SJW Group Announces Deferral of San Jose Water Company’s Cost of Capital Filing to May 1, 2026

Rhea-AI Summary

SJW Group (NASDAQ: SJW) announced that its subsidiary, San Jose Water Company, along with three other California water utilities, received approval from the California Public Utilities Commission (CPUC) to defer their 2025 Cost of Capital (COC) filings to May 1, 2026. The company maintains a 9.81% return on equity (10.01% before a 20 basis point reduction related to the Water Conservation Memorandum Account).

The Water Cost of Capital Mechanism (WCCM) will remain active until January 1, 2027, allowing return on equity adjustments based on the Moody's Aa Utility Bond Index movements. The postponement follows a previous one-year deferment granted in February 2024 and aims to reduce administrative costs for both parties.

Positive

• Maintains stable 9.81% return on equity
• Cost reduction through administrative processing savings
• Continued flexibility through WCCM mechanism until 2027

Negative

• 20 basis point reduction in return on equity due to WCMA
• 15% voluntary water reduction requirement from wholesaler

Insights

Utility Regulatory Expert

This regulatory development for San Jose Water Company carries notable implications. The deferral of the Cost of Capital filing to 2026 effectively maintains the current 9.81% return on equity (post WCMA adjustment) for an extended period. The continuation of the Water Cost of Capital Mechanism (WCCM) until January 2027 provides a dynamic adjustment framework linked to the Moody's Aa Utility Bond Index, offering both protection and flexibility.

The regulatory efficiency gained through this deferral is substantial - reducing administrative burden while maintaining rate stability. The Water Conservation Memorandum Account (WCMA) mechanism, triggered by the 15% voluntary water reduction request, represents a prudent regulatory approach to balance conservation needs with financial stability. This regulatory framework effectively protects the utility's financial position during infrastructure-related conservation periods.

For a simplified explanation: Imagine a business being allowed to keep its current profit margins for an extra year, while having an automatic adjustment system that helps protect against major market changes. That's essentially what this regulatory decision provides to San Jose Water.

Financial Analyst

From a financial perspective, this regulatory decision provides valuable stability and predictability to SJW Group's earnings profile through 2026. The maintained 9.81% ROE (after the 20 basis point WCMA adjustment) represents a solid return level in the current utility sector environment. The continuation of the WCCM mechanism offers important protection against interest rate volatility, functioning as a natural hedge.

The administrative cost savings, while modest, contribute to operational efficiency. More importantly, the extended timeline provides better visibility for financial planning and capital allocation decisions. The WCMA mechanism effectively mitigates revenue risk during the mandated conservation period, protecting the company's financial stability during infrastructure improvements.

In simple terms: The company gets to maintain its current profit structure for longer, with built-in protections against market changes, while saving some money on paperwork. This creates a more stable and predictable financial environment through 2026.

• 9.81% return on equity, maintains 10.01% return on equity prior to 20 basis point reduction related to the Water Conservation Memorandum Account (WCMA)

• Timing for next cost of capital filing will be May 1, 2026, effective January 1, 2027

• Water Cost of Capital Mechanism (WCCM) remains in place until January 1, 2027
  

SAN JOSE, Calif., Jan. 16, 2025 (GLOBE NEWSWIRE) -- SJW Group (NASDAQ: SJW) announced today that its wholly owned subsidiary, San Jose Water Company, along with three other California water utilities (the “Joint Parties”) received a letter dated January 14, 2025, from the Executive Director of the California Public Utilities Commission (“CPUC”) granting the Joint Parties’ request to defer their scheduled 2025 Cost of Capital (“COC”) filings to May 1, 2026.

On December 18, 2024, the Joint Parties filed a request for a one-year postponement of their COC filings otherwise scheduled to be filed on May 1, 2025. Pursuant to the CPUC’s rate case plan, the Joint Parties are required to file their COC applications every three years. The last COC decision was issued on June 29, 2023. The Joint Parties requested an initial one-year deferment on December 15, 2023, which was granted by the CPUC on February 2, 2024, and the next filing was scheduled on May 1, 2025. Postponing the filing for one additional year alleviates administrative processing costs for both the Joint Parties and CPUC staff.

The deferral includes a provision that the WCCM remains in place until January 1, 2027. The WCCM allows the return on equity to adjust up or down in accordance with the movement in the Moody’s Aa Utility Bond Index.

The WCMA is a temporary revenue protection mechanism authorized by the CPUC due to a voluntary 15% water reduction request from San Jose Water’s water wholesaler because a large reservoir is offline for seismic dam improvements.

About SJW Group

SJW Group is among the largest investor-owned pure-play water and wastewater utilities in the United States, providing life-sustaining and high-quality water service to nearly 1.6 million people. SJW Group’s locally led and operated water utilities - San Jose Water Company in California, The Connecticut Water Company in Connecticut, The Maine Water Company in Maine, and SJWTX, Inc. (dba The Texas Water Company) in Texas - possess the financial strength, operational expertise, and technological innovation to safeguard the environment, deliver outstanding service to customers, and provide opportunities to employees. SJW Group remains focused on investing in its operations, remaining actively engaged in its local communities, and delivering continued sustainable value to its stockholders. For more information about SJW Group, please visit www.sjwgroup.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “estimates,” “anticipates,” “intends,” “seeks,” “plans,” “projects,” “may,” “should,” “will,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict.

These forward-looking statements involve a number of risks, uncertainties and assumptions including, but not limited to, the following factors: (1) the effect of water, utility, environmental and other governmental policies and regulations, including regulatory actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures, PFAS and other decisions; (2) changes in demand for water and other services; (3) unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage; (4) the effect of the impact of climate change; (5) unexpected costs, charges or expenses; (6) our ability to successfully evaluate investments in new business and growth initiatives; (7) contamination of our water supplies and damage or failure of our water equipment and infrastructure; (8) the risk of work stoppages, strikes and other labor-related actions; (9) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic, or similar occurrences; (10) changes in general economic, political, business and financial market conditions; (11) the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness, and general market and economic conditions; and (12) legislative, and general market and economic developments. The risks, uncertainties and other factors may cause the actual results, performance or achievements of SJW Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results, performance or achievements are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of future performance, and speak only as of the date made, and SJW Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Media Contact:

John B. Tang
Vice President of Regulatory Affairs
408.279.7933
John.Tang@sjwater.com

Liann Walborsky
Director of Corporate Communications
408.918.7247
Liann.Walborsky@sjwater.com

Investor Relations Contact:

Daniel J. Meaney
Director of Investor Relations
860.664.6016
Daniel.Meaney@ctwater.com

FAQ

When will SJW Group's next cost of capital filing take place?

SJW Group's next cost of capital filing will take place on May 1, 2026, effective January 1, 2027.

What is SJW Group's current return on equity after the WCMA reduction?

SJW Group's return on equity is 9.81%, after a 20 basis point reduction from 10.01% due to the Water Conservation Memorandum Account.

How long will SJW's Water Cost of Capital Mechanism (WCCM) remain in effect?

The WCCM will remain in effect until January 1, 2027.

What is the water reduction requirement for San Jose Water Company?

San Jose Water Company faces a voluntary 15% water reduction request from its water wholesaler due to a large reservoir being offline for seismic dam improvements.

When was SJW Group's last Cost of Capital decision issued?

SJW Group's last Cost of Capital decision was issued on June 29, 2023.