10-K: SJW Group's 2024 Annual Report: Rate Hikes Drive Income Growth Amid Regulatory Landscape

• SJW Group's net income for 2024 increased to $93.967 million, up from $84.987 million in 2023.
• The increase was primarily due to rate increases in California and Connecticut, higher customer usage, and lower income tax expense.
• These gains were partially offset by higher water production expenses, administrative costs, and depreciation.
• The company's capital expenditures for 2024 totaled $353.029 million, with plans for approximately $451 million in 2025.
• SJW Group's water supply sources include groundwater, surface water, reclaimed water, and purchased water, with efforts to manage water resources and comply with environmental regulations.
• The company is addressing PFAS regulations with estimated capital expenditures of $300 million for treatment.
• SJW Group is pursuing a business strategy focused on regional regulated water utility operations, non-tariffed services, and out-of-region opportunities.
• The company faces regulatory risks, water supply challenges, and potential impacts from climate change and cybersecurity threats.

Score: 7

Explanation: The document presents a balanced view with positive financial results but also acknowledges risks and challenges. The outlook is cautiously optimistic.

• Net income increased by 11% in 2024, driven by rate increases and higher customer usage.
• The company is actively managing its water resources and complying with environmental regulations.
• SJW Group is pursuing a business strategy focused on growth and diversification.
• The company has a long history of paying dividends, with annual increases for the past 57 years.

• Higher water production expenses, administrative costs, and depreciation partially offset income gains.
• The company faces regulatory risks and potential impacts from climate change and cybersecurity threats.
• SJW Group has incurred substantial additional indebtedness, which may reduce business flexibility.
• The company's business is concentrated in California and Connecticut, making it susceptible to adverse developments in those states.

• Regulatory changes and delays in rate approvals could negatively affect operating results.
• Water supply shortages and contamination events could disrupt operations and increase costs.
• Cybersecurity breaches and system malfunctions could expose the company to liability and disrupt business operations.
• Climate change and environmental regulations could increase operating costs and capital expenditures.
• The company's indebtedness could reduce business flexibility and increase borrowing costs.

SJW Group expects to meet customer demand for 2025 with its existing water supply and plans significant capital investment in transmission main and storage facilities. TWC expects to receive the final approval from the PUCT in the first half of 2025.

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

• The report mentions a Water Utility Index prepared by Wells Fargo Securities, LLC, but does not provide specific comparisons to other companies in the index.
• The report does not provide specific comparisons to other companies in the industry.

• Customers: Rate adjustments and water quality compliance affect customer costs and service.
• Employees: Employee safety, engagement, and fair wages are key priorities.
• Shareholders: Financial performance and dividend policy impact shareholder value.
• Communities: The company is dedicated to the people and the environment of the communities where we live, work, and serve.

• Continue to implement capital investment programs.
• Monitor and comply with environmental regulations, including PFAS standards.
• Pursue strategic business combinations and acquisitions.
• Manage water resources and address long-term water supply challenges.

• CWC is a defendant in a putative class action lawsuit alleging that the water provided by CWC contained contaminants.
• SJWC and CWC are plaintiffs in a lawsuit against manufacturers of certain PFAS compounds for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS compounds in public water supply systems owned and operated by these utility subsidiaries and throughout their respective service areas.

• The Force for Good Foundation, established in 2024, is a non-consolidated not-for-profit corporation funded by SJW Group that plans to make contributions to selected charitable organizations.

• 1866: San Jose Water Company (SJWC) was originally incorporated.
• 1974: Connecticut Water Service, Inc. was incorporated.
• 1985: SJW Group was initially incorporated as SJW Corp. in California.
• 2019: SJWNE LLC was formed to hold SJW Group's investment in Connecticut Water Service, Inc.
• 2021: SJWTX Holdings, Inc., a Texas corporation, was formed.
• 2024-01-01: Adjusted equity of 10.01% for SJWC, a cost of debt of 5.28%, and a resulting authorized rate of return of 7.86%.
• 2024-01-02: SJWC filed General Rate Case Application No. 24-01-001 with the CPUC.
• 2024-01-26: CWC filed for a WICA increase of $3.3 million in annualized revenues for $27.8 million in completed projects.
• 2024-01-28: CWC filed its 2024 WICA reconciliation with PURA.
• 2024-01-28: CWC filed for a WICA increase of $1.6 million in annualized revenues for $15.7 million in completed projects.
• 2024-02-24: CWC filed its 2024 WRA.
• 2024-02-26: CWC filed its 2023 WICA reconciliation with PURA.
• 2024-03-21: The PUCT filed the final order approving TWCs request to implement its SIC which applies to certain customers.
• 2024-06-14: SJWC notified the CPUC that it had reached an all-party settlement agreement in principle with the Public Advocates Office and Water Rate Advocates for Transparency, Equity and Sustainability, also known as WRATES, in its 2025 through 2027 general rate case application on all but two policy issues.
• 2024-06-21: CWC submitted an application to PURA for the approval to issue unsecured notes in an amount of up to $150.0 million.
• 2024-06-28: PURA issued a final decision authorizing an increase in annual revenues of $6.5 million, or 5.5%, with the ability to earn additional revenue of $1.1 million through the annual WRA filing for achievement of certain performance metrics.
• 2024-07-01: New rates became effective on July 1, 2024.
• 2024-07-26: CWC filed for a WICA increase of $4.3 million in annualized revenue for $41.9 million in completed infrastructure projects.
• 2024-08-14: PURA approved the application on August 14, 2024.
• 2024-09-12: TWC filed its application to amend its SIC with the PUCT under Docket No. 56974.
• 2024-10-01: Effective October 1, 2024, the cumulative WICA surcharge is 3.43%.
• 2024-10-14: The PUCT notified TWC that the filing was administratively complete in order to establish a procedural schedule.
• 2024-10-25: MWC filed an application with MPUC to adjust customer rates in the Camden Rockland division.
• 2024-10-29: SJW Group entered into an equity distribution agreement (the New Equity Distribution Agreement) with BofA Securities, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC.
• 2024-12-18: 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, 2025.
• 2024-12-19: The CPUC approved the settlement agreement, but denied SJWCs request with respect to the two policy issues not resolved in the settlement agreement through Decision No. 24-12-077.
• 2024-12-20: SJWC filed Advice Letter No. 613 to increase authorized revenue requirement by $21.3 million, or 3.91%, and implement new water rates and recover $15.8 million in memorandum and balancing accounts in accordance with Decision No. 24-12-077.
• 2024-12-31: MWC filed for a unified tariff across its 10 separate rate divisions.
• 2025-01-01: This filing was approved with an effective date of January 1, 2025.
• 2025-01-05: TWC filed an application with the PUCT to acquire the 3009 Water Company LLC water system.
• 2025-01-14: The request was approved on January 14, 2025.
• 2025-01-28: CWC filed its 2024 WICA reconciliation with PURA.
• 2025-01-28: CWC filed for a WICA increase of $1.6 million in annualized revenues for $15.7 million in completed projects.
• 2025-02-24: TWC terminated the agreement since the seller was not able to meet the requirements of the related purchase and sale agreement.
• 2025-02-24: CWC filed its 2024 WRA.
• 2025-02-26: SJW Groups Board of Directors (the Board) appointed Andrew F. Walters, who currently serves as Chief Financial Officer and Treasurer of SJW Group as the companys next Chief Executive Officer, effective July 1, 2025.
• 2028-03-21: TWC is required to file a general rate case on or before March 21, 2028.