SJW (SJW) - 2022 Q1 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section provides SJW Group's basic identification details for its Q1 2022 Form 10-Q filing - SJW Group filed its quarterly report on Form 10-Q for the period ended March 31, 2022[2] Registrant Details | Detail | Value | | :--- | :--- | | Registrant Name | SJW GROUP | | Jurisdiction of Incorporation | Delaware | | Principal Executive Offices | 110 West Taylor Street, San Jose, CA 95110 | | Telephone Number | (408) 279-7800 | | Common Stock Trading Symbol | SJW | | Exchange Registered | New York Stock Exchange LLC | | Shares Outstanding (as of April 25, 2022) | 30,237,145 | | Filer Status | Large accelerated filer | Forward-Looking Statements Forward-Looking Statements Disclaimer and Risk Factors This section outlines the nature of forward-looking statements, emphasizing they are predictions subject to various risks, uncertainties, and assumptions - The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections, which are subject to difficult-to-predict risks, uncertainties, and assumptions[7] - Key risk factors include: - Governmental policies and regulations (rates, return on equity, capital structures) - Changes in demand for water and other services - Impact of the COVID-19 pandemic - Unanticipated weather conditions and seasonality, including climate change effects - Unexpected costs, charges, or expenses - Ability to evaluate new business investments and growth initiatives - Contamination of water supplies and infrastructure damage/failure - Risk of work stoppages and labor actions - Catastrophic events (fires, earthquakes, cyber-attacks, epidemics) - Changes in general economic, political, business, and financial market conditions - Ability to obtain financing on favorable terms - Legislative and general market and economic developments[8] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents SJW Group's unaudited condensed consolidated financial statements, including comprehensive income, balance sheets, equity changes, and cash flows Condensed Consolidated Statements of Comprehensive Income SJW Group's Q1 2022 net and comprehensive income rose significantly, driven by higher revenue and operating income Condensed Consolidated Statements of Comprehensive Income (Three months ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $124,302 | $114,785 | $9,517 | 8.3% | | Total Operating Expense | $107,713 | $101,706 | $6,007 | 5.9% | | Operating Income | $16,589 | $13,079 | $3,510 | 26.8% | | Income before income taxes | $4,804 | $1,720 | $3,084 | 179.3% | | Provision (benefit) for income taxes | $1,067 | $(896) | $1,963 | -219.1% | | NET INCOME | $3,737 | $2,616 | $1,121 | 42.8% | | Comprehensive Income | $3,556 | $2,654 | $902 | 34.0% | | Basic EPS | $0.12 | $0.09 | $0.03 | 33.3% | | Diluted EPS | $0.12 | $0.09 | $0.03 | 33.3% | | Dividends Per Share | $0.36 | $0.34 | $0.02 | 5.9% | Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets and a minor decrease in total stockholders' equity from December 31, 2021, to March 31, 2022 Condensed Consolidated Balance Sheets (as of March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Utility Plant (net) | $2,517,243 | $2,497,499 | $19,744 | | Total Current Assets | $137,935 | $134,085 | $3,850 | | Total Other Assets | $815,276 | $819,130 | $(3,854) | | TOTAL ASSETS | $3,511,876 | $3,492,395 | $19,481 | | Total Stockholders' Equity | $1,028,418 | $1,034,519 | $(6,101) | | Long-term debt, less current portion | $1,491,556 | $1,492,935 | $(1,379) | | Total Current Liabilities | $217,853 | $203,271 | $14,582 | | Total Liabilities & Capitalization | $3,511,876 | $3,492,395 | $19,481 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased slightly from December 31, 2021, to March 31, 2022, primarily due to dividends paid and an unrealized loss on investment Changes in Stockholders' Equity (Three months ended March 31, 2022) | Item | Amount (in thousands) | | :--- | :--- | | Balances, December 31, 2021 | $1,034,519 | | Net income | $3,737 | | Unrealized loss on investment, net of tax | $(181) | | Stock-based compensation | $1,532 | | Issuance of restricted and deferred stock units | $(1,269) | | Employee stock purchase plan | $1,049 | | Common stock issuance costs | $(87) | | Dividends paid ($0.36 per share) | $(10,882) | | Balances, March 31, 2022 | $1,028,418 | Condensed Consolidated Statements of Cash Flows Operating activities generated significantly more cash in Q1 2022, while cash used in investing activities slightly decreased and financing activities provided less cash Condensed Consolidated Statements of Cash Flows (Three months ended March 31) | Activity | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $45,294 | $33,376 | $11,918 | | Net Cash Used in Investing Activities | $(49,442) | $(51,940) | $2,498 | | Net Cash Provided by Financing Activities | $10,118 | $23,805 | $(13,687) | | Net Change in Cash, Cash Equivalents and Restricted Cash | $5,970 | $5,241 | $729 | | Cash and Cash Equivalents, End of Period | $17,487 | $11,406 | $6,081 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations for the unaudited condensed consolidated financial statements, covering company structure, revenue, regulatory matters, debt, and taxes Note 1. General Note 1 details SJW Group's structure as a holding company with water utility and real estate subsidiaries, explaining seasonal water sales and fair value measurements - SJW Group is a holding company with five wholly-owned subsidiaries: San Jose Water Company (SJWC), SJWNE LLC (holding company for Connecticut Water Service, Inc. (CTWS)), SJWTX, Inc., SJW Land Company, and SJW Holdings, Inc[30] - Water sales are seasonal, with higher revenue in warm, dry summer months and lower in winter months due to varying water usage[31] Revenue Streams (Three months ended March 31) | Revenue Source | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Revenue from contracts with customers | $121,777 | $112,238 | | Alternative revenue programs, net | $(1,927) | $112 | | Other balancing and memorandum accounts, net | $2,430 | $1,521 | | Other regulatory mechanisms, net | $666 | $(430) | | Rental income | $1,356 | $1,344 | | Total Revenue | $124,302 | $114,785 | - A pre-tax gain of $5,442 thousand from the sale of nonutility properties was recognized on February 15, 2022, after CPUC review[34] - The fair value of long-term debt was approximately $1,493,425 thousand as of March 31, 2022, compared to a book value of $1,530,475 thousand[36] Note 2. Regulatory Matters Note 2 details regulatory assets and liabilities, including income tax differences, postretirement benefits, and balancing/memorandum accounts that track under- or over-collections Regulatory Assets, Net (as of March 31, 2022 vs. December 31, 2021) | Regulatory Asset Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Income tax temporary differences, net | $24,309 | $22,420 | | Postretirement pensions and other postretirement benefits | $63,126 | $62,197 | | Business combinations debt premium, net | $19,302 | $19,937 | | Balancing and memorandum accounts, net | $33,800 | $38,334 | | Water Rate Adjustment | $1,512 | $2,588 | | Other, net | $9,887 | $9,145 | | Total regulatory assets, net | $151,936 | $154,621 | - Regulatory assets not earning a return totaled $85,446 thousand as of March 31, 2022, primarily including unfunded postretirement pensions and business combination debt premiums[40] - Balancing and memorandum accounts track under/over-collections for expense changes, revenue impacts from catastrophic events, water quality expenses, energy efficiency, and water conservation (WCMA)[41] Total Balancing and Memorandum Accounts (Three months ended March 31) | Account Type | Beginning Balance (2022) | Regulatory Asset Increase (Decrease) (2022) | Refunds (Collections) (2022) | Ending Balance (2022) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue Accounts | $18,451 | $2,404 | $(6,493) | $14,362 | | Total Cost-Recovery Accounts | $19,883 | $(369) | $(76) | $19,438 | | Total | $38,334 | $2,035 | $(6,569) | $33,800 | Note 3. Bank Borrowings and Long-Term Liabilities Note 3 states SJW Group's contractual obligations include senior notes, bank term loans, revenue bonds, state revolving fund loans, and customer advance deposit payments - SJW Group's contractual obligations include senior notes, bank term loans, revenue bonds, state revolving fund loans, and other obligations[43] - Advance deposit payments from customers on certain construction projects constitute an obligation of the respective subsidiaries[43] Note 4. Income Taxes Income tax expense increased significantly in Q1 2022 compared to the prior year, primarily due to discrete tax expense items, resulting in a higher effective consolidated income tax rate Income Tax Expense and Effective Rate (Three months ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Income tax expense (benefit) | $1,067 | $(896) | $1,963 | | Effective consolidated income tax rate | 22% | (52)% | 74 percentage points | - The higher effective tax rate in 2022 was primarily due to discrete tax expense items[44] - Unrecognized tax benefits were approximately $8,014 thousand as of March 31, 2022, with no significant change expected within the next 12 months[45] Note 5. Commitments and Contingencies SJW Group is involved in routine litigation but does not anticipate any pending legal proceedings to materially affect its business or financial position - SJW Group is subject to ordinary routine litigation incidental to its business[46] - No pending legal proceedings are expected to have a material effect on SJW Group's business, financial position, results of operations, or cash flows[46] Note 6. Benefit Plans SJW Group maintains noncontributory defined benefit pension plans and provides other postretirement benefits, with net periodic benefit costs decreasing in Q1 2022 - SJW Group maintains noncontributory defined benefit pension plans for eligible employees and additional retirement benefits for senior management under supplemental executive retirement plans[47][48] Net Periodic Benefit Costs (Three months ended March 31) | Cost Component | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Service cost | $2,652 | $2,735 | | Interest cost | $2,860 | $2,580 | | Expected return on assets | $(5,043) | $(4,752) | | Unrecognized actuarial loss | $1,164 | $1,780 | | Amortization of prior service cost | $4 | $12 | | Total Net Periodic Benefit Costs | $1,637 | $2,355 | - SJW Group expects to make up to $7,842 thousand in required and discretionary cash contributions to pension and other postretirement benefit plans in 2022, with no contributions made in Q1 2022[49] Note 7. Equity Plans Note 7 describes SJW Group's Incentive Plan and Employee Stock Purchase Plan (ESPP), with increased compensation costs charged to income in Q1 2022 - The Incentive Plan allows SJW Group to provide equity interests to employees, board members, consultants, and advisors[50][51] - As of March 31, 2022, 179,833 shares are issuable upon vesting of outstanding restricted stock units, and 625,071 shares are available for award issuances under the Incentive Plan[51] Compensation Costs Charged to Income (Three months ended March 31) | Award Type | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | ESPP | $185 | $181 | | Restricted stock and deferred restricted stock | $1,367 | $1,099 | | Total compensation costs charged to income | $1,552 | $1,280 | - Total unrecognized compensation costs for restricted and deferred restricted stock plans amounted to $7,618 thousand as of March 31, 2022, expected to be recognized over a weighted-average period of 2.14 years[55] Note 8. Segment and Non-Tariffed Business Reporting SJW Group reports financial information across two primary segments: Water Utility Services and Real Estate Services, with the former being the dominant contributor - SJW Group's reportable segments are Water Utility Services (including SJWC, Connecticut Water, CLWSC, Maine Water, and NEWUS) and Real Estate Services (SJW Land Company and Chester Realty, Inc.)[57] Operating Revenue by Segment (Three months ended March 31, 2022) | Segment | Regulated (in thousands) | Non-tariffed (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Water Utility Services | $120,518 | $2,428 | $122,946 | | Real Estate Services | — | $1,356 | $1,356 | | All Other | — | — | — | | SJW Group Total | $120,518 | $3,784 | $124,302 | Operating Income (Loss) by Segment (Three months ended March 31, 2022) | Segment | Regulated (in thousands) | Non-tariffed (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Water Utility Services | $19,067 | $(1,551) | $17,516 | | Real Estate Services | — | $447 | $447 | | All Other | — | $(1,374) | $(1,374) | | SJW Group Total | $19,067 | $(2,478) | $16,589 | Assets by Segment (as of March 31, 2022) | Segment | Regulated (in thousands) | Non-tariffed (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Water Utility Services | $3,403,006 | $4,139 | $3,407,145 | | Real Estate Services | — | $44,361 | $44,361 | | All Other | — | $60,370 | $60,370 | | SJW Group Total | $3,403,006 | $108,870 | $3,511,876 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Company Overview This section details SJW Group's structure and the operations of its key water utility and real estate subsidiaries, highlighting their service areas and customer bases - SJW Group is a holding company with five wholly-owned subsidiaries: SJWC, SJWNE LLC, SJWTX, Inc., SJW Land Company, and SJWTX Holdings, Inc[63] - SJWC provides water service to approximately 231,000 connections (1 million people) in the metropolitan San Jose, California area, including production, purchase, storage, purification, distribution, wholesale, and retail sale of water, and non-tariffed services[64] - CTWS serves approximately 140,000 connections (457,000 people) in 81 municipalities across Connecticut and Maine, and over 3,000 wastewater connections in Southbury, Connecticut[67] - SJWTX, Inc. (CLWSC) provides water service to approximately 24,000 connections (72,000 people) in a growing region between San Antonio and Austin, Texas[69] - SJW Land Company and Chester Realty, Inc. own undeveloped land and operate commercial buildings in Tennessee, California, and Connecticut[71] Business Strategy and Real Estate Services SJW Group's Water Utility Services strategy focuses on regional regulated and non-tariffed operations, while Real Estate Services manages income-producing properties for potential reinvestment - SJW Group's business initiatives for Water Utility Services focus on three strategic areas: 1. Regional regulated water utility operations 2. Regional non-tariffed water utility related services 3. Out-of-region water and utility related services[72][74] - The company considers opportunities to acquire businesses and assets as part of its strategy, acknowledging associated risks like integration costs, diversion of management resources, and potential negative financial impacts[72] - Real Estate Services, through SJW Land Company and Chester Realty, Inc., manages income-producing and other properties until a determination is made to reinvest proceeds from their sale[73] Critical Accounting Policies This section confirms no changes to SJW Group's critical accounting policies in Q1 2022, referring readers to the 2021 Annual Report for detailed descriptions - There have been no changes to SJW Group's critical or significant accounting policies during the three months ended March 31, 2022[76] - Detailed descriptions of critical and significant accounting policies are available in the company's 2021 Annual Report on Form 10-K[75][76] Results of Operations SJW Group's consolidated net income significantly increased in Q1 2022, driven by higher operating revenue from rate increases and customer growth, partially offset by increased operating expenses Overview of Results of Operations Consolidated net income for Q1 2022 increased by 43% year-over-year, primarily due to ongoing operations and a gain on the sale of nonutility property - Consolidated net income for the three months ended March 31, 2022, was $3,737 thousand, an increase of $1,121 thousand (43%) from $2,616 thousand in the same period of 2021[78] - The increase in net income includes $2,550 thousand from ongoing operations and a $4,240 thousand gain on the sale of nonutility property[78] - Offsetting factors included $1,867 thousand related to depreciation on Cupertino concession assets and $1,366 thousand for San Jose Water Company's settlement expenses and deferred tax true-ups[78] Operating Revenue Analysis Consolidated operating revenues increased by 8% year-over-year, primarily driven by rate increases, customer growth, and consumption changes in Water Utility Services Operating Revenue by Segment (Three months ended March 31) | Segment | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Water Utility Services | $122,946 | $113,441 | | Real Estate Services | $1,356 | $1,344 | | Total Operating Revenue | $124,302 | $114,785 | Change in Consolidated Operating Revenues (Three months ended March 31, 2022 vs. 2021) | Factor | Increase/(decrease) (in thousands) | % Impact | | :--- | :--- | :--- | | Consumption changes | $1,802 | 2% | | Increase in customers | $2,464 | 2% | | Rate increases | $5,163 | 5% | | Balancing and memorandum accounts | $803 | 0% | | Other regulatory mechanisms | $(826) | (1)% | | Other | $100 | 0% | | Real Estate Services | $11 | 0% | | Total Increase | $9,517 | 8% | Operating Expense Analysis Consolidated operating expenses increased by 6% year-over-year, mainly due to higher water production, administrative, and depreciation costs, partially offset by a gain on property sale Operating Expense by Segment (Three months ended March 31) | Segment | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Water Utility Services | $105,430 | $99,847 | | Real Estate Services | $909 | $881 | | All Other | $1,374 | $978 | | Total Operating Expense | $107,713 | $101,706 | Change in Consolidated Operating Expenses (Three months ended March 31, 2022 vs. 2021) | Factor | Increase/(decrease) (in thousands) | % Impact | | :--- | :--- | :--- | | Total water production expenses | $2,753 | 3% | | Administrative and general | $2,204 | 2% | | Balance and memorandum account cost recovery | $1,108 | 1% | | Maintenance | $430 | 0% | | Property taxes and other non-income taxes | $794 | 1% | | Depreciation and amortization | $4,168 | 4% | | Gain on sale of nonutility properties | $(5,450) | (5)% | | Total Increase | $6,007 | 6% | Sources of Water Supply SJWC's water supply mix is affected by California drought conditions, increasing reliance on purchased and surface water, while groundwater usage decreased - SJWC's water supply consists of imported water, groundwater from wells, surface water from watershed run-off, and reclaimed water, with surface water being the least expensive source[81] - California is experiencing a severe drought; Valley Water's reservoirs were at 25% capacity as of April 1, 2022, and State Water Project allocations were reduced to 5%[82] - SJWC's Lake Elsman volume was 108% of the five-year average, and Montevina Surface Water Treatment Plant production was 115% of the five-year average in Q1 2022[83] - Valley Water declared a water shortage emergency, prompting SJWC to activate Stage 3 of its Rule 14.1 Water Shortage Contingency Plan, imposing outdoor water usage restrictions[84] Change in Sources of Water Supply (Three months ended March 31) | Source | 2022 (million gallons) | 2021 (million gallons) | Increase/(decrease) | % of Total Change | | :--- | :--- | :--- | :--- | :--- | | Purchased water | 3,764 | 3,372 | 392 | 4% | | Groundwater | 3,858 | 4,603 | (745) | (7)% | | Surface water | 2,567 | 2,107 | 460 | 5% | | Reclaimed water | 125 | 85 | 40 | 0% | | Total | 10,314 | 10,167 | 147 | 2% | - CTWS's unaccounted-for water decreased from 16.2% in Q1 2021 to 13.9% in Q1 2022, while SJWC's remained at 7.2%[89][90] Water Production Expenses Water production expenses increased due to higher average per unit costs for purchased water, groundwater extraction, and energy charges, partially offset by increased surface water availability - Water production expenses increased primarily due to higher average per unit costs for purchased water, groundwater extraction, and energy charges[91] - Effective July 1, 2021, Valley Water increased the unit price of purchased water by approximately 9.5% and the groundwater extraction charge by approximately 9.1%[91] Other Operating Expenses Operating expenses, excluding water production, increased due to higher administrative and general expenses and depreciation/amortization, partially offset by a significant gain on property sale - Operating expenses (excluding water production) increased by $3,254 thousand in Q1 2022 compared to Q1 2021[92] - This increase was driven by $3,312 thousand in administrative and general expenses (labor and pension) and $4,168 thousand in depreciation and amortization[92] - The increase was partially offset by a $5,450 thousand gain on the sale of vacant land and nonutility property[92] Other (Expense) Income The change in other (expense) income was primarily due to increased interest on long-term debt and a decreased return from retirement plan assets, partially offset by pension non-service cost income - Other (expense) income was primarily impacted by an increase in interest on long-term debt and a decrease in return from retirement plan assets[93] - These negative impacts were partially offset by income generated from pension non-service cost and a decrease in interest on the line of credit[93] Provision for Income Taxes Income tax expense increased significantly in Q1 2022, resulting in a higher effective tax rate, mainly due to discrete tax expense items - Income tax expense increased by $1,963 thousand in Q1 2022 compared to Q1 2021[94] - The effective consolidated income tax rate was 22% in Q1 2022, compared to (52%) in Q1 2021, primarily due to discrete tax expense items[94] Regulation and Rates SJW Group's operating revenue is largely determined by state utility commissions, with several regulatory proceedings underway across its service areas impacting future rates and capital budgets - SJWC filed a General Rate Case (GRC) application in January 2021, requesting revenue increases for 2022-2024 and a $435,000 thousand capital budget, with a settlement proposing a $54,131 thousand revenue increase over three years and a $350,000 thousand capital budget filed in January 2022[96] - SJWC also filed an application to adjust its cost of capital, proposing an 8.11% rate of return and a 10.30% return on equity, with new rates anticipated in Q3 2022[97] - Connecticut Water received approval for a WICA surcharge of 2.44% effective January 1, 2022, generating $2,581 thousand in additional revenue, and a 2.85% WRA surcharge effective April 1, 2022, to collect a 2021 revenue shortfall[99][100] - CLWSC's Water Pass Through Charge (WPC) usage rate increased from $0.70 to $0.90 per thousand gallons effective March 1, 2022, due to under-collection and GBRA rate increases[102] - Maine Water received MPUC approval for a rate increase of $6,313 thousand (72.5%) for the Biddeford Saco Division, effective July 1, 2022, to support a new $60,000 thousand drinking water treatment facility[105] Liquidity SJW Group's liquidity improved in Q1 2022, with increased cash flow from operating activities, slightly reduced cash used in investing activities, and decreased cash provided by financing activities Cash Flow from Operating Activities Cash flow from operations increased by approximately $11,900 thousand in Q1 2022, driven by higher regulatory asset recognition, increased payments for accrued production costs, and funds from the California Water and Wastewater Arrearages Payment Program - Cash flows from operations increased by approximately $11,900 thousand, from $33,400 thousand in Q1 2021 to $45,300 thousand in Q1 2022[109] - Key drivers for the increase include a $6,900 thousand increase in regulatory assets, a $5,200 thousand increase in payments for accrued production costs, and $2,800 thousand from the California Water and Wastewater Arrearages Payment Program[109] - SJWC received $9,757 thousand through the California Water and Wastewater Arrearages Payment Program to relieve outstanding payment delinquencies for customer accounts[110] Cash Flow from Investing Activities Cash used in investing activities slightly decreased in Q1 2022, with company-funded capital expenditures being the primary use of cash, and significant capital expenditures anticipated over the next five years - Cash used in investing activities was approximately $49,400 thousand in Q1 2022, a decrease from $51,900 thousand in Q1 2021[111] - Company-funded capital expenditures accounted for $43,700 thousand of cash used in Q1 2022[111] - Water Utility Services' budgeted capital expenditures for 2022 are approximately $223,000 thousand, with $43,700 thousand (20%) invested as of March 31, 2022[112] - Over the next five years, Water Utility Services expects to incur approximately $1,300,000 thousand in capital expenditures for renewal and modernization of infrastructure[113] Cash Flow from Financing Activities Net cash provided by financing activities decreased significantly in Q1 2022, primarily due to lower proceeds from common stock equity offerings and new long-term debt compared to the prior year - Net cash provided by financing activities decreased by approximately $13,700 thousand in Q1 2022 compared to Q1 2021[115] - This decrease was primarily driven by a $67,200 thousand decrease in net proceeds from common stock equity offerings and a $17,000 thousand decrease in net proceeds from new long-term debt in the prior year[115] - Offsetting factors included a $66,600 thousand increase in net borrowings on lines of credit and a $1,200 thousand increase in dividends paid to stockholders[116] Sources of Capital SJW Group relies on internally generated funds and external financing for construction programs and dividend payments, maintaining various financing agreements and stable credit ratings Short-term Financing Agreements SJW Group and its subsidiaries utilize unsecured lines of credit for refinancing, working capital, and general corporate purposes, with total available credit of $260,000 thousand - SJW Group and its subsidiaries have unsecured line of credit agreements for refinancing existing debt, working capital, and general corporate purposes[118] Line of Credit Agreements (as of March 31, 2022) | Agreement | Maturity Date | Line Limit (in thousands) | Outstanding (in thousands) | Unused Portion (in thousands) | | :--- | :--- | :--- | :--- | :--- | | SJWC credit agreement | December 31, 2023 | $140,000 | — | $140,000 | | CTWS credit agreement | December 14, 2023 | $75,000 | $35,997 | $39,003 | | CTWS credit agreement | May 15, 2025 | $40,000 | $40,000 | — | | SJWTX, Inc. credit agreement | December 31, 2023 | $5,000 | — | $5,000 | | Total | | $260,000 | $75,997 | $184,003 | - The cost of borrowing on lines of credit averaged 1.64% during 2021[119] - As of March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants on their lines of credit[120] Long-term Financing Agreements SJW Group and its subsidiaries use long-term debt for refinancing, capital expenditures, working capital, and debt repayments, and were in compliance with all related covenants as of March 31, 2022 - Long-term debt activities are for refinancing short-term borrowings, funding capital expenditures and working capital, and repayments of maturing long-term debt[121] - As of March 31, 2022, SJW Group and its subsidiaries were in compliance with all covenants related to its long-term debt agreements[122] Equity Financing Arrangements SJW Group has an equity distribution agreement to sell up to $100,000 thousand of common stock through 'at-the-market' offerings, with $75,000 thousand remaining as of March 31, 2022 - SJW Group entered into an equity distribution agreement in November 2021 to sell up to $100,000 thousand of common stock through 'at-the-market' offerings[123] - As of March 31, 2022, $75,000 thousand remained on the Equity Distribution Agreement, and no shares were sold in the first quarter of 2022[123] - Proceeds from stock sales can be used for acquisitions, infrastructure improvements, capital expenditures, debt repayment, and working capital[123] Credit Rating SJW Group maintains stable credit ratings from Standard & Poor's, indicating continued access to external funding sources for its capital investment programs - SJW Group's ability to obtain financing is a risk, but the company believes it will have access to external funding sources for ongoing capital investment programs[124] Standard & Poor's Credit Ratings | Entity | Rating | Outlook | | :--- | :--- | :--- | | SJW Group | A- | Stable | | SJWC | A | Stable | | CTWS | A- | Stable | | Connecticut Water | A- | Stable | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Disclosures SJW Group is exposed to market risks from changes in interest rates, pension plan asset values, and equity prices, but does not use derivative financial instruments or have significant off-balance sheet risks - SJW Group is subject to market risks including changes in interest rates (from debt issuance and variable rate lines of credit), pension plan asset values, and equity prices[125] - Pension costs and funded status are affected by discount rates, mortality rates, investment returns, and pension reform legislation[125] - SJW Group has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk[126] ITEM 4. CONTROLS AND PROCEDURES Effectiveness of Disclosure Controls and Procedures SJW Group's management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting in Q1 2022 - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022[127] - They concluded that disclosure controls and procedures are designed and functioning effectively to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[127] - No material changes in internal control over financial reporting occurred during the first fiscal quarter of 2022[128] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SJW Group is involved in routine litigation but does not expect any pending legal proceedings to have a material impact on its business or financial position - SJW Group is subject to ordinary routine litigation incidental to its business[131] - There are no pending legal proceedings expected to have a material effect on SJW Group's business, financial position, results of operations, or cash flows[131] ITEM 1A. RISK FACTORS This section highlights the ongoing negative impact of the COVID-19 pandemic on SJW Group's business, including risks related to utility termination moratoriums, customer delinquencies, and supply chain disruptions - The COVID-19 pandemic continues to negatively impact SJW Group's business, financial condition, and results of operations[133] - Risks include reduced customer payment incentives/abilities due to past utility termination moratoriums, potential reinstatement of such orders, and decreased water usage by commercial customers[134] - Regulatory mechanisms for COVID-19 related expenses and revenue loss exist, but recovery is not guaranteed[135] - Company policies requiring employee vaccination (subject to exemptions) and related labor disputes (e.g., NLRB investigation with Utility Workers Union of America Local 259) may increase operating costs, cause labor disruptions, or employee attrition[136][137] - Additional risks include potential interruptions to infrastructure projects due to supply shortages or workforce disruptions, impact on employee health, and adverse effects from a recession or debt market disruptions[138][141] ITEM 5. OTHER INFORMATION This section announces the declaration of a regular quarterly dividend and provides links to SJW Group's and its subsidiaries' websites for additional information - On April 27, 2022, the Board of Directors declared a regular quarterly dividend of $0.36 per share of common stock, payable on June 1, 2022, to stockholders of record as of May 9, 2022[139] - SJW Group posts operating and financial performance information on its websites: www.sjwgroup.com, www.sjwater.com, www.ctwater.com, www.sjwtx.com, and www.mainewater.com[140](index=140&type=chunk) ITEM 6. EXHIBITS Exhibits List This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL-related documents List of Exhibits | Exhibit Number | Description | | :--- | :--- | | 31.1 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chairman, President and Chief Executive Officer | | 31.2 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer and Treasurer | | 32.1 | Certification Pursuant to 18 U.S.C. Section 1350 by Chairman, President and Chief Executive Officer | | 32.2 | Certification Pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer and Treasurer | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File | SIGNATURES Report Signatures This section contains the signature of the authorized representative of SJW Group, confirming the due filing of the report - The report was signed on April 29, 2022, by Andrew F. Walters, Chief Financial Officer and Treasurer, as the principal financial officer[147]