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Text: I will be presenting today with Eric Thornburg, Chairman of the Board, President and Chief Executive Officer.
For those who would like to follow along, slides accompanying our remarks are available on our website at www.
These statements are based on estimates and assumptions made by the Company in light of its experience, historical trends, current conditions and expected future developments as well as other factors that the Company believes are appropriate under the circumstances.
As we reflect on 2020, I'd like to begin by recognizing our nation's essential workers who are bravely serving us on the front lines during this extraordinary time.
From the public safety employees consisting of police, fire, emergency response, and healthcare professionals to our grocery store and other critical supply chain workers, they all deserve our recognition and appreciation for their dedicated service.
Our appreciation and recognition also extends to our 700 plus employees and their utility industry peers across the nation, who we consider to be essential as they continue to deliver safe and reliable service.
Our dedicated and passionate water professionals met the challenges of 2020 head on to provide a reliable supply of safe drinking water to more than 1.6 million people in our local service communities in California, Connecticut, Texas and Maine.
In my 38 years in this profession, it never mattered more.
So while COVID-19 dominated 2020, it did not dominate our people.
I'm especially proud of our teams and their commitment to protect the health of their customers, communities and coworkers.
They knew that delivering safe, clean drinking water to their customers and communities was essential to public health.
They developed protocols and procedures that protected their coworkers, so they can safely carry out their essential work.
And they did it by collaborating across our expanded national footprint to support each other and build on our strengths for the good of the entire organization.
And it also reminded us that human life is precious and fragile and that there is no higher calling than to serve others.
We also responded to the needs of customers and communities who were financially impacted by COVID-19.
Since the beginning of the pandemic, we've worked with customers throughout -- through our assistance programs to help them keep their accounts current and suspended shut offs for non-payment, consistent with each state's requirements.
And we increased our donations to local service organizations in 2020 to help them meet the basic needs of people in the community.
It is clear that our transformative combination with Connecticut Water Service, Incorporated in 2019 made for a stronger SJW Group in 2020, which benefited shareholders, customers and employees.
Our 2020 corporate sustainability report, coast to coast, documents our commitment to environmental, social and governance matters.
As that report was telling our story, the Company was recognized with prime status by ISS ESG.
Prime status is awarded to companies with an ESG performance above the sector-specific prime threshold where we were tied for the top ranking among US utilities.
We saw significant improvements in our environmental and social scores and ranked second among our utility industry peers for our combined environmental and social quality scores.
Our governance quality score was already at the highest level and placed us among the top within our industry.
We're especially proud of the human rights policy adopted by our Board in the fourth quarter.
The policy affirms our conviction, the human rights are fundamental rights, freedoms and standards of treatment to which all people are entitled.
It also reflects our values and commitment to diversity, equity and inclusion.
A team of employees with the full support of senior leaders and the Board serve on our national diversity, equity and inclusion council, DEI, to support and advocate for DEI initiatives.
We're also determined to be a force for good in the communities where we live, work and serve.
For example, in 2020, San Jose Water was responsible for $28.8 million of diverse supplier spend, representing 30.1% of our addressable spend there.
And following Connecticut Water's adoption of a supplier diversity plan in early 2020, both Texas and Maine approved formal plans later in the year that are being implemented in 2021.
We are fully committed to our diverse supplier program, and we'll continue to share our progress in the years to come.
Other highlights of 2020 include investing more than $199 million in our water and wastewater systems across our multistate footprint, achieving world-class customer satisfaction on a composite basis across the Company and another successful year of meeting drinking water and environmental regulations, delivering on our commitment to public health and environmental stewardship.
After Jim's remarks, I will address regulatory, water supply and other business matters.
Our 2020 operating results reflect our first full year of combined activity with CTWS.
One key attribute of our merger was the diversification we achieved by expanding our geographic footprint into New England.
The strength and importance of our diversification strategy were tested almost immediately by the drier than normal winter we experienced in our Northern California service area, severe weather events in our Texas and New England service areas and COVID-19 and its impact on our customers, operations and construction activities across the United States.
In each case, the impacts of these events on SJW Group's combined operating results were diminished due to our geographic diversification in the case of weather events and diversification of our regulatory and operating platforms in the case of COVID-19.
Diversification, coupled with our strong local operations, supported by our national framework enabled us to safely deliver water service to our customers and communities, protect our employees and deliver solid results for our shareholders.
Fourth quarter revenue was $135.7 million, a $9.9 million increase over reported fourth quarter 2019 revenue.
Net income for the quarter was $13.3 million or $0.46 per diluted share.
This compares with a net loss of $5.5 million or $0.19 per diluted share for the fourth quarter of 2019.
Diluted earnings per share for the quarter reflects lower CTWS merger expenses of $0.36 per share, higher customer usage of $0.22 per share and lower administrative and general expenses of $0.19 per share due to lower integration costs.
These increases were partially offset by an increase in production costs due to higher usage of $0.10 per share and a decrease of $0.05 per share due to lower local surface water availability in Northern California.
Turning to our comparative analysis for the quarter, our $9.9 million revenue increase was primarily due to increased customer usage of $6 million and $1.4 million in cumulative rate increases.
In addition, we recorded $2.8 million in customer rate credits in the fourth quarter of 2019 as a result of regulatory commitments we made in connection with the merger.
No such rate credits reoccurred in 2020.
Water production expenses increased $3.6 million compared to the fourth quarter of 2019.
The increase included $2.6 million in higher customer usage and $1.5 million for the purchase of additional water supply necessary to supplement California surface water.
Other operating expenses decreased $12 million during the quarter, primarily due to lower merger-related expenses of $9.7 million and lower general and administrative expenses of $5.1 million due to lower merger-related integration costs.
These decreases were partially offset by $2.5 million in higher depreciation expense.
The effective income tax rate for the fourth quarter was a negative 7% compared to 6% for the fourth quarter of 2019.
The effective tax rate decrease was primarily due to the capitalization of non-deductible merger expenses, which resulted in a decrease of tax benefits in 2019.
No similar tax benefit reduction occurred in 2020.
Turning to our annual results, 2020 revenue was $564.5 million, a 34% increase over the same period last year.
Net income in 2020 was $61.5 million or $2.14 per diluted share compared to $23.4 million or $0.82 per diluted share during the same period in 2019.
The change in diluted earnings per share for the year was due to many of the same factors noted for the quarter.
CTWS customer usage contributed $2.83 per share and customer usage from our other operations increased $0.59 per share.
Due to the timing of when the merger transaction closed in 2019, we only recorded $0.01 per share of earnings from CTWS in 2019.
As such, essentially all of CTWS 2020 customer usage is reflected as an increase as compared to the prior year.
In addition, 2019 non-recurring merger costs contributed $0.48 per share and the WCMA write-off in 2019 contributed $0.29 per share.
These increases were partially offset by increased production costs of $1.04 per share due to higher usage, a net increase in interest on long-term debt of $0.86 per share due primarily to merger-related debt, and 2020 note issuances and a decrease in local surface water availability in Northern California of $0.58 per share.
Our 2020 increase in revenue was primarily due to $111.2 million in increased customer usage, $12.2 million in cumulative rate increases and $2.7 million from new customers.
These increases were primarily the result of the addition of CTWS and higher usage due primarily to drier weather in our service areas.
Water production expenses increased $50 million in 2020.
The increase was primarily due to $33.9 million in higher customer water usage from the addition of CTWS and drier weather, and a $19 million increase due to lower surface water supplies.
This increase was partially offset by $3.4 million of increase in California cost recovery balancing and memorandum accountants.
Other operating expenses increased $33.9 million in 2020, primarily due to a $23.7 million increase in depreciation expense, $13.4 million in higher general and administrative expenses and $10.8 million in higher property and other non-income taxes.
The increases were primarily a result of the inclusion of CTWS operating activities.
In addition, in 2019, we incurred $15.8 million in merger expenses related to the merger transaction.
No similar expenses were incurred in 2020.
Other income and expense for the year included $13 million of new interest on SJW Group's $510 million senior notes, which were issued in October of 2019 and a $50 million senior note issued by SJW Group in August of 2020, as well as $8 million of interest expense on CTWS financings.
Other expense and income in 2019 included $6.5 million of interest income earned on the proceeds of the Company's December 2018 equity offering.
No similar income was earned in 2020.
Turning to our capital expenditure program, we added approximately $65 million in Company-funded utility plant in the fourth quarter of 2020, bringing total Company-funded additions to $199.3 million.
Our 2020 cash flows from operations decreased approximately $25.9 million over the same period in 2019.
The decrease was primarily due to the authorized collection of $45.3 million of balancing and memorandum accounts in 2019, a decrease in collections of previously billed and accrued receivables of $15 million, a decrease in other non-current assets and liabilities of $12.4 million and a $50 million upfront payment we made to the city of Cupertino in connection with our service concession agreement.
These decreases were partially offset by a $51.8 million increase in net income adjusted for non-cash items.
We continue to monitor customer payment activity at each of our four operating utilities.
And specifically, the impact COVID-19 is having on our customers' ability to remain current with their accounts.
In our Northern California service area, where we have seen the largest increase in past due accounts, the California Public Utilities Commission has authorized water utilities to activate their catastrophic emergency memorandum account or their SEMA.
The account track savings and costs from COVID-19 related activities as well as uncollectible account balances beyond the authorized bad debt in our most recent general rate case.
SJWC has determined that future recovery of the account is probable and recognized a regulatory asset of $2.3 million in the SEMA-related to COVID-19 for the year ended December 31, 2020.
At the end of 2020, we had $84.9 million available on our bank lines of credit for short-term financing of utility plant additions and operating activities.
The average borrowing rate on line of credit advances during 2020 was approximately 1.78%.
SJW Group continues to deliver on our core growth strategy of investing in high-quality water systems to provide safe and reliable water service to customers and communities and earning a fair return on those investments.
In the last decade alone, more than $1 billion has been invested in the local water systems of the communities that we serve.
It's well documented that our nation's water and wastewater systems are in need of significant investments.
Utility regulators have historically recognized this need and have enabled regulated water utilities to make such investments.
In 2021, SJW Group's subsidiaries plan to invest $239 million in infrastructure improvements to serve our customers in California, Connecticut, Maine and Texas.
Over $1 billion is planned across the organization over the next five years.
Accordingly, in January, both San Jose Water and Connecticut Water filed general rate cases.
San Jose Water's GRC application proposes a $435 million capital program for the years 2021 through 2023, supported by our award-winning enterprise asset management plan.
The process is expected to take about 12 months, and new rates are anticipated in January 2022.
California employs a future test year, and thus, the level of capital spend is authorized during each general rate case cycle.
Connecticut and Maine employ a historical test year, where capital investments and expenses are recovered after they have been incurred and subsequent general rate case filings.
Connecticut Water's GRC is the first it has filed since 2010.
A primary driver of the case is the $266 million in infrastructure investments that have been completed and are providing a benefit to customers but are not yet covered in rates.
The Connecticut Public Utilities Regulatory Authority, PURA is expected to issue a decision in Q3.
Earlier this year, PURA approved a 1.1% increase in infrastructure surcharges through the water infrastructure and conservation adjustment program, or WICA, this request covers $8.7 million in qualified infrastructure investments with incremental annual revenue of about $1 million.
It will become effective on April 1, 2021.
Maine Water received approval in December 2020 for infrastructure surcharge increases in five divisions for eligible projects through the water infrastructure surcharge program, or WISC.
The increases were effective on January 1, recognizing $3.5 million in critical infrastructure investments and increasing revenues by about $300,000.
These various filings include proposed capital investments that, over the long term, benefit customers, communities and shareholders as they enhance SJW's ability to deliver safe, high quality, and reliable water service while increasing rate base, the earnings engine for the Company.
In January 2021, San Jose Water, along with the three other Class A water utilities, requested a one-year deferment on their cost of capital filings, which would otherwise be due on May 1 of this year.
Postponing the filing for one more year would alleviate administrative processing costs on the utilities as well as the commission staff and provide relief for both commission and utility resources, already strained by numerous other proceedings and COVID-19.
We will let you know if the commission approves this request.
Turning to water supplies in California, we are seeing less precipitation than normal, both locally as well as in the Sierra Nevada Snowpack, California's largest reservoir.
The rainy season typically ends in late March, and we will have a complete picture of our supply status when we report Q1 earnings.
At that time, we also plan to issue 2021 guidance.
Difficult situation in Texas.
The combination of what has been described as a once in a century cold spell, coupled with an ice storm, a snowstorm, and rolling blackouts across the state has resulted in a real crisis affecting millions of people.
Our operation located in the fast-growing region in between Austin and San Antonio, serves 20,000 customer connections.
Like our utility peers, we've suffered significant operating challenges during the crisis, owing to energy disruptions, broken water mains and roads that have remained nearly impossible since Sunday.
We are focused on restoring normal service to our customers as rapidly as possible while protecting the safety of our employees.
If we're able to do that before other water utilities in the region, we will do our best to come to their aid as well.
Looking ahead, I remain optimistic about SJW Group's future success.
COVID-19 and our shared commitment to serving customers, communities and each other has brought our four companies together in a way that we would never have imagined a year ago.
Our geographic workforce and regulatory diversity has strengthened our Company and positioned us well for 2021 and beyond.
To achieve our goals, we are working diligently to support the growth of our Texas Water Utility, which has more than tripled in size through organic growth and acquisitions since 2006, increased our capital investments to deliver safe and reliable service to our local communities and grow the rate base for all of our operating entities and continue to seek acquisition opportunities that create value for our stakeholders.
The prudent management of our business and financial resources continues to be fundamental to our growth and ability to return capital to shareholders, demonstrating the Company's strong commitment to our shareholders in January 2021, the Board authorized a 6.3% increase in SJW Group's 2021 dividend to $1.36 per share as compared to the total dividends paid in 2020.
We're proud to have continuously paid a dividend for over 77 years and to have increased that annual dividend in each of the last 53 years, delivering value to our shareholders.
We look forward to working with commissioner Houck and her colleagues and their staff to address the many water-related issues facing California's regulated utilities.

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compname announces q4 earnings per share $0.46.
q4 earnings per share $0.46.
q4 revenue $135.7 million versus $125.8 million.

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