the terms of a master contract with Valley Water expiring in 2051. Surface water, which is the least expensive water supply, is sourced from SJWC’s 7,000 acre of watershed in the Santa Cruz mountains. Changes and variations in quantities from each of these sources affect the overall mix of the water supply, thereby affecting the cost of the water supply. In addition, the water rates for purchased water and the groundwater extraction charge may be increased by Valley Water at any time. If an increase occurs, then SJWC would file an advice letter with the CPUC seeking authorization to increase revenues to offset the rate increase.

The Connecticut water utility services’ infrastructure consisted of 65 noncontiguous water systems in the State of Connecticut. These systems, in total, consist of approximately 1,800 miles of water main and reservoir storage capacity of 2.4 billion gallons. The safe, dependable yield from our 235 active wells and 18 surface water supplies is approximately 65 million gallons per day. Water sources vary among the individual systems, but overall approximately 80% of the total dependable yield comes from surface water supplies and 20% from wells.

CLWSC’s water supply consists of groundwater from wells and purchased treated and raw water from the GBRA. CLWSC has long-term agreements with the GBRA, which expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with an aggregate of 6,900 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA. CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, to provide for 250 acre-feet of water per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

Maine Water’s infrastructure consisted of 12 noncontiguous water systems in the State of Maine. These systems, in total, consists of approximately 600 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 14 active wells and 7 surface water supplies is approximately 120 million gallons per day. Water sources vary among the individual systems, but overall approximately 80% of the total dependable yield comes from surface water supplies and 20% from wells.

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The following table presents the sources of water supply for water utility services:

Source of Water Supply

(million gallons) (MG)

Water production in 2020 for water utility services increased 11,388 million gallons from 2019 primarily due to a full year of CTWS operations in 2020. Water production in 2019 for water utility services increased 2,163 million gallons from 2018. The changes are primarily attributable to changes in consumption by customers and are consistent with the changes in the related water production expenses.

The contract water rates for SJWC are determined by Valley Water. These rates are adjusted periodically and coincide with Valley Water’s fiscal year, which ends on June 30. The contract water rate for Valley Water’s fiscal years 2021, 2020 and 2019 was $4.5, $4.5 and $4.3 per million gallons, respectively. The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $4.2, $4.2 and $3.9 per million gallons for Valley Water’s fiscal years 2021, 2020, and 2019, respectively. SJWC’s unaccounted-for water for 2020 and 2019 approximated 6.5% and 7.2%, respectively, as a percentage of 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.

Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA. The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective. Connecticut Water will pay RWA $75 per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement. In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement. Connecticut Water has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system. The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service. Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC.

Maine Water has an agreement with the Kennebec Water District for potable water service. The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years. Maine Water guarantees a minimum consumption of 50 million gallons of water annually. Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates.

CTWS’s unaccounted-for water for the period ending December 31, 2020 was approximately 16.2% 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 (“WICA”) and Water Infrastructure Surcharge (“WISC”) main replacement programs and lost water reduction initiatives.

The various components of operating expenses are discussed below.

Water production expenses

2020 vs. 2019

Water production expenses increased $33,864 due to an increase in customer usage, $18,992 as a result of decreased availability of California surface water in 2020 compared to 2019, and $588 in higher per unit costs paid for purchased water, groundwater extraction and energy charges, offset by a decrease of $3,421 due to changes in water production balancing and memorandum accounts. Valley Water did not increase the unit price of purchased water and groundwater extraction fees for their fiscal year beginning July 1, 2020.

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2019 vs. 2018

Water production expenses increased $12,125 due to higher per unit costs paid for purchased water, groundwater extraction and energy charges, $5,850 due to the new CTWS operations and $1,211 due to changes in water production balancing and memorandum accounts, offset by decreases of $11,348 due to an increase in the use of available surface water in 2019 compared to 2018, and $795 due to a decrease in customer usage. Effective July 2019, Valley Water increased the unit price of purchased water by approximately 6.1% and the groundwater extraction charge by approximately 6.6%.

Administrative and General Expense

Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, legal fees, regulatory utility commissions’ expenses, expenses associated with being a public company, and general corporate expenses.

2020 vs. 2019

Administrative and general expense increased $13,440 in 2020, or 4%, in comparison to 2019. The increase consisted primarily of $17,793 due to CTWS operations, partially offset by a decrease of $4,520 in integration costs related to the merger.

2019 vs. 2018

Administrative and general expense increased $17,368 in 2019, or 5%, in comparison to 2018. The increase consisted primarily of: (1) $7,295 due to the new CTWS operations, (2) $4,860 increase in integration costs related to the merger, (3) $1,539 increase in accounting and legal fees, (4) $1,491 increase in contracted work primarily related to the recycled water retrofit program, social media outreach, accounting services and customer service strategy, (5) $677 increase in salaries and wages, and (6) $605 in cost recoveries other than pension costs through balance and memorandum accounts.

Maintenance Expense

Maintenance expense increased $1,653 in 2020, or less than 1%, in comparison to 2019, and increased $2,091 in 2019, or 1%, in comparison to 2018. The increase in 2020 consisted primarily of $3,639 due to CTWS operations, offset by a decrease of $1,745 in SJWC primarily due to a change in the probability assessment of regulatory recovery of a hydro-turbine generator project. The increase in 2019 consisted primarily of $1,128 increase due to the new CTWS operations.

Property Taxes and Other Non-income Taxes

Property taxes and other non-income taxes for 2020 and 2019 increased $10,818 and $4,093 from prior years, respectively. The increase in 2020 was primarily due to $10,603 in CTWS operations. The increase in 2019 was primarily a result of increased utility plant, and $3,096 due to the new CTWS operations. SJW Group anticipates increases in 2021 for property taxes and other non-income taxes due to increases in utility plant.

Depreciation and Amortization

Depreciation and amortization expense increased $23,687 in 2020, or 6%, in comparison to 2019, and increased $10,991 in 2019, or 4%, in comparison to 2018. The increases were primarily due to increases in utility plant. In addition, the increases in 2020 and 2019 also included $16,380 and $4,903 due to the new CTWS operations, respectively. SJW Group anticipates increases in 2021 for depreciation expense due to increases in utility plant.

Other Income and Expense

The change in other (expense) income in 2020 compared to 2019 was primarily due to an increase in interest on long-term debt as a result of the issuance of SJW Group’s Series 2019A, 2019B, 2019C and 2020 notes. In addition, interest income decreased due to the use of previously invested money market funds for the merger with CTWS. The new CTWS operations generated an increase of $5,144 in expense.

The change in other (expense) income in 2019 compared to 2018 was primarily due to an increase in interest on long-term debt as a result a full year of interest recorded on SJWC’s Series M note and SJW Group’s Series 2019A, 2019B and 2019C notes. In addition, interest income increased due to the invested proceeds from our equity offering in December 2018. The new CTWS operations generated an increase of $2,025 in expense.

SJW Group’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs, was 4.3%, 4.4% and 6.0% for the years ended December 31, 2020 and 2019 and 2018.

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Provision for Income Taxes

Income tax expense for 2020 was $8,380, compared to $8,454 in 2019. The effective consolidated income tax rate was 12% for 2020, 26% for 2019 and 21% for 2018. Income tax expense decreased due to flow- through deductions and absence of the write-off of non-deductible merger costs in 2020. The decrease was mostly offset by an increase due to higher pre-tax income.

Please refer to Note 5, “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of actual to expected income tax expense.

Other Comprehensive (Loss) Income

The change in other comprehensive income in 2020 and 2019 was primarily due to the change in the benefit obligation for Connecticut Water’s supplemental executive retirement agreements as a result of a change in the discount rate.

Liquidity and Capital Resources

Water Utility Services’ business derives the majority of its revenue directly from residential and business customers. Water Utility Services bills the majority of its customers on a bi-monthly basis. Payments from customers are impacted by the general economic conditions in the areas where SJW Group operates. Payment delinquencies are mitigated by service interruptions due to non-payment prior to the COVID-19 pandemic. In California, Governor Gavin Newsom signed an executive order suspending water service disconnections due to non-payment by customers retroactive to March 4, 2020 and until June 30, 2021. In Connecticut, the March 12, 2020, PURA moratorium ruling to halt shutoff for nonpayment expired on October 1, 2020. In Maine, MPUC lifted the moratorium on utility disconnections effective November 1, 2020. PUCT in Texas had ordered on March 13, 2020 public utilities to suspend water service disconnections and late fees charged to customers which expired on June 13, 2020. There is no guarantee that the Regulators will extend or reinstate such orders. As of December 31, 2020, the change in allowance for doubtful accounts was due to adjustments made for the effect of COVID-19 on our customers and from the adoption of Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments. Impacts to allowance for doubtful accounts related to COVID-19 were recorded to regulatory assets or tracked by regulatory mechanisms as directed by the Regulators. Write-offs for uncollectible accounts remain less than 1% of total revenue consistent with prior year. Management believes that the accounts receivable aging will continue to deteriorate throughout the duration of the COVID-19 pandemic as long as the moratoriums on water service disconnections and non-payment continue in California.

Funds collected from Water Utility Services’ customers are used to pay for water production expenses, in addition to costs associated with general operations. Funds were also generated from borrowings. In 2020, SJW Group and its subsidiaries obtained $89,000 in funds from new long-term debt. From these amounts, SJW Group funded its 2020 capital expenditure programs and working capital. See Note 4 of “Notes to Consolidated Financial Statements” for discussion on the debt financing activities of SJW Group. In addition, SJW Group paid cash dividends of approximately $36,509 during the year ended December 31, 2020.

The condition of the capital and credit markets or the strength of financial institutions could impact SJW Group’s ability to draw on its lines of credit, issue long-term debt, sell its equity or earn interest income. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost of capital. While our ability to obtain financing will continue to be a risk, we believe that based on our 2020 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future. On October 16, 2019, Standard & Poor’s Ratings Service initiated coverage on SJW Group assigning a company rating of A-, with a stable outlook and affirming its company rating of SJWC of A, with a stable outlook. In addition, on October 14, 2019, S&P affirmed its ratings of CTWS and Connecticut Water of A- with a stable outlook.

In 2020, the common dividends declared and paid on SJW Group’s common stock represented 59% of net income. Dividends have been paid on SJW Group’s and its predecessor’s common stock for 309 consecutive quarters and the annual dividend amount has increased in each of the last 53 years. While historically SJW Group has generally paid dividends equal to approximately 50% to 60% of its net income, SJW Group cannot guarantee that this trend will continue in the future.

Cash Flow from Operations

In 2020, SJW Group generated cash flow from operations of approximately $104,051 compared to $130,005 in 2019 and $91,343 in 2018. 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, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets, and other changes in working capital items. Cash flow from operations decreased in 2020 by approximately $25,900. The decrease was primarily due to a combination of the following factors: (1) a decrease in collections of the balancing and memorandum accounts by $45,300, (2) a decrease in collections of

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previously billed and accrued receivables by $15,000, (3) a decrease in the other noncurrent assets and noncurrent liabilities of $6,700 primarily from an increase in payments for executive and board deferral for retirees and deferred tax changes, and (4) an up-front payment of $5,000 for renewal of the Cupertino service concession agreement, offset by (5) general working capital and net income, adjusted for non-cash items increase by $46,100. Cash flow from operations increased in 2019 by approximately $38,700. The increase was primarily due to a combination of the following factors: (1) an increase in the collection of the balancing and memorandum accounts of $37,300, (2) an increase in accrued groundwater extraction charges, purchased water and power of $3,600, and (3) general working capital and net income, adjusted for non-cash items increased by $9,700, offset by (4) net collection of taxes receivable which was $11,900 less than in prior year.

Cash Flow from Investing Activities

In 2020, SJW Group used approximately $195,300 of cash for Company funded capital expenditures, $17,100 for developer funded capital expenditures, $2,600 in utility plant retirement costs, and $400 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee. These uses were offset by cash proceeds of $1,200 from the sale of real estate investments and utility property. In 2019, SJW Group used approximately $164,300 of cash for Company funded capital expenditures, $13,600 for developer funded capital expenditures, $5,000 in utility plant retirement costs, $835,500 for the purchase of CTWS, and $100 for real estate investments related to leasehold improvement additions for the properties located in Knoxville, Tennessee. These uses were offset by cash proceeds of $745 from the sale of real estate investments and utility property.

Water Utility Services budgeted capital expenditures for 2021, excluding capital expenditures financed by customer contributions and advances is as follows:

Budgeted CapitalExpenditures2021

Wastewater treatment 1,798 1 %

Source of supply 9,174 4 %

Pump stations and equipment 8,071 3 %

The 2021 capital expenditures budget is concentrated in main replacements. Included in the distribution system budgeted capital expenditures of $125,012 is approximately $87,670 that is planned to be spent to replace Water Utility Services’ pipes and mains.

Water Utility Services’ capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations. Over the next five years, Water Utility Services expects to incur approximately $1,384,386 in capital expenditures. A significant portion of this amount is subject to future approval from the Regulators. Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return. Water Utility Services’ actual capital expenditures may vary from projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies and general economic conditions. Total additions to utility plant normally exceed company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.

The Water Utility Services’ distribution systems were constructed during the period from the early 1900’s through today. Expenditure levels for renewal and modernization will occur as the components reach the end of their useful lives. In most cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services and increased regulation.

Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 decreased by approximately $383,400 from the same period in the prior year, primarily as a result of decrease in cash proceeds from long-term debt issued in current year and increase in payments of long-term debt that matured, partially offset by an increase in the amount of net borrowings on our lines of credit, increase in receipts of advances and contributions in aid of construction, and a decrease in debt issuance costs. SJW

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Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on our lines of credit. As such, during years when long-term borrowings are high, borrowings on our line of credit tend to be low and when long-term borrowings are low, borrowings on our line of credit tend to be high.

SJW Group, SJW Land Company, SJWTX, Inc., SJWC and CTWS have unsecured bank lines of credit totaling $260,000 as of December 31, 2020. Drawdowns on our lines of credit are restricted by our funded debt not exceeding a percent of total capitalization as defined in our debt covenants. SJW Group expects to periodically draw down on its lines of credit as dictated by our funding needs and subsequently repay such borrowings with cash from operations and issuance of long-term debt or equity. See also “Sources of Capital” below.

Sources of Capital

SJW Group’s regulated operations ability to finance future construction programs and sustain dividend payments depends on its ability to maintain or increase internally generated funds and obtain external financing through the issuance of new long-term debt or issuance of equity. The level of future earnings and the related cash flow from operations is dependent, in large part, on the timing and outcome of regulatory proceedings.

Long-term Financing Arrangements

SJW Group has outstanding $610,000 unsecured senior notes as of December 31, 2020. SJW Group’s 2011 unsecured senior note agreement has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services’ cumulative net income, since June 30, 2011. On August 11, 2020, SJW Group entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which SJW Group sold an aggregate principal amount of $50,000 of its 2.47% Senior Notes, Series 2020, due August 1, 2030. The notes are unsecured obligations of the Company. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. The note purchase agreement contains customary representations and warranties. Under the note purchase agreement, SJW Group 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. SJW Group’s 2019 and 2020 unsecured senior note agreements have terms and conditions that restrict SJW Group from issuing additional funded debt if the funded consolidated debt would exceed 70% of total capitalization. As of December 31, 2020, SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

SJWC’s financing activity is designed to achieve a capital structure consistent with regulatory guidelines of approximately 47% debt and 53% equity. As of December 31, 2020, SJWC’s long-term debt and equity were approximately 46% and 54%, respectively. The average borrowing rate of SJWC’s long-term debt was 5.8% as of December 31, 2020.

SJWC has outstanding $320,000 of unsecured senior notes as of December 31, 2020. The senior note agreements of SJWC generally have terms and conditions that restrict SJWC from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. In addition, SJWC has a restricted payment clause which prohibits any payment or distribution, including dividends, if it exceeds the sum of (1) cumulative net income since December 31, 1991, (2) the aggregate net proceeds received from the sale of shares of its capital stock since December 31, 1991, and (3) $20,000. On November 2, 2020, SJWC paid in full its $10,000 Series C senior notes that reached maturity. As of December 31, 2020, SJWC was in compliance with all terms and conditions of these unsecured senior notes.

SJWC also has obligations pursuant to loan agreements with the California Pollution Control Financing Activity (“CPCFA”) supporting $120,000 in aggregate principal amount of CPCFA revenue bonds outstanding as of December 31, 2020. The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements. As of December 31, 2020, SJWC was in compliance with all such covenants.

CTWS has outstanding term loans with a commercial bank in an aggregate amount of $22,169 as of December 31, 2020. Under the master loan agreement, CTWS is required to comply with certain financial ratio and operational covenants. The most restrictive of these covenants is to maintain a consolidated (CTWS and its subsidiaries) debt to capitalization ratio of not more than 60%. As of December 31, 2020, CTWS was in compliance with all covenants under the master loan agreement.

Connecticut Water has outstanding term loans with a commercial bank in an aggregate amount of $111,090 as of December 31, 2020. Under its master loan agreement, Connecticut Water is required to comply with financial and operational covenants substantially identical to those found in CTWS’ master loan agreement. Connecticut Water is required to maintain a debt to

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capitalization ratio of not more than 60% and an interest coverage ratio of no less than 3 to 1. As of December 31, 2020, Connecticut Water was in compliance with all covenants under its master loan agreement.

Connecticut Water has outstanding $44,310 of tax exempt and taxable Water Facilities Revenue Bonds issued through Connecticut Innovations (formerly the Connecticut Development Authority). The bond indentures and loan agreements contain customary affirmative and negative covenants and require compliance with financial and operational covenants, and also provide for the acceleration of the Revenue Bonds upon the occurrence of stated events of default. As of December 31, 2020, Connecticut Water was in compliance with all covenants of the bond indentures and loan agreements.

Connecticut Water has a $70,000 unsecured senior note that has 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 of no less than 3 to 1. As of December 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

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 on the same date 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 result in all of the notes then outstanding becoming immediately due and payable. As of December 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement.

HVWC division had a term loan with a commercial bank, due in 2034. The loan was secured by real property owned by the HVWC division. The note was paid in full on September 24, 2020.

Avon Water had a mortgage loan that was due in 2033. The note was paid in full on September 24, 2020.

SJWTX, Inc. has an outstanding $15,000 senior note as of December 31, 2020. The senior note agreement has terms and conditions that restrict SJWTX, Inc. from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services’ cumulative net income, since December 31, 2005. As of December 31, 2020, SJWTX, Inc. and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

Maine Water has outstanding $18,651 of First Mortgage Bonds issued to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund and $3,600 of First Mortgage Bonds issued to One America as of December 31, 2020. 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%, an interest coverage ratio of no less than 3 to 1, a dividend restriction where cumulative dividends paid since 1993 can not exceed cumulative net income since 1982 plus $120, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default. As of December 31, 2020, Maine Water was in compliance with all covenants in its bond indentures and related loan agreements.

On December 23, 2020, Maine Water issued $4,000 of Series T First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund. The Series T bonds mature on October 1, 2041 and carry 1% interest. The Series T First Mortgage Bond covenants are the same as all other First Mortgage Bonds. The proceeds of the Series T bond issuance are represented as restricted cash on the Consolidated Balance Sheets at December 31, 2020. The restricted cash will 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.

Maine Water has outstanding term loans with a commercial bank in an aggregate amount of $17,500 as of December 31, 2020. Under its master loan agreement, Maine Water is required to comply with financial and operational covenants substantially identical to those found in CTWS and Connecticut Water’s master loan agreements. Maine is required to maintain a debt to capitalization ratio of not more than 60%. As of December 31, 2020, Maine Water was in compliance with all covenant under its master loan agreement.

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As of December 31, 2020, SJW Group and its subsidiaries are in compliance with all of their debt covenants.

Short-term Financing Arrangements

All of SJW Group’s and subsidiaries lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes. All of the lines of credit also include certain financial covenants that require the Company to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

SJWC maintains a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”) dated June 1, 2016. The Credit Agreement provides SJWC with an unsecured credit facility with a letter of credit sublimit of $10,000. Proceeds of borrowings under the Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes. The Credit Agreement has a maturity date of June 1, 2021. On May 11, 2020, SJWC amended its unsecured line of credit to increase the lending commitment by $15,000 from $125,000 to $140,000. In addition, on May 11, 2020, SJWC entered into an additional unsecured line of credit allowing borrowings of up to $50,000 for a six month period which had a zero balance at it’s maturity on November 11, 2020.

SJW Group and SJW Land Company (collectively, the “Borrowers”), had a $15,000 credit agreement with the Lender (the “SJW Group Credit Agreement”), which provided an unsecured credit facility to the Borrowers with a letter of credit sublimit of $5,000. On April 24, 2020, SJW Group terminated the SJW Group Credit Agreement effective April 29, 2020.

In addition, SJW Group, as guarantor, and SJWTX, Inc. (the “Borrower”), entered into a $5,000 credit agreement with the Lender (the “SJWTX Credit Agreement”), which provides an unsecured credit facility to the Borrower with a letter of credit sublimit of $1,000. The SJWTX Credit Agreement matures on June 1, 2021.

CTWS had a $15,000 credit agreement with CoBank, ACB which was scheduled to expire on July 1, 2020. On May 29, 2020, CTWS entered into a Second Amendment to the CTWS’s existing $15,000 credit agreement, dated as of August 6, 2014, with CoBank, ACB (“CoBank”), as amended by the First Amendment, dated October 28, 2015. The Second Amendment amends the prior agreement to, among other things, increase the total commitment by $25,000, from $15,000 to $40,000. The $40,000 line of credit expires on May 15, 2025. CTWS also maintained an additional credit agreement of $95,000 with RBS Citizens, N.A., which was reduced to $75,000 on March 1, 2020, with a final maturity on December 14, 2023. Borrowings under this credit agreement bear interest at the daily LIBOR rate, plus 100 basis points as of December 31, 2020.

As of December 31, 2020, SJW Group and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $260,000. At December 31, 2020, the total amount available under these lines of credits was $84,906. The cost of borrowing on SJW Group’s short-term credit facilities has averaged 1.78% as of December 31, 2020. As of December 31, 2020, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit.

CTWS Merger Financing Arrangements

In December 2018, SJW Group received net proceeds of approximately $358,256 from the sale of 6,750,000 shares of common stock in a public offering pursuant to an effective shelf registration and received net proceeds of approximately $53,738 from the sale of an additional 1,012,500 shares of common stock, in each case after deducting the underwriting discounts and commissions and estimated offering expenses payable by SJW Group. Prior to the close of the merger with CTWS, the company invested the net offering proceeds in money-market funds.

Funding for SJW Group’s all-cash merger with CTWS which closed on October 9, 2019 was provided through proceeds from the company’s equity offering in December 2018 and the debt financing in October 2019, existing cash balances and cash flow from operations. SJW Group had previously received a financing commitment letter from lenders, including JPMorgan Chase Bank, N.A., Barclays Bank PLC, Royal Bank of Canada and UBS AG, Stamford Branch to provide a senior unsecured bridge loan facility of up to $975 million in the event that SJW Group was unable to secure other financing for the merger at or prior to the time the merger is completed. Subsequent to the net proceeds received by SJW Group from the public offering of common stock in 2018, the facility commitment was reduced to $563 million. On October 9, 2019, the commitment was terminated in connection with the closing of the merger and no amount was funded under such commitment.

Off-Balance Sheet Arrangement/Contractual Obligations

SJW Group has no significant contractual obligations not fully recorded on its Consolidated Balance Sheet or not fully disclosed in the Notes to Consolidated Financial Statements.

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SJW Group’s contractual obligations and commitments as of December 31, 2020 are as follows:

Total Contractual Obligations Due in

Less than1 Year 1-3Years 3-5Years After5 Years

___________________________________

(1) As of December 31, 2020, advances for construction was $125,027 of which $29,117 was related to non-refundable advances for construction and $28,456 was related to advances which are refundable based on service connections made.

In regards to uncertain tax positions, we are unable to predict the timing of tax settlements as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation. For further discussion on uncertain tax positions, please see Note 5 of “Notes to Consolidated Financial Statements.”

SJWC purchases water from Valley Water under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with Valley Water. For the years ended December 31, 2020, 2019 and 2018, SJWC purchased from Valley Water 21,269 million gallons ($96,212), 21,862 million gallons ($96,285) and 21,345 million gallons ($87,702), respectively, of contract water. On June 22, 2020, Valley Water Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 10% through June 30, 2021. Based on current prices and estimated deliveries, SJWC is committed to purchase from Valley Water a minimum of 90% of the reduced delivery schedule, or 19,794 million gallons ($89,539) of water at the current contract water rate of $4.5 per million gallons in the year ending December 31, 2020. Additionally, SJWC purchases non-contract water from Valley Water on an “as needed” basis if the water supply is available. The contract water rates for SJWC are determined by Valley Water. These rates are adjusted periodically and coincide with Valley Water’s fiscal year, which ends on June 30. The contract water rate for Valley Water’s fiscal years 2021, 2020 and 2019 was $4.5, $4.5 and $4.3 per million gallons, respectively.

SJWC also pumps water from the local groundwater basin. There are no delivery schedules or contractual obligations associated with the purchase of groundwater. Valley Water determines the groundwater extraction charge and it is applied on a per unit basis. In addition to the Valley Water groundwater extraction charge, SJWC also incurs power costs to pump the groundwater from the basin.

Connecticut Water has an agreement with the South Central Connecticut RWA to purchase water from RWA. The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of fifty years upon becoming effective. Connecticut Water will pay RWA seventy-five dollars per year as part of a capacity agreement, for a total of 14 years, starting on the effective date of the agreement. In addition, Connecticut Water has the option, but is under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement ($2.621 per million gallons as of December 31, 2020). Connecticut Water has an agreement with the MDC to purchase water from MDC to serve the Unionville system. The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service. Connecticut Water has agreed to purchase 283 million gallons of water annually from MDC. The rate charged by the MDC at December 31, 2020 were $3.97 per hundred cubic feet.

Maine Water has an agreement with the Kennebec Water District for potable water service. The agreement has been in place for 20 years and was extended on November 7, 2020 for a new term of up to 20 years. Maine Water guarantees a minimum consumption of 50 million gallons of water annually.Water sales to Maine Water are billed at a wholesale discount of $0.20 per hundred cubic feet of water below KWD's tariffed rates. The current tariff rate was $1.51 per hundred cubic feet as of December 31, 2020.

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CLWSC has long-term contracts with the GBRA. The agreements expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 6,900 acre-feet per year of water supply from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided GBRA gives CLWSC a 60-day written notice on the proposed adjustment. CLWSC also has raw water supply agreements with the LCRA and WTPUA expiring in 2059 and 2046, respectively, for 250 acre-feet of water per each agreement per year from Lake Austin and the Colorado River, respectively, at prices that may be adjusted periodically by the agencies.

SJWC and CTWS sponsor noncontributory defined benefit pension plans and provide health care and life insurance benefits for retired employees. In 2020, SJWC and CTWS contributed $16,609 and $675 to the pension plan and other postretirement benefit plan, respectively. In 2021, SJWC and CTWS expect to make required and discretionary cash contributions of up to $8,481 to the pension plans and other postretirement benefit plans. The amount of required contributions for years thereafter is not actuarially determinable.

SJWC’s other benefit obligations include employees’ and directors’ postretirement benefits, an Executive Supplemental Retirement Plan, Cash Balance Executive Supplemental Retirement Plan, Special Deferral Election Plan and Deferral Election Program for non-employee directors. Under these benefit plans, SJWC is committed to pay approximately $735 annually to former officers and directors. Future payments may fluctuate depending on the life span of the retirees and as current officers and executives retire.

CTWS’s other benefit obligations include employees’ postretirement benefits, supplemental executive retirement agreements and deferred compensation agreements and plan. Future payments may fluctuate depending on the contribution rates of employees into the deferred compensation plan and the life span of the retirees and as current officers and executives retire. Under these benefit plans, CTWS is committed to pay approximately $842 annually to former officers and directors.

444 West Santa Clara Street, L.P.

SJW Land Company owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P., a real estate limited partnership. A real estate development firm owns the remaining 30% limited partnership interest. A commercial building was constructed on the property of 444 West Santa Clara Street, L.P. and was leased to an international real estate firm and was sold in 2017. SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P. as a variable interest entity within the scope of ASC Topic 810. The limited partnership interest is expected to dissolve in 2021.

Recently Adopted Accounting Policies and New Accounting Pronouncements

See Note 1 of “Notes to Consolidated Financial Statements” for a discussion of recently adopted accounting policies and new accounting pronouncements for the year ended December 31, 2020.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

SJW Group is subject to market risks in the normal course of business, including changes in interest rates, pension plan asset values, and equity prices. The exposure to changes in interest rates can result from the issuance of debt and short-term funds obtained through the company’s variable rate lines of credit. SJWC and Connecticut Water sponsor noncontributory pension plans for its employees. Pension costs and the funded status of the plan are affected by a number of factors including the discount rate, mortality rates of plan participants, investment returns on plan assets, and pension reform legislation.

SJW Group has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk.

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Item 8.Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

of SJW Group:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of SJW Group and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). We have also audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO).

In our opinion, the 2020 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on these financial statements and an opinion on Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

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expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impact of Rate Regulation on the Financial Statements — Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s water and wastewater services. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized principles to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, including depreciable utility plant; regulatory assets and liabilities; operating revenue; maintenance expense; and depreciation and amortization expense.

The Commissions establish rates for the purpose of permitting the recovery of the cost of service and a return on investment. The Company’s rates are subject to regulatory ratemaking processes. The Company records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of the Company through the ratemaking process.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s financial statement line items and disclosures impacted by rate regulation and the high degree of subjectivity involved in assessing the impact of regulatory decisions on the financial statements. Management judgments include considering evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances and assessing the probability of (1) recovery in future rates of incurred costs and (2) the requirement to refund amounts to customers. Given that management’s accounting judgments are based on consideration of evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, and uncertain outcome of future regulatory decisions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities and pervasive impact on the financial statements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the consideration of evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, and the uncertain outcome of future regulatory decisions, that may impact the Company’s financial statement line items and disclosures impacted by rate regulation, among others:

•We tested the effectiveness of management’s controls over the initial recognition of amounts as utility plant and regulatory assets or liabilities and the evaluation of the probability of (1) the recovery in future rates of costs incurred as utility plant and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or of a future reduction in rates.

•We read regulatory orders issued by the Commissions to the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to evaluate management’s

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determination of the accounting impacts of any new or revised regulatory decisions and their impact on measurement of related regulatory assets and liabilities.

•We obtained supporting documentation from management regarding the evidence, such as regulatory rules and decisions, past practices, and other facts and circumstances, used in the measurement of regulatory assets and liabilities for compliance with the related orders. We reconciled the underlying data or inputs used in the measurement to rate decisions approved by the Commissions and tested the mathematical accuracy of the calculations.

•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded, and regulatory developments, were appropriate and consistent with the information obtained in our procedures.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

March 1, 2021

We have served as the Company’s auditor since 2020.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

SJW Group:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of SJW Group and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2019 and 2018, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We served as the Company’s auditor from 1933 to 2020.

Santa Clara, California

March 2, 2020, except for Schedule I, as to which the date is March 1, 2021.

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SJW Group and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

December 31,

Assets

Utility plant:

Less accumulated depreciation and amortization 14,783 13,597

Current assets:

Cash and cash equivalents:

Accounts receivable:

Current regulatory assets, net 1,748 6,472

Other assets:

See Accompanying Notes to Consolidated Financial Statements.

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SJW Group and Subsidiaries

CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands, except share and per share data)

December 31,

Capitalization and Liabilities

Capitalization:

Stockholders’ equity:

Accumulated other comprehensive (loss) income (1,064) 126

Current liabilities:

Accrued groundwater extraction charges, purchased water and power 19,184 17,211

Commitments and contingencies — —

See Accompanying Notes to Consolidated Financial Statements.

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SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31 (in thousands, except share and per share data)

Operating expense:

Production Expenses:

Other (expense) income:

Unrealized loss on equity investments — — (527)

Gain on sale of equity investments — — 104

Gain on sale of real estate investments 948 929 —

Interest income on money market fund — 6,536 155

Less net income attributable to the noncontrolling interest — 224 —

Other comprehensive income:

SJW Group earnings per share

Weighted average shares outstanding

See Accompanying Notes to Consolidated Financial Statements.

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SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

Number ofShares Amount

Issuance of restricted and deferred stock units 95,053 — (4,057) — — — (4,057)

Distribution to noncontrolling interest — — — — — (224) (224)

Unrealized income on investment, net of tax effect of $43 — — — — 117 — 117

Adjustment to pension benefit plans, net of taxes of $22 — — — — 9 — 9

Share-based compensation related to business combination — — 6,384 — — — 6,384

Issuance of restricted and deferred stock units 21,909 — (110) — — — (110)

Common stock issuance cost — — (10) — — — (10)

Unrealized loss on investment, net of tax effect of $247 — — — — (310) — (310)

Issuance of restricted and deferred stock units 68,347 1 (1,864) — — — (1,863)

See Accompanying Notes to Consolidated Financial Statements.

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SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31 (in thousands)

Operating activities:

Gain on sale of real estate investments (948) (929) —

Allowance for equity funds used during construction (1,249) — —

Other non-cash, net — 20 414

Accounts payable and other current liabilities (357) 1,946 2,130

Up-front service concession payment (5,000) — —

Other noncurrent assets and noncurrent liabilities 751 7,439 1,923

Investing activities:

Additions to utility plant:

Additions to real estate investment (435) (137) (123)

Payments for business/asset acquisition and water rights — (835,465) (2,496)

Cost to retire utility plant, net of salvage (2,556) (5,026) (3,909)

Proceeds from sale of real estate investments and utility property 1,151 745 —

Proceeds from sale of equity investments — — 4,112

Financing activities:

Long-term borrowings held as restricted cash 4,000 5,000 —

Repayments of long-term borrowings (28,931) (1,400) —

Issuance of common stock, net of issuance costs — (10) 411,385

Cash, cash equivalents and restricted cash, end of year 9,269 17,944 420,722

Less restricted cash, end of year 4,000 5,000 —

Cash paid during the year for:

Supplemental disclosure of non-cash activities:

See Accompanying Notes to Consolidated Financial Statements.

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SJW GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2020, 2019 and 2018

(Dollars in thousands, except share and per share data)

Note 1.Summary of Significant Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of SJW Group, its wholly owned subsidiaries, and two variable interest entities in which two SJW Group subsidiaries are the primary beneficiaries. The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators. All intercompany transactions and balances have been eliminated in consolidation. The accounting policies of SJW Group’s subsidiaries comply with the applicable uniform system of accounts prescribed by the respective regulators and conform to generally accepted accounting principles for rate-regulated public utilities. SJW Group’s subsidiaries are as follows:

San Jose Water Company (“SJWC”), is a regulated California water utility providing water service to approximately 231,000 connections that serve approximately one million people in the greater metropolitan San Jose area. Approximately 93% of SJWC’s revenues are derived from the sale of water to residential and business customers.

SJWNE is a special purpose entity holding company for SJW Group’s investment in Connecticut Water Service, Inc. (“CTWS”) which was acquired on October 9, 2019. CTWS, headquartered in Connecticut, is a holding company for water utilities companies providing water service to approximately 139,000 connections that serve a population of approximately 485,000 people in 81 municipalities throughout Connecticut and Maine and more than 3,000 wastewater connections in Southbury, Connecticut. As part of the merger transaction between SJW Group and CTWS on October 9, 2019, CTWS became a wholly-owned subsidiary of SJWNE LLC which is a wholly-owned subsidiary of SJW Group (see, Note 12, “Business Combinations”). The subsidiaries held by CTWS that provide utility water services are The Connecticut Water Company (“Connecticut Water”) and The Maine Water Company (“Maine Water”). The remaining two subsidiaries are Chester Realty, Inc., a real estate company in Connecticut, and New England Water Utility Services, Inc. (“NEWUS”), which provides contract water and sewer operations and other water related services. Effective September 30, 2020, The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) merged into Connecticut Water after receiving the merger approval from the Connecticut Public Utilities Regulatory Authority (“PURA”).

SJWTX, Inc. is incorporated in the State of Texas and is doing business as Canyon Lake Water Service Company (“CLWSC”). CLWSC is a public utility in the business of providing water service to approximately 59,000 people. CLWSC’s service area comprises more than 247 square miles in the southern region of the Texas Hill Country in Blanco, Comal, Hays and Travis counties, the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company owns a commercial property and undeveloped real estate property in the states of California and Tennessee and owns and operates commercial properties in the state of Tennessee. SJW Land also has a 70% limited partnership interest in 444 West Santa Clara Street, L.P. 444 West Santa Clara Street, L.P. has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary. As a result, 444 West Santa Clara Street L.P. has been consolidated with SJW Land Company. In 2017, 444 West Santa Clara Street, L.P. sold all of its interests in the commercial building and land the partnership owned and operated. The limited partnership is expected to dissolve in 2021. Results of operations and balances of the non-controlling interest are not material to the consolidated financial statements (see below in Note 1, “Real Estate Investments”).

Recently Adopted Accounting Principles

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ASU 2016-13 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 the consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20: “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” which aims to improve the overall usefulness of disclosure to financial statement users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures. This update was effective for SJW Group’s Form 10-K for the year ending December 31, 2020. Retrospective adoption is required and early adoption is permitted. The adoption of ASU 2018-14 did not have a material impact on the condensed consolidated financial statements.

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New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes”, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This update is effective for fiscal years beginning after December 15, 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. Management is currently evaluating the impacts of the provisions of ASU 2019-12 on the consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Depreciable Utility Plant and Equipment

The major components of depreciable plant and equipment as of December 31, 2020 and 2019 are as follows:

Depreciation is computed using the straight-line method over the estimated remaining service lives of groups of assets. The estimated service lives of depreciable plant and equipment are as follows:

Useful Lives

Equipment 5 to 35 years

Transmission and distribution plant 35 to 75 years

Office buildings and other structures 7 to 50 years

For the years 2020, 2019 and 2018, depreciation expense as a percent of the beginning of the year balance of depreciable plant was approximately 3.2%, 3.8% and 3.6%, respectively. Depreciation expense for utility plant for the years ended December 31, 2020, 2019 and 2018 was $86,823, $63,785 and $53,031, respectively. For the years 2020, 2019 and 2018, the amounts allocated to administrative and general expense were $2,343, $2,869 and $2,306, respectively. The cost of utility plant retired, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized.

Allowance For Funds Used During Construction (“AFUDC”)

AFUDC represents the capitalized costs of borrowed funds or a return on equity funds used to finance utility plant under construction and is capitalized as part of construction work in progress. AFUDC is recorded to the extent approved by the respective states’ utility regulators and is recovered through water rates as the utility plant depreciates. The amount of interest capitalized in 2020, 2019 and 2018 was $4,133, $4,323 and $2,856, respectively. Interest on long-term debt is presented net of amounts capitalized on the Consolidated Statement of Comprehensive Income. The amount of equity funds capitalized in 2020 was $1,249, reflected in “Other, net” on the Consolidated Statement of Comprehensive Income. Prior to the merger with CTWS on October 9, 2019, SJW Group did not have AFUDC for equity funds.

Intangible Assets

Intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful life of the asset, ranging from 5 to 70 years (see Note 6, “Utility Plant Intangible Assets”).

Real Estate Investments

Real estate investments are recorded at cost and consist primarily of land and buildings. Net gains and losses from the sale of real estate investments are recorded as a component of other (expense) income in the Consolidated Statements of Comprehensive Income. Nonutility property in Water Utility Services is also classified in real estate investments. Nonutility property is property that is neither used nor useful in providing water utility services to customers and is excluded from rate base for rate-setting purposes. SJWC recognizes gain/loss on disposition of nonutility property in accordance with California

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Public Utilities Commission (“CPUC”) Code Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to customers. CTWS and CLWSC do not have regulatory restrictions on the use of proceeds from the sale of nonutility property. There is no depreciation associated with Water Utility Services nonutility property as it is all undeveloped land.

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

Depreciation on buildings and improvements for real estate investments is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years.

On September 28, 2020, SJWC sold six nonutility properties located in Los Gatos, California for $1,075. SJW Group recognized a pre-tax gain on the sale of real estate investments of $1,048, after selling expenses of $22.

During the year ended December 31, 2020, Maine sold various nonutility properties for a total of $143. SJW Group recognized a pre-tax loss on the sale of real estate investments of $100, after selling expenses of $45.

On December 19, 2019, Maine Water completed the second half of a previously announced land sale with the Coastal Mountains Land Trust, Maine nonprofit corporation. The transaction was structured such that Maine Water sold a conservation easement valued at $1,200 for $600. Accordingly, Maine Water expects to claim a $600 charitable deduction for federal and state income tax purposes on the bargain sale. The MPUC has previously ruled that the net proceeds from the transaction will be shared equally between the customers of the Camden Rockland division and Maine Water. The transaction generated approximately $180 in pre-tax gain on sale of nonutility property at Maine Water. Additionally, Connecticut Water disposed of a small parcel of land generating an additional $4 in pre-tax gain on sale of nonutility property.

On April 22, 2019, all creek repairs were completed for a commercial building and land SJW Land sold in 2017 and a reimbursement of $745 was provided to a SJW Land partnership. SJW Land Company and the noncontrolling interest recognized a pre-tax gain on the creek reimbursement of $521 and $224, respectively, on the transaction.

Real estate investments include $57,273 and $56,839 as of December 31, 2020 and 2019, respectively, of assets that are leased or available for lease. The following schedule shows the future minimum rental payments to be received from third parties under operating leases that have remaining noncancelable lease terms in excess of one year as of December 31, 2020:

Year ending December 31: Rental Revenue

Business Combinations

SJW Group applies the provisions of ASC Topic 805—“Business Combinations” for the purchase accounting related to the merger with CTWS on October 9, 2019. Topic 805 requires SJW Group to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While SJW Group used our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates were inherently uncertain and subject to refinement. As a result, during the one year measurement period from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments were recorded to our Consolidated Statements of Comprehensive Income. Accounting for business combinations requires SJW Group to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies. Although SJW Group believes that the assumptions and estimates we make are reasonable and appropriate, they are based in part on historical experience and information obtained from CTWS’s management

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and are inherently uncertain. Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets. Although SJW Group believes the assumptions and estimates made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to: future expected cash flows from services; historical and expected customer attrition rates and anticipated growth in revenue from acquired customers; the expected use of the acquired assets; and discount rates. See Note 12, “Business Combination” for further discussion on the CTWS transaction.

Impairment of Long-Lived Assets and Goodwill

In accordance with the requirements of FASB ASC Topic 360—“Property, Plant and Equipment,” the long-lived assets of SJW Group are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values of the assets. When such changes in circumstances or events occur, the company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. To the extent an impairment exists, the asset is written down to its estimated fair value with a corresponding charge to operations in the period in which the impairment is identified. Long-lived assets consist primarily of utility plant in service, goodwill, regulatory assets, real estate investments and intangible assets. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. No impairments occurred during 2020, 2019 or 2018.

Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying amount. SJW Group first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJW Group considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJW Group determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. SJW Group’s goodwill is primarily associated with the recent merger with CTWS on October 9, 2019. As of October 1, 2020, SJW Group performed a qualitative assessment and found no indicators of impairment and therefore did not perform the quantitative impairment test.No impairments occurred during 2020, 2019 or 2018.

Cash and Cash Equivalents, and Restricted Cash

Cash and cash equivalents primarily consist of cash on deposit with banks with maturities of three months or less from the date of purchase. Restricted funds consist of proceeds from a Maine state revolving fund bond issuances to Maine Water of $5,000 and $4,000 on December 19, 2019 and December 23, 2020, respectively for capital expenditures. Proceeds are held by a trustee for the bonds and as funding conditions are met, funds are released. In the first quarter of 2020, all the proceeds from the December 19, 2019 bond were released by the trustee.

Financial Instruments and Investments

The following instruments are not measured at fair value on the company’s consolidated balance sheets but, require disclosure of fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments approximates their carrying value as reported on the 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. 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 long-term debt is discussed in Note 4, “Long-Term Debt” and pension plan assets in Note 9, “Benefit Plans”.

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 “Other investments” on SJW Group’s consolidated balance sheets. As of December 31, 2020 and 2019, the value of the company owned life insurance was $8,026 and $7,086, respectively, of which $4,311 and $3,829, respectively, was related to assets to fund CTWS’ supplemental retirement plan agreements. See discussion on pension plans in Note 9, “Benefit Plans”.

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Regulatory Rate Filings

California Regulatory Affairs

SJWC’s rates, service and other matters affecting its business are subject to regulation by the CPUC.

Generally, there are three types of rate adjustments that affect SJWC’s revenue collection: general rate adjustments, cost of capital adjustments, and offset rate adjustments. General rate adjustments are authorized in general rate case decisions, which usually authorize an initial rate adjustment followed by two annual escalation adjustments. General rate applications are normally filed and processed during the last year covered by the most recent general rate case as required by the CPUC in order to avoid any gaps in regulatory decisions on general rate adjustments.

Cost of capital adjustments are rate adjustments resulting from the CPUC’s usual tri-annual establishment of a reasonable rate of return on equity and average cost of borrowing on debt incurred for SJWC’s capital investments.

The purpose of an offset rate adjustment is to compensate utilities for changes in specific pre-authorized offsettable capital investments or expenses, primarily for purchased water, groundwater extraction, purchased power and pensions. Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for which such revenue offsets have been authorized. Memorandum accounts 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 during periods of mandated water restrictions, water tariffs and other approved activities or as directed by the CPUC. The purpose of a balancing and memorandum account is to track the under-collection or over-collection associated with such expense changes and activities for future recovery consideration.

On April 10, 2020, SJWC filed Application No. 20-04-009 seeking authorization to issue $300,000 in new debt and $50,000 in new equity. A final decision authorizing our financing application was approved on November 19, 2020.

On January 22, 2020, SJWC, along with three other California water utilities, filed a joint request for a one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2020. Postponing the filing one year would alleviate 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 was conditioned on no changes to the current Water Cost of Capital Mechanism in place during the one-year deferment. On March 11, 2020, the CPUC approved the request.

On March 17, 2020, the CPUC ordered its regulated water utilities to halt customer disconnection activities in connection with the COVID-19 pandemic. On April 2, 2020, Governor Gavin Newsom issued Executive Order N-42-20 suspending customer disconnection activities until further notice. On April 16, 2020, the CPUC issued Resolution M-4842 directing utilities to implement emergency customer protections to assist customers such as waiving reconnection deposits, offering payment arrangements, and suspending disconnections for nonpayment. This resolution is effective for up to one year, or April 15, 2021, with the option to extend. On February 11, 2021, the CPUC approved extending customer protections required in Resolution M-4842 through June 30, 2021, through approval of Resolution M-4849 . The resolution also requires water utilities to develop a transition plan regarding shutoffs and terminations with customers once the moratorium ends. SJWC is currently working on such plan.

On March 19, 2020, SJWC filed Advice Letter 546 to extend customer protections listed in the company’s Disaster Relief Customer Protections and Outreach Plan as required by the CPUC in response to the COVID-19 pandemic. The filing also activated SJWC’s Catastrophic Event Memorandum Account (“CEMA”) to track costs related to SJWC’s response which includes labor and materials, increases in bad debt from the suspension of shutoffs for non-payment, waived deposits and reconnection fees, and divergence from actual versus authorized usage. The customer protections and CEMA were approved effective March 4, 2020. SJWC anticipates requesting recovery of the COVID-19 pandemic response costs in a future general rate case or other filings.

On January 4, 2021, SJWC filed General Rate Case Application No. 21-01-003 requesting authority for an increase of revenue of $51,585 or 13.35% in 2022, $16,932 or 3.88% in 2023, and $19,195 or 4.24% in 2024. The application also includes requests to recover $18,499 from balancing and memorandum accounts, authorization for a $435,000 capital budget, further alignment between actual and authorized usage, and a shift to greater revenue collection in the service charge. The application will undergo a year-long review process and the new rates, if approved, are expected to be effective January 1, 2022.

On January 5, 2021, SJWC, along with three other California water utilities, filed a joint request for another one-year deferment on the Cost of Capital filings which would otherwise be due on May 1, 2021. Postponing the filing another year would alleviate 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 and COVID-19. The request is conditioned on no changes to the

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current Water Cost of Capital Mechanism in place during the one-year deferment. The request was denied on February 22, 2021.

Connecticut Regulatory Affairs

Connecticut Water’s rates, service and other matters affecting its business are subject to regulation by the Public Utilities Regulatory Authority of Connecticut (“PURA”). The Connecticut regulated operations seek rate relief as necessary to enable it to achieve an authorized rate of return.

PURA allows the Connecticut regulated operations to add surcharges to customers’ bills in order to recover certain costs associated with approved eligible capital projects through the Water Infrastructure Conservation Adjustment (“WICA”) in between full rate cases, as well as approved surcharges for the Water Revenue Adjustment (“WRA”).

Connecticut Water and the HVWC division mitigate the risk associated with changes in demand through a PURA approved WRA mechanism. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case. The WRA removes the financial disincentive for water utilities to develop and implement effective water conservation programs. The WRA allows water companies to defer on the balance sheet, as a regulatory asset or liability, for later collection from or crediting to customers the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings, including WICA proceedings. Projects eligible for WICA surcharges include certain types of aging utility plant, primarily water mains, meters, and service lines. Additionally, certain energy conservation projects, improvements required to comply with streamflow regulations, and improvements to acquired systems are eligible for WICA surcharges.

As of December 31, 2020, WICA surcharges for Connecticut Water and the Avon Water division were 5.75% and 9.31%, respectively. The HVWC division did not have an approved WICA surcharge. On January 28, 2020, Connecticut Water filed a WICA application representing an additional 2.6% surcharge, for a cumulative WICA surcharge of 5.84%. Additionally, on February 7, 2020, Connecticut Water and the Avon Water division separately filed their annual WICA reconciliations which called for 0.09% and 0.05% reductions of the WICA surcharges, respectively. On March 25, 2020, in separate decisions, PURA approved a net cumulative 5.75% surcharge for Connecticut Water and a net cumulative 9.26% WICA surcharge for the Avon Water division, both of which became effective on customers’ bills on April 1, 2020. On October 28, 2020, Connecticut Water filed a WICA application representing an additional 1.11% surcharge or approximately $956 increase in revenues, for a cumulative WICA surcharge of 6.94% which is scheduled to become effective April 1, 2021.

On January 15, 2021, Connecticut Water filed an application with PURA to amend rates for its customer, including those of former AWC and HVWC companies. The filing requests an increase of $20,206 in annual revenues that includes more than $265,514 in completed infrastructure investments that are not currently in approved rates and surcharges. The proposed increase will be applied across the company but may differ by rate divisions, meter size and between customer rate categories, i.e. for residential, commercial, industrial, etc. users. The application also reflects the costs of operating and maintaining the utility, including expenditures on power and treatment additives that have increased since the company’s last general rate case in 2010. PURA has 200 days from the filing to review the application, and the approved rates will go into effect soon thereafter.

On March 12, 2020, PURA issued Docket No. 20-03-15 to establish a State of Emergency Utility Shut-off Moratorium for the COVID-19 pandemic. The moratorium ordered regulated utility companies to refrain from terminating utility service to residential customers, except for safety reasons until August 1, 2020, or until such other time as determined by the PURA. The moratorium was extended through October 1, 2020 at which time the company was permitted to resume standard collection practices until or unless there is further action by PURA. In the same docket, PURA directed the public service companies to offer COVID-19 payment plans for the duration of the Governor’s Emergency Order (currently through April 20, 2021), and allow customers up to 24 months for payment arrangements on their water bills. The docket directs the public service companies to maintain a detailed record of costs incurred and revenues lost as a result of implementing its orders in the docket and allows for the establishment a regulatory asset to track incurred costs. Approval for recovery of additional costs incurred and/or revenues lost relating to the COVID-19 pandemic would be considered for recovery in the Connecticut Water’s next general rate case proceeding.

Texas Regulatory Affairs

CLWSC’s rates are subject to the economic regulation of the Public Utilities Commission of Texas (“PUCT”). The PUCT authorize rate increases after the filing of an Application for a Rate/Tariff Change. Rate cases may be filed as they become necessary, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months.

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Maine Regulatory Affairs

Maine Water’s rates, service and other matters affecting its business are subject to regulation by the Maine Public Utilities Commission (“MPUC”). As with the Connecticut regulated operations, rate relief is sought as necessary to enable the company to achieve an authorized rate of return. MPUC approves Maine Water’s rates on a division-by-division basis in Maine and allows Maine Water to add surcharges to customers’ bills in order to recover certain costs associated with capital projects through the Water Infrastructure Surcharge (“WISC”) in between general rate cases.Projects eligible for WISC surcharges include all infrastructure replacement or repair projects, excluding meters, that are necessary for the transmission, distribution or treatment of water.

In 2015, a WRA mechanism law in Maine became available to regulated water utilities. Maine’s rate-adjustment mechanism could provide revenue stabilization in divisions with declining water consumption and Maine Water expects to request usage of this mechanism in future rate filings when consumption trends support its use.

On January 20, 2020, Maine Water filed Water Infrastructure Surcharge (“WISC”) applications with the MPUC in four divisions requesting an increase between 1.76% and 3.00%, representing approximately $371 in additional revenues. The WISC application was approved on February 26, 2020 and the surcharges were effective March 1, 2020.

On March 16, 2020, MPUC issued an emergency moratorium on utility disconnection activities in connection to the COVID-19 pandemic. The moratorium directed public utility companies not to engage in any disconnection activities including disconnection notices for all classes of customers until further notice from MPUC. Maine Water is tracking COVID-19 related costs for potential future recovery in rates charged to customers. On September 17, 2020, the MPUC issued an order lifting the moratorium on utility disconnections in Maine effective November 1, 2020. The Order requires specific notifications by utilities to their customers prior to resuming disconnection activities and requires a waiver of late payment fess for customers who enter into payment arrangements on or before December 31, 2020. Maine Water is providing customer notices as required and resumed utility disconnections in November, 2020.

On November 23, 2020, Maine Water filed WISC applications with the MPUC in five divisions requesting an increase of between 1.1% and 5%, representing approximately $304 in additional revenues.The WISC applications were approved on December 15th and 22nd, 2020 and the surcharges became effective January 1, 2021.

Balancing and Memorandum Accounts

In California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the 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.

CPUC approved Advice Letter No. 548A for the recovery of the Hydro Generation Research, Development and Demonstration Memorandum Account (“PRVMA”) on August 27, 2020. Advice Letter No. 548A allowed recovery of $1,219 which was recognized as a regulatory asset for the year ended December 31, 2020. The amounts have been reflected in the PRVMA balances shown in the table below.

In response to the California Governor’s Emergency Declaration on March 4, 2020, CPUC Resolution M-4842 authorized water utilities to activate a COVID-19 CEMA with the same effective date. The CEMA was activated for SJWC through the filing of Advice Letter 546 on March 19, 2020. The account tracks savings and costs from COVID-19 related activities as well as uncollectibles beyond the authorized bad debt in the general rate case. SJWC has determined that future recovery of the account is probable and recognized regulatory assets of $2,266 in the COVID-19 CEMA for the year ended December 31, 2020. The amounts have been reflected in the CEMA balances shown in the table below.

On December 19, 2019, the CPUC denied the recovery of the 2018 Water Conservation Memorandum Account (“WCMA”) in Advice Letter No. 532 and no longer approved the tracking of WCMA balances. Due to the decision, SJWC determined it no longer met the probability criteria under ASC Topic 980-605-25 for the 2018 WCMA and recognized a reduction to regulatory assets of $9,386 for the year ended December 31, 2019.

As a result of the current status of the CPUC filing for the 2018 WCMA above, SJW Group also eliminated the regulatory asset balance for its 2019 WCMA as of December 31, 2019. As of December 31, 2019, $639 in lost revenues had accumulated in the 2019 WCMA.

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SJWC recognized regulatory assets of $1,182 due to lost revenues accumulated in the 2017 WCMA account which represented the relief of the $1,169 reserve and interest earned on the balance during the year ended December 31, 2018. The reserve had represented the estimated amount that may not be collected within the 24-month period defined in the guidance.

A cost of capital memorandum account was approved by the CPUC on March 14, 2018. The account tracks the difference between current water rates and the lower rates adopted in the cost of capital decision issued on March 22, 2018. SJWC recorded a regulatory liability of $1,379 in the cost of capital memorandum account for the year ended December 31, 2018 with a corresponding reduction to revenue. The amount has been reflected in the 2018 cost of capital memorandum account balance shown in the table below.

The CPUC directed SJWC to establish a memorandum account to capture all of the impacts of the Tax Act including the benefit of the reduction in the federal statutory income tax rate from 35% to 21% on its regulated revenue requirement. The CPUC has indicated that the net benefit from implementing the new law should ultimately be passed on to ratepayers. The benefits associated with regulatory activities is expected to flow back to customers as directed by the CPUC, with no impact to net income. Per Advice Letter 522A filed with the CPUC, the benefit of the reduction in the federal statutory income tax rate from 35% to 21% were reflected in the customer bills effective July 1, 2018. As such, the tax memorandum account only includes the benefit of the reduction in the federal statutory income tax rate through June 30, 2018. The other impacts of the Tax Act were recorded in the tax memorandum account for the entire year. Accordingly, SJWC recorded a regulatory liability of $6,504 in the tax memorandum account for the for the year ended December 31, 2018 with a corresponding reduction to revenue. The amount has been reflected in the tax memorandum account balance shown in the table below. Refunds for tax memorandum account balances began on January 27, 2020.

SJWC met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded regulatory assets, net, as follows:

For the year ended December 31, 2020

Revenue accounts:

Cost of capital memorandum accounts (1,553) (8) — (1,561)

Cost-recovery accounts:

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For the year ended December 31, 2019

Revenue accounts:

Cost of capital memorandum accounts (1,523) (30) — (1,553)

Cost-recovery accounts:

As of December 31, 2020, the total balance in SJWC’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $1,586.

On December 28, 2018, SJWC’s GRC with the CPUC was approved with new rates effective on January 1, 2019. As part of the GRC decision, $27,045 of balancing and memorandum accounts were also approved for recovery over a 12-month period at $0.5894 per centum cubic feet surcharge effective on January 1, 2019. For the year ended December 31, 2020 and 2019, SJWC collected $151 and $25,108, respectively, in surcharges for the approved recovery. Recovery of this surcharge ended in January 2020 and the remaining uncollected balance will be filed in the next general rate case.

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.

Regulatory Assets and Liabilities

Water Utility Services recognizes regulatory assets and liabilities for amounts that are deemed probable of recovery from, or refund to, customers. Determining probability requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate that recovery or refund is probable.

If the utility determined that it is no longer probable that regulatory assets would be recovered or reflected in future rates, or if the utility ceased to be subject to rate regulation, the regulatory assets would be charged against income in the period in which that determination was made. If regulatory accounting did not apply, the utility’s future financial results could become more volatile as compared to historical financial results due to the differences in the timing of expense or revenue recognition.

The company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly.

Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when it is determined that the asset is no longer probable of recovery. SJW Group continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows.

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Regulatory assets, net, are comprised of the following as of December 31:

Regulatory assets:

Income tax temporary differences, net (a) $ 6,230 2,433

Postretirement pensions and other medical benefits 95,559 73,525

Business combinations debt premium, net 22,479 25,020

Balancing and memorandum accounts, net 25,463 5,283

Less: current regulatory asset, net 1,748 6,472

Total regulatory assets, net, less current portion $ 156,482 113,945

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(a)The company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years.

(b)WRA is a Connecticut Water decoupling mechanism that qualifies as an alternative revenue program. It is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case.

(c)Other, net includes other regulatory mechanisms, accrued benefits for vacation, and asset retirement obligations that have not yet been passed through in rates.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the effect of temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

To the extent permitted by the regulators, investment tax credits resulting from utility plant additions are deferred and amortized over the estimated useful lives of the related property.

Advances for Construction and Contributions in Aid of Construction

In California, advances for construction received after 1981 are primarily refunded ratably over 40 years. In Connecticut and Maine, advances for construction are refunded as services are connected to the main, over periods not exceeding 15 years and in Texas non-refundable. Estimated refunds for the next five years and thereafter are shown below:

Estimated Refunds

As of December 31, 2020, advances for construction was $125,027 of which $29,117 was related to non-refundable advances for construction and $28,456 was related to advances which are refunded based on service connections made. As of December 31, 2020 and 2019, the fair value of the advances for construction refunded ratably over 40 years is $50,391 and $50,035, respectively.

Contributions in aid of construction represent funds received from developers that are not refundable under applicable regulations. Depreciation applicable to utility plant constructed with these contributions is charged to contributions in aid of construction.

Customer advances and contributions in aid of construction received subsequent to 1986 and prior to June 12, 1996 generally must be included in federal taxable income, except for CTWS. Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances and over the tax depreciable

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life of the related asset for contributions. Receipts subsequent to June 12, 1996 are generally exempt from federal taxable income, unless specifically prescribed under treasury regulations, including CTWS.

Advances and contributions received subsequent to 1991 and prior to 1997 are included in state taxable income, except for CTWS.

Asset Retirement Obligation

SJW Group’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects principally the retirement costs of wells and other anticipated clean-up costs, which by law, must be remediated upon retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, a regulatory asset is also recorded.

As of December 31, 2020 and 2019, the asset retirement obligation is as follows:

Discount rate 6 % 6 %

Retirement obligation, present value $ 939 942

Revenue

Management has determined that the company has principally four categories of revenues.

The first category is recognized in accordance with ASC Topic 606- “Revenue from Contracts with Customers” and represents metered revenue of Water Utility Services which includes billings to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period. SJW Group satisfies its performance obligation upon delivery of water to the customer at which time the customer consumes the benefits provided by the company. The customer is typically billed on a quarterly or bi-monthly basis after water delivery has occurred. The customer is charged both a service charge which is based upon meter size and covers a portion of the fixed costs of furnishing water to the customer and a consumption charge based on actual water usage. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. As the company has the right to bill for services that it has provided, SJW Group estimates the dollar value of deliveries during the unbilled period and recognizes the associated revenue. Actual results could differ from those estimates, which may result in an adjustment to revenue when billed in a subsequent period.

The second category is recognized in accordance with ASC Topic 980-605-25, “Alternative Revenue Programs”. Under Programs established by the CPUC and PURA, allowing for automatic adjustment of future rates, the company recognizes revenue when it is objectively determinable, probable of recovery and expected to be collected within 24 months of the year-end in which the revenue is recognized. A reserve, based on an estimate of actual usage over the recovery period, is recorded for amounts SJW Group estimates will not be collected within the 24-month period. SJW Group’s alternative revenue programs include SJWC’s WCMA and CTWS’s WRA.

•The WCMA allowed 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 recorded the lost revenue captured in the WCMA balancing accounts. In December 2019, CPUC denied SJWC’s request to recover the 2018 WCMA balance. As a result of the decision, during the year ended December 31, 2019, SJWC wrote off a total balance of $9,386 related to 2018 lost revenue and $639 related to 2019 lost revenue that was recorded in the 2018 and 2019 WCMA accounts, respectively.

•The WRA allows Connecticut Water to mitigate risk associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows companies to implement a surcharge or surcredit as necessary to recover the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings.

The third category represents the impact of other balancing and memorandum accounts and other regulatory mechanisms that are accounted for under FASB ASC Topic 980 - “Regulated Operations”. Balancing and memorandum accounts are recognized by SJWC when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process.

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The fourth category, rental income, represents lease rental income. Tenants pay monthly in accordance with lease agreements and SJW Group recognizes the income ratably over the lease term as this is the most representative of the pattern in which the benefit is expected to be derived from SJW Group’s underlying asset.

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