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Text: I will be presenting today with Eric Thornburg, chairman of the board, president and chief executive officer; and Andrew Walters, chief financial officer and treasurer.
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.
I'm Eric Thornburg, and it is my honor to serve as chair, president and CEO of SJW Group.
I'm pleased to report that 2021 was a strong year for SJW Group.
Our talented and passionate employees and leaders rose to the challenges, and positioned us well for 2022 and coming years.
We were solid in the key areas of our long-term growth strategy, delivering a reliable supply of high-quality water and world-class service to customers, investing in drinking water and wastewater systems to serve customers and communities and seeking a return of and on that investment, focusing on drinking water and wastewater continuing to acquire water and wastewater utilities, maintaining constructive relationships with our stakeholders and adding shareholder value through prudent growth.
In 2021, we delivered earnings of $2.03 per share, invested more than $230 million in our water and wastewater systems, successfully processed our general rate case in Connecticut, obtained approval for a Step 1 of a multiyear rate plan for the new water treatment facility in Maine, and grew our customer base in our Texas operation by 20% through acquisitions and organic growth.
In January of 2022, we reached a constructive settlement agreement with the Public Advocates Office and our California general rate case.
Our success has its roots in our culture of teamwork and service, and the commitment to excellence in environmental, social and governance strategies.
Our teams collaborate across our national footprint and are passionate about serving customers efficiently and sustainably.
We view all aspects of our operations, planning and construction through an ESG lens.
In 2021, we had an emphasis on supporting the drive of our people who understand our social and environmental responsibilities and wanna be a positive force for good in the communities where we live, work and serve.
We intend to emphasize this even more in 2022.
Our accomplishments have been recognized with prime status by ISS ESG.
Among our U.S. water utility peers, SJW Group is tied for the lead in overall social score from ISS, and tied for second in the overall environmental score.
The company has the best overall governance score possibly.
SJW Group's 2021 corporate sustainability report, which is now available on our website, demonstrates how ESG is reflected throughout our organization, our diversity equity inclusion efforts are a good example.
SJW Group has signed on to the CEO action for diversity and inclusion.
We embrace each person's unique background traits and personality so that they will bring their true selves to our teams.
We have a commitment to supplier diversity.
Our efforts in California were recognized by the Public Utilities Commission.
Veterans Magazine honored SJW as one of the nation's top supplier diversity programs in 2020.
With California as the model, programs have been implemented, and supplier diversity goals established for our operations in other states.
SJW Group also adopted a vendor code of conduct that applies our values across the supply chain.
Likewise, we've been committed to being responsible stewards of the environment by sustainably managing and protecting water resources, which is critical to maintaining adequate supplies of high-quality water.
We know that focusing on water resources is no longer enough.
That is why we've committed to reducing greenhouse gas emissions, 50% by 2030 when compared with a 2019 baseline, a science-based target that aligns with the Paris Agreement to limit the warming of the planet.
It's the right thing to do, and we will report on our progress.
We are seeing extreme weather across our operations.
A year ago, our Texas operation experienced ice, and prolonged temperatures below freezing causing widespread power and water outages.
In Connecticut this summer, we saw tropical storms and record rainfall.
In California, we experienced extreme dry conditions into last fall and the early part of 2022.
Precipitation in California has since we saw between above average and below average.
We plan to issue 2022 guidance after the rainy season has concluded on our first quarter financial results call.
There was enough precipitation in late 2021 to bring our Montevina drinking water treatment facility back online in mid-December 2021.
we're hopeful that California's reservoirs continue to replenish through the rainy season.
Our customers are still under a mandatory conservation order that requires a 15% reduction in water usage compared with 2019.
We will continue to promote water conservation aggressively in our California operations as long as necessary.
Water Conservation Memorandum and water conservation expense memorandum accounts have been established that allow for the potential future recovery of the revenue and expense impacts of such water use reductions.
We offer and actively promote financial assistance programs to customers in need.
Our utilities work with customers experiencing onetime or ongoing financial hardships through bill forgiveness, flexible payment arrangements and in California and Connecticut through our Water Rate Assistance Programs that provides a 15% reduction on water bills for income eligible customers.
SJW Group is also committed to ensuring that our customers are aware of state and federal assistance programs such as the federally funded Low Income Household Water Assistance Program.
In California, we applied for funds on behalf of our customers in need and received a check for almost $10 million from the California Water and Wastewater Arrearage Payment Program that will provide immediate relief for our customers who have been in arrears.
We believe that customer assistance programs and innovative rate-making are at the core of water equity.
Artificially keeping rates low by deferring investment is shortsighted, and it's unsustainable and does not really serve customers who all deserve quality water and service for the long term.
Our subsidiaries will continue to make investments in infrastructure so that customers at all income levels will have access to the high-quality and reliable water service they deserve.
Through prudent planning and rate-making, such as the low income rates, the cost and rate impacts of these investments will be incurred gradually so they could be managed more easily by the utility and customers.
Building and retaining our workforce of water professionals is also critical.
We invest in the training and development of our people so they can have rewarding careers at SJW Group utilities.
They are the foundation.
Our success is built on.
We strive to provide a safe and productive work environment, support the training and development of our teams and measure employee satisfaction and engagement through independent surveys.
Earlier this month, Connecticut Water was recognized as a top workplace in the United States, one of just 1,100 companies across the country to achieve that distinction.
And after Jim's remarks, we will address regulatory and other business matters.
Our 2021 operating results benefited from authorized rate increases in each of our four operating utilities.
These increases were offset by a decrease in customer usage, most notably in our California utility as a result of the drought emergency declarations by the state governor in Valley Water, our local wholesale water agency, as well as a decrease in the availability of surface water supplies in our California surface area.
In addition, we experienced higher general and administrative expenses, due primarily to rate case activity in three of our four water utilities, and increases in other operating costs.
Also, in the fourth quarter of 2021, we benefited from property sales in California and recorded a long-lived asset impairment in Texas that together provided a net benefit to our reported results.
Diversification, coupled with our strong local operations, and supported by our national framework, enable us to provide high-quality water and reliable water service to our customers and communities, protect our employees and deliver solid results for our shareholders.
Fourth quarter revenue was $139.7 million, a $4 million increase over reported fourth quarter 2020 revenue.
Net income for the quarter was $18 million or $0.60 per diluted share.
This compares with net income of $13.3 million or $0.46 per diluted share for the fourth quarter of 2020.
Diluted earnings per share for the quarter was primarily driven by cumulative rate increases of $0.34 per share, decreased production cost due to lower customer usage of $0.30 per share, the sale of nonutility property of $0.29 per share, and recognition of the impact of our California Water Conservation Memorandum Account, or our WCMA, of $0.12 per share.
These increases were offset by a decrease in customer usage of $0.40 per share, an increase in per unit production cost of $0.20 per share and the impairment of a long-lived asset of $0.09 per share.
In addition, in the fourth quarter of 2020, we recorded a tax benefit of $0.14 per share related to flow-through items and the impact of such items on lower fourth quarter pre-tax earnings.
No similar rate impact occurred in 2021 due to higher fourth quarter pre-tax income.
Turning to our comparative analysis for the quarter.
The $4 million increase in revenue was primarily due to $10 million in cumulative rate increases and $3.4 million in the recognition of balancing and memorandum accounts in California, which includes $3.2 million attributable to the WCMA.
These increases were partially offset by a $10.5 million decrease in customer usage.
The cumulative rate increases include the impact of final decisions on our general rate case and reconsideration proceeding in Connecticut, which we received at the end of July and November of 2021, respectively.
While these decisions occurred later in the year than we anticipated, when coupled with our WICA, or our WICA filing, that was approved by PURA in December of 2021.
Our Connecticut utility will benefit from an increase in our annual revenue requirement by approximately $9.9 million beginning January of 2022.
Water production expense decreased $1.8 million compared to the fourth quarter of 2020.
The decrease included $7.8 million due to lower customer usage partially offset by $5.3 million in higher average per unit water production cost.
Other operating expenses decreased $1.5 million during the quarter, primarily due to a gain on the sale of nonutility property of $7.5 million, partially offset by increased general and administrative expenses of $1.6 million and the recognition of an impairment on a long-lived asset of $2.2 million.
The increase in general and administrative expenses was primarily due to the cost of rate case proceedings in the three of our four operating utilities, as well as higher compensation, consulting and insurance costs.
The effective income tax rate for the fourth quarter was 15%, compared to net negative 7% for the fourth quarter of 2020.
The higher effective tax rate in 2021 was primarily due to the impact of flow-through items on the change in profit before income taxes as compared to 2020.
On November 17, 2021, SJW Group entered into an equity distribution agreement whereby the company may offer the sale of shares of its common stock from time-to-time in at-the-market offerings.
SJW Group sold and issued approximately 355,000 shares of common stock with a weighted average price of $70.4 per share, and received approximately $24 million in net proceeds under the agreement in 2021.
Proceeds from the sale of the shares were used to finance the acquisitions of Kendall West and Bandera East Water utilities in Texas, which closed on December 17, 2021.
On December 1, 2021, San Jose Water Company issued $50 million in its Series O senior notes.
The notes are unsecured, accrue interest at 3% and mature 30 years from the issue date.
In addition, on December 1, Connecticut Water Company issued $50 million of its Series 2021 Senior B notes.
These notes are also unsecured, accrue interest at 3.10%, and mature 30 years from the issue date.
Turning to our annual results.
2021 revenue was $573.7 million, a $9.2 million increase over the prior year.
Net income in 2021 was $60.5 million or $2.03 per diluted share, compared to $61.5 million or $2.14 per diluted share in 2020.
The change in diluted earnings per share for the year was due to many of the same factors noted for the quarter.
Cumulative rate increases contributed $0.86 per share, decreased production costs due to lower customer usage added $0.51 per share, and the sale of nonutility property contributed $0.28 per share.
In addition, various regulatory mechanisms and balancing and memorandum accounts added $0.21 per share, and the recognition of the California WCMA contributed $0.12 per share.
These increases were offset by a decrease in customer usage of $0.93 per share, a production cost price increase of $0.44 per share, and an increase in administrative and general expenses of $0.25 per share.
In addition, depreciation expense increased $0.20 per share.
California surface water production resulted in a decrease of $0.15 per share and the long-lived asset impairment in Texas decreased earnings by $0.08 per share.
The 2021 increase in revenue was primarily due to $25.2 million in cumulative rate increases, $2.5 million in the net recognition of certain regulatory mechanisms in Connecticut and Maine, and $3.9 million in the recognition of balancing and memorandum accounts in California, including $3.2 million attributable to the WCMA, and $2.9 million in revenue from new customers.
These increases were partially offset by $24.7 million in decreased customer usage.
Water production expenses increased $3.3 million in 2021.
The increase was primarily due to $11 million -- $11.6 million in higher average per unit water production cost, $3.9 million due to a decrease in surface water supply production, and a $1.3 million increase in California cost recovery balancing and memorandum accounts.
These increases were partially offset by $13.5 million in lower customer water usage.
Other operating expenses increased $12.4 million in 2021, primarily due to $7.6 million in higher general and administrative expenses, $5.1 million in increased depreciation and amortization expenses, and $3.9 million in higher maintenance costs.
As noted earlier, in the fourth quarter of 2021, we recognized an impairment on a long-lived asset of $2.2 million and a gain on the sale of nonutility property of $7.5 million.
The change in other income and expense for the year was primarily the result of the $3 million TWA holdback amount, which I discussed during our second quarter earnings call.
Turning to our capital expenditure program.
We added approximately $64.1 million in company-funded utility plant in the fourth quarter of 2021, bringing total company-funded additions to $233.9 million for the year.
Our 2021 cash flow from operations increased approximately $26 million over the same period in 2020.
The increase was primarily due to an increase in collections of previously billed and accrued receivables of $13 million, an increase in general working capital and net income adjusted for noncash items of $6.8 million and a $5.2 million decrease in the payment of amounts previously invoiced and accrued due to lower fourth quarter activity.
In addition, in 2020, we made a $5 million upfront service payment related to a concession agreement amendment that did not recur in 2021.
These increases were partially offset by an increase in the crude water production costs of $4 million.
At the end of 2021, we had $197 million available on our bank lines of credit for short-term financing of utility plant additions and operating activities.
The average borrowing rate on our 2021 line of credit advances was approximately 1.32%.
SJW Group continues to deliver on our core growth strategy of investing in high-quality water systems to provide high-quality water and reliable service to customers and communities and earn a fair return on those investments.
In 2022, SJW Group's subsidiaries plan to invest $223 million in infrastructure improvements to serve our customers in California, Connecticut, Maine and Texas, more than $1.3 billion in infrastructure investments as planned across the organization over the next five years.
Connecticut Water's 2021 GRC concluded in the fourth quarter in San Jose Water and the California Public Advocates Office have reached a settlement agreement that was filed with the California Public Utilities Commission last month.
Andrew Walters will discuss the results of the Connecticut case, the highlights of the settlement agreement in California and rate cases in Maine and our Texas growth story and provide an update on our California water supply.
Our board has authorized a $223 million capital spending plan for 2022.
Nearly half of it is allocated to pipeline replacement projects.
The plan includes budgeted investments of $115.1 million in California, $61.4 million in Connecticut, $21.8 million in Maine and $24.5 million in Texas.
San Jose Water Company's 2021 GRC application for new rates in 2022 through 2024 is pending before the CPUC.
The application seeks an increase of nearly $88 million in the revenue requirement over the three-year period, authorization of a $435 million capital budget over the three years, and recovery of $18.5 million from balancing and memorandum accounts.
SJWC filed for interim rates to be effective on January 1, 2022.
The settlement recognizes the need for continued investments in the water system to deliver high-quality and reliable service for customers and communities served.
Additionally, it further aligns authorized and capital -- authorized and actual consumption, particularly for business customers, addresses our water supply mix challenge and provides greater revenue recovery in the fixed charge.
A final decision is anticipated in the second quarter of 2022.
The 2022 through 2024 cost of capital proceeding for all Class A utilities is pending before the CPUC.
The application requests an increase in revenue to support a return on equity of 10.3%, an adjustment on the proposed capital structure of 54.55% equity and 45.45% debt, partially offset by a decrease in the cost of debt to 5.48%.
The decision is expected in the third quarter of 2022.
San Jose Water's advanced metering infrastructure application is pending before the CPUC, An all-party settlement agreement was submitted to the CPUC for adoption that would authorize infrastructure investment of $100 million over four years, outside of the capital budget requested in the GRC to deployment of AMI.
A final decision is anticipated in the second quarter of 2022.
In Connecticut, the Connecticut Public Utility Regulatory Authority issued a final decision in November of Connecticut Water Company's request for reconsideration, which was the last outstanding piece of the company's 2021 GRC.
The final decision allows CWC to increase annual revenues by an additional $2.1 million above the $5.2 million originally authorized in the July 28, 2021 GRC decision for a total of $7.3 million authorized through the GRC.
PURA also authorized a WICA of 2.44% effective on January 1, 2022.
The increase was for more than 2020 -- was more than $22 million in completed WICA projects, many of which were not considered by PURA in the GRC because of the deadline and the GRC proceeding for pro forma capital additions.
The new WICA is expected to generate $2.6 million in additional revenue.
Between July 2021 and January 22, the authorized revenue for CWC increased to $9.9 million through the GRC, request for reconsideration and the WICA filings.
Maine Water Company's previously received approval from the Maine Public Utilities Commission for an innovative REITs moving mechanism that provides a more gradual ramp to new rates, driven by the $60 million project to replace a 138-year-old treatment plant in the Biddeford/Saco division.
A supplemental rate application for $6.9 million is pending with the MPUC, which would be the second step in a multiyear rate plan for the project.
MWC has entered settlement discussions with the Office of Public Advocates on this application, and a decision is expected in the second quarter of 2022.
A third step filing associated with the new treatment facility is expected in the second half of 2022 following the completion of a new Saco River drinking water treatment facility.
Maine Water received MPUC approval for a 3% increase in WISC, effective January 1, 2022, for a $1.9 million infrastructure project in the Skowhegan division.
The company also expects that by March 1, 2022, it will have filed rate case applications in four of its divisions as required as a condition of settlement agreements for the 2019 Tax Cuts and Jobs Act order.
We continue to see a pipeline of growth opportunities at SJWTX, our Texas Water and Wastewater Utility.
In the fourth quarter, SJWTX closed on the acquisition of Kendall West and Bandera East Water and Wastewater Utilities.
The company also closed on the acquisition of Texas Country Water in January of 2022.
Combined, these completed acquisitions added nearly 1,800 service connections and expanded SJWTX's service area.
Overall, the company serves more than 24,000 service connections between Austin and San Antonio, and three of the five fastest-growing counties in the United States, which include Comal, Hays and Kendall Counties.
SJWTX has more than tripled its customer base over the past 15 years, providing service to about 70,000 people today.
With a diverse portfolio of water supplies, a growing wastewater business and continued additions to the customer base through organic growth and acquisitions, we remain optimistic about the prospects for SJWTX and its increased contributions to consolidated earnings.
Surface water supply in California improved in the fourth quarter.
As shown on the chart, we have experienced a significant increase in levels at our Elsman reservoir in the Santa Cruz Mountains due to higher-than-average rainfall in October and December, which allowed San Jose Water to put Montevina Water Treatment Plant back online in mid-December, as Eric mentioned earlier.
The current level at Elsman will support approximately 1.3 billion to 1.4 billion gallons in production during the balance of 2022.
For production year to date, water produced from San Jose Water Company's surface water supplies was approximately 350 million gallons, which was generally from runoff until recently supplemented by releases from Elsman.
While there has not been significant rainfall since December, the traditional rainy season continues through the end of March, which could positively impact the runoff and storage in 2022.
The prudent management of our business and financial resources continues to be fundamental with growth and our ability to return capital to shareholders, demonstrating the company's strong commitment to our shareholders.
In January of 2022, the board authorized a 5.9% increase in SJW Group's 2022 dividend to $1.44 per share as compared with the total dividends paid in 2021.
We are proud to have continuously paid a dividend for over 78 years, and have increased the annual dividend in each of the last 54 years, delivering value to our shareholders.
We look forward to working with the new commissioners and their staff to address the water-related issues facing California's regulated water utilities.
She has an impressive background of service and extensive experience with water and utilities.
Becky is the principal of an energy and water consulting company in Austin and past chair of the Public Utilities Commission of Texas.

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q4 revenue $139.7 million versus $135.7 million.
qtrly diluted earnings per share $0.60.

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